UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  Form
10-Q
 (Mark
One)
  þ
                QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
quarterly period ended March 31, 2009
  or
  o
                TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
transition period from __________________ to
__________________________
  Commission
file number: 333-145712
  CHINA
ARMCO METALS, INC
 (Name of
registrant as specified in its charter)
  Nevada
              26-0491904(State
      or other jurisdiction of
                incorporation
      or organization)
              (I.R.S.
      Employer Identification No.)
  One
      Waters Park Drive, Suite 98, San Mateo, CA
                94403(Address
      of principal executive offices)
                (Zip
      Code)
  (650)
212-7620
 (Registrant's
telephone number, including area code)
  Not
Applicable
 (Former
name, former address and former fiscal year, if changed since last
report)
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  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
              o
              Accelerated
      filer
              oNon-accelerated
      filer
                (Do
      not check if smaller reporting company)
              o
              Smaller
      reporting company
              þ
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes o No þ
 
 Indicated
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date. 10,097,449 shares of common stock are
issued and outstanding as of May 15, 2009.
  
 TABLE
OF CONTENTS
   Page
      No.PART I
      - FINANCIAL INFORMATIONItem
      1.
                Financial
      Statements.
                2Item
      2.
                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                18Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk.
                24Item
      4
                Controls
      and Procedures.
                24PART II - OTHER
      INFORMATIONItem
      1.
                Legal
      Proceedings.
                25Item
      1A.
                Risk
      Factors.
                25Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds.
                25Item
      3.
                Defaults
      Upon Senior Securities.
                25Item
      4.
                Submission
      of Matters to a Vote of Security Holders.
                25Item
      5.
                Other
      Information.
                25Item
      6.
                Exhibits.
                25
 
 
 
 INDEX
OF CERTAIN DEFINED TERMS USED IN THIS REPORT
  When used
in this report the terms:
 
 –
                “China
      Armco Metals”, “we”, “us” or “our” refers to China Armco Metals, Inc., a
      Nevada corporation, and our subsidiaries,–
                “Armco”
      refers to Armco & Metawise (H.K), Ltd., a limited liability company
      established under the laws of Hong Kong.–
                “Armet”
      refers to Armet (Lianyungang) Renewable Resources Co., Ltd. (a/k/a Armet
      (Lianyungang) Scraps Co., Ltd.), a limited liability company established
      under the laws of the People’s Republic of China.–
                “Henan
      Armco” refers to Henan Armco & Metawise Trading Co., Ltd., a limited
      liability company established under the laws of the People’s Republic of
      China.
  
  1
 PART
1 - FINANCIAL INFORMATION
   Item
      1.
              Financial
      Statements.
   China
Armco Metals, Inc. and Subsidiaries
 March 31,
2009 and 2008
 Index to
Consolidated Financial Statements
 
  Contents
                          Page(s)Consolidated
      Balance Sheets at March 31, 2009 (Unaudited) and December 31,
      2008
                          3Consolidated
      Statements of Operations and Comprehensive Income (Loss) for the Three
      Months Ended March 31, 2009 and 2008 (Unaudited)
                          4Consolidated
      Statements of Cash Flows for the Three Months Ended March 31, 2009 and
      2008 (Unaudited)
                          5Notes
      to the Consolidated Financial Statements (Unaudited)
                          6
      to
17
    2
 CHINA
ARMCO METALS, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 
 March
      31, 2009
                          
                          
                          December
      31, 2008ASSETS
                          
                          (unaudited)CURRENT
      ASSETS:Cash
                          
                          $
                          1,314,624
                          
                          
                          $
                          3,253,533Pledged
      deposits
                          
                          
                          2,943,372
                          
                          
                          
                          -Accounts
      receivable, net
                          
                          
                          14,790,318
                          
                          
                          
                          16,722,307Inventories
                          
                          
                          1,820,018
                          
                          
                          
                          197,402Advance
      on purchases
                          
                          
                          3,318,919
                          
                          
                          
                          3,680,872Prepayments
      and other current assets
                          
                          
                          520,814
                          
                          
                          
                          379,452Total
      Current Assets
                          
                          
                          24,708,065
                          
                          
                          
                          24,233,566PROPERTY,
      PLANT AND EQUIPMENT, net
                          
                          
                          3,417,019
                          
                          
                          
                          2,377,816LAND
      USE RIGHTS, net
                          
                          
                          2,161,800
                          
                          
                          
                          2,208,902Total
      Assets
                          
                          $
                          30,286,884
                          
                          
                          $
                          28,820,284LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIES:Loans
      payable
                          
                          
                          -
                          
                          
                          
                          2,914,345Accounts
      payable
                          
                          
                          11,953,646
                          
                          
                          
                          6,694,534Advances
      from stockholder
                          
                          
                          45,673
                          
                          
                          
                          236,595Customer
      deposits
                          
                          
                          2,083,705
                          
                          
                          
                          2,613,653Taxes
      payable
                          
                          
                          775,247
                          
                          
                          
                          1,039,312Accrued
      expenses and other current liabilities
                          
                          
                          13,476
                          
                          
                          
                          32,899Total
      Current Liabilities
                          
                          
                          14,871,747
                          
                          
                          
                          13,531,338STOCKHOLDERS'
      EQUITY:Preferred
      stock, $0.001 par value; 1,000,000 shares authorized;none
      issued or outstanding
                          
                          
                          -
                          
                          
                          
                          -Common
      stock, $0.001 par value, 74,000,000 shares authorized,10,092,449
      and 5,300,000 shares issued and outstanding, respectively
                          
                          
                          10,097
                          
                          
                          
                          10,092Additional
      paid-in capital
                          
                          
                          6,967,583
                          
                          
                          
                          6,942,588Retained
      earnings
                          
                          
                          8,094,700
                          
                          
                          
                          7,967,064Accumulated
      other comprehensive income:Foreign
      currency translation gain
                          
                          
                          342,757
                          
                          
                          
                          369,202Total
      Stockholders' Equity
                          
                          
                          15,415,137
                          
                          
                          
                          15,288,946Total
      Liabilities and Stockholders' Equity
                          
                          $
                          30,286,884
                          
                          
                          $
                          28,820,284
  
 See
accompanying notes to unaudited consolidated financial statements
 
 3
 CHINA
ARMCO METALS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
  (UNAUDITED)
  For
      the three months Ended
                          
                          
                          For
      the three months EndedMarch
      31, 2009
                          
                          
                          March
      31, 2008NET
      REVENUES
                          
                          $
                          5,357,858
                          
                          
                          $
                          9,775,337COST
      OF GOODS SOLD
                          
                          
                          4,847,235
                          
                          
                          
                          8,545,719GROSS
      PROFIT
                          
                          
                          510,623
                          
                          
                          
                          1,229,618OPERATING
      EXPENSES:Selling
      expenses
                          
                          
                          27,293
                          
                          
                          
                          10,614General
      and administrative expenses
                          
                          
                          306,641
                          
                          
                          
                          216,908Total
      operating expenses
                          
                          
                          333,934
                          
                          
                          
                          227,522INCOME
      FROM CONTINUING OPERATIONS
                          
                          
                          176,689
                          
                          
                          
                          1,002,096OTHER
      (INCOME) EXPENSE:Interest
      expense
                          
                          
                          18,036
                          
                          
                          
                          -Loss
      on forward foreign currency contracts
                          
                          
                          -
                          
                          
                          
                          12,930Other
      (income) expense
                          
                          
                          30,227
                          
                          
                          
                          (7,100
                          )Total
      other (income) expense
                          
                          
                          48,263
                          
                          
                          
                          5,830INCOME
      FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
                          
                          
                          128,426
                          
                          
                          
                          996,266INCOME
      TAXES
                          
                          
                          790
                          
                          
                          
                          258,653NET
      INCOME APPLICABLE TO SHAREHOLDERS
                          
                          $
                          127,636
                          
                          
                          $
                          737,613OTHER
      COMPREHENSIVE INCOME:Foreign
      currency translation gain
                          
                          
                          (26,445
                          )
                          
                          
                          180,190COMPREHENSIVE
      INCOME
                          
                          $
                          101,191
                          
                          
                          $
                          917,803NET
      INCOME PER COMMON SHARE - BASIC AND DILUTED:Total
      net income per common share
                          
                          $
                          0.01
                          
                          
                          $
                          0.14Weighted
      Common Shares Outstanding - basic and diluted
                          
                          
                          10,095,616
                          
                          
                          
                          5,300,000
 See
accompanying notes to unaudited consolidated financial statements
 
 4
 CHINA
ARMCO METALS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 (UNAUDITED)
 
  For
      the three months Ended
                                    
                                    
                                    For
      the three months EndedMarch
      31, 2009
                                    
                                    
                                    March
      31, 2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                                    
                                    $
                                    127,636
                                    
                                    
                                    $
                                    737,613Adjustments
      to reconcile net income to net cashprovided
      by (used in) operating activitiesDepreciation
      expenses
                                    
                                    
                                    18,033
                                    
                                    
                                    
                                    -Amortization
      expenses
                                    
                                    
                                    39,648
                                    
                                    
                                    
                                    21,214Loss
      from disposal of property and equipment
                                    
                                    
                                    -
                                    
                                    
                                    
                                    243Changes
      in operating assets and liabilities:Accounts
      receivable
                                    
                                    
                                    1,907,901
                                    
                                    
                                    
                                    (6,038,250
                                    )Inventories
                                    
                                    
                                    (1,623,282
                                    )
                                    
                                    
                                    (452,686
                                    )Advance
      on purchases
                                    
                                    
                                    352,071
                                    
                                    
                                    
                                    (1,060,482
                                    )Prepayments
      and other current assets
                                    
                                    
                                    82,565
                                    
                                    
                                    
                                    (44,584
                                    )Forward
      foreign exchange contracts
                                    
                                    
                                    -
                                    
                                    
                                    
                                    12,930Accounts
      payable
                                    
                                    
                                    5,274,564
                                    
                                    
                                    
                                    5,698,390Customer
      deposits
                                    
                                    
                                    (521,128
                                    )
                                    
                                    
                                    786,574Taxes
      payable
                                    
                                    
                                    (263,217
                                    )
                                    
                                    
                                    258,689Accrued
      expenses and other current liabilities
                                    
                                    
                                    (244,474
                                    )
                                    
                                    
                                    317,283NET
      CASH PROVIDED BY OPERATING ACTIVITIES
                                    
                                    
                                    5,150,317
                                    
                                    
                                    
                                    236,934CASH
      FLOWS FROM INVESTING ACTIVITIES:Payment
      made towards pledged deposits
                                    
                                    
                                    (2,943,372
                                    )
                                    
                                    
                                    (167,959
                                    )Purchases
      of property and equipment
                                    
                                    
                                    (1,065,260
                                    )
                                    
                                    
                                    (4,252
                                    )NET
      CASH USED IN INVESTING ACTIVITIES
                                    
                                    
                                    (4,008,632
                                    )
                                    
                                    
                                    (172,211
                                    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Payment
      of loans payable
                                    
                                    
                                    (2,914,345
                                    )
                                    
                                    
                                    -Payments
      to related parties
                                    
                                    
                                    (196,973
                                    )
                                    
                                    
                                    (893,620
                                    )Proceeds
      from exercise of warrants
                                    
                                    
                                    25,000
                                    
                                    
                                    
                                    -NET
      CASH USED IN FINANCING ACTIVITIES
                                    
                                    
                                    (3,086,318
                                    )
                                    
                                    
                                    (893,620
                                    )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                                    
                                    
                                    5,693
                                    
                                    
                                    
                                    741,738NET
      CHANGE IN CASH
                                    
                                    
                                    (1,938,940
                                    )
                                    
                                    
                                    (87,159
                                    )Cash
      at beginning of year
                                    
                                    
                                    3,253,563
                                    
                                    
                                    
                                    232,286Cash
      at end of year
                                    
                                    
                                    1,314,623
                                    
                                    
                                    
                                    145,127SUPPLEMENTAL
      DISCLOSURE OF CASH FLOWS INFORMATION:Interest
      paid
                                    
                                    
                                    18,036
                                    
                                    
                                    
                                    3,449Taxes
      paid
                                    
                                    
                                    790
                                    
                                    
                                    
                                    -
 See
accompanying notes to unaudited consolidated financial statements
 
 5
 China
Armco Metals, Inc. and Subsidiaries
 March 31,
2009 and 2008
 Notes to
the Consolidated Financial Statements
 (Unaudited)
 
 NOTE
1 – ORGANIZATION AND OPERATIONS
 
 Cox
Distributing was founded as an unincorporated business in January 1984 and was
incorporated as Cox Distributing, Inc., 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 founder in exchange for the existing unincorporated business.  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. (“Armco Metals” or the “Company”) upon the
acquisition of Armco & Metawise (H.K) Limited and
Subsidiaries.  The Company believes that the new name will better
identify the Company with the business conducted by its wholly owned
subsidiaries in China, Armco & Metawise (H.K) Limited and Subsidiaries,
namely, the import, export and distribution of ferrous and non-ferrous ores and
metals, and the recycling of scrap steel.  On December 30, 2008, the
Company discontinued its business of distribution of organic fertilizer
products.
 
 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 expires 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
represented 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 (“Armco”) was incorporated on July 13, 2001 under
the laws of the Hong Kong Special Administrative Region (“HK SAR”) of the
People’s Republic of China (“PRC”).  Armco engages in the import,
export and distribution of ferrous and non-ferrous 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
City of Lianyungang, Jiangsu Province, PRC.  Armet engages in the
recycling of scrap steel.
 
 Henan
Armco and Metawise Trading Co., Ltd. (“Henan”) was incorporated on June 6, 2002
in the City of Zhengzhou, Henan Province, 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
on the purchase method of accounting at historical amounts as Armet and
Henan were under common control since June 2002.  The consolidated
financial statements have been presented as if the acquisition of Henan had
occurred on January 1, 2007.
 
 6
 NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of
presentation
 
 The
accompanying unaudited interim 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.  The unaudited interim financial statements furnished
reflect all adjustments (consisting of normal recurring accruals) which are, in
the opinion of management, necessary to a fair statement of the results for
the interim periods presented.  Interim results are not necessarily
indicative of the results for the full year. These interim consolidated
financial statements should be read in conjunction with the financial statements
of the Company for the year ended December 31, 2008 and notes thereto contained
in the Company’s Annual Report on Form 10-K filed with the SEC on March 27,
2009.
 
 The
consolidated financial statements include all the accounts of Armco, Armet and
Henan as of March 31, 2009 and 2008 and for the three months then
ended.  Armco Metals is included as of March 31, 2009 and for the
three months ended March 31, 2009.  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 specified periods and (ii) deposits held for outstanding forward foreign
currency hedging contracts maturing in specified 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 March 31, 2009 or 2008.
 
 Advance on
purchases
 
 Advance
on purchases primarily represent amounts paid to vendors for future delivery of
products, all of which were fully or partially refundable depending upon the
terms and conditions of the purchase agreements.
 
 7
 Property, plant and
equipment
 
 Property,
plant 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,
plant 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 twenty (20) years.  Upon
sale or retirement of property, plant and equipment, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss is
reflected in the consolidated statements of income and comprehensive
Income.  Leasehold improvements, if any, are amortized on a
straight-line basis over the term of the lease or the estimated useful lives,
whichever is shorter.  Upon becoming fully amortized, the related cost
and accumulated amortization are removed from the accounts.
 
 Land use
right
 
 Land use
right represents the cost to obtain the right to use certain parcel of land in
the City of Lianyungang, Jiangsu Province, 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 March 31, 2009 or 2008.
 
 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 agreements.
 
 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, advance on purchases, prepayments and other
current assets, accounts payable, customer deposits, corporate income tax
payable, value added tax and other taxes payable, accrued expenses and other
current liabilities, approximate their fair values because of the short maturity
of these instruments. The Company’s loans payable approximate the fair
value of such instruments based upon management’s best estimate of interest
rates that would be available to the Company for similar financial arrangements
at December 31, 2008, which were fully repaid during the interim period ended
March 31, 2009.
 
 8
 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 recognizes revenue when it is
realized or realizable and earned less estimated future doubtful
accounts.  The Company considers revenue realized or realizable and
earned when all of the following criteria are met: (i) persuasive evidence of an
arrangement exists, (ii) the product has been shipped or the services have been
rendered to the customer, (iii) the sales price is fixed or determinable, and
(iv) collectability is reasonably assured.  In addition to the
aforementioned general policy, the following are the specific revenue
recognition policies for each major category of revenue:
 
 (i) Import, exportand distribution of ferrous and
non-ferrous ores and metals:  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.
 
 Net sales
of products represent the invoiced value of goods, net of value added taxes
(“VAT”).  The Company is subject to VAT which is levied on the
majority of the Company’s products at the rate of 13% on the invoiced value of
sales for the interim period ended March 31, 2008 and 17% on the invoiced value
of sales as of January 1, 2009.  Sales or Output VAT is borne by
customers in addition to the invoiced value of sales and Purchase or Input VAT
is borne by the Company in addition to the invoiced value of purchases to the
extent not refunded for export sales.
 
 Stock-based
compensation
 
 The
Company accounted for its stock based compensation under the recognition and
measurement principles of the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (“SFAS
No. 123R”) and the Financial Accounting Standards Board Emerging Issues Task
Force Issue No. 96-18“Accounting For Equity Instruments
That Are Issued To Other Than Employees For Acquiring, Or In Conjunction With
Selling Goods Or Services” (“EITF No.
96-18”) using the modified prospective method.  All transactions in
which goods or services are the consideration received for the issuance of
equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable.  The measurement date used to
determine the fair value of the equity instrument issued is the earlier of the
date on which the third-party performance is complete or the date on which it is
probable that performance will occur.  The fair value of each option
grant estimated on the date of grant uses the Black-Scholes option-pricing model
with the following weighted-average assumptions:
 
 June
      27, 2008Expected
      option life (year)
                                    
                                    2.00Expected
      volatility
                                    
                                    0.00%Risk-free
      interest rate
                                    
                                    2.65%Dividend
      yield
                                    
                                    0.00%
 
 The
expected life of the options has been determined using the simplified method as
prescribed in SEC Staff Accounting Bulletin No. 107 (“SAB 107”).  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.
 
 9
 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
      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
      expected volatility is based on a combination of the historical volatility
      of the comparable companies’ stock over the contractual life of the
      options.
 
 ·
              The
      risk-free interest rate is based on the U.S. Treasury yield curve in
      effect at the time of grant for periods within the contractual life of the
      option.
 
 ·
              The
      expected dividend yield is based on the Company’s current dividend yield
      as the best estimate of projected dividend yield for periods within the
      contractual life of the option.
 
 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 Income 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 consolidated
financial statements.  Foreign currencytranslation gain (loss)
resulting from the process of translating the local currency financial
statements into U.S. dollars are included in determining accumulated other
comprehensive income in the 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.  Commencing
July 21, 2005, China adopted a managed floating exchange rate regime based
on market demand and supply with reference to a basket of
currencies.  The exchange rate of the US dollar against the RMB was
adjusted from approximately RMB 8.28 per US dollar to approximately RMB
8.11 per US dollar on July 21, 2005.  Since then, the PBOC
administers and regulates the exchange rate of the US dollar against the RMB
taking into account demand and supply of RMB, as well as domestic and foreign
economic and financial conditions.
 
 10
 Unless
otherwise noted, the rate presented below per U.S. $1.00 was the interbank rate
as quoted by OANDA Corporation (www.oanda.com) for
the period from January 1, 2009 through March 31, 2009 and the noon buying rate
for RMB in New York City as reported by the Federal Reserve Bank of New York on
the date of its balance sheets contained in this consolidated financial
statements.  The management believes that the difference between RMB
vs. US$ exchange rate quoted by the PBOC and RMB vs. US$ exchange rate reported
by OANDA Corporation or the Federal Reserve Bank of New York were
immaterial.  Translations do not imply that the RMB amounts actually
represent, or have been or could be converted into, equivalent amounts in U.S.
dollars.  Translation of amounts from RMB into United States dollars
(“US$”) has been made at the following exchange rates for the respective
periods:
 
 March
      31,2009Balance
      sheet
                            
                            RMB
      6.8456 to $1.00Statement
      of income and comprehensive income
                            
                            RMB
      6.8466 to $1.00December 31, 2008Balance
      sheet
                            
                            RMB
      6.8225 to $1.00March 31, 2008Balance
      sheet
                            
                            RMB
      7.232 to $1.00Statement
      of income and comprehensive income
                            
                            RMB
      7.582 to $1.00December
      31,2007Balance
      sheet
                            
                            RMB
      7.2946 to
$1.00
 
 Net gains
and losses resulting from foreign exchange transactions, if any, are included in
the Consolidated Statements of Income and Comprehensive Income.  The
foreign currency translation gain (loss) was $(26,445) and $180,190 and the
effect of exchange rate changes on cash flows were $5,693and $741,738 for the
interim period ended March 31, 2009 and 2008, respectively.
 
 Comprehensive
income
 
 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 and its components.  Comprehensive income, for the Company,
consists of net income and foreign currency translation adjustments and is
presented in the Consolidated Statements of Income and Comprehensive Income
and Stockholders’ Equity.
 
 Commitments andcontingencies
 
 Liabilities
for loss contingencies arising from claims, assessments, litigation, fines and
penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount of the assessment can be reasonably
estimated.
 
 Net income per common
share
 
 Net
income per common share is computed pursuant to Statement of Financial
Accounting Standards No. 128 “Earnings Per Share” (“SFAS
No. 128”).   Basic net income per common share is computed by
dividing net income by the weighted average number of shares of common stock
outstanding during each period.  Diluted net income per common share is
computed by dividing net income 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 the stock options and 2,723,913 shares of common
stock issuable under the warrants in connection with the Company’s August
1, 2008 equity financing for the three months ended March 31, 2009 as their
effect would be anti-dilutive.  There were no potentially dilutive
shares outstanding for the three months ended March 31, 2008.
 
 Cash flows
reporting
 
 The
Company adopted Statement of Financial Accounting Standards No. 95 “Statement of Cash Flows”(“SFAS No. 95”) for cash flows reporting, classifies cash receipts
and payments according to whether they stem from operating, investing, or
financing activities and provides definitions of each category, and uses the
indirect or reconciliation method (“Indirect method”) as defined by SFAS No. 95
to report net cash flow from operating activities by adjusting net income
to reconcile it to net cash flow from operating activities by removing
the effects of (a) all deferrals of past operating cash receipts and payments
and all accruals of expected future operating cash receipts and payments
and (b) all items that are included in net income that do not affect
operating cash receipts and payments.  The Company reports the
reporting currency equivalent of foreign currency cash flows, using the
current exchange rate at the time of the cash flows and the effect of
exchange rate changes on cash held in foreign currencies is reported as
a separate item in the reconciliation of beginning and ending balances of
cash and cash equivalents and separately provides information about
investing and financing activities not resulting in cash receipts or
payments in the period pursuant to SFAS No. 95.
 
 11
 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 fiscal year, it is required to file the auditor’s attestation
report separately on the Company’s internal control over financial reporting on
whether it believes that the Company has maintained, in all material respects,
effective internal control over financial reporting.
 
 In May
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard No. 162 “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”).  The purpose of this standard
is to provide a consistent framework for determining what accounting principles
should be used when preparing U.S. GAAP financial statements.  SFAS
162 categorizes accounting pronouncements in a descending order of
authority.  In the instance of potentially conflicting accounting
principles, the standard in the highest category must be used.  This
statement will be effective 60 days after the SEC approves the Public Company
Accounting and Oversight Board’s related amendments.  The Company
believes that SFAS 162 will have no impact on their existing accounting
methods.
 
 On December 30, 2008, FASB
issued FASB Staff Position (“FSP”) No. FAS 132(R)-1, “Employers’Disclosures About Postretirement
Benefit Plan Assets ”, which amends Statement
of Financial Accounting Standards No. 132(R), “Employers’Disclosures About Pensions and
Other Postretirement Benefits” (“SFAS No. 132(R)”) to require more
detailed disclosures about plan assets, including investment strategies, major
categories of plan assets, concentrations of risk within plan assets, and
valuation techniques used to measure the fair value of plan assets consistent
with fair value hierarchy model described in SFAS No. 157, “Fair Value Measurements ”.
The Company does not anticipate that the adoption of this statement will have
any effect on its financial condition and results of operations since it does
not have any postretirement plans.
 
 In
April 2009, FASB issued FASB Staff Position (“FSP”) Financial Accounting
Standard (“FAS”) 157-4 “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly”. Based on the guidance, if an entity
determines that the level of activity for an asset or liability has
significantly decreased and that a transaction is not orderly, further analysis
of transactions or quoted prices is needed, and a significant adjustment to the
transaction or quoted prices may be necessary to estimate fair value in
accordance with Statement of Financial Accounting Standards (SFAS) No. 157
“Fair Value Measurements”. This FSP is to be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009 with
early adoption permitted for periods ending after March 15, 2009. The
Company does not anticipate that the adoption of this statement will have any
effect on its financial condition and results of operations.
 
 In
April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board
(“APB”) 28-1 “Interim Disclosures about Fair Value of Financial Instruments”.
 The FSP amends SFAS No. 107 “Disclosures about Fair Value of
Financial Instruments” to require an entity to provide disclosures about fair
value of financial instruments in interim financial information.  This FSP
is to be applied prospectively and is effective for interim and annual periods
ending after June 15, 2009 with early adoption permitted for periods ending
after March 15, 2009.  The Company does not anticipate that the
adoption of this statement will have any effect on its financial condition and
results of operations.
 
 In
April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful
Life of Intangible Assets”.  The FSP states that in developing
assumptions about renewal or extension options used to determine the useful life
of an intangible asset, an entity needs to consider its own historical
experience adjusted for entity-specific factors. In the absence of that
experience, an entity shall consider the assumptions that market participants
would use about renewal or extension options.  This FSP is to be
applied to intangible assets acquired after January 1, 2009.  The
adoption of this FSP did not have an impact on the financial
statements.
 
 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.
 
 12
 NOTE
3 – PLEDGED DEPOSITS
 
 Pledged
deposits at March 31, 2009 and December 31, 2008 consisted of the
following:
 
 March
      31,
                            2009
                          
                          
                          December
      31,
                            2008Letter
      of credit
                          
                          $
                          2,943,372
                          
                          
                          $
                          -
                          (1)$
                          2,943,372
                          
                          
                          $
                          -
 
 (1)
              On
      January 13, 2009 China CITIC Bank Zhengzhou Branch issued a letter of
      credit (“Letter of Credit”) in the amount of $2,952,600 expiring April 15,
      2009 on behalf of the Company to a vendor of Henan in connection with
      purchase of Manganese ore. Henan made the pledged deposit with China CITIC
      Bank as collateral to the Letter of Credit, which has been released to pay
      vendor upon receipt of goods in April
2009.
 
 NOTE
4 – INVENTORIES
 
 Inventories
at March 31, 2009 and December 31, 2008 consisted of the following:
 
 March
      31,
                              2009
                            
                            
                            December
      31,
                              2008Goods
      purchased
                            
                            $
                            1,820,018
                            
                            
                            $
                            197,402$
                            1,820,018
                            
                            
                            $
                            197,402
 
 NOTE
5 – RELATED PARTY TRANSACTIONS
 
 Advances fromstockholder
 
 Advances
from stockholder at March 31, 2009 and December 31, 2008 consisted of the
following:
 
 March
      31,
                              2009
                            
                            
                            December
      31,
                              2008Advances
      from chairman, chief executive officer and stockholder
                            
                            $
                            45,673
                            
                            
                            $
                            236,595$
                            45,673
                            
                            
                            $
                            236,595
 
 The
advances bear no interest and have no formal repayment terms.
 
 NOTE
6 – STOCKHOLDERS’ EQUITY
 
 2008
Offering
 
 On July
25, 2008 and July 31, 2008, the Company closed the first and second rounds of a
private placement by raising $6,896,229 from eighty-two (82) investors through
the sale of 22.9 units of its securities at an offering price of $300,000 per
unit in a private placement. Each unit sold in the offering consisted 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.
 
 On August
11, 2008 the Company closed the fourth round of the offering by raising $40,200
from five (5) investors through the sale of 0.134 units of its securities at an
offering price of $300,000 per unit.
 
 The
Company paid (i) FINRA member broker-dealers cash commissions of $162,660 and
issued those firms five (5) year warrants to purchase a total of 99,650 shares
of its common stock at $5.00 per share as compensation for services to the
Company, (ii) due diligence fees to certain investors or their advisors in
connection with the Offering aggregating $579,316 in cash and issued those firms
five (5) year warrants to purchase a total of 142,614 shares of its common stock
at $5.00 per share as compensation for services to the Company, and (iii)
professional fess in the amount of $97,689 paid in cash in connection with the
Offering.  The recipients of these fees included China Direct
Investments, Inc., a subsidiary of China Direct, Inc. and a principal
stockholder of the company.
 
 13
 In
aggregate, the Company raised $7,459,929 in the offering from ninety-seven (97)
investors through the sale of 24.87 units and after payment of cash commissions,
broker dealer fee, due diligence fees and other costs associated with the
Offering, the Company received net proceeds of $6,620,681, 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.
 
 Issuance of common stock for
services
 
 On
October 15, 2008, the Company issued 6,000 shares of its common stock for
services rendered valued at $3.00 per share for $18,000 (the estimated fair
value on the date of grant).
 
 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”) and Feng Gao, who owned 100%
of the outstanding shares of Armco (the “Armco 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 expiring on September 30, 2008 and 2,000,000
shares at $5.00 per share expiring 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
represented approximately 69.7% of the issued and outstanding Shares of the
Company giving effect to the cancellation of 7,694,000 Shares owned by Mr.
Cox.
 
 The fair
value of the stock options issued in June 2008 under Share Purchase Agreement
using the Black-Scholes Option Pricing Model was $0 at the date of
grant.  For the three months  ended March 31, 2009, the
Company did not record any stock-based compensation for shares
vested.  For the three months ended March 31, 2008, the Company did
not issue any stock options.
 
 The table
below summarizes the Company’s stock option activity for the interim period
ended March 31, 2009:
 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,
      December 31, 2008
                                        
                                        
                                        2,000,000
                                        
                                        
                                        $
                                        5.00
                                        
                                        
                                        $
                                        5.00
                                        
                                        
                                        
                                        *
                                        
                                        
                                        $
                                        -Granted
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        -Canceled
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        -Exercised
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        -Expired
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        -Balance,
      March 31, 2009
                                        
                                        
                                        2,000,000
                                        
                                        
                                        $
                                        5.00
                                        
                                        
                                        $
                                        5.00
                                        
                                        
                                        
                                        *
                                        
                                        
                                        $
                                        -Vested
      and exercisable, March 31, 2009
                                        
                                        
                                        2,000,000
                                        
                                        
                                        $
                                        5.00
                                        
                                        
                                        $
                                        5.00
                                        
                                        
                                        
                                        *
                                        
                                        
                                        $
                                        -Unvested,
      March 31, 2009
                                        
                                        
                                        -
                                        
                                        
                                        $
                                        5.00
                                        
                                        
                                        $
                                        5.00
                                        
                                        
                                        
                                        *
                                        
                                        
                                        $
                                        -
 * - Less
than $1.00
 
 The
following table summarizes information concerning outstanding and exercisable
stock options as of March 31, 2009:
 
 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
                            
                            
                            1.50
                            
                            $
                            5.00
                            
                            
                            2,000,000
                            
                            
                            1.50
                            
                            $
                            5.00$5.00
                            
                            
                            2,000,000
                            
                            
                            1.50
                            
                            $
                            5.00
                            
                            
                            2,000,000
                            
                            
                            1.50
                            
                            $
                            5.00
 
 14
 Warrants
 
 In
connection with the four (4) rounds of private placements from July 25, 2008
through August 8, 2008, the Company issued (i) warrants for 2,486,649 shares to
the investors and (ii) warrants for 242,264 shares to the brokers, or 2,728,913
shares in aggregate with an exercise price of $5.00 per share and an expiration
date of August 8, 2014, all of which have been earned upon
issuance.  The fair value of these warrants granted, estimated on the
date of grant, was $5,097,404, which has been recorded as additional paid-in
capital, using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
 
 Expected
      option life (year)
                                  
                                  5.00Expected
      volatility
                                  
                                  89.00%Risk-free
      interest rate
                                  
                                  3.23%Dividend
      yield
                                  
                                  0.00%
 
 The
remaining balance of the net proceeds of $1,523,277 has been assigned to Common
stock.
 
 On
January 30, 2009, the Company issued 5,000 shares of its common stock in
connection with the exercise of the warrant for 5,000 shares with an exercise
price of $5.00 per share.
 
 The table
below summarizes the Company’s warrant activity for the three months ended March
31, 2009:
  Number
      of Warrant Shares
                          
                          
                          Exercise Price Range
                            Per Share
                          
                          
                          Weighted Average
      Exercise Price
                          
                          
                          Fair
      Value at Date of Issuance
                          
                          
                          Aggregate
                            Intrinsic
                            ValueBalance,
      December 31, 2007
                          
                          
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -Granted
                          
                          
                          2,728,913
                          
                          
                          
                          5.00
                          
                          
                          
                          5.00
                          
                          
                          
                          5,092,970
                          
                          
                          
                          -Canceled
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Exercised
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Expired
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Balance,
      December 31, 2008
                          
                          
                          2,728,913
                          
                          
                          $
                          5.00
                          
                          
                          $
                          5.00
                          
                          
                          $
                          5,092,970
                          
                          
                          $
                          -Granted
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Canceled
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Exercised
                          
                          
                          (5,000
                          )
                          
                          
                          5.00
                          
                          
                          
                          5.00
                          
                          
                          
                          (9,331
                          )
                          
                          
                          -Expired
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Balance,
      March 31, 2009
                          
                          
                          2,723,913
                          
                          
                          $
                          5.00
                          
                          
                          $
                          5.00
                          
                          
                          $
                          5,083,639
                          
                          
                          $
                          -Earned
      and exercisable, March 31, 2009
                          
                          
                          2,723,913
                          
                          
                          $
                          5.00
                          
                          
                          $
                          5.00
                          
                          
                          $
                          5,083,639
                          
                          
                          $
                          -Unvested,
      March 31, 2009
                          
                          
                          -
                          
                          
                          $
                          5.00
                          
                          
                          $
                          5.00
                          
                          
                          $
                          -
                          
                          
                          $
                          -
 
 The
following table summarizes information concerning outstanding and exercisable
warrants as of March 31,
2009:
 
 Warrants
      Outstanding
                            
                            Warrants
      ExercisableRange
      of Exercise Prices
                            
                            Number
                              Outstanding
                            
                            Average
      Remaining Contractual Life  (in years)
                            
                            Weighted
      Average Exercise Price
                            
                            Number
                              Exercisable
                            
                            Average
      Remaining Contractual Life  (in years)
                            
                            Weighted
      Average Exercise Price$5.00
                            
                            
                            2,723,913
                            
                            
                            5.00
                            
                            $
                            5.00
                            
                            
                            2,723,913
                            
                            
                            5.00
                            
                            $
                            5.00$5.00
                            
                            
                            2,723,913
                            
                            
                            5.00
                            
                            $
                            5.00
                            
                            
                            2,723,913
                            
                            
                            5.00
                            
                            $
                            5.00
 
 15
 NOTE
7 – CONCENTRATIONS AND CREDIT RISK
 
 Customers and Credit
Concentrations
 
 Customer
concentrations for the interim period ended March 31, 2009 and 2008 and credit
concentrations at March 31, 2009 and December 31, 2008 are as
follows:
 Net
      Sales
                                                      for
      the Interim Period Ended
                                                    
                                                    
                                                    Accounts
      receivable
                                                      atMarch
      31,2009
                                                    
                                                    
                                                    March
      31,2008
                                                    
                                                    
                                                    March
      31,2009
                                                    
                                                    
                                                    December
      31, 2008Customer
      #206010 Lian YunGang Jiaxin
                                                    -
                                                    %
                                                    
                                                    
                                                    -
                                                    %
                                                    
                                                    
                                                    49.2
                                                    %
                                                    
                                                    
                                                    50.9
                                                    %Customer
      #122004 Zhejiang Properties
                                                    -
                                                    %
                                                    
                                                    
                                                    -
                                                    %
                                                    
                                                    
                                                    19.3
                                                    %
                                                    
                                                    
                                                    -
                                                    %Customer
      #122007 QingDao HuaQing
                                                    -
                                                    %
                                                    
                                                    
                                                    -
                                                    %
                                                    
                                                    
                                                    27.0
                                                    %
                                                    
                                                    
                                                    23.8
                                                    %Customer
      #122002 Zhejiang WuChan
                                                    49.6
                                                    %
                                                    
                                                    
                                                    -
                                                    %
                                                    
                                                    
                                                    -
                                                    %
                                                    
                                                    
                                                    -
                                                    %Customer
      #206036 Hanzhong Yinlong
                                                    48.9
                                                    %
                                                    
                                                    
                                                    -
                                                    %
                                                    
                                                    
                                                    -
                                                    %
                                                    
                                                    
                                                    -
                                                    %Customer
      #122015 ZheJiang GuXiong
                                                    -
                                                    %
                                                    
                                                    
                                                    -
                                                    %
                                                    
                                                    
                                                    -
                                                    %
                                                    
                                                    
                                                    21.9
                                                    %Customer
      #206030 TianJin ZhiYi
                                                    -
                                                    %
                                                    
                                                    
                                                    96.9
                                                    %
                                                    
                                                    
                                                    -
                                                    %
                                                    
                                                    
                                                    -
                                                    %98.5
                                                    %
                                                    
                                                    
                                                    96.9
                                                    %
                                                    
                                                    
                                                    95.5
                                                    %
                                                    
                                                    
                                                    96.6
                                                    %
 
 A
reduction in sales from or loss of such customers would have a material adverse
effect on the Company’s results of operations and financial
condition.
 
 Vendor
Concentrations
 
 Vendor
purchase concentrations for the three month period ended March 31, 2009 and 2008
and accounts payable concentration at March 31, 2009 and December 31, 2008 and
are as follows:
 
 Net
      Purchases
                                  for
      the Interim Period Ended
                                
                                
                                Accounts
      Payable
                                  atMarch
      31,
                                  2009
                                
                                
                                March
      31,
                                  2008
                                
                                
                                March
      31,
                                  2009
                                
                                
                                December
      31, 2008Vendor
      #126010 ZhongJi NingBo
                                -
                                %
                                
                                
                                -
                                %
                                
                                
                                32.0
                                %
                                
                                
                                -
                                %Vendor
      #204002 Yingfuguowaikuan
                                47.5
                                %
                                
                                
                                -
                                %
                                
                                
                                24.1
                                %
                                
                                
                                -
                                %Vendor
      #204006 BestonHoldings
                                -
                                %
                                
                                
                                -
                                %
                                
                                
                                17.3
                                %
                                
                                
                                32.2
                                %Vendor
      #204028 De Vi
                                43.9
                                %
                                
                                
                                -
                                %
                                
                                
                                22.3
                                %
                                
                                
                                -
                                %Vendor
      #204019 Sipex
                                -
                                %
                                
                                
                                85.0
                                %
                                
                                
                                -
                                %
                                
                                
                                -
                                %91.4
                                %
                                
                                
                                85.0
                                %
                                
                                
                                95.7
                                %
                                
                                
                                32.2
                                %
  Credit
Risk
 
 Financial
instruments that potentially subject the Company to significant concentration of
credit risk consist primarily of cash and cash equivalents.  As of March
31, 2009, 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.
 
 Foreign currency
risk
 
 The
Company is exposed to fluctuations in foreign currencies for transactions
denominated in currencies other than RMB, the functional currency due to the
fact the majority of the Company’s purchasing activities are transacted in
foreign currencies.  The Company had no foreign currency hedges in place at
March 31, 2009 to reduce such exposure.  The Company’s previous
forward foreign currency exchange contracts expired on August 2, 2008 and the
Company’s realized losses on these foreign currency hedges for
the three months ended March 31, 2008 was $25,009.
 
 16
 NOTE
8 - FOREIGN OPERATIONS
 
 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.
 
 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 March 31, 2009, the Company had
no Statutory Surplus Reserve and the Statutory Common Welfare Fund
established and segregated in retained earnings.
 
 17
 Item
      2.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.
  The
following discussion should be read in conjunction with the information
contained in our unaudited consolidated financial statements and the notes
thereto appearing elsewhere herein and in conjunction with the Management’s
Discussion and Analysis set forth in our Annual Report on Form 10-K for the year
ended December 31, 2008.
 
 We are on
a calendar year; as such the three months period ending March 31, is our first
quarter. The year ended December 31, 2008 is referred to as “2008” and the
coming year ending December 31, 2009 is referred to as “2009”.
 
 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 metal, and manganese ore.
 
 We are in
the process of constructing a scrap metal 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 metals and will sell and distribute recycled scrap metal to
the metal refinery industry utilizing our existing network of metal ore
customers in the PRC. We expect to commence recycling operations in the fourth
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 2008 worldwide crude steel production amounted to 1,330
million metric ton ("mmt"). This is a decrease of 1.2% compared to 2007. 2008 is
the second consecutive year that world steel production has been over 1,300
mmt.  China’s crude steel production in 2008 reached 502 mmt, an
increase of 2.6% from 2007. Production volume in China has more than doubled
within five years, from 222 mmt in 2002. China’s share of world steel production
continued to grow in 2008 producing 38% of world total crude
steel.
 
 We
believe recycling operations will become strong growth drivers worldwide as
natural resources continue to be depleted and the amount of unprocessed scrap
metal 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 private offering of our
common stock and warrants we closed in August 2008 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
 
 For the
three months ended March 31, 2009, we experienced a decrease in net revenues,
income and an increase in assets. The decrease in net revenues and net income
was mainly attributable to the worldwide economic slowdown and decrease in
demand due to the slowdown in worldwide construction and outputs. The
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 fourth quarter of 2009.
 
 Presentation
of Financial Statements
 
 The
presentation of the statements of operations included in Part 1, Item 1 in this
Form 10-Q have been modified to allow for the reporting of deductions from net
income to arrive at income (loss) applicable to common
stockholders.  Items reflected in our comprehensive income for the
periods reported are now included in our financial notes to the unaudited
financial statements included in this Form 10-Q.
 
 18
 RESULTS
OF OPERATIONS
 
 Net
Revenues
 
 Net
revenues for the first quarter of 2009 and 2008 were $5.4 million and $9.8
million, respectively. This represents a decrease in our net revenues of 45%
compared to the first quarter of 2008.  This decrease was mainly
contributable to the global economic slowdown which adversely affected our net
revenues.
 
 In
November 2008, the Chinese government announced a $586 billion domestic economic
stimulus program aimed at bolstering domestic economic activity.  The
two-year program includes tax rebates, spending in housing, infrastructure,
agriculture, health care and social welfare, and a tax deduction for capital
spending by companies. We expect to see a benefit to the Chinese economy from
this stimulus program. However in the short-term, it remains to be seen whether
domestic consumption can compensate for slower export growth, and the impact
this will have on our revenues through the balance of this year.
 
 Cost
of Revenues
 
 Cost of
revenues for the first quarter of 2009 and 2008 were $4.8 million and $8.5
million, respectively. This decrease of 43% is directly related to the 45%
decrease in our net revenues. Our cost of revenues as a percentage of revenues
during the first quarter of 2009 and 2008 were 90% and 87%, respectively. These
changes as a percentage of revenues are indicative of our product mix in the
first quarter of 2009 as compared to the comparable period in 2008.
 
 Total
Operating Expenses
 
 Operating
expenses for the first quarter of 2009 and 2008 were $333,934 and $227,522,
respectively. This represents an increase of 33% compared to the first quarter
of 2008.  Our operating expenses are comprised of selling expenses as
well as general and administrative expenses. These increases are a result
of increased levels of sales operations and additional costs related to our
Armet Lianyungang subsidiary and our U.S. offices. Armet Lianyungang, our
wholly owned subsidiary, is constructing a scrap metal recycling facility in the
Banqiao Industrial Zone of Lianyungang Economic Development Zone in Jiangsu
province.  Toward this end, we have expanded operational staff to
support the recycling operations.
 
 The table
below summarizes the consolidated operating results for the three months ended
March 31, 2009 and 2008.
 
 (in
      000’s)
                                          
                                          For
      the three months ended March 31,2009
                                          
                                          
                                          2008Revenues
                                          
                                          $
                                          5,358
                                          
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          9,775
                                          
                                          
                                          
                                          -Cost
      of revenues
                                          
                                          
                                          4,847
                                          
                                          
                                          
                                          90
                                          %
                                          
                                          
                                          8,545
                                          
                                          
                                          
                                          87
                                          %Gross
      profit
                                          
                                          
                                          511
                                          
                                          
                                          
                                          10
                                          %
                                          
                                          
                                          1,230
                                          
                                          
                                          
                                          13
                                          %Total
      operating expenses
                                          
                                          
                                          302
                                          
                                          
                                          
                                          6
                                          %
                                          
                                          
                                          228
                                          
                                          
                                          
                                          2
                                          %Operating
      (loss) income
                                          
                                          $
                                          209
                                          
                                          
                                          
                                          4
                                          %
                                          
                                          $
                                          1,002
                                          
                                          
                                          
                                          10
                                          %
 
 Other
Income (expense)
 
 Total
other expense for the first quarter of 2009 and 2008 was $48,263 and $5,830,
respectively. During the three months ended March 31, 2009, we had interest
expense of $18,036 and other expenses of $17,178 and $13,049 in our Armet and
Henan Armco subsidiaries, respectively.
 
 Income tax benefit (expense)
 
 Income
tax expense decreased to $790 in the first quarter of 2009 as compared to
$258,653 in the first quarter of 2008 primarily as a result of the decrease in
taxable income generated on a consolidated basis during the
period.  Armco is exempt from Hong Kong income taxes since none of its
income was from Hong Kong sources and no provision for income taxes has been
made. Armco’s statutory tax rate is 17.5% and is subject to Hong Kong SAR income
taxes as of January 1, 2008.
 
 19
 Net
income (loss)
 
 For the
first quarter of 2009 and 2008 our net income totaled $127,636 and $737,613,
respectively. The decrease in our net income is attributable to the reduced
revenues as a result of the global economic slowdown mentioned
herein.
 
 
 LIQUIDITY
AND CAPITAL RESOURCES OF ARMCO AND ITS SUBSIDIARIES
 
 Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations and otherwise operate on an ongoing basis.
At March 31, 2009 and December 31, 2008 we had cash and cash equivalents of
$1,314,624 and $3,253,533, respectively.  At March 31, 2009 our
working capital was $9.8 million as compared to $10.7 million at December
31, 2008. We have historically met our liquidity requirements utilizing
internally generated cash derived from our operations.
 
 We intend
to invest substantially all of the $6.5 million of the net proceeds from our
2008 Offering to fund the construction of our planned scrap metal recycling
facility beginning in the first quarter of 2009. We intend to use the balance of
the net offering proceeds for working capital to expand our metal ore
distribution business. Upon completion of the construction of the scrap metal
recycling facility, we estimate to sell recycled scrap metal utilizing our
existing network of customers. In addition to the net proceeds of our 2008
Offering we will need to secure additional investment capital and/or bank and
vendor financing to provide sufficient funds to complete this project. There is
no assurance, however, that we will be successful in obtaining the additional
financing that we require or that such financing may not be on terms deemed to
be desirable to our management. In the event we are successful, there is no
assurance that such investment will result in enhanced operating performance.
Unless we can obtain additional financing, we will be unable to complete
construction of our planned scrap steel recycling project. Any inability on our
part to secure additional financing during 2008, as needed, will have a material
adverse effect on our growth plans.
 
 The
following table provides certain selected balance sheet comparisons as of March
31, 2009 and December 31, 2008.
 
 March
      31
                      
                      
                      December
      31,
                      
                      
                      Increase
      /2008
                      
                      
                      2008
                      
                      
                      (decrease)
                      
                      
                      %Cash
                      
                      $
                      1,314,624
                      
                      
                      $
                      3,253,533
                      
                      
                      $
                      (1,938,909
                      )
                      
                      
                      -60
                      %Pledged
      deposits
                      
                      
                      2,943,372
                      
                      
                      
                      -
                      
                      
                      
                      2,943,372
                      
                      
                      
                      100
                      %Accounts
      receivable, net
                      
                      
                      14,790,318
                      
                      
                      
                      16,722,307
                      
                      
                      
                      (1,931,989
                      )
                      
                      
                      -12
                      %Inventories,
      net
                      
                      
                      1,820,018
                      
                      
                      
                      197,402
                      
                      
                      
                      1,622,616
                      
                      
                      
                      822
                      %Advance
      on purchases
                      
                      
                      3,318,919
                      
                      
                      
                      3,680,872
                      
                      
                      
                      (361,953
                      )
                      
                      
                      -10
                      %Prepayments
      and other current assets
                      
                      
                      520,814
                      
                      
                      
                      379,452
                      
                      
                      
                      141,362
                      
                      
                      
                      37
                      %Total
      current assets
                      
                      
                      24,708,065
                      
                      
                      
                      24,233,566
                      
                      
                      
                      474,499
                      
                      
                      
                      2
                      %Property
      and equipment, net
                      
                      
                      3,417,019
                      
                      
                      
                      2,377,816
                      
                      
                      
                      1,039,203
                      
                      
                      
                      44
                      %Land
      use rights, net
                      
                      
                      2,161,800
                      
                      
                      
                      2,208,902
                      
                      
                      
                      (47,102
                      )
                      
                      
                      -2
                      %Total
      assets
                      
                      
                      30,286,884
                      
                      
                      
                      28,820,284
                      
                      
                      
                      1,466,600
                      
                      
                      
                      5
                      %Loans
      Payable
                      
                      
                      -
                      
                      
                      
                      2,914,345
                      
                      
                      
                      (2,914,345
                      )
                      
                      
                      -100
                      %Accounts
      payable
                      
                      
                      11,953,646
                      
                      
                      
                      6,694,534
                      
                      
                      
                      5,259,112
                      
                      
                      
                      79
                      %Customer
      deposits
                      
                      
                      2,083,705
                      
                      
                      
                      2,613,653
                      
                      
                      
                      (529,948
                      )
                      
                      
                      -20
                      %Taxes
      payable
                      
                      
                      775,247
                      
                      
                      
                      1,039,312
                      
                      
                      
                      (264,065
                      )
                      
                      
                      -25
                      %Total
      current liabilities
                      
                      
                      14,871,747
                      
                      
                      
                      13,531,338
                      
                      
                      
                      1,340,409
                      
                      
                      
                      10
                      %Total
      liabilities
                      
                      $
                      14,871,747
                      
                      
                      $
                      13,531,338
                      
                      
                      $
                      1,340,409
                      
                      
                      
                      10
                      %
 
 At March
31, 2009, our cash totaled $1,314,624 as compared to $3,253,533 at December 31,
2008.
 
 20
 A
majority of our cash reserves, $1,273,798 or approximately 96% at March 31,
2009, is held 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 March 31, 2009 has been translated based on the
exchange rate as of March 31, 2009.  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 March 31, 2009 increased $474,499, or approximately 2%, from
December 31, 2008; this reflects increases in current asset items including
cash, inventories, prepayments and other current assets. These increases were
partially offset by a decrease in accounts receivable and advance on purchases.
Our total and current liabilities increased by approximately $1.3 million, or
10%, at March 31, 2009 from December 31, 2008; this reflects an increase in
accounts payable which was partially offset by a decrease in loans payable,
customer deposits, and taxes payable.
 
 Our
accounts receivable decreased to $14.8 million compared to $16.7 million as of
our prior year end. This represents a decrease of approximately 12% which was
mainly due to efficient collection efforts.
 
 Inventories
increased $1.6 million, or approximately 2% at March 31, 2009 from the prior
year end.  This occurred due to timing differences between our receipt
of product and shipment to our customers.
 
 Our
prepayment and other current assets increased $141,362 as of March 31, 2009 over
our prior year end.
 
 Advances
on purchases decreased $361,953, or approximately 10%, and consisted of
prepayments to vendors for merchandise, security and
deposits.
  Our
accounts payable increased $5.3 million or approximately 79% over the prior year
end. This increase was partially offset by the decrease in customer deposits and
taxes payable of approximately 20% and 25%, respectively. Additionally, we had
no loans payable as of March 31, 2009 as compared to the balance of $2,914,345
as of December 31, 2008.
 
 2008
Offering
 
 Between
July and August 2009 we sold $7,419,729 (net proceeds of $6,585,468) worth of
securities to 92 accredited investors through the sale of 24.73
units.  Each unit sold in the 2008 Offering consists of 100,000 shares
of Common Stock, $.001 par value per share at a per share purchase price of
$3.00, and five year warrants to purchase 100,000 shares of Common Stock with an
exercise price of $5.00 per share (the “Warrants“). The accredited investors
entered into a subscription agreement with the Company; the material terms of
which are set forth in the exhibits filed with our Form 8-K filed on August 1,
2008.
 
 Statement
of Cash Flows
 
 For the
first quarter of 2009, our cash totaled $1,314,624 and consisted of $5,150,317
provided by operating activities, $4,008,632 used in investing activities, and
$3,086,318 used in financing activities.
 
 For the
first quarter of 2008, our cash totaled $145,127 and consisted of $236,934
provided by operating activities, $172,211 used in investing activities, and
$893,620 used in financing activities.
 
 Cash
(Used in) Provided by Operating Activities
 
 For the
first quarter of 2009 cash provided by operations of $5.2 million comprised of
our net income of $127,636, adjustments to net income for depreciation and
amortization of $57,681, a decrease in accounts receivable of $1,907,901, and an
increase in accounts payable of $5.3 million. These were partially offset by
inventory purchases of $1.6 million, a decrease in customer deposits of
$521,128, and an increase in accrued expenses and current liabilities of
$244,474.
 
 For the
first quarter of 2009 cash provided by operations of $236,934 was comprised of
our net income of $737,613, adjustments to net income for depreciation and
amortization of $21,214, an increase in accounts payable of $5.7 million, an
increase in customer deposits of $786,574, and an increase in accrued expenses
and current liabilities of $317,283. These were partially offset by an increase
in accounts receivable of $6.0 million, and a decrease in advance on purchases
of $1.1 million.
 
 21
 Cash
used in Investing Activities
 
 For the
first quarter of 2009 cash used in investing activities of $4.0
million, and was due to purchases of property and equipments and
construction projects during the period of $1,065,260, and payments made towards
pledged deposits of $2,943,372.
 
 For the
first quarter of 2008 cash used in investing activities of $172,211 was due to
payments toward pledged deposits of $167,959 and purchases of property and
equipments of $4,252.
 
 Cash
provided by Financing Activities
 
 For the
first quarter of 2009 cash used in financing activities of $3.1 million,
which was mainly due to repayments of loan payable of $2.9 million and payments
to related parties of $196,973, these were partially offset by proceeds from the
exercise of warrants of $25,000.
 
 For the
first quarter of 2008 cash used in financing activities of $893,620 was due to
payments to related parties.
 
 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.
 
 22
 Furthermore,
in the following fiscal year, it is required to file the auditor’s attestation
report separately on the Company’s internal control over financial reporting on
whether it believes that the Company has maintained, in all material respects,
effective internal control over financial reporting.
 
 In May
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard No. 162 “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”).  The purpose of this standard
is to provide a consistent framework for determining what accounting principles
should be used when preparing U.S. GAAP financial statements.  SFAS
162 categorizes accounting pronouncements in a descending order of
authority.  In the instance of potentially conflicting accounting
principles, the standard in the highest category must be used.  This
statement will be effective 60 days after the SEC approves the Public
Company Accounting and Oversight Board’s related amendments.  The
Company believes that SFAS 162 will have no impact on their existing
accounting methods.
 
 On
December 30, 2008, FASB issued FASB Staff Position (“FSP”) No. FAS
132(R)-1, “ Employers’ Disclosures About Postretirement Benefit Plan Assets ”,
which amends Statement of Financial Accounting Standards No. 132(R), “
Employers’ Disclosures About Pensions and Other Postretirement Benefits” (“SFAS
No. 132(R)”) to require more detailed disclosures about plan assets, including
investment strategies, major categories of plan assets, concentrations of risk
within plan assets, and valuation techniques used to measure the fair value of
plan assets consistent with fair value hierarchy model described in SFAS
No. 157, “ Fair Value Measurements ”. The Company does not anticipate that
the adoption of this statement will have any effect on its financial condition
and results of operations since it does not have any postretirement
plans.
 
 In
April 2009, FASB issued FASB Staff Position (“FSP”) Financial Accounting
Standard (“FAS”) 157-4 “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly”. Based on the guidance, if an entity
determines that the level of activity for an asset or liability has
significantly decreased and that a transaction is not orderly, further analysis
of transactions or quoted prices is needed, and a significant adjustment to the
transaction or quoted prices may be necessary to estimate fair value in
accordance with Statement of Financial Accounting Standards (SFAS) No. 157
“Fair Value Measurements”. This FSP is to be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009 with
early adoption permitted for periods ending after March 15, 2009. The
Company does not anticipate that the adoption of this statement will have any
effect on its financial condition and results of operations.
 
 In
April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board
(“APB”) 28-1 “Interim Disclosures about Fair Value of Financial
Instruments”.  The FSP amends SFAS No. 107 “Disclosures about
Fair Value of Financial Instruments” to require an entity to provide disclosures
about fair value of financial instruments in interim financial
information.  This FSP is to be applied prospectively and is effective
for interim and annual periods ending after June 15, 2009 with early
adoption permitted for periods ending after March 15, 2009.  The
Company does not anticipate that the adoption of this statement will have any
effect on its financial condition and results of operations.
 
 In
April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful
Life of Intangible Assets”.  The FSP states that in developing
assumptions about renewal or extension options used to determine the useful life
of an intangible asset, an entity needs to consider its own historical
experience adjusted for entity-specific factors. In the absence of that
experience, an entity shall consider the assumptions that market participants
would use about renewal or extension options.  This FSP is to be
applied to intangible assets acquired after January 1, 2009.  The
adoption of this FSP did not have an impact on the financial
statements.
 
 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.
 
 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, 2008 and Item 1.01 “Risk Factors” of our
Current Report on Form 8-K filed on July 1, 2008:
 
 23
 ·
              Continued
      global economic weakness is expected to reduce demand for our
      products.·
              Our
      ability to obtain sufficient capital to fund our planned expansion and
      construction of a scrap steel recycling facility.·
              Fluctuations
      in raw material prices may affect our operating results as we may not be
      able to pass on cost increases to customers.·
              Our
      ability to manage growth in operations to maximize our potential growth
      and achieve our expected revenues.·
              Our
      organic growth strategy, if unsuccessful, may result in a negative impact
      on our growth, financial condition, results of operations and cash
      flow.·
              Our
      ability to successfully complete construction of our proposed scrap steel
      recycling facility, or, even if constructed, our ability to operate the
      proposed recycling facility profitably.·
              Our
      ability to successfully implement our acquisition growth strategy and meet
      growth and revenue expectations.·
              The
      lack various legal protections in certain agreements to which we are a
      party and which are material to our operations which are customarily
      contained in similar contracts prepared in the United
    States.·
              Our
      dependence on our key management personnel.·
              Our
      inability to meet the accelerated filing and internal control reporting
      requirements imposed by the SEC.·
              The
      effect of changes resulting from the political and economic policies of
      the Chinese government on our assets and operations located in the
      PRC.·
              The
      influence of the Chinese government over the manner in which our Chinese
      subsidiaries must conduct our business activities, including the impact of
      governmental regulations associated with the Beijing Olympic
      games.·
              The
      impact on future inflation in China on economic activity in
      China.·
              The
      impact of any recurrence of severe acute respiratory syndrome, or SAR’s,
      or another widespread public health problem.·
              The
      limitation on our ability to receive and use our revenues effectively as a
      result of restrictions on currency exchange in China.·
              Our
      ability to enforce our rights due to policies regarding the regulation of
      foreign investments in China.·
              The
      restrictions imposed under recent regulations relating to offshore
      investment activities by Chinese residents and the increased
      administrative burden we face and the creation of regulatory uncertainties
      that may limit or adversely affect our ability to complete the business
      combination with our PRC based subsidiaries.·
              Our
      ability to comply with the United States Foreign Corrupt Practices Act
      which could subject us to penalties and other adverse
      consequences.·
              Our
      ability to establish adequate management, legal and financial controls in
      the PRC.·
              The
      provisions of our articles of incorporation and bylaws which may delay or
      prevent a takeover which may not be in the best interests of our
      shareholders.·
              Our
      controlling stockholders may take actions that conflict with your
      interests.
 
 We
caution that the factors described herein and other factors could cause our
actual results of operations and financial condition to differ materially from
those expressed in any forward-looking statements we make and that investors
should not place undue reliance on any such forward-looking statements. Further,
any forward-looking statement speaks only as of the date on which such statement
is made, and we undertake no obligation to update any forward-looking statement
to reflect events or circumstances after the date on which such statement is
made or to reflect the occurrence of anticipated or unanticipated events or
circumstances. New factors emerge from time to time, and it is not possible for
us to predict all of such factors. Further, we cannot assess the impact of each
such factor on our results of operations or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
 
 The
Renminbi is not freely convertible into foreign currencies and no representation
is made that the Renminbi or U.S. Dollar amounts referred to herein could have
been or could be converted into U.S. Dollars or Renminbi, as the case may be, at
the stated rate or at all. Unless otherwise noted, all currency figures in this
filing are in U.S. dollars. References to "yuan" or "RMB" are to the
Chinese yuan (also known as the Renminbi).
 
 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.
 
 24
 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-K for the year ended December 31, 2008. There has
been no material change in our risk factors from those previously discussed in
the Annual Report on Form 10-K.
  Item
      2.
              Unregistered
      Sales of Equity Securities and Use of
Proceeds.
  None
  Item
      3.
              Defaults
      Upon Senior Securities.
  None
  Item
      4.
              Submission
      of Matters to a Vote of Security
Holders.
  None
  Item
      5.
              Other
      Information.
 
 None
  Item
      6.
              Exhibits
 
 No.
                  Description31.1
                  Rule
      13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer
      *31.2
                  Rule
      13a-14(a)/ 15d-14(a) Certification of Principal Financial and Accounting
      Officer *32
                  Section
      1350 Certification of Chief Executive Officer and the Principal Financial
      and Accounting Officer
*
 
 * Filed
herewith
  25
  SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
  China
      Armco Metals, Inc.Date:
      May 20, 2009
                  By:
                  /s/ Kexuan
      YaoKexuan
      YaoCEO
      and Chairman(Principal
      Executive Officer)
 
 Date:
      May 20, 2009
                  By:
                  /s/ Fengtao
      WenFengtao
      WenChief
      Financial Officer(principal
      accounting officer)
  
 26