UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  (Mark
One)
 Form
10-Q
   [√]
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
   For the
quarterly period ended June 30, 2008
   or
   [
      ]
              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 [√]
No [ ]
   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
              [
      ]
              Accelerated
      filer
              [
      ]Non-accelerated
      filer
                (Do
      not check if smaller reporting company)
              [
      ]
              Smaller
      reporting company
              [√]
   Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)
 Yes [ ]
No [√]
   Indicated
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date. 7,606,000 shares of common stock are
issued and outstanding as of August 14, 2008.
  1
  TABLE
OF CONTENTS
  PageNo.PART
      I. - FINANCIAL INFORMATIONItem
      1.
              Financial
      Statements.
              4Item
      2.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.
              21Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk.
              29Item
      4
              Controls
      and Procedures.
              29PART
      II - OTHER INFORMATIONItem
      1.
              Legal
      Proceedings.
              29Item
      1A.
              Risk
      Factors.
              29Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds.
              29Item
      3.
              Defaults
      Upon Senior Securities.
              29Item
      4.
              Submission
      of Matters to a Vote of Security Holders.
              29Item
      5.
              Other
      Information.
              29Item
      6.
              Exhibits.
              30
 
 
 
 2
 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 (HK), 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. (“Henan
      Armco”), a limited liability company established under the laws of the
      People’s Republic of China.
 
 
 
 
 3
  PART
1 - FINANCIAL INFORMATION
   Item
      1.
              Financial
      Statements.
 
 CHINA
ARMCO METALS, INC. AND SUBSIDIARIES
 
 June
30, 2008 and 2007
 
 INDEX
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  Contents
                Page(s)Consolidated
      Balance Sheets at June 30, 2008 (Unaudited) and December 31,
      2007
                5Consolidated
      Statements of Operations and Comprehensive Income (Loss) for the three
      Months Ended June 30, 2008 and 2007 (Unaudited)
                6Consolidated
      Statements of Operations and Comprehensive Income (Loss) for the six
      Months Ended June 30, 2008 and 2007 (Unaudited)
                7Consolidated
      Statement of Stockholder’s Equity for the Six Months Ended June 30, 2008
      (Unaudited)
                8Consolidated
      Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007
      (Unaudited)
                9Notes
      to the Consolidated Financial Statements (Unaudited)
                10
      to 19Schedule:Schedule II
      Valuation and Qualifying Accounts for the interim period ended June 30,
      2008 and 2007 (Unaudited)
                20
   
 4
  CHINA
ARMCO METALS, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
  June
      30, 2008
                
                
                December
      31, 2007(Unaudited)ASSETSCURRENT
      ASSETS:Cash
                
                
                $
                442,360
                
                
                $
                232,286Pledged
      deposits
                
                
                434,288
                
                
                
                564,150Accounts
      receivable
                
                
                1,814,454
                
                
                
                2,586,529Inventories
                
                
                8,987,356
                
                
                
                2,434,908Advance
      on purchases
                
                
                4,424,495
                
                
                
                1,846,113Prepaid
      expenses and other current assets
                
                
                286,517
                
                
                
                -Total
      Current Assets
                
                
                16,389,470
                
                
                
                7,663,986PROPERTY
      AND EQUIPMENT, net
                
                
                149,497
                
                
                
                131,596LAND
      USE RIGHT, net
                
                
                2,215,898
                
                
                
                2,108,983Total
      Assets
                
                
                $
                18,754,865
                
                
                $
                9,904,565LIABILITIES
      AND STOCKHOLDER'S EQUITYCURRENT
      LIABILITIES:Forward
      foreign currency exchange contracts
                
                $
                308,744
                
                
                $
                308,744Forward
      foreign currency exchange swap liabilities
                
                
                31,818
                
                
                
                12,079Loan
      payable
                
                
                1,528,765
                
                
                
                -Accounts
      payable
                
                
                3,566,329
                
                
                
                290,740Due
      to stockholder
                
                
                21,500
                
                
                
                921,444Customer
      deposits
                
                
                3,459,130
                
                
                
                2,228,720Taxes
      payable
                
                
                291,023
                
                
                
                8Accured
      expenses and other current liabilities
                
                
                1,623,898
                
                
                
                1,058,697Total
      Current Liabilities
                
                
                10,831,207
                
                
                
                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,7,606,000
      and 5,300,000 shares issued and outstanding, respectively
                
                
                7,606
                
                
                
                5,300Additional
      paid-in capital
                
                
                303,913
                
                
                
                367,726Retained
      earnings
                
                
                7,221,608
                
                
                
                4,634,449Accumulated
      other comprehensive income:Foreign
      currency translation gain
                
                
                390,531
                
                
                
                76,658Total
      Stockholder's Equity
                
                
                7,923,658
                
                
                
                5,084,133Total
      Liabilities and Stockholder's Equity
                
                $
                18,754,865
                
                
                $
                9,904,565
  See
accompanying notes to unaudited consolidated financial
statements
 5
 
  CHINA
ARMCO METALS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
  (UNAUDITED)
  For
      the Three Month Period EndedJune
      30, 2008
                
                
                
                June
      30, 2007NET
      REVENUES
                
                $
                13,014,476
                
                
                $
                5,666,869COST
      OF GOODS SOLD
                
                
                12,137,404
                
                
                
                4,964,115GROSS
      PROFIT
                
                
                877,072
                
                
                
                702,754OPERATING
      EXPENSES:Selling
      expenses
                
                
                20,899
                
                
                
                28,980General
      and administrative expenses
                
                
                124,533
                
                
                
                73,657Total
      operating expenses
                
                
                145,432
                
                
                
                102,637INCOME
      FROM OPERATIONS
                
                
                731,640
                
                
                
                600,117OTHER
      (INCOME) EXPENSE:Interest
      expense
                
                
                97,336
                
                
                
                -Gain
      from contract termination
                
                
                (1,233,751
                )
                
                
                -Loss
      on forward foreign currency contracts
                
                
                6,809
                
                
                
                -Other
      (income) expense
                
                
                (115,612
                )
                
                
                11,898Total
      other (income) expense
                
                
                (1,245,218
                )
                
                
                11,898INCOME
      BEFORE INCOME TAXES
                
                
                1,976,858
                
                
                
                588,219INCOME
      TAXES
                
                
                127,312
                
                
                
                -NET
      INCOME
                
                
                1,849,546
                
                
                
                588,219OTHER
      COMPREHENSIVE INCOME:Foreign
      currency translation gain
                
                
                133,683
                
                
                
                5,025COMPREHENSIVE
      INCOME
                
                $
                1,983,229
                
                
                $
                593,244INCOME
      PER COMMON SHARE - BASIC AND DILUTED:
                
                $
                0.24
                
                
                $
                0.08Weighted
      average number of common shares outstanding - basic and
      diluted
                
                
                7,606,000
                
                
                
                7,606,000
 
 See
accompanying notes to unaudited consolidated financial
statements
 6
 
 CHINA
ARMCO METALS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
  (UNAUDITED)
  For
      the Six Month Period EndedJune
      30, 2008
                
                
                June
      30, 2007NET
      REVENUES
                
                $
                22,789,813
                
                
                $
                9,016,550COST
      OF GOODS SOLD
                
                
                20,683,123
                
                
                
                8,318,132GROSS
      PROFIT
                
                
                2,106,690
                
                
                
                698,418OPERATING
      EXPENSES:Selling
      expenses
                
                
                31,513
                
                
                
                146,106General
      and administrative expenses
                
                
                341,441
                
                
                
                134,269Total
      operating expenses
                
                
                372,954
                
                
                
                280,375INCOME
      FROM OPERATIONS
                
                
                1,733,736
                
                
                
                418,043OTHER
      (INCOME) EXPENSE:Interest
      expense
                
                
                97,336
                
                
                
                -Gain
      from contract termination
                
                
                (1,233,751
                )
                
                
                -Loss
      on forward foreign currency contracts
                
                
                19,739
                
                
                
                -Other
      (income) expense
                
                
                (122,712
                )
                
                
                116,883Total
      other (income) expense
                
                
                (1,239,388
                )
                
                
                116,883INCOME
      BEFORE INCOME TAXES
                
                
                2,973,124
                
                
                
                301,160INCOME
      TAXES
                
                
                385,965
                
                
                
                -NET
      INCOME
                
                
                2,587,159
                
                
                
                301,160OTHER
      COMPREHENSIVE INCOME (LOSS):Foreign
      currency translation gain (loss)
                
                
                313,873
                
                
                
                (48,766
                )COMPREHENSIVE
      INCOME (LOSS)
                
                $
                2,901,032
                
                
                $
                252,394INCOME
      PER COMMON SHARE - BASIC AND DILUTED:
                
                $
                0.34
                
                
                $
                0.04Weighted
      average number of common shares outstanding - basic and
      diluted
                
                
                7,606,000
                
                
                
                7,606,000
  See
accompanying notes to unaudited consolidated financial
statements
 7
  CHINA
ARMCO METALS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENT OF STOCKHOLDER'S EQUITY
 For
the Six Month Period Ended June 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
                
                
                $
                1,085,316Comprehensive
      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
                
                
                2,306,000
                
                
                
                2,306
                
                
                
                (63,813
                )
                
                
                
                
                
                
                -
                
                
                
                (61,507
                )Comprehensive
      incomeNet
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,587,159
                
                
                
                
                
                
                
                2,587,159Foreign
      currency translation gain
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                313,873
                
                
                
                313,873Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,901,032Balance,
      June 30, 2008
                
                
                7,606,000
                
                
                $
                7,606
                
                
                $
                303,913
                
                
                $
                7,221,608
                
                
                $
                390,531
                
                
                $
                7,923,658
  See
accompanying notes to unaudited consolidated financial
statements
  8
 
  CHINA
ARMCO METALS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
  (UNAUDITED)
  For
      the Six Month Period EndedJune
      30, 2008
                
                
                June
      30, 2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                2,587,159
                
                
                $
                301,160Adjustments
      to reconcile net income to net cash provided by(used
      in) operating activitiesAmortization
      expense
                
                
                44,263
                
                
                
                14,798Loss
      from disposal of property and equipment
                
                
                248
                
                
                
                12,033Changes
      in operating assets and liabilities:Bank
      acceptance notes receivableAccounts
      receivable
                
                
                772,075
                
                
                
                1,214,096Inventories
                
                
                (6,402,636
                )
                
                
                (1,140,513
                )Advance
      on purchases
                
                
                (2,464,797
                )
                
                
                (36,883
                )Prepayments
      and other current assets
                
                
                (463,238
                )
                
                
                (682,732
                )Forward
      foreign exchange contracts swap
                
                
                19,739
                
                
                
                -Accounts
      payable
                
                
                3,326,338
                
                
                
                22,368Customer
      deposits
                
                
                1,093,284
                
                
                
                2,737,997Taxes
      payable
                
                
                409,805
                
                
                
                (21
                )Accrued
      expenses and other current liabilities
                
                
                521,846
                
                
                
                599,631NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
                
                
                (555,914
                )
                
                
                3,041,934CASH
      FLOWS FROM INVESTING ACTIVITIES:Cash
      received from reverse acquisition
                
                
                11,506
                
                
                
                -Proceeds
      from release of pledged deposits
                
                
                164,572
                
                
                
                -Payment
      made towards pledged deposits
                
                
                -
                
                
                
                (95,962
                )Purchases
      of property and equipment
                
                
                (4,338
                )
                
                
                (120,368
                )NET
      CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
                
                
                171,740
                
                
                
                (216,330
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from loans payable
                
                
                1,487,265
                
                
                
                -Amounts
      received from (paid to) related parties
                
                
                (919,332
                )
                
                
                (102,183
                )NET
      CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
                
                
                567,933
                
                
                
                (102,183
                )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                
                
                26,315
                
                
                
                11,602NET
      CHANGE IN CASH
                
                
                210,074
                
                
                
                2,735,023Cash
      at beginning of year
                
                
                232,286
                
                
                
                137,798Cash
      at end of year
                
                $
                442,360
                
                
                $
                2,872,821SUPPLEMENTAL
      DISCLOSURE OF CASH FLOWS INFORMATION:Interest
      paid
                
                $
                3,449
                
                
                $
                -Taxes
      paid
                
                $
                -
                
                
                $
                -
  See notes
to unaudited consolidated financial statements
 9
  CHINA
ARMCO METALS, INC. AND SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 June
30, 2008 and 2007
 (Unaudited)
 
 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 stock 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 (“Armco”)
 
 On June
27, 2008, the Company 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 acquisition, the Company
purchased from the Armco Shareholder 100% of the issued and outstanding shares
of Armco’s capital stock for $6,890,000 by delivery of the Company’s purchase
money promissory note. In addition, the Company issued to Ms. Gao a stock option
entitling Ms. Gao 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
which expires on September 30, 2008 and 2,000,000 shares at $5.00 per share
which expire on June 30, 2010 (the “Gao Option”). On August 12, 2008, Ms. Gao
exercised her option to purchase and the Company issued 5,300,000 shares of its
common stock in exchange for the $6,890,000 note owed to Ms. Gao. The shares
issued represent approximately 69.7% of the issued and outstanding Common Stock
immediately after the consummation of the Share Purchase and exercise of the
option to purchase 5,300,000 shares of the Company’s common stock at $1.30 per
share. As a result of the ownership interests of the former shareholders of
Armco, for financial statement reporting purposes, the merger between the
Company and Armco has been treated as a reverse acquisition with Armco deemed
the accounting acquirer and the Company deemed the accounting 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 are recorded at 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
transaction.
 
 Armco
& Metawise (H.K) Limited and Subsidiaries 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 ores and metals, and the recycling of
scrap steel.
 
 On
January 9, 2007, Armco formed Armet (LianYunGang) Renewable Resources Co, Ltd.
(“Armet”), a wholly-owned foreign enterprise (“WOFE”) subsidiary in the PRC.
Armet is constructing a scrap steel recycling facility and upon completion of
construction will engage in the recycling and sale of scrap steel.
 
 Henan
Armco and Metawise Trading Co., Ltd. (“Henan”) was incorporated on June 6, 2002
in the PRC. Henan engages in the import, export and distribution of ferrous and
non-ferrous ores and metals.
 
 Merger
of Henan Armco and Metawise Trading Co., Ltd. (“Henan”) 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, a company under common
control with ARMCO. The acquisition of Henan has been recorded using the
purchase method of accounting at historical amounts as Armet and Henan were
under common control since June 2002. The unaudited consolidated financial
statements have been presented as if the acquisition of Henan had occurred on
January 1, 2006.
 
 10
 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”) 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. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods have been included. 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-KSB 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 as amended by Form 8-K/A filed on August 13,
2008. Interim results are not necessarily indicative of the results for the full
year.
 
 The
consolidated financial statements include all the accounts of Armco and Henan as
of June 30, 2008 and 2007 and for the interim periods then ended. Armet is
included as of June 30, 2008 and for the interim period ended June 30, 2008 and
the period from January 9, 2007 (inception) through June 30, 2007. Armco Metals
is included as of June 30, 2008 and for the period from June 27, 2008 through
June 30, 2008. All inter-company balances and transactions have been
eliminated.
 
 Use of
estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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
 
 The
Company considers 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 (i) amounts held for outstanding letters of credit maturing
in future periods and (ii) 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 the Company’s best
estimate of the amount of probable credit losses in the Company’s existing
accounts receivable. The Company determines 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. The Company does
not have any off-balance-sheet credit exposure to its customers.
 
 Inventories
 
 The
Company values inventories, consisting of purchased products, at the lower of
cost or market. Cost is determined on the First-in and First-out method. The
Company regularly reviews its 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. The Company determined that
there was no inventory obsolescence as of June 30, 2008 and 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.
 
 11
 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
 
 The
Company follows 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. The Company’s 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.
 
 The
Company assesses 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
June 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
 
 The
Company accounts 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.
 
 The
Company employs foreign currency forward contracts to convert unforeseeable
foreign currency exchange rate to fixed foreign currency exchange rate. The
Company does 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. The Company
has 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
 
 The
Company follows 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.
 
 Revenue
recognition
 
 The Company follows 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”)
for revenue recognition. The Company records 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:
 
 12
 (i) Import, exportand distribution of ferrous and
non-ferrous ores and metals: The Company derives its revenues from sales
contracts with customers with revenues being generated 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 is no separate sales
rebate, discount, or volume incentive. When the Company recognizes revenue, no
provisions are made 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. The Company follows 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 the Company (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
 
 The
Company 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, 2008Risk-free
      interest rate
              2.650%Dividend
      yield
              0.00%Expected
      volatility
              0.00%Expected
      option life (year)
              2.00
 
 The
expected life of the options has been determined using the simplified method as
prescribed in SEC Staff Accounting Bulletin No. 107 (“SAB 107”). The Company’s
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. Additionally, the Company’s policy is to
issue new shares of common stock to satisfy stock option exercises.
 
 The
option to purchase 2,000,000 shares of the Company’s common stock at $5.00 per
share were valued at $0, the fair market value at the date of issuance, using
the Black-Scholes valuation model, of nil. The adoption of SFAS No. 123R
increased the Company’s reported operating loss and net loss by nil for the
interim period ended June 30, 2008. The expense is classified as selling,
general and administrative expense on the statement of operations.
 
 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:
 
 ·
              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
      Company uses 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
      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.
 
 13
 Shipping and handling
costs
 
 The
Company accounts 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
 
 The
Company follows 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.
 
 The
financial records of the Company 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
gains (losses) 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 U.S. dollars has been made at the following
exchange rates for the respective years:
   June 30,
      2008Balance
      sheet
                RMB
      6.8718 to US$1.00Statement
      of operations and comprehensive income
                RMB
      7.0726 to US$1.00June 30,
      2007Balance
      sheet
                RMB
      7.6120 to US$1.00Statement
      of operations and comprehensive income
                RMB
      7.7177 to US$1.00December 31,
      2006Balance
      sheet
                RMB
      7.8041 to US$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 U.S. dollar against the RMB was adjusted from approximately RMB 8.28
per U.S. 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 U.S.
dollar against the RMB taking into account demand and supply of RMB, as well as
domestic and foreign economic and financial conditions.
 
 Net gains
or 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 June 30, 2008 and 2007 was $313,873
and ($48,766) and effect of exchange rate changes on cash flows for interim
periods then ended were $26,315 and $11,602, respectively.
 
 Comprehensive
income(loss)
 
 The
Company has 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), for the Company, 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.
 
 14
 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, which excludes 2,000,000 shares of common stock
issuable under stock options outstanding for the six months ended June 30, 2008
and 2007, respectively. These potential shares of common stock were not included
as they were anti-dilutive.
 
 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.
 
 On
September 15, 2006, the Financial Accounting Standards Board (“FASB”) issued
FASB Statement No. 157 “Fair
Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. SFAS No. 157 is effective as of the beginning of the
first fiscal year beginning after November 15, 2007. The Company does not
anticipate that the adoption of this statement will have a material effect on
the Company’s financial condition and results of operations.
 
 On
February 15, 2007, the FASB issued FASB Statement No. 159“The Fair Value Option for
Financial Assets and Financial Liabilities: Including an amendment of FASB
Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits all entities to
elect to measure many financial instruments and certain other items at fair
value with changes in fair value reported in earnings. SFAS No. 159 is effective
as of the beginning of the first fiscal year that begins after November 15,
2007, with earlier adoption permitted. The Company does not anticipate that the
adoption of this statement will have a material effect on the Company’s
financial condition and results of operations.
 
 In June
2007, the Emerging Issues Task Force of the FASB issued EITF Issue No. 07-3
“Accounting forNonrefundable Advance Payments for
Goods or Services to be Used in Future Research and DevelopmentActivities” (“EITF Issue No. 07-3”)
which is effective for fiscal years beginning after December 15, 2007. EITF
Issue No. 07-3 requires that nonrefundable advance payments for future research
and development activities be deferred and capitalized. Such amounts will be
recognized as an expense as the goods are delivered or the related services are
performed. The Company does not expect the adoption of EITF Issue No. 07-3 to
have a material impact on the financial results of the Company.
 
 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.
 
 15
 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“DisclosuresaboutDerivativeInstrumentsandHedgingActivitiesanamendmentofFASBStatementNo.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.
 
 Management 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 June 30, 2008 and December 31, 2007 consisted of the following:
 
 June
      30, 2008
              
              
              December
      31, 2007Goods
      purchased
              
              $
              8,987,356
              
              
              $
              2,434,908$
              8,987,356
              
              
              $
              2,434,908
 
 NOTE
4 – LAND USE RIGHTS
 
 In September 2007, the Company obtained
a certificate of a land use right from the Chinese government, whereby the
Company acquired the right to use certain land until December 30, 2056 in
exchange for RMB 15,460,302. The purchase price is being amortized over the term
of the right of approximately fifty (50) years.
 
 Land use rights at cost at June 30,
2008 and December 31, 2007, consisted of the following:
 
 June
      30, 2008
              
              
              December
      31, 2007Land
      use rights
              
              $
              2,249,818
              
              
              $
              2,119,417Accumulated
      amortization
              
              
              (33,920
              )
              
              
              (10,434
              )$
              2,215,898
              
              
              $
              2,108,983
 
 Amortization
expense
 
 Amortization
expense for the six months ended June 30, 2008 and 2007 was $23,486 and $0,
respectively. Amortization expense for the next five years is approximately
$44,390 per year.
 
 NOTE
5 – FINANCIAL INSTRUMENTS
 
 The
Company utilized forward foreign currency exchange contracts with a financial
institution, resulting in a fixed foreign currency exchange rate of U.S. $1.00
to RMB 7.3750. These forward foreign currency exchange contracts will expire
through August 2, 2008.
 
 16
 The forward foreign currency exchange
contracts and related swap liabilities at June 30, 2008 and December 31, 2007
consisted of the following:
 
 June
      30, 2008
              
              
              December
      31, 2007Forward
      foreign currency exchange contracts
              
              $
              308,744
              
              
              $
              308,744Forward
      foreign currency exchange swap liabilities
              
              
              31,818
              
              
              
              12,079$
              340,562
              
              
              $
              320,823
 
 NOTE
6 – LOAN PAYABLE
 
 Loans payable at June 30, 2008 and
December 31, 2007, consisted of the following:
 
 June
      30, 2008
              
              
              December
      31, 2007Loans
      payable to a financial institution, guaranteed by the Company's
      stockholder, chairman, president and Chief Executive Officer, with
      interest at 4.85% per annum payable monthly, with principal due on
      September 18, 2008
              
              $
              1,487,265
              
              
              $
              -Loan
      payable to stockholder, bears no interest and have no
      formal repayment term.
              
              
              41,500
              
              
              
              -$
              1,528,765
              
              
              $
              -
 
 NOTE
7 – RELATED PARTY TRANSACTIONS
 
 Advances
to (from) chairman, chief executive officer and sole stockholder
 
 Advances
to (from) chairman, chief executive officer and sole stockholder at June 30,
2008 and December 31, 2007, consisted of the following:
 
 June
      30, 2008
              
              
              December
      31, 2007Advances
      to (from) chairman, chief executive officer and a former
      officer
              
              $
              (21,500
              )
              
              $
              (921,444
              )$
              (21,500
              )
              
              $
              (921,444
              )
 
 The
advances bear no interest and have no formal repayment terms.
 
 From time
to time, the Company engage in business transactions with related parties.
At December 31, 2007, Mr. Yao, its stockholder and Chief Executive Officer had
advanced the Company $921,444 which were repaid in the first quarter of
2008. At June 30, 2008 Stephen E. Cox, our former Chief Executive Officer had
advanced the Company $21,500.
 
 NOTE
8 – STOCKHOLDERS’ EQUITY
 
 Stock
options
 
 On June
27, 2008, the Company entered into a share purchase agreement (the “Share
Purchase Agreement”) and consummated a share purchase (the “Share Purchase”)
with Armco & Metawise (H.K) Limited (“Armco HK”) and Feng Gao, who owned
100% of the outstanding shares of Armco HK (the “Armco HK Shareholder”). Under
the Share Purchase Agreement, the Company purchased from Ms. Gao, the sole
shareholder of Armco (the “Armco Shareholder”), 100% of the issued and
outstanding shares of Armco’s capital stock for $6,890,000 by delivery of the
Company’s purchase money promissory note (the “Share Purchase”). In addition,
the Company issued to Ms. Gao a stock option entitling Ms. Gao to purchase
5,300,000 shares of our common stock, par value $.001 per share (the “Common
Stock”) at $1.30 per share which expires on September 30, 2008 and 2,000,000
shares at $5.00 per share which expires on June 30, 2010, vested immediately
(the “Gao Option”). On August 12, 2008, Ms. Gao exercised her option to purchase
and the Company issued 5,300,000 Shares in exchange for the $6,890,000 note owed
to Ms. Gao. Accordingly, the 5,300,000 Shares issued to Ms. Gao represent
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.
 
 17
 The fair
value of the stock options granted under Share Purchase Agreement using the
Black-Scholes Option Pricing Model was nil at the date of grant. For the interim
period ended June 30, 2008 and 2007, the Company recorded nil as stock-based
compensation for shares vested respectively.
 
 The table
below summarizes the Company’s stock option activity for the interim period
ended June 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,
      June 30, 2008
              
              
              2,000,000
              
              
              
              $
              5.00
              
              
              
              $
              5.00
              
              
              
              *
              
              
              $
              -Vested
      and exercisable, June 30, 2008
              
              
              2,000,000
              
              
              
              $
              5.00
              
              
              
              $
              5.00
              
              
              
              *
              
              
              $
              -Unvested,
      June 30, 2008
              
              
              -
              
              
              
              $
              5.00
              
              
              
              $
              5.00
              
              
              
              *
              
              
              $
              -
 * - Less
than $1
 
 As of
June 30, 2008, there was no unrecognized compensation cost related to unvested
share-based compensation arrangements that is expected to be recognized in the
future periods.
 
 The
following table summarizes information concerning outstanding and exercisable
stock options as of June 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
 
 NOTE
9 – CONCENTRATIONS AND CREDIT RISK
 
 (i)
Customers and Credit Concentrations
 
 One unrelated
customer accounted for approximately 97%
of total sales for the interim period ended June 30, 2008 and two different
unrelated customers accounted for approximately 62% and
33% of total sales for the interim period ended June 30, 2007,
respectively.
 
 (ii)
Vendor Concentrations
 
 One unrelated
vendor accounted for 85%
of total purchases for the interim period ended June 30, 2008. The Company did
not make any material purchases for the interim period ended June 30,
2007.
 
 (iii)
Credit Risk
 
 Financial
instruments that potentially subject the Company to significant concentration of
credit risk consist primarily of cash and cash equivalents. As of June 30, 2008,
substantially all of the Company’s cash and cash equivalents were held by major
financial institutions located in the PRC, none of which are insured. However,
the Company has not experienced losses on these accounts and management believes
that the Company is not exposed to significant risks on such
accounts.
 
 (iv)
Foreign currency risk
 
 The
Company is exposed to fluctuations in foreign currencies for transactions
denominated in currencies other than RMB, the functional currencies due to the
fact the majority of the Company’s purchasing activities are transacted in
foreign currencies. The Company had foreign currency hedges in place at June 30,
2008 to reduce such exposure. The estimated loss in fair value on foreign
currency hedges outstanding as of June 30, 2008 was $31,818.
 
 18
 NOTE 10 - FOREIGN
OPERATIONS
 
 (i)
Operations
 
 Substantially
all of the Company’s operations are carried out and all of its assets 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. The Company’s 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.
 
 (ii)
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
June 30, 2008, the Company had no Statutory Surplus Reserve and the Statutory
Common Welfare Fund established and segregated in retained
earnings.
   NOTE
11 – SUBSEQUENT EVENTS
  On July
25, 2008 and July 31, 2008, the Company closed the first and second rounds of a
private placement raising $6,896,229 from eighty-two (82) accredited
investors through the sale of 22.9 units of its securities at an offering price
of $300,000 per unit in a private placement exempt from registration under the
Securities Act of 1933, as amended (the “Act”) in reliance on exemptions
provided by Regulation D, Regulation S and Section 4(2) of the Act (the
“Offering”). Each unit sold in the Offering consists of 100,000 shares of the
Company’s common stock, $.001 par value per share at a per share purchase price
of $3.00, and five (5) year warrants to purchase 100,000 shares of common stock
with an exercise price of $5.00 per share (the “Warrants“).
  On August
8, 2008 the Company closed the third round of the Offering by raising $523,500
from ten (10) investors through the sale of 1.745 units of its securities at an
offering price of $300,000- per unit.
  The
Company paid FINRA member broker-dealers cash commissions of $1,680 and issued
those firms five (5) year warrants to purchase a total of 15,450 shares of its
common stock at $5.00 per share as compensation for services to the Company in
connection with the Offering. The Company also paid due diligence fees to
certain investors or their advisors in connection with the Offering aggregated
$50,670 in cash. The recipients of these fees included China Direct Investments,
Inc., a subsidiary of China Direct, Inc. and a principal shareholder of the
company. After payment of these fees and costs associated with the Offering, the
Company received net proceeds of approximately $471,150 in the third round of
the Offering. The net proceeds of the third round of the Offering will be
combined with the net proceeds of the previous rounds of the Offering all of
which will be used for construction of a scrap steel recycling facility in China
as previously disclosed by the Company and general corporate working capital
purposes.
 
 In the
aggregate, the Comapny have raised $7,419,729 in the Offering from ninety-two
(92) accredited investors through the sale of 24.73 units and after payment of
cash commissions, due diligence fees and costs associated with the Offering, the
Company received net proceeds of approximately
$6,585,468.
  19
 Schedule
II
  CHINA
ARMCO METALS, INC. AND SUBSIDIARIES
 Valuation
and Qualifying Accounts
 For
the Interim Period Ended June 30, 2008 and 2007
 
 Balance
      at
              
              
              Add
              
              
              Deduct
              
              
              Add
              
              
              Balance
                at
      endbeginning
      of
              
              
              Charge
      to
              
              
              bad
      debt
              
              
              translation
              
              
              ofperiod
              
              
              Income
              
              
              written
      off
              
              
              adjustment
              
              
              periodFor
      the interim period ended December 31, 2007:Allowance
      for doubtful accounts
              
              $
              -
              
              
              $
              -
              
              
              $
              (-
              )
              
              $
              -
              
              
              $
              -For
      the interim period ended June 30, 2008:Allowance
      for doubtful accounts
              
              $
              -
              
              
              $
              -
              
              
              $
              (-
              )
              
              $
              -
              
              
              $
              -




20


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-KSB for
the year ended December 31, 2007, (2) our Quarterly Report on Form 10-Q for the
quarter ended June 30, 2008 and (3) our Current Report on Form 8-K filed July 1,
2008.
 
 We areon a calendar year; as
such the three months period ending June 30, is our second 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 second
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
believe recycling operations will become strong growth drivers worldwide as
natural resources continue to be depleted and the amount of unprocessed scrap
steel becomes available as a result of increases in consumer demand for products
made from steel that eventually are recycled. We intend to invest substantially
all of the $6.6 million in net proceeds we raised in our July 2008 private
offering of our common stock and warrants 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.
 
 Our
Performance
 
 In the
second quarter of 2008, we experienced growth in net revenues, income and
assets. This growth was attributable to increased demand for our products and
rising market prices in China. During the six months ended June 30, 2007 chrome
ore, iron ore, and nickel ore represented approximately 90%, 6% and 3% of or
revenues respectively. During the six months ended June 30, 2008 iron ore, steel
and chrome ore represented approximately 91%, 4% and 2% of our revenues
respectively. The improved performance was offset by increased costs incurred in
connection with the planning and construction of our scrap metal recycling
facility which we expect to complete in the first quarter of 2009.
 
 21
 Impact
of the 2008 Beijing Olympics
   Substantially
all of our subsidiaries and their operations are located in the PRC.
Consequently, we could be adversely impacted by various policies recently
adopted by the PRC which seek to minimize pollution by limiting the operation of
polluting agents in advance of and during the Beijing Olympics to be held during
August 2008. While it is not clear if the recently adopted anti-pollution
policies some of which went into effect commencing on June 1, 2008, will apply
to any of our customers, the policies could cause an interruption in the
production of steel. Presently we have not been notified of any potential
interruption in operations as a result of these policies.
 
 We
encounter a variety of challenges that may affect our business and should be
considered as described in 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, Item 1.01 “Risk Factors” of our Current Report on Form
8-K filed on July 1, 2008 and in the section of this Quarterly Report captioned
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations -- Cautionary Note Regarding Forward-Looking Information and Factors
That May Affect Future Results”.
 
 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.
 
 RESULTS
OF OPERATIONS
 
 The table below summarizes the
consolidated operating results for the three and six months ended June 30, 2008
and 2007.
   For
      the three months ended
                
                
                For
      the six months endedJune
      30, 2008
                
                
                June
      30, 2007
                
                
                June
      30, 2008
                
                
                June
      30, 2007$
                
                
                
                
                
                
                $
                
                
                
                
                
                
                $
                
                
                
                
                
                
                $(in
      000’s)
                
                
                
                %
                
                
                (in
      000’s)
                
                
                
                %
                
                
                (in
      000’s)
                
                
                
                %
                
                
                (in
      000’s)
                
                
                
                %-
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Revenues
                
                $
                13,014
                
                
                
                -
                
                
                $
                5,667
                
                
                
                
                
                
                $
                22,790
                
                
                
                -
                
                
                $
                9,016Cost
      of revenues
                
                
                12,137
                
                
                
                93.26
                %
                
                
                4,964
                
                
                
                87.59
                %
                
                
                20,683
                
                
                
                90.75
                %
                
                
                8,318
                
                
                
                92.26
                %Gross
      profit
                
                
                877
                
                
                
                6.74
                %
                
                
                703
                
                
                
                12.41
                %
                
                
                2,107
                
                
                
                9.25
                %
                
                
                698
                
                
                
                7.74
                %Total
      operating expenses
                
                
                145
                
                
                
                1.11
                %
                
                
                103
                
                
                
                1.82
                %
                
                
                373
                
                
                
                1.64
                %
                
                
                280
                
                
                
                3.11
                %Operating
      (loss) income
                
                $
                732
                
                
                
                5.62
                %
                
                $
                600
                
                
                
                10.59
                %
                
                $
                1,734
                
                
                
                7.61
                %
                
                $
                418
                
                
                
                4.64
                %
    Net
Revenues
 
 Net revenues for the second quarter of
2008 were $13.0 million, an increase of 130% compared to the second quarter of
2007, and for the six months of 2008 were $22.8 million, an increase of 153%
compared to the six months of 2007, due primarily to the growing demand
for our products from our current customers and rising market prices in China.
During the six months ended June 30, 2007 chrome ore, Iron ore, and nickel ore
represented approximately 90%, 6% and 3% of or revenues respectively. During the
six months ended June 30, 2008 iron ore, steel and chrome ore represented
approximately 91%, 4% and 2% of our revenues respectively.
 
 Cost
of Revenues
 
 Cost of revenues for the second quarter
of 2008 were $12.1 million, an increase of $7.2 million compared to the second
quarter of 2007, andfor the six months of 2008 were $20.7 million, an
increase of $12.4 million compared to the six months of 2007. These increases
were due primarily to our increased purchases of metal ores to fulfill the
increased level of customer orders and increases in the cost of raw
materials.
 
 Total
Operating Expenses
 
 Operating
expenses for the second quarter of 2008 were $145,432, an increase of 41%
compared to the second quarter of 2007, and for the six months of 2008 were
$372,954, an increase of 33% compared to the six 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 subsidiary which is in the planning
and construction phase of a scrap metal recycling facility it plans to build in
the Banqiao Industrial Zone of Lianyungang Economic Development Zone in Jiangsu
province.
 
 22
 Other
Income (expense)
 
 Total other income for the second
quarter of 2008 was $1.3 million, an increase of approximately $1.3 million
compared to the second quarter of 2007. This increase was a result of a payment
from one of our customers related to a termination of a contract for the
purchase of goods.
 
 Income tax benefit
(expense)
 
 For the years ended December 31, 2007
and 2006 Armco was exempt from Hong Kong SAR income taxes since none of its
income was derived from operations conducted within Hong Kong during the
relevant periods. Accordingly, no provision for income tax was made for the
relevant periods. Effective January 1, 2008 Armco will be subject to Hong Kong
SAR income tax; the statutory tax rate for Armco is 17.5%. Accordingly we
recorded an income tax provision of $127,312 and $385,965 for the three and six
months ended June 30, 2008, respectively.
 
 Net
Income
 
 For the three and six months ended June
30, 2008 our net income increased sharply to $1.8 million and $2.6 million from
$0.6 and $0.3 in 2007, respectively. These increases are a result of the income
derived from increases in net revenue derived from increased sales and the
growth in demand for our products in China and the income generated from the
termination of a contract with one of our customers.
 
 LIQUIDITY
AND CAPITAL RESOURCES OF ARMCO AND ITS SUBSIDIARIES
 
 At June 30, 2008 and December 31, 2007
we had cash and cash equivalents of $442,360, and $232,286,respectively.
We have historically met our liquidity requirements utilizing internally
generated cash derived from our operations.
 
 As described elsewhere herein, we
intend to invest substantially
all of the $6.5 million of the net proceeds from our July 2008 private offering
of our common stock and warrants 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 of this offeringfor working
capital to expand our metal ore distribution business. We believe that upon
completion of the construction of the scrap metal recycling facility, we will be
able to sell the recycled scrap metal utilizing our existing network of
customers. In addition to the net proceeds of our July 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 June 30, 2008 and December 31,
2007.
 
 23
   June
      30,
              
              
              December
      31,
              
              
              Increase
    /2008
              
              
              2007
              
              
              (decrease)
              
              
              %(Unaudited)Cash
              
              $
              442,360
              
              
              $
              232,286
              
              
              
              210,074
              
              
              
              90%Pledged
      deposits
              
              
              434,288
              
              
              
              564,150
              
              
              
              (129,862
              )
              
              
              -23%Accounts
      receivable, net
              
              
              1,814,454
              
              
              
              2,586,529
              
              
              
              (772,075
              )
              
              
              -30%Inventories,
      net
              
              
              8,987,356
              
              
              
              2,434,908
              
              
              
              6,552,448
              
              
              
              269%Advance
      on purchases
              
              
              4,424,495
              
              
              
              1,846,113
              
              
              
              2,578,382
              
              
              
              139%Prepayments
      and other current assets
              
              
              286,517
              
              
              
              0
              
              
              
              286,517
              
              
              nmTotal
      current assets
              
              
              16,389,470
              
              
              
              7,663,986
              
              
              
              8,725,484
              
              
              
              114%Property
      and equipment, net
              
              
              149,497
              
              
              
              131,596
              
              
              
              (9,933
              )
              
              
              -6%Land
      use rights, net
              
              
              2,215,898
              
              
              
              2,108,983
              
              
              
              106,915
              
              
              
              5%Total
      assets
              
              $
              18,754,865
              
              
              $
              9,904,565
              
              
              $
              8,850,300
              
              
              
              89%Forward
      foreign currency exchange contracts and swap liabilities
              
              
              308,744
              
              
              
              308,744
              
              
              
              0
              
              
              
              0%Forward
      foreign currency exchange swap liabilities
              
              
              31,818
              
              
              
              12,079
              
              
              
              19,739
              
              
              
              163%Short-term
      loans
              
              
              1,528,765
              
              
              
              -
              
              
              
              -
              
              
              nmAccounts
      payable
              
              
              3,566,329
              
              
              
              290,740
              
              
              
              3,275,589
              
              
              nmDue
      to stockholder
              
              
              21,500
              
              
              
              921,444
              
              
              
              (899,944
              )
              
              
              -98%Customer
      deposits
              
              
              3,459,130
              
              
              
              2,228,720
              
              
              
              1,230,410
              
              
              
              55%Taxes
      payable
              
              
              291,023
              
              
              
              8
              
              
              
              291,015
              
              
              nmAccrued
      expenses and other current liabilities
              
              
              1,623,898
              
              
              
              1,058,697
              
              
              
              565,201
              
              
              
              53%Total
      current liabilities
              
              
              10,831,207
              
              
              
              4,820,432
              
              
              
              6,010,775
              
              
              
              125%Total
      liabilities
              
              $
              10,831,207
              
              
              $
              4,820,432
              
              
              $
              6,010,775
              
              
              
              125%
 
 nm – not
meaningful
 
 All of our cash reserves of $442,360 at June 30, 2008, are 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 June 30, 2008 has been translated based on the exchange rate as of
June 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 June 30, 2008
increased $8.7 million, or approximately 114%, from December 31, 2007; this
reflects increases in current asset items including accounts receivables,
inventories, and advances on purchases. Our current liabilities increased by
approximately $6.0 million, or approximately 125%, at June 30, 2008 from
December 31, 2007; this reflects increases in accounts payable, customer
deposits, taxes payable and accrued expenses and other current
liabilities.
 
 Our prepaid and other assets increased
approximately $286,517 as of June 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.
 
 24
 Inventories increased approximately
269% at June 30, 2008 from the prior year end. This occurred due to timing
differences between our receipt of product and shipment to our
customers.
 
 Accounts payable, taxes payable,
customer deposits and accrued expenses and other current liabilities increased
approximately $6.0 million as of June 30, 2008 primarily as a result of our
increased sales and the expenses related to those sales. 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.
 
 Statement
of Cash Flows
 
 For the six months ended June 30, 2008,
our cash totaled $442,360 and consisted of $555,914 used in operating
activities, $171,740 provided by investing activities, and $567,933 provided by
financing activities.
 
 For the six months ended June 30, 2007,
our cash totaled $2,872,821 and consisted of $3,041,934 provided by operating
activities, $216,330 used in investing activities, and $102,183 used in
financing activities.
 
 Cash
(Used in) Provided by Operating Activities
 
 For the six months ended June 30, 2008
cash used in operations of $555,914 included an increase in inventories of
approximately $6.4 million, prepayments of other assets of $463,238, and an
increase in advances on purchases of $2.2 million. These decreases in cash funds
were partially offset by an increase in accounts payables of approximately $3.3
million, deposits from customers of $1.1 million, decrease in accounts
receivables of approximately $772,000, and an increase in net income of $2.6
million compared to the six months ended June 30, 2007.
 
 For the six months ended June 30, 2007
cash provided by operations of $3.0 million included $2.7 million of customer
deposits, $1.2 million from accounts receivable, and an increase of $599,631
from Accrued expenses and other liabilities, which were offset by an increase in
inventories of approximately $1.1 million, and prepayments and other current
assets of $682,732.
 
 Cash
provided by Investing Activities
 
 For the six months ended June 30, 2008
cash provided by investing activities of $171,740 was mainly due to proceeds
from released pledged deposits of $164,572, and cash received from reverse
acquisition of $11,506, partially offset by purchases of property and equipments
of $4,338.
 
 For the six months ended June 30, 2007
cash used in investing activities of $216,330 was mainly due to payments toward
pledged deposits of $95,962 and purchases of property and equipments of
$120,368.
 
 Cash
provided by Financing Activities
 
 For the six months ended June 30, 2008
cash provided by financing activities of $567,933 was due to proceeds from loans
of approximately $1,487,265, offset by payments of $919,332 to decrease due to
Mr. Kexan Yao, our Chief Executive Officer.
 
 For the six months ended June 30, 2007
cash used in financing activities of $102,183 was due to payments to decrease
due to Mr. Kexan Yao, our Chief Executive Officer.
 
 Related
Party Transactions
 
 From time to time, we engage in
business transactions with related parties. At December 31, 2007, Mr. Yao, our
Chief Executive Officer had advanced to us $921,444 which we repaid in the first
quarter of 2008. At June 30, 2008 Stephen E. Cox, our former Chief Executive
Officer had advanced to us $21,500.
 
 25
 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.
 
 On
September 15, 2006, the Financial Accounting Standards Board (“FASB”) issued
FASB Statement No. 157 “Fair
Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. SFAS No. 157 is effective as of the beginning of the
first fiscal year beginning after November 15, 2007. The Company does not
anticipate that the adoption of this statement will have a material effect on
the Company’s financial condition and results of operations.
 
 On February 15, 2007, the FASB issued
FASB Statement No. 159“The
Fair Value Option for Financial Assets and Financial Liabilities: Including an
amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159
permits all entities to elect to measure many financial instruments and certain
other items at fair value with changes in fair value reported in earnings. SFAS
No. 159 is effective as of the beginning of the first fiscal year that begins
after November 15, 2007, with earlier adoption permitted. The Company does not
anticipate that the adoption of this statement will have a material effect on
the Company’s financial condition and results of operations.
 
 26
 In June
2007, the Emerging Issues Task Force of the FASB issued EITF Issue No. 07-3
“Accounting forNonrefundable Advance Payments for
Goods or Services to be Used in Future Research and DevelopmentActivities” (“EITF Issue No. 07-3”)
which is effective for fiscal years beginning after December 15, 2007. EITF
Issue No. 07-3 requires that nonrefundable advance payments for future research
and development activities be deferred and capitalized. Such amounts will be
recognized as an expense as the goods are delivered or the related services are
performed. The Company does not expect the adoption of EITF Issue No. 07-3 to
have a material impact on the financial results of the Company.
 
 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“DisclosuresaboutDerivativeInstrumentsandHedgingActivitiesanamendmentofFASBStatementNo.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.
 
 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:
 
 ·
              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.
 
 27
 ·
              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).
  28
 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.
   Reference
is made to the disclosures contained in Item 3.02 of our Current Report on Form
8-K, filed with the Securities and Exchange Commission on July 1, 2008 for
information concerning certain unregistered sales of equity securities and the
use of proceeds thereof.
 
 On June
27, 2008, we granted a stock option to Feng Gao pursuant to a share purchase
agreement entitling Ms. Gao to purchase a total of 5,300,000 shares of our
Common Stock at a price of $1.30 per share which expires on September 30, 2008
and 2,000,000 shares of our Common Stock at $5.00 per share which expires on
June 30, 2010 (the “Gao Option”). The option to purchase a total of 5,300,000
shares of our Common Stock at a price of $1.30 per share which expires on
September 30, 2008. The option to purchase a total of 2,000,000 shares of our
Common Stock at $5.00 per share which expires on June 30, 2010. The Gao Option
was issued in reliance on the exemption from registration provided by Section
4(2) of the Securities Act of 1933. No commissions were paid for the Gao
Option.
 
 Item
      3.
              Defaults
      Upon Senior Securities.
   None
   Item
      4.
              Submission
      of Matters to a Vote of Security
Holders.
   None
   Item
      5.
              Other
      Information.
   On July
25, 2008 and July 31, 2008 and as disclosed in our Current Report on Form 8-K
filed on August 1, 2008, as amended on Form 8-K/A filed on August 14, 2008, we
closed on the first two rounds of a private placement by raising $6,896,229 from
82 investors through the sale of 22.9 units of its securities at an offering
price of $300,000.00 per unit in a private placement exempt from registration
under the Securities Act of 1933, as amended (the “Act”) in reliance on
exemptions provided by Regulation D, Regulation S and Section 4(2) of the Act
(the “Offering”). Each unit sold in the Offering consists of 100,000 shares of
the Company’s 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
institutional and individual investors who purchased units in the Offering
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.
 
 29
 On August
8, 2008 we closed on the third round of the Offering by raising an additional
$523,500 from 10 accredited investors through the sale of 1.745 units
of our securities at an offering price of $300,000.00 per unit. We paid
FINRA member broker-dealers cash commissions of $1,680 and issued those firms
five year warrants to purchase a total of 15,450 shares of our common stock at
$5.00 per share as compensation for services to us in connection with the third
round of the Offering. We also paid due diligence fees to certain investors or
their advisors in connection with the third round of the Offering which included
an aggregate of $50,670 in cash. The recipients of these fees included China
Direct Investments, Inc., a subsidiary of China Direct, Inc. and a principal
shareholder of our Company. After payment of these fees and costs associated
with the Offering, we received net proceeds of approximately $471,150 in the
third round of the Offering.
  In the
aggregate and combined with all three rounds of the Offering, we have raised a
total of $7,419,729 from 92 investors through the sale of 24.73 units and after
payment of cash commissions, due diligence fees and costs associated with the
Offering, we received net proceeds of approximately $6,585,468.  The net
proceeds of the Offering will be used for general corporate purposes and the
construction of a scrap metal recycling facility.
 
 The
descriptions of the terms and conditions of the Offering, the Subscription
Agreement and the Warrants set forth herein do not purport to be complete and
are qualified in their entirety by reference to the full text of such
description or document, as the case may be, as set forth in our Form 8-K filed
on August 1, 2008.
 
 Item
      6.
              Exhibits
  No.
              Description3.2
              By-Laws
      (incorporated herein by reference to the Company’s Form 10-KSB filed on
      June 17, 1999)4.1
              Form
      of Warrant (incorporated herein by reference to the Company’s Form 8-K
      filed on August 1, 2008)10.11
              Form
      of Subscription Agreement (incorporated herein by reference to the
      Company’s Form 8-K filed on August 1, 2008)10.12
              Form
      of Reg. S Subscription Agreement (incorporated herein by reference to the
      Company’s Form 8-K filed on August 1, 2008)31.1
              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
  
 30
 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.
 
 By: /s/ Kexuan
Yao__________________
 Kexuan
Yao
 CEO and
Chairman
 (Principal
Executive Officer)
 
 
 By: /s/ Fengtao
Wen_________________
 Fengtao
Wen
 Chief
Financial Officer
 (principal
accounting officer)