UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




Form
10-Q


(Mark One)




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




For the
quarterly period ended September 30, 2008




or




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




For the
transition period from __________________ to
__________________________




Commission
file number: 333-145712




CHINA
ARMCO METALS, INC


(Name of
registrant as specified in its charter)




Nevada
            26-0491904(State
      or other jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer Identification No.)




One
      Waters Park Drive, Suite 98, San Mateo, CA
            94403(Address
      of principal executive offices)
            (Zip
      Code)




(650)
212-7620


(Registrant's
telephone number, including area code)




Not
Applicable


(Former
name, former address and former fiscal year, if changed since last
report)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes þ No o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.




Large
      accelerated filer
            o
            Accelerated
      filer
            oNon-accelerated
      filer
              (Do
      not check if smaller reporting company)
            o
            Smaller
      reporting company
            þ




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)


Yes o No þ




Indicated
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date. 10,092,649 shares of common stock are
issued and outstanding as of November 13, 2008.











TABLE
OF CONTENTS






Page
      No.PART I
      - FINANCIAL INFORMATIONItem
      1.
            Financial
      Statements.
            2Item
      2.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.
            18Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk.
            26Item
      4
            Controls
      and Procedures.
            26PART II - OTHER
      INFORMATIONItem
      1.
            Legal
      Proceedings.
            26Item
      1A.
            Risk
      Factors.
            26Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds.
            26Item
      3.
            Defaults
      Upon Senior Securities.
            26Item
      4.
            Submission
      of Matters to a Vote of Security Holders.
            26Item
      5.
            Other
      Information.
            26Item
      6.
            Exhibits.
            26














INDEX
OF CERTAIN DEFINED TERMS USED IN THIS REPORT




When used
in this report the terms:





–
            “China
      Armco Metals”, “we”, “us” or “our” refers to China Armco Metals, Inc., a
      Nevada corporation, and our subsidiaries,–
            “Armco”
      refers to Armco & Metawise (H.K), Ltd., a limited liability company
      established under the laws of Hong Kong.–
            “Armet”
      refers to Armet (Lianyungang) Renewable Resources Co., Ltd. (a/k/a Armet
      (Lianyungang) Scraps Co., Ltd.), a limited liability company established
      under the laws of the People’s Republic of China.–
            “Henan
      Armco” refers to Henan Armco & Metawise Trading Co., Ltd., a limited
      liability company established under the laws of the People’s Republic of
      China.










-1-





PART
1 - FINANCIAL INFORMATION






Item
      1.
            Financial
      Statements.









CHINA
ARMCO METALS, INC. AND SUBSIDIARIES





September
30, 2008 and 2007





INDEX
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS




Contents
            Page(s)Consolidated
      Balance Sheets at September 30, 2008 (Unaudited) and December 31,
      2007
            3Consolidated
      Statements of Operations and Comprehensive Income (Loss) for the Three
      Months and Nine Months Ended September 30, 2008 and 2007
      (Unaudited)
            4Consolidated
      Statement of Stockholder’s Equity for the Nine Months Ended September 30,
      2008 (Unaudited)
            5Consolidated
      Statements of Cash Flows for the Nine Months Ended September 30, 2008 and
      2007 (Unaudited)
            6Notes
      to the Consolidated Financial Statements (Unaudited)
            7






-2-





CHINA
ARMCO METALS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS






September
      30, 2008
              
              
              December
      31, 2007(Unaudited)ASSETSCURRENT
      ASSETS:Cash
              
              
              3,459,077
              
              
              
              232,286Pledged
      deposits
              
              
              803,000
              
              
              
              564,150Accounts
      receivable
              
              
              15,434,049
              
              
              
              2,586,529Inventories
              
              
              2,479,150
              
              
              
              2,434,908Advance
      on purchases
              
              
              7,677,983
              
              
              
              1,846,113Prepayments
      and other current assets
              
              
              604,402
              
              
              
              -Total
      Current Assets
              
              
              30,457,661
              
              
              
              7,663,986PROPERTY
      AND EQUIPMENT, net
              
              
              298,124
              
              
              
              131,596LAND
      USE RIGHT, net
              
              
              2,231,067
              
              
              
              2,108,983Total
      Assets
              
              
              32,986,852
              
              
              
              9,904,565LIABILITIES
      AND STOCKHOLDER'S EQUITYCURRENT
      LIABILITIES:Forward
      foreign currency exchange contracts
              
              
              -
              
              
              
              308,744Forward
      foreign currency exchange swap liabilities
              
              
              -
              
              
              
              12,079Loan
      payable
              
              
              7,589,314
              
              
              
              -Accounts
      payable
              
              
              2,775,858
              
              
              
              290,740Advances
      from stockholders
              
              
              21,500
              
              
              
              921,444Customer
      deposits
              
              
              4,291,490
              
              
              
              2,228,720Taxes
      payable
              
              
              664,505
              
              
              
              8Accrued
      expenses and other current liabilities
              
              
              1,558,163
              
              
              
              1,058,697Total
      Current Liabilities
              
              
              16,900,830
              
              
              
              4,820,432STOCKHOLDER'S
      EQUITY:Preferred
      stock, $0.001 par value;   1,000,000 shares
      authorized;none
      issued or outstanding
              
              
              -
              
              
              
              -Common
      stock, $0.001 par value, 74,000,000 shares authorized,10,092,649
      and 5,300,000 shares issued and outstanding, respectively
              
              
              10,093
              
              
              
              5,300Additional
      paid-in capital
              
              
              6,924,594
              
              
              
              367,726Retained
      earnings
              
              
              8,577,441
              
              
              
              4,634,449Accumulated
      other comprehensive income:Foreign
      currency translation gain
              
              
              573,894
              
              
              
              76,658Total
      Stockholder's Equity
              
              
              16,086,022
              
              
              
              5,084,133Total
      Liabilities and Stockholder's Equity
              
              
              32,986,852
              
              
              
              9,904,565


See
accompanying notes to unaudited consolidated financial statements






-3-







CHINA
ARMCO METALS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS




(UNAUDITED)






For
      the Three Months
              
              
              For
      the Three Months
              
              
              For
      the Nine Months
              
              
              For
      the Nine MonthsEnded
              
              
              Ended
              
              
              Ended
              
              
              EndedSeptember
      30, 2008
              
              
              September
      30, 2007
              
              
              September
      30, 2008
              
              
              September
      30, 2007NET
      REVENUES
              
              
              20,384,974
              
              
              
              27,329,425
              
              
              
              43,174,787
              
              
              
              36,345,975COST
      OF GOODS SOLD
              
              
              17,937,965
              
              
              
              29,224,075
              
              
              
              38,621,088
              
              
              
              37,542,207GROSS
      PROFIT
              
              
              2,447,009
              
              
              
              (1,894,650
              )
              
              
              4,553,699
              
              
              
              (1,196,232
              )OPERATING
      EXPENSES:Selling
      expenses
              
              
              61,387
              
              
              
              7,944
              
              
              
              92,900
              
              
              
              154,050General
      and administrative expenses
              
              
              282,729
              
              
              
              62,817
              
              
              
              624,170
              
              
              
              197,086Total
      operating expenses
              
              
              344,116
              
              
              
              70,761
              
              
              
              717,070
              
              
              
              351,136INCOME
      (LOSS) FROM OPERATIONS
              
              
              2,102,893
              
              
              
              (1,965,411
              )
              
              
              3,836,629
              
              
              
              (1,547,368
              )OTHER
      (INCOME) EXPENSE:Interest
      income
              
              
              (6,128
              )
              
              
              -
              
              
              
              (6,128
              )
              
              
              -Interest
      expense
              
              
              22,167
              
              
              
              6,457
              
              
              
              119,503
              
              
              
              6,457Gain
      from contracts termination
              
              
              (31,750
              )
              
              
              -
              
              
              
              (1,265,501
              )
              
              
              -Loss
      on forward foreign currency contracts
              
              
              -
              
              
              
              3,593
              
              
              
              19,739
              
              
              
              3,593Other
      (income) expense
              
              
              353,054
              
              
              
              9,185
              
              
              
              230,342
              
              
              
              126,068Total
      other (income) expense
              
              
              337,343
              
              
              
              19,235
              
              
              
              (902,045
              )
              
              
              136,118INCOME
      (LOSS) BEFORE INCOME TAXES
              
              
              1,765,550
              
              
              
              (1,984,646
              )
              
              
              4,738,674
              
              
              
              (1,683,486
              )INCOME
      TAXES
              
              
              409,717
              
              
              
              -
              
              
              
              795,682
              
              
              
              -NET
      INCOME (LOSS)
              
              
              1,355,833
              
              
              
              (1,984,646
              )
              
              
              3,942,992
              
              
              
              (1,683,486
              )OTHER
      COMPREHENSIVE INCOME (LOSS):Foreign
      currency translation gain (loss)
              
              
              183,363
              
              
              
              25,307
              
              
              
              497,236
              
              
              
              (23,459
              )COMPREHENSIVE
      INCOME (LOSS)
              
              
              1,539,196
              
              
              
              (1,959,339
              )
              
              
              4,440,228
              
              
              
              (1,706,945
              )NET
      INCOME (LOSS) PER COMMON SHAREBASIC
      AND DILUTED:
              
              
              0.15
              
              
              
              (0.26
              )
              
              
              0.48
              
              
              
              (0.22
              )Weighted
      Common Shares Outstandingbasic
      and diluted
              
              
              9,227,792
              
              
              
              7,606,000
              
              
              
              8,150,576
              
              
              
              7,606,000


See
accompanying notes to unaudited consolidated financial statements




-4-





CHINA
ARMCO METALS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF STOCKHOLDER'S EQUITY


For
the Nine Month Period Ended September 30, 2008


(UNAUDITED)




AccumulatedOtherComprehensiveIncomeForeignCommon
      Stock, $0.001 Par Value
              
              
              Additional
              
              
              Retained
              
              
              Currency
              
              
              TotalNumber
      of
              
              
              
              
              
              Paid-in
              
              
              Earnings
              
              
              Translation
              
              
              Stockholder'sShares
              
              
              Amount
              
              
              Capital
              
              
              (Deficit)
              
              
              Gain
              
              
              EquityBalance,
      December 31, 2006
              
              
              5,300,000
              
              
              $
              5,300
              
              
              $
              367,726
              
              
              $
              702,658
              
              
              $
              9,632
              
              
              $
              1,085,316Contribution
      to capital
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Comprehensive
      incomeNet
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,391,179
              
              
              
              
              
              
              
              5,391,179Foreign
      currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              67,026
              
              
              
              67,026Total
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,458,205Dividends
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,459,388
              )
              
              
              
              
              
              
              (1,459,388
              )Balance,
      December 31, 2007
              
              
              5,300,000
              
              
              
              5,300
              
              
              
              367,726
              
              
              
              4,634,449
              
              
              
              76,658
              
              
              
              5,084,133Reverse
      acquisition adjustment
              
              
              2,306,000
              
              
              
              2,306
              
              
              
              (61,326
              )
              
              
              
              
              
              
              
              
              
              
              (59,020
              )Issuance
      of common stock for cash fromJuly
      25, 2008 through August 8, 2008,
              
              
              2,486,649
              
              
              
              2,487
              
              
              
              1,520,790
              
              
              
              
              
              
              
              
              
              
              
              1,523,277net
      of offering costsIssuance
      of warrants in connection with  Julyand
      August, 2008 common stock issuance
              
              
              
              
              
              
              
              
              
              
              5,097,404
              
              
              
              
              
              
              
              
              
              
              
              5,097,404Comprehensive
      incomeNet
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,942,992
              
              
              
              
              
              
              
              3,942,992Foreign
      currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              497,236
              
              
              
              497,236Total
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,440,228Balance,
      September 30, 2008
              
              
              10,092,649
              
              
              $
              10,093
              
              
              $
              6,924,594
              
              
              $
              8,577,441
              
              
              $
              573,894
              
              
              $
              16,086,022




See
accompanying notes to unaudited consolidated financial statements




-5-




CHINA
ARMCO METALS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)


For
      the Nine Months
              
              
              For
      the Nine MonthsEnded
              
              
              EndedSeptember
      30, 2008
              
              
              September
      30, 2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
              
              $
              3,942,993
              
              
              $
              (1,683,486
              )Adjustments
      to reconcile net income (loss) to net cashprovided
      by (used in) operating activitiesDepreciation
      expenses
              
              
              1,342
              
              
              
              26,730Amortization
      expense
              
              
              61,548
              
              
              
              -Loss
      from disposal of property and equipment
              
              
              5,459
              
              
              
              12,464Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (12,847,520
              )
              
              
              (1,468,602
              )Inventories
              
              
              136,747
              
              
              
              (4,370,761
              )Advance
      on purchases
              
              
              (5,694,647
              )
              
              
              91,112Prepayments
      and other current assets
              
              
              (744,785
              )
              
              
              51,989Forward
      foreign exchange contracts swap
              
              
              19,739
              
              
              
              3,593Accounts
      payable
              
              
              2,466,568
              
              
              
              5,827,446Customer
      deposits
              
              
              1,897,107
              
              
              
              1,755,686Taxes
      payable
              
              
              784,719
              
              
              
              (75,327
              )Accrued
      expenses and other current liabilities
              
              
              442,254
              
              
              
              3,844,139NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
              
              
              (9,528,476
              )
              
              
              4,014,983CASH
      FLOWS FROM INVESTING ACTIVITIES:Cash
      received from reverse acquisition
              
              
              11,506
              
              
              
              -Proceeds
      from release of pledged deposits
              
              
              606,083
              
              
              
              -Payment
      made towards pledged deposits
              
              
              (803,000
              )
              
              
              (404,912
              )Purchases
      of property and equipment
              
              
              (168,743
              )
              
              
              (123,345
              )NET
      CASH USED IN INVESTING ACTIVITIES
              
              
              (354,154
              )
              
              
              (528,257
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds from forward foreign exchange contracts
              
              
              -
              
              
              
              312,337Payment
      of forward foreign exchange contracts
              
              
              (344,670
              )
              
              
              -Proceeds
      from loans payable
              
              
              7,547,814
              
              
              
              -Amounts
      received from (paid to) related parties
              
              
              (921,236
              )
              
              
              317,289Sale of common stock and warrants, net of offering costs
              
              
              6,623,168
              
              
              
              -NET
      CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              12,905,076
              
              
              
              629,626EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
              
              
              204,345
              
              
              
              3,712NET
      CHANGE IN CASH
              
              
              3,226,791
              
              
              
              4,120,064Cash
      at beginning of year
              
              
              232,286
              
              
              
              137,798Cash
      at end of year
              
              $
              3,459,077
              
              
              $
              4,257,862SUPPLEMENTAL
      DISCLOSURE OF CASH FLOWS INFORMATION:Interest
      paid
              
              $
              119,503
              
              
              $
              6,457Taxes
      paid
              
              $
              -
              
              
              $
              -





See
accompanying notes to unaudited consolidated financial statements









-6-





NOTE
1 – ORGANIZATION AND OPERATIONS





China
Armco Metals, Inc. (formerly Cox Distributing, Inc.) (“Armco Metals” or the
”Company”) was founded as an unincorporated business in January 1984 and was
incorporated as a C corporation in the State of Nevada on April 6, 2007 at which
time 9,100,000 shares of common stock were issued to the Company’s founder in
exchange for the existing business of Cox Distributing.  No value was
given to the shares issued by the newly formed
corporation.  Therefore, the shares were recorded to reflect the $.001
par value and paid in capital was recorded as a negative amount ($910).
 The Company engaged in the distribution of organic fertilizer products
used to improve soil and growing conditions for the potato farmers of eastern
Idaho.  On June 27, 2008, the Company amended its Articles of
Incorporation, and changed its name to China Armco Metals, Inc.





Merger
of Armco & Metawise (H.K) Limited and Subsidiaries





On June
27, 2008, we entered into a share purchase agreement (the “Share Purchase
Agreement”) and consummated a share purchase (the “Share Purchase”) with Armco
and Feng Gao, who owned 100% of the issued and outstanding shares of Armco (the
“Armco Shareholder”).  In connection with the Share Purchase Agreement
and the Share Purchase we purchased 100% of the issued and outstanding shares of
Armco’s capital stock from the Armco Shareholder in exchange for $6,890,000 by
delivery of a purchase money promissory note.  In addition, we granted
Ms. Gao an option to purchase a total of 5,300,000 shares of the Company’s
common stock, par value $.001 per share (the “Common Stock”) at $1.30 per share
expiring on September 30, 2008 and an option to purchase 2,000,000 shares of
Common Stock at $5.00 per share expiring on June 30, 2010 (the “Gao
Option”).  On August 12, 2008, Ms. Gao exercised her option to
purchase 5,300,000 shares of Common Stock in exchange for the $6,890,000
purchase money promissory note owed to Ms. Gao as the Armco
Shareholder.  Upon exercise, the shares issued
represented approximately 69.7% of the issued and outstanding Common Stock
immediately after the consummation of the Share Purchase.  The acquisition
of Armco has been treated as a reverse acquisition with Armco deemed the
acquirer and the Company deemed the acquiree under the purchase method of
accounting in accordance with Statement of Financial Accounting Standards No.
141 “Business Combinations”(“SFAS No. 141”).  The reverse merger is deemed a capital
transaction and the net assets of Armco (the accounting acquirer) are carried
forward to the Company (the legal acquirer and the reporting entity) at their
carrying value before the combination.  The acquisition process
utilizes the capital structure of the Company and the assets and liabilities of
Armco which have been recorded at their historical cost.  The equity
of the Company is the historical equity of Armco retroactively restated to
reflect the number of shares issued by the Company in the
acquisition.





Armco
& Metawise (H.K) Limited (“Armco”) was incorporated on July 13, 2001 under
the laws of the Hong Kong Special Administrative Region (“HK SAR”) of the
People’s Republic of China (“PRC”).  Armco engages in the import,
export and distribution of ferrous and non-ferrous ore and metals, and the
recycling of scrap steel.





On
January 9, 2007, Armco formed a wholly owned subsidiary, Armet
(LianYunGang) Renewable Resources Co, Ltd. (“Armet”), a wholly owned
foreign enterprise (“WOFE”) in the PRC.  Armet engages in the
recycling of scrap steel.





Henan
Armco and Metawise Trading Co., Ltd. (“Henan Armco”) was incorporated on June 6,
2002 in the PRC and is a wholly owned subsidiary of Armco.  Henan
Armco engages in the import, export and distribution of ferrous and
non-ferrous ore and metals.





Merger
of Henan Armco and Metawise Trading Co., Ltd. with Armet, Companies under Common
Control





On
December 28, 2007, Armco by and through its wholly owned subsidiary, Armet,
entered into a Share Transfer Agreement with Henan Armco, a company under common
control with the Company.  The acquisition of Henan Armco has been
recorded on the purchase method of accounting at historical amounts as Armet and
Henan Armco were under common control since June 2002.  The unaudited
consolidated financial statements have been presented as if the acquisition of
Henan Armco had occurred on January 1, 2006.





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Basis of
presentation





The
accompanying unaudited consolidated financial statements and related notes have
been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”) for interim financial information, and
with the rules and regulations of the United States Securities and Exchange
Commission (“SEC”) related to Form 10-Q and Article 10 of Regulation
S-X.  Accordingly, they do not include all of the information and footnotes
required by U.S. GAAP for complete financial statements.  The
unaudited consolidated financial statements furnished reflect all adjustments
(consisting of normal recurring accruals) which are, in the opinion of
management, necessary to a fair statement of the results for the interim
periods presented.  Interim results are not necessarily indicative of the
results for the full year. These interim consolidated financial statements
should be read in conjunction with the financial statements of the Company for
the year ended December 31, 2007 and notes thereto contained in the Company’s
Annual Report on Form 10-K filed with the SEC on March 28, 2008 and the
consolidated financial statements of Armco for the year ended December 31, 2007
and notes thereto contained in the Company’s Current Report on Form 8-K as filed
with the SEC on July 1, 2008.








-7-





The
unaudited consolidated financial statements include all the accounts of Armco
and Henan Armco as of September 30, 2008 and 2007 and for the interim periods
then ended.  Armet is included as of September 30, 2008 and for the
interim period ended September 30, 2008 and the period from January 9, 2007
(inception) through September 30, 2007.  Armco Metals is included as
of September 30, 2008 and for the period from June 27, 2008 through September
30, 2008.  All inter-company balances and transactions have been
eliminated.





Use of
estimates





The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reporting amounts of revenues and
expenses during the reported period.  Significant estimates include
the estimated useful lives of property and equipment.  Actual results
could differ from those estimates.





Cash
equivalents





We
consider all highly liquid investments with maturities of three months or less
at the time of purchase to be cash equivalents.





Pledged
deposits





Pledged
deposits consists of (1) amounts held for outstanding letters of credit maturing
in future periods and (2) deposits held for outstanding forward foreign currency
hedging contracts maturing in future periods.





Trade accounts
receivable





Trade
accounts receivable are recorded at the invoiced amount, net of an allowance for
doubtful accounts.  The allowance for doubtful accounts is our best
estimate of the amount of probable credit losses in existing accounts
receivable. We determine the allowance based on historical write-off experience,
customer specific facts and economic conditions.  Bad debt expense is
included in general and administrative expenses, if any.





Outstanding
account balances are reviewed individually for collectability.  Account
balances are charged off against the allowance after all means of collection
have been exhausted and the potential for recovery is considered
remote.  We do not have any off-balance-sheet credit exposure to its
customers.





Inventories





We value
inventories, consisting of purchased products, at the lower of cost or
market.  Cost is determined on the First-in and First-out method of
accounting.  We review inventories on hand and, when necessary,
records a provision for excess or obsolete inventories based primarily on
current selling price and sales prices of confirmed backlog
orders.  We determined there was no inventory obsolescence as of
September 30, 2008 or 2007.





Property and
equipment





Property
and equipment are recorded at cost.  Expenditures for major additions
and betterments are capitalized.  Maintenance and repairs are charged
to operations as incurred.  Depreciation of property and equipment is
computed by the straight-line method (after taking into account their respective
estimated residual values) over the assets estimated useful lives ranging from
five (5) years to ten (10) years.  Upon sale or retirement of property
and equipment, the related cost and accumulated depreciation are removed from
the accounts and any gain or loss is reflected in
operations.  Leasehold improvements, if any, are amortized on a
straight-line basis over the lease period or the estimated useful life,
whichever is shorter.  Upon becoming fully amortized, the related cost
and accumulated amortization are removed from the accounts.






-8-





Land use
right





Land use
right represents the cost to obtain the right to use land in the
PRC.  Land use right is carried at cost and amortized on a
straight-line basis over the life of the right of fifty (50)
years.  Upon becoming fully amortized, the related cost and
accumulated amortization are removed from the accounts.





Impairment of long-lived
assets





We follow
Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or
Disposal of Long-Lived Assets”(“SFAS No. 144”) for its long-lived
assets. Our long-lived assets, which include property, plant and equipment, and
land use right are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.





We assess
the recoverability of its long-lived assets by comparing the projected
undiscounted net cash flows associated with the related long-lived asset or
group of long-lived assets over their remaining estimated useful lives against
their respective carrying amounts. Impairment, if any, is based on the excess of
the carrying amount over the fair value of those assets.  Fair value
is generally determined using the asset’s expected future discounted cash flows
or market value, if readily determinable.  If long-lived assets are
determined to be recoverable, but the newly determined remaining estimated
useful lives are shorter than originally estimated, the net book values of the
long-lived assets are depreciated over the newly determined remaining estimated
useful lives.  The Company determined that there were no impairments
of long-lived assets as of September 30, 2008 or 2007.





Customer
deposits





Customer
deposits primarily represent amounts received from customers for future delivery
of products, all of which were fully or partially refundable depending upon the
terms and conditions of the sales agreement.





Derivatives





We
account for derivatives in accordance with Statement of Financial Accounting
Standards No. 133 “Accounting
for Derivative Instruments and Hedging Activities” (“SFAS No. 133”) and
the related interpretations. SFAS No. 133, as amended, requires companies to
recognize all derivative instruments as either assets or liabilities in the
balance sheet at fair value. The accounting for changes in the fair value of a
derivative instrument depends on: (i) whether the derivative has been designated
and qualifies as part of a hedging relationship, and (ii) the type of hedging
relationship.  For those derivative instruments that are designated
and qualify as hedging instruments, a company must designate the hedging
instrument based upon the exposure being hedged as either a fair value hedge,
cash flow hedge or hedge of a net investment in a foreign
operation.





We employ
foreign currency forward contracts to convert unforeseeable foreign currency
exchange rate to fixed foreign currency exchange rate.  We do not use
derivatives for speculation or trading purposes.  Changes in the fair
value of derivatives are recorded each period in current earnings or through
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and the type of hedge transaction. The ineffective
portion of all hedges is recognized in current earnings.  hawse have
sales and purchase commitments denominated in foreign currencies.  Foreign
currency forward contracts are used to hedge against the risk of change in the
fair value of these commitments attributable to fluctuations in exchange rates
(“Fair Value Hedges”).  Changes in the fair value of the derivative
instrument are generally offset in the income statement by changes in the fair
value of the item being hedged.





Fair value of financial
instruments





We follow
Statement of Financial Accounting Standards No. 107 “Disclosures about Fair Value of
Financial Instruments”(“SFAS No. 107”) for its financial
instruments.  The fair value of a financial instrument is the amount
at which the instrument could be exchanged in a current transaction between
willing parties.  The carrying amounts of financial assets and liabilities,
such as cash, accounts receivable, prepayments and other current assets,
accounts payable, accrued expenses and other current liabilities, approximate
their fair values because of the short maturity of these
instruments.






-9-







Revenue
recognition





We follow
the guidance of the United States Securities and Exchange Commission’s Staff
Accounting Bulletin (“SAB”) No. 101 “Revenue Recognition” (“SAB
No. 101”), as amended by SAB No. 104 (“SAB No. 104”) and SAB Topic 13 for
revenue recognition.  We record revenue when persuasive evidence of an
arrangement exists, service has been rendered, the sales price to the customer
is fixed or determinable, and collectability is reasonably
assured.  In addition to the aforementioned general policy, the
following are the specific revenue recognition policies for each major category
of revenue:





(i) Import, exportand distribution of ferrous and
non-ferrous ores and metals:  We derive revenues from sales
contracts with customers with revenues being recognized upon the shipment of
goods.  Persuasive evidence of an arrangement is demonstrated via
invoice, product delivery is evidenced by warehouse shipping log as well as a
signed bill of lading from the trucking or rail company and title transfers upon
shipment, based on free on board (“FOB”) warehouse terms; the sales price to the
customer is fixed upon acceptance of the purchase order and there are no
separate sales rebates, discounts, or volume incentives.  We do
not make anyprovisions for returns because, historically, there have been very
few sales returns and adjustments that have impacted the ultimate collection of
revenues.





(ii) Import and exportagent
services:  Revenue from import and export agent services is
recognized as the services are provided.  The import and export agent
services are considered provided when the goods to be imported or exported by
the customer are delivered to the designated port specified by the service
contract.  We follow the Financial Accounting Standards Board Emerging
Issues Task Force Issue No. 99-19 “Reporting Revenue Gross as a Principal versus
Net as an Agent” for revenue recognition to report revenue net for its import
and export agent services since we (1) takes title to the products with full
payment for the goods and related cost from the customer, (2) has no risks and
rewards of ownership, such as the risk of loss for collection, delivery, or
returns, and (3) acts as an agent or broker (including performing services, in
substance, as an agent or broker) with compensation on a commission or fee basis
on any of its outsourcing projects.





Stock-based
compensation





We
adopted the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (“SFAS
No. 123R”) using the modified prospective method. The fair value of each option
grant estimated on the date of grant uses the Black-Scholes option-pricing model
with the following weighted-average assumptions:





June
      27, 2008Expected
      option life (year)
            
            
            2.00Expected
      volatility
            
            
            0.00%Risk-free
      interest rate
            
            
            2.65%Dividend
      yield
            
            
            0.00%





The
expected life of the options has been determined using the simplified method as
prescribed in SEC Staff Accounting Bulletin No. 107 (“SAB 107”). Our policy is
to recognize compensation cost for awards with only service conditions and a
graded vesting schedule on a straight-line basis over the requisite service
period for the entire award.





The fair
value of each option award is estimated on the date of grant using a
Black-Scholes option-pricing valuation model. The ranges of assumptions for
inputs shown in the table above for 2008 are as follows:





·
            We
      use historical data to estimate employee termination behavior. The
      expected life of options granted is derived from SAB 107 and represents
      the period of time the options are expected to be
    outstanding.





·
            The
      expected volatility is based on a combination of the historical volatility
      of the comparable companies’ stock over the contractual life of the
      options.





·
            The
      risk-free interest rate is based on the U.S. Treasury yield curve in
      effect at the time of grant for periods within the contractual life of the
      option.





·
            The
      expected dividend yield is based on the Company’s current dividend yield
      as the best estimate of projected dividend yield for periods within the
      contractual life of the option.






-10-




Shipping and handling
costs





We account for shipping and handling
fees in accordance with the Financial Accounting Standards Board Emerging Issues
Task Force Issue No. 00-10 “Accounting for Shipping and Handling
Fees and Costs” (“EITF Issue No. 00-10”).  While amounts charged to
customers for shipping products are included in revenues, the related costs are
classified in cost of goods sold as incurred.




Income
taxes





We follow
Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes”
(“SFAS No. 109”), which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns.  Under this
method, deferred tax assets and liabilities are based on the differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.  Deferred tax assets are reduced by a valuation allowance to
the extent management concludes it is more likely than not that the assets will
not be realized.  Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the Consolidated Statements of Operations
and Comprehensive Income in the period that includes the enactment
date.





Foreign currency
translation





Transactions
and balances originally denominated in U.S. dollars are presented at their
original amounts.  Transactions and balances in other currencies are
converted into U.S. dollars in accordance with Statement of Financial Accounting
Standards No. 52 “Foreign
Currency Translation” (“SFAS No. 52”) and are included in determining net
income or loss.





Our
financial records are maintained in their local currency, the Renminbi (“RMB”),
which is the functional currency.  Assets and liabilities are
translated from the local currency into the reporting currency, U.S. dollars, at
the exchange rate prevailing at the balance sheet date. Revenues and expenses
are translated at weighted average exchange rates for the period to approximate
translation at the exchange rates prevailing at the dates those elements are
recognized in the combined and consolidated financial
statements.  Foreign currencytranslation gain (loss)
resulting from the process of translating the local currency financial
statements into U.S. dollars are included in determining accumulated other
comprehensive income in the combined and consolidated statement of stockholders’
equity.





RMB is
not a fully convertible currency.  All foreign exchange transactions
involving RMB must take place either through the People’s Bank of China (the
“PBOC”) or other institutions authorized to buy and sell foreign
exchange.  The exchange rate adopted for the foreign exchange
transactions are the rates of exchange quoted by the PBOC, which are determined
largely by supply and demand. Translation of amounts from RMB into United States
dollars has been made at the following exchange rates for the respective
periods:




September30,
      2008Balance
      sheet
            
            RMB
      6.7899 to $1.00Statement
      of income and comprehensive income
            
            RMB
      6.9829 to $1.00September30,
      2007Balance
      sheet
            
            RMB
      7.4928 to $1.00Statement
      of income and comprehensive income
            
            RMB
      7.7134 to $1.00December
      31,
      2006Balance
      sheet
            
            RMB
      7.8041 to $1.00





Commencing
July 21, 2005, China adopted a managed floating exchange rate regime based on
market demand and supply with reference to a basket of
currencies.  The exchange rate of the US dollar against the RMB was
adjusted from approximately RMB 8.28 per US dollar to approximately RMB
8.11 per U.S. dollar on July 21, 2005.  Since then, the PBOC
administers and regulates the exchange rate of the US dollar against the RMB
taking into account demand and supply of RMB, as well as domestic and foreign
economic and financial conditions.





Net gains
and losses resulting from foreign exchange transactions, if any, are included in
the Consolidated Statements of Operations and Comprehensive Income
(Loss).  The foreign currency translation gain (loss) at September 30,
2008 and 2007 was $401,861 and ($214,755) and effect of exchange rate changes on
cash flows for interim periods then ended were $69,480 and $3,712,
respectively.






-11-









Comprehensive
income(loss)





We
adopted Statement of Financial Accounting Standards No. 130 “Reporting Comprehensive
Income” (“SFAS No. 130”).  This statement establishes rules for the
reporting of comprehensive income (loss) and its components.  Comprehensive
income (loss), consists of net income (loss) and foreign currency translation
adjustments and is presented in the Consolidated Statements of
Operations and Comprehensive Income (Loss) and Stockholders’
Equity.





Commitments andcontingencies





Liabilities
for loss contingencies arising from claims, assessments, litigation, fines and
penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount of the assessment can be reasonably
estimated.





Net income (loss) per common
share





Net
income (loss) per common share is computed pursuant to Statement of Financial
Accounting Standards No. 128 “Earnings Per Share” (“SFAS
No. 128”).  Basic net income (loss) per common share is computed by
dividing net income (loss) by the weighted average number of shares of common
stock outstanding during each period.  Diluted net income (loss) per
common share is computed by dividing net income (loss) by the weighted average
number of shares of common stock and potentially outstanding shares of common
stock during each period to reflect the potential dilution that could occur
from common shares issuable through stock options.  Diluted net income
(loss) per common share equals basic income (loss) per share for the nine months
ended September 30, 2008 as the 2,000,000 shares of common stock issuable under
the Gao Options and the 2,728,913 shares of common stock issuable under
the common stock purchase warrants issued in connection with the 2008
Offering were anti-dilutive.  There were no potentially dilutive shares
outstanding for the interim period ended September 30, 2007.





Recently issued accounting
pronouncements





On June
5, 2003, the United States Securities and Exchange Commission (“SEC”) adopted
final rules under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”),
as amended by SEC Release No. 33-8934 on June 26, 2008. Commencing with its
annual report for the year ending December 31, 2009, the Company will be
required to include a report of management on its internal control over
financial reporting. The internal control report must include a
statement





·
            Of
      management’s responsibility for establishing and maintaining adequate
      internal control over its financial reporting;·
            Of
      management’s assessment of the effectiveness of its internal control over
      financial reporting as of year end; and·
            Of
      the framework used by management to evaluate the effectiveness of the
      Company’s internal control over financial
  reporting.





Furthermore,
in the following year, it is required to file the auditor’s attestation report
separately on the Company’s internal control over financial reporting on whether
it believes that the Company has maintained, in all material respects, effective
internal control over financial reporting.





In
December 2007, the FASB issued FASB Statement No. 141 (Revised 2007)“Business Combinations”
(“SFAS No. 141(R)”), which requires the Company to record fair value estimates
of contingent consideration and certain other potential liabilities during the
original purchase price allocation, expense acquisition costs as incurred and
does not permit certain restructuring activities previously allowed under
Emerging Issues Task Force Issue No. 95-3 to be recorded as a component of
purchase accounting. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, except
for the presentation and disclosure requirements, which shall be applied
retrospectively for all periods presented. The Company will adopt this standard
at the beginning of the Company’s year ending December 31, 2008 for all
prospective business acquisitions. The Company has not determined the effect
that the adoption of SFAS No. 141(R) will have on the financial results of the
Company.






-12-







In
December 2007, the FASB issued FASB Statement No. 160“Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51” (“SFAS
No. 160”), which causes noncontrolling interests in subsidiaries to be included
in the equity section of the balance sheet. SFAS No. 160 applies prospectively
to business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008, except for the presentation and disclosure requirements, which shall
be applied retrospectively for all periods presented. The Company will adopt
this standard at the beginning of the Company’s year ending December 31, 2008
for all prospective business acquisitions. The Company has not determined the
effect that the adoption of SFAS No. 160 will have on the financial results of
the Company.





In March
2008, the FASB issued FASB Statement No. 161“Disclosures about Derivative
Instruments and Hedging Activities an amendment of FASB Statement No.
133”  (“SFAS No. 161”), which changes the disclosure
requirements for derivative instruments and hedging activities. Pursuant to SFAS
No.161, Entities are required to provide enhanced disclosures about (a) how and
why an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash flows.
SFAS No. 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008 with early application
encouraged. SFAS No. 161 encourages but does not require disclosures for earlier
periods presented for comparative purposes at initial adoption. In years after
initial adoption, this Statement requires comparative disclosures only for
periods subsequent to initial adoption. The Company will adopt this standard at
the beginning of the Company’s year ending December 31, 2008. The Company does
not expect the adoption of SFAS No. 161 to have a material impact on the
financial results of the Company.





On
October 10, 2008, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active.This FASB
Staff Position (FSP) clarifies the application of FASB Statement No. 157, Fair
Value Measurements, in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a financial asset
when the market for that financial asset is not active. Statement 157 was issued
in September 2006, and is effective for financial assets and financial
liabilities for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal
years.  We have adopted SFAS 157-3 and determined that it had no
impact as of September 30, 2008, and we will continue to evaluate the impact, if
any, of SFAS 157-3 on our financial statements.





The
Company does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying consolidated financial statements.




NOTE
3 – INVENTORIES





Inventories
at September 30, 2008 and December 31, 2007 consisted of the
following:





September
      30, 2008
            
            
            December
      31, 2007Goods
      purchased
            
            $
            2,479,150
            
            
            $
            2,434,908$
            2,479,150
            
            
            $
            2,434,908





NOTE
4 – FINANCIAL INSTRUMENTS





We
utilized forward foreign currency exchange contracts resulting in a fixed
foreign currency exchange rate of $1.00 to RMB 7.3750.  These forward
foreign currency exchange contracts expired on August 2, 2008.  Losses
on these foreign currency exchange contracts for the nine months ended September
30, 2008 and 2007 amounted to $19,739 and $3,593, respectively.





The
forward foreign currency exchange contracts and related swap liabilities at
September 30, 2008 and December 31, 2007 consisted of the
following:





September
      30, 2008
            
            
            December
      31, 2007Forward
      foreign currency exchange contracts
            
            $
            -
            
            
            $
            308,744Forward
      foreign currency exchange swap liabilities
            
            
            -
            
            
            
            12,079$
            -
            
            
            $
            320,823






-13-







NOTE
5 – LOAN PAYABLE





Loan
payable at September 30, 2008 and December 31, 2007, consisted of the
following:





September
      30, 2008
            
            
            December
      31, 2007Loan
      payable to Raiffeisen Zentralbank, guaranteed by Kexuan Yao, our CEO and
      Chairman, with interest at 4.85% per annum payable monthly, with principal
      due November 30, 2008.
            
            $
            7,589,314
            
            
            $
            -





NOTE
6 – RELATED PARTY TRANSACTIONS





Advances fromstockholders





Advances
from stockholders at September 30, 2008 and December 31, 2007, consisted of the
following:





September
      30, 2008
            
            
            December
      31, 2007Advances
      from chairman, and chief executive officer
            
            $
            -
            
            
            $
            (921,444
            )Advances
      from former chief executive officer
            
            
            (21,500
            )$
            (21,500
            )
            
            $
            (921,444
            )





The
advances bear no interest and have no formal repayment terms.





Operating lease from a
related party





On August
1, 2008, the Company entered into an operating sublease for its commercial
office space in California from Prime Armet Group, Inc., an entity wholly
owned and controlled by the Company’s chairman and chief executive
officer.  The lease expires on October 1, 2009 and provides for future
minimum lease payments of $2,643 per month.





NOTE
7 – STOCKHOLDERS’ EQUITY





Sale of common
stock





2008
Offering





Between July and August 2008 we sold $7,419,729 (net proceeds of $6,585,468)
worth of securities to 92 accredited investors through the sale of 24.73 units
(the “2008 Offering”).  Each unit sold in the 2008 Offering consists
of 100,000 shares of Common Stock, $.001 par value per share at a per share
purchase price of $3.00, and five year warrants to purchase 100,000 shares of
Common Stock with an exercise price of $5.00 per share (the
“Warrants“).  In connection with the 2008 Offering, we issued
2,486,649 shares of Common Stock, and we granted 2,728,913 Warrants including
242,264 Warrants granted to broker-dealers, all of which has been earned upon
issuance.  The fair value of these Warrants, estimated on the date of
grant, was $5,092,970 at the date of issuance.  The accredited
investors entered into a subscription agreement with the Company; the material
terms of which are set forth in the exhibits filed with our Form 8-K filed on
August 1, 2008.




Stock
options





In
connection with the Share Purchase Agreement we issued Ms. Gao an option to
purchase 5,300,000 shares of the Company’s common stock, par value $.001 per
share (the “Common Stock”) at $1.30 per share, which was exercised in August
2008, and an option to purchase 2,000,000 shares of Common Stock at $5.00 per
share which expires on September 30, 2010 (the “Gao Option”).  The
5,300,000 Shares issued to Ms. Gao represented approximately 69.7% of the
issued and outstanding Shares of the Company giving effect to the cancellation
of 7,694,000 Shares owned by Mr. Cox.






-14-





The fair
value of the stock options issued in June 2008 under Share Purchase Agreement
using the Black-Scholes Option Pricing Model was nil at the date of
grant.  For the interim period ended September 30, 2008, we did not
record any stock-based compensation as we did not issue any stock based
compensation.  We did not issue any options or other stock based
compensation during the three month period ended September 30,
2007,





The table
below summarizes our stock option activity for the interim period ended
September 30, 2008:




Number of
              Option Shares
            Exercise Price Range
              Per Share
            Weighted Average
      Exercise Price
            
            Fair
      Value
              at
      Date of Grant
            Aggregate
              Intrinsic
              ValueBalance,
      December 31, 2007
            
            
            -
            
            
            $
            -
            
            
            $
            -
            
            
            
            -
            
            
            $
            -Granted
            
            
            2,000,000
            
            
            
            5.00
            
            
            
            5.00
            
            
            
            *
            
            
            
            *Canceled
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            -Exercised
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            -Expired
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            -Balance,
      September 30, 2008
            
            
            2,000,000
            
            
            $
            5.00
            
            
            $
            5.00
            
            
            
            *
            
            
            $
            -Vested
      and exercisable, September 30, 2008
            
            
            2,000,000
            
            
            $
            5.00
            
            
            $
            5.00
            
            
            
            *
            
            
            $
            -Unvested,
      September 30, 2008
            
            
            -
            
            
            $
            5.00
            
            
            $
            5.00
            
            
            
            *
            
            
            $
            -


* - Less
than $1





The
following table summarizes information concerning outstanding and exercisable
stock options as of September 30, 2008:





Options
      Outstanding
            
            Options
      ExercisableRange
      of
              Exercise
      Prices
            
            
            Number
      Outstanding
            
            Average
      Remaining Contractual
              Life  (in
      years)
            
            Weighted
      Average Exercise Price
            
            Number
              Exercisable
            Average
      Remaining Contractual
              Life  (in
      years)
            
            Weighted
      Average Exercise Price$
            5.00
            
            
            
            2,000,000
            
            2.00
            
            $
            5.00
            
            2,000,000
            2.00
            
            $
            5.00$
            5.00
            
            
            
            2,000,000
            
            2.00
            
            $
            5.00
            
            2,000,000
            2.00
            
            $
            5.00





Warrants





In
connection with the 2008 Offering, we issued 2,728,913 Warrants including
242,264 Warrants granted to broker-dealers, all of which has been earned upon
issuance.  The fair value of these Warrants, estimated on the date of
grant, was $5,092,970 at the date of issuance, all of which has been recorded as
additional paid-in capital, using the Black-Scholes option-pricing model with
the following weighted-average assumptions:





Expected
      option life (year)
            
            
            5.00Expected
      volatility
            
            
            89.00
            %Risk-free
      interest rate
            
            
            3.23
            %Dividend
      yield
            
            
            0.00
            %





The
remaining balance of the net proceeds from the Offering of $1,523,277 has been
assigned to the Common Stock.





The table
below summarizes our warrant activity for the interim period ended September 30,
2008:





-15-




Number of
              Warrant Shares
            
            Exercise Price Range
              Per Share
            
            Weighted Average
      Exercise Price
            
            Fair
      Value at Date of Issuance
            
            Aggregate
              Intrinsic
              ValueBalance,
      December 31, 2007
            
            
            -
            
            
            
            $
            -
            
            
            
            $
            -
            
            
            $
            -
            
            
            
            $
            -Granted
            
            
            2,728,913
            
            
            
            
            5.00
            
            
            
            
            5.00
            
            
            
            5,092,970
            
            
            
            
            -Canceled
            
            
            -
            
            
            
            
            -
            
            
            
            
            -
            
            
            
            -
            
            
            
            
            -Exercised
            
            
            -
            
            
            
            
            -
            
            
            
            
            -
            
            
            
            -
            
            
            
            
            -Expired
            
            
            -
            
            
            
            
            -
            
            
            
            
            -
            
            
            
            -
            
            
            
            
            -Balance,
      September 30, 2008
            
            
            2,728,913
            
            
            
            $
            5.00
            
            
            
            $
            5.00
            
            
            $
            5,092,970
            
            
            
            $
            -Earned
      and exercisable, September 30, 2008
            
            
            2,728,913
            
            
            
            $
            5.00
            
            
            
            $
            5.00
            
            
            $
            5,092,970
            
            
            
            $
            -Unvested,
      September 30, 2008
            
            
            -
            
            
            
            $
            5.00
            
            
            
            $
            5.00
            
            
            $
            -
            
            
            
            $
            -





The
following table summarizes information concerning outstanding and exercisable
warrants as of September 30, 2008:





Warrants
      Outstanding
            
            Warrants
      ExercisableRange
      of
              Exercise
      Prices
            
            
            Number
              Outstanding
            
            Average
      Remaining
              Contractual
              Life
      (in years)
            
            Weighted
      Average
              Exercise
      Price
            
            Number
              Exercisable
            Average
      Remaining Contractual
              Life
      (in years)
            
            Weighted
      Average Exercise Price$
            5.00
            
            
            
            2,728,913
            
            5.00
            
            $
            5.00
            
            2,728,913
            5.00
            
            $
            5.00$
            5.00
            
            
            
            2,728,913
            
            5.00
            
            $
            5.00
            
            2,728,913
            5.00
            
            $
            5.00





NOTE
8 – CONCENTRATION OF CREDIT RISK





Customers and Credit
Concentrations





Two
customers accounted for approximately 78.3% of total sales for the interim
period ended September 30, 2008 and three customers accounted for approximately
87.0% of total sales for the interim period ended September 30, 2007,
respectively.





Vendor
Concentrations





Four
vendors accounted for 88.1% of total purchases for the interim period ended
September 30, 2008 and three vendors accounted for 96.2% of total purchases for
the interim period ended September 30, 2007, respectively.





Credit
Risk





Financial
instruments that potentially subject us to significant concentration of credit
risk consist primarily of cash and cash equivalents.  As of September 30,
2008, substantially all cash and cash equivalents were held by financial
institutions located in the PRC, none of which are insured.  However, we
has not experienced losses on these accounts and management believes the Company
is not exposed to significant risks on such accounts.





Foreign currency
risk





We are
exposed to fluctuations in foreign currencies for transactions denominated in
currencies other than RMB as the majority of our purchasing activities are
transacted in foreign currencies.  We had no foreign currency hedges
in place at September 30, 2008 to reduce such exposure.  Previous
forward foreign currency exchange contracts expired on August 2, 2008 and the
 realized loss on these foreign currency hedges as of September 30, 2008
was $19,739.  The total realized loss on these foreign currency hedges
amounted to $31,818 which includes a $12,079 loss recognized for the year ended
December 31, 2007.





NOTE
9 - FOREIGN OPERATIONS





Operations





Substantially
all of the Company’s operations are located in the PRC.  Accordingly,
the Company’s business, financial condition and results of operations may be
influenced by the political, economic and legal environments in the
PRC.  Our business may be influenced by changes in governmental
policies with respect to laws and regulations, anti-inflationary measures,
currency fluctuation and remittances and methods of taxation, among other
things.






-16-





Dividends and
Reserves





Under the
laws of the PRC, net income after taxation can only be distributed as dividends
after appropriation has been made for the following: (i) cumulative prior years’
losses, if any; (ii) allocations to the “Statutory Surplus Reserve” of at least
10% of net income after tax, as determined under PRC accounting rules and
regulations, until the fund amounts to 50% of the Company’s registered capital;
(iii) allocations of 5-10% of income after tax, as determined under PRC
accounting rules and regulations, to the Company’s “Statutory Common Welfare
Fund”, which is established for the purpose of providing employee facilities and
other collective benefits to employees in PRC; and (iv) allocations to any
discretionary surplus reserve, if approved by stockholders.





As of September 30, 2008, the Company
had no Statutory Surplus Reserve and the Statutory Common Welfare Fund
established and segregated in retained earnings.









-17-










Item
      2.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.




The
following discussion should be read in conjunction with the information
contained in our unaudited consolidated financial statements and the notes
thereto appearing elsewhere herein and in conjunction with the Management’s
Discussion and Analysis set forth in (1) our Annual Report on Form 10-K for
the year ended December 31, 2007, and (2) our Quarterly Report on Form
10-Q for the quarter ended September 30, 2008.





We are on
a calendar year; as such the nine month period ending September, is our third
quarter. The year ended December 31, 2007 is referred to as “2007”, and the
coming year ending December 31, 2008 is referred to as “2008”.





OVERVIEW
OF OUR PERFORMANCE AND OPERATIONS





Our
Business





We
import, sell and distribute metal ores and non-ferrous metals to the metal
refinery industry in China.  We obtain raw materials from global
suppliers in Brazil, India, South America, Oman, Turkey, Iran, Libya, Nigeria,
Indonesia, and the Philippines.  We distribute these raw materials to
the metal refinery industry within China including but not limited to iron ore,
coal, chrome ore, nickel ore, copper ore, scrap steel, and manganese
ore.  As well, we are a U.S. based distributor of organic fertilizer
products used to improve soil and growing conditions for the potato farmers of
eastern Idaho.





We are in
the process of constructing a scrap steel recycling facility in the Banqiao
Industrial Zone of Lianyungang Economic Development Zone in the Jiangsu province
of the PRC. Upon completion of our planned metal recycling facility, we will
seek to recycle automobiles, machinery, building materials, dismantled ships and
various other scrap steel and will sell and distribute recycled scrap steel to
the metal refinery industry utilizing our existing network of metal ore
customers in the PRC.  We expect to commence recycling operations in
the third quarter of 2009.





Effective
June 27, 2008, Armco entered into an agreement to be acquired by
us.  Following the close of the acquisition we changed our former
corporate name Cox Distributing, Inc. to China Armco Metals, Inc.





China is
the largest developing country in the world, and the demand for steel has been
growing steadily over the past decade as the country continues to experience an
industrial revolution.  Management estimates domestic steel production
should continue to witness significant growth as China continues to
grow.  The steel industry is an important basic industry of the
national economy of China, and plays a vital role in the recent
industrialization efforts of the country.  As witnessed over the last
decade, the production of steel has increased dramatically throughout the world,
and particular in China.  According to the www.worldsteel.org, in 2007
worldwide crude steel production amounted to 1,344 million metric tons while
China accounted for approximately 489 million metric tons.  In 2006,
worldwide crude steel production amounted to 1,244 million metric tons with
China accounting for 422 million metric tons.  Globally, this increase
represents an approximate 8% increase from 2006 to
2007.   However steel production in China increased approximately
16% from 2006 to 2007.





We
invested substantially all of the $6.6 million in net proceeds we raised in our
2008 Offering to fund the construction of our planned scrap metal recycling
facility beginning in the third quarter of 2008.  This planned
investment is in addition to the approximately $3 million of investment
capital we have expended on this project in 2007 and 2008.




Presentation
of Financial Statements





The
presentation of the statements of operations included in Part 1, Item 1 in this
Form 10-Q have been modified to allow for the reporting of deductions from net
income to arrive at income (loss) applicable to common
stockholders.  Items reflected in our comprehensive income for the
periods reported are now included in our financial notes to the unaudited
financial statements included in this Form 10-Q.






-18-





RESULTS
OF OPERATIONS





Net
Revenues





Net
revenues for the third quarter of 2008 were $20.4 million, a decrease of 25.4%
compared to the third quarter of 2007, and for the nine months of 2008 were
$43.2 million, an increase of 18.8% compared to the nine months of
2007.  The global economic slowdown has adversely affected the rate of
growth in our business.  During the third quarter we witnessed some
business interruptions due to the Beijing Olympics.  From July through
September, the Chinese government imposed restrictions limiting the transport of
goods.  Our operations were negatively impacted due to these
restrictions.
 
 In November 2008, however, the Chinese government announced a $586 billion
domestic economic stimulus program aimed at bolstering domestic economic
activity.  The two-year program includes tax rebates, spending in
housing, infrastructure, agriculture, health care and social welfare, and a tax
deduction for capital spending by companies. We expect to see a benefit to the
Chinese economy from this stimulus program. However in the short-term, it
remains to be seen whether domestic consumption can compensate for slower export
growth, and the impact this will have on our revenues through the balance of
this year.


Cost
of Revenues





Cost of
revenues for the third quarter of 2008 were $17.9 million, a decrease of $11.3
million compared to the third quarter of 2007, and for the nine months of 2008
were $38.6 million, an increase of $1.1 million compared to the nine months of
2007. These changes as a percentage of revenues fluctuate based on the product
mix traded as they vary in gross profit margins. A decrease of $2.9 million
shipping expense during the nine month ended September 30, 2008 as nickel ore
and chrome ore sales decreased approximately $10.6 million or
35.2%.





Total
Operating Expenses





Operating
expenses for the third quarter of 2008 were $344,116, an increase of 386%
compared to the third quarter of 2007, and for the nine months of 2008 were
$717,070, an increase of 104% compared to the nine months of
2007.  Our operating expenses are comprised of selling expenses as
well as general and administrative expenses.  These increases are a
result of increased levels of sales operations and additional costs related to
our Armet Lianyungang subsidiary and Armco US offices.  We intend to
invest to fund the construction of a scrap steel recycling facility throughout
2008 and beyond.  Armet Lianyungang, our wholly owned subsidiary,
intends to construct a scrap metal recycling facility in the Banqiao Industrial
Zone of Lianyungang Economic Development Zone in Jiangsu province.  We
have expanded operational staff to support our expanding
operations.





The table
below summarizes the consolidated operating results for the three and nine
months ended September 30, 2008 and 2007.




For
      the three months ended
              
              
              For
      the nine months endedSeptember
      30, 2008
              
              
              September
      30, 2007
              
              
              September
      30, 2008
              
              
              September
      30, 2007$
              
              
              
              
              
              
              $
              
              
              
              
              
              
              $
              
              
              
              
              
              
              $(in
      000’s)
              
              
              
              %
              
              
              (in
      000’s)
              
              
              
              %
              
              
              (in
      000’s)
              
              
              
              %
              
              
              (in
      000’s)
              
              
              
              %-
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Revenues
              
              
              20,385
              
              
              
              -
              
              
              
              27,329
              
              
              
              
              
              
              
              43,175
              
              
              
              -
              
              
              
              36,346
              
              
              
              -Cost
      of revenues
              
              
              17,938
              
              
              
              88.0
              %
              
              
              29,224
              
              
              
              106.9
              %
              
              
              38,621
              
              
              
              89.5
              %
              
              
              37,542
              
              
              
              103.3
              %Gross
      profit
              
              
              2,447
              
              
              
              12.0
              %
              
              
              -1,895
              
              
              
              -6.9
              %
              
              
              4,554
              
              
              
              10.5
              %
              
              
              -1,196
              
              
              
              -3.3
              %Total
      operating expenses
              
              
              344
              
              
              
              1.7
              %
              
              
              71
              
              
              
              0.3
              %
              
              
              717
              
              
              
              1.7
              %
              
              
              351
              
              
              
              1.0
              %Operating
      (loss) income
              
              
              2,103
              
              
              
              10.3
              %
              
              
              -1,965
              
              
              
              -7.2
              %
              
              
              3,837
              
              
              
              8.9
              %
              
              
              -1,547
              
              
              
              -4.3
              %




Other
Income (expense)





Total
other income (expense) for the three and nine months ended September 30, 2008
was $(337,343) and $902,045, respectively. Other income was comprised mainly of:
1- a gain of $1.3 million in other income in relation to a litigation settlement
from one of our customers due to a breach of contracts, 2- foreign currency
forward contracts to convert unforeseeable foreign currency exchange rates to
fixed foreign currency exchange rates and for the three and nine months ended
September 30, 2008 we recognized a loss of $0 and $19,739, respectively on
forward foreign currency contracts, and we recorded interest income of $6,128
during the third quarter of 2008 and other expense of 230,342 during the nine
months ended September 30, 2008.





Income tax benefit
(expense)





Income
tax expense increased to $409,717 and $795,682 during the three and nine months
ended September 30, 2008, respectively primarily as a result of the increase in
taxable income generated on a consolidated basis during the
period.  Armco is exempt from Hong Kong income taxes since none of its
income was from Hong Kong sources for the years ended December 31, 2007 and 2006
and no provision for income taxes has been made for the relevant periods.
Armco’s statutory tax rate is 17.5% and is subject to Hong Kong SAR income taxes
as of January 1, 2008 and forward.






-19-





Net
income (loss)





For the
three and nine months ended September 30, 2008 our net income increased sharply
to $1.4 million and $3.9 million from net (loss) of ($2.0) and ($1.7) in 2007,
respectively. These increases are attributable to the analysis discussed above
of our continued operations and the efforts of our management team to provide
our customers that are in growing demand for our products in China, and the
isolated event in other income.





Foreign
currency translation gain





The
functional currency of our operating entities operating in the PRC is the
Chinese yuan or Renminbi (“RMB”). The financial statements of our subsidiaries
are translated to U.S. dollars using period end rates of exchange for assets and
liabilities, and average rates of exchange (for the period) for revenues, costs,
and expenses.  Net gains and losses resulting from foreign exchange
transactions are included in the consolidated statements of
operations.  As a result of these translations, which are a non-cash
adjustment, we reported a foreign currency translation gain of $183,363 and
$497,236 during the three and nine months ended September 30, 2008, respectively
as compared to a gain (loss) of $25,307 and ($23,459) for the comparable periods
in 2007. This non-cash gain had the effect of increasing our reported
comprehensive income.





Comprehensive
income





Comprehensive
income for the three and nine months ended September 30, 2008 was $1.5 million
and $4.4 million, respectively. Comprehensive income is comprised of the sum of
our net income plus foreign currency translation gains.




LIQUIDITY
AND CAPITAL RESOURCES OF ARMCO AND ITS SUBSIDIARIES





Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations and otherwise operate on an ongoing basis.
At September 30, 2008 and December 31, 2007 we had cash and cash equivalents of
$3,459,077, and $232,286, respectively.  We have historically met our
liquidity requirements utilizing internally generated cash derived from our
operations.





We intend
to invest substantially all of the $6.5 million of the net proceeds from our
2008 Offering to fund the construction of our planned scrap metal recycling
facility beginning in the third quarter of 2008. We intend to use the balance of
the net offering proceeds for working capital to expand our metal ore
distribution business. Upon completion of the construction of the scrap metal
recycling facility, we estimate to sell recycled scrap metal utilizing our
existing network of customers. In addition to the net proceeds of our 2008
Offering we will need to secure additional investment capital and/or bank and
vendor financing to provide sufficient funds to complete this project. There is
no assurance, however, that we will be successful in obtaining the additional
financing that we require or that such financing may not be on terms deemed to
be desirable to our management. In the event we are successful, there is no
assurance that such investment will result in enhanced operating performance.
Unless we can obtain additional financing, we will be unable to complete
construction of our planned scrap steel recycling project. Any inability on our
part to secure additional financing during 2008, as needed, will have a material
adverse effect on our growth plans.


The
following table provides certain selected balance sheet comparisons as of
September 30, 2008 and December 31, 2007.








-20-




June
      30,2008
              
              
              December
      31,2007
              
              
              Increase
      / (decrease)
              
              
              %(Unaudited)Cash
              
              $
              3,459,077
              
              
              $
              232,286
              
              
              
              3,226,791
              
              
              
              1389
              %Pledged
      deposits
              
              
              803,000
              
              
              
              564,150
              
              
              
              238,850
              
              
              
              42
              %Accounts
      receivable, net
              
              
              15,434,049
              
              
              
              2,586,529
              
              
              
              12,847,520
              
              
              
              497
              %Inventories,
      net
              
              
              2,479,150
              
              
              
              2,434,908
              
              
              
              44,242
              
              
              
              2
              %Advance
      on purchases
              
              
              7,677,983
              
              
              
              1,846,113
              
              
              
              5,831,870
              
              
              
              316
              %Prepayments
      and other current assets
              
              
              604,402
              
              
              
              0
              
              
              
              604,402
              
              
              nmTotal
      current assets
              
              
              30,457,661
              
              
              
              7,663,986
              
              
              
              22,793,675
              
              
              
              297
              %Property
      and equipment, net
              
              
              298,124
              
              
              
              131,596
              
              
              
              166,528
              
              
              
              127
              %Land
      use rights, net
              
              
              2,231,067
              
              
              
              2,108,983
              
              
              
              122,084
              
              
              
              6
              %Total
      assets
              
              
              32,986,852
              
              
              
              9,904,565
              
              
              
              29,562,801
              
              
              
              298
              %Forward
      foreign currency exchange contracts and swap liabilities
              
              
              0
              
              
              
              308,744
              
              
              
              (308,744
              )
              
              
              -100
              %Forward
      foreign currency exchange swap liabilities
              
              
              0
              
              
              
              12,079
              
              
              
              (12,079
              )
              
              
              -100
              %Short-term
      loans
              
              
              7,589,314
              
              
              
              0
              
              
              
              7,589,314
              
              
              nmAccounts
      payable
              
              
              2,775,858
              
              
              
              290,740
              
              
              
              2,485,118
              
              
              
              855
              %Advances
      from stockholder
              
              
              21,500
              
              
              
              921,444
              
              
              
              (899,944
              )
              
              
              -98
              %Customer
      deposits
              
              
              4,291,490
              
              
              
              2,228,720
              
              
              
              2,062,770
              
              
              
              93
              %Taxes
      payable
              
              
              664,505
              
              
              
              8
              
              
              
              664,497
              
              
              nmAccrued
      expenses and other current liabilities
              
              
              1,558,163
              
              
              
              1,058,697
              
              
              
              499,466
              
              
              
              47
              %Total
      current liabilities
              
              
              16,900,830
              
              
              
              4,820,432
              
              
              
              12,080,398
              
              
              
              251
              %Total
      liabilities
              
              
              16,900,830
              
              
              
              4,820,432
              
              
              
              12,080,398
              
              
              
              251
              %






nm – not
meaningful




A
Majority of our cash reserves, approximately $3,202,195 or 96.6% at September
30, 2008, is in the form of RMB held in bank accounts at financial institutions
located in the PRC. Cash held in banks in the PRC is not insured. The value of
cash on deposit in China at September 30, 2008 has been translated based on the
exchange rate as of September 30, 2008.  In 1996, the Chinese
government introduced regulations which relaxed restrictions on the conversion
of the RMB; however restrictions still remain, including but not limited to
restrictions on foreign invested entities.  Foreign invested entities
may only buy, sell or remit foreign currencies after providing valid commercial
documents at only those banks authorized to conduct foreign
exchanges.  Furthermore, the conversion of RMB for capital account
items, including direct investments and loans, is subject to PRC government
approval.  Chinese entities are required to establish and maintain
separate foreign exchange accounts for capital account items.  We
cannot be certain Chinese regulatory authorities will not impose more stringent
restrictions on the convertibility of the RMB, especially with respect to
foreign exchange transactions.  Accordingly, cash on deposit in banks
in the PRC is not readily deployable by us for purposes outside of
China.





Our
current assets at September 30, 2008 increased $22.8 million, or approximately
297%, from December 31, 2007; this reflects increases in current asset items
including accounts receivables and advances on purchases.  Our current
liabilities increased by approximately $12.1 million, or approximately 251%, at
September 30, 2008 from December 31, 2007; this reflects increases in short-term
loans, accounts payable, customer deposits and taxes payable.





Our
prepaid and other assets increased approximately $604,402 as of September 30,
2008 over our prior year end.





Advances
on purchases consist of prepayments to vendors for merchandise, security and
deposits.  This increase is directly attributed to the increase in
sales.






-21-





Inventories
increased approximately 2% at September 30, 2008 from the prior year
end.  This occurred due to timing differences between our receipt of
product and shipment to our customers.





Accrued
expenses and other current liabilities increased approximately $499,466 as of
September 30, 2008 over our prior year end.





Accounts
receivable, advances on purchases, accounts payable, taxes payable and customer
deposits increased significantly in 2008 as a direct result of the significant
sales transaction of approximately $20 million occurring at the end of the third
quarter in 2008.  Accounts payable and accrued expenses represent
payables associated with the general operation of our
business.  Customer deposits represent prepayments for products, which
have not yet been shipped.





2008
Offering





Between
July and August 2008 we sold $7,419,729 (net proceed of $6,585,468) worth of
securities to 92 accredited investors through the sale of 24.73
units.  Each unit sold in the 2008 Offering consists of 100,000 shares
of Common Stock, $.001 par value per share at a per share purchase price of
$3.00, and five year warrants to purchase 100,000 shares of Common Stock with an
exercise price of $5.00 per share (the “Warrants“). The accredited investors
entered into a subscription agreement with the Company; the material terms of
which are set forth in the exhibits filed with our Form 8-K filed on August 1,
2008.




Statement
of Cash Flows





For the
nine months ended September 30, 2008, our cash totaled $3,459,077 and consisted
of $9,528,476 used in operating activities, $354,154 used in investing
activities, and $12,905,076 provided by financing activities.





For the
nine months ended September 30, 2007, our cash totaled $4,257,862 and consisted
of $4,014,983 provided by operating activities, $528,257 used in investing
activities, and $629,626 provided by financing activities.





Cash
(Used in) Provided by Operating Activities





For the
nine months ended September 30, 2008 cash used in operations of $9,528,476
included an increase in accounts receivables of approximately $12.8 million due
primarily to longer payment terms extended to clients during the three months
ended September 30, 2008, prepayments and other current assets of $744,785, and
an increase in advances on purchases of $5.7 million. These decreases in cash
funds were partially offset by an increase in accounts payables of approximately
$2.5 million, deposits from customers of $1.9 million, taxes payable of
$784,719, accrued expenses and other current liabilities of approximately
$442,254, and net income of $3.9 million.


For the
nine months ended September 30, 2007 cash provided by operations of $4.0 million
included a $5.8 million increase in accounts payable, $1.8 million of customer
deposits, and an increase of $3.8 million from accrued expenses and other
liabilities, which were offset by an increase in accounts receivable of
approximately $1.5 million and an increase in inventories of approximately $4.4
million.





Cash
used in Investing Activities





For the
nine months ended September 30, 2008 cash used in investing activities of
$354,154 was mainly due to proceeds from release of pledged deposits of $606,083
and cash received from reverse acquisition of $11,506, offset by purchases of
property and equipments of $168,743 and payments toward pledged deposits of
$803,000.





For the
nine months ended September 30, 2007 cash used in investing activities of
$528,257 was mainly due to payments toward pledged deposits of $404,912 and
purchases of property and equipments of $123,345.





Cash
provided by Financing Activities





For the
nine months ended September 30, 2008 cash provided by financing activities of
$12,905,076 was due to proceeds from loans of approximately $7,547,814, proceeds
from a capital raise of approximately $6,623,168, offset by payments of $344,670
of  forward foreign exchange contracts and $921,236 to decrease due to
Mr. Kexan Yao, our Chief Executive Officer.





For the
nine months ended September 30, 2007 cash provided by financing activities of
$629,626 was due to proceeds from forward foreign exchange contracts of $312,337
and an increase due to Mr. Kexan Yao, our Chief Executive Officer, of
$317,289.






-22-





Off
Balance Sheet Arrangements





Under SEC
regulations, we are required to disclose our off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our
financial condition, such as changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors. An off-balance sheet arrangement means
a transaction, agreement or contractual arrangement to which any entity that is
not consolidated with us is a party, under which we have:





-
            Any
      obligation under certain guarantee
contracts;


-
            Any
      retained or contingent interest in assets transferred to an unconsolidated
      entity or similar arrangement that serves as credit, liquidity or market
      risk support to that entity for such
assets;


-
            Any
      obligation under a contract that would be accounted for as a derivative
      instrument, except that it is both indexed to our stock and classified in
      stockholder’s equity in our statement of financial position;
      and


-
            Any
      obligation arising out of a material variable interest held by us in an
      unconsolidated entity that provides financing, liquidity, market risk or
      credit risk support to us, or engages in leasing, hedging or research and
      development services with us.





We do not
have any off-balance sheet arrangements that we are required to disclose
pursuant to these regulations. In the ordinary course of business, we enter into
operating lease commitments, purchase commitments and other contractual
obligations. These transactions are recognized in our financial statements in
accordance with generally accepted accounting principles in the United
States.





Critical
Accounting Policies





The
discussion and analysis of our 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.
The preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates based on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.





A summary
of significant accounting policies is included in Note 2 to the unaudited
consolidated financial statements included in this quarterly report. Management
believes that the application of these policies on a consistent basis enables us
to provide useful and reliable financial information about our Company's
operating results and financial condition.





Recently
Issued Accounting Pronouncements





On June
5, 2003, the United States Securities and Exchange Commission (“SEC”) adopted
final rules under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”),
as amended by SEC Release No. 33-8934 on June 26, 2008. Commencing with its
annual report for the year ending December 31, 2009, the Company will be
required to include a report of management on its internal control over
financial reporting. The internal control report must include a
statement





·
            Of
      management’s responsibility for establishing and maintaining adequate
      internal control over its financial reporting;·
            Of
      management’s assessment of the effectiveness of its internal control over
      financial reporting as of year end; and·
            Of
      the framework used by management to evaluate the effectiveness of the
      Company’s internal control over financial
  reporting.





Furthermore,
in the following year, it is required to file the auditor’s attestation report
separately on the Company’s internal control over financial reporting on whether
it believes that the Company has maintained, in all material respects, effective
internal control over financial reporting.






-23-





In
December 2007, the FASB issued FASB Statement No. 141 (Revised 2007)“Business Combinations”
(“SFAS No. 141(R)”), which requires the Company to record fair value estimates
of contingent consideration and certain other potential liabilities during the
original purchase price allocation, expense acquisition costs as incurred and
does not permit certain restructuring activities previously allowed under
Emerging Issues Task Force Issue No. 95-3 to be recorded as a component of
purchase accounting. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, except
for the presentation and disclosure requirements, which shall be applied
retrospectively for all periods presented. The Company will adopt this standard
at the beginning of the Company’s year ending December 31, 2008 for all
prospective business acquisitions. The Company has not determined the effect
that the adoption of SFAS No. 141(R) will have on the financial results of the
Company.





In
December 2007, the FASB issued FASB Statement No. 160“Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51” (“SFAS
No. 160”), which causes noncontrolling interests in subsidiaries to be included
in the equity section of the balance sheet. SFAS No. 160 applies prospectively
to business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008, except for the presentation and disclosure requirements, which shall
be applied retrospectively for all periods presented. The Company will adopt
this standard at the beginning of the Company’s year ending December 31, 2008
for all prospective business acquisitions. The Company has not determined the
effect that the adoption of SFAS No. 160 will have on the financial results of
the Company.





In March
2008, the FASB issued FASB Statement No. 161“Disclosures about Derivative
Instruments and Hedging Activities an amendment of FASB Statement No.
133”  (“SFAS No. 161”), which changes the disclosure
requirements for derivative instruments and hedging activities. Pursuant to SFAS
No.161, Entities are required to provide enhanced disclosures about (a) how and
why an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash flows.
SFAS No. 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008 with early application
encouraged. SFAS No. 161 encourages but does not require disclosures for earlier
periods presented for comparative purposes at initial adoption. In years after
initial adoption, this Statement requires comparative disclosures only for
periods subsequent to initial adoption. The Company will adopt this standard at
the beginning of the Company’s year ending December 31, 2008. The Company does
not expect the adoption of SFAS No. 161 to have a material impact on the
financial results of the Company.





On
October 10, 2008, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active.This FASB
Staff Position (FSP) clarifies the application of FASB Statement No. 157, Fair
Value Measurements, in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a financial asset
when the market for that financial asset is not active. Statement 157 was issued
in September 2006, and is effective for financial assets and financial
liabilities for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal
years.  We have adopted SFAS 157-3 and determined that it had no
impact as of September 30, 2008, and we will continue to evaluate the impact, if
any, of SFAS 157-3 on our financial statements.





The
Company does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying consolidated financial statements.





Cautionary
Note Regarding Forward-Looking Information and Factors That May Affect Future
Results





This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. The Securities and Exchange Commission
encourages companies to disclose forward-looking information so that investors
can better understand a company’s future prospects and make informed investment
decisions. This Quarterly Report on Form 10-Q and other written and oral
statements that we make from time to time contain such forward-looking
statements that set out anticipated results based on management’s plans and
assumptions regarding future events or performance. We have tried, wherever
possible, to identify such statements by using words such as “anticipate,”
“estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar
expressions in connection with any discussion of future operating or financial
performance. In particular, these include statements relating to future actions,
future performance or results of current and anticipated sales efforts,
expenses, the outcome of contingencies, such as legal proceedings, and financial
results. A list of factors that could cause our actual results of operations and
financial condition to differ materially is set forth below, and these factors
are discussed in greater detail under Item 6 “Management’s Discussion and
Analysis or Plan of Operation - Risk Factors” of our Annual Report on Form
10-KSB for the year ended December 31, 2007 and Item 1.01 “Risk Factors” of our
Current Report on Form 8-K filed on July 1, 2008:






-24-





·
            Continued
      global economic weakness is expected to reduce demand for our
      products.·
            Our
      ability to obtain sufficient capital to fund our planned expansion and
      construction of a scrap steel recycling facility.·
            Fluctuations
      in raw material prices may affect our operating results as we may not be
      able to pass on cost increases to customers.·
            Our
      ability to manage growth in operations to maximize our potential growth
      and achieve our expected revenues.·
            Our
      organic growth strategy, if unsuccessful, may result in a negative impact
      on our growth, financial condition, results of operations and cash
      flow.·
            Our
      ability to successfully complete construction of our proposed scrap steel
      recycling facility, or, even if constructed, our ability to operate the
      proposed recycling facility profitably.·
            Our
      ability to successfully implement our acquisition growth strategy and meet
      growth and revenue expectations.·
            The
      lack various legal protections in certain agreements to which we are a
      party and which are material to our operations which are customarily
      contained in similar contracts prepared in the United
    States.·
            Our
      dependence on our key management personnel.·
            Our
      inability to meet the accelerated filing and internal control reporting
      requirements imposed by the SEC.·
            The
      effect of changes resulting from the political and economic policies of
      the Chinese government on our assets and operations located in the
      PRC.·
            The
      influence of the Chinese government over the manner in which our Chinese
      subsidiaries must conduct our business activities, including the impact of
      governmental regulations associated with the Beijing Olympic
      games.·
            The
      impact on future inflation in China on economic activity in
      China.·
            The
      impact of any recurrence of severe acute respiratory syndrome, or SAR’s,
      or another widespread public health problem.·
            The
      limitation on our ability to receive and use our revenues effectively as a
      result of restrictions on currency exchange in China.·
            Our
      ability to enforce our rights due to policies regarding the regulation of
      foreign investments in China.·
            The
      restrictions imposed under recent regulations relating to offshore
      investment activities by Chinese residents and the increased
      administrative burden we face and the creation of regulatory uncertainties
      that may limit or adversely affect our ability to complete the business
      combination with our PRC based subsidiaries.·
            Our
      ability to comply with the United States Foreign Corrupt Practices Act
      which could subject us to penalties and other adverse
      consequences.·
            Our
      ability to establish adequate management, legal and financial controls in
      the PRC.·
            The
      provisions of our articles of incorporation and bylaws which may delay or
      prevent a takeover which may not be in the best interests of our
      shareholders.·
            Our
      controlling stockholders may take actions that conflict with your
      interests.





We
caution that the factors described herein and other factors could cause our
actual results of operations and financial condition to differ materially from
those expressed in any forward-looking statements we make and that investors
should not place undue reliance on any such forward-looking statements. Further,
any forward-looking statement speaks only as of the date on which such statement
is made, and we undertake no obligation to update any forward-looking statement
to reflect events or circumstances after the date on which such statement is
made or to reflect the occurrence of anticipated or unanticipated events or
circumstances. New factors emerge from time to time, and it is not possible for
us to predict all of such factors. Further, we cannot assess the impact of each
such factor on our results of operations or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.





The
Renminbi is not freely convertible into foreign currencies and no representation
is made that the Renminbi or U.S. Dollar amounts referred to herein could have
been or could be converted into U.S. Dollars or Renminbi, as the case may be, at
the stated rate or at all. Unless otherwise noted, all currency figures in this
filing are in U.S. dollars. References to "yuan" or "RMB" are to the Chinese
yuan (also known as the renminbi).






-25-





Item
      3.
            Quantitative
      and Qualitative Disclosures About Market
Risk.




Not
applicable for a smaller reporting company.




Item
      4.
            Controls
      and Procedures.




Evaluation
of Disclosure Controls and Procedures





Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), we
carried out an evaluation, with the participation of our management, including
our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the
effectiveness of our disclosure controls and procedures (as defined under Rule
13a-15(e) under the Exchange Act) as of the end of the period covered by this
report. Based upon that evaluation, our CEO and CFO concluded that our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in the reports that the Company files or
submits under the Exchange Act, is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to our management, including our CEO
and CFO, as appropriate, to allow timely decisions regarding required
disclosure.





Changes
in Internal Control over Financial Reporting




There
have been no changes in our internal control over financial reporting during our
last fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





PART
II - OTHER INFORMATION




Item
      1.
            Legal
      Proceedings.




None.




Item
      1A.
            Risk
      Factors




Risk
factors describing the major risks to our business can be found under Item 6
“Management’s Discussion and Analysis or Plan of Operation - Risk Factors” in
our Annual Report on Form 10-KSB for the year ended December 31, 2007 and Item
1.01 “Risk Factors” in our Current Report on Form 8-K filed on July 1, 2008.
There has been no material change in our risk factors from those previously
discussed in the Annual Report on Form 10-K or the Current Report on Form 8-K
filed on July 1, 2008.




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




None





Item
      3.
            Defaults
      Upon Senior Securities.




None




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




None




Item
      5.
            Other
      Information.





None





Item
      6.
            Exhibits





No.
            Description31.1
            Rule
      13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer
      *31.2
            Rule
      13a-14(a)/ 15d-14(a) Certification of Principal Financial and Accounting
      Officer *32
            Section
      1350 Certification of Chief Executive Officer and the Principal Financial
      and Accounting Officer *


* Filed
herewith






-26-





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.




China
      Armco Metals, Inc.Date:
      November
      14, 2008
                By:
                /s/ Kexuan
      YaoKexuan
      YaoCEO
      and Chairman(Principal
      Executive Officer)
 Date:
      November
      14, 2008
                By:
                /s/ Fengtao
      WenFengtao
      WenChief
      Financial Officer(principal
      accounting officer)







-27-