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 June 30, 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: 000-53468




CHINA
ARMCO METALS, INC


(Exact
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  Noo





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 
 o    
 No   o





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




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




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





Indicated
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date. 10,104,449 shares of common stock are
issued and outstanding as of August 14, 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
      4T.
                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.







2


PART
1 - FINANCIAL INFORMATION






Item
      1.
            Financial
      Statements.






China
Armco Metals, Inc. and Subsidiaries


June 30,
2009 and 2008


Index to
Consolidated Financial Statements







Contents
              Page(s)Consolidated
      Balance Sheets at June 30, 2009 (Unaudited) and December 31,
      2008
              4Consolidated
      Statements of Operations and Comprehensive Income for the Three and Six
      Months Ended June 30, 2009 and 2008 (Unaudited)
              5Consolidated
      Statements of Cash Flows for the Three and Six Months Ended June 30, 2009
      and 2008 (Unaudited)
              6Notes
      to the Consolidated Financial Statements (Unaudited)
              7
      to 19




3




CHINA
ARMCO METALS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS




June
      30, 2009
                            
                            
                            December
      31, 2008(Unaudited)ASSETSCURRENT
      ASSETS:Cash
                            
                            $
                            801,120
                            
                            
                            $
                            3,253,533Pledged
      deposits
                            
                            
                            1,723,980
                            
                            
                            
                            -Accounts
      receivable, net
                            
                            
                            15,568,549
                            
                            
                            
                            16,722,307Advances
      from related party
                            
                            
                            160,507
                            
                            
                            
                            -Inventories
                            
                            
                            1,968,646
                            
                            
                            
                            197,402Advances
      on purchases
                            
                            
                            2,563,809
                            
                            
                            
                            3,680,872Deposits
      on future construction
                            
                            
                            2,210,493
                            
                            
                            
                            -Prepayments
      and other current assets
                            
                            
                            684,240
                            
                            
                            
                            379,452Total
      Current Assets
                            
                            
                            25,681,344
                            
                            
                            
                            24,233,566PROPERTY,
      PLANT AND EQUIPMENT, net
                            
                            
                            10,510,443
                            
                            
                            
                            2,377,816LAND
      USE RIGHTS, net
                            
                            
                            2,102,691
                            
                            
                            
                            2,208,902Total
      Assets
                            
                            $
                            38,294,478
                            
                            
                            $
                            28,820,284LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIES:Forward
      foreign currency exchange contracts
                            
                            $
                            103,083
                            
                            
                            $
                            -Loans
      payable
                            
                            
                            -
                            
                            
                            
                            2,914,345Accounts
      payable
                            
                            
                            15,604,831
                            
                            
                            
                            6,694,534Advances
      from stockholder
                            
                            
                            220,975
                            
                            
                            
                            236,595Customer
      deposits
                            
                            
                            2,306,681
                            
                            
                            
                            2,613,653Taxes
      payable
                            
                            
                            483,271
                            
                            
                            
                            1,039,312Accrued
      expenses and other current liabilities
                            
                            
                            812,193
                            
                            
                            
                            32,899Total
      Current Liabilities
                            
                            
                            19,531,034
                            
                            
                            
                            13,531,338Total
      Liabilities
                            
                            
                            19,531,034
                            
                            
                            
                            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,10,104,449
      and 10,092,449 shares issued and outstanding, respectively
                            
                            
                            10,104
                            
                            
                            
                            10,092Additional
      paid-in capital
                            
                            
                            6,978,076
                            
                            
                            
                            6,942,588Retained
      earnings
                            
                            
                            11,464,463
                            
                            
                            
                            7,967,064Accumulated
      other comprehensive income
                            
                            
                            310,801
                            
                            
                            
                            369,202Total
      Stockholders' Equity
                            
                            
                            18,763,444
                            
                            
                            
                            15,288,946Total
      Liabilities and Stockholders' Equity
                            
                            $
                            38,294,478
                            
                            
                            $
                            28,820,284




See
accompanying notes to unaudited consolidated financial statements





4


CHINA
ARMCO METALS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


(UNAUDITED)





For
      the Three Months
                                                            
                                                            
                                                            For
      the Six MonthsEnded
                                                            
                                                            
                                                            EndedJune
      30, 2009
                                                            
                                                            
                                                            June
      30, 2008
                                                            
                                                            
                                                            June
      30, 2009
                                                            
                                                            
                                                            June
      30, 2008NET
      REVENUES
                                                            
                                                            $
                                                            22,537,814
                                                            
                                                            
                                                            $
                                                            13,014,476
                                                            
                                                            
                                                            $
                                                            27,895,672
                                                            
                                                            
                                                            $
                                                            22,789,813COST
      OF GOODS SOLD
                                                            
                                                            
                                                            18,415,683
                                                            
                                                            
                                                            
                                                            12,137,404
                                                            
                                                            
                                                            
                                                            23,262,918
                                                            
                                                            
                                                            
                                                            20,683,123GROSS
      PROFIT
                                                            
                                                            
                                                            4,122,131
                                                            
                                                            
                                                            
                                                            877,072
                                                            
                                                            
                                                            
                                                            4,632,754
                                                            
                                                            
                                                            
                                                            2,106,690OPERATING
      EXPENSES:Selling
      expenses
                                                            
                                                            
                                                            385,103
                                                            
                                                            
                                                            
                                                            20,899
                                                            
                                                            
                                                            
                                                            412,396
                                                            
                                                            
                                                            
                                                            31,513General
      and administrative expenses
                                                            
                                                            
                                                            285,960
                                                            
                                                            
                                                            
                                                            124,533
                                                            
                                                            
                                                            
                                                            592,601
                                                            
                                                            
                                                            
                                                            341,441Total
      operating expenses
                                                            
                                                            
                                                            671,063
                                                            
                                                            
                                                            
                                                            145,432
                                                            
                                                            
                                                            
                                                            1,004,997
                                                            
                                                            
                                                            
                                                            372,954INCOME
      FROM OPERATIONS
                                                            
                                                            
                                                            3,451,068
                                                            
                                                            
                                                            
                                                            731,640
                                                            
                                                            
                                                            
                                                            3,627,757
                                                            
                                                            
                                                            
                                                            1,733,736OTHER
      (INCOME) EXPENSE:Interest
      income
                                                            
                                                            
                                                            (45,018
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (45,018
                                                            )
                                                            
                                                            
                                                            -Interest
      expense
                                                            
                                                            
                                                            119,120
                                                            
                                                            
                                                            
                                                            97,336
                                                            
                                                            
                                                            
                                                            137,156
                                                            
                                                            
                                                            
                                                            97,336Import
      and export agency income
                                                            
                                                            
                                                            (47,244
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (47,244
                                                            )
                                                            
                                                            
                                                            -Gain
      from contracts termination
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (1,233,751
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (1,233,751
                                                            )Loss
      on forward foreign currency contracts
                                                            
                                                            
                                                            (12,079
                                                            )
                                                            
                                                            
                                                            6,809
                                                            
                                                            
                                                            
                                                            (12,079
                                                            )
                                                            
                                                            
                                                            19,739Other
      (income) expense
                                                            
                                                            
                                                            66,945
                                                            
                                                            
                                                            
                                                            (115,612
                                                            )
                                                            
                                                            
                                                            97,172
                                                            
                                                            
                                                            
                                                            (122,712
                                                            )Total
      other (income) expense
                                                            
                                                            
                                                            81,724
                                                            
                                                            
                                                            
                                                            (1,245,218
                                                            )
                                                            
                                                            
                                                            129,987
                                                            
                                                            
                                                            
                                                            (1,239,388
                                                            )INCOME
      FROM OPERATIONS BEFORE INCOME TAXES
                                                            
                                                            
                                                            3,369,344
                                                            
                                                            
                                                            
                                                            1,976,858
                                                            
                                                            
                                                            
                                                            3,497,770
                                                            
                                                            
                                                            
                                                            2,973,124INCOME
      TAXES (BENEFIT)
                                                            
                                                            
                                                            (716
                                                            )
                                                            
                                                            
                                                            127,312
                                                            
                                                            
                                                            
                                                            74
                                                            
                                                            
                                                            
                                                            385,965NET
      INCOME
                                                            
                                                            
                                                            3,370,060
                                                            
                                                            
                                                            
                                                            1,849,546
                                                            
                                                            
                                                            
                                                            3,497,696
                                                            
                                                            
                                                            
                                                            2,587,159OTHER
      COMPREHENSIVE INCOME:Foreign
      currency translation gain (loss)
                                                            
                                                            
                                                            (31,956
                                                            )
                                                            
                                                            
                                                            133,683
                                                            
                                                            
                                                            
                                                            (58,401
                                                            )
                                                            
                                                            
                                                            313,873COMPREHENSIVE
      INCOME
                                                            
                                                            $
                                                            3,338,104
                                                            
                                                            
                                                            $
                                                            1,983,229
                                                            
                                                            
                                                            $
                                                            3,439,295
                                                            
                                                            
                                                            $
                                                            2,901,032NET
      INCOME PER COMMON SHARE -
                                                                BASIC
      AND DILUTED:
                                                            
                                                            $
                                                            0.33
                                                            
                                                            
                                                            $
                                                            0.24
                                                            
                                                            
                                                            $
                                                            0.35
                                                            
                                                            
                                                            $
                                                            0.34Weighted
      Common Shares Outstanding - basic and diluted
                                                            
                                                            
                                                            10,097,449
                                                            
                                                            
                                                            
                                                            7,606,000
                                                            
                                                            
                                                            
                                                            10,096,538
                                                            
                                                            
                                                            
                                                            7,606,000





See
accompanying notes to unaudited consolidated financial statements





5





CHINA
ARMCO METALS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)




For
      the Six Months
                              
                              
                              For
      the Six MonthsEnded
                              
                              
                              EndedJune
      30, 2009
                              
                              
                              June
      30, 2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                              
                              $
                              3,497,696
                              
                              
                              $
                              2,587,159Adjustments
      to reconcile net income to net cashprovided
      by operating activitiesDepreciation
      expenses
                              
                              
                              20,735
                              
                              
                              
                              -Amortization
      expense
                              
                              
                              35,732
                              
                              
                              
                              44,263Loss
      from disposal of property and equipment
                              
                              
                              -
                              
                              
                              
                              248Changes
      in operating assets and liabilities:Accounts
      receivable
                              
                              
                              690,662
                              
                              
                              
                              772,075Inventories
                              
                              
                              3,209,227
                              
                              
                              
                              (6,402,636
                              )Advance
      on purchases
                              
                              
                              1,107,393
                              
                              
                              
                              (2,464,797
                              )Prepayments
      and other current assets
                              
                              
                              (318,882
                              )
                              
                              
                              (463,238
                              )Other
      assets
                              
                              
                              22,028
                              
                              
                              
                              -Forward
      foreign exchange contracts swap
                              
                              
                              -
                              
                              
                              
                              19,739Accounts
      payable
                              
                              
                              8,914,385
                              
                              
                              
                              3,326,338Customer
      deposits
                              
                              
                              (298,422
                              )
                              
                              
                              1,093,284Taxes
      payable
                              
                              
                              (555,156
                              )
                              
                              
                              409,805Accrued
      expenses and other current liabilities
                              
                              
                              757,291
                              
                              
                              
                              521,846NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
                              
                              
                              17,082,689
                              
                              
                              
                              (555,914
                              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Cash
      received from reverse acquisition
                              
                              
                              -
                              
                              
                              
                              11,506Proceeds
      from release of pledged deposits
                              
                              
                              -
                              
                              
                              
                              164,572Payment
      made towards pledged deposits
                              
                              
                              (1,710,880
                              )
                              
                              
                              -Deposits
      toward future construction
                              
                              
                              (2,210,493
                              )
                              
                              
                              -Purchases
      of property and equipment
                              
                              
                              (8,173,902
                              )
                              
                              
                              (4,338
                              )Purchase
      of land use right
                              
                              
                              76,080
                              
                              
                              
                              -NET
      CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
                              
                              
                              (12,019,195
                              )
                              
                              
                              171,740CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from forward foreign exchanage contracts
                              
                              
                              103,071
                              
                              
                              
                              -Proceede
      from loans payable
                              
                              
                              -
                              
                              
                              
                              1,487,265Repayment
      of loans payable
                              
                              
                              (2,914,345
                              )
                              
                              
                              -Amounts
      received from (paid to) related parties
                              
                              
                              (5,140,394
                              )
                              
                              
                              (919,332
                              )Proceeds
      from exercise of warrants
                              
                              
                              400,000
                              
                              
                              
                              -Exercise
      of warrants
                              
                              
                              35,500
                              
                              
                              
                              -NET
      CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
                              
                              
                              (7,516,168
                              )
                              
                              
                              567,933EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                              
                              
                              261
                              
                              
                              
                              26,315NET
      CHANGE IN CASH
                              
                              
                              (2,452,413
                              )
                              
                              
                              210,074Cash
      at beginning of period
                              
                              
                              3,253,533
                              
                              
                              
                              232,286Cash
      at end of period
                              
                              $
                              801,120
                              
                              
                              $
                              442,360SUPPLEMENTAL
      DISCLOSURE OF CASH FLOWS INFORMATION:Interest
      paid
                              
                              $
                              18,036
                              
                              
                              $
                              3,449Taxes
      paid
                              
                              $
                              -
                              
                              
                              $
                              -




See
accompanying notes to unaudited consolidated financial statements




6





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.





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.





7


The
consolidated financial statements include all the accounts of Armco, Armet and
Henan as of June 30, 2009 and 2008 and for the six months then
ended.  Armco Metals is included as of June 30, 2009 and 2008, for the
six months ended June 30, 2009 and for the period from June 27, 2008 through
June 30, 2008.  All inter-company balances and transactions have been
eliminated.





Use of
estimates





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





Cash
equivalents





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





Pledged
deposits





Pledged
deposits consists of (i) amounts held for outstanding letters of credit maturing
in 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 June 30, 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.





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.





8


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 June 30, 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 disclosures about fair value
of its financial instruments and has adopted Financial Accounting Standards
Board (“FASB”) No. 157 “Fair
Value Measurements” (“SFAS No. 157”) to measure the fair value of its
financial instruments.  SFAS No. 157 establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. To increase consistency and
comparability in fair value measurements and related disclosures, SFAS No. 157
establishes a fair value hierarchy which prioritizes the inputs to valuation
techniques used to measure fair value into three (3) broad
levels.  The fair value hierarchy gives the highest priority to quoted
prices (unadjusted) in active markets for identical assets or liabilities and
the lowest priority to unobservable inputs.  The three (3) levels of
fair value hierarchy defined by SFAS No. 157 are described below:





Level
      1
                
                Quoted
      market prices available in active markets for identical assets or
      liabilities as of the reporting date.Level
      2
                
                Pricing
      inputs other than quoted prices in active markets included in Level 1,
      which are either directly or indirectly observable as of the reporting
      date.Level
      3
                
                Pricing
      inputs that are generally observable inputs and not corroborated by market
      data.





9


As
defined by SFAS No. 107, the fair value of a financial instrument is the amount
at which the instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale, which was further
clarified as the price that would be received to sell an asset or paid to
transfer a liability (an exit price) in an orderly transaction between market
participants at the measurement date. The carrying amounts of the Company's
financial assets and liabilities, such as cash, accounts receivable, prepayments
and other current assets, accounts payable, taxes payable, accrued expenses and
other current liabilities, approximate their fair values because of the short
maturity of these instruments. The Company's loan payable approximates the fair
value of such instrument based upon management's best estimate of interest rates
that would be available to the Company for similar financial arrangement at June
30, 2009 and 2008.





The
Company does not have any assets or liabilities measured at fair value on a
recurring or a non-recurring basis, consequently, the Company did not have any
fair value adjustments for assets and liabilities measured at fair value at June
30, 2009 or 2008, nor gains or losses are reported in the statement of
operations that are attributable to the change in unrealized gains or losses
relating to those assets and liabilities still held at the reporting date for
the interim period then ended.





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
compensationand equity instruments issued to other than employees for acquiring goods or
services





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”) using the modified prospective method for transactions in which
the Company obtains employee services in share–based payment transactions 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”) for share-based payment transactions with parties other than employees provided in
SFAS No.  123R.  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:





10


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.





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.





The
Company adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48 “Accounting for Uncertainty in
Income Taxes – an interpretation of FASB Statement No.109” (“FIN
48”).  FIN 48 addresses the determination of whether tax benefits
claimed or expected to be claimed on a tax return should be recorded in the
financial statements.  Under FIN 48, the Company may recognize the tax
benefit from an uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position.  The tax benefits
recognized in the financial statements from such a position should be measured
based on the largest benefit that has a greater than fifty (50) percent
likelihood of being realized upon ultimate settlement.  FIN 48 also
provides guidance on de-recognition, classification, interest and penalties on
income taxes, accounting in interim periods and requires increased
disclosures.  The Company had no material adjustments to its
liabilities for unrecognized income tax benefits according to the provisions of
FIN 48.





11


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.





Unless
otherwise noted, the rate presented below per U.S. $1.00 was the interbank rate
as quoted by OANDA Corporation (www.oanda.com) for
the period from January 1, 2009 through June 30, 2009 and the noon buying rate
for RMB in New York City as reported by the Federal Reserve Bank of New York on
the date of its balance sheets contained in this consolidated financial
statements.  The management believes that the difference between RMB
vs. US$ 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:





June 30, 2009Balance
      sheet
                          
                          RMB
      6.8448 to US$1.00Statement
      of income and comprehensive income
                          
                          RMB
      6.8432 to US$1.00December
      31,
      2008Balance
      sheet
                          
                          RMB
      6.8225 to US$1.00March
      31,
      2008Balance
      sheet
                          
                          RMB
      7.232 to US$1.00Statement
      of income and comprehensive income
                          
                          RMB
      7.582 to US$1.00December
      31, 2007Balance
      sheet
                          
                          RMB
      7.2946 to
US$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 $(58,401) and $313,873 and the
effect of exchange rate changes on cash flows were $230 and $26,326 for the
interim period ended June 30, 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.





12


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 and warrants.





The
following table shows the weighted-average number of potentially outstanding
dilutive shares excluded from the diluted net loss per share calculation for the
interim period ended June 30, 2009 and 2008 as they were
anti-dilutive:





Weighted average
      number of
                                  potentially
      outstanding dilutive sharesFor
      the Interim Period
                                  Ended
                                  June
      30, 2009
                                
                                
                                For
      the Interim Period
                                  Ended
                                  June
      30, 2008Stock
      options issued on June 27, 2008 in connection with the
                                  acquisition
      of Armco Hong Kong
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                2,000,000
                                
                                
                                
                                2,000,000Warrants
      issued on August 1, 2008 in connection with the
                                  Company’s
      August 1, 2008 equity financing
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                2,723,913
                                
                                
                                
                                -Total
      potentially outstanding dilutive shares
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                4,723,913
                                
                                
                                
                                2,000,000





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.





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.





13


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





In
May 2009, FASB issued FASB Statement No. 165 "Subsequent events" ("SFAS
No. 165") to be effective for the interim or annual financial periods ending
after June15, 2009. SFAS No. 165 The objective of this Statement is to establish
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. In particular, this Statement sets forth: 1. The period
after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements. 2. The circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements. 3. The disclosures that an entity should make
about events or transactions that occurred after the balance sheet date. The
effect of adoption of SFAS No. 165 on the Company's financial position and
results of operations is not expected to be material.




In June
2009, the FASB approved the "FASB Accounting Standards Codification" (the
"Codification") as the single source of authoritative nongovernmental U.S. GAAP
to be launched on July 1, 2009. The Codification does not change current U.S.
GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by
providing all the authoritative literature related to a particular topic in one
place. All existing accounting standard documents will be superseded and all
other accounting literature not included in the Codification will be considered
non-authoritative. The Codification is effective for interim and annual periods
ending after September 15, 2009. The Company does not expect the adoption to
have a material impact on its consolidated financial position, results of
operations or cash flows.





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





NOTE
3 – PLEDGED DEPOSITS





Pledged
deposits at June 30, 2009 and December 31, 2008 consisted of the
following:


Pledged
deposits for:





March
      31, 2009
                            
                            
                            December
      31, 2008Letter
      of credit  (1)
                            
                            $
                            1,723,980
                            
                            
                            $
                            -$
                            1,723,980
                            
                            
                            $
                            -





(1)
            The
      Company made the pledged deposits with financial institutions as
      collateral to the Letter of Credits, which will be released to pay vendors
      upon receipt of goods.





NOTE
4 – INVENTORIES





Inventories
at June 30, 2009 and December 31, 2008 consisted of the following:





June
      30, 2009
                          
                          
                          December
      31, 2008Goods
      purchased
                          
                          $
                          1,968,646
                          
                          
                          $
                          197,402$
                          1,968,646
                          
                          
                          $
                          197,402





14


NOTE
5 – RELATED PARTY TRANSACTIONS





Advances fromstockholder





Advances
from stockholder at June 30, 2009 and December 31, 2008 consisted of the
following:





June
      30, 2009
                          
                          
                          December
      31, 2008Advances
      from chairman, chief executive officer and stockholder
                          
                          $
                          220,975
                          
                          
                          $
                          236,595$
                          220,975
                          
                          
                          $
                          236,595





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





NOTE
6 – STOCKHOLDERS’ EQUITY





Sale of common
stock





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 forth 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.





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).




On May 7,
2009 the Company issued 7,000 shares of its common stock valued at $10,500 to an
accredited investor in connection with the cancellation of a contract for
investor relations services in a transaction exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act.




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.





15


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 interim period ended June 30, 2009, the Company did
not record any stock-based compensation for shares vested.





The table
below summarizes the Company’s stock option activity for the interim period
ended June 30, 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,
      June 30, 2009
                                                    
                                                    
                                                    2,000,000
                                                    
                                                    
                                                    $
                                                    5.00
                                                    
                                                    
                                                    $
                                                    5.00
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    $
                                                    -Vested
      and exercisable, June 30, 2009
                                                    
                                                    
                                                    2,000,000
                                                    
                                                    
                                                    $
                                                    5.00
                                                    
                                                    
                                                    $
                                                    5.00
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    $
                                                    -Unvested,
      June 30, 2009
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    $
                                                    5.00
                                                    
                                                    
                                                    $
                                                    5.00
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    $
                                                    -





* - Less
than $1.00





The
following table summarizes information concerning outstanding and exercisable
stock options as of June 30, 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





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.





16


On
January 30, 2009, the Company issued 5,000 shares of its common stock for cash
at $5.00 per share and received cash payment of $25,000 in connection with the
exercise of the warrant for 5,000 shares with an exercise price of $5.00 per
share by one investor and warrants holder on February 2, 2009.





The table
below summarizes the Company’s warrants activity for the three months ended June
30, 2009:







Number of
      Warrant Shares
                                              
                                              
                                              Exercise Price Range
                                                Per Share
                                              
                                              
                                              Weighted Average
      Exercise Price
                                              
                                              Fair
      Value at Date
                                                of
      Issuance
                                              
                                              AggregateIntrinsic
      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,
      June 30, 2009
                                              
                                              
                                              2,723,913
                                              
                                              
                                              $
                                              5.00
                                              
                                              
                                              $
                                              5.00
                                              
                                              $
                                              5,083,639
                                              
                                              
                                              $
                                              -Earned
      and exercisable, June 30, 2009
                                              
                                              
                                              2,723,913
                                              
                                              
                                              $
                                              5.00
                                              
                                              
                                              $
                                              5.00
                                              
                                              $
                                              5,083,639
                                              
                                              
                                              $
                                              -Unvested,
      June 30, 2009
                                              
                                              
                                              -
                                              
                                              
                                              $
                                              5.00
                                              
                                              
                                              $
                                              5.00
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -





The
following table summarizes information concerning outstanding and exercisable
warrants as of June 30,
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





NOTE
7 – CONCENTRATIONS AND CREDIT RISK





Customers and Credit
Concentrations





Customer
concentrations for the interim period ended June 30, 2009 and 2008 and credit
concentrations at June 30, 2009 and December 31, 2008 are as
follows:





Net
      Sales
                                  for
      the Interim Period Ended
                                
                                
                                Accounts
      receivable
                                  AtJune
      30, 2009
                                
                                
                                June
      30, 2008
                                
                                
                                June
      30, 2009
                                
                                
                                December
      31, 2008Customer
      #206038 Yuanhai
                                
                                12.7
                                %
                                
                                
                                
                                %
                                
                                
                                -
                                %
                                
                                
                                -
                                %Customer
      #206010 LianYunGang Jiaxin
                                
                                -
                                %
                                
                                
                                
                                %
                                
                                
                                -
                                %
                                
                                
                                50.9
                                %Customer
      #122015 ZheJiang GuXiong
                                
                                -
                                %
                                
                                
                                
                                %
                                
                                
                                -
                                %
                                
                                
                                21.9
                                %Customer
      #206039 Longfengshan
                                
                                21.2
                                %
                                
                                
                                
                                %
                                
                                
                                -
                                %
                                
                                
                                -
                                %Customer
      #122007 QingDao HuaQing
                                
                                -
                                %
                                
                                
                                
                                %
                                
                                
                                88.3
                                %
                                
                                
                                23.8
                                %Customer
      #206030 Tanjin Zhiyi
                                
                                -
                                %
                                
                                
                                96.9
                                %
                                
                                
                                -
                                %
                                
                                
                                -
                                %Customer
      #206036 Hanzhong Yinlong
                                
                                -
                                %
                                
                                
                                
                                %
                                
                                
                                11.0
                                %
                                
                                
                                -
                                %Customer
      #206013 TianJin tianxin
                                
                                34.8
                                %
                                
                                
                                
                                %
                                
                                
                                -
                                %
                                
                                
                                -
                                %68.7
                                %
                                
                                
                                96.9
                                %
                                
                                
                                99.3
                                %
                                
                                
                                96.6
                                %





17


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 interim period ended June 30, 2009 and 2008 and
accounts payable concentration at June 30, 2009 and December 31, 2008 and are as
follows:





Net
      Purchases
                              for
      the Interim Period Ended
                            
                            
                            Accounts
      Payable
                              atJune
      30, 2009
                            
                            
                            June
      30, 2008
                            
                            
                            June
      30, 2009
                            
                            
                            December
      31, 2008Vendor
      #126010 ZhongJi NingBo
                            
                            -
                            %
                            
                            
                            
                            %
                            
                            
                            34.5
                            %
                            
                            
                            59.3
                            %Vendor
      #126011 TianJinxinglei
                            
                            -
                            %
                            
                            
                            
                            %
                            
                            
                            20.4
                            %
                            
                            
                            -
                            %Vendor
      #206010 Jiaxin
                            
                            15.7
                            %
                            
                            
                            
                            %
                            
                            
                            -
                            %
                            
                            
                            -
                            %Vendor
      #204006 BestonHoldings
                            
                            -
                            %
                            
                            
                            
                            %
                            
                            
                            18.7
                            %
                            
                            
                            32.2
                            %Vendor
      #204014 Mineracao
                            
                            32.6
                            %
                            
                            
                            
                            %
                            
                            
                            25.4
                            %
                            
                            
                            -
                            %Vendor
      #204019 Sipex
                            
                            -
                            %
                            
                            
                            85.0
                            %
                            
                            
                            -
                            %
                            
                            
                            -
                            %Vendor
      #126024 SMS GROUP
                            
                            12.2
                            %
                            
                            
                            
                            %
                            
                            
                            -
                            %
                            
                            
                            -
                            %Vendor
      #126025 Qingdaoxinxing
                            
                            24.2
                            %
                            
                            
                            
                            %
                            
                            
                            -
                            %
                            
                            
                            -
                            %Vendor
      #126023 Nanfangjiancai
                            
                            13.7
                            %
                            
                            
                            
                            %
                            
                            
                            -
                            %
                            
                            
                            -
                            %98.4
                            %
                            
                            
                            85.0
                            %
                            
                            
                            99.0
                            %
                            
                            
                            91.5
                            %





Credit
Risk





Financial
instruments that potentially subject the Company to significant concentration of
credit risk consist primarily of cash and cash equivalents.  As of June 30,
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 June 30, 2009 to reduce such exposure.  The Company’s
previous forward foreign currency exchange contracts expired on August 2, 2008
and the estimated loss in fair value on foreign currency hedges outstanding as
of June 30, 2008 was $25,009.





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.





18


As of June 30, 2009, the Company had
no Statutory Surplus Reserve and the Statutory Common Welfare Fund
established and segregated in retained earnings.





NOTE
9 – SUBSEQUENT EVENTS





The
Company has evaluated all events that occurred after the balance sheet date but
before financial statements were available to be issued to determine if they
must be reported.  The Management of the Company determined that there
were certain reportable subsequent events to be disclosed as
follows:





On August
11, 2009, Armet obtained a RMB 90 million three-year line of credit from a
financial institution guaranteed by the Company’s chairman and  CEO,
none of which have be drawn as of August 14, 2009; the interest is a floating
rate not to exceed 5%.





19





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 June 30, is our second
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, 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.





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.  Further on August 1, 2009 we
received approval for a $13.2 million loan from the Bank of China for the
purpose of financing the construction of this recycling
facility.








Our Performance





For the
three and six months ended June 30, 2009, our net revenues increased
approximately 73% and 22%, respectively, over the comparable periods in 2008.
Our gross profit margin increased for the three and six months ended June 30,
2009 to approximately 18% and 17%, respectively compared to 6.7% and 9.2% during
the three and six months ended June 30, 2008, respectively. Our performance
during this quarter is not sustainable due to the nature of one transaction with
a gross profit margin of 43% as discussed later in this section. Our net income
increased approximately 82% and 19% for the three and six months ended June 30,
2009, respectively over the comparable periods in 2008. Our total assets
increased 32% in comparison to December 31, 2008, which was mainly due to the
construction of our scrap metal recycling facility.





Our
Outlook





Our
performance for the quarter was an improvement in comparison to our first
quarter of 2009 and was mainly due to a one time sales transaction during the
current quarter. We cannot guarantee that this increase to be sustainable in the
future. We have witnessed a decrease in our net revenues prior to this quarter
due to the current economic slowdown; therefore, we continue our efforts to
improve our performance and operate more efficiently to be in the position to
capitalize when a global economic recovery occurs.





20


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. The Chinese government has been very supportive and a
series of economically beneficial policies have recently been
implemented.  Based on these newly implemented policies we are
beginning to see some signs of economic recovery. 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.  Various types of minerals have witnessed a significant
rebound in pricing, such as iron ore which has risen by approximately 60%,
chromium ore which has risen by approximately 50%, and nickel ore has also
benefitted by the recent increase in mineral prices. We have also recognized a
rapid increase in trading volumes and the trading business has been more active
as the year has gone on.  In our other business segment, renewable
resources, we have witnessed a relatively large increase in iron ore prices as
we have seen iron ore prices at the beginning of 2009 at approximately $280USD
per ton, and during the quarter ending June 30, 2009 reach as high as $411USD
per ton. Our company anticipates that we will being recycling scrap in September
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.





RESULTS
OF OPERATIONS




The table
below summarizes the consolidated operating results for the three and six months
ended June 30, 2009 and 2008.


For
      the Three Months
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            For
      the Six MonthsEnded
      June 30,
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            Ended
      June 30,2009
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            2008
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            2009
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            2008Revenues
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            22,537,814
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            13,014,476
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            27,895,672
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            $
                                                                                                                                                            22,789,813Cost
      of revenues
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            18,415,683
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            82
                                                                                                                                                            %
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            12,137,404
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            93
                                                                                                                                                            %
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            23,262,918
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            83
                                                                                                                                                            %
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            20,683,123
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            91
                                                                                                                                                            %Gross
      profit
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            4,122,131
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            18
                                                                                                                                                            %
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            877,072
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            7
                                                                                                                                                            %
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            4,632,754
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            17
                                                                                                                                                            %
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            2,106,690
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            9
                                                                                                                                                            %Total
      operating expenses
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            671,063
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            3
                                                                                                                                                            %
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            145,432
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            1
                                                                                                                                                            %
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            1,004,997
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            4
                                                                                                                                                            %
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            372,954
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            2
                                                                                                                                                            %Operating
      (loss) income
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            3,451,068
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            15
                                                                                                                                                            %
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            731,640
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            6
                                                                                                                                                            %
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            3,627,757
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            13
                                                                                                                                                            %
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            1,733,736
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            
                                                                                                                                                            8
                                                                                                                                                            %





Net
Revenues





Net
revenues for the three and six months ended June 30, 2009, were $22.5 million
and $27.1 million, respectively, this represents an increase of $9.5 million and
$5.1 million over the three and six months ended June 30, 2008, respectively.
Net revenues for the quarter increased due to a one time transaction that was in
the amount of approximately $10.6 million.  Excluding this
transaction, our net revenues would have decreased for the three and six months
periods in comparison to the prior year.





Cost
of Revenues





Cost of
revenues for the three and six months ended June 30, 2009 were $18.4 million and
$23.3 million, respectively, compared to $12.1 million and $20.7 million during
the three and six months ended June 30, 2008, respectively. Our cost of revenues
as a percentage of revenues during the three and six months ended June 30, 2009
were approximately 82% and 83%, respectively, compared to 93.3% and 90.8% for
the comparable periods in 2008. Our gross profit margin increased for the three
and six months ended June 30, 2009 by 11% and 8%, respectively over the
comparable periods in 2008. The gross profit margin increase during the current
quarter may not be sustainable due to the nature of one transaction with a gross
profit margin of 43%.





Total
Operating Expenses





Operating
expenses for the three and six months ended June 30, 2009 were $671,063 and
$1,004,997, respectively, compared to $145,432 and $372,954 for the three and
six months ended June 30, 2008, respectively. Operating expenses as a percentage
of revenues were 3.1% and 3.7% for the three and six months ended June 30, 2009,
respectively compared to 1.1% and 1.6% for the three and six months ended June
30, 2008, respectively. The increase in our operating expense was primarily
attributable to higher selling expenses and an increase in our general and
administration costs due to increased sales. Our selling expenses increased by
$364,204 and $380,883 over the prior three and six months, respectively. Our
general and administrative cost increased by $161,427 and $251,160 over the
prior three and six months, respectively.




21


Other Income
(expense)




Total
other expense for the three and six months ended June 30, 2009 were $81,724 and
$129,987, respectively. During the three and six months ended June 30, 2008, we
had other income of $1,245,218 and $1,239,388, respectively. During the three
months ended June 30, 2008, we received a one time gain of $1.2 million related
to a contract termination.





Interest
expense was $119,120 and $137,156 for the three and six months ended June 30,
2009, respectively, compared to $97,336 for the three and six months ended June
30, 2008. Other expenses amounted to $66,945 and $97,172 for the three and six
months ended June 30, 2009, respectively. These expenses were partially offset
by interest income of $45,018 and income from import and export agency of
$47,244 for the three months ended June 30, 2009. During the three and six
months ended June 30, 2008, we recorded other income of $115,612 and $122,712,
respectively.





Income tax benefit
(expense)





Income
tax benefit for the three months ended June 30, 2009 was $716 resulting in a
year to date income tax expense of $74, compared to our income tax expense of
$127,312 and $385,965 for the three and six months ended June 30, 2008,
respectively. 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.





Net
income (loss)





For the
three and six months ended June 30, 2009 our net income amounted to $3,370,060
and $3,497,696, respectively, representing an increase of approximately 68% and
19% over the comparable periods in 2008. Excluding the one time sales
transaction discussed above, our decrease in 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 June 30, 2009 and December 31, 2008 we had cash and cash equivalents of
$801,120 and $3,253,533, respectively.  At June 30, 2009 our working
capital was $6.2 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 have
invested approximately $9.0 million for construction and deposits on
equipments for our scrap metal recycling facility. The source of funds for this
project is the use of all net proceeds from our 2008 offering and  the
$13.2 million loan from the Bank of China to fund the construction of our
planned scrap metal recycling facility which began during the first quarter of
2009. We used the balance of the net offering proceeds for working capital to
expand our metal ore distribution business. We will need, however, 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 2009, as needed, will have a material adverse effect on our
growth plans.







22
 
 The
following table provides certain selected balance sheet comparisons as of June
30, 2009 and December 31, 2008.


2009
                        
                        
                        2008
                        
                        
                        Increase
      / (Decrease)
                        
                        
                        %Cash
                        
                        $
                        801,120
                        
                        
                        $
                        3,253,533
                        
                        
                        $
                        (2,452,413
                        )
                        
                        
                        -75.4
                        %Pledged
      deposits
                        
                        
                        1,723,980
                        
                        
                        
                        -
                        
                        
                        nm
                        
                        
                        nmAccounts
      receivable, net
                        
                        
                        15,568,549
                        
                        
                        
                        16,722,307
                        
                        
                        
                        (1,153,758
                        )
                        
                        
                        -6.9
                        %Inventories,
      net
                        
                        
                        1,968,646
                        
                        
                        
                        197,402
                        
                        
                        
                        1,771,244
                        
                        
                        
                        897.3
                        %Advance
      on purchases
                        
                        
                        2,563,809
                        
                        
                        
                        3,680,872
                        
                        
                        
                        (1,117,063
                        )
                        
                        
                        -30.3
                        %Deposits
      on future construction
                        
                        
                        2,210,493
                        
                        
                        
                        0
                        
                        
                        
                        2,210,493
                        
                        
                        nmTotal
      current assets
                        
                        
                        25,520,837
                        
                        
                        
                        24,233,566
                        
                        
                        
                        1,287,271
                        
                        
                        
                        5.3
                        %Property
      and equipment, net
                        
                        
                        10,510,443
                        
                        
                        
                        2,377,816
                        
                        
                        
                        8,132,627
                        
                        
                        
                        342.0
                        %Land
      use rights, net
                        
                        
                        2,102,691
                        
                        
                        
                        2,208,902
                        
                        
                        
                        (106,211
                        )
                        
                        
                        -4.8
                        %Total
      assets
                        
                        
                        38,133,971
                        
                        
                        
                        28,820,284
                        
                        
                        
                        9,313,687
                        
                        
                        
                        32.3
                        %Loans
      Payable
                        
                        
                        -
                        
                        
                        
                        2,914,345
                        
                        
                        nm
                        
                        
                        nmAccounts
      payable
                        
                        
                        15,604,831
                        
                        
                        
                        6,694,534
                        
                        
                        
                        8,910,297
                        
                        
                        
                        133.1
                        %Customer
      deposits
                        
                        
                        2,306,681
                        
                        
                        
                        2,613,653
                        
                        
                        
                        (306,972
                        )
                        
                        
                        -11.7
                        %Total
      current liabilities
                        
                        
                        19,531,034
                        
                        
                        
                        13,531,338
                        
                        
                        
                        5,999,696
                        
                        
                        
                        44.3
                        %Total
      liabilities
                        
                        
                        19,531,034
                        
                        
                        
                        13,531,338
                        
                        
                        
                        5,999,696
                        
                        
                        
                        44.3
                        %





A majority of our cash reserves,
$786,549 or approximately 98% at June 30, 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 June
30, 2009 has been translated based on the exchange rate as of June 30,
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 June 30, 2009 increased $1.3 million, or approximately 5.3%,
from December 31, 2008; this reflects increases in current asset items including
pledged deposits, inventories, prepayments and other current assets. These
increases were partially offset by a decrease in cash, accounts receivable and
advance on purchases.





Our total
and current liabilities increased by approximately $6.0 million, or 44%, at June
30, 2009 from December 31, 2008; this reflects an increase in accounts payable
and accrued expenses which was partially offset by a decrease in loans payable,
customer deposits, and taxes payable.





Our
accounts receivable decreased to $15.6 million compared to $16.7 million as of
our prior year end. This 7% decrease is mainly due to efficient collection
efforts.





Inventories
increased $975,288 at June 30, 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 $304,788 as of June 30, 2009 over
our prior year end these were due to purchases of supplies and materials for
operations.





Advances
on purchases decreased $1.1 million, or approximately 30%, and consisted of
prepayments to vendors for merchandise, security and deposits. These
advances on purchases is customary in our business and helps us secure raw
materials at lower than prevailing market prices, thereby increasing our gross
profit margins.




Our
accounts payable increased $8.9 million or approximately 133% over the prior
year end, and accrued expenses increased $0.8 million over the prior year end.
These increases were partially offset by the decrease in customer deposits and
taxes payable of approximately 12% and 54%, respectively. Additionally, we had
no loans payable as of June 30, 2009 as compared to the balance of $2,914,345 as
of December 31, 2008.





23


Statement
of Cash Flows





As of
June 30, 2009, our cash totaled $801,120 and consisted of $17.1 million provided
by operating activities, $12.0 million used in investing activities, and $7.5
million used in financing activities. Cash at June 30, 2008 of $442,360
consisted of $555,914 used in operating activities, $171,740 provided by
investing activities, and $567,933 provided by financing
activities.





Cash
(Used in) Provided by Operating Activities





For the
six months ended June 30, 2009 cash provided by operations of $17.1 million was
mainly comprised of our net income of $3.5 million, an increase in accounts
payable of $8.9 million, a decrease in inventories of $3.2 million, and a
decrease on advanced on purchases of $1.1 million. These were partially offset
by a decrease in taxes payable of $555,156, an increase on prepayments and other
assets of $318,882, and a decrease in customer deposits of
$298,422.





For the six months ended June 30, 2008
cash used in operations of $555,914 included an increase in inventories of
approximately $6.4 million, prepayments of other assets of $463,238, and an
increase in advances on purchases of $2.2 million. These decreases in cash funds
were partially offset by an increase in accounts payables of approximately $3.3
million, deposits from customers of $1.1 million, decrease in accounts
receivables of approximately $772,000, and an increase in net income of $2.6
million compared to the six months ended June 30, 2007.





Cash
used in Investing Activities





For the
six months ended June 30, 2009 cash used in investing activities of $12.0
million was due to purchases of property and equipments and construction
projects during the period of $8.2 million, deposits for future construction of
$2.2 million, and payments made towards pledged deposits of $1.7
million.





For the six months ended June 30, 2008
cash provided by investing activities of $171,740 was mainly due to proceeds
from released pledged deposits of $164,572, and cash received from reverse
acquisition of $11,506, partially offset by purchases of property and equipments
of $4,338.





Cash
provided by Financing Activities





For the
six months ended June 30, 2009 cash used in financing activities of $7.5
million, which was mainly due to repayments of loan payable of $2.9 million, and
payments to related parties of $5.1 million, these were partially offset by
proceeds from the exercise of warrants of $435,000, and proceeds from forward
foreign exchange contracts of $103,071.





For the six months ended June 30, 2008
cash provided by financing activities of $567,933 was due to proceeds from loans
of approximately $1,487,265, offset by payments of $919,332 to decrease due to
Mr. Kexan Yao, our Chief Executive Officer.





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.




24
 
  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





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





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





Recently issued
      accounting pronouncements





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





·
            Of
      management’s responsibility for establishing and maintaining adequate
      internal control over its financial
reporting;





·
            Of
      management’s assessment of the effectiveness of its internal control over
      financial reporting as of year end;
and





·
            Of
      the framework used by management to evaluate the effectiveness of the
      Company’s internal control over financial
  reporting.





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





In May
2009, FASB issued FASB Statement No. 165 "Subsequent events" ("SFAS
No. 165") to be effective for the interim or annual financial periods ending
after June15, 2009. SFAS No. 165 The objective of this Statement is to establish
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. In particular, this Statement sets forth: 1. The period
after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements. 2. The circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements. 3. The disclosures that an entity should make
about events or transactions that occurred after the balance sheet date. The
effect of adoption of SFAS No. 165 on the Company's financial position and
results of operations is not expected to be material.





25


In June
2009, the FASB approved the "FASB Accounting Standards Codification" (the
'Codification") as the single source of authoritative nongovernmental U.S. GAAP
to be launched on July 1, 2009. The Codification does not change current U.S.
GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by
providing all the authoritative literature related to a particular topic in one
place. All existing accounting standard documents will be superseded and all
other accounting literature not included in the Codification will be considered
non-authoritative. The Codification is effective for interim and annual periods
ending after September 15, 2009. The Company does not expect the adoption to
have a material impact on its consolidated financial position, results of
operations or cash flows.





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. 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 1A. “Risk Factors” in our Annual
Report on Form 10-K for the year ended December 31, 2008:





26




·
              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.





Item 3.
            Quantitative
      and Qualitative Disclosures About Market
Risk.




Not
applicable for a smaller reporting company.




27


Item
      4T.
            Controls
      and Procedures.





Evaluation
of Disclosure Controls and Procedures





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





Changes
in Internal Control over Financial Reporting




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





28


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 1A.
“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.




On May 7,
2009 the Company issued 7,000 shares of its common stock valued at $10,500 to an
accredited investor in connection with the cancellation of a contract for
investor relations services in a transaction exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act.





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 Chief Financial Officer
      *32
              Section
      1350 Certification of Chief Executive Officer and the Chief Financial
      Officer *





* Filed
herewith




29




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:
      August 14, 2009
            By:
            /s/ Kexuan
      YaoKexuan
      YaoCEO
      and Chairman(Principal
      executive officer)








Date:
      August 14, 2009
            By:
            /s/ Fengtao
      WenFengtao
      WenChief
      Financial Officer(Principal
      financial and accounting officer)










30