General Steel (GSIH) 10-Q 2008 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2008

Commission File Number 333-105903

General Steel Holdings, Inc.

(Exact name of registrant as specified in its charter)

Nevada (State or other Jurisdiction of Incorporation or Organization) 412079252 (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 Office, Including Zip Code)

+86(10)58797346

(Registrant's Telephone Number, Including Area Code)

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

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 o Accelerated filer o Non-accelerated filer ý Smaller reporting company o

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

As of May 15, 2008, 34,948,765 shares of common stock, par value $0.001 per share, were issued and outstanding.

Table of Contents

	Page
Part I: FINANCIAL INFORMATION:
Item 1. Financial Statements.	2
Consolidated Balance Sheets as of March 31, 2008 (Unaudited) and December 31, 2007	2
Consolidated Statements of Income and Other Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2008 and 2007	3
Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three Months Ended March 31, 2008 and 2007	4
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2008 and 2007	5
Notes to Consolidated Financial Statements (Unaudited)	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	38
Item 3. Quantitative and Qualitative Disclosures About Market Risks.	53
Item 4T. Controls and Procedures	53
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.	54
Item 1A. Risk Factors	54
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	63
Item 3. Defaults Upon Senior Securities	64
Item 4. Submission of Matters to a Vote of Security Holders	64
Item 5. Other Information	64
Item 6—Exhibits	65
Signatures	66

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2008 AND DECEMBER 31, 2007

ASSETS
	March 31,			December 31,
	2008			2007
	(Unaudited)
CURRENT ASSETS:
Cash	$	13,247,096		$	43,713,346
Restricted cash		47,482,412			8,391,873
Accounts receivable, net of allowance for doubtful accounts of $270,235
and $148,224 as of March 31, 2008 and December 31, 2007, respectively		13,079,339			11,225,678
Accounts receivable - related parties		14,682,192			565,631
Notes receivable		18,569,839			4,216,678
Notes receivable - restricted		4,359,863			12,514,659
Short term loan receivable - related parties		1,285,200			1,233,900
Other receivables		786,133			1,280,853
Other receivables - related parties		2,144,266			1,913,448
Dividend receivable		613,719			-
Inventories		100,804,450			77,928,925
Advances on inventory purchases		57,775,966			58,170,474
Advances on inventory purchases - related parties		37,496,745			9,944,012
Prepaid expenses - current		1,239,190			1,059,866
Prepaid expenses related party - current		51,408			49,356
Deferred tax assets		637,598			399,751
Deferred notes issuance cost		5,120,152			3,564,546
		319,375,568			236,172,996
PLANT AND EQUIPMENT, net		255,879,989			218,263,367
OTHER ASSETS:
Advances on equipment purchases		347,848			742,061
Investment in unconsolidated subsidiaries		9,666,132			822,600
Prepaid expenses - non current		522,193			506,880
Prepaid expenses related party - non current		244,188			142,467
Intangible assets, net of accumulated amortization		22,575,599			21,756,709
Total other assets		33,355,960			23,970,717
Total assets	$	608,611,517		$	478,407,080
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	129,291,728		$	102,241,708
Accounts payable - related parties		7,795,581			14,302,738
Short term loans - bank		93,131,304			93,019,608
Short term loans - others		34,896,184			19,156,070
Short term loans - related parties		-			7,317,027
Short term notes payable		75,327,000			15,163,260
Employee loans		2,356,200			-
Other payables		3,754,540			3,343,684
Other payable - related parties		21,171			2,126,383
Accrued liabilities		7,164,386			5,248,863
Customer deposits		60,883,030			37,872,698
Customer deposits - related parties		-			9,211,736
Deposits due to sales representatives		2,734,620			3,068,298
Taxes payable		22,404,489			27,576,240
Investment payable		6,854,400			6,580,800
Distribution payable to minority shareholder		2,330,858			2,820,803
Total current liabilities		448,945,491			349,049,916
NOTES PAYABLE, net of debt discount $33,861,956		6,138,044			5,440,416
DERIVATIVE LIABILITIES		25,812,545			28,483,308
MINORITY INTEREST		65,701,909			42,044,266
SHAREHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899 shares
issued and outstanding		3,093			3,093
Common Stock, $0.001 par value, 200,000,000 shares authorized, 34,861,365 and
34,634,765 shares (including 1,176,665 redeemable shares) issued and outstanding
as of March 31, 2008 and December 31, 2007, respectively		34,861			34,635
Paid-in-capital		25,541,882			23,429,153
Retained earnings		24,527,303			22,686,590
Statutory reserves		3,980,072			3,632,325
Contribution receivable		(959,700	)		(959,700	)
Accumulated other comprehensive income		8,886,017			4,563,078
Total shareholders' equity		62,013,528			53,389,174
Total liabilities and shareholders' equity	$	608,611,517		$	478,407,080

The accompanying notes are an integral part of these consolidated financial statements.

2

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)

	2008			2007
REVENUES	$	178,492,167		$	37,607,971
REVENUES - RELATED PARTIES		113,073,832			-
TOTAL REVENUES		291,565,999			37,607,971
COST OF SALES		166,714,663			35,874,966
COST OF SALES - RELATED PARTIES		111,869,221			-
TOTAL COST OF SALES		278,583,884			35,874,966
GROSS PROFIT		12,982,115			1,733,005
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		6,532,821			630,200
INCOME FROM OPERATIONS		6,449,294			1,102,805
OTHER EXPENSE, NET		2,366,155			220,676
INCOME BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST		4,083,139			882,129
PROVISION FOR INCOME TAXES
Current		666,356			127,270
Deferred		(216,533	)		-
Total provision for income taxes		449,823			127,270
NET INCOME BEFORE MINORITY INTEREST		3,633,316			754,859
LESS MINORITY INTEREST		1,444,856			279,994
NET INCOME		2,188,460			474,865
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustments		4,322,939			223,551
COMPREHENSIVE INCOME	$	6,511,399		$	698,416
WEIGHTED AVERAGE NUMBER OF SHARES
Basic		34,836,394			31,320,251
Diluted		34,923,614			31,320,251
EARNING PER SHARE				��
Basic	$	0.063		$	0.015
Diluted	$	0.063		$	0.015

The accompanying notes are an integral part of the consolidated financial statements.

3

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

																			Accumulated
	Preferred stock				Common stock						Retained earnings								other
									Paid-in		Statutory					Subscriptions			comprehensive
	Shares		Par value		Shares		Par value		capital		reserves		Unrestricted			receivable			income		Totals
BALANCE, January 1, 2007		-	$	-		31,250,000	$	31,250	$	6,871,358	$	1,107,010	$	4,974,187		$	-		$	1,076,688	$	14,060,493
Net income														474,865								474,865
Common stock issued for conversion of
redeemable stock, $1.95/share						176,665		177		344,328												344,505
Common stock issued for service, $1.32/share						18,000		18		23,742												23,760
Foreign currency translation adjustments																				223,551		223,551
BALANCE, March 31, 2007, unaudited		-	$	-		31,444,665	$	31,445	$	7,239,428	$	1,107,010	$	5,449,052		$	-		$	1,300,239	$	15,127,174
Net income														21,951,056								21,951,056
Adjustment to statutory reserve												2,525,315		(2,525,315	)							-
Registered Capital to be received from																						-
Baotou Steel by 05/21/09																	(959,700	)				(959,700	)
Common stock issued for acquisition net of dividend																						-
distribution to Tianjin Victory New		3,092,899		3,093						8,370,907				(2,188,203	)							6,185,797
Conversion of redeemable stock, $1.95						1,000,000		1,000		1,948,992												1,949,992
Conversion of warrants, $2.50						2,120,000		2,120		5,297,880												5,300,000
Common stock issued for compensation, $8.16						70,100		70		571,946												572,016
Foreign currency translation gain																				3,262,839		3,262,839
BALANCE, December 31, 2007		3,092,899	$	3,093		34,634,765	$	34,635	$	23,429,153	$	3,632,325	$	22,686,590		$	(959,700	)	$	4,563,078	$	53,389,174
Net income														2,188,460								2,188,460
Adjustment to statutory reserve												347,747		(347,747	)							-
Common stock issued for compensation, $8.16						76,600		77		548,379												548,456
Common stock issued for compensation, $10.43						150,000		150		1,564,350												1,564,500
Foreign currency translation adjustments																				4,322,939		4,322,939
BALANCE, March 31, 2008, unaudited		3,092,899	$	3,093		34,861,365	$	34,861	$	25,541,882	$	3,980,072	$	24,527,303		$	(959,700	)	$	8,886,017	$	62,013,528

The accompanying notes are an integral part of the consolidated financial statements.

4

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

(UNAUDITED)

	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,188,460		$	474,865
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Minority interest		1,444,856			279,994
Depreciation		4,499,873			561,709
Amortization		205,146			76,524
Loss on disposal of equipment		9,492			-
Stock issued for services and compensation		548,456			23,760
Interest expense accrued on mandatory redeemable stock		-			114,726
Amortization of deferred note issuance cost		8,894			-
Amortization of discount on convertible notes		697,628			-
Change in fair value of derivative instrument		(2,670,763	)		-
Deferred tax assets		(216,533	)		-
Changes in operating assets and liabilities
Accounts receivable		(1,459,682	)		5,898,381
Accounts receivable - related parties		7,631,355			-
Notes receivable		(13,832,292	)		(1,517,176	)
Notes receivable- restricted		8,491,027			-
Other receivables		1,533,823			82,939
Other receivables - related parties		(148,056	)		333,000
Inventories		(17,647,149	)		(1,760,231	)
Advances on inventory purchases		6,516,616			(11,340,142	)
Advances on inventory purchases - related parties		(26,563,452	)		-
Prepaid expense - current		(132,390	)		(123,161	)
Prepaid expense - non current		5,639			-
Prepaid expense - non current - related parties		(93,765	)		-
Accounts payable		11,144,259			1,951,381
Accounts payable - related parties		(6,951,111	)		-
Other payables		(2,579,136	)		(275,480	)
Other payable - related parties		(2,118,101	)		-
Accrued liabilities		522,377			(41,648	)
Customer deposits		20,885,570			1,631,391
Customer deposits - related parties		(9,391,133	)		-
Taxes payable		(9,585,924	)		783,398
Net cash used in operating activities		(27,056,016	)		(2,845,770	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired from subsidiary		702,237			-
Deposits due to sales representatives		(451,457	)		(411,542	)
Advance on equipment purchases		416,045			-
Equipment purchases		(28,097,609	)		(126,928	)
Intangible assets purchases		143,465			-
Net cash used in investing activities		(27,287,319	)		(538,470	)
CASH FLOWS FINANCING ACTIVITIES:
Restricted cash		(33,726,504	)		(2	)
Borrowings on short term loans - bank		24,893,037			8,785,581
Payments on short term loans - bank		(28,568,988	)		(7,495,481	)
Borrowings on short term loans - related parties		6,168,050			-
Payments on short term loans - related parties		(5,153,320	)		-
Borrowings on short term loan - others		23,147,344			-
Payments on short term loans - others		(16,733,731	)		-
Borrowings on short term notes payable		62,896,500			1,161,090
Payments on short term notes payable		(11,614,887	)		(1,161,090	)
Borrowings on employee loans		2,306,205			-
Payment to minority shareholders		(594,336	)		-
Net cash provided by financing activities		23,019,370			1,290,098
EFFECTS OF EXCHANGE RATE CHANGE IN CASH		857,715			60,407
DECREASE IN CASH		(30,466,250	)		(2,033,735	)
CASH, beginning of year		43,713,346			6,831,550
CASH, end of year	$	13,247,096		$	4,797,815

The accompanying notes are an integral part of the consolidated financial statements.

5

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Note 1 - Background

General Steel Holdings, Inc. (the “Company”) was incorporated on August 5, 2002 in the state of Nevada. The Company through its 100% owned subsidiary, General Steel Investment operates a portfolio of Chinese steel companies serving various industries. The Company presently has three production subsidiaries: Daqiuzhuang Metal, Baotou Steel - General Steel Special Steel Pipe Joint Venture Co., Ltd., (“Baotou Steel Pipe Joint Venture”) and Shaanxi Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”). The Company’s main products include rebar, hot-rolled carbon and silicon sheets and spiral-weld pipes.

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

  

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 September 28, 2005 Joint Venture Agreement ("Original Joint Venture Agreement") which established Baotou Steel Pipe Joint Venture, a PRC limited liability company. The Agreement increased Daqiuzhuang Metal's ownership interest in the Joint Venture to 80%. Baotou Steel Pipe Joint Venture obtained its business license from the PRC 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 in Kundulun District, Baotou city, Inner Mongolia, China. It produces and sells spiral welded steel pipes and primarily serves customers in the oil, gas and petrochemical markets.

6

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

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, Zuosheng Yu (aka Henry Yu), to acquire Victory New’s 30% interest in Tianjin Daqiuzhuang Metal Sheet Co. Ltd. (“Daqiuzhuang Metal”). General Steel agreed to issue to Victory New an aggregate of 3,092,899 shares of Series A preferred stock with a fair value of $8,374,000, and voting power of 30% of the combined voting power of General Steel’s common and preferred stock while outstanding. As a result of the acquisition, Daqiuzhuang Metal is a wholly owned subsidiary of the Company. See details in Note 19 - Business combinations.

On May 18, 2007, Daqiuzhuang Metal established Yangpu Shengtong Investment Co., Ltd. (“Yangpu Investment”) and injected registered capital totaling RMB100,000,000, or approximately $13,030,000, into the investment. The total registered capital of Yangpu Investment is RMB110,000,000, or approximately $14,333,000, and Daqiuzhuang Metal has a 99.1% ownership interest in Yangpu Investment. The rest of Yangpu Investment is indirectly owned by Zuosheng Yu, our Chairman and CEO.

Qiu Steel Investment Co., Ltd. (“Qiu Steel Investment”) was founded on June 1, 2006. In June 2007, Yangpu Investment agreed to invest RMB148,000,000, or approximately $19,284,400, through a capital injection and equity transfer with former shareholders. The total registered capital of Qiu Steel Investment is RMB150,000,000, or approximately $19,545,000. As a result of the above mentioned equity transaction, Yangpu Investment acquired 98.7% equity of Qiu Steel Investment making Qiu Steel Investment a subsidiary of Yangpu Investment and Daqiuzhuang Metal. The rest of Qiu Steel Investment is indirectly owned by Zuosheng Yu, our Chairman and CEO.

Yangpu Investment and Qiu Steel Investment are Chinese registered limited liability companies formed to acquire other businesses.

On June 15, 2007, General Steel and Shaanxi Longmen Iron and Steel (Group) Co., Ltd., a PRC limited liability company (“Longmen Group”), formed Longmen Joint Venture effective June 1, 2007. General Steel contributed RMB300 million or approximately $39,450,000 through its subsidiaries, Daqiuzhuang Metal and Qiu Steel Investment, to the Longmen Joint Venture. General Steel and Longmen Group own a 60% and 40% ownership interest, respectively, in Longmen Joint Venture. The Longmen Joint Venture obtained its business license from the PRC on June 22, 2007. See more discussion in Note 19 - Business combinations.

Longmen Joint Venture is located in Hancheng city, Shaanxi province, China. Longmen Joint Venture is the largest integrated steel producer in Shaanxi province that uses iron ore and coke as primary raw materials for steel production. Longmen Joint Venture produces pig iron, crude steel, reinforced bars and high-speed wire. Longmen 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 Hancheng city and primarily serve regional customers in the construction industry.

On September 24, 2007, Longmen Joint Venture acquired 74.92% ownership interest in Environmental Protection Industry Development Co., Ltd., a PRC limited liability company (“EPID”) engaging in recycling steel production waste, for RMB18,080,930, approximately $2,380,000, and a 36% equity interest in Hualong Fire Retardant Materials Co., Ltd., a PRC limited liability company (“Hualong”) engaging in producing fire retardant material for steel production, for RMB3,287,980, approximately $430,000. The parties agreed to make the effective date of the transaction July 1, 2007.

7

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

On January 14, 2008, the Company through Longmen Joint Venture, completed its acquisition of a controlling interest in Hancheng Tongxing Metallurgy Co., Ltd. (“Tongxing”). The joint venture contributed its land use right of 217,487 square meters (approximately 53 acres) with appraised value of approximately $4.1 million (or RMB30,227,333). Pursuant to the agreement, the land will be converted into shares valued at approximately $3.1 million (RMB22,744,419), providing the Joint Venture stake of 22.76% ownership in Tongxing and making it Tongxing’s largest and controlling shareholder. The parties agreed to make the effective date of the transaction January 1, 2008. The acquisition is accounted for as acquisition under common control. See more detail in Note 19 - Business combinations.

Note 2 - Summary of significant accounting policies

Basis of presentation

The consolidated financial statements of the Company reflect the activities of the following directly and indirectly owned subsidiaries:

		Percentage
Subsidiary		Of Ownership
General Steel Investment Co., Ltd.	British Virgin Islands		100.0	%
Tianjin Daqiuzhuang Metal Sheet Co., Ltd	P.R.C.		100.0	%
Baotou Steel - General Steel Special Steel Pipe Joint Venture Co., Ltd.	P.R.C.		80.0	%
Yangpu Shengtong Investment Co., Ltd.	P.R.C.		99.1	%
Qiu Steel Investment Co., Ltd.	P.R.C.		98.7	%
Shaanxi Longmen Iron and Steel Co. Ltd.	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.

Management has included all normal recurring adjustments considered necessary to give a fair presentation of operating results for the periods presented. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the 2007 annual report filed on Form 10-K.

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 financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s financial statements include the useful lives of and impairment for property, plant and equipment, potential losses on uncollectible receivables and the fair value of the conversion feature and warrants associated with the note payable. Actual results could differ from these estimates.

8

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Concentration of risks

The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC's economy. The Company's operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. The Company's results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Cash includes cash on hand and demand deposits in accounts maintained with state owned banks within the People’s Republic of China and Hong Kong. Total cash (including restricted cash balances) in these banks on March 31, 2008 and December 31, 2007 amounted to $ 59,957,897 and $53,817,485, 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.

The Company had five major customers, which represented approximately 53%, and 26% of the Company’s total sales for the three months ended March 31, 2008 and 2007, respectively. Five customers accounted for 39% and 0% of total accounts receivable as of March 31, 2008, and December 31, 2007, respectively.

For the three months ended March 31, 2008, and 2007, the Company purchased approximately 40% and 93%, respectively, of their raw materials from five major suppliers. Five vendors accounted for 67% and 11% of total accounts payable as of March 31, 2008 and December 31, 2007, respectively.

Revenue recognition

The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are recorded as customer deposits. Sales revenue represents the invoiced value of goods, net of value-added tax (VAT). All of the Company’s products sold in the PRC are subject to a Chinese value-added tax at a rate of 13% to 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 the finished product.

Foreign currency translation and other comprehensive income

The reporting currency of the Company is the US dollar. The Company uses the local currency, Renminbi (RMB), as its 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.

9

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders' equity and amounted to $8,886,017 and $ $4,563,078 as of March 31, 2008 and December 31, 2007, respectively. The balance sheet amounts, with the exception of equity at March 31, 2008 and December 31, 2007 were translated at 7.01 RMB and 7.30 RMB to $1.00 USD, respectively. The equity accounts were stated at their historical rate. The average translation rates applied to income statement accounts for the three months ended March 31, 2008 and 2007 were 7.16 RMB, and 7.77 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.

Financial instruments

SFAS 107, “Disclosures about Fair Value of Financial Instruments” requires disclosure of the fair value of financial instruments held by the Company. SFAS 107 defines the fair value of financial instruments as the amount at which the instrument could be exchanged in a current transaction between willing parties.

The Company considers the carrying amount of cash, accounts receivable, other receivables, accounts payable, accrued liabilities, and long term debts 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.

The Company also analyzes all financial instruments with features of both liabilities and equity under SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” SFAS No 133, “Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” The convertible preferred shares issued in 2005 and the convertible note issued in 2007 did not require bifurcation or result in liability accounting. Additionally, the Company analyzes registration rights agreements associated with any equity instruments issued to determine if penalties triggered for late filing should be accrued under FSP EITF 00-19-2, “Accounting for Registration Payment Arrangements.”

Derivative Instrument

In December 2007, the Company issued convertible notes totaling $40,000,000 (“Notes”) and 1,154,958 warrants. Both the warrants and the conversion option embedded in the Notes meet the definition of a derivative instrument in SFAS 133, “Accounting for Derivative Instruments and Hedging Activities.” Therefore these instruments are accounted for as derivative liabilities and marked-to-market each reporting period. The change in the value of the derivative liabilities is charged against or credited to income.

10

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Fair value measurements

The Company adopted SFAS 157, “Fair Value Measurements” on January 1, 2008. SFAS 157 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosures requirements for fair value measures. The three levels are defined as follow:

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

The Company’s investment in unconsolidated subsidiaries amounted to $9,666,132 as of March 31, 2008. Since there is no quoted or observable market price for the fair value of similar long term investment, the Company then used the level 3 inputs for its valuation methodology. The determination of the fair value was based on the capital investment that the Company contributed.The carrying value of the long term investments approximated the fair value as of March 31, 2008.

In 2007, the Company issued convertible notes in the aggregate principal amount of $40,000,000 and warrants to purchase 1,154,958 shares of common stock of the Company. Pursuant to SFAS 133 and EITF 00-19, the Company determined that both the warrants and the conversion option embedded in the Notes meet the definition of a derivative instrument and must be carried as a liability and marked to market for each reporting period. As of March 31, 2008, the Company reevaluated the derivative liabilities using Binomial Model, defined in SFAS 157 as level 3 inputs, and recorded the changes in earnings. As a result, the derivative liability is carried on the balance sheet at its fair value.

As of March 31, 2008, the carrying value of the convertible notes amounted to $6,138,044. The Company determined the fair value of the convertible notes using the level three inputs to the Binomial Model and determined that the fair value amounted to approximately $14 million due to the decrease in the Company’s common stock price.

	Carrying Value as of March 31, 2008		Fair Value Measurements at March 31, 2008 Using Fair Value Hierarchy
Assets			Level 1	Level 2	Level 3
Long term investments	$	9,666,132			$	9,666,132
Liabilities
Derivative liabilities	$	25,812,545			$	25,812,545
Convertible notes payable	$	6,138,044			$	14,187,455

Except for the derivative liabilities, the Company did not identify any other assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with SFAS 157.

11

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Cash and cash equivalents

Cash and cash equivalents include cash on hand and demand deposits in banks with maturities of less than three months.

Restricted cash

The Company has notes payable outstanding with various banks and is required to keep certain amounts on deposit that are subject to withdrawal restrictions.

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. An allowance for doubtful account is established and recorded based on managements’ assessment of the credit history and relationship with the customers. Management reviews its accounts receivable on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary.

Notes receivable

Notes receivable represents trade accounts receivable due from various customers where the customers’ banks have guaranteed the payment of the receivables. This amount is non-interest bearing and is normally paid within three to six months. The Company has the ability to submit request for payment to the customer’s bank earlier than the scheduled payment date, but will incur an interest charge and a processing fee. The Company had $18,569,839 and $4,216,678 of notes receivable outstanding as of March 31, 2008 and December 31, 2007, respectively.

Restricted notes receivable represents notes pledged as collateral for short term loans from banks. As of March 31, 2008 and December 31, 2007, restricted notes receivable amounted to $4,359,863 and $12,514,659, respectively.

Inventories

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

Intangible assets

All land in the People’s Republic of China is owned by the government and. However, the government grants “land use right” to use the land.

Daqiuzhuang Metal acquired land use rights during the years ended 2000 and 2003 for a total of $3,167,483. These land use rights are for 50 years and expire in 2050 and 2053. However, Daqiuzhuang Metal's initial business license had a ten-year term. Therefore, management elected to amortize the land use rights over the ten-year business term. Daqiuzhuang Metal became a Sino-Foreign 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.

12

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Longmen Group contributed land use rights for a total amount of $19,823,885 to the Longmen Joint Venture. The land use rights are for 50 years and expire in 2048 to 2052.

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.

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.

Long lived assets

Long lived assets, including plant, equipment and intangible assets are reviewed annually or more often if necessary, 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 depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of March 31, 2008, the Company expects these assets to be fully recoverable.

Investments in unconsolidated subsidiaries

Investee companies over which the Company has the ability to exercise significant influence, but does not have a controlling interest is accounted for using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock of the investee of between 20% and 50%, and other factors, such as representation on the investee's Board of Directors, voting rights and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. In December 2007, the Company acquired 27% of ownership interest in Xian Delong Powder Engineering Materials Co., Ltd., through its 74.92% owned subsidiary, Environmental Protection Industry Development Co., Ltd., for $822,600. This investment is accounted for by the equity method.

The Company’s newly acquired subsidiary, Hancheng Tongxing Metallurgy Co., Ltd. has invested in several companies from 2004- 2007 amounted to $8,809,332 as of March 31, 2008. Since Tongxing does not have the ability to exercise control or has significant influence of the investee companies and the investments have been recorded under the cost method.

13

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Investees	Years invested		Amount invested		% owned
Shanxi Daxigou Mining Co.,Ltd		2004		714,000.00		11
Shanxi Xinglong Thermoelectric Co.,Ltd		2004-2007		4,729,536.00		37.6
Shanxi Longgang Group Baoji roll-forming steel Co.,Ltd		2005		599,760.00		23.81
Shanxi Longgang Group Xian steel Co.,Ltd		2005		142,800.00		10
Shanxi Longgang Group Co.,Ltd		2003-2004		1,849,260.00		3.8
Huashan Metallurgical Equipment Co. Ltd.		2003		71,400.00		25
Hejin Liyuan Washing Coal Co.Ltd.		2006		214,200.00		38
Hancheng Jinma Coking Co.Ltd.		2006		488,376.00		40
Total				8,809,332.00

Total investment in unconsolidated subsidiaries amounted to $9,666,132 and $822,600 as of March 31, 2008 and December 31, 2007, respectively.

Short-term notes payable

Short-term notes payable are lines of credit extended by 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 total outstanding amounts of short-term notes payable were $75,327,000 and $15,163,260 as of March 31, 2008 and December 31, 2007, respectively.

Shares subject to mandatory redemption

The Company adopted SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS 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 SFAS 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 was 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. As of December 31, 2007, redemption feature on all the shares issued was expired and subsequently the shares were reclassified from liability to equity. See note 13 for details.

Earnings per share

The Company reports earnings per share in accordance with the provisions of SFAS 128, "Earnings Per Share." SFAS 128 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share.

Basic earnings per share are 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.

14

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Income taxes

Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements, net operating loss carry forwards and credits, by applying enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

The Company adopted SFAS 109, “Accounting for Income Taxes”. 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 consists of taxes currently due plus deferred taxes. 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 effect on the Company’s financial statements.

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. Deferred tax assets are recognized to the extent that it is probable 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.

Share-based compensation

The Company records stock-based compensation pursuant to SFAS 123R, "Share-Based Payments," which established standards for the accounting for transactions in which an entity exchanges 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.

15

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Shipping and handling

Shipping and handling for raw materials purchased are included in cost of goods sold. Shipping and handling cost incurred for shipping of finished products to customers are included in selling expenses. Shipping and handling expenses for purchases of material and sales of finished goods for the three months ended March 31, 2008 and 2007 amounted to $703,072 and $19,825, respectively.

Minority interest

Minority interest consists of the interest of minority shareholders in the subsidiaries of the Company. As of March 31, 2008 and December 31, 2007, minority interest amounted to $65,701,909 and $42,044,266, respectively.

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.

Recently issued accounting pronouncements

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115 (“FAS 159”). SFAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective of SFAS 159 is to provide opportunities to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply hedge accounting provisions. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 will be effective in the first quarter of fiscal 2009. The Company chose not to elect the option to measure the fair value of eligible financial assets and liabilities

In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51”, which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company has not determined the effect that the application of SFAS 160 will have on its consolidated financial statements.

In December 2007, Statement of Financial Accounting Standards 141(R), Business Combinations, was issued. SFAS 141R replaces SFAS 141, Business Combinations. SFAS 141R retains the fundamental requirements in SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. This replaces SFAS 141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. SFAS 141R also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with SFAS 141R). SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The Company is currently evaluating the impact that adopting SFAS No. 141R will have on its financial statements.

16

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133”, which changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company has not determined the effect that the application of SFAS 161 will have on its consolidated financial statements.

Note 3 - Accounts receivable and allowance for doubtful accounts

Accounts receivable, including related party receivables, net of allowance for doubtful accounts consists of the following:

	March 31, 2008 (Unaudited)		December 31, 2007
Accounts receivable	$	28,031,766	$	11,939,533
Less: allowance for doubtful accounts		270,235		148,224
Net accounts receivable	$	27,761,531	$	11,791,309

Movement of allowance for doubtful accounts is as follows:

	March 31, 2008 (Unaudited)		December 31, 2007
Beginning balance	$	148,224	$	137,132
Charge to expense		-		751
Balance from acquisition of Tongxing		118,680		-
Exchange rate effect		3,331		10,341
Ending balance	$	270,235	$	148,224

17

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Note 4 - Inventory

Inventory consists of the following:

	March 31, 2008 (Unaudited)		December 31, 2007
Supplies	$	2,248,911	$	1,829,551
Raw materials		52,202,026		42,919,783
Work in process		21,946		82,439
Finished goods		46,331,567		33,097,152
Total	$	100,804,450	$	77,928,925

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. The Company reviews its inventory periodically for possible obsolete goods and to determine if any reserves are necessary for potential obsolescence. As of March 31, 2008 and December 31, 2007, the Company believes no reserves are necessary.

Note 5 - 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 its purchases on a timely basis.

This amount is refundable and bears no interest. The Company has legally binding contracts with its vendors, which required the deposit to be returned to the Company when the contract ends. The inventory is normally delivered within one month after the monies have been advanced. The total outstanding amount, including advances to related parties, was $95,272,711 and $68,114,486 as of March 31, 2008 and December 31, 2007, respectively.

Note 6 - Plant and equipment, net

Plant and equipment consist of the following:

	March 31, 2008			December 31, 2007
	(Unaudited)
Buildings and improvements	$	83,617,658		$	71,265,004
Machinery		144,236,255			134,716,437
Transportation equipment		5,304,733			4,232,556
Other equipment		1,406,789			1,310,489
Construction in process		52,170,402			24,574,027
Totals		286,735,837			236,098,513
Less accumulated depreciation		(30,855,848	)		(17,835,146	)
Totals	$	255,879,989		$	218,263,367

18

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Depreciation, including amounts in cost of sales, for the three months ended March 31, 2008 and 2007 amounted to $ 4,499,873 and $561,709, respectively.

Note 7 - Intangible assets

The Company’s intangible assets are as follows:

	March 31, 2008			December 31, 2007
	(Unaudited)
Land use right	$	24,611,449		$	23,629,059
Software		211,116			71,978
Accumulated Amortization		(2,246,966	)		(1,944,328	)
Total	$	22,575,599		$	21,756,709

Total amortization expense for the three months ended March 31, 2008 and 2007, amounted to $205,146 and $76,524, respectively.

Note 8 - Debt

Short term loans

Short term loans represent amounts due to various banks, other companies and individuals, normally due within one year. The loans due to banks can be renewed with the banks. The Company had short term loans from related parties totaling $7,317,027 as of December 31, 2007. No short term loans from related parties were outstanding as of March 31, 2008.

The loans due to banks consisted of the following:

DAQIUZHUANG METAL
	March 31, 2008 (Unaudited)		December 31, 2007
Loan from China Bank, JingHai Branch, due
September 2008. Quarterly interest only payment at
7.29% per annum, secured by equipment	$	999,600.	$	959,700
Loans from Agriculture Bank, DaQiuZhuang Branch, due
various dates from September 2008 to February 2009.
Quarterly interest only payments ranging from
8.424% to 8.964% per annum, guaranteed by an
related third party and secured by equipment		10,721,424		10,293,468
Loan from Construction Bank of China, JinHai Branch, due
August 2008. Monthly interest only payment at 8.55%
per annum, guaranteed by an unrelated third party and secured by equipment		1,570,800		1,508,100
Loans from ShangHai PuFa Bank, due various dates from
July 2008 to March 2009. Quarterly interest only payments
ranging from 7.22% to 8.964% per annum, guaranteed
by an unrelated third party		4,284,000		4,113,000
Loan from China Merchants Bank, due
November 2008. Quarterly interest only payments
at floating interest rate,105% of People's Bank base rate
of 7.29% to 7.85%, guaranteed by an unrelated third party.		8,568,000		8,226,000
Loan from ShenZhen Development Bank, due
dates in January 2009. Monthly interest only payment
at 7.47% per annum, secured by
inventory and guaranteed by CEO of the Company.		7,140,000		6,855,000
Total Daqiuzhuang Metal	$	33,283,824	$	31,955,268

19

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

LONG MEN JOINT VENTURE
	March 31, 2008 (Unaudited)		December 31, 2007
Loans from Construction Bank, due various dates from May to October 2008.Monthly interest only payments ranging from 7.22% to 8.424% per annum, guaranteed by equipment and Bankers’ Acceptance Bill.	$	13,851,600	$	20,633,550
Loans from Agriculture Bank, due various dates in May 2008. Monthly interest only payments at 7.12% guaranteed by Bankers’ Acceptance Bill.		2,441,880		3,989,610
Loans from Bank of China,HanCheng Branch, due various dates from May 2008 to July 2008. Monthly interest payments ranging from 6.71% to 6.90% per annum, guaranteed by unrelated third parties .		9,996,000		9,597,000
Loans from Credit Cooperatives, due various dates from July 2008 to February 2009. Monthly interest payments by 11.02% per annum, guaranteed by an related third party.		2,856,000		2,742,000
Loans from HuaXia Bank, due various dates in November 2008. Monthly interest payment at 8.74% per annum, guaranteed by equipment.		5,712,000		13,819,680
Loan from Communication Bank, due October 2008, Quarterly interest only payments, annual interest rate of 8.02%, guaranteed by equipment.		3,570,000		3,427,500
Loan from China Merchants Bank, due September 2008, Monthly interest payments, annual interest rate of 9.13%, guaranteed by an related third party and secured by land use rights and buildings.		7,140,000		6,855,000
Loan from China Minsheng Bank,due February 2009, Quarterly interest payments, annual interest rate of 7.47%, guaranteed by a related third party and secured by equipment.		14,280,000
Total Longmen Joint Venture	$	59,847,480	$	61,064,340
Grand totals	$	93,131,304	$	93,019,608

20

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Long Men Joint Venture also has various loans from unrelated companies and individuals which are due within one year. The loans are unsecured with annual interest rates ranging from 8% to 12%. As of March 31, 2008 and December 31, 2007, these loans outstanding amounted to $34,896,184 and $19,156,070, respectively.

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 funded with draws on the lines of credit. This short term note payable is guaranteed by the bank for its complete face value. The banks usually do not charge interest on these notes but 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 had the following short term notes payable:

DAQIUZHUANG METAL
	March 31, 2008		December 31, 2007
	(Unaudited)
China Bank, Jing Hai Branch, due March 2008,
restricted cash required of 50%
of loan amount, guaranteed by the Company	$	-	$	1,588,040
Agricultural Bank of China, various amounts, due March 2008, restricted cash required of 60% of loan amount,
guaranteed by the Company and an unrelated third party		-		1,232,100
ShangHai PuFa Bank, various amounts,
due date ranging between April and May 2008,
restricted cash required of 50% of loan balance,
guaranteed by an unrelated third party		5,712,000		5,488,120
Total Daqiuzhuang Metal	$	5,712,000	$	8,308,260

21

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

LONGMEN JOINT VENTURE
	March 31, 2008		December 31, 2007
	(Unaudited)
Agricultural Bank of China, various amounts, due August 2008, restricted cash required of 100% of loan amount.		4,998,000		-
China Bank, various amounts, due July 2008, restricted cash required of 100% of loan amount.		714,000		-
Credit Cooperatives, due August 2008, restricted cash required of 100% of loan amount.		1,428,000		-
ShangHai Pudong Development Bank, various amounts, due dates
ranging between January to May 2008,
restricted cash required of 60% of loan amount,
guaranteed by equipment.		7,140,000		6,855,000
China Minsheng Bank, various amounts, due dates
ranging between June to September 2008,
restricted cash required of 60% of loan amount,
guaranteed by equipment and related third parties..		28,560,000		-
China Minsheng Bank, various amounts, due dates in August 2008,
restricted cash required of 100% of loan amount.		7,140,000		-
ShangHai PuFa Bank, various amounts, due dates
ranging between April to September 2008,
restricted cash required of 60% of loan amount.
guaranteed by equipment and related third parties.		19,635,000		-
Total Longmen Joint Venture		69,615,000		6,855,000
Grand totals	$	75,327,000	$	15,163,260

Total interest expense for the three months ended March 31, 2008 and 2007 on the debt listed above amounted to $2,872,865 and $623,155, respectively. Capitalized interest amounted to $811,505 and $0 for the three months ended March 31, 2008, and 2007, respectively.

22

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Note 9 - Customer deposits

Customer deposits represent amounts advanced by customers on product orders. The product normally is shipped within six months after receipt of the advance payment, and the related sale is recognized in accordance with the Company’s revenue recognition policy. As of March 31, 2008 and December 31, 2007, customer deposits amounted to $60,883,030 and $47,084,434, including related parties deposits $0, and $9,211,736, respectively.

Note 10 - Deposits due to sales representatives

Daqiuzhuang Metal and one of Longmen Joint Venture’s subsidiaries, Yuxin Trading, entered into agreements with various entities to act as the Company’s exclusive sales agent in a specified area. These exclusive sales agents must meet certain criteria and are required to deposit a certain amount of money with the Company. In return the sales agents receive exclusive sales rights to a specified area and discounted prices on products they order. These deposits bear no interest and are required to be returned to the sales agent once the agreement has been terminated. The Company had $2,734,620 and $3,068,298 in deposits due to sales representatives outstanding as of March 31, 2008 and December 31, 2007, respectively.

Note 11 - 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 received 98.7% of the total equity of Qiu Steel Investment for RMB148,000,000 or approximately $19,284,400. As of March 31, 2008, Yangpu Investment had payable amounted to RMB48,000,000 or approximately $6,854,400.

Note 12 - Distribution payable to minority shareholder

Distribution payable represents dividends owed to the minority owners of EPID and Hualong for retained earnings prior to the acquisition date. As of March 31, 2008 and December 31, 2007, Distribution payable amounted to $2,330,858 and $2,820,803, respectively.

Note 13 - 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 giving the warrant holders the right to purchase 2,353,330 shares of common stock. The warrants can be exercised on the second anniversary of the subscription date at $2.50 per share and through the third anniversary date at $5.00 per share. At the option of the holder, 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 SFAS 150, The Company recorded the stock as a liability due to the mandatory redemption provision. The shares were recorded at fair value on the date of issuance, which was 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, totaling $688,346, was accrued and amortized as interest expense.

23

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

As of December 31, 2007, the put option on all the redeemable shares had expired and all the shares were reclassified into equity.

Note 14 - Convertible notes

On December 13, 2007, the Company entered into a Securities Purchase Agreement (the “Agreement”) with certain institutional investors (the “Buyers”). Pursuant to the Agreement, the Company agreed to sell to the Buyers (i) senior convertible notes totaling $40,000,000 (“Notes”) and (ii) warrants to purchase 1,154,958 shares of common stock (the “Warrants”).

The Notes bear initial interest at 3% per annum, which will be increased each year as specified in the Notes, payable semi-annually in cash or shares of the Company’s common stock. The Notes have a five year term through December 12, 2012. They are convertible into shares of the common stock, subject to customary anti-dilution adjustments. The initial conversion price is $12.47. The Company may redeem the Notes at 100% of the principal amount, plus any accrued and unpaid interest, beginning December 13, 2008, provided the market price of the common stock is at least 150% of the then applicable conversion price for 30 consecutive trading days prior to the redemption.

The Notes are secured by a first priority, perfected security interest in certain shares of common stock of Zuo Sheng Yu, as evidenced by the pledge agreement. The Notes are subject to events of default customary for convertible securities and for a secured financing.

The Warrants grant the Buyers the right to acquire shares of common stock at $13.51 per share, subject to customary anti-dilution adjustments. The Warrants may be exercised May 13, 2008 through May 13, 2013.

In connection with this transaction, the Company and the Buyers entered into a registration rights agreement (the “Registration Rights Agreement”). Pursuant to the terms and conditions of the Registration Rights Agreement, the Company agreed to register within 60 calendar days common stock issuable to the Buyers for resale on a registration statement to be effective by 90 calendar days or 120 days if the registration statement is subject to a full review by the U.S. Securities and Exchange Commission. The Company is required to register at least 120% of the sum of shares issuable upon conversion of the Notes, the exercise of the Warrants and the payment of interest accrued on the Notes. The registration rights granted under the Registration Rights Agreement are subject to customary exceptions and qualifications and compliance with certain registration procedures.

In addition, certain management members of the Company also entered into a lock-up agreement with the Company pursuant to which each person agreed not to sell any personally owned shares one year after the initial effective date of the resale registration statement described above.

Pursuant to the Registration Rights Agreement, the Company was required to file the registration statement on February 11, 2008. The Company filed the registration statement on February 13, 2008, which was two days after the required filing date. As of the date of this report, the Company reached an agreement with all note holders to waive the related penalty of $427,000.

24

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Pursuant to APB 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, the Company discounted the Notes equal to the fair value of the warrants. The Notes were further discounted for the fair value of the conversion option. The combined discount is being amortized to interest expense over the life of the Notes using the effective interest method.

The fair value of conversion option and the warrants were calculated using the Binomial model based on the following variables:

· Expected volatility of 105% calculated using the Company’s historical price of its common stock

· Expected dividend yield of 0%

· Risk-free interest rate of 2.46% for the conversion option and the warrants

· Expected lives of five years

· Market price at issuance date of $10.43

· Strike price of $12.47 and $13.51, for the conversion option and the warrants, respectively

Pursuant to SFAS 133 and EITF 00-19, the Company determined that both the warrants and the conversion option embedded in the Notes meet the definition of a derivative instrument and must be carried as a liability and marked to market each reporting period.

On December 13, 2007, the Company recorded $34,719,062 as derivative liability, including $9,298,044 for the fair value of the warrants and $25,421,018 for fair value of the conversion option. The initial carrying value of the Notes was $5,280,938. The financing cost of $3,594,500 was recorded as deferred note issuance cost and is being amortized to interest expense over the term of the Notes using the effective interest method.

On March 31, 2008, in accordance with SFAS 133, the fair value of derivative liabilities was recalculated and decreased by $2,670,764 during the period, including $719,580 for the decrease in fair value of the warrants and $1,951,184 for the decrease in fair value of the conversion option. The decrease was recorded as a gain and included in other income.

As of March 31, 2008, the balance of derivative liabilities was $25,812,545, which consisted of $6,918,882 for the warrants and $18,893,663 for the conversion option, and the carrying value of the Notes was $6,138,044. Amortization of the debt discount totaled $804,295 and was recorded as interest expense for the period ended March 31, 2008. As of March 31, 2008, the unamortized financing cost was $5,120,152, including $1,564,500 for additional issuance of 150,000 shares of the common stock to the placement agent in January 2008. For the period ended March 31, 2008, $8,894 of deferred note issuance cost was amortized to interest expense for the period using the effective interest method.

25

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Note 15 -Other expenses and income, net

Other income and expense consist of the following:

	March 31, 2008 (Unaudited)			March 31, 2007 (Unaudited)
Finance/interest expense	$	(5,986,507	)	$	(640,857	)
Interest income		580,318			31,654
Change in fair value of derivative liabilities		2,670,764			-
Other non-operating income		432,050			388,527
Other non-operating expense		(62,780	)		-
Total other (expense) income	$	(2,366,155	)	$	(220,676	)

Note 16 - Taxes

Income tax

Beginning January 1, 2008, the new Enterprise Income Tax (“EIT”) law has replaced the existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”). The new standard EIT rate of 25% has replaced the 33% rate currently applicable to both DES and FIEs. The two-year tax exemption and three-year 50% tax reduction tax holiday for production-oriented FIEs will not be eliminated for certain entities incorporated on or after March 16, 2007.

Significant components of the provision for income taxes on earnings from operation for the three months ended March 31, 2008 and 2007 are as follows:

	March 31, 2008 (Unaudited)			March 31, 2007 (Unaudited)
Current	$	666,357		$	-
Deferred		(216,534	)		-
Total provision for income taxes	$	449,823		$	-

The principal component of the deferred income tax assets is as follows:

	March 31, 2008 (Unaudited)			December 31, 2007
Net operating loss carry-forward	$	2,483,130		$	1,599,004
Effective tax rate		25.00	%		25.0	%
Deferred tax asset	$	637,598		$	399,751

According to Chinese tax regulations, the net operating loss can be carried forward to offset with operating income for the next five years. Management believes the deferred tax asset is fully realizable.

26

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate:

	March 31, 2008 (Unaudited)			March 31, 2007 (Unaudited)
U.S. Statutory rates		34.00	%		34	%
Foreign income not recognized in USA		(34.00	%)		(34	%)
China income taxes		25.00	%		-
Tax effect of income not taxable for tax purpose		(3.86	%)		-
Effect of different tax rate of subsidiaries operating in other jurisdictions		(10.12	%)		-
Total provision for income taxes		11.02	%		-

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. 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 for the tax benefit. Daqiuzhuang Metal is located in Tianjin Costal Economic Development Zone and under the Income Tax Laws of Tianjin City of PRC, it is eligible for an income tax rate of 24%. Therefore, Daqiuzhuang Metal is exempt from income taxes for the years ended December 31, 2005 and 2006 and is entitled to 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 subsidiary, Longmen 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; therefore income tax is accrued at 15%.

Baotou Steel Pipe Joint Venture is located in Inner Mongolia, is subject to an income tax at an effective rate of 25%

Value added Tax

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

VAT on sales and VAT on purchases amounted to $70,973,599 and $65,859,199 for the three months ended March 31, 2008, $5,830,751 and $5,574,487 for the three months ended March 31, 2007, 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.

27

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Taxes payable consisted of the following:

	March 31, 2008 (Unaudited)		December 31, 2007
VAT taxes payable	$	13,529,046	$	20,320,241
Income taxes payable		6,843,222		5,112,876
Misc taxes		2,032,221		2,143,123
Totals	$	22,404,489	$	27,576,240

Note 17 - Earnings per share

The calculation of earnings per share is as follows:

	March 31, 2008 (Unaudited)		March 31, 2007 (Unaudited)
Income attributable to holders of common shares	$	2,188,460	$	474,865
Basic weighted average number of common shares outstanding		34,836,394		31,320,251
Add: dilution effect of warrants		87,220		-
Diluted weighted average number of common shares outstanding		34,923,614		31,320,251
Net income per share
Basic	$	0.063	$	0.015
Diluted	$	0.063	$	0.015

Under SFAS 128 "Earnings per Share", paragraph 24, mandatory redeemable shares are excluded from the shares outstanding for both basic and diluted earnings per share. Thus, the 1,176,665 shares described in Note 13 have been excluded from the earnings per share calculation for the basic and diluted EPS for the period ended March 31,2007. In connection to the redeemable preferred stocks, the Company issued 2,353,330 warrants to the shareholders. As of December 31, 2007, the number of unexercised warrants was 233,330, which the dilution effect was calculated to be 87,220 shares by using the treasury method.

As described in Note 1, the Company issued Victory New an aggregate of 3,092,899 shares of the Company’s Series A Preferred Stock to purchase 30% minority ownership of Daqiuzhuang Metal. The preferred stock can not be converted to common stock. Thus, the 3,092,899 shares of Series A Preferred Stock have been excluded from the earnings per share calculation.

On December 13, 2007, the Company issued $40 million of convertible notes, convertible into 3,207,698 shares of common stock, and warrants to purchase 1,154,958 shares of common stock. Since the note conversion price of $12.47 and the warrant exercise price of $13.51 were higher than $7.98, the average market price of the common stock for the period from the issuance date to March 31, 2008, the convertible notes and warrants were determined to be anti dilutive, and thus have been excluded from the earnings per share calculation.

28

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Note 18 - Related party balances and transactions

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 Sheng (aka Henry Yu), is the chairman and the largest shareholder of Jing Qiu Steel Market Company. Total rental income for the three months ended March 31, 2008 and 2007 was $419,310 and $387,030, respectively.

The Company’s short term loan of $7,140,000 from Shenzhen Development Bank is personally guaranteed by the Company’s Chairman, CEO, and majority shareholder Yu Zuo Sheng (aka Henry Yu).

Tianjin Dazhan Industry Co., Ltd. (“Dazhan”) and Tianjin Hengying Trading Co., Ltd. (“Hengying”) are steel trading companies controlled by the Company’s Chairman, CEO and majority shareholder, Yu Zuo Sheng (aka Henry Yu). Dazhan and Hengying acted as trading agents of the Company to make purchases and sales for the Company. For the three months ended March 31, 2008 and 2007, through Dazhan and Hengying, the Company purchased total of $28,434,046 and $19,589,989 of material from these entities, and sold $1,279,813.27 and $7,840,501 of finished products to these entities, respectively.

The Longmen Joint Venture did not 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. In addition to the VAT status issue, the Longmen Joint Venture also made sales through Long Men Group for outstanding sales contracts signed before June 2007. Also some sales through Long Men Group were made due to the established market share and its long term relationship with the customers. All the sales proceeds and purchase payments were recorded as receivables from or payables to Long Men Group. Total related party sales amounted to $113,073,832 for the three months ended March 31, 2008.

All transactions with related parties are for normal business activities and are short term in nature. Settlements for the balances are usually in cash. The following charts summarize the related party transactions as of the three months ended March 31, 2008 and the year ended December 31, 2007:

a. Accounts receivable -related parties

Name of related parties	March 31, 2008 (Unaudited)		December 31, 2007
Long Men Group	$	14,493,163	$	565,631
Jin Qui		189,029		-
Total	$	14,682,192	$	565,631

b. Short term loan receivable - related parties

As of March 31, 2008, the Company had a short term loan receivable from Tianjin Jing Qiu amounted to $1,285,200. This loan was made for short term cash flow needs and will be repaid upon request.

29

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

c. Other receivables - related parties

Name of related parties	March 31, 2008 (Unaudited)		December 31, 2007
Beijing Wendlar	$	182,641	$	1,033,713
Yang Pu Capital Automobile		-		616,950
Tianjin Jin Qiu Steel Market		-		137,100
Tong Xin Ye Jin		-		48,830
Yang Pu Sheng Xin		-		74,113
Officers of Hua Long		48,362		-
Yang Pu Sheng Hua		-		2,742
Long Men Group		1,913,263		-
	$	2,144,266	$	1,913,448

d. Advances on inventory purchases - related parties

Name of related parties	March 31, 2008 (Unaudited)		December 31, 2007
Hengying	$	7,457,477	$	8,014,211
Dazhan		2,848,605		1,929,801
Long Men Group		27,190,663		-
	$	37,496,745	$	9,944,012

e. Prepaid expenses - related parties

The Company prepaid rental fee for employee dormitory to a related party, Beijing Wendlar, a company controlled by Mr. Yu Zuo Sheng (aka Henry Yu). As of March 31, 2008, the Company had a balance of the prepayment of $295,596, in which $51,408 was current and $244,188 was classified as non current.

f. Accounts payable due to related parties

Name of related parties	March 31, 2008 (Unaudited)		December 31, 2007
Long Men Group	$	-	$	7,954,189
Dazhan		-		4,249,395
Henan Xinmi Kanghua		417,716		356,567
Zhengzhou Shenglong		281,139		269,917
Baotou Shengda Steel Pipe		1,098,650		1,472,670
ShanXi Fangxing		1,805,438		-
Jian An		9,997		-
Jin Ma Coking Company		4,134,303		-
Ping He Lu Liao		558,371		-
Fang Xin		1,295,405		-
	$	7,795,581	$	14,302,738

30

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

g. Short term loan due to related parties

Name of related parties	March 31, 2008 (Unaudited)		December 31, 2007
HanCheng TongXing	$	-	$	7,317,027

h. Other payables due to related parties

Name of related parties	March 31, 2008 (Unaudited)		December 31, 2007
Beijing Wandler	$	-	$	34,275
Tianjin Jin Qiu Steel Market		-		1,487,600
Hengying		-		563,816
Baotou Shengda Steel Pipe		16,887		31,095
Baogang Jian An		4,284		9,597
	$	21,171	$	2,126,383

i. Customer deposits - related parties

Name of related parties	March 31, 2008 (Unaudited)		December 31, 2007
Hengying	$	-	$	6,855,000
Haiyan		-		2,356,736
	$	-	$	9,211,736

Transactions with related parties are as follows:

(a) Sales of goods

Name of related parties	Three months ended March 31, 2008 (Unaudited)		Three months ended March 31, 2007 (Unaudited)
Long Men Group	$	113,073,832	$	-
	$	113,073,832	$	-

31

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

(b) Purchase of goods

Name of related parties	Three months ended March 31, 2008(Unaudited)		Three months ended March 31, 2007(Unaudited)
Long Men Group	$	103,134,608	$	-
	$	103,134,608	$	-

(c) Rental income

Name of related parties	Three months ended March 31, 2008 (Unaudited)		Three months ended March 31, 2007 (Unaudited)
Tianjin Jing Qiu Steel Market Co., Ltd.	$	419,310	$	387,030
	$	419,310	$	387,030

Note 19 -Business combinations

a. Acquisition of 30% minority interest of Daqiuzhuang Metal

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 3,092,899 shares of Series A Preferred Stock which have a voting power of 30% of the combined voting power of the Company’s common and preferred stock for the life of the Company. As a result of the acquisition, the Company increased its equity interest in Daqiuzhuang Metal from 70% to 100%. On May 23, 2007, the Company transferred its 30% interest in Daqiuzhuang Metal to General Steel Investment (BVI). As a result of this transfer, General Steel Investment (BVI) holds 100% of equity interest of Daqiuzhuang Metal.

Victory New Holdings Ltd. was a newly formed entity under the control of the Company’s Chairman, CEO and majority shareholder Zuosheng Yu (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 SFAS 141, "Business Combinations", acquisition of minority interests 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 transaction, which was $8,374,000. The premium over book value of $2,188,203 was accounted for as dividend distribution to the shareholder of Victory New.

b. Joint venture agreement with Baotou Steel

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 increased Daqiuzhuang Metal's ownership interest in the Joint Venture from 20% to 80%.

32

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

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 RMB10,000,000, or approximately $1,270,000, and Daqiuzhuang Metal will contribute RMB40,000,000, or approximately $5,130,000. Daqiuzhuang Metal and Baotou Steel each contributed 30% of their portion of the registered capital to commence the business. This joint venture obtained its business license on May 25, 2007. Operations began in the third quarter of 2007.

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

The ownership is as follows:

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

c. Shaanxi Longmen Iron and Steel Co., Ltd Joint Venture

On June 15, 2007, General Steel Holdings Inc. and Shaanxi Longmen Iron and Steel (Group) Co., Ltd. (”Longmen Group”) signed an agreement to form Shaanxi Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”). Longmen Group contributed the operating facility and corresponding debt with an appraised net asset value of RMB200 million. General Steel Holdings, Inc. contributed RMB300 million to the Longmen Joint Venture through its subsidiaries Daqiuzhuang Metal and Qiu Steel Investment. Daqiuzhuang Metal and Qiu Steel Investment contributed RMB160,000,000 and RMB140,000,000 in cash, respectively, and hold 32% and 28% ownership, respectively, or 60% collectively. Longmen Group owns 40% of the Longmen Joint Venture. The Longmen Joint Venture obtained the business license on June 22, 2007.

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

Item	Fair Value		Assumed by Longmen 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

33

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

On September 24, 2007, Longmen Joint Venture acquired 74.92% ownership interest in Environmental Protection Industry Development Co., Ltd. (“EPID)” for RMB18.0 million or $2.4 million and a 36% equity interest in Hualong Fire Retardant Materials Co., Ltd., (“Hualong”) for RMB3.3 million or $0.4 million. The parties agreed to make the effective date of the transaction July 1, 2007. Due to EPID, Hualong, and Longmen Joint Venture being under common management control, this transaction was recorded at the book value as of the effective date.

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

EPID	Fair Value		Assumed by Longmen Joint Venture (74.92%)
Current assets	$	2,609,601	$	1,955,113
Property, plant, and equipment		5,619,646		4,210,239
Total assets		8,229,247		6,165,352
Total liabilities		5,055,550		3,787,618
Net assets	$	3,173,697	$	2,377,734

Hualong	Fair Value		Assumed by Longmen Joint Venture (36%)
Current assets	$	3,905,068	$	1,405,824
Property, plant, and equipment		1,653,693		595,330
Total assets		5,558,761		2,001,154
Total liabilities		4,357,736		1,568,785
Net assets	$	1,201,025	$	432,369

On January 14, 2008, the Company through Longmen Joint Venture, completed its acquisition of a controlling interest in Hancheng Tongxing Metallurgy Co., Ltd. (“Tongxing”). Tongxing contributed its land use right of 217,487 square meters (approximately 53 acres) with an the appraised value of approximately $4.1 million (or RMB30,227,333). Pursuant to the agreement, the land will be converted into shares valued at approximately $3.1 million (RMB22,744,419), providing the Joint Venture stake of 22.76% ownership in Tongxing and making it Tongxing’s largest and controlling shareholder. The parties agreed to make the effective date of the transaction January 1, 2008. The acquisition is accounted for as acquisition under common control. 

34

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Tongxing	Fair Value		Assumed by Longmen Joint Venture (22.76%)
Current assets	$	55,504,572	$	12,632,840
Non current assets		8,088,884		1,841,030
Total assets		63,593,456		14,473,870
Total liabilities		50,782,229		11,558,035
Net assets	$	12,811,227	$	2,915,835

d. Pro Forma

The following unaudited pro forma condensed income statements for the years ended March 31, 2007 was prepared under generally accepted accounting principles as if the Longmen Joint Venture transactions had occurred on January 1, 2007. The pro forma information may not be indicative of the results that 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 three months
	ended
	March 31, 2007
	(In Million $)
Sales	$	170.45
Cost of sales		150.79
Gross Profit		19.66
SG&A expenses		7.78
Other expense		4.06
Income before income tax and minority interest		7.82
Income tax		1.27
Net income before minority interest		6.55
Minority interest		0.38
Net income	$	6.17

Note 20 - Supplemental disclosure of cash flow information

Interest paid amounted to $3,038,348 and $523,307 for the three months ended March 31, 2008 and 2007, respectively.

Income tax payments amounted to $1,105,053 and $0 for the three months ended March 31, 2008 and 2007, respectively.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

On March 1, 2007, 176,665 shares of redeemable stock were converted at $1.95 resulting in a reclassification of the shares from liabilities to equity.

.On January 8, 2008 the Company issued 150,000 shares of common stock at $10.43 per share as additional note issuance cost totaled $1,564,500.

On January 14, 2008, the Company issued senior management and directors 76,600 shares of common stock at $7.16 per share, as compensation. The shares were valued at the market price on the grant date. The Company recorded compensation expense of $548,456 for the three months ended March 31, 2008.

Note 21- Shareholder’s equity

On February 12, 2007, the Company issued to Aurelius Consulting Group, Inc. (also known as RedChip Companies, Inc.) 18,000 shares of common stock in the amount of $23,742 as a portion of its compensation for investor relations services rendered. Those shares were valued at the market price at the date of the agreement.

In 2007, as discussed in Note 13, 1,176,665 shares of redeemable stock were reclassified from liabilities to common stock upon expiration of the redemption feature.

2,120,000 warrants were converted to common stock at $2.50 per share in September, 2007 for $5,300,000 in cash.

On October 1, 2007, the Company issued senior management and directors 70,100 shares of common stock at $8.16 per share, as compensation. The shares were valued at the market price on the date granted. The Company recorded compensation expense of $572,016 for the year ended December 31, 2007.

On January 8, 2008 the Company issued 150,000 shares of common stock at $10.43 per share as additional note issuance cost totaled $1,564,500. The shares price is determined as the market price on the date granted.

On January 14, 2008, the Company issued senior management and directors 76,600 shares of common stock at $7.16 per share, as compensation. The shares were valued at the market price on the date granted. The Company recorded compensation expense of $548,456 for the three months ended March 31, 2008.

Note 22 - 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 $512,966 and $60,704 for the three months end ended March 31, 2008 and 2007, respectively.

36

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008

(UNAUDITED)

Note 23 - 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, to the statutory reserves. The statutory reserves include the surplus reserve funds and the enterprise fund and these statutory reserves represent restricted retained earnings.

Surplus reserve fund

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

The transfer to this reserve must be made before distribution of any dividend to shareholders. For the three months ended March 31, 2008 and 2007, the Company transferred $347,747 and $0 to this reserve. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

Note 24 - Commitment and contingencies

The Company is obligated to contribute RMB40,000,000, or approximately $5,130,000, as registered capital to Baotou Steel Pipe Joint Venture. The Company has already made a capital contribution of approximately $1,734,200 through December 31, 2007, and the balance will be contributed in 2008, from the operating cash flow of 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 expense for the three months ended March 31, 2008 and 2007 amounted to $12,579 and $11,611, respectively.

Daqiuzhuang Metal rented land for 50 years starting September 2005. The agreement called for Daqiuzhuang Metal to pay the first three years’ rent payments upon signing the agreement. The balance due for the remaining 47 years payment is due in September 2008, after the lessor has assisted Daqiuzhuang Metal in obtaining the appropriate land use rights. Total amount of the rent over the 50 years period is approximately $1,044,728 (or RMB8,067,400).

As of March 31, 2008, total future minimum lease payments for the unpaid portion under an operating lease were as follows:

Year ended December 31,	Amount
2008		424,909
Thereafter	$	-

Total rental expense of the land use right for the three months ended March 31, 2008 and 2007 amounted to $21,351 and $5,204, respectively.

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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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 including: 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.

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. We have 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:

• Tianjin Daqiuzhuang Metal Sheet Co., Ltd. (Daqiuzhuang Metal);

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

• Shaanxi Longmen Iron and Steel Co., Ltd. (Longmen Joint Venture).

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Steel Operating Companies

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

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, we estimate that 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. 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.

• 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 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 (“Baotou Steel Pipe Joint Venture”). Baotou Steel initially contributed RMB 10,000,000, or approximately $1,270,000 taking a 20% ownership interest in the Baotou Steel Pipe Joint Venture. Daqiuzhuang Metal initially contributed RMB 40,000,000, or approximately $5,130,000 taking an 80% ownership interest in the Baotou Steel Pipe Joint Venture.

We have invested $1.56 million cash into this joint venture with the rest of the required registered capital is required to be invested within two years. The remainder of the investment will come from the operating cash flow from Daqiuzhuang Metal.

Baotou Steel Pipe Joint Venture received its business license approval on May 25, 2007. It has four production lines capable of producing 100,000 tons of 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 the Inner Mongolia Autonomous Region and the northwest region of China.

This joint venture started production and testing operations in the second quarter 2007 and began to generate revenue in the third quarter 2007.

• Shaanxi Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”)

Effective June 1, 2007, through 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 Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”). Through our two subsidiaries, we invested approximately $39 million cash and collectively hold approximately 60% of the Longmen Joint Venture.

Long Steel Group, located in Hancheng city, Shaanxi province, in China’s central region, was founded in 1958 and incorporated in 2002.

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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. Less than 10% of steel companies in China have fully-integrated steel production capacity.

Our Longmen Joint Venture, assumed existing operating units of the Long Steel Group. The Long Steel Group contributed most of its working assets to the Longmen Joint Venture. Key units of the Longmen Joint Venture include:

• Shaanxi Longmen Iron and Steel Group Co., Ltd., (“Base Steel Operations”): Includes 8 blast furnaces (total volume of 1749 cubic meters), 4 converters (total load of 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;

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

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

• Shaanxi Yuteng Commercial Trading Co., Ltd.

Longmen Joint Venture employs approximately 5,000 full-time and 2,000 part-time workers.

The annual capacity at Longmen Joint Venture is 2.5 million tons of crude steel. It is the largest steel producer in Shaanxi province. Approximately 94% of its total production is devoted to reinforced bar steel (rebar - a commodity grade steel product used to reinforce the concrete), with the remainder being roundbar, wire rod and related products. These products are primarily used in building and infrastructure construction.

Longmen 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 Longmen Joint Venture main site. We estimate in Xi’an we have a 72% market share.

An established regional network of 24 agents and 2 sales offices sell the Longemn Joint Venture’s products. Agents account for approximately 68% 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.

On September 24, 2007, Longmen Joint Venture acquired controlling interest in two subsidiaries of Long Steel Group.

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The Longmen Joint Venture entered into an equity transfer agreement with Long Steel Group to acquire its 74.92% ownership interest in its subsidiary, Longmen Iron and Steel Group Co., Ltd. Environmental Protection Industry Development Co., Ltd. (“EPID”). The Joint Venture paid RMB 18,080,930 (approximately $2,380,000) in exchange for the ownership interest. The facility utilizes solid waste generated from the steel making process to produce products such as construction materials, building blocks, landscape tiles, curb tops, ornamental tiles, etc.

At the same time, the Longmen Joint Venture also entered into a second equity agreement with the Long Steel Group to acquire its 36% ownership interest in its subsidiary, Longmen Iron and Steel Group Co., Ltd. Hualong Fire Retardant Materials Co., Ltd. (“Hualong”). The Joint Venture paid RMB 3,287,980 (approximately $430,000) in exchange for the ownership interest. The Joint Venture is the largest shareholder in the company. The facility produces fire-retardant materials used in various processes in the production of steel.

On January 11, 2008, Longmen Joint Venture completed its acquisition of a controlling interest in Hancheng Tongxing Metallurgy Co., Ltd. (“Tongxing”). Tongxing contributed its land use right of 217,487 square meters (approximately 53 acres) with an appraised value of approximately $4.1 million (or RMB 30,227,333). Pursuant to the agreement, the land will be converted into shares valued at approximately $3.1 million (RMB 22,744,419), providing the Joint Venture a stake of 22.76% ownership in Tongxing and making it Tongxing’s largest and controlling shareholder. Tongxing has two core operating areas: coking coal production and rebar processing. Its coking coal operations have an annual production capacity of 250,000 tons. Its rebar processing facility has an annualized rolling capacity of 300,000 tons.

Summary of Significant Growth and Change as of March 31, 2008 comparing with March 31, 2007:

	As of March 31, 2007		As of March 31, 2008
Number of Main Subsidiaries		1		3
Production Capacity (ton)		400,000		3 million
Main Product Categories		1		3
Number of Sales Offices		3		6
Number of Full-time Employees		1,250		6,200
Exchange Listing		OTCBB		NYSE Arca

Stock listing

We obtained listing approval from American Stock Exchange (AMEX) on September 28, 2007. The stock officially started to trade on AMEX on October 3, 2007 under the ticker symbol, “GSI”. On March 6, 2008, we migrated from the AMEX to the NYSE Arca and officially started to trade under the same ticker symbol, “GSI”.

Factors affecting our operating results

Demand for our products

Overall, domestic economic growth is an important demand driver for our products. According to estimates by various international sources, China’s economy will grow by approximately 10% in 2008. Industry demand drivers for our products include construction and infrastructure growth, rural income growth and energy demand.

At Longmen Joint Venture, growth in regional construction and infrastructure projects drives demand for our products. According to the 11^th Five-Year National Economic and Social Plan (the “NESDP”)(2006-2010), development of China’s western region is one of the top-five economic priorities of the nation. Shaanxi, the province where Longmen Joint Venture is located, has been designated as the bridgehead for development into the western region, and Xi’an, the provincial capital, has been designated as the focal point for this development. Our Longmen Joint Venture is 180 km from Xi’an and does not have another major competitor within a 250 km radius. According to a Shaanxi provincial government report issued on January 16, 2008, there are 150 construction and infrastructure projects scheduled to begin in the province in 2008. Major projects include six new highways, one new airport, the expansion of the Xi’an airport, a new ring subway system and three new dams. We see strong demand for our products driven by these and many other construction and infrastructure projects. We believe that there will be sustained regional demand for several years ahead as the government continues to strengthen its western region development efforts.

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At Daqiuzhuang Metal, rural income growth drives demand for our hot-rolled carbon sheets. According to the Asian Development Bank statistics, well over 60% of the nation’s 1.3 billion total population is comprised of low-income, rural farmers. Our steel sheets are used in the construction of light agricultural vehicles targeted for sale to low-income, rural farmers. We believe our sheets are lighter and of greater ductility than those of our competitors and are preferred by manufacturers of light agricultural vehicles. According to the 11^th Five-Year NESDP (2006-2010), raising the level of rural income is a top economic and social goal for the country. Many government initiatives, including removal of certain agricultural and local product taxes, have been implemented to spur rural income development. The government expects annual rural income to grow between 5% and 10% through 2010. Transportation asset growth slightly lags behind the growth in rural net income, so we anticipate demand for light agricultural vehicles to continue to grow between 4.7% and 9.6% throughout 2010.

At Baotou Steel Pipe Joint Venture, the need to transport oil, natural gas and steam drives demand for spiral-weld steel pipe. The West-East pipeline that will bring oil and natural gas from the Xinjiang Uyghur Autonomous Region to large eastern coastal cities will be the largest single demand driver for our pipes. This pipeline starts in China’s far western Xinjiang Uyghur Autonomous Region and stretches 4000 km through ten regions, provinces and municipalities before it ends in Zhejiang province. Construction on the pipeline commenced in the first quarter of 2008. Lesser demand is fueled by smaller pipeline projects and municipal energy infrastructure projects.

Supply of raw materials

Our primary raw materials consist of iron-ore and hot-rolled steel coil. Longmen Joint Venture uses iron-ore as its main raw material; Daqiuzhuang Metal and Baotou Steel Pipe Joint Venture use hot-rolled steel coil as their main raw material. Iron-ore is the main raw material used to produce hot-rolled steel coil. As a result, the price of iron-ore is the primary raw material cost for our products.

Longmen Joint Venture produces 2.5 million tons of our aggregate 3 million ton annual production. At Longmen Joint Venture, approximately 90% of the production costs are attributable to the purchase of raw materials, with iron-ore being the largest component of the purchase.

Nationwide the price of iron ore has been in an upward swing. During the first quarter of 2008, the average price per ton of domestic iron-ore increased from approximately RMB 1,350 per ton to RMB 1,550. This price was only approximately RMB 700 per ton during the first quarter of 2007. We expect the overall cost of iron-ore will continue to fluctuate at this level through the end of 2008.

According to the China Iron and Steel Association, approximately 60% of the China domestic steel industry demand for iron-ore will have to be filled by imports. At Longmen Joint Venture, we purchase iron-ore from four primary sources: the Mulonggou mine (owned by the Longmen Joint Venture), the Daxigou mine (owned by our joint venture partner), small local-area mines and from abroad. The Daxigou mine has 300 million tons of proven iron-ore reserves, of which only less than one million tons have been excavated. According to the terms of our Joint Venture agreement with the strategic partner, we have first rights of refusal for sales and development from this mine.

We source approximately 15% of our iron-ore from the Mulonggou and Daxigou mines, 70%-75% from local mines and only 10-15% of our iron-ore from abroad. The iron-ore from the Mulonggou and Daxigou mines is approximately 10% below the market price as a part of the Longmen Joint Venture agreement. In 2008, we aim to increase the percentage of iron-ore sourced from Mulonggou and Daxigou mines from approximately 15% to 30%. We anticipate this will increase our gross margin between 1.5% and 2.0%. We believe gaining greater direct control over our key raw material supply is important for margin and secured source protection. We expect to begin to see increased gross margin in the third quarter of this year.

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Industry consolidation

In 2007, the government held firm on its resolve to consolidate the highly fragmented domestic steel industry through coerced mergers and heightened operating requirements. In November 2007, the National Development and Reform Commission (NDRC), the nation’s top economic planner, reported that to date 29.4 million tons of outdated iron smelting capacity and 15.21 million tons of outdated steel smelting capacity had been eliminated. It also announced later obligation letter with 18 provinces, autonomous regions and municipalities to eliminate 49.31 million tons of outdated iron smelting capacity and 36.1 million tons of outdated steel smelting capacity. The obligation letters involved 573 enterprises. It is the government’s goal to consolidate 50% of domestic production among the top 10 steel companies by 2010 and 70% by 2020.

We believe that the government will continue to strengthen its industry consolidation effort. As excess capacity from weaker market players is removed, the eliminated capacity will be reassigned to steel companies which have gained government approval for expansion.

Environmental controls for the Olympic Games

This summer, Beijing will host the Olympic and Paralympic Games. In an effort to improve the air quality in and around Beijing, Interfax China has reported that Hebei Development and Reform Commission plans to suspend production at 42 polluting enterprises in the province, including small scale steel mills. The closure period will be between July 17 and September 20, 2008. The enterprises are scattered through seven cities surrounding Beijing: Shijiazhuang, Chengde, Zhangjiakou, Qinhuangdao, Tangshan, Langfang and Baoding. Our facilities are not included in this list. Based on currently available information, we do not anticipate any disruption in production capabilities at any of our facilities or significant market impact as a result of this intended action. We are monitoring the situation for any changes.

Winter storm in southern China

In early February, around the period of Chinese New Year, a severe and atypical winter storm hit China’s southern region. All of our facilities are located in the northern half of the country. As a direct result of the storm, we did not sustain any damages, deaths, power outages or production stoppages at any of our facilities. However, we did experience negative indirect impact brought about by the effects of government intervention to bring relief to the storm affected areas.

Owing to the unusual large-scale heating needs, during this period the government redirected coal mine production in the northern part of the country from production of coal for coking to production of coal for heat and power needed in the south. This caused a sudden scarcity of coking coal and sharp increase in price. This spike came on the back of a growing shortage of coking coal brought about by the National Development and Reform Commission mandate to close many small, unsafe mining operations and local government pressure to close high-pollutant coking operations. From the end of 2007 to March 2008, the price of coking coal increased almost 200%, from approximately RMB 800 to RMB 1600. The price of coking coal has fluctuated at the higher end of this range since March. Coking coal is a primary raw material in steel production.

Additionally, during this period, to transport the coal from the north to the south for heat and power, the government moved to secure many of the transportation resources in the market place. Many rail and truck transportation resources that supplement our own transportation resources for coal, coke and billets became unavailable. This caused a spike in freight transportation rental costs. As of the second quarter of this year, transportation costs have returned to normal levels.

The combination of above two factors caused unusual margin compression for us in the first quarter of 2008. The winter storm and the severity of its impact in the southern region of China are very atypical. As such, we do not view the ramifications of the storm’s impact on our operations in the first quarter in any way as regular, usual or recurring.

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Iron-Ore Price Increase

International iron-ore contract price went up 65% in the middle of the first quarter of this year. This international contract rate is available only to large-scale purchasers, of which we are not yet one. Our Longmen facility pays spot price for iron ore which went up by approximately 10% in the first quarter of this year. The increase also put some pressure on our gross margin. While we are the largest integrated producer of steel in the region and have a greater ability than non-integrated producers to pass higher production cost on to our customers, there exists a lag time between the time when the production cost goes up and the time when the selling price can be raised to cover the cost. This is the reason we were unable to immediately pass the costs on. The selling price has already caught up in the second quarter.

Seasonality - Chinese New Year

The first quarter of the year is always the weakest quarter in terms of the construction steel market in China. This seasonality is caused by the Chinese New Year, a national holiday period during which migrant workers take vacations from work to return to their villages. The winter weather also slows the pace of construction projects which reduces the demand for our main products. Conversely, the summer months with no holidays and a minimal risk of inclement weather are usually the strongest months for the construction steel industry.

Sichuan Earthquake

On May 12, 2008, a 7.8 magnitude earthquake hit Sichuan province causing large scale destruction and personal injury. Because of its severity, the earthquake was felt many thousand miles away from the epicenter. None of our three operating subsidiaries sustained damage from this earthquake. As of May 15, 2008, we do not see any adverse impact on our operations as a result of this earthquake.

Operating Results

Sales Revenue and Gross Profit

Three months ended March 31, 2008 compared with three months ended March 31, 2007

Overall, net sales for the three months ended March 31, 2008 were approximately $291.6 million compared to $37.6 million in the same period of 2007, an increase of 675%. The sharp increase in net sales is a result of our acquiring a controlling interest position in the Longmen Joint Venture in June 2007, and to a lesser extent the starting of our Baotou Steel Pipe Joint Venture which began sales in July 2007.

At Daqiuzhuang Metal, shipments for the three months ended March 31, 2008 decreased 39% to 53,739 tons in the first quarter of 2008 from 87,786 tons in the same period of 2007, due to the change in product mix. In the first quarter of 2008, we shifted our product mix to include more silicon sheets which have a longer processing time than carbon sheets. The average selling price per ton was $633 for the first quarter of 2008 as compared to $428 for the first quarter of 2007. This increase in selling price can be traced to both higher input costs as well as a greater percentage of the production volume devoted to silicon sheets which have a higher selling price than carbon sheets.

At our Baotou Steel Pipe Joint Venture, shipments for the three months ended March 31, 2008 were 1,832 tons. The average selling price per ton was $599.

At our Longmen Joint Venture, shipments for the three months ended March 31, 2008 were 469,600 tons. The average selling price per ton was $546.

The following table displays sales and steel shipment data for General Steel by operating unit for the three months ended March 31, 2008 and 2007, respectively.

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	1st quarter 2008				1st quarter 2007
Operating Unit	Shipment Volume		Sales Amount		Shipment Volume		Sales Amount
	(in Tons)				(in Tons)
Daqiuzhuang Metal	$	53,739	$	34,017,390	$	87,786	$	37,607,971
Baotou Steel Pipe Joint Venture     (a)		1,832		1,096,797		-		-
Longmen Joint Venture                  (b)		469,600		256,451,812		-		-
Totals	$	525,171	$	291,565,999	$	87,786	$	37,607,971

(a) Sales and shipment data reflected 100% of the Baotou Steel Pipe Joint Venture. General Steel, through its subsidiary, owns 80% of the Baotou Steel Pipe Joint Venture. 

(b) Sales and shipment data reflected 100% of the Longmen Joint Venture. General Steel, through its subsidiaries, owns 60% of the Longmen Joint Venture.

Gross profit for the three months ended March 31, 2008 was approximately $13.0 million, an increase of 649% or $11.3 million from $1.7 million for the same period of 2007. Gross profit margin decreased to 4.5% for the three months ended March 31, 2008 from 4.6% for the same period of 2007.

The following table displays gross profit and gross margin data for General Steel by operating unit for the three months ended March 31, 2008 and 2007, respectively.

	1st quarter 2008					1st quarter 2007
Operating Unit	Gross Profit		Gross Margin			Gross Profit		Gross Margin
Daqiuzhuang Metal	$	1,924,305		5.7	%	$	1,733,005		4.6	%
Baotou Steel Pipe Joint Venture		33,657		3.1	%		-		-
Longmen Joint Venture		11,024,153		4.3	%		-		-
Totals	$	12,982,115		4.5	%	$	1,733,005		4.6	%

However, our first quarter gross margin dropped significantly compared to the 4^th quarter in 2007. The following chart illustrated this:

		1st Quarter 2008				4th Quarter 2007
Operating Unit		Gross Profit	Gross Margin			Gross Profit	Gross Margin
Daqiuzhuang Metal	$	1,924,305	5.66	%	$	1,582,393	6.02	%
Baotou Steel Pipe Joint Venture		33,657	3.07	%		246,821	9.31	%
Longmen Joint Venture		11,024,153	4.30	%		19,123,423	7.99	%
Totals	$	12,982,115	4.46	%	$	20,952,637	7.81	%

Our overall gross profit margin was squeezed to 4.46% from the 1^st quarter of 2008 compared with 7.81% for the 4^th quarter of 2007. Reasons attributed to this decrease are explained as follows:

Winter Storm:

Ramification from a winter storm in early February hitting Southern China put significant cost pressure on our operation. This is mainly reflected in a price hike of coking coal and coke: a primary raw material in steel production at Longmen Joint Venture. Due to the unusually large-scale heating needs in the southern region of China, during this period the government redirected coal mine production in the northern part of the country from production of coal for coking to production of coal for heat and power needed in the south. This caused a scarcity of coking coal and coke and sharp increase in price. This spike came on the back of a growing shortage of coking coal and coke brought about by the National Development and Reform Commission mandate to close many small, unsafe mining operations, and local government effort to close high-pollutant coking operations. From the end of 2007 to March 2008, the price of coke increased almost 200%, from approximately RMB 800 to RMB 1600. Although Daqiuzhuang Metal and Baotou Steel Pipe Joint Venture don’t use coke directly in their production, this coke price increase indirectly impacted their gross margin since they purchased their feedstock ultimately from integrated steel producers.

Additionally, during this period, freight cost went up with the government’s effort to secure transportation resources to transport heating coal to the southern cities. Many rail and truck transportation resources that supplement our own transportation resources for coal, coke and billets became unavailable. We had to pay more to ship in and out our raw materials and finished products. This affected our operation at all three subsidiaries.

The combination of above two factors caused unusual margin compression for us in the first quarter of 2008. The winter storm and the severity of its impact in the southern region of China are very atypical. As such, we do not view the ramifications of the storm’s impact on our operations in the first quarter in any way as regular, usual or recurring.

Iron-Ore Price Increase

International iron-ore contract price went up 65% in the middle of the first quarter of this year. This international contract rate is available only to large-scale purchasers, of which we are not yet one. Our Longmen facility pays spot price for iron ore which went up by approximately 10% in the first quarter of this year. The increase also put additional pressure on our gross margin. While we are the largest integrated producer of steel in the region and have a greater ability than non-integrated producers to pass higher production cost on to our customers, there exists a lag time between the time when the production cost goes up and the time when the selling price can be raised to cover the cost. This is the reason we were unable to immediately pass the costs on. The selling price has already caught up in the second quarter.

Seasonality - Chinese New Year

The first quarter of the year is always the weakest quarter in terms of the construction steel market in China. This seasonality is caused by the Chinese New Year, a national holiday period during which migrant workers take vacation from work to return to their villages. The winter weather also slows the pace of construction which reduces the demand for our main products.

Baotou Steel Pipe Joint Venture operates in Baotou City, Inner Mongolia Autonomous Region. Due to the severe temperatures here and wide-spread permafrost, demand for our pipes in this season drops considerably compared to the other three quarters of the year.

Cost of Sales

Three months ended March 31, 2008 compared with three months ended March 31, 2007

Overall cost of sales increased to $278.6 million for the three months ended March 31, 2008 from $35.9 million for the same period of 2007, an increase of 676%. The sharp increase in cost of sales reflects our acquiring controlling interest position in the Longmen Joint Venture in June 2007, and to a lesser extent, the starting of our Baotou Steel Pipe Joint Venture which began sales operations in July 2007.

At Daqiuzhuang Metal, average cost per ton was $597 and $409, respectively for the three months ended March 31, 2008 and 2007. Cost of sales went up mainly due to the price increase in raw materials. Overall, our raw material feedstock costs were driven up by an increase in iron-ore prices. Additionally, we shifted our product mix to include a higher percentage of silicon sheets which have higher feedstock and processing costs than carbon steel sheets. For the quarter, 17.23% of the product mix was silicon sheets.

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At our Baotou Steel Pipe Joint Venture, average cost per ton was $580 for the three months ended March 31, 2008.

At our Longmen Joint Venture, average cost per ton was $523 for the three months ended March 31, 2008.

The following table displays cost of sales and steel shipment data for General Steel by operating unit for the three months ended March 31, 2008 and 2007, respectively.

	1st quarter 2008				1st quarter 2007
Operating Unit	Shipment Volume		Cost of Sales		Shipment Volume		Cost of Sales
	(in Tons)				(in Tons)
Daqiuzhuang Metal		53,739	$	32,093,085		87,786	$	35,874,966
Baotou Steel Pipe Joint Venture		1,832		1,063,140		-		-
Longmen Joint Venture		469,600		245,427,659		-		-
Totals		525,171	$	278,583,884		87,786	$	35,874,966

Selling, General and Administrative Expenses

Three months ended March 31, 2008 compared with three months ended March 31, 2007

Selling, general and administrative expenses were $6.5 million for the three months ended March 31, 2008, compared to $0.6 million for the same period of 2007. This increase is largely attributable to the operations of the Longmen Joint Venture, which began in June, and alone accounted for approximately $4.4 million in selling, general and administrative expenses in the first quarter 2008.

Other income (expense)

Three months ended March 31, 2008 compared with three months ended March 31, 2007

Finance and interest expenses were $6.0 million for the three months ended March 31, 2008, a 900% increase from $0.6 million for the same period of 2007. The increase is traced to an increase in short term borrowings largely associated with the Longmen Joint Venture operations.

Income from derivative instrument was $2.7 million for the three months ended March 31, 2008, there was no derivative instrument for the same period of 2007. See more detail information in our footnote, Note 14– Convertible notes.

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Net income

Three months ended March 31, 2008 compared with three months ended March 31, 2007

Net income was $2.2 million for the three months ended March 31, 2008, compared to $0.47 million for the same period of 2007, an increase of 361%. The increase is largely attributable to the contributions from the Longmen Joint Venture which began in June 2007 and the income of $2.7 million recorded for the change in fair value of the derivative instrument in connection with the issuance of the convertible notes in the first quarter of 2008.

Earnings per share

Earnings per share was $0.063 for the three months ended March 31, 2008. Earnings per share are calculated as follows:

	1st quarter 2008		1st quarter 2007
Income attributable to holders of common shares	$	2,188,460	$	474,865
Basic weighted average number of common shares outstanding		34,836,394		31,320,251
Add: dilution effect of warrants		87,220		-
Diluted weighted average number of common shares outstanding		34,923,614		31,320,251
Earnings per share
Basic	$	0.063	$	0.015
Diluted	$	0.063	$	0.015

Income taxes

Three months ended March 31, 2008 compared with three months ended March 31, 2007

The Company did not carry on any business and did not maintain any branch office in the United States during the three months ended March 31, 2008 and 2007. 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 was exempt from income tax for the years ended December 31, 2005 and 2006 and is eligible for a 50% income tax reduction for the years ended December 31, 2007, 2008 and 2009. The current effective income tax rate is 12%.

The effective income tax rate at our Baotou Steel Pipe Joint Venture is 25%. The new Enterprise Income Tax Law became effective January 1, 2008, reducing the income tax rate for Baotou Steel Pipe Joint Venture from 33% to 25%.

Our Longmen Joint Venture is located in the mid-west region of China. The National Development and Reform Commission (NDRC) granted it qualification approval to attain the “Go West” special tax treatment. This national tax treatment rewards companies contributing to the economic development of the Western Region by lowering their effective corporate tax rate from 33 percent to 15 percent. This change is effective July 1, 2007 and is reflected from our financial results.

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For the three months ended March 31, 2008, we had a tax expense of $0.45 million.

Minority Interest

Minority interest mainly consists of Long Steel Group’s 40% interest in Longmen Joint Venture, Baotou Iron and Steel Group’s 20% interest in Baotou Steel Pipe Joint Venture, and 77.24% interest of Tongxing which was owned by other shareholders.

Accounts Receivable

Accounts receivable and accounts receivable-related party were $27.8 million as of March 31, 2008 compared to $11.8 million on December 31, 2007.

We recognize revenue when we ship out products and pass 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 adjust the allowance amount if needed. We believe the accounts receivable amount is collectible. Nevertheless, to be conservative and prudent in our management practice, as of March 31, 2008, we reserved $270,235 for bad debt allowance based on our reasonable estimate.

Liquidity and capital resources

Due to the strong market demand for our products and our new Longmen Joint Venture, we plan to maintain a higher-than-average debt to equity ratio to better position ourselves in this fast growing market. Our 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 including restricted cash amounted to $60.7 million and $52.1 million as of March 31, 2008 and December 31, 2007, respectively.

Operating activities

Net cash used by operating activities for the first quarter of 2008 was $27.1 million compared to $2.8 million used in the same period of 2007. This change was mainly due to the combination of the following factors:

Net cash generated in the first quarter of 2008 was primarily attributable to net income of $2.2 million adjusted by depreciation and amortization, minority interest and gain on derivative instrument, total of $4.2 million. Cash received from accounts receivable and accounts receivable-related party was $6.2 million in the first quarter of 2008 compared to $5.9 million in the same period of 2007. Notes receivable and other receivable in total had a cash outflow of $4.0 million in the first quarter of 2008 compared to an outflow of $1.1 million in the same period of 2007. Increase in inventory and advances on inventory purchases resulted in a cash outflow of $37.7 million compared to $13.1 million in the same period of 2007.

Accounts payable, other payables, accrued liabilities, customer deposits and tax payable decreased by $1.9 million compared to $4.0 million in the same period of 2007.

Changes in these accounts have mainly resulted from the acquisitions of the Boutou Steel Pipe Joint Venture and Longmen Joint Venture.

Investing activities

Net cash used by investing activities was $27.3 million for the first quarter of 2008 compared to $0.5 million used in the same period of 2007. This increase in cash used in investing activities mainly resulted from a $28.0 million on equipment purchase.

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Financing activities

Net cash provided by financing activities was $23.0 million for the first quarter of 2008 compared to $1.3 million in the same period of 2007. This was mainly attributable to a net cash inflow of $51.3 million on short term notes payable.

Impact of inflation

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

Compliance with environmental laws and regulations

Longmen Joint Venture:

Since 2002, our joint venture partner, Long Steel Group, has invested RMB 580 million (approximately $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 (approximately $4.3 million) on a comprehensive waste water recycling and water treatment system. The 2,000m3/h treatment capacity system was implemented at the end of 2005. In the first quarter of 2008, new water consumption per ton of steel produced was 1.1 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, building 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, Daqiuzhuang County ordered an environmental clean-up campaign and required harmful 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 ware no off-balance sheet arrangements in the first quarter of 2008.

Critical Accounting Policies

Management’s discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Our financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. See Note 2 to our consolidated financial statements, “Summary of Significant Accounting Policies.” Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the following reflect the more critical accounting policies that currently affect our financial condition and results of operations.

Revenue recognition

The Company's revenue recognition policies are in compliance with Staff Accounting Bulletin (“SAB”) 104. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are recorded as customer deposits. Sales revenue represents the invoiced value of goods, net of value-added tax (VAT). All of the Company’s products sold in the PRC are subject to a Chinese value-added tax at a rate of 13% to 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 the finished product.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles of the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s financial statements include the useful lives of and impairment for property, plant and equipment, potential losses on uncollectible receivables and convertible notes. Actual results could differ from these estimates.

Derivative Instrument

The Company entered into a Securities Purchase Agreement (the “Agreement”) with certain institutional investors (the “Buyers”). Pursuant to the Agreement, the Company agreed to sell to the Buyers (i) senior convertible notes in the aggregate principal amount of $40,000,000 (“Notes”) and (ii) warrants to purchase an additional aggregate amount of 1,154,958 shares of Common Stock of the Company (the “Warrants”). Both the Warrants and the conversion option embedded in the Notes meet the definition of a derivative instrument in SFAS 133, Accounting for Derivative Instruments and Hedging Activities. Therefore these instruments are accounted for as derivative liabilities and periodically marked-to-market. The change in the value of the derivative liabilities is charged against or credited to income.

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Financial instruments

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

The Company considers the carrying amount of cash, accounts receivable, other receivables, accounts payable, accrued liabilities, and long term debts 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.

The Company also analyzes all financial instruments with features of both liabilities and equity under SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” SFAS No 133, “Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” The convertible preferred shares issued in 2005 and the convertible note issued in 2007 did not require bifurcation or result in liability accounting. Additionally, the Company analyzes registration rights agreements associated with any equity instruments issued to determine if penalties triggered for late filing should be accrued under FSP EITF 00-19-2, “Accounting for Registration Payment Arrangements.”

Fair value measurements

The Company adopted SFAS 157, “Fair Value Measurements” on January 1, 2008. SFAS 157 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosures requirements for fair value measures. The three levels are defined as follow:

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

New Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115 (“FAS 159”). FAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective of FAS 159 is to provide opportunities to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply hedge accounting provisions. FAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. The Company chose not to elect the option to measure the fair value of eligible financial assets and liabilities.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company has not determined the effect that the application of SFAS 160 will have on its consolidated financial statements.

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In December 2007, Statement of Financial Accounting Standards No. 141(R), Business Combinations, was issued. SFAS No. 141R replaces SFAS No. 141, Business Combinations. SFAS 141R retains the fundamental requirements in SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. This replaces SFAS 141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. SFAS 141R also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with SFAS 141R). SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The Company is currently evaluating the impact that adopting SFAS No. 141R will have on its financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS 161”), which changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company has not determined the effect that the application of SFAS 161 will have on its consolidated financial statements.

Contractual obligations and commercial commitments

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows.

The following tables summarize our contractual obligations as of March 31, 2008, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

	Payment due by period
Contractual obligations	Total		Less than 1 year		1-3 years		3-5 years
	Dollars amounts in thousands
Bank loans (1)	$	128,027	$	128,027	$		$
Notes payable		75,327		75,327
Deposits due to customers and sales representatives		63,618		63,618
Convertible notes ( Principal plus Interest )		54,000		1,200		4,800		48,000
Total	$	320,972	$	268,172	$	4,800	$	48,000

(1) Bank loans in China are due on demand or normally within one year. These loans can be renewed with the banks. This amount includes estimated interest payments as well as debt maturities.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk and Related Risks

In the normal course of our business, we are exposed to market risk or price fluctuations related to the purchase, production or sale of steel products over which we have little or no control. We do not use any derivative commodity instruments to manage the price risk. Our market risk strategy has generally been to obtain competitive prices for our products and allow operating results to reflect market price movements dictated by supply and demand. Based upon an assumed 2008 annual production capacity of 2 million tons of steel, a $1 change in the annual average price would change annual pre-tax profits by approximately $2 million.

Interest Rate Risk

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

Foreign Currency Exchange Rate Risk

Our operating units, Daqiuzhuang Metal, Longmen Joint Venture and Baotou Steel Pipe Joint Venture, are all located in China. They produce and sell all of their products domestically in the P.R.C. They are subject to the foreign currency exchange rate risks due to the effects of fluctuations in the Chinese Renminbi on revenues and operating costs and existing assets or liabilities. We have not generally used derivative instruments to manage this risk. Generally, a ten percent (10%) decrease in Renminbi exchange rate would result in a $237,000 decrease to income.

ITEM 4T. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2008. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2008, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

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Changes in Internal Control Over Financial Reporting

The Baotou Steel Pipe JV and Longmen JV formed during the year ended December 31, 2007 increased the burden of employing adequate controls over financial reporting. We believe that the controls over financial reporting in place at the two acquired operations at the time of acquisition were and remained adequate. Management has reviewed these controls and believes that there was no condition with the internal control of General Steel Holdings, Inc. over financial reporting that materially affected, or was reasonably likely to materially affect, the internal control of General Steel Holdings, Inc.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None for the period covered by this report.

ITEM 1A. RISK FACTORS

Our business, financial condition and results of operations are subject to various risks, including those discussed below, which may affect the value of our securities.  The risks discussed below are those that we believe are currently the most significant, although additional risks not presently known to us or that we currently deem less significant may also impact our business, financial condition and results of operations, perhaps materially.

Risks Related to Our Business

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

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 important to our customers when selecting a steel supplier include:

· Quality;

· Price/cost competitiveness;

· System and product performance;

· Reliability and timeliness of delivery;

· New product and technology development capability;

· Excellence and flexibility in operations;

· Degree of global and local presence;

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· 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 the following eight major competitors of similar size, production capability and product line in the market place competing against our three operating subsidiaries as indicated:

· Competitors of Daqiuzhuang Metal include: Tianjin No. 1 Rolling Steel Plant, Tianjin Yinze Metal Sheet Plant and Tangshan Fengrun Metal Sheet Plant;

· Competitors of Longmen Joint Venture include: Shanxi Haixin Iron and Steel Co., Ltd. and Gansu Jiuquan Iron and Steel Co., Ltd.; and

· Competitors of Baotou Steel Pipe Joint Venture include: Tianjin Bo Ai Steel Pipe Co., Hebei Cangzhou Zhong Yuan Steel Pipe Co., and Shanxi Taiyuan Guo Lian Steel Pipe Co.

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 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 markets in which we operate as well as the impact of any changes in government regulation; and

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· Anticipate mergers and acquisitions, technological developments and other significant competitive and market dynamics involving our competitors. Our business, business prospects and results of operations will be affected if we are not successful in addressing any or all of these risks and difficulties.

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

Our continued growth is dependent upon our ability to raise additional capital from outside sources. Our strategy is to grow through aggressive mergers, joint ventures and acquisitions targeting SOE steel companies and selected entities with outstanding potential. Our growth strategy 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 industry sectors in which we operate; 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 three months ended March 31, 2008, approximately 53% of our sales were to five customers and these customers accounted for 39% of total account receivables. 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.

Steel consumption is cyclical and worldwide overcapacity in the steel industry and the availability of alternative products have resulted in intense competition, which may have an adverse effect on profitability and cash flow.

Steel consumption is highly cyclical and follows general economic and industrial conditions both worldwide and in regional markets. The steel industry has historically been characterized by excess world supply, which has led to substantial price decreases during periods of economic weakness. Future economic downturns could decrease the demand for our products. Substitute materials are increasingly available for many steel products, which further reduces demand for steel.

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

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

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

According to the survey conducted by the China Iron and Steel Association, there are more than 1,100 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 this guidance on the 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 and result in consolidation within the fragmented steel sector. If the current state of overproduction continues, our product 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.

Disruptions to our manufacturing processes could adversely affect our operations, customer service and financial results.

Steel manufacturing processes are dependent on critical steel-making equipment, such as furnaces, continuous casters, rolling mills and electrical equipment (such as transformers), and such equipment may incur downtime as a result of unanticipated malfunctions or other events, such as fires or furnace breakdowns. Although our manufacturing plants have not experienced plant shutdowns or periods of reduced production as a result of such equipment failures or other events, we may experience such problems in the future. To the extent that lost production as a result of such a disruption could not be recovered by unaffected facilities, such disruptions could have an adverse effect on our operations, customer service and financial results.

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 our subsidiaries.

We have no operations independent of those of Daqiuzhuang Metal, Baotou Steel Pipe Joint Venture and Longmen Joint Venture, and our principal assets are our investments in these subsidiaries. As a result, we are dependent upon the performance of Daqiuzhuang Metal, Baotou Steel Pipe Joint Venture and Longmen Joint Venture and we will be subject to the financial, business and other factors affecting our subsidiaries 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 our subsidiaries’ liabilities and obligations have been paid in full.

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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, acquiring and 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 acquired businesses, 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 $205.9 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 Mr. Zuosheng Yu 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 Mr. Zuosheng Yu, our Chairman, Chief Executive Officer and majority shareholder, for the direction of our business and leadership in our growth effort. The loss of the services of Mr. Yu, for any reason, may have a material adverse effect on our business and prospects. We cannot guarantee that Mr. Yu will continue to be available to us, or that we will be able to find a suitable replacement for Mr. Yu on a timely basis.

There have been historical deficiencies with our internal controls which require further improvements, and we are exposed to potential risks from legislation requiring companies to evaluate controls under Section 404 of the Sarbanes-Oxley Act of 2002.

While we believe that we currently have adequate internal control procedures in place, we are still exposed to potential risks from legislation requiring companies to evaluate controls under Section 404 of the Sarbanes-Oxley Act of 2002. Under the supervision and with the participation of our management, we have evaluated our internal controls systems in order to allow management to report on, and our registered independent public accounting firm to attest to, our internal controls, as required by Section 404 of the Sarbanes-Oxley Act. We have performed the system and process evaluation and testing required in an effort to comply with the management certification and auditor attestation requirements of Section 404. As a result, we have incurred additional expenses and a diversion of management’s time. If we are not able to continue to meet the requirements of Section 404 in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC or the NYSE Market. Any such action could adversely affect our financial results and the market price of our stock.

We do not presently maintain product liability insurance in the PRC, and our property and equipment insurance does not cover the full value of our property and equipment, which leaves us with exposure in the event of loss or damage to our properties or claims filed against us.

We currently do not carry any product liability or other similar insurance in China. We cannot assure you that we would not face liability in the event of the failure of any of our products.

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We have purchased automobile insurance with third party liability coverage for our vehicles. In addition, we have purchased property insurance from China United Property Insurance Company to cover real property and plant. Except for property and automobile insurance, we do not have other insurance such as business liability or disruption insurance coverage for our operations in the PRC. In the event of a significant product liability claim or other uninsured event, our financial results and the price of our common stock may be adversely affected.

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 transitioning 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 through, 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. Along with our subsidiaries, 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 treatment 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. We may be subject to sanctions, including fines, and could be required to restructure our operations. Such restructuring may not be deemed effective or encounter similar or other difficulties. 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 adversely effect our results of operations and our productivity.

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 deteriorate, 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 U.S. 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.

The PRC State Administration of Foreign Exchange, or SAFE, requires PRC residents to register with, or obtain approval from SAFE regarding their direct or indirect offshore investment activities.

PRC State Administration of Foreign Exchange Regulations regarding offshore financing activities by PRC residents has undertaken continuous changes which may increase the administrative burden we face and create regulatory uncertainties that could adversely affect the implementation of our acquisition strategy. A failure by our shareholders who are PRC residents to make any required applications and filings pursuant to such regulations may prevent us from being able to distribute profits and could expose us and our PRC resident shareholders to liability under PRC law.

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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 negatively affect our business operations, results of operations and our financial condition.

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

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

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

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

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

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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. If 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. As of March 31, 2008, the exchange rate of the RMB to the U.S. dollar was 7.01 yuan to 1 dollar.

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.

Our operating subsidiary must comply with environmental protection laws that could adversely affect our profitability.

We are required to comply with the environmental protection laws and regulations promulgated by the national and local governments of the PRC. Yearly inspections of waste treatment systems require the payment of a license fee which could become a penalty fee if standards are not maintained. If we fail to comply with any of these environmental laws and regulations in the PRC, depending on the types and seriousness of the violation, we may be subject to, among other things, warning from relevant authorities, imposition of fines, specific performance and/or criminal liability, forfeiture of profits made, being ordered to close down our business operations and suspension of relevant permits.

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 70% of our common stock. Mr. Zuosheng Yu our major shareholder, beneficially owns approximately 69% of our common stock. Mr. Yu can effectively control us and his interests may differ from other stockholders.

All our subsidiaries are located in China and substantially all of our assets are located outside 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, such judgments may not be enforceable in PRC courts. All our directors and officers reside outside of the United States. 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.

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.

Investors may experience dilution from any conversion of the senior convertible notes and the exercise of warrants we issued in December 2007.

We are registering the shares of our common stock issuable upon conversion approximately $40,000,000 worth of senior convertible notes convertible into 4,170,009 shares of our common stock assuming a conversion price of $12.47 per share and applicable interest rates and upon the exercise warrants to purchase an additional aggregate amount of 1,154,958 shares of our common stock at an exercise price of $13.51 per share that we issued in December 2007. The issuance of shares of our common stock upon conversion of the notes and exercise of the warrants will dilute current shareholders’ holdings in our company. The senior convertible notes have a five year term through December 12, 2012 and the warrants are exercisable from May 13, 2008 to May 13, 2013.

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

On December 13, 2007, we entered into a Securities Purchase Agreement (the “Agreement”) with certain institutional investors (the “Buyers”). Pursuant to the Agreement, we agreed to sell to the Buyers (i) senior convertible notes in the aggregate principal amount of $40,000,000 (“Notes”) and (ii) warrants to purchase an additional aggregate amount of 1,154,958 shares of our Common Stock (the “Warrants”).

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The Notes bear initial interest at 3% per annum, which will be increased each year as specified in the Notes, payable semi-annually in cash or shares of our common stock, par value $0.001 per share (the “Common Stock”). The Notes have a five year term through December 12, 2012. They are convertible into shares of the Common Stock, subject to customary anti-dilution adjustments. The initial conversion price is $12.47. We may redeem the Notes at 100% of the principal amount, plus any accrued and unpaid interest, beginning December 13, 2008, provided the market price of the Common Stock is at least 150% of the then applicable conversion price for 30 consecutive trading days prior to the redemption. The Notes are secured by a first priority, perfected security interest in certain shares of Common Stock of Zuosheng Yu, as evidenced by the pledge agreement (the “Pledge Agreement”). The Notes are subject to events of default customary for convertible securities and for a secured financing.

The Warrants grant the Buyers the right to acquire shares of Common Stock at $13.51 per share of Common Stock, subject to customary anti-dilution adjustments. The Warrants may be exercised to purchase Common Stock at any time or times on or after May 13, 2008, but not after May 13, 2013, the expiration date of the Warrants.

In connection with this transaction, the Buyers and we entered into a registration rights agreement (the “Registration Rights Agreement”). Pursuant to the terms and conditions of the Registration Rights Agreement, we have agreed to register within 60 calendar days after closing shares of Common Stock issuable to the Buyers for resale on a Form S-1 Registration Statement to be effective by 90 calendar days or 120 days if the registration statement is subject to a full review by the U.S. Securities and Exchange Commission. We shall register an amount of Common Stock for resale that equals at least 120% of the sum of shares issuable upon conversion of the Notes, the exercise of the Warrants and the payment of interest accrued on the Notes. The registration rights granted under the Registration Rights Agreement are subject to customary exceptions and qualifications and compliance with certain registration procedures.

We registered 3,590,822 shares of common stock underlying the Notes and Warrants to meet the amount restriction under Rule 415 of the Securities Act after a proportionate deduction of all selling shareholders’shares underlying the Notes and Warrants eligible for registration. 

150,000 share issuance of common stock to Marriman Curhan Ford & Co. and Jian Ke

In associated with the Security Purchase Agreement we entered into on December 13, 2007, we issued 150,000 shares of common stock, on January 8, 2008, to Merriman Curhan Ford & Co. and Jian Ke for investment banking related services provided to us in the facilitation of this Security Purchase Agreement. The total cost of the stock issuance was $1,564,500. We based the market price for our common shares on the date they were granted.

76,600 share issuance of common stock as interim incentives to senior and mid-level management

On January 14, 2008, we issued to senior and mid-level management and directors 76,600 shares of our common stock as compensation. We valued the shares at the market price as of the date they were granted. We recorded $548,456 as compensation expense.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS

(a) Exhibits

31.1	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.
31.2	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as filed herewith.
32.1	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.
32.2	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.

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SIGNATURES

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

	General Steel Holdings, Inc.
Date: May 15, 2008	By: /s/ Zuosheng Yu
	Zuosheng Yu
	Chief Executive Officer and Chairman
Date: May 15, 2008	By: /s/ John Chen
	John Chen
	Director and Chief Financial Officer

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