- Quarterly Report (10-Q)

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, 2009

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.)

Kun Tai International Mansion Building, Suite 2315

Yi No. 12, Chaoyangmenwai Avenue

Chaoyang 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 ý

Non-accelerated filer o

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 8, 2009, 38,627,071 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.

	Consolidated Balance Sheets as of March 31, 2009 (Unaudited) and December 31, 2008	2

	Consolidated Statements of Income and Other Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2009 and 2008	3

	Consolidated Statements of Shareholders’ Equity (Unaudited)	4

	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2009 and 2008	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.	56

Item 4.	Controls and Procedures	56

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings.	57

Item 1A.	Risk Factors	57

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67

Item 3.	Defaults on Senior Securities	68

Item 4.	Submission of Matters to a Vote of Security Holders	68

Item 5.	Other Information	68

Item 6.	Exhibits	68

Signatures		68

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GENERAL STEEL HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2009 AND DECEMBER 31, 2008

	March 31,			December 31,
	2009			2008
	Unaudited
ASSETS

CURRENT ASSETS:
Cash	$	39,128,494		$	14,895,442
Restricted cash		174,321,481			130,700,335
Notes receivable		17,318,812			38,207,312
Accounts receivable, net of allowance for doubtful accounts of $400,571 and $401,109 as of March 31, 2009 and December 31, 2008, respectively		20,082,659			8,329,040
Other receivables, net of allowance for doubtful accounts of $683,826 and $684,767 as of March 31, 2009 and December 31, 2008, respectively		2,479,717			5,099,469
Other receivables - related parties		1,395,616			523,024
Dividend receivable		629,621			630,481
Inventories		107,858,572			59,548,915
Advances on inventory purchases		36,840,793			47,153,869
Advances on inventory purchases - related parties		13,863,922			2,374,637
Prepaid expenses - current		704,162			494,370
Deferred tax assets		6,488,093			7,487,380
		421,111,942			315,444,274

PLANT AND EQUIPMENT, net		527,298,591			491,705,028

OTHER ASSETS:
Advances on equipment purchases		7,755,163			8,965,382
Investment in unconsolidated subsidiaries		20,476,409			13,959,432
Prepaid expenses - non current		1,153,027			1,195,073
Prepaid expenses related party - non current		197,775			211,248
Long term other receivable		4,563,423			4,872,584
Intangible assets, net of accumulated amortization		24,461,096			24,555,655
Note issuance cost		4,197,058			4,217,974
Plant and equipment to be disposed		-			586,508
Total other assets		62,803,951			58,563,856

Total assets	$	1,011,214,484		$	865,713,158

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Short term notes payable	$	244,428,086		$	206,040,150
Accounts payable		150,364,523			149,239,317
Accounts payable - related parties		32,026,694			15,326,524
Short term loans - bank		85,931,040			67,840,256
Short term loans - others		90,928,371			87,833,706
Short term loans - related parties		7,339,650			7,349,670
Other payables		10,407,709			3,182,661
Other payable - related parties		8,191,474			677,013
Accrued liabilities		11,652,374			7,779,488
Customer deposits		147,012,299			141,101,584
Customer deposits - related parties		6,690,802			7,216,319
Deposits due to sales representatives		43,858,305			8,149,279
Taxes payable		14,087,859			13,916,636
Distribution payable to former shareholders		18,739,625			18,765,209
Total current liabilities		871,658,811			734,417,812

CONVERTIBLE NOTES PAYABLE, net of debt discount of $25,625,326 and $26,094,942 as of March 31, 2009 and December 31, 2008, respectively		7,624,674			7,155,058

DERIVATIVE LIABILITIES		5,788,442			9,903,010

COMMITMENT AND CONTINGENCIES

Total liabilities		885,071,927			751,475,880

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, 36,390,323 and 36,128,833 shares issued and outstanding as of March 31, 2009 and December 31, 2008, respectively		36,390			36,129
Paid-in-capital		37,957,453			37,128,641
Retained earnings		17,166,701			10,091,829
Statutory reserves		5,162,401			4,902,641
Contribution receivable		(959,700	)		(959,700	)
Accumulated other comprehensive income		8,230,428			8,407,359
Total shareholders' equity		67,596,766			59,609,992

NONCONTROLLING INTERESTS		58,545,791			54,627,286

Total equity		126,142,557			114,237,278

Total liabilities and shareholders' equity	$	1,011,214,484		$	865,713,158

The accompanying notes are an integral part of these statements.

- 2 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31

(UNAUDITED)

	2009			2008
REVENUES	$	262,414,416		$	178,492,167

REVENUES - RELATED PARTIES		60,379,480			113,073,832

TOTAL REVENUES		322,793,896			291,565,999

COST OF SALES		252,002,104			166,714,663

COST OF SALES - RELATED PARTIES		57,869,673			111,869,221

TOTAL COST OF SALES		309,871,777			278,583,884

GROSS PROFIT		12,922,119			12,982,115

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		9,168,261			6,532,821

INCOME FROM OPERATIONS		3,753,858			6,449,294

OTHER INCOME (EXPENSE), NET
Interest income		878,633			580,318
Finance/interest (expense)		(2,938,778	)		(5,986,507	)
Change in fair value of derivative liabilities		4,114,568			2,670,764
Gain from debt extinguishment		2,930,200			-
Government grant		3,519,890			-
Income from equity investments		(54,632	)		-
Other non-operating income (expense), net		510,216			369,270
Total other income (expense), net		8,960,097			(2,366,155	)

INCOME BEFORE PROVISION FOR INCOME TAXES
AND NONCONTROLLING INTEREST		12,713,955			4,083,139

PROVISION FOR INCOME TAXES
Current		164,221			666,356
Deferred		1,221,850			(216,533	)
Total provision for income taxes		1,386,071			449,823

NET INCOME BEFORE NONCONTROLLING INTEREST		11,327,884			3,633,316

Less: Net income attributable to noncontrolling interest		3,993,252			1,444,856

NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST		7,334,632			2,188,460

OTHER COMPREHENSIVE (LOSS) INCOME:
Foreign currency translation adjustments		(176,931	)		1,615,950
Comprehensive (loss)income attributable to noncontrolling interest		(74,746	)		2,706,989

COMPREHENSIVE INCOME	$	7,082,955		$	6,511,399

WEIGHTED AVERAGE NUMBER OF SHARES
Basic		36,285,312			34,836,394
Diluted		36,285,312			34,923,614

EARNING PER SHARE
Basic	$	0.20		$	0.06
Diluted	$	0.20		$	0.06

The accompanying notes are an integral part of these statements.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

																			Accumulated
	Preferred stock				Common stock						Retained earnings								other
									Paid-in		Statutory					Subscriptions			comprehensive			Noncontrolling
	Shares		Par value		Shares		Par value		capital		reserves		Unrestricted			receivable			income			interest			Totals

BALANCE, January 1, 2008		3,092,899	$	3,093		34,634,765	$	34,635	$	23,429,153	$	3,632,325	$	22,686,590		$	(959,700	)	$	3,285,278		$	43,322,066		$	95,433,440

Net income														2,188,460									1,444,856			3,633,316
Acquired noncontrolling interest																							14,973,544			14,973,544
Adjustment to statutory reserve												347,747		(347,747	)											-
Preferred stock issued for acquistion of minority interest ,																										-
net of dividend distribution to Victory New																										-
Conversion of redeemable stock, $1.95																										-
Common stock issued for service, $1.32																										-
Common stock issued by $2.50																										-
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																				1,615,950			2,706,989			4,322,939

BALANCE, March 31, 2008, unaudited		3,092,899	$	3,093		34,861,365	$	34,862	$	25,541,882	$	3,980,072	$	24,527,303		$	(959,700	)	$	4,901,228		$	62,447,455		$	120,476,195

Net loss														(13,512,905	)								(9,986,693	)		(23,499,598	)
Acquired noncontrolling interest																							921,942			921,942
Adjustment to statutory reserve												922,569		(922,569	)											-
Common stock issued for compensation, $6.66						87,400		87		581,997																582,084
Common stock issued for compensation, $10.29						90,254		90		928,582																928,672
Common stock issued for consulting fee, $3.6						100,000		100		359,900																360,000
Common stock issued for public relations, $3.6						25,000		25		89,975																90,000
Common stock issued for compensation, $3.5						87,550		88		306,337																306,425
Common stock transferred by CEO for compensation, $6.91										207,300																207,300
Common stock issued at $5/share						140,000		140		699,860																700,000
Notes converted to common stock						541,299		541		6,102,691																6,103,232
Make whole shares issued on notes conversion						195,965		196		2,310,117																2,310,313
Foreign currency translation adjustments																				3,506,131			1,244,582			4,750,713

BALANCE, December 31, 2008		3,092,899	$	3,093		36,128,833	$	36,129	$	37,128,641	$	4,902,641	$	10,091,829		$	(959,700	)	$	8,407,359		$	54,627,286		$	114,237,278

Net income														7,334,632									3,993,251			11,327,883
Adjustment to statutory reserve												259,760		(259,760	)											-
Common stock issued for compensation, $1.85						109,250		109		202,003																202,112
Common stock issued for interest payment, $3.66						152,240		152		557,709																557,861
Common stock transferred by CEO for compensation, $6.91										69,100																69,100
Foreign currency translation adjustments																				(176,931	)		(74,746	)		(251,677	)

BALANCE, March 31, 2009, unaudited		3,092,899	$	3,093		36,390,323	$	36,390	$	37,957,453	$	5,162,401	$	17,166,701		$	(959,700	)	$	8,230,428		$	58,545,791		$	126,142,557

The accompanying notes are an integral part of these statements.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31

(UNAUDITED)

	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to controlling interest	$	7,334,632		$	2,188,460
Net income attributable to noncontrolling interest		3,993,252			1,444,856
Consolidated net income		11,327,884			3,633,316
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation		6,024,757			4,499,873
Amortization		224,416			205,146
Debt waiver		(2,930,200	)		-
(Gain)Loss on disposal of equipment		(3,517,774	)		9,492
Stock issued for services and compensation		271,212			548,456
Amortization of deferred note issuance cost		20,917			8,894
Amortization of discount on convertible notes		-			697,628
Change in fair value of derivative instrument		(4,114,568	)		(2,670,763	)
Deferred tax assets		989,146			(216,533	)
Changes in operating assets and liabilities
Accounts receivable		(11,764,035	)		(1,459,682	)
Accounts receivable - related parties		-			7,631,355
Notes receivable		20,837,833			(13,832,292	)
Notes receivable - restricted		-			8,491,027
Other receivables		2,915,525			1,533,823
Other receivables - related parties		(1,736,108	)		(148,056	)
Inventories		(48,394,144	)		(17,647,149	)
Advances on inventory purchases		10,249,490			6,516,616
Advances on inventory purchases - related parties		(7,552,281	)		(26,563,452	)
Prepaid expense - current		(156,475	)		(220,516	)
Accounts payable		1,285,289			11,144,259
Accounts payable - related parties		21,860,581			(6,951,111	)
Other payables		7,229,879			(2,579,136	)
Other payable - related parties		8,179,890			(2,118,101	)
Accrued liabilities		3,882,827			522,377
Customer deposits		6,103,498			20,885,570
Customer deposits - related parties		(5,120,847	)		(9,391,133	)
Taxes payable		190,208			(9,585,924	)
Net cash provided by (used in) operating activities		16,306,920			(27,056,016	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquired long term investment		(6,592,950	)		-
Cash acquired from subsidiary		-			702,237
Deposits due to sales representatives		35,722,574			(451,457	)
Advance on equipment purchases		1,198,078			416,045
Cash proceeds from sale of equipment		440			-
Equipment purchases		(41,415,299	)		(28,097,609	)
Intangible assets purchases		(163,329	)		143,465
Net cash used in investing activities		(11,250,486	)		(27,287,319	)

CASH FLOWS FINANCING ACTIVITIES:
Restricted cash		(43,802,323	)		(33,726,504	)
Borrowings on short term loans - bank		51,732,681			24,893,037
Payments on short term loans - bank		(33,548,167	)		(28,568,988	)
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		13,295,533			23,147,344
Payments on short term loans - others		(7,150,703	)		(16,733,731	)
Borrowings on short term notes payable		158,809,676			62,896,500
Payments on short term notes payable		(120,138,200	)		(11,614,887	)
Borrowings on employee loans		-			2,306,205
Payment to noncontrolling shareholders		-			(594,336	)
Net cash provided by financing activities		19,198,497			23,019,370

EFFECTS OF EXCHANGE RATE CHANGE IN CASH		(21,879	)		857,715

INCREASE (DECREASE) IN CASH		24,233,052			(30,466,250	)

CASH, beginning of period		14,895,442			43,713,346

CASH, end of period	$	39,128,494		$	13,247,096

The accompanying notes are an integral part of these statements.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

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 four production subsidiaries: 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”), and Maoming Hengda Steel Group Co., Ltd. The Company’s main products include rebar, hot-rolled carbon and silicon sheets and spiral-weld pipes.

Daqiuzhuang Metal Sheet Co., Ltd. was established on August 18, 2000 in Jinghai county, Tianjin city, Hebei province, the People’s Republic of China (PRC). The Company is a Chinese registered limited liability which engages in the manufacturing of hot rolled carbon and silicon steel sheets

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.

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

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 primarily serve regional customers in the construction industry.

New developments

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 (RMB 30 million). Pursuant to the agreement, the land will be converted into shares valued at approximately $3.1 million (RMB 23 million), 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 17 – Business combinations.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

On June 25, 2008, the Company and Tianjin Qiu Steel Investment (“Qiu Steel Investment”) entered into an equity purchase agreement (the “Purchase Agreement”) with Maoming Hengda Steel Group Limited (the “Henggang”), in which the Company contributed $7.1 million (RMB 50 million) through its subsidiary, Qiu Steel, to Henggang original shareholders in exchange for 99% of the equity of Henggang. The acquisition was completed and became effective June 30, 2008. See Note 17 – Business combinations. Henggang is a steel products processor located in Maoming city, Guangdong province, in China’s southern coastal region. Production capacity at the facility is 1.8 million tons annually, with the majority of production focused on high-speed wire, an industrial steel product used in construction.

On August 11, 2008, the Company through its subsidiary, Longmen Joint Venture, completed its acquisition of a controlling interest in Beijing Hua Tian Yu Long International Steel Trade Co., Ltd. The Longmen Joint Venture paid $128,265 (RMB 876,731.71) for 50% equity based on the appraisal value on June 30, 2008.

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	%
Maoming Hengda Steel Group Co., Ltd.	P.R.C.		99.0	%

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of all directly and indirectly owned subsidiaries listed above. All material intercompany transactions and balances have been eliminated in consolidation.

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 fair value of financial instruments, the useful lives of and impairment for property, plant and equipment, and potential losses on uncollectible receivables. Actual results could differ from these estimates.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

Management has included all adjustments, consisting only of 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 2008 annual report filed on Form 10-K.

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, Hong Kong and the United States. Total cash (including restricted cash balances) in these banks on March 31, 2009 and December 31, 2008 amounted to $213,449,975 and $145,595,777, respectively, none of which 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, all distributors, which represented approximately 30%, and 53% of the Company’s total sales for the three months ended March 31, 2009 and 2008, respectively. Five customers accounted for 0% and 39% of total accounts receivable as of March 31, 2009 and 2008, respectively.

For the three months ended March 31, 2009 and 2008, the Company purchased approximately 24% and 40%, respectively, of their raw materials from five major suppliers. Five vendors accounted for 15% and 67% of total accounts payable as of March 31, 2009 and 2008, respectively.

Revenue recognition

The Company's revenue recognition policies are in accordance 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.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

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.

Translation adjustments resulting included in accumulated other comprehensive income amounted to $8,230,428, $8,407,359 as of March 31, 2009, and December 31, 2008, respectively. The balance sheet amounts, with the exception of equity at March 31, 2009 and December 31, 2008 were translated at 6.83 RMB and 6.82 RMB to $1.00, 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, 2009 and 2008 were 6.83 RMB, 7.16 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” defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash, accounts receivable, other receivables, accounts payable and accrued liabilities, to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization. For short term loans and notes payable, the Company concluded the carrying values are a reasonable estimate of fair value because of the short period of time between the origination and repayment and their stated interest rate approximates current rates available.

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.” 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.”

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. 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.

- 9 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

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 $20,476,409 as of March 31, 2009. 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 and income from investment. The carrying value of the long term investments approximated the fair value as of March 31, 2009.

In 2007, the conversion option on the $40 million Notes, as well as the 1,154,958 warrants issued in conjunction with the Notes are carried at fair value. The fair value was determined using the Cox Rubenstein Binomial Model, defined in SFAS 157 as level 3 inputs, and recorded the change in earnings. As a result, the derivative liability is carried on the balance sheet at its fair value.

As of March 31, 2009, the outstanding principal amounted to $33,250,000, and the carrying value of the convertible note amounted to $7,624,674. The Company used Level 3 inputs for its valuation methodology for the convertible note, and their fair values are determined using cash flows discounted at relevant market interest rates in effect at the period close since there is no observable market price. The embedded warrants and conversion feature are valued by using level two inputs to the Binomial Model and determined that the fair value amounted to approximately $5.79 million due to the decrease in the Company’s common stock price.

	Carrying Value as of March 31, 2009		Fair Value Measurements at March 31, 2009 Using Fair Value Hierarchy
			Level 1	Level 2		Level 3
Long term investments	$	20,476,409				$	20,476,409
Derivative liabilities	$	$5,788,442		$	5,788,442
Convertible notes payable	$	$7,624,674				$	6,045,490

- 10 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

Except for the investments and 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.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and demand deposits in banks with original 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.

Receivable and allowance for doubtful accounts

Receivables include trade accounts due from the customers and other receivables from cash advances to employees, related parties or third parties. An allowance for doubtful account is established and recorded based on managements’ assessment of potential losses based on the credit history and relationship with the customers. Management reviews its receivable on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.

Notes receivable

Notes receivable represent trade accounts receivable due from various customers where the customers’ banks have guaranteed the payment of the receivables. The notes are non-interest bearing and 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 $17,318,812 and $38,207,312 of notes receivable outstanding as of March 31, 2009 and December 31, 2008, respectively.

Inventories

Inventories are stated at the lower of cost or market using weighted average method. Management reviews inventories for obsolescence and cost in excess of net realizable value at least annually and records a reserve against the inventory and additional cost of goods sold when the carrying value exceeds net realizable value.

Shipping and handling

Shipping and handling for raw materials purchased are included in cost of goods sold. Shipping and handling cost incurred to ship finished products to customers are included in selling expenses. Shipping and handling expenses for finished goods for the three months ended March 31, 2009 and 2008 amounted to $562,298 and $703,072, respectively.

- 11 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

Intangible assets

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

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.

Henggang has land use rights amounted to $2,037,560 for 50 years and expire in 2054.

Entity	Original Cost		Years of Expiration
Daqiuzhuang Metal	$	3,167,483	2050 & 2053
Longmen Joint Venture	$	19,823,885	2048 & 2052
Maoming Hengda Steel Group Co., Ltd	$	2,037,560	2054

Intangible assets of the Company are reviewed at least annually, more often when circumstances require, to determine whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of March 31, 2009, the Company expects these assets to be fully recoverable.

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.

The estimated useful lives are as follows:

Property and plant	10-40 Years
Machinery & Equipment	10-30 Years
Office equipment and furniture	5 Years
Motor vehicles	5 Years

- 12 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

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, including plant, equipment and intangible assets are reviewed annually, 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, 2009, the Company expects these assets to be fully recoverable.

Investments in unconsolidated subsidiaries

Subsidiaries in 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 between 20% and 50%, and other factors, such as representation on the Board of Directors, voting rights and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. The Company accounts for investments with ownership less than 20% using cost method.

The Company’s subsidiary, Hancheng Tongxing Metallurgy Co., Ltd. and EPID invested in several companies from 2004 to 2009.

Unconsolidated subsidiary	Year acquired		Amount invested		% owned
Shaanxi Daxigou Mining Co., Ltd	2004			732,500		11
Shaanxi Xinglong Thermoelectric Co., Ltd		2004-2007		8,398,408		37.6
Shaanxi Longgang Group Xian steel Co., Ltd	2005			60,448		10
Shaanxi Longgang Group Co., Ltd		2003-2004		3,472,050		3.8
Huashan Metallurgical Equipment Co. Ltd.	2003			148,555		25
Hejin Liyuan Washing Coal Co., Ltd.	2006			135,268		38
Shanxi Longmen Coal Chemical Industry Co., Ltd	2009			6,592,500		15
Xian Delong Powder Engineering Materials Co., Ltd.	2006			936,680		27
Total			$	20,476,409

- 13 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

Total investment in unconsolidated subsidiaries amounted to $20,476,409 and $13,959,432 as of March 31, 2009 and December 31, 2008, 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 bears no interest and is guaranteed by the bank for its complete face value and usually mature within three to six months period. 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.

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.

Income taxes

The Company reports income taxes pursuant to 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.

- 14 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

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.

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.

Share-based compensation

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS 123R, “Accounting for Stock-Based Compensation,” and the conclusions reached by EITF 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services.” Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably determinable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

Noncontrolling interests

Effective January 1, 2009, the Company adopted SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51” Certain provisions of this statement are required to be adopted retrospectively for all periods presented. Such provisions include a requirement that the carrying value of noncontrolling interests (previously referred to as minority interests) be removed from the mezzanine section of the balance sheet and reclassified as equity.

Further, as a result of adoption on SFAS 160, net income attributable to noncontrolling interests is now excluded from the determination of consolidated net income. In addition, foreign currency translation adjustment is allocated between controlling and noncontrolling interests.

- 15 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

Reclassification

As a result of adoption of SFAS 160, we reclassified noncontrolling interests in the amounts of $59 million and $55 million from the mezzanine section to equity in the March 31, 2009 and December 31, 2008 balance sheets, respectively.

Recently issued accounting pronouncements

In May 2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting Principles.” This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). The adoption of SFAS No. 162 will have no effect on the Company’s financial statements.

In June 2008, FASB issued EITF 08-4, “Transition Guidance for Conforming Changes to Issue No. 98-5”. The objective of EITF 08-4 is to provide transition guidance for conforming changes made to EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, that result from EITF 00-27 “Application of Issue No. 98-5 to Certain Convertible Instruments”, and SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. This Issue is effective for financial statements issued for fiscal years ending after December 15, 2008. Early application is permitted. This new pronouncement has no effect on the Company’s financial statements.

In January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20, and EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets” (“FSP EITF 99-20-1”). FSP EITF 99-20-1 changes the impairment model included within EITF 99-20 to be more consistent with the impairment model of SFAS No. 115. FSP EITF 99-20-1 achieves this by amending the impairment model in EITF 99-20 to remove its exclusive reliance on “market participant” estimates of future cash flows used in determining fair value. Changing the cash flows used to analyze other-than-temporary impairment from the “market participant” view to a holder’s estimate of whether there has been a “probable” adverse change in estimated cash flows allows companies to apply reasonable judgment in assessing whether an other-than-temporary impairment has occurred. The adoption of FSP EITF 99-20-1 did not have a material impact on our consolidated financial statements.

- 16 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP FAS 157-4). FSP FAS 157-4 amends SFAS 157 and provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a transaction is not orderly for fair value measurements. This FSP shall be applied prospectively with retrospective application not permitted. This FSP shall be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting this FSP must also early adopt FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2). Additionally, if an entity elects to early adopt either FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (FSP FAS 107-1 and APB 28-1) or FSP FAS 115-2 and FAS 124-2, it must also elect to early adopt this FSP. We are currently evaluating this new FSP but do not believe that it will have a significant impact on the determination or reporting of our financial results.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2. This FSP amends SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,” SFAS 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations,” and EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to make the other-than-temporary impairments guidance more operational and to improve the presentation of other-than-temporary impairments in the financial statements. This FSP will replace the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired debt security until recovery with a requirement that management assert it does not have the intent to sell the security, and it is more likely than not it will not have to sell the security before recovery of its cost basis. This FSP provides increased disclosure about the credit and noncredit components of impaired debt securities that are not expected to be sold and also requires increased and more frequent disclosures regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. Although this FSP does not result in a change in the carrying amount of debt securities, it does require that the portion of an other-than-temporary impairment not related to a credit loss for a held-to-maturity security be recognized in a new category of other comprehensive income and be amortized over the remaining life of the debt security as an increase in the carrying value of the security. This FSP shall be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity may early adopt this FSP only if it also elects to early adopt FSP FAS 157-4. Also, if an entity elects to early adopt either FSP FAS 157-4 or FSP FAS 107-1 and APB 28-1, the entity also is required to early adopt this FSP. We are currently evaluating this new FSP but do not believe that it will have a significant impact on the determination or reporting of our financial results.

- 17 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1. This FSP amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments not measured on the balance sheet at fair value in interim financial statements as well as in annual financial statements. Prior to this FSP, fair values for these assets and liabilities were only disclosed annually. This FSP applies to all financial instruments within the scope of SFAS 107 and requires all entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments. This FSP shall be effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity may early adopt this FSP only if it also elects to early adopt FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2. This FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. We are currently evaluating the disclosure requirements of this new FSP.

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, 2009		December 31, 2008
	Unaudited
Accounts receivable	$	20,483,230	$	8,730,149
Less: allowance for doubtful accounts		400,571		401,109
Net accounts receivable	$	20,082,659	$	8,329,040

Movement of allowance for doubtful accounts is as follows:

	March 31, 2009			December 31, 2008
	Unaudited
Beginning balance	$	401,109		$	148,224
Charge to expense		-			124,727
Addition from acquisition		-			238,259
Less Written-off		-			(119,022	)
Exchange rate effect		(538	)		8,921
Ending balance	$	400,571		$	401,109

Note 4 – Inventory

Inventory consists of the following:

	March 31, 2009		December 31, 2008
	Unaudited
Supplies	$	1,788,636	$	1,884,387
Raw materials		58,023,033		41,083,743
Work in process		-		333,611
Finished goods		48,046,903		16,247,174
Totals	$	107,858,572	$	59,548,915

- 18 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

Raw materials consist primarily of iron ore and coke at Longmen Joint Venture, steel strip at Daqiuzhuang Metal and billet at Henggang. 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 values its inventory at the lower of cost or market, determined on a weighted average method, or net realizable value. As of March 31, 2009, and December 31, 2008, management determined the carrying amount of inventory exceeded net realizable value, therefore $217,823 and $2,243,232 had been written down, respectively, and the amounts have been included in cost of goods sold.

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 complete 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 $50,704,715 and $49,528,506 as of March 31, 2009 and December 31, 2008, respectively.

Note 6 – Plant and equipment, net

Plant and equipment consist of the following:

	March 31, 2009			December 31, 2008
	Unaudited
Buildings and improvements	$	118,000,296		$	118,143,847
Machinery		232,415,920			226,594,341
Transportation equipment		7,438,484			7,299,240
Other equipment		2,752,055			2,755,129
Construction in process		235,486,249			199,818,052
Totals		596,093,004			554,610,609
Less accumulated depreciation		(68,794,413	)		(62,905,581	)
Totals	$	527,298,591		$	491,705,028

- 19 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

Longmen Joint Venture constructed two blast furnaces and a sintering system. All costs related to construction have been capitalized as construction in progress and amounted to $216,161,341 and $180,471,238 as of March 31, 2009 and December 31, 2008, respectively. Interest of $13,931,349 has been capitalized into the construction costs.

Depreciation, including amounts in cost of sales, for the three months ended March 31, 2009 and 2008 amounted to $6,024,757 and $4,499,873, respectively.

Note 7 – Intangible assets

Intangible assets consist of the following:

	March 31, 2009			December 31, 2008
	Unaudited
Land use right	$	27,476,538		$	27,467,031
Software		408,659			292,693
Totals		27,885,197			27,759,724
Accumulated Amortization		(3,424,101	)		(3,204,069	)
Totals	$	24,461,096		$	24,555,655

Total amortization expense for the three months ended March 31, 2009 and 2008, amounted to $224,416 and $205,146, respectively.

Note 8 – Debt

Short term loans

Short term loans represent amounts due to various banks, other companies and individuals, and related parties normally due within one year. The principles of loans are due at maturity. However, the loans can be renewed with the banks, related parties and other parties.

- 20 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

Short term loans due banks, related parties and other parties consisted of the following:

	March 31, 2009		December 31, 2008
	Unaudited
Daqiuzhuang: Loan from banks in China, due various dates from April 2009 to March 2010. Weighted average interest rate 6.92% per annum, either guaranteed by another company or secured by equipment/inventory.	$	26,613,190	$	27,383,022

Longmen Joint Venture: Loan from banks in China, due various dates from July 2009 to February 2010. Weighted average interest rate 6.61% per annum, either guaranteed by another company or secured by equipment/buildings/land use right.		59,317,850		38,875,500

Baotou: Loan from banks in China, due March 2009. Annual interest rate of 12%, Guaranteed by another company and secured by equipment.		-		114,734

Hengda: Loan from banks in China, due January 2009. Annual interest rate of 7.47%, guaranteed by another company.		-		1,467,000

Total – bank loans	$	85,931,040	$	67,840,256

	March 31, 2009		December 31, 2008
	Unaudited
Loan from various unrelated companies and individuals, due various dates from June 2009 to January 2010, and interest rates up to 12% per annum.	$	90,928,371	$	87,833,706

Total – other loans	$	90,928,371	$	87,833,706

	March 31, 2009		December 31, 2008
	Unaudited
Qiu Steel: Related party loan from Tianjin Heng Ying and Tianjin Da Zhan, due June 2009. Annual interest rate of 5%-10%, and interest starts accrual on July, 2008.	$	7,339,650	$	7,349,670

Total – related loans	$	7,339,650	$	7,349,670

- 21 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

The Company had various loans from unrelated companies and individuals. The balances amounted to $90,928,371 and $87,833,706 as of March 31, 2009 and December 31, 2008, respectively. Out of the $90,928,371 current period balance, $25,420,220 carries no interest, and the remaining $65,508,150 carries annual interest rates ranging from 7.2% to 12%. $29,394,068 of prior year balance carries no interest and the remaining $58,439,638 are subject to interest rates ranging from 7.2% to 12%. All short term loans from unrelated companies and individuals are due on demand and unsecured.

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:

	March 31, 2009		December 31, 2008
	Unaudited

Daqiuzhuang: Notes payable from banks in China, due various dates from April 2009 to September 2009. Restricted cash required of $14,972,300 and $15,727,914 for March 31, 2009 and December 31, 2008, respectively and either guaranteed by another company or secured by buildings.	$	18,605,500	$	18,630,900

Longmen Joint Venture: Notes payable from banks in China, due various dates from April 2009 to September 2009.. Restricted cash of $133,307,836 and $98,073,410 for March 31, 2009 and December 31, 2008, respectively and either guaranteed by another company or secured by equipment, or no guarantee.		182,971,336		159,536,250
Bao Tou: Notes payable from banks in China, due July 2009. Restricted cash of $5,127,500 and $5,134,500 for March 31, 2009 and December 31, 2008, respectively and guaranteed by buildings.		7,325,000		7,335,000

Hengda: Notes payable from banks in China, due various dates from May 2009 to September 2009. Restricted cash of $20,876,250 and $11,764,512 for March 31, 2009 and December 31, 2008 and guaranteed by buildings.		35,526,250		20,538,000
Grand totals	$	244,428,086	$	206,040,150

- 22 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

Total interest expense for the three months ended March 31, 2009 and 2008 on the debt listed above amounted to $3,089,512 and $2,872,865, respectively. Capitalized interest amounted to $2,276,911 and $811,505 for the three months ended March 31, 2009, and 2008, respectively.

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 31,2009 and December 31, 2008, customer deposits amounted to $153,703,101 and $148,317,903, including related parties deposits $6,690,802 and $7,216,319, respectively.

Note 10 – Deposits due to sales representatives

Daqiuzhuang Metal and two of Longmen Joint Venture’s subsidiaries, Yuxin Trading and Yuteng 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 $43,858,305 and $8,149,279 in deposits due to sales representatives outstanding as of March 31, 2009 and December 31, 2008, respectively. Due to increase in demand in first quarter 2009, the Company received additional deposit amounted $34million from sales representatives to secure sales quantity. These deposits are refundable in one year based on volume fulfillment and bear interest at 3%-8% per annum.

Note 11 – Convertible notes

On December 13, 2007, the Company entered into a Securities Purchase Agreement (the “Agreement”) with certain institutional investors (the “Buyers”) issuing $40,000,000 (“Notes”) and 1,154,958 warrants (the “Warrants”). The warrants can be converted to common stock through May 13, 2013 at $13.51 per share.

- 23 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

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 Zuosheng 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 at any time on or after May 13, 2008, but not after May 13, 2013, the expiration date of the Warrants.

In connection with this transaction, the Company and the Buyers entered into a 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 are subject to customary exceptions and qualifications and compliance with certain registration procedures. 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. The Company reached an agreement with all note holders to waive the related penalty of $427,000.

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 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 Cox Rubenstein Binomial model based on the following variables:

Expected volatility of 125%

- 24 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

Expected dividend yield of 0%

Risk-free interest rate of 1.41%

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 $5,159,000 was recorded as note issuance cost and is being amortized to interest expense over the term of the Notes using the effective interest method.

In July 2008, $6,750,000 of notes was converted to 541,299 shares of common stock at a conversion price of $12.47. Pursuant to EITF 00-19, the Company valued the conversion option on note conversion date, and recorded $21,090,722 gain from changes in fair value of derivative. A total of $6,103,232 of carrying value and derivative liability had been reclassified into equity. In addition, 195,965 shares of common stock were issued as make whole interest expense of $2,310,313.

As of March 31, 2009, in accordance with SFAS 133, the fair value of derivative liabilities was recalculated and decreased by $4,114,568 during the period, including $1,261,690 for the decrease in fair value of the warrants and $2,852,878 for the decrease in fair value of the conversion option.

As of March 31, 2009, the balance of derivative liabilities was $5,788,442, which consisted of $1,817,216 for the warrants and $3,971,226 for the conversion option, and the carrying value of the notes was $7,624,674. The effective interest charges on notes totaled $1,027,477 and $159,478 for the three months ended March 31, 2009 and 2008, respectively. As of March 31, 2009, the unamortized note issuance cost was $4,197,058, including $1,564,500 for additional issuance of 150,000 shares of the common stock to the placement agent in January 2008. Note issuance cost was amortized to interest expense at $20,917 and $8,894 for the three months ended March 31, 2009 and 2008, respectively.

Note 12 – Supplemental disclosure of cash flow information

Interest paid amounted to $2,620,752 and $3,038,348 for the three months ended March 31, 2009 and 2008, respectively.

Income tax payments amounted to $543,079 and $1,105,053 for the three months ended March 31, 2009 and 2008, respectively.

- 25 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

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 quoted market price on the date granted. The Company recorded compensation expense of $548,456 for the year ended December 31, 2008.

On April 14, 2008, the Company, Mr, Zuosheng Yu, (CEO of the Company) and Mr. Zhang Dan Li (BOD member of Long Men Joint Venture) entered into a compensation agreement in which Mr. ZuoSheng Yu agreed to transfer his own 600,000 shares to Mr. Zhang Dan Li in exchange for 15 years of service in the Company. Pursuant to SFAS 123R (Share-Based Payment) share-based payments awarded to an employee of the reporting entity by a related party or other holder of an economic interest in the entity is treated as compensation as if the shareholder has made a capital contribution. The shares are valued at $6.91 on grant date for a total of $4,146,000 and will be amortized over the life agreement. A total of $69,100 of compensation expense and additional paid in capital has been recorded for the three months ended March 31, 2009.

On January 15, 2009, the Company granted convertible notes holders 152,240 shares of common stock at $3.66 per share, as cash payments made for interest. The shares were valued as 90% of the arithmetic average of the Weighted Average Price of the Common Shares on each for the ten consecutive Trading Days immediately preceding the applicable Interest Date.

On March 9, 2009, the Company granted senior management and directors 109,250 shares of common stock at $1.85 per share, as compensation. The shares were valued at the quoted market price on the date granted. The Company recorded compensation expense of $202,003 for the three months ended March 31, 2009.

Note 13 - Gain from debt extinguishment and Government grant

Debt extinguishment

For the three months ended March 31, 2009, the Company recorded gain from debt extinguishment totaling $2,930,200. On February 20, 2009, Maoming Hengda, a subsidiary entered into a Debt Waive Agreement with Guangzhou Hengda, pursuant to which Guangzhou Hengda agreed to waive $2,930,200 (RMB 20,000,000) of the total $23,955,220 (RMB 163,516,860) debt that Maoming Hengda owes to Guangzhou Hengda. The Company determined that the subsequent debt settlement does not constitute a contingency at date of purchase as defined in SFAS 141 “Business Combinations” and thus should not result in a reallocation of the purchase price. The waiver is irrevocable.

- 26 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

Government grant

Based on national industrial policies and environmental protection laws and regulations, in order to reduce energy consumption, emissions Shaanxi Province Development and Reform Commission worked with local industries to eliminate of outdated iron and steel production capacity in form of government grant. Longmen Joint Venture received $4.2 million (RMB 29 million) in government grant for compliance in dismantling two blast furnaces. The Company wrote off the residual book value of the furnaces dismantled totaling $$0.7 million (RMB 5 million), and recorded other income of $3,519,890 for the three months ended March 31, 2009.

Note 14 – Taxes

Income tax

On January 1, 2008, the new Enterprise Income Tax (“EIT”) law 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 before March 16, 2007.

Significant components of the provision for income taxes on earnings and deferred taxes on net operating losses from operation for the three months ended March 31, 2009 and 2008 are as follows:

	March 31, 2009		March 31, 2008
	Unaudited		Unaudited

Current	$	164,221		666,356
Deferred		1,221,850		(216,533	)

Total income taxes	$	1,386,071		449,823

Some of the Company’s Chinese operating entities suffered operating losses. 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.

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

	March 31, 2009			December 31, 2008
	Unaudited
Beginning balance	$	7,487,380		$	399,751
Xi’an Rolling Mill’s ,YuXin, YuTeng, HuaLong and TongXing Net operating loss carry-forward		996,788			4,945,752
Effective tax rate		25	%		24.76	%

Deferred tax asset	$	249,197		$	1,224,626
Long Gang Headquarter’s Net operating loss carry-forward		(8,255,393	)		36,809,350
Effective tax rate		15	%		15.24	%

Deferred tax asset	$	(1,238,309	)	$	5,610,223

Exchange difference		(10,175	)		252,780

Totals	$	6,488,093		$	7,487,380

- 27 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended March 31, 2009 and 2008 as follows:

	March 31, 2009			March 31, 2008
	Unaudited			Unaudited
U.S. Statutory rates		34.00	%		34.00	%
Foreign income not recognized in USA		(34.00	)%		(34.00	)%

China income taxes		25	%		25.00	%
Tax effect of income not taxable for tax purpose		(2.19	)%		(3.86	)%
Effect of different tax rate of subsidiaries operating in other jurisdictions		(10.22	)%		(10.12	)%

Total provision for income taxes		12.59	%		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 25% 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. 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.

- 28 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

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%.

Maoming Henggang is located in Guangdong province, 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 $86,075,816 and $67,671,338 for the three months ended March 31, 2009, $70,973,599 and $65,859,199 for the three months ended March 31, 2008, respectively. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government. VAT taxes are not impacted by the income tax holiday.

Taxes payable consisted of the following:

	March 31, 2009		December 31, 2008
	Unaudited
VAT taxes payable	$	9,770,698	$	8,985,278
Income taxes payable		2,197,100		2,509,520
Misc taxes		2,120,061		2,421,838
Totals	$	14,087,859	$	13,916,636

Note 15 – Earnings per share

The calculation of earnings per share is as follows:

	March 31,2009		March 31,2008
	Unaudited		Unaudited
Income attributable to holders of common shares	$	7,334,632	$	2,188,460
Basic weighted average number of common shares outstanding		36,285,312		34,836,394
Diluted weighted average number of common shares outstanding		36,285,312		34,923,614

Net income (Loss) per share
Basic	$	0.202	$	0.0628
Diluted	$	0.202	$	0.0627

- 29 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

For the three months ended March 31, 2009, 1,154,958 warrants with exercise price of $13.51 and $32,500,000 convertible notes with conversion price of $12.47 were excluded from the diluted income per share due to anti-diluted effect.

For the three months ended March 31, 2008, 233,330 warrants with exercise price of $5.00 were included for the diluted income per share calculation due to their dilutive effect; and 1154,958 warrants with exercise price of $13.51 and $32,500,000 convertible notes with conversion price of $12.47 were excluded from the diluted earnings per share due to their anti-dilutive effect.

Note 16 – 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, Zuosheng Yu (aka Henry Yu), is the chairman and the largest shareholder of Jing Qiu Steel Market Company. The lease term is one year and is renewed annually.

	For the three months ended March 31,2009		For the three months ended March 31,2008
	Unaudited		Unaudited
Rental Income	$	439,530	$	419,310

The Company’s short term loan of $2,197,500 from Shenzhen Development Bank is personally guaranteed by the Company’s Chairman, CEO, and majority shareholder Zuosheng Yu (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, Zuosheng 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 31,2009		For the three months ended March 31,2008
	Unaudited		Unaudited
Purchase from Hengying and Dazhan	$	6,829,080	$	28,434,046
Sales to Hengying and Dazhan	$	510,153	$	1,279,813

- 30 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

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 March 31, 2009 and December 31, 2008.

a.	Other receivables - related parties

Name of related parties	March 31, 2009		December 31, 2008
	Unaudited		Unaudited
Beijing Wendlar	$	674,166	$	376,324
De Long Fen Ti		574,950		-
Tianjin Jin Qiu Steel Market		146,500		146,700
Total	$	1,395,616	$	523,024

b.	Advances on inventory purchases – related parties

Name of related parties	March 31, 2009		December 31, 2008
	Unaudited
Liyuan Ximei	$	7,616,588	$	502,336
Daishang trading Co., Ltd.		2,448,417		1,872,301
Maoming Shengze Trading		3,798,917		-
Total	$	13,863,922	$	2,374,637

c.	Accounts payable due to related parties

Name of related parties	March 31, 2009		December 31, 2008
	Unaudited
Long Men Group	$	21,354,671	$	10,630,309
Henan Xinmi Kanghua		1,392,878		1,500,987
Zhengzhou Shenglong		131,912		-
Baotou Shengda Steel Pipe		1,568,050		1,558,228
ShanXi Fangxin		1,492,855		1,451,336
Baogang Jianan Group		74,153		185,664
Jingma Jiaohua		6,012,175		-
Total	$	32,026,694	$	15,326,524

- 31 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

d.	Short term loan due to related parties

Name of related parties	March 31, 2009		December 31, 2008
	Unaudited
Dazhan	$	3,940,850	$	3,946,230
Hengying		3,398,800		3,403,440
Total	$	7,339,650	$	7,349,670

e.	Other payables due to related parties

Name of related parties	March 31, 2009		December 31, 2008
	Unaudited
Golden Glister	$	600,000	$	600,000
Hengying		7,481,339		-
Baogang Jianan Group		110,135		-
Baotou Shengda Steel Pipe		-		77,013
Total	$	8,191,474	$	677,013

f.	Customer deposits – related parties

Name of related parties	March 31, 2009		December 31, 2008
	Unaudited
Dazhan	$	6,690,802	$	2,759,964
Haiyan		-	1,522,355
Maoming Heng Da Materials		-		2,934,000
Total	$	6,690,802	$	7,216,319

Note 17 –Business combinations

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 approximately 53 acres (217,487 square meters) with an appraised value of approximately $4.1 million (RMB 30 million). Pursuant to the agreement, the land will be converted into shares valued at approximately $3.1 million (RMB 23 million), 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.

- 32 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

			Assumed by
Tongxing	Fair Value		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

On June 25, 2008, The Company through Qiu Steel Investment entered into equity purchase agreement with the shareholders of Henggang to acquire 99% equity of Henggang. The total purchase price for the acquisition is $7.3 million (RMB 50 million). The fair value of Henggang was $10.1 million (RMB 69 million) as of June 30, 2008. Pursuant to SFAS 141, the excess of total fair value acquired over purchase price should be allocated as a pro rata reduction of non-current assets. Subsequently, the Company recorded the difference as a reduction of fixed assets acquired.

The joint venture’s name is Maoming Heng Da Steel Group Co. Ltd., a company formed under the laws of the PRC. It is located in Maoming city, Guangdong province in China. It produces and sells high speed wire.

			Assumed by
Henggang	Fair Value		The Company
Current assets	$	45,314,444	$	44,861,300
Non current assets		81,780,107		78,290,811
Total assets		127,094,551		123,152,111
Total liabilities		117,027,385		115,857,111
Net assets	$	10,067,166	$	7,295,000

The financial data of Henggang as of December 31, 2008 is included in the Company’s consolidated financial statements.

Distribution payable to former shareholders for the above acquisitions amount to $18,739,625 and $18,765,209 as of March 31, 2009 and December 31, 2008, respectively.

Note 18 - Shareholder’s equity

On January 14, 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 quoted market price on the date granted.

- 33 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

On February 5, 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 quoted market price on the date granted. The Company recorded compensation expense of $548,456 for the year ended March 31, 2009.

On April 14, 2008, the Company, Mr, Zuosheng Yu, (CEO of the Company) and Mr. Zhang Dan Li (BOD member of Long Men Joint Venture) entered into a compensation agreement in which Mr. ZuoSheng Yu agreed to transfer his own 600,000 shares to Mr. Zhang Dan Li in exchange for 15 years of service in the Company. Pursuant to SFAS 123R (Share-Based Payment) share-based payments awarded to an employee of the reporting entity by a related party or other holder of an economic interest in the entity is treated as compensation as if the shareholder has made a capital contribution. The shares are valued at $6.91 on grant date for a total of $4,146,000 and will be amortized over the life agreement. A total of $207,300 of compensation expense and additional paid in capital has been recorded in 2008.

On April 15, 2008, the Company granted senior management and directors 87,400 shares of common stock at $6.66 per share, as compensation. The shares were valued at the quoted market price on the date granted. The Company recorded compensation expense of $582,084 for the year ended December 31, 2008.

On July 3, 2008, the Company granted senior management and directors 90,254 shares of common stock at $10.29 per share, as compensation. The shares were valued at the market price on the date granted. The Company recorded compensation expense of $928,672 for the year ended December 31, 2008.

541,299 shares of common stock were issued upon conversion of notes with a carrying value of $6,750,000 at a conversion price of $12.48. In addition 195,965 shares of common stock were issued as make whole interest expense of $2,310,313. See note 11 for details.

In September 2008, 140,000 warrants, issued in connection with the redeemable preferred stock, were exercised at $5.00 per share.

On October 28, 2008, the company granted Teamlink Investment Limited, 100,000 shares of commons stock at $3.6 per share as consulting service expense $360,000. According to the period of service provided, $60,000 was recorded as expense in 2008 and $300,000 will be amortized within 10 months. $90,000 of public relationship expense had been recorded for the three months ended March 31, 2009.

On November 24, 2008, the Company granted senior management and directors 87,550 shares of common stock at $3.50 per share, as compensation. The shares were valued at the market price on the date granted. The Company recorded compensation expense of $306,425 for the year ended December 31, 2008.

- 34 -

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

On January 15, 2009, the Company granted convertible notes holders 152,240 shares of common stock at $3.66 per share, as share payments for interest. The shares were computed as 90% of the arithmetic average of the Weighted Average Price of the Common Shares on each for the ten consecutive Trading Days immediately preceding the applicable Interest Date.

The Company has the following warrants outstanding:

Outstanding as of January 1, 2008	1,388,292
Granted	-
Forfeited	(93,334	)
Exercised	(140,000	)
Outstanding As of December 31, 2008	1,154,958
Granted
Forfeited
Exercised
Outstanding As of March 31, 2009	1,154,958

Outstanding Warrants					Exercisable Warrants
Exercise Price	Number		Average Remaining Contractual Life		Average Exercise Price		Number		Average Remaining Contractual Life
$ 13.51		1,154,958		4.12	$	13.51		1,154,958		4.12

Note 19 – Retirement plan

Regulations in the People’s Republic of China require the Company to contribute to a defined contribution retirement plan for all employees. All Joint Venture employees are entitled to a retirement pension amount calculated based upon their salary at their date of retirement and their length of service in accordance with a government managed pension plan. The PRC government is responsible for the pension liability to the retired staff. The Company is required to contribute 20% of the employees’ monthly base salary. Employees are required to contribute 8% of their base salary to the plan. Total pension expense incurred by the Company amounted to $812,306 and $512,966 for the three months ended March 31, 2009, and 2008, respectively.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

Note 2 0 – 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. 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 21 – Commitment and contingencies

The company is obligated to contribute $5,130,000 (RMB 40 million), as registered capital to Baotou Steel Pipe Joint Venture. The Company contributed approximately $1,734,200 through December 31, 2008, and the balance will be contributed in the first half of 2009, from Daqiuzhuang Metal.

Hancheng Tongxing Metallurgy Co., Ltd., one subsidiary of Longmen Joint Venture, is obligated to contribute $32,962,500 (RMB 225 million), as registered capital to Shaanxi Longmen Coal and Chemical Co., Ltd by the end of 2010. Tongxing had contributed $6,592,500 as of March 31, 2009.

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.

Daqiuzhuang Metal rented land for 50 years starting September 2005. Total amount of the rent over the 50 years period is approximately $1,044,728 (or RMB 8,067,400).

Baotou Steel Pipe Joint Venture has 5 years rental agreement with Bao Gang Jian An for property and buildings. The agreement began June 2007 for $263,700 (or RMB1,800,000) per year.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2009

Unaudited

As of March 31, 2009, total future minimum lease payments for the unpaid portion under an operating lease were as follows:

Year ended December 31,	Amount
2009	$	922,698
2010		263,700
2011		263,700
2012		131,850
2013		-
Thereafter		-
Total	$	1,581,948

Total rental expense for the three months ended March 31, 2009 and 2008 amounted to $85,021 and $98,798, respectively.

Long Men Joint Venture is constructing two blast furnaces in 2008, the total contract cost was $216,161,341, of which $208,741,132 was paid, and $7,420,209 will be paid within one year.

Note 22 – Subsequent Event

On May 7, 2009, the conversion price of the senior convertible notes issued in December 2007 was reset to $4.2511 to the Market Price because the conversion price is higher than the Market Price pursuant to the notes agreement. Market Price means, for any given date, the lower of (x) the arithmetic average of the Weighted Average Price of the Common Stock for the thirty (30) consecutive Trading Day period ending on the Trading Day immediately preceding such date and (y) the Weighted Average Price of the Common Stock on the Trading Day immediately preceding such date.

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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.

Management Comments

Net Income swung to a $7.3 million profit for the first quarter of 2009 from a full-year 2008 net loss of $11.3 million. Earnings per share for the first quarter were $0.20 per share.

Sales volume at our Longmen Joint Venture increase 38.3% to 649,327 metric tons compared to 469,600 metric tons for the same period last year.

Our Longmen Joint Venture comprises 91% of our total revenue and this management team deserves recognition for their profitable operating performance in a challenging environment.

Market

Our Longmen Joint Venture is focused primarily on the markets of Shaanxi and Sichuan provinces. These relatively less developed economies of western China are a key focus of China’s infrastructure investment. Demand in this region for construction steel has been boosted by infrastructure-related projects in first quarter of 2009. Our markets have proven the ability to absorb the additional capacity from our two new blast furnaces which were brought on line at the end of 2008 and January 2009.

First quarter is traditionally the slowest quarter of the year owing to a general weather-related slowing in construction projects and the Chinese New Year holiday. In the months of January and February, selling prices trended up likely due to distributor loading, however, the trend was not sustainable and sales prices dropped in March. Fortunately, the demand in our addressable markets has been stable allowing us to enjoy a price premium of nearly $29 per metric ton compared with rebar prices in Shanghai or Beijing.

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Economic Stimulus Spending

According to the National Development and Reform Commission (NDRC), the Chinese central government economic stimulus plan is expected to spend $586 billion, of which $259 billion is allocated for rural infrastructure, earthquake reconstruction and public housing. Another $219 billion is allocated for transport and power infrastructure. As the largest construction steel producer and dominant supplier in Shaanxi province, our Longmen JV has already begun to see the impact of the stimulus plan. In the first quarter, in addition to distributor contracts, we signed direct-supply stimulus-related contracts totaling 560,000 metric tons. This figure represents approximately 30% of our Longmen JV’s total production volume in 2008.

With the stimulus plan gaining traction in the first quarter, we expect to see continued stimulus-related spending in the months and years ahead.

Operations

Production volume of crude steel for the first quarter of 2009 increased 39% to 655,000 metric tons from 470,000 metric tons in the same quarter last year. This increase is largely traced to our two new 1,280 cubic meter blast furnaces which became operational at the end of 2008 and January 2009 and are still in the fine-tuning process. On April 21, 2009 daily production of crude steel set a new daily record exceeding 10,000 metric tons.

Doubling daily crude steel production from 5,000 to 10,000 metric tons requires a range of operational activities to be keenly managed.

Raw material procurement – Our blast furnaces run 24 hours a day, 7 days a week, 365 days a year. We now require approximately 23,000 metric tons of raw materials each day. Strict purchasing and shipping lead-times must be synchronized to ensure continuous production.

Logistics – Each day we now consume approximately 18,000 metric tons of iron ore - the equivalent of 300 dry bulk railcars, accept delivery of over 140 truckloads of coal and load 285 out bound trucks with our billets. A normal day now requires the coordination of more than 425 trucks and 300 railcars entering and leaving our facility.

Financing – Financing the construction and working capital requirements of the two new blast furnaces and support facilities without going to the western capital markets for financing assistance has been a tremendous achievement for our organization. The cost of the blast furnaces and support facilities was approximately $200 million. All of this financing has been done during a period of the tightest credit since the Great Depression. The management team at Longmen has done an excellent job of managing cash flow utilizing vendor financing, prepayments from customers and short-term loans to build and operate these large income producing assets. A large part of the first quarter 2009 profits is the result of their hard work and effort.

Merger and Acquisition

The current global economic slow down is a two-edged sword. On one edge, it has brought severe hardship for many in the steel industry; on the other edge it has created an unprecedented opportunity to pursue mergers and acquisitions within the industry.

Several factors have aligned to form this favorable environment.

The economic slow down has made it challenging for steel companies to operate profitably. In this difficult environment, private steel company owners welcome a partner to help them. This attitude is different from one year ago when the steel industry was booming. At that time, private steel company owners asked for high valuations and tough terms. Now when business is difficult, valuations are more attractive and we are in a much better position to negotiate favorable terms.

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The central government has implemented economic support programs for the steel industry, but they are only available for state-owned steel companies. In addition, the government is pushing harder for consolidation. These actions have sent a clear signal to independent steel companies that it will be harder to operate alone.

These concerns have led us to our current two-step acquisition strategy. In the first step, we pay only a minimum down payment and take control of the target company. This allows us to manage and operate the entity with an insider’s view of the company.

Only if the target company proves to be accretive will we proceed to step two which is taking a majority equity stake in the target company. This two-step process allows us to minimize risk and maximize shareholder value.

It has always been our two-pronged strategy to grow through merger and acquisition activities along with upgrading existing operations. We continue to follow our strategy and actively evaluate merger and acquisition opportunities arising from the economic downturn. Our greatest concern is not finding attractive candidates, but ensuring risks are minimized and shareholder value is maximized.

Summary

There are two points which stand out from the challenging first quarter of 2009. First, we were able to be profitable in the midst of the global economic downturn. Second, the environment for merger and acquisitions has never looked better as we move forward with our strategy.

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: rebar, hot-rolled sheets , spiral-weld pipes and high-speed wire. Our aggregate production capacity of steel products is 6.3 million metric tons per year, 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 three joint ventures. We are actively pursuing a plan to acquire additional assets.

We presently have controlling interest in four 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); and

• Maoming Hengda Steel Group Limited (Maoming).

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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.

Daqiuzhuang Metal has ten steel sheet production lines capable of processing approximately 400,000 tons of 0.75-2.0 mm hot-rolled steel sheets per year. Products are sold through a nation-wide network of 35 distributors and three regional sales offices.

Daqiuzhuang Metal uses a traditional rolling mill production sequence, such as heating, rolling, cutting, annealing, and flattening to process and cut coil segments into steel sheets. Sheets produced at the facility have a length of approximately 2,000mm; a width of approximately 1,000mm, and a thickness ranging from 0.75-2.0mm. 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 Pipe Joint Venture received its business license 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 primarily to transport oil and steam. Pipes produced at the mill have a diameter ranging from 219-1240mm; a wall thickness ranging from 6-13mm; and a length ranging from 6-12m. 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.

Long Steel Group operates as a fully-integrated steel production facility. Less than 10% of steel companies in China have fully-integrated steel production capacity.

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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.

Currently, the Longmen Joint Venture has four branch offices, seven subsidiaries under direct control and eight entities in which we have non controlling interest. It employs approximately 5,750 full-time workers.

Longmen Joint Venture’s products are categorized within the steel industry as “longs” (referencing their shape). Rebar is generally considered a regional product because its weight and dimension make it ill-suited for cost-effective long-haul ground transportation. By our estimates, the provincial market demand for rebar is six - eight million metric tons per year. Slightly more than half of this demand radiates from Xi’an, the province capital, located 180km from the Longmen Joint Venture main site. We estimate that in Xi’an we have a 72% market share according to Xian Steel Market Statistics dated April 7, 2009.

An established regional network of 24 agents and two sales offices sell the Longemn Joint Venture’s products. 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: Longmen Iron and Steel Group Co., Ltd. Environmental Protection Industry Development Co., Ltd. and Longmen Iron and Steel Group Co., Ltd. Hualong Fire Retardant Materials Co., Ltd.

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 $2.4 million (RMB 18,080,930) in exchange for the ownership interest. The facility utilizes solid waste generated from the steel making process to produce construction products including, building blocks, landscape tiles, curb tops, ornamental tiles.

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 $430,000 (RMB 3,287,980) 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”). Longmen Joint Venture contributed its land use right of 21.45 hectares (approximately 53 acres) with an appraised value of approximately $4.1 million (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 300,000 metric tons. Its rebar processing facility has an annualized rolling capacity of 300,000 metric tons.

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• Maoming Hengda Steel Group Limited (Maoming)

On June 25, 2008, through our subsidiary Tianjin Qiu Steel Investment, we acquired 99% of Maoming Hengda Steel Group, Limited (“Maoming”) for RMB 50 million (approximately $7.3 million). Maoming’s core business is the production of high-speed wire and rebar, products used in the construction industry. Located on 140 hectares (approximately 346 acres) in Maoming city, Guangdong province, the facility has two production lines capable of producing 1.8 million metric tons of 5.5-16mm diameter high-speed wire and 12-38mm diameter rebar annually. The products are sold through nine distributors targeting customers in Guangxi province and the western region of Guangdong province.

The facility had been operating at approximately 10% of capacity due to, we believe, a redirected corporate focus of the previous owners.

Operating Information Summary by Subsidiaries

	Daqiuzhuang Metal	Baotou Steel Pipe Joint Venture	Longmen Joint Venture	Maoming
Annual Production Capacity (metric tons)	400,000	100,000	4 million	1.8 million

Main Products	Hot-rolled Sheet	Spiral-weld pipe	Rebar	High-speed wire

Main Application	Light Agricultural Vehicles	Energy transport	Infrastructure and Construction	Infrastructure and Construction

Stock listing

Our stock trades on the NYSE under the ticker symbol “GSI”.

Factors affecting our operating results

Demand for our products

Overall, domestic economic growth is an important demand driver for our products. Currently, China is experiencing an economic downturn from its past eight years of record growth. Nevertheless, according to estimates issued by Morgan Stanley on April 27, 2009, it estimates that China’s economy will still grow by approximately 7.0% in 2009, well above many western developed economies. 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 Development 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 a bridgehead for development into the western region, and Xi’an, the provincial capital, has been designated as a focal point for this development. Our Longmen Joint Venture is 180km from Xi’an and does not have another major competitor within a 250km radius. According to a Shaanxi provincial government report issued on January 16, 2008, there were 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, energy sector growth which spurs the need to transport oil and steam drives demand for spiral-weld steel pipe. Presently, demand is fueled by smaller pipeline projects and municipal energy infrastructure projects within the region.

At Maoming, infrastructure growth and business development are demand drivers for our construction steel products. Guangdong province serves as an export hub to Southeast Asia and abroad for many products produced in China, and is one of China’s most economically advanced provinces. According to a National Development and Reform Commission Industrial Update issued June 23, 2008 projected annual demand for steel products in Guangdong will reach 50 million metric tons by the end of 2010. On June 3, 2008, the Guangdong provincial government announced plans within the Bei Shan Ling Port District, the area in which our facility is located, to build 76 new shipping terminals with an aggregate throughput of 350 million metric tons annually. These construction projects and other infrastructure projects in the region will be demand drivers for our products.

Supply of raw materials

Iron ore

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

Longmen Joint Venture represents four million tons of our aggregate 6.3 million metric ton annual production capacity. 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.

According to the China Iron and Steel Association, approximately 60% of the domestic steel industry’s demand for iron ore must be filled by imports. At our 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), domestic sources and from imports. The Daxigou mine has 300 million metric tons of proven iron ore reserves, of which less than one million metric 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 currently source approximately 15% of our iron ore from the Mulonggou and Daxigou mines, 70%-75% from domestic mines and remaining amount from imports. The Longmen JV sources iron ore from the Mulonggou and Daxigou mines below market prices due to its shareholding relationships. We believe gaining greater direct control over our key raw material supply is important for margin and secured source protection.

Coke

After iron ore, coke is our second most largely consumed raw material. It takes approximately 550 to 600kg of coke to make one metric ton of pig-iron.

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Our Longmen facility is located in the center of China’s coal belt. All coke used at Longmen Joint Venture is sourced from the town in which Longmen Joint Venture is located. This ensures dependable supply and minimum transportation costs for this key raw material.

Industry consolidation

It is the goal of the central government to consolidate 50% of domestic production among the top ten steel companies by 2010 and 70% by 2020. Throughout 2008, it steadily heightened its consolidation effort. The following list highlights a few of the major steel company consolidation done during the year.

· Hubei-based Wuhan Iron & Steel Group acquired Liuzhou Iron & Steel Group and established Guangxi Iron & Steel Group for the purpose of building a new mill in Fangchenggang city, Guangxi province.

· Shanghai-based Baosteel acquired and is recapitalizing Guangzhou Iron & Steel Enterprises Group and Shaoguan Steel Co. Ltd. with the goal of building a new facility in Guangdong province.

· Shandong Iron & Steel Group was formed in Shandong province through the mergers of Laiwu Steel Group and Jinan Iron & Steel Group.

· Hebei Iron & Steel Group was formed through the merger of Tangshan Iron & Steel Group and Handan Iron & Steel Group in Hebei province.

All the above mentioned major mergers and acquisitions have been government-directed. In addition, Tangshan Bohai Steel Group and Tangshan Changcheng Steel Group were formed in late December. These two groups were formed from 39 local private mills in Tangshan city in Hebei province.

On January 14, 2009, the central government approved the steel industry revitalization plan. The plan requires the industry to constrict overall production, eliminate backward capacity and strengthen its technical innovation. The revitalization plan also encourages enterprises to accelerate the merger process so as to form a more concentrated industry structure and enhance the overall competitiveness.

Operating Results

Sales Revenue

Three months ended March 31, 2009 compared with three months ended March 31, 2008

Sales revenue for the three months ended March 31, 2009 increased 10.7% to $322.8 million compared to $291.6 million for the same period last year.

The increase in sales revenue is due to production volume increase of 38.3% at our Longmen JV which offset declines at Daqiuzhuang Metal and Baotou Steel Pipe Joint Venture.

The Sales Revenue increase is also attributed to our Maoming acquisition which was acquired June 25, 2008. First quarter March 31, 2009 Sales Revenue result reflect a full three months of operations whereas this subsidiary did not exist for the same period last year.

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Sale Revenue	First Quarter Ending
	March 31st, 2009							March 31st, 2008
	Volume		Revenue		%			Volume		Revenue		%			Volume %			Revenue %
Longmen JV		649,327	$	292,714,691		91	%		469,600	$	256,451,812		88	%		38.3	%		14.1	%
Maoming		42,369	$	17,249,993		5	%	NA		NA			0	%
Daqiuzhuang Metal		25,672	$	12,698,109		4	%		53,739	$	34,017,390		12	%		-52.2	%		-62.7	%
Baotou Steel Pipe JV		768	$	131,103		0	%		1,832	$	1,096,797		0	%		-58.1	%		-88.0	%
Total		718,136	$	322,793,896		100	%		525,171	$	291,565,999		100	%		36.7	%		10.7	%

Longmen Joint Venture - Comprised 91% of total sales. These sales were fueled by stable demand for construction steel in our addressable markets and increased production contributed by our two new 1,280 cubic meter blast furnaces.

Maoming – Acquired June 25, 2008.

Daqiuzhuang Metal – Due to economic slowdown, demand for hot-rolled sheets has dropped compounded by large excess capacity of cold-rolled sheets which can be used as a replacement product.

Baotou Steel Pipe JV – Due to harsh winter conditions in northern China, many construction projects are in hibernation until April.

Gross Profit

Three months ended March 31, 2009 compared with three months ended March 31, 2008

Gross profit for the three months ended March 31, 2009 decreased 0.5% to $12.92 million from $12.98 million for the same period last year.

The industry conditions in the first quarter 2009 were extremely different from the first quarter of 2008. The first three months of last year were highlighted by rapidly escalating commodities markets and the central government’s effort to prevent inflation and cool down the economy. In the first three months of this year, the commodities market had dramatically fallen from its earlier heights, the banking and credit crisis had brought down prices for most assets and the central government was now concerned with implementing ways to stimulate the economy. Against this backdrop, it is a noteworthy accomplishment that our first quarter 2009 gross profit is only 0.5% less than for the same period last year.

It is meaningful to notice that gross profit for the first quarter 2009 has swung from a loss to a gain, increasing to $12.9 million from a loss of $21.6 million for the fourth quarter 2008. This large gross profit improvement shows that our inventory purchased during the period of rising commodity prices has been cleared out.

GROSS PROFIT
	1st Quarter 2009						4th Quarter 2008						1st Quarter 2008
				Gross Profit						Gross Profit					Gross Profit
	Gross Profit			Margin %			Gross Profit			Margin %			Gross Profit		Margin %
Longmen JV		14,736,380			5.03	%	$	(17,179,873	)		-7.33	%	$	11,024,153		4.3	%
Maoming		(2,242,177	)		-13.00	%	$	(2,621,671	)		-29.45	%
Daqiuzhuang Metal		421,828			3.32	%	$	(2,815,061	)		-19.47	%	$	1,924,305		5.7	%
Baotou Steel Pipe JV		6,090			4.65	%	$	1,041,070			30.08	%	$	33,657		3.1	%
Total		12,922,119			4.0	%	$	(21,575,535	)		-8.26	%	$	12,982,115		4.5	%

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Selling, General and Administrative Expenses

Three months ended March 31, 2009 compared with three months ended March 31, 2008

Selling, general and administrative expenses, such as executive compensation, office expenses, legal and accounting charges, travel charges, and various taxes were $9.2 million for the three months ended March 31, 2009, compared to $6.5 million for the same period of 2008. This increase is attributed to greater production volume at our Longmen Joint Venture and the addition of our Maoming subsidiary which did not exist in the same period 2008.

Other income (expense)

Three months ended March 31, 2009 compared with three months ended March 31, 2008

Other income (expense) for the three months ended March 31, 2009 increased to income of $9.0 million from an expense of $2.4 million for the same period last year.

OTHER INCOME (EXPENSE), NET	1st Quarter 2009			1st Quarter 2008
Interest income	$	878,633		$	580,318
Finance/interest (expense)		(2,938,778	)		(5,986,507	)
Change in fair value of derivative liabilities		4,114,568			2,670,764
Gain from debt extinguishment		2,930,200			-
Government grant		3,519,890			-
Income from equity investment		(54,632	)		-
Other non-operating income (expense), net		510,216			369,270
Total other income (expense), net	$	8,960,097		$	(2,366,155	)

- Interest Income : interest received from deposits held in banks

- Interest /finance expense : interest paid on bank loans, on early redemption of Notes Receivables various bank fees

- Change in fair value of derivative liabilities : related to valuation of warrant liabilities of our convertible debt. This is a non-cash, non-operating item

- Gain from debt extinguishment : RMB 20 million debt extinguishment by Hengda Group. Not only does the debt extinguishment add to our profitability, it also reduces cash that needs to be paid out.Our Chairman has worked very hard examining every area to improve our liquidity position.

- Government grant : In order to reduce energy consumption emissions, Shaanxi Province Development and Reform Commission worked with local industries to eliminate outdated iron and steel production facilities. During first quarter 2009 Longmen Joint Venture received RMB 29 million in government incentives for compliance in dismantling two small blast furnaces, less RMB 5 million residual book value of the furnaces.

- Income from equity investments : entities in which we do not have controlling interest and do not consolidate their results into our financial statements

- Other non operating income (expense), net: mostly rental income of excess land at Daqiuzhuang Metal for land use rights

On December 13, 2007, the Company entered into a Securities Purchase Agreement to sell senior convertible notes in the aggregate principal amount of $40,000,000 and warrants to purchase an additional aggregate amount of 1,154,958.

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On March 31, 2009, in accordance with SFAS 133, the fair value of derivative liabilities was recalculated and decreased by $4,114,568 during the period, including $1,261,690 for the decrease in fair value of the warrants and $2,852,878 for the decrease in fair value of the conversion option.

As of March 31, 2009, the balance of derivative liabilities was $5,788,442, which consisted of $1,817,216 for the warrants and $3,971,226 for the conversion option, and the carrying value of the notes was 7,624,674. The effective interest charges on notes totaled $1,027,477 and $159,478 for the three months ended March 31, 2009 and 2008, respectively. As of March 31, 2009, the unamortized note issuance cost was $4,197,058, including $1,564,500 for additional issuance of 150,000 shares of the common stock to the placement agent in January 2008. Note issuance cost was amortized to interest expense at $20,917 and $8,894 for the three months ended March 31, 2009 and 2008, respectively.

Net income

Three months ended March 31, 2009 compared with three months ended March 31, 2008

Net income for the three months ended March 31, 2009 increased 235% to $7.3 million compared to $2.2 million for the same period of last year.

Earnings per share

Earning per share for the three months ended March 31, 2009 increased 233% to 0.20 per share compared to $0.06 per share for the same period last year.

	1st Quarter 2009		1st Quarter 2008		%
NET INCOME	$	7,334,632	$	2,188,460		235	%

SHARES
Basic		36,285,312		34,836,394
Diluted		36,285,312		34,923,614
EARNINGS PER SHARE
Basic	$	0.20	$	0.06		222	%
Diluted	$	0.20	$	0.06		223	%

The first quarter March 31, 2009 earnings per share was positively impacted by the gain on derivative instrument which is a non-operating, non-cash gain. Management believes that Net Income less derivative impact is a better measurement of management performance. .

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NET INCOME (LOSS) LESS DERIVATIVE IMPACT
	1st Quarter 2009		1st Quarter 2008
NET INCOME	$	7,334,632	$	2,188,460
less gain on derivative instrument	$	4,114,568	$	2,670,764
NET INCOME (LOSS) LESS DERIVATIVE IMPACT	$	3,220,064	$	(482,304	)

WEIGHTED AVERAGE NUMBER OF SHARES
Basic		36,285,312		34,836,394
Diluted		36,285,312		34,923,614
EARNINGS (LOSS) PER SHARE LESS DERIVATIVE IMPACT
Basic	$	0.09	$	(0.01	)
Diluted	$	0.09	$	(0.01	)

The derivative instrument gain is a non-operating, non-cash gain related to the convertible bond and related warrants issued December 2007. According to accounting rules, the derivative instrument value and associated gain or loss is linked to the stock price of General Steel Holdings, Inc. The gain or loss of this instrument has no impact on cash (no cash was paid out or received in).

Income taxes

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, 2009 and 2008. Therefore, no provision for withholding or U.S. federal or state 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%.

Our Longmen Joint Venture is located in the mid-west region of China. The National Development and Reform Commission (the “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% to 15%. This change was effective July 1, 2007 and is reflected from our financial results.

Maoming is located in Guangdong province, is subject to an income tax at effective rate of 25%.

For the three months ended March 31, 2009, we had a tax expense of $1.4 million.

Noncontrolling Interest

Noncontrolling 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 1% interest in Maoming by another entity.

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Accounts Receivable

Accounts receivable and accounts receivable-related party were $20.1 million as of March 31, 2009 compared to $8.3 million on December 31, 2008.

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, 2009, we reserved $0.4 million 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 yearly. Cash balance including restricted cash amounted to $213.4 million and $145.6 million as of March 31, 2009 and December 31, 2008, respectively.

Operating activities

Net cash provided by operating activities for the three months ended March 31, 2009 was $16.3million compared to cash used in operating activities of $27.1 million in the same period of 2008. This change was mainly due to the combination of the following factors:

Cash inflow after the adjustments of some non-cash items to the net income such as depreciation and amortization, (Gain) Loss from debt extinguishment, (Gain) Loss on disposal of equipment, stock issued for service and compensation, amortization of deferred note issuance cost, amortization of discount on convertible notes, Change in fair value of derivative instrument, minority interest and deferred tax assets, totaled of $8.3 million.

Cash inflow due to the increase in accounts payable, other payables, accrued liabilities, customer deposits and tax payable totaled of $43.6 million. We have recently completed construction of two new blast furnaces at Longmen Joint Venture. We have been financing this construction using vendor financing and working capital provided by our suppliers and customers.

Cash inflow resulting from increase in accounts receivable, notes receivable, other receivables and other receivables-related parties which was $10.3 million.

Cash outflow due to increase in inventory, advances on inventory purchases and prepaid expense of $45.9 million.

Investing activities

Net cash used in investing activities was $11.3 million for three months of 2009 compared to $27.3 million used in the same period of 2008. This decrease in cash used in investing activities mainly resulted from $35.7 million cash inflow which was from deposits due to sales representatives. The Company spent $41.4 million on equipment purchase and $6.6 million in long term investment.

Financing activities

Net cash provided by financing activities was $19.2 million for three months of 2009 compared to $23.0 million in the same period of 2008. This was mainly attributable to net cash inflows of $18.2 million on short term bank loan, $38.7 million on short term notes payable and $6.1million of other short term loan, and outflow of $43.8 million on restricted cash.

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Shelf Registration SEC Form S-3

On January 15, 2009, we filed a shelf registration statement SEC Form S-3, which is effective for a term of three years.

We may from time to time sell common stock, in one or more offerings, for an aggregate initial offering price of $60,000,000. We may sell the common stock to or through underwriters, directly to investors or through agents.

Each time we offer common stock, we will provide a prospectus supplement containing more specific information about the particular offering and attach it to this prospectus. The prospectus supplements may also add, update or change information contained in this prospectus. This prospectus may not be used to offer or sell securities without a prospectus supplement which includes a description of the method and terms of the offering.

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 $76 million (RMB 580 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 $4.3 million (RMB 33 million) on a comprehensive waste water recycling and water treatment system. The 2,000m 3 /h treatment capacity system was implemented at the end of 2005. In the first quarter of March 31, 2009, new water consumption per metric ton of steel produced was 1.1 metric ton.

Long Steel Group has one 10,000m 3 coke-oven gas tank and one 50,000m 3 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 has a thermal power plant with two 25KW dynamos that uses the residual coal gas from the blast furnaces and converters as fuel to generate power.

Long Steel Group also has 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 metric tons of solid waste and generate revenue of more than $2.6 million (RMB 20 million) each year.

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Daqiuzhuang Metal:

Based on the equipment, technologies and measures adopted, Daqiuzhuang Metal is not considered a high-pollutant 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 metric tons of wastewater daily. We can realize yearly savings using this system of approximately $10,000.

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 were no off-balance sheet arrangements in the first quarter of 2009.

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

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.

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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.

Financial instruments

Fair value measurements

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

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

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Noncontrolling interest

New Accounting Pronouncements

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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, 2009, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

	Payment due by period
			Less than
Contractual obligations	Total		1 year		1-3 years		4- 5 years
	Dollars amounts in thousands
Bank loans (1)	$	85,931	$	85,931	$	-	$	-
Notes payable		244,428		244,428		-		-
Deposits due to sales representatives		43,858		43,858		-		-
Lease with Bao Gang		857		264		528		65
Blast Furnace construction		7,420,209		7,420,209		-		-
Convertible notes ( Principal plus Interest )		47,250		2,071		6,431		38,748
Total	$	7,842,533	$	7,796,761	$	6,959	$	38,813

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(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.

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 2009 annual production capacity of 6.3 million metric tons, a $1 change in the annual average price would change annual pre-tax profits by approximately $6.3 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 and Maoming, 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 $338,989 decrease to income.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of that date, our disclosure controls and procedures were not effective at the reasonable assurance level because of the identification of material weaknesses in our internal control over financial reporting discussed below, which we view as an integral part of our disclosure controls and procedures.

Internal Control Over Financial Reporting

As discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, we identified the following material weaknesses in our internal controls over accounting:

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Insufficient personnel with appropriate accounting knowledge and training. We did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience, and training in the application of generally accepted accounting principles commensurate with financial reporting requirements and did not implement adequate supervisory review to ensure the financial statements at the subsidiary level were prepared in conformity with generally accepted accounting principles in the United States of America. This material weakness resulted in audit adjustments that corrected interest capitalization, raw material reserves and long term investment in the consolidated financial statements for the year ended December 31, 2008.

Incomplete related party transaction identification. We did not design and maintain effective controls to identify related party and intercompany transactions, which resulted in material adjustments for intercompany transactions and disclosures of related party transactions in the consolidated financial statements for the year ended December 31, 2008.

These deficiencies could result in misstatements of the aforementioned accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined this control deficiency constitutes a material weakness.

We are continuing to build our accounting resources and implement related party transaction review processes in response to the weaknesses. While we continue to develop and implement new control processes and procedures to address these weaknesses, we have determined that further improvements are required in our accounting processes before we can consider the material weakness remediated.

Changes in Internal Control Over Financial Reporting

Other than the remediation efforts described below, there have been no changes in our internal control over financial reporting that have materially affected, or are likely to materially affect, our internal control over financial reporting.

We continue to undertake steps to strengthen our controls over accounting, including:

Increasing preparation and review on related party transactions

Hiring more staff accountants who have appropriate knowledge about the U.S. financial reporting requirements

Enhancing job responsibilities and procedures for staff at all levels

Strengthening communications between senior management and subsidiary level management

Our material weaknesses in controls over accounting will not be considered remediated until new internal controls are operational for a period of time and are tested, and management and our independent registered public accounting firm conclude that these controls are operating effectively. Due to the nature of and time necessary to effectively remediate the material weaknesses identified to date, we have concluded that material weaknesses in our internal control over reclassification and elimination of related party transactions continues to exist as of March 31, 2009.

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.

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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 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;

· 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 ten major competitors of similar size, production capability and product line in the market place competing against our four 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.;

· 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.; and

· Competitors of Maoming include: Guangdong Shao Guan Iron and Steel Group and Zhuhai Yue Yu Feng Iron and Steel Co., Ltd.

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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

· 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 Chinese economy and the industry sectors in which we operate; and

· Conditions in relevant financial markets in the United States, China and elsewhere in the world.

Disruptions in world financial markets and the resulting governmental action of the United States and other countries could have a material adverse impact on our ability to obtain financing, our results of operations, financial condition and cash flows and could cause the market price of our common shares to decline.

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The current deep and potentially prolonged global recession that officially began in the United States in December 2007 has, since the beginning of the third quarter of 2008, had a material adverse effect on demand for our products and consequently the results of our operations, financial condition and cash flows. In mid-February 2009, the Federal Reserve warned that the United States economy faces an “unusually gradual and prolonged” period of recovery from this deep and recessionary period.

The credit markets worldwide and in the United States have experienced significant contraction, de-leveraging and reduced liquidity, and the United States government and foreign governments have either implemented or are considering a broad variety of governmental action and/or new regulation of the financial markets. Securities and futures markets and the credit markets are subject to comprehensive statutes, regulations and other requirements.

The uncertainty surrounding the future of the global credit markets has resulted in reduced access to credit worldwide. Major market disruptions and the current adverse changes in global market conditions, and the regulatory climate in the United States and worldwide, may adversely affect our business or impair our ability to borrow funds as needed. The current market conditions may last longer than we anticipate. These recent and developing economic and governmental factors may have a material adverse effect on our results of operations, financial condition or cash flows and could cause the price of our common stock to decline significantly.

We have made and may continue to make acquisitions which could divert management's attention, cause ownership dilution to our stockholders, or be difficult to integrate, which may adversely affect our financial results.

We have made several acquisitions, and it is our current plan to continue to acquire companies and technologies that we believe are strategic to our future business. Integrating newly acquired businesses or technologies could put a strain on our resources, could be costly and time consuming, and might not be successful. Such acquisitions could divert our management's attention from other business concerns. In addition, we might lose key employees while integrating new organizations. Acquisitions could also result in customer dissatisfaction, performance problems with an acquired company or technology, potentially dilutive issuances of equity securities or the incurrence of debt, the assumption or incurrence of contingent liabilities, possible impairment charges related to goodwill or other intangible assets or other unanticipated events or circumstances, any of which could harm our business. We might not be successful in integrating any acquired businesses, products or technologies, and might not achieve anticipated revenues and cost benefits.

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. On March 31, 2009, approximately 30% of our sales were to five customers and these customers accounted for 0% 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.

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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.

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

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 approximately 1000 steel companies in China. Among those, approximately 25 companies have over 5 million metric tons of crude steel 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.

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

We have no operations independent of those of Daqiuzhuang Metal, Baotou Steel Pipe Joint Venture, Longmen Joint Venture and Maoming 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, Longmen Joint Venture and Maoming 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.

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 which 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.

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We do not presently maintain product liability insurance in China, 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.

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 China. 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 China 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 Chinese 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 Chinese laws and regulations may have a material and adverse effect on our business.

There are substantial uncertainties regarding the interpretation and application of Chinese 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 Chinese laws, and as a result, we are required to comply with Chinese 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 Chinese 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 Chinese 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 Chinese laws or regulations.

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

All of our operations are conducted in China and all of our revenues are generated from sales to businesses operating in China. Although the Chinese 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 Chinese economy which may affect demand for our products. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in China may materially reduce the demand for our products and in turn adversely affect 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.

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

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

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

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

China’s State Administration of Foreign Exchange Regulations regarding offshore financing activities by Chinese 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 Chinese 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 Chinese resident shareholders to liability under Chinese law.

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 Chinese government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. 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 Chinese 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 China’s 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 Chinese 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 China’s political and economic conditions. As we rely entirely on revenues earned in China, 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, China 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 Chinese 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 Chinese 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, 2009, the exchange rate of the Renminbi to the U.S. dollar was 6.83 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 subsidiaries 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 China. 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 China, 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 Chinese 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, China’s legislative bodies have promulgated laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, China 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 China. 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 China 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 60% of our common stock. Mr. Zuosheng Yu, our major shareholder, beneficially owns approximately 58% 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 United States and China and, even if civil judgments are obtained in United States courts, such judgments may not be enforceable in Chinese 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 China 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 registered the shares of our common stock issuable upon conversion of approximately $40,000,000 worth of senior convertible notes convertible into 4,170,009 shares of our common stock with a conversion price of $12.47 per share and applicable interest rates and upon the exercise of 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, both 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. The conversion price was reset to $4.2511 to the Market Price on May 7, 2009 because the conversion price is higher than the Market Price pursuant to the notes agreement. Market Price means, for any given date, the lower of (x) the arithmetic average of the Weighted Average Price of the Common Stock for the thirty (30) consecutive Trading Day period ending on the Trading Day immediately preceding such date and (y) the Weighted Average Price of the Common Stock on the Trading Day immediately preceding such date.

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

Issued 109,250 shares of common stock as interim incentives to senior and mid-level management

On March 9, 2009, the Company granted senior management and directors 109,250 shares of common stock at $1.85 per share, as incentive compensation. The shares were valued at the quoted market price on the date granted. The Company recorded compensation expense of $202,003 for the three months ended March 31, 2009.

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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

On May 8, 2009, the Company issued 300,000 shares of common stock at $6.00 per share to Ms. Yumei Ding, the sole shareholder of Guangzhou Hengda Industrial Group Limited for the purpose of debt repayment owed by the Company’s subsidiary, Maoming Hengda Steel Group Limited.

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.

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 11, 2009	By:	/s/ Zuosheng Yu
		Zuosheng Yu
		Chief Executive Officer and Chairman

Date: May 11, 2009	By:	/s/ John Chen
		John Chen
		Director and Chief Financial Officer