----

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| UNITED STATES                      |
|------------------------------------|
| SECURITIES AND EXCHANGE COMMISSION |
| Washington, D.C. 20549             |
|                               |
| Form 10-Q                          |

| [√] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|-----------|-----------------------------------------------------------------------------------------|

|           |                                                                               |
|----------------|------------------------------------------------------------------------------------|
| [  ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |

|                                                   |
|--------------------------------------------------------|
| CHINA DIRECT INDUSTRIES, INC.                          |
| (Exact name of registrant as specified in its charter) |

|                                                                               |                                 |
|------------------------------------------------------------------------------------|--------------------------------------|
| Florida                                                                            | 13-3876100                           |
| (State or other jurisdiction of incorporation or organization)                     | (I.R.S. Employer Identification No.) |
|                                                                               |                                 |
| 431 Fairway Drive, Suite 200, Deerfield Beach, Florida                             | 33441                                |
| (Address of principal executive offices)                                           | (Zip Code)                           |
|                                                                               |                                 |
| 954-363-7333                                                                       |
| (Registrant’s telephone number, including area code)                         |
|                                                                               |                                 |
| Not Applicable                                                                     |
| (Former name, former address and former fiscal year, if changed since last report) |

|                                        |   |                      |      |
|---------------------------------------------|--------|---------------------------|-----------|
| Large accelerated filer                     | [ ]    | Accelerated filer         | [ ]       |
|                                        |   |                      |      |
| Non-accelerated filer                       | [ ]    | Smaller reporting company | [√] |
| (Do not check if smaller reporting company) |   |                      |      |

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| PART I. - FINANCIAL INFORMATION | Page No.   |
|---------------------------------|------------|
|                            | Item 1.    | Financial Statements. | 1 |
|                            | Item 2.    | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 25 |
|                            | Item 3.    | Quantitative and Qualitative Disclosures About Market Risk. | 41 |
|                            | Item 4.    | Controls and Procedures. | 41 |
| PART II - OTHER INFORMATION     |       |
|                            | Item 1.    | Legal Proceedings. | 43 |
|                            | Item 1A.   | Risk Factors. | 43 |
|                            | Item 2.    | Unregistered Sales of Equity Securities and Use of Proceeds. | 43 |
|                            | Item 3.    | Defaults Upon Senior Securities. | 43 |
|                            | Item 4.    | (Removed and Reserved). | 43 |
|                            | Item 5.    | Other Information. | 43 |
|                            | Item 6.    | Exhibits. | 43 |
|                            | Signatures |   | 47 |

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|   | • |   | “China Direct Industries”, “we”, “us” or "our” refers to China Direct Industries, Inc., a Florida corporation, and our subsidiaries; |
|--------|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | “CDI China”, refers to CDI China, Inc., a Florida corporation, and a wholly owned subsidiary of China Direct Industries; and                                       |
|   | • |   | “PRC” refers to the People’s Republic of China.                                                                                                              |

|   | • |   | “Chang Magnesium", refers to Taiyuan Changxin Magnesium Co., Ltd., a company organized under the laws of the PRC and a 51% owned subsidiary of CDI China;                                                                                                        |
|--------|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | “Chang Trading”, refers to Taiyuan Changxin YiWei Trading Co., Ltd., a company organized under the laws of the PRC and a wholly owned subsidiary of Chang Magnesium;                                                                                       |
|   | • |   | “Excel Rise”, refers to Excel Rise Technology Co., Ltd., a Brunei company and a wholly owned subsidiary of Chang Magnesium;                                                                                                                                |
|   | • |   | “CDI Magnesium”, refers to CDI Magnesium Co., Ltd., a Brunei company and a 51% owned subsidiary of Capital One Resources;                                                                                                                                  |
|   | • |   | “Asia Magnesium”, refers to Asia Magnesium Corporation Limited, a company organized under the laws of Hong Kong and a wholly owned subsidiary of Capital One Resource;                                                                                     |
|   | • |   | “Golden Magnesium" refers to Shanxi Gu County Golden Magnesium Co., Ltd., a company organized under the laws of the PRC and a 52% owned subsidiary of Asia Magnesium;                                                                                            |
|   | • |   | “Pan Asia Magnesium”, refers to Pan Asia Magnesium Co., Ltd., a company organized under the laws of the PRC and a 51% owned subsidiary of CDI China;                                                                                                       |
|   | • |   | “Baotou Changxin Magnesium”, refers to Baotou Changxin Magnesium Co., Ltd., a company organized under the laws of the PRC, a 51% owned subsidiary of CDI China, and a 39% owned subsidiary of Excel Rise. Effectively China Direct holds a 70.9% interest; |
|   | • |   | “IMG” or “International Magnesium Group”, refers to International Magnesium Group, Inc., a Florida corporation and a 100% owned subsidiary of China Direct Industries; and                                                                     |
|   | • |   | “IMTC” or “International Magnesium Trading”, refers to International Magnesium Trading Corp., a company organized under the laws of Brunei and a 100% owned subsidiary of IMG.                                                                 |
|   | • |   | “Ruiming Magnesium”, refers to Taiyuan Ruiming Yiwei Magnesium Co., Ltd., a company organized under the laws of the PRC and an 80% majority owned subsidiary of CDI China.                                                                                 |

|   | • |   | “Lang Chemical”, refers to Shanghai Lang Chemical Co., Ltd., a company organized under the laws of the PRC and a 51% owned subsidiary of CDI China;                              |
|--------|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | “CDI Jingkun Zinc”, refers to CDI Jingkun Zinc Industry Co., Ltd., a company organized under the laws of the PRC and a 95% owned subsidiary of CDI Shanghai Management;          |
|   | • |   | “CDI Jixiang Metal”, refers to CDI Jixiang Metal Co., Ltd., a company organized under the laws of the PRC and a wholly owned subsidiary of CDI China;                            |
|   | • |   | “CDI Metal Recycling”, refers to Shanghai CDI Metal Recycling Co., Ltd., a company organized under the laws of the PRC and an 83% owned subsidiary of CDI Shanghai Management;   |
|   | • |   | “CDI Beijing”, refers to CDI (Beijing) International Trading Co., Ltd., a company organized under the laws of the PRC and a 51% owned subsidiary of CDI Shanghai Management; and |
|   | • |   | “CDII Trading”, refers to CDII Trading, Inc., a Florida corporation and a 100% owned subsidiary of China Direct Industries.                                                      |

|   | • |   | “China Direct Investments”, refers to China Direct Investments, Inc., a Florida corporation, and a wholly owned subsidiary of China Direct;                           |
|--------|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | “CDI Shanghai Management”, refers to CDI Shanghai Management Co., Ltd., a company organized under the laws of the PRC and a wholly owned subsidiary of CDI China; and |
|   | • |   | “Capital One Resource”, refers to Capital One Resource Co., Ltd., a Brunei company, and a wholly owned subsidiary of CDI Shanghai Management.                         |

----

| Item 1. | Financial Statements. |
|---------|-----------------------|

|                                                                                                                                                                                                     |   | March 31, 2011 |        |   | September 30, 2010 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|-------------|--------|--------------------|--------|
| ASSETS                                                                                                                                                                                                   |   | (Unaudited)    |        |   |               |   |
| Current Assets:                                                                                                                                                                                          |   |           |        |   |               |   |
|     Cash and cash equivalents                                                                                                                                                        |   | $              | 9,434,042   |   |               | $      | 10,110,818 |   |
|     Marketable securities available for sale                                                                                                                                         |   |           | 12,806,973  |   |               |   | 2,221,290 |   |
|     Marketable securities available for sale-related parties                                                                                                                         |   |           | 334,521     |   |               |   | 672,735 |   |
|     Accounts receivables, net of allowance of $289,597 and $214,701, respectively                                                                                                    |   |           | 20,042,890  |   |               |   | 15,235,983 |   |
|     Accounts, loans and other receivables, and prepaid expenses - related parties                                                                                                    |   |           | 8,229,764   |   |               |   | 7,680,222 |   |
|     Inventories, net                                                                                                                                                                 |   |           | 9,628,413   |   |               |   | 6,372,925 |   |
|     Prepaid expenses and other current assets, net                                                                                                                                   |   |           | 11,213,182  |   |               |   | 8,552,369 |   |
|     Current assets of discontinued operations                                                                                                                                        |   |           | 51,345      |   |               |   | 51,345 |   |
|     Restricted cash, current                                                                                                                                                         |   |           | 427,531     |   |               |   | 5,091,023 |   |
|        Total current assets                                                                                                                                           |   |           | 72,168,661  |   |               |   | 55,988,710 |   |
|     Property, plant and equipment, net                                                                                                                                               |   |           | 37,141,282  |   |               |   | 37,512,261 |   |
|     Intangible assets                                                                                                                                                                |   |           | 179,175     |   |               |   | 194,541 |   |
|     Property use rights, net                                                                                                                                                         |   |           | 2,242,187   |   |               |   | 1,970,585 |   |
|     Long-lived assets of discontinued operations                                                                                                                                     |   |           | 196,078     |   |               |   | 196,078 |   |
|        Total assets                                                                                                                                                   |   | $              | 111,927,383 |   |               | $      | 95,862,175 |   |
|                                                                                                                                                                                                     |   |           |        |   |               |   |   |   |
| LIABILITIES AND EQUITY                                                                                                                                                                                   |   |           |        |   |               |   |   |   |
| Current Liabilities:                                                                                                                                                                                     |   |           |        |   |               |   |   |   |
|     Loans payable-short term                                                                                                                                                         |   | $              | 2,423,635   |   |               | $      | 5,613,532 |   |
|     Accounts payable and accrued expenses                                                                                                                                            |   |           | 9,976,539   |   |               |   | 11,250,879 |   |
|     Accounts and other payables-related parties                                                                                                                                      |   |           | 8,034,734   |   |               |   | 3,973,704 |   |
|     Advances from customers and deferred revenue                                                                                                                                     |   |           | 2,205,131   |   |               |   | 2,797,315 |   |
|     Other liabilities                                                                                                                                                                |   |           | 3,073,997   |   |               |   | 1,073,926 |   |
|     Taxes payable                                                                                                                                                                    |   |           | 1,232,300   |   |               |   | 877,840 |   |
|     Current liabilities of discontinued operations                                                                                                                                   |   |           | 49,538      |   |               |   | 80,000 |   |
|        Total liabilities                                                                                                                                              |   |           | 26,995,874  |   |               |   | 25,667,196 |   |
|                                                                                                                                                                                                     |   |           |        |   |               |   |   |   |
| CHINA DIRECT INDUSTRIES INC. EQUITY                                                                                                                                                                      |   |           |        |   |               |   |   |   |
|     Series A Convertible Preferred Stock: $.0001 par value, stated value $1,000 per share; 10,000,000 authorized, 1,006 shares outstanding at September 30, 2010 and March 31, 2011. |   |           | 1,006,250   |   |               |   | 1,006,250 |   |
|     Common Stock: $.0001 par value;  35,267,096 and 31,657,244 shares outstanding, respectively                                                                       |   |           | 3,527       |   |               |   | 3,166 |   |
|     Additional paid-in capital                                                                                                                                                       |   |           | 69,749,929  |   |               |   | 65,032,845 |   |
|     Accumulated other comprehensive income                                                                                                                                           |   |           | 7,100,609   |   |               |   | 1,795,387 |   |
|     Accumulated deficit                                                                                                                                                              |   |           | (14,882,056 | )      |               |   | (17,643,217 | ) |
|        Total China Direct Industries, Inc. stockholders' equity                                                                                                       |   |           | 62,978,259  |   |               |   | 50,194,431 |   |
|     Noncontrolling interests                                                                                                                                                         |   |           | 21,953,250  |   |               |   | 20,000,548 |   |
|        Total equity                                                                                                                                                   |   |           | 84,931,509  |   |               |   | 70,194,979 |   |
|        Total liabilities and equity                                                                                                                                   |   | $              | 111,927,383 |   |               | $      | 95,862,175 |   |

----

|                                                                                                         |   | For the three months ended March 31, |       |   | For the six months ended March 31, |   |
|--------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|------------|--------|------------------------------------|--------|
|                                                                                                         |   | 2011                                 |       |   | 2010                               |   |   | 2011 |   |   | 2010 |   |
|                                                                                                         |   |                                 |       |   |                               |   |   |   |   |   |   |   |
| Revenues                                                                                                     |   | $                                    | 40,670,183 |   |                               | $      | 21,223,422 |   |   | $ | 86,433,072 |   |   | $ | 41,034,154 |   |
| Revenues-related parties                                                                                     |   |                                 | 1,597,830  |   |                               |   | 2,147,104 |   |   |   | 1,604,543 |   |   |   | 4,588,900 |   |
|      Total revenues                                                                 |   |                                 | 42,268,013 |   |                               |   | 23,370,526 |   |   |   | 88,037,615 |   |   |   | 45,623,054 |   |
| Cost of revenues                                                                                             |   |                                 | 39,042,825 |   |                               |   | 21,376,375 |   |   |   | 78,281,381 |   |   |   | 41,804,685 |   |
|      Gross profit                                                                   |   |                                 | 3,225,188  |   |                               |   | 1,994,151 |   |   |   | 9,756,234 |   |   |   | 3,818,369 |   |
|                                                                                                         |   |                                 |       |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Operating income (expenses):                                                                                 |   |                                 |       |   |                               |   |   |   |   |   |   |   |   |   |   |   |
|    Selling, general, and administrative                                                       |   |                                 | 3,212,630  |   |                               |   | 2,469,306 |   |   |   | 6,814,911 |   |   |   | 5,262,809 |   |
|    Other operating income-related party                                                       |   |                                 | (102,872   | )      |                               |   | - |   |   |   | (102,872 | ) |   |   | - |   |
|    Other operating expense (income)                                                           |   |                                 | 19,782     |   |                               |   | - |   |   |   | (355,198 | ) |   |   | - |   |
|        Total Operating income (expenses)                                  |   |                                 | 95,648     |   |                               |   | (475,155 | ) |   |   | 3,399,393 |   |   |   | (1,444,440 | ) |
| Other (expenses) income:                                                                                     |   |                                 |       |   |                               |   |   |   |   |   |   |   |   |   |   |   |
|    Other income (expense):                                                                    |   |                                 | 93,842     |   |                               |   | (53,920 | ) |   |   | 265,361 |   |   |   | 48,485 |   |
|    Interest (expense) income                                                                  |   |                                 | (59,297    | )      |                               |   | 4,614 |   |   |   | (67,044 | ) |   |   | 3,614 |   |
|    Realized (loss) income on investment securities available for sale                         |   |                                 | (261,557   | )      |                               |   | 2,066,497 |   |   |   | (379,969 | ) |   |   | 2,101,188 |   |
|        Total other (expenses) income                                      |   |                                 | (227,012   | )      |                               |   | 2,017,191 |   |   |   | (181,652 | ) |   |   | 2,153,287 |   |
|         (Loss) income from continuing operations before income taxes |   |                                 | (131,364   | )      |                               |   | 1,542,036 |   |   |   | 3,217,741 |   |   |   | 708,847 |   |
|    Income tax expense                                                                         |   |                                 | (140,925   | )      |                               |   | (15,206 | ) |   |   | (67,641 | ) |   |   | (54,924 | ) |
|        Net (loss) income                                                  |   |                                 | (272,289   | )      |                               |   | 1,526,830 |   |   |   | 3,150,100 |   |   |   | 653,923 |   |
|    Net loss attributable to noncontrolling interests-continuing operations                    |   |                                 | 278,664    |   |                               |   | 130,354 |   |   |   | 322,111 |   |   |   | 18,746 |   |
|       Net income attributable to China Direct Industries                       |   | $                                    | 6,375      |   |                               | $      | 1,657,184 |   |   | $ | 3,472,211 |   |   | $ | 672,669 |   |
|                                                                                                         |   |                                 |       |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Deduct dividends on Series A Preferred Stock:                                                                |   |                                 |       |   |                               |   |   |   |   |   |   |   |   |   |   |   |
|    Preferred stock dividend                                                                   |   |                                 | (20,130    | )      |                               |   | (20,125 | ) |   |   | (40,260 | ) |   |   | (60,308 | ) |
|    Deemed dividend - beneficial conversion feature                                            |   |                                 | -          |   |                               |   | - |   |   |   | (600,693 | ) |   |   | - |   |
|    Dividend - warrant valuation                                                               |   |                                 | -          |   |                               |   | - |   |   |   | (76,705 | ) |   |   | - |   |
|       Net income attributable to common stockholders                           |   | $                                    | (13,755    | )      |                               | $      | 1,637,059 |   |   | $ | 2,754,553 |   |   | $ | 612,361 |   |
|                                                                                                         |   |                                 |       |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Basic and diluted income per common share                                                                    |   |                                 |       |   |                               |   |   |   |   |   |   |   |   |   |   |   |
|    Basic                                                                                      |   | $                                    | (0.00      | )      |                               | $      | 0.06 |   |   | $ | 0.08 |   |   | $ | 0.02 |   |
|    Diluted                                                                                    |   | $                                    | (0.00      | )      |                               | $      | 0.06 |   |   | $ | 0.08 |   |   | $ | 0.02 |   |
|    Basic weighted average common shares outstanding                                           |   |                                 | 34,728,413 |   |                               |   | 28,594,256 |   |   |   | 33,257,657 |   |   |   | 27,981,440 |   |
|    Diluted weighted average common shares outstanding                                         |   |                                 | 34,728,413 |   |                               |   | 29,057,018 |   |   |   | 33,257,657 |   |   |   | 28,444,202 |   |

----

|                                                                                           |   | PreferredStockAmount |      |   | CommonStockAmount |   |   | Paid-inCapital |   |   | AccumulatedDeficit |   |   | AccumulatedOther ComprehensiveIncome |        |   | Total China DirectShareholders'Equity |   |      | NoncontrollingInterest |   |   | Total      |   |
|------------------------------------------------------------------------------------------------|--------|----------------------|-----------|--------|-------------------|--------|--------|----------------|--------|--------|--------------------|--------|--------|--------------------------------------|-------------|--------|---------------------------------------|--------|-----------|------------------------|--------|--------|------------|--------|
| Balance, September 30, 2010                                                                    |   | $                    | 1,006,250 |   |              | $      | 3,166  |           |   | $      | 65,032,845         |   |   | $                                    | (17,643,217 | )      |                                  | $      | 1,795,387 |                   |   | $      | 50,194,431 |   |   | $ | 20,000,548 |   |   | $ | 70,194,979 |   |
| Dividends paid to preferred stockholders                                                       |   |                 | -         |   |              |   | 2      |           |   |   | 40,258             |   |   |                                 | (40,260     | )      |                                  |   | -         |                   |   |   | -          |   |   |   | - |   |   |   | - |   |
| Public offering                                                                                |   |                 | -         |   |              |   | 222    |           |   |   | 3,771,280          |   |   |                                 | -           |   |                                  |   | -         |                   |   |   | 3,771,502  |   |   |   | - |   |   |   | 3,771,502 |   |
| Ruiming acquisition                                                                            |   |                 | -         |   |              |   | 77     |           |   |   | (77                | )      |   |                                 | -           |   |                                  |   | -         |                   |   |   | -          |   |   |   | - |   |   |   | - |   |
| Restricted stock award-employees                                                               |   |                 | -         |   |              |   | 45     |           |   |   | 213,389            |   |   |                                 | -           |   |                                  |   | -         |                   |   |   | 213,434    |   |   |   | - |   |   |   | 213,434 |   |
| Restricted stock award-consultants                                                             |   |                 | -         |   |              |   | 1      |           |   |   | 31,314             |   |   |                                 | -           |   |                                  |   | -         |                   |   |   | 31,315     |   |   |   | - |   |   |   | 31,315 |   |
| Restricted stock award-board of directors                                                      |   |                 | -         |   |              |   | 6      |           |   |   | 51,606             |   |   |                                 | -           |   |                                  |   | -         |                   |   |   | 51,612     |   |   |   | - |   |   |   | 51,612 |   |
| Stock option exercised                                                                         |   |                 | -         |   |              |   | 8      |           |   |   | 103,194            |   |   |                                 | -           |   |                                  |   | 1.00      |                   |   |   | 103,203    |   |   |   | - |   |   |   | 103,203 |   |
| Noncontrolling interest of acquired entities                                                   |   |                 | -         |   |              |   | -      |           |   |   | -                  |   |   |                                 | -           |   |                                  |   | -         |                   |   |   | -          |   |   |   | 2,274,812 |   |   |   | 2,274,814 |   |
| Comprehensive income (loss)                                                                    |   |                 |      |   |              |   |   |           |   |   |               |   |   |                                 |        |   |                                  |   |      |                   |   |   |       |   |   |   |   |   |   |   |   |   |
|     Net earnings                                                           |   |                 | -         |   |              |   | -      |           |   |   | -                  |   |   |                                 | 3,472,211   |   |                                  |   | -         |                   |   |   | 3,472,211  |   |   |   | (322,111 | ) |   | $ | 3,150,100 |   |
| Other comprehensive income                                                                     |   |                 |      |   |              |   |   |           |   |   |               |   |   |                                 |        |   |                                  |   |      |                   |   |   |       |   |   |   |   |   |   |   |   |   |
|     Changes in cumulative foreign currency translation                     |   |                 | -         |   |              |   | -      |           |   |   | -                  |   |   |                                 | -           |   |                                  |   | 978,955   |                   |   |   | 978,955    |   |   |   | - |   |   |   | 978,955 |   |
|     Unrealized gain on marketable  securities available for sale |   |                 | -         |   |              |   | -      |           |   |   | -                  |   |   |                                 | -           |   |                                  |   | 4,326,266 |                   |   |   | 4,326,266  |   |   |   | - |   |   |   | 4,326,266 |   |
|     Deemed dividends adjustment                                            |   |                 | -         |   |              |   | -      |           |   |   | -                  |   |   |                                 | (677,398    | )      |                                  |   | -         |                   |   |   | (677,398   | )      |   |   | - |   |   |   | (677,398 | ) |
|     Deemed dividends - warrants adjustment                                 |   |                 | -         |   |              |   | -      |           |   |   | 506,120            |   |   |                                 | -           |   |                                  |   |      |                   |   |   | 506,120    |   |   |   | - |   |   |   | 506,120 |   |
| Reclassification adjustment for welfare benefit included in other comprehensive income         |   |                 | -         |   |              |   | -      |           |   |   | -                  |   |   |                                 | 6,607       |   |                                  |   |      |                   |   |   | 6,607      |   |   |   | - |   |   |   | 6,607 |   |
|     Total other comprehensive income                                       |   |                 | -         |   |              |   | -      |           |   |   | -                  |   |   |                                 | -           |   |                                  |   | -         |                   |   |   | -          |   |   |   | - |   |   | $ | 5,140,550 |   |
|     Total comprehensive income                                             |   |                 | -         |   |              |   | -      |           |   |   | -                  |   |   |                                 | -           |   |                                  |   | -         |                   |   | $      | -          |   |   |   | - |   |   | $ | 8,290,650 |   |
| Balance, March 31, 2011                                                                        |   | $                    | 1,006,250 |   |              | $      | 3,527  |           |   | $      | 69,749,929         |   |   | $                                    | (14,882,056 | )      |                                  | $      | 7,100,609 |                   |   | $      | 62,978,259 |   |   | $ | 21,953,250 |   |   | $ | 84,931,509 |   |

----

|                                                                                 |   | For the six months ended March 31, |       |
|--------------------------------------------------------------------------------------|--------|------------------------------------|------------|
|                                                                                 |   | 2011                               |       |   | 2010 |   |
| OPERATING ACTIVITIES:                                                                |   |                               |       |   |   |   |
| Net income                                                                           |   | $                                  | 3,150,100  |   |   | $ | 653,924 |   |
| Adjustments to reconcile net income to net cash used in operating activities:        |   |                               |       |   |   |   |   |   |
|    Depreciation and amortization                                      |   |                               | 1,910,931  |   |   |   | 1,128,648 |   |
|    Allowance for bad debt                                             |   |                               | 137,492    |   |   |   | (528,911 | ) |
|    Stock based compensation                                           |   |                               | 368,248    |   |   |   | 517,472 |   |
|    Realized loss (gain) on investments in marketable securities       |   |                               | 379,969    |   |   |   | (2,101,208 | ) |
|    Gain on preferred stock revaluation                                |   |                               | (159,467   | ) |   |   | - |   |
|    Fair value of marketable securities received for services          |   |                               | (6,852,529 | ) |   |   | (1,737,248 | ) |
|    Fair value of marketable securities paid for services              |   |                               | 314,815    |   |   |   | 177,830 |   |
| Changes in operating assets and liabilities:                                         |   |                               |       |   |   |   |   |   |
|    Prepaid expenses and other assets                                  |   |                               | (2,645,447 | ) |   |   | (1,507,712 | ) |
|    Accounts receivable and other assets-related parties               |   |                               | (549,542   | ) |   |   | 1,647,046 |   |
|    Inventories                                                        |   |                               | (3,255,488 | ) |   |   | (1,857,858 | ) |
|    Accounts receivable                                                |   |                               | (4,944,399 | ) |   |   | (1,630,245 | ) |
|    Accounts payable and accrued expenses                              |   |                               | (1,274,340 | ) |   |   | (568,861 | ) |
|    Accounts and other payable - related parties                       |   |                               | 4,061,031  |   |   |   | 374,503 |   |
|    Advances from customers                                            |   |                               | (592,184   | ) |   |   | (20,160 | ) |
|    Other payables                                                     |   |                               | 2,312,258  |   |   |   | (2,320,140 | ) |
| CASH USED IN OPERATING ACTIVITIES                                                    |   |                               | (7,638,552 | ) |   |   | (7,772,920 | ) |
|                                                                                 |   |                               |       |   |   |   |   |   |
| INVESTING ACTIVITIES                                                                 |   |                               |       |   |   |   |   |   |
|    Repayment of loans                                                 |   |                               | -          |   |   |   | (276,605 | ) |
|    Proceeds from the sale of marketable securities available for sale |   |                               | 818,456    |   |   |   | 5,758,313 |   |
|    Increase in property use right                                     |   |                               | (270,827   | ) |   |   |   |   |
|    Purchases of property, plant and equipment                         |   |                               | (1,493,649 | ) |   |   | (95,547 | ) |
| CASH (USED IN) PROVIDED BY INVESTING ACTIVITES                                       |   |                               | (946,020   | ) |   |   | 5,386,161 |   |
|                                                                                 |   |                               |       |   |   |   |   |   |
| FINANCING ACTIVITIES                                                                 |   |                               |       |   |   |   |   |   |
|    Decrease in restricted cash                                        |   |                               | 4,663,493  |   |   |   | 5,541 |   |
|    Payments/proceeds from loans payable                               |   |                               | (3,189,897 | ) |   |   | 431,866 |   |
|    Increase in loans payable-related party                            |   |                               | -          |   |   |   | (399,629 | ) |
|    Net proceeds from sale of stocks and exercise of warrants/options  |   |                               | 3,771,502  |   |   |   | 4,955,845 |   |
|    Capital contributions from noncontrolling interest owners          |   |                               | 1,710,909  |   |   |   | - |   |
|    Cash dividend payment to preferred stock holders                   |   |                               | -          |   |   |   | (20,125 | ) |
| CASH PROVIDED BY FINANCING ACTIVITIES                                                |   |                               | 6,956,007  |   |   |   | 4,973,498 |   |
|                                                                                 |   |                               |       |   |   |   |   |   |
| EFFECT OF EXCHANGE RATE ON CASH                                                      |   |                               | 951,789    |   |   |   | (365,843 | ) |
| Net (decrease) increase in cash                                                      |   |                               | (676,776   | ) |   |   | 2,220,896 |   |
| Cash and equivalents, beginning of the period                                        |   |                               | 10,110,818 |   |   |   | 12,851,310 |   |
| Cash and equivalents, end of the period                                              |   | $                                  | 9,434,042  |   |   | $ | 15,072,206 |   |
| Supplemental disclosures of cash flow information:                                   |   |                               |       |   |   |   |   |   |
|    Preferred stock dividend paid in our common stock                  |   | $                                  | 40,260     |   |   | $ | 60,308 |   |
|    Deemed dividend - beneficial conversion feature                    |   | $                                  | 600,693    |   |   | $ | - |   |
|    Dividend - warrant valuation                                       |   | $                                  | 76,705     |   |   | $ | - |   |

----

|   | • |   | “fiscal 2011” – October 1, 2010 through September 30, 2011                 |
|--------|---------|--------|----------------------------------------------------------------------------------------------|
|   | • |   | “first quarter of fiscal 2011” – October 1, 2010 through December 31, 2010 |
|   | • |   | “second quarter of fiscal 2011” – January 1, 2011 through March 31, 2011   |
|   | • |   | “first six months of fiscal 2011” – October 1, 2010 through March 31, 2011 |
|   | • |   | “fiscal 2010” — October 1, 2009 through September 30, 2010.           |
|   | • |   | “first quarter of fiscal 2010” – October 1, 2009 through December 31, 2009 |
|   | • |   | “second quarter of fiscal 2010” – January 1, 2010 through March 31, 2010   |
|   | • |   | “first six months of fiscal 2010” – October 1, 2009 through March 31, 2010 |
|   | • |   | “2009 transition period” — January 1, 2009 through September 30, 2009.     |
|   | • |   | “fiscal 2008” — January 1, 2008 through December 31, 2008.            |

----

| Country                         |   | March 31, 2011 |      |   | September 30, 2010 |   |
|---------------------------------|--------|----------------|-----------|--------|--------------------|--------|
| United States                   |   |           | 4,944,734 |   |               |   | 52 | % |   |   | 4,851,329 |   |   |   | 48 | % |
| China                           |   |           | 4,489,308 |   |               |   | 48 | % |   |   | 5,259,489 |   |   |   | 52 | % |
| Total cash and cash equivalents |   |           | 9,434,042 |   |               |   | 100 | % |   |   | 10,110,818 |   |   |   | 100 | % |

|                                                       |   | March 31, 2011 |   |   | March 31, 2010 |   |   | September 30, 2010 |   |
|------------------------------------------------------------|--------|----------------|--------|--------|----------------|--------|--------|--------------------|--------|
| Period end RMB: U.S. dollar exchange rate                  |   |           | 6.5501 |   |           |   | 6.8361 |               |   |   | 6.6981 |   |
| Average fiscal-year-to-date RMB: U.S. dollar exchange rate |   |           | 6.6103 |   |           |   | 6.8360 |               |   |   | 6.8214 |   |

----

| a.   | Information available before the financial statements are issued or are available to be issued indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.   | The amount of the loss can be reasonably estimated. |
|----------------|-----------------------------------------------------|

----

|   | · | If comparative financial statements are not presented, pro forma revenue and earnings of the combined entity should be based on the assumption that the business combination took place as of the beginning of the current year. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | If comparative financial statements are presented (1) pro forma revenue and earnings of the combined entity should be based on the assumption that the business combination occurred as of the beginning of the comparative year, and (2) in the year following the business combination, pro forma information should not be revised if comparative statements for the year in which the acquisition occurred are presented (even if such year is the earliest period presented). |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | To require disclosure of the nature and amounts of any material nonrecurring adjustments directly attributable to the business combination included in the pro forma revenue and earnings (i.e., supplemental pro forma information). |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                           |   | For three months ended March 31, |       |   | For six months ended March 31, |   |
|----------------------------------------------------------------------------------------------------------------|--------|----------------------------------|------------|--------|--------------------------------|--------|
|                                                                                                           |   | 2011                             |       |   | 2010                           |   |   | 2011 |   |   | 2010 |   |
|                                                                                                           |   |                             |       |   |                           |   |   |   |   |   |   |   |
| NUMERATOR:                                                                                                     |   |                             |       |   |                           |   |   |   |   |   |   |   |
| Net income attributable to China Direct Industries Inc.                                                        |   | $                                | 6,375      |   |                           | $      | 1,657,184 |   |   | $ | 3,472,211 |   |   | $ | 672,669 |   |
| Series A preferred stock:                                                                                      |   |                             |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Preferred stock dividend                                                                                       |   |                             | (20,130    | )      |                           |   | (20,125 | ) |   |   | (40,259 | ) |   |   | (60,308 | ) |
| Deemed dividend - beneficial conversion feature                                                                |   |                             | -          |   |                           |   | - |   |   |   | (600,693 | ) |   |   | - |   |
| Dividend - warrant valuation                                                                                   |   |                             | -          |   |                           |   | - |   |   |   | (76,705 | ) |   |   | - |   |
| Numerator for basic EPS, net (loss) income attributable to common stockholders (A)                             |   | $                                | (13,755    | )      |                           | $      | 1,637,059 |   |   | $ | 2,754,554 |   |   | $ | 612,361 |   |
| DENOMINATOR (1):                                                                                               |   |                             |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Denominator for basic and diluted earnings per share-weighted average number of common shares outstanding ( B) |   |                             | 34,728,413 |   |                           |   | 28,594,256 |   |   |   | 33,257,657 |   |   |   | 27,981,440 |   |
| Stock awards, options, and warrants  (1) (2)                                                         |   |                             | -          |   |                           |   | 462,762 |   |   |   | - |   |   |   | 462,762 |   |
| Denominator for diluted earnings per share-adjusted weighted average numbers of common shares outstanding (C)  |   |                             | 34,728,413 |   |                           |   | 29,057,018 |   |   |   | 33,257,657 |   |   |   | 28,444,202 |   |
| Basic and Diluted Income per Common Share:                                                                     |   |                             |       |   |                           |   |   |   |   |   |   |   |   |   |   |   |
| Income  per share-basic and diluted (A)/( B)                                                         |   | $                                | (0.00      | )      |                           | $      | 0.06 |   |   | $ | 0.08 |   |   | $ | 0.02 |   |
| Income  per share-basic and diluted (A)/( C)                                                         |   | $                                | (0.00      | )      |                           | $      | 0.06 |   |   | $ | 0.08 |   |   | $ | 0.02 |   |

| (1) | Securities are not included in the denominator in periods when anti-dilutive.  We excluded 2,292,980 options to acquire our common stock, 6,264,942 common stock purchase warrants and 175,155 shares of restricted common stock awarded as of March 31, 2011 as their effect was anti-dilutive. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | The number of outstanding shares of restricted stock awards and warrants included were 435,814 and 26,948, respectively, for the three month and six month periods ended March 31, 2010. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | NOTE 3 – COMPREHENSIVE INCOME |
|--------|-------------------------------------|

|                                                                                          |   | For three months ended March 31, |      |   | For six months ended March 31, |   |
|-----------------------------------------------------------------------------------------------|--------|----------------------------------|-----------|--------|--------------------------------|--------|
|                                                                                          |   | 2011                             |      |   | 2010                           |   |   | 2011 |   |   | 2010 |   |
|                                                                                          |   |                             |      |   |                           |   |   |   |   |   |   |   |
| Net (loss) income                                                                             |   | $                                | (272,289  | )      |                           | $      | 1,526,830 |   |   | $ | 3,150,100 |   |   | $ | 653,923 |   |
| Other comprehensive income (loss), net of tax                                                 |   |                             |      |   |                           |   |   |   |   |   |   |   |   |   |   |   |
|     Changes in foreign currency translation                               |   |                             | 744,548   |   |                           |   | (147,143 | ) |   |   | 1,536,506 |   |   |   | 192,234 |   |
|     Unrealized gain on marketable securities availible for sale |   |                             | 3,423,130 |   |                           |   | 1,878,670 |   |   |   | 3,946,297 |   |   |   | 1,645,554 |   |
|     Reclassification adjustment for loss (gain) included in net income    |   |                             | 261,557   |   |                           |   | (2,066,498 | ) |   |   | 379,969 |   |   |   | (2,101,189 | ) |
| Total other comprehensive income (loss)                                                       |   |                             | 4,429,235 |   |                           |   | (334,971 | ) |   |   | 5,862,772 |   |   |   | (263,401 | ) |
| Comprehensive income                                                                          |   |                             | 4,156,946 |   |                           |   | 1,191,859 |   |   |   | 9,012,872 |   |   |   | 390,522 |   |
| Comprehensive loss attributable to the noncontrolling interests                               |   |                             | 278,664   |   |                           |   | 130,354 |   |   |   | 322,111 |   |   |   | 18,746 |   |
| Foreign currency translation (gain) loss - noncontrolling interests                           |   |                             | (283,373  | )      |                           |   | 288,408 |   |   |   | (557,551 | ) |   |   | (95,416 | ) |
| Comprehensive income attributable to China Direct Industries, Inc.                            |   | $                                | 4,152,237 |   |                           | $      | 1,610,621 |   |   | $ | 8,777,432 |   |   | $ | 313,852 |   |

| Company                                    |   | March 31,2011 |       |   | % of Total |   |   | September 30,2010 |   |   | % of Total |   |
|--------------------------------------------|--------|---------------|------------|--------|------------|--------|--------|-------------------|--------|--------|------------|--------|
|                                       |   | (Unaudited)   |       |   |       |   |   |              |   |   |       |   |
| China America Holdings, Inc.               |   | $             | 277,128    |   |       |   | 2      | %                 |   | $      | 950,250    |   |   |   | 33 | % |
| China Logistics Group, Inc.                |   |          | 849,393    |   |       |   | 6      | %                 |   |   | 515,625    |   |   |   | 18 | % |
| Dragon International Group Corp.           |   |          | 22,816     |   |       |   | 0      | %                 |   |   | 22,815     |   |   |   | 1 | % |
| China Armco Metals, Inc.                   |   |          | -          |   |       |   | 0      | %                 |   |   | 277,600    |   |   |   | 10 | % |
| Sunwin International Neutraceuticals, Inc. |   |          | -          |   |       |   | 0      | %                 |   |   | 455,000    |   |   |   | 16 | % |
| Dragon Capital Group Corp.                 |   |          | 334,521    |   |       |   | 3      | %                 |   |   | 672,735    |   |   |   | 23 | % |
| China Education International, Inc.        |   |          | 11,657,636 |   |       |   | 89     | %                 |   |   | -          |   |   |   | 0 | % |
| Marketable securities available for sale   |   | $             | 13,141,494 |   |       |   | 100    | %                 |   | $      | 2,894,025  |   |   |   | 100 | % |

----

|            |   | March 31, 2011 |      |   | September 30, 2010 |   |
|-----------------|--------|----------------|-----------|--------|--------------------|--------|
|            |   | (Unaudited)    |      |   |               |   |
| Raw materials   |   | $              | 3,183,406 |   |               | $      | 3,478,947 |   |
| Finished goods  |   |           | 6,445,007 |   |               |   | 2,893,978 |   |
| Total Inventory |   | $              | 9,628,413 |   |               | $      | 6,372,925 |   |

----

| Description                                                                                                  |   | March 31, 2011 |       |   | September 30, 2010 |   |
|--------------------------------------------------------------------------------------------------------------|--------|----------------|------------|--------|--------------------|--------|
|                                                                                                         |   | (Unaudited)    |       |   |               |   |
| Prepayments to vendors for merchandise that had not yet been shipped or services that had not been performed |   | $              | 6,345,735  |   |               | $      | 4,469,249 |   |
| Prepaid expenses (1)                                                                                         |   |           | 2,471,433  |   |               | $      | 2,546,278 |   |
| Other receivables (2)                                                                                        |   |           | 1,457,012  |   |               |   | 911,217 |   |
| Loans receivable                                                                                             |   |           | 939,002    |   |               |   | 608,904 |   |
| Security deposits                                                                                            |   |           | -          |   |               |   | 16,721 |   |
| Total                                                                                                        |   |           | 11,213,182 |   |               |   | 8,552,369 |   |

|   | (1) | For the fiscal year ended September 30, 2010, prepayments to vendors for merchandise that had not yet been shipped or services that had not been performed included $2,546,278 non-trade related prepaid expenses.  We reclassified the amount to prepaid expenses to better reflect the nature of the item. |
|--------|-------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Other receivables as of March 31, 2011 include a prepaid cost for Baotou Changxin Magnesium land use rights. Baotou Changxin Magnesium owns and operates a magnesium facility capable of producing 20,000 metric tons of pure magnesium per year located on approximately 406,000 square feet of land located in the Shiguai district of Baotou city, in Inner Mongolia. Baotou Changxin Magnesium occupies this land pursuant to an asset acquisition agreement entered into with Baotou Sanhe Magnesium Co., Ltd. to acquire the land use rights for this property, among other assets.  Since the land use right has yet to be transferred from Baotou Sanhe Magnesium Co. to Baotou Changxin Magnesium, the land use right balance of $1,111,885 is included in other receivables.  The land use right expires in May 2045. |
|--------|-------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Property, Plant and Equipment      |   |        |   |   |           |       |
|------------------------------------|--------|-------------|--------|--------|----------------|------------|
| Description                        |   | Useful Life |   |   | March 31, 2011 |       |   | September 30, 2010 |   |
|                               |   |        |   |   | (Unaudited)    |       |   |   |   |
| Building                           |   | 10-40 years |   |   | $              | 15,374,937 |   |   | $ | 14,978,242 |   |
| Manufacturing equipment            |   | 5-10 year   |   |   |           | 19,050,608 |   |   |   | 18,650,462 |   |
| Office equipment and furniture     |   | 3-5 year    |   |   |           | 53,103     |   |   |   | 470,238 |   |
| Autos and trucks                   |   | 5 year      |   |   |           | 1,015,634  |   |   |   | 995,963 |   |
| Construction in progress           |   |        | N/A    |   |           |       | 8,393,464 |   |   |   | 7,716,777 |   |
| Total                              |   |        |   |   |           |       | 43,887,747 |   |   |   | 42,811,682 |   |
| Less: accumulated depreciation     |   |        |   |   |           |       | (7,164,049 | ) |   |   | (5,299,421 | ) |
| Property, Plant and Equipment, Net |   |        |   |   |           | $          | 36,723,698 |   |   | $ | 37,512,261 |   |

----

|                                                                                                                                                                        |   | March 31,   |       |   | September 30, |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|------------|--------|---------------|--------|
| Description                                                                                                                                                                 |   | 2011        |       |   | 2010          |   |
|                                                                                                                                                                        |   | (Unaudited) |       |   |          |   |
| Lang Chemical loan from Bank of Shanghai. Due on February 20, 2011.  5.31% annual interest rate. Guaranteed by China Investment Guarantor Co. Ltd.                |   | $           | -          |   |          | $      | 447,888 |   |
|                                                                                                                                                                        |   |        |       |   |          |   |   |   |
| Lang Chemical loan from China Mingsheng Bank. Due on May 26, 2011. 6.638% annual interest rate. Guaranteed by Chen Jingdong.                                                |   |        | 702,279    |   |          |   | 686,762 |   |
|                                                                                                                                                                        |   |        |       |   |          |   |   |   |
| CDI Beijing non-interest bearing loan from Beijing Mingshang Investment Guarantee Co. Ltd. Due on August 31, 2011. Guaranteed by Chi Chen.                                  |   |        | -          |   |          |   | 4,478,882 |   |
|                                                                                                                                                                        |   |        |       |   |          |   |   |   |
| CDI China, Inc. (“CDI China”) loan from Sunwin Tech Group, Inc. Due on December 31, 2011. 3% annual interest rate. Secured by pledge of CDI China assets.       |   |        | 500,000    |   |          |   | - |   |
|                                                                                                                                                                        |   |        |       |   |          |   |   |   |
| Lang Chemical loan from Industrial and Commercial Bank of China. Due on October 15, 2011. 5.576% annual interest rate.  Guaranteed by Zhu Qian and Chen Jingdong. |   |        | 305,339    |   |          |   | - |   |
|                                                                                                                                                                        |   |        |       |   |          |   |   |   |
| CDI Beijing loan from Bank of Hongzhou. Due on October 21, 2011.  6.672% annual interest rate. Guaranteed by Chi Chen.                                            |   |        | 916,017    |   |          |   | - |   |
|                                                                                                                                                                        |   |        |       |   |          |   |   |   |
|           Total                                                                                                           |   |        | 2,423,635  |   |          |   | 5,613,532 |   |
| Less: Current Portion                                                                                                                                                       |   |        | (2,423,635 | )      |          |   | (5,613,532 | ) |
|                                                                                                                                                                        |   |        |       |   |          |   |   |   |
| Loans payable, long-term                                                                                                                                                    |   | $           | -          |   |          | $      | - |   |

----

|  | Yuwei Huang, is executive vice president of our Magnesium segment, a member of the board of directors, chief executive officer and chairman of Chang Magnesium, chairman of Baotou Changxin Magnesium, chairman of YiWei Magnesium, and chief executive officer and vice chairman of Golden Magnesium; |
|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | Taiyuan YiWei Magnesium Industry Co., Ltd., a company organized under the laws of the PRC (“YiWei Magnesium”), is a minority interest owner in Chang Magnesium;                                                                                                                            |
|  | Lifei Huang, is the daughter of Yuwei Huang;Suihuan Huang is the sister of Yuwei Huang;                                                                                                                                                                                                                |
|  | Lifei Huang, is a registered representative of Pine Capital Enterprises Inc., a company organized under the laws of the Cayman Islands (“Pine Capital”);                                                                                                                                   |
|  | Lifei Huang, is a registered representative of Wheaton Group Corp., a company organized under the laws of Brunei Darussalam (“Wheaton??;                                                                                                                                                         |
|  | LuCheng Haixu Magnesium Co., Ltd., a company organized under the laws of the PRC (“Haixu Magnesium”), is legally represented by an officer of Chang Magnesium;                                                                                                                             |
|  | Lingshi Xinghai Magnesium Co., Ltd., a company organized under the laws of the PRC (“Xinghai Magnesium”), is legally represented by an officer of Chang Magnesium;                                                                                                                         |
|  | NanTong Langyuan Chemical Co., Ltd., a company organized under the laws of the PRC (“NanTong Chemical”), is owned by Jingdong Chen and Qian Zhu, the minority interest owners of Lang Chemical;                                                                                            |
|  | Jingdong Chen, is vice president of our Basic Materials segment and chief executive officer of Lang Chemical;                                                                                                                                                                                          |
|  | Qian Zhu, is chief financial officer of Lang Chemical. Jingdong Chen and Qian Zhu are husband and wife;                                                                                                                                                                                                |
|  | Chen Chi is vice president of our Basic Materials Segment and minority interest owner of CDI Beijing; and                                                                                                                                                                                              |
|  | Zhongmen International Investments Co., Ltd., a company organized under the laws of the PRC (“Zhongmen International”), is legally represented by an officer of CDI Beijing.                                                                                                               |

|  | $682,630 due Baotou Changxin Magnesium from YiWei Magnesium for inventory provided; |
|----------|-------------------------------------------------------------------------------------|
|  | $4,740 due Chang Magnesium from Wheaton for inventory provided;                     |
|  | $57,935 due Chang Magnesium from Pine Capital for inventory provide;                |
|  | $147,031 due Ruiming Magnesium from YiWei Magnesium for inventory provided; and     |
|  | $343,735 due Golden Magnesium from YiWei Magnesium for inventory provided.          |

|  | $834,758 due Baotou Changxin Magnesium from YiWei Magnesium for inventory provided; |
|----------|-------------------------------------------------------------------------------------|
|  | $4,635 due Chang Magnesium from Wheaton for inventory provided; and                 |
|  | $1,280,189 due Golden Magnesium from YiWei Magnesium for inventory provided.        |

----

|  | $76,343 prepaid by Chang Magnesium to Haixu Magnesium for future delivery of inventory;      |
|----------|----------------------------------------------------------------------------------------------|
|  | $2,545,244 prepaid by Chang Magnesium to YiWei Magnesium for future delivery of inventory;   |
|  | $109,148 prepaid by IMTC to YiWei Magnesium for future delivery of inventory;                |
|  | $520,000 prepaid by IMTC to Wheaton for future delivery of inventory;                        |
|  | $29,824 prepaid by Golden Magnesium to YiWei Magnesium for future delivery of inventory; and |
|  | $125,811 prepaid by Ruiming Magnesium to YiWei Magnesium for future delivery of inventory.   |

|  | $204,536  prepaid by Baotou Changxi Magnesium to YiWei Magnesium for future delivery of inventory; |
|----------|--------------------------------------------------------------------------------------------------------------|
|  | $74,656 prepaid by Chang Magnesium to Haixu Magnesium for future delivery of inventory;                      |
|  | $120,838 prepaid by Chang Magnesium to Xinghai Magnesium for future delivery of inventory;                   |
|  | $3,217,076 prepaid by Chang Magnesium to YiWei Magnesium for future delivery of inventory,                   |
|  | $4,544 prepaid by Golden Magnesium to Senrun Coal for future delivery of coke gas for fuel;                  |
|  | $120 prepaid by Golden Magnesium to YiWei Magnesium for future delivery of inventory; and                    |
|  | $360,393 prepaid by IMTC to YiWei Magnesium for future delivery of inventory.                                |

|  | $1,044,441 due Lang Chemical from NanTong Chemical for funds advanced for working capital purposes; and |
|----------|---------------------------------------------------------------------------------------------------------|
|  | $16,794 due Chen Chi from CDI Beijing for funds advanced for working capital purposes.                  |
|     |                                                                                                    |

|  | $1,324,309 due Lang Chemical from NanTong Chemical for funds advanced for working capital purposes;             |
|----------|-----------------------------------------------------------------------------------------------------------------|
|  | $74,648 due Chen Chi from CDI Beijing for funds advanced for working capital purposes;                          |
|  | $119,437 due Baotou Changxi Magnesium from Haixu Magnesium for funds advanced for working capital purposes; and |
|  | $10,517 due Ruiming Magnesium from YiWei Magnesium for funds advanced for working capital purposes.             |

|     |  At March 31, 2011, we reported due from related parties of $2,526,088 comprised of the following: $152,670 due Baotou Changxi Magnesium from YiWei Magnesium for working capital purposes; |
|----------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                    | $1,911,929 due Chang Magnesium from YiWei Magnesium for working capital purposes;                                                                                                                     |
|                    | $122 due Golden Magnesium from Yiwei Magnesium for working capital purposes;                                                                                                                          |
|                    | $412,207 due Ruiming Magnesium from Haixu Magnesium for working capital purposes; and                                                                                                                 |
|                    | $49,160 due CDI Beijing from Zhongmen International for working capital purposes.                                                                                                                     |

|   |  | $49,566 due CDI Beijing from Zhongmen International for working capital purposes. |
|--------|----------|-----------------------------------------------------------------------------------|

----

|  | $15,477 due from Baotou Changxi Magnesium to Haixu Magnesium for purchases of goods;                                                  |
|----------|---------------------------------------------------------------------------------------------------------------------------------------|
|  | $1,449,348 due from IMTC to Pine Capital for purchases of goods;$156,658 due from IMTC to Yiwei Magnesium for purchases of goods; and |
|  | $1,527 due from Golden Magnesium to Xinghai Magnesium for purchases of goods.                                                         |

|  | $12,200 due from Chang Magnesium to Pine Capital for purchases of goods;             |
|----------|--------------------------------------------------------------------------------------|
|  | $15,135 due from Baotou Changxi Magnesium to Haixu Magnesium for purchases of goods; |
|     | $11,396 due from Golden Magnesium to YiWei Magnesium for purchases of goods;         |
|  | $1,493 due from Golden Magnesium to Haixu Magnesium for purchases of goods; and      |
|     | $334 due from Golden Magnesium to Xinghai Magnesium for purchases of goods.          |

|   |  | $628,998 due to Zhu Qian for funds advanced for working capital of Lang Chemical. |
|--------|----------|-----------------------------------------------------------------------------------|

|   |  | $60,990 due to Pine Capital for funds advanced for working capital of Golden Magnesium. |
|--------|----------|-----------------------------------------------------------------------------------------|

|   |  | $3,176,659 due to YiWei Magnesium for the balance of the purchase price for Ruiming Magnesium;$2,178,593 due YiWei Magnesium for working capital of Ruiming Magnesium; and$427,474 due to Suihuan Huang for working capital of Ruiming Magnesium. |
|--------|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |  | $3,872,157 due to YiWei Magnesium for the balance of the purchase price for Ruiming Magnesium. |
|--------|----------|------------------------------------------------------------------------------------------------|

----

----

|                             |   | 2009    |   |
|----------------------------------|--------|---------|--------|
|                             |   | June 30 |   |   | September 30 |   |   | December 31 |   |
| Value of per common share        |   | $       | 1.72   |   |   | $ | 1.57 |   |   | $ | 1.18 |   |
| Expected time to exercise (year) |   |    | 2      |   |   |   | 1.75 |   |   |   | 1.5 |   |
| Expected volatility              |   |    | 130    | % |   |   | 127 | % |   |   | 102 | % |
| Risk-free interest rate          |   |    | 1.11   | % |   |   | 0.81 | % |   |   | 1.14 | % |
| Dividend yield                   |   |    | 0      | % |   |   | 0 | % |   |   | 0 | % |

|                             |   | 2010     |   | March 31, 2011 |
|----------------------------------|--------|----------|--------|----------------|
|                             |   | March 31 |   |           | June 30 |   |   | September 30 |   |   | December 31 |   |   |
| Value of per common share        |   | $        | 1.54   |           |   | $ | 1.14 |   |   | $ | 1.21 |   |   | $ | 1.51 |   | $ 1.38 |
| Expected time to exercise (year) |   |     | 1.25   |           |   |   | 1 |   |   |   | 0.75 |   |   |   | 0.5 |   | 0.25 |
| Expected volatility              |   |     | 103    | %              |   |   | 78 | % |   |   | 75 | % |   |   | 90 |   | 75% |
| Risk-free interest rate          |   |     | 1.14   | %              |   |   | 0.32 | % |   |   | 0.27 | % |   |   | 0.19 |   | 0.09% |
| Dividend yield                   |   |     | 0      | %              |   |   | 0 | % |   |   | 0 | % |   |   | 0 |   | 0% |

| Description                       |   | Shares underlying options |      |   | Weighted average exercise price |   |
|-----------------------------------|--------|---------------------------|-----------|--------|---------------------------------|--------|
| Outstanding at September 30, 2010 |   |                      | 2,372,980 |   |                            | $      | 10.83 |   |
|     Exercised |   |                      | (80,000   | )      |                            |   | 1.29 |   |
| Outstanding at March 31, 2011     |   |                      | 2,292,980 |   |                            | $      | 15.14 |   |
| Exercisable at March 31, 2011     |   |                      | 2,292,980 |   |                            | $      | 15.87 |   |

----

| Exercise Price |   |   | Number of options outstanding |   |      | Weighted average remaining contractual life (Years) |   |   | Weighted average exercise price |   |   | Number of options Exercisable |   |   | Weighted average remaining contractual life (Years) |   |      | Weighted average exercise price |   |
|----------------|--------|--------|-------------------------------|--------|-----------|-----------------------------------------------------|--------|--------|---------------------------------|--------|--------|-------------------------------|--------|--------|-----------------------------------------------------|--------|-----------|---------------------------------|--------|
| $              | 2.00   |   |                          |   | 120,000   |                                                |   |   | 1.17                            |   |   | $                             | 2.00   |   |                                                |   | -         |                            |   |   | - |   |   |   | - |   |
|           | 2.25   |   |                          |   | 400       |                                                |   |   | 3.56                            |   |   |                          | 2.25   |   |                                                |   | 400       |                            |   |   | 3.56 |   |   | $ | 2.25 |   |
|           | 2.50   |   |                          |   | 44,000    |                                                |   |   | 0.03                            |   |   |                          | 2.50   |   |                                                |   | 44,000    |                            |   |   | 0.03 |   |   |   | 2.50 |   |
|           | 5.00   |   |                          |   | 106,000   |                                                |   |   | 0.03                            |   |   |                          | 5.00   |   |                                                |   | 106,000   |                            |   |   | 0.03 |   |   |   | 5.00 |   |
|           | 7.50   |   |                          |   | 637,000   |                                                |   |   | 1.76                            |   |   |                          | 7.50   |   |                                                |   | 637,000   |                            |   |   | 1.76 |   |   |   | 7.50 |   |
|           | 10.00  |   |                          |   | 625,000   |                                                |   |   | 2.76                            |   |   |                          | 10.00  |   |                                                |   | 625,000   |                            |   |   | 2.76 |   |   |   | 10.00 |   |
|           | 15.00  |   |                          |   | 500       |                                                |   |   | 2.19                            |   |   |                          | 15.00  |   |                                                |   | 500       |                            |   |   | 2.19 |   |   |   | 15.00 |   |
|           | 30.00  |   |                          |   | 760,000   |                                                |   |   | 1.83                            |   |   |                          | 30.00  |   |                                                |   | 760,000   |                            |   |   | 1.83 |   |   |   | 30.00 |   |
| $              | 56.25  |   |                          |   | 80        |                                                |   |   | 3.67                            |   |   |                          | 56.25  |   |                                                |   | 80        |                            |   |   | 3.67 |   |   |   | 56.25 |   |
|           |   |   |                          |   | 2,292,980 |                                                |   |   | 1.91                            |   |   | $                             | 15.14  |   |                                                |   | 2,172,980 |                            |   |   | 1.95 |   |   | $ | 15.87 |   |

|                              |   | Shares underlying warrants |      |   | Weighted average exercise price |   |
|-----------------------------------|--------|----------------------------|-----------|--------|---------------------------------|--------|
| Outstanding at September 30, 2010 |   |                       | 5,499,664 |   |                            | $      | 6.92 |   |
|   Additions             |   |                       | 777,778   |   |                            |   | 2.00 |   |
|    Expired         |   |                       | (12,500   | )      |                            |   | 11.00 |   |
| Outstanding at March 31, 2011     |   |                       | 6,264,942 |   |                            |   | 6.30 |   |
| Exercisable at March 31, 2011     |   |                       | 5,487,164 |   |                            | $      | 6.91 |   |

----

| Exercise Price |   |   | Number of Warrants outstanding |   |      | Weighted average remaining contractual life (Years) |   |   | Weighted average exercise price |   |   | Warrants Exercisable |   |   | Weighted average remaining contractual life (Years) |   |      | Weighted average exercise price |   |
|----------------|--------|--------|--------------------------------|--------|-----------|-----------------------------------------------------|--------|--------|---------------------------------|--------|--------|----------------------|--------|--------|-----------------------------------------------------|--------|-----------|---------------------------------|--------|
| $              | 1.88   |   |                           |   | 1,025,278 |                                                |   |   | 4.30                            |   |   | $                    | 1.88   |   |                                                |   | 247,500   |                            |   |   | 1.28 |   |   | $ | 1.52 |   |
|           | 2.31   |   |                           |   | 1,351,352 |                                                |   |   | 3.72                            |   |   |                 | 2.31   |   |                                                |   | 1,351,352 |                            |   |   | 3.72 |   |   |   | 2.31 |   |
|           | 2.50   |   |                           |   | 50,000    |                                                |   |   | 0.67                            |   |   |                 | 2.50   |   |                                                |   | 50,000    |                            |   |   | 0.67 |   |   |   | 2.50 |   |
|           | 4.00   |   |                           |   | 50,000    |                                                |   |   | 0.42                            |   |   |                 | 4.00   |   |                                                |   | 50,000    |                            |   |   | 0.42 |   |   |   | 4.00 |   |
|           | 8.00   |   |                           |   | 1,906,250 |                                                |   |   | 1.87                            |   |   |                 | 8.00   |   |                                                |   | 1,906,250 |                            |   |   | 1.87 |   |   |   | 8.00 |   |
|           | 10.00  |   |                           |   | 1,882,062 |                                                |   |   | 0.45                            |   |   |                 | 10.00  |   |                                                |   | 1,882,062 |                            |   |   | 0.45 |   |   |   | 10.00 |   |
| $              |   |   |                           |   | 6,264,942 |                                                |   |   | 2.22                            |   |   | $                    | 6.30   |   |                                                |   | 5,487,164 |                            |   |   | 1.79 |   |   | $ | 6.91 |   |

| (in thousands)            |   | Magnesium |   |   | Basic Materials |   |   | Consulting |   |   | Discontinued Operations |   |   | Consolidated |   |
|---------------------------|--------|-----------|--------|--------|-----------------|--------|--------|------------|--------|--------|-------------------------|--------|--------|--------------|--------|
| Revenues                  |   | $         | 22,665 |   |            | $      | 16,411 |       |   | $      | 1,594                   |   |   | $            | -      |   |   | $ | 40,670 |   |
| Revenues - related party  |   |      | 1,598  |   |            |   |   |       |   |   |                    |   |   |         | -      |   |   |   | 1,598 |   |
| Total revenues            |   | $         | 24,263 |   |            | $      | 16,411 |       |   | $      | 1,594                   |   |   | $            | -      |   |   | $ | 42,268 |   |
| Interest (expense) income |   | $         | (1     | )      |            | $      | (67    | )          |   | $      | 8                       |   |   | $            | -      |   |   | $ | (60 | ) |
| Net (loss) income         |   | $         | (220   | )      |            | $      | 407    |       |   | $      | (181                    | )      |   | $            | -      |   |   | $ | 6 |   |
| Segment assets            |   | $         | 68,444 |   |            | $      | 23,609 |       |   | $      | 19,627                  |   |   | $            | 247    |   |   | $ | 111,927 |   |

| (in thousands)            |   | Magnesium |   |   | Basic Materials |   |   | Consulting |   |   | Discontinued Operations |   |   | Consolidated |   |
|---------------------------|--------|-----------|--------|--------|-----------------|--------|--------|------------|--------|--------|-------------------------|--------|--------|--------------|--------|
| Revenues                  |   | $         | 43,947 |   |            | $      | 35,593 |       |   | $      | 6,893                   |   |   | $            | -      |   |   | $ | 86,433 |   |
| Revenues - related party  |   |      | 1,605  |   |            |   | -      |       |   |   | -                       |   |   |         | -      |   |   |   | 1,605 |   |
| Total revenues            |   | $         | 45,552 |   |            | $      | 35,593 |       |   | $      | 6,893                   |   |   | $            | -      |   |   | $ | 88,038 |   |
| Interest income (expense) |   | $         | -      |   |            | $      | (93    | )          |   | $      | 26                      |   |   | $            | -      |   |   | $ | (67 | ) |
| Net (loss) income         |   | $         | (527   | )      |            | $      | 376    |       |   | $      | 3,623                   |   |   | $            | -      |   |   | $ | 3,472 |   |
| Segment assets            |   | $         | 68,444 |   |            | $      | 23,609 |       |   | $      | 19,627                  |   |   | $            | 247    |   |   | $ | 111,927 |   |

| (in thousands)            |   | Magnesium |   |   | Basic Materials |   |   | Consulting |   |   | Discontinued Operations |   |   | Consolidated |   |
|---------------------------|--------|-----------|--------|--------|-----------------|--------|--------|------------|--------|--------|-------------------------|--------|--------|--------------|--------|
| Revenues                  |   | $         | 7,638  |   |            | $      | 12,360 |       |   | $      | 1,225                   |   |   | $            | -      |   |   | $ | 21,223 |   |
| Revenues - related party  |   |      | 2,148  |   |            |   | -      |       |   |   | -                       |   |   |         | -      |   |   |   | 2,148 |   |
| Total revenues            |   | $         | 9,786  |   |            | $      | 12,360 |       |   | $      | 1,225                   |   |   | $            | -      |   |   | $ | 23,371 |   |
| Interest income (expense) |   | $         | 1      |   |            | $      | (40    | )          |   | $      | 43                      |   |   | $            | -      |   |   | $ | 4 |   |
| Net (loss) income         |   | $         | (223   | )      |            | $      | (31    | )          |   | $      | 1,911                   |   |   | $            | -      |   |   | $ | 1,657 |   |
| Segment assets            |   | $         | 48,295 |   |            | $      | 15,601 |       |   | $      | 18,991                  |   |   | $            | 247    |   |   | $ | 83,134 |   |

----

| (in thousands)            |   | Magnesium |   |   | Basic Materials |   |   | Consulting |   |   | Discontinued Operations |   |   | Consolidated |   |
|---------------------------|--------|-----------|--------|--------|-----------------|--------|--------|------------|--------|--------|-------------------------|--------|--------|--------------|--------|
| Revenues                  |   | $         | 13,490 |   |            | $      | 25,751 |       |   | $      | 1,793                   |   |   | $            | -      |   |   | $ | 41,034 |   |
| Revenues - related party  |   |      | 4,589  |   |            |   | -      |       |   |   | -                       |   |   |         |   |   |   |   | 4,589 |   |
| Total revenues            |   | $         | 18,079 |   |            | $      | 25,751 |       |   | $      | 1,793                   |   |   |         |   |   |   | $ | 45,623 |   |
| Interest income (expense) |   | $         | 2      |   |            | $      | (81    | )          |   | $      | 83                      |   |   |         |   |   |   | $ | 4 |   |
| Net (loss) income         |   | $         | (229   | )      |            | $      | (27    | )          |   | $      | 929                     |   |   |         |   |   |   | $ | 673 |   |
| Segment assets            |   | $         | 48,295 |   |            | $      | 15,601 |       |   | $      | 18,991                  |   |   | $            | 247    |   |   | $ | 83,134 |   |

| (in thousands)                        |   | United States |   |   | People’s Republic of China |   |   | Total  |   |
|---------------------------------------|--------|---------------|--------|--------|----------------------------------|--------|--------|--------|--------|
| Revenues                              |   | $             | 3,656  |   |                             | $      | 37,014 |   |   | $ | 40,670 |   |
| Revenues – related party        |   |          | -      |   |                             |   | 1,598  |   |   |   | 1,598 |   |
| Total revenues                        |   | $             | 3,656  |   |                             | $      | 38,612 |   |   | $ | 42,268 |   |
| Identifiable assets at March 31, 2011 |   | $             | 21,683 |   |                             | $      | 90,244 |   |   | $ | 111,927 |   |

| (in thousands)                        |   | United States |   |   | People’s Republic of China |   |   | Total  |   |
|---------------------------------------|--------|---------------|--------|--------|----------------------------------|--------|--------|--------|--------|
| Revenues                              |   | $             | 8,954  |   |                             | $      | 77,479 |   |   | $ | 86,433 |   |
| Revenues – related party        |   |          | -      |   |                             |   | 1,605  |   |   |   | 1,605 |   |
| Total revenues                        |   | $             | 8,954  |   |                             | $      | 79,084 |   |   | $ | 88,038 |   |
| Identifiable assets at March 31, 2011 |   | $             | 21,683 |   |                             | $      | 90,244 |   |   | $ | 111,927 |   |

| (in thousands)                        |   | United States |   |   | People’s Republic of China |   |   | Discontinued Operations |   |   | Total |   |
|---------------------------------------|--------|---------------|--------|--------|----------------------------------|--------|--------|-------------------------|--------|--------|-------|--------|
| Revenues                              |   | $             | 1,465  |   |                             | $      | 19,758 |                    |   | $      | -     |   |   | $ | 21,223 |   |
| Revenues – related party        |   |          | -      |   |                             |   | 2,148  |                    |   |   | -     |   |   |   | 2,148 |   |
| Total revenues                        |   | $             | 1,465  |   |                             | $      | 21,906 |                    |   | $      | -     |   |   | $ | 23,371 |   |
| Identifiable assets at March 31, 2010 |   | $             | 18,180 |   |                             | $      | 64,707 |                    |   | $      | 247   |   |   | $ | 83,134 |   |

| (in thousands)                        |   | United States |   |   | People’s Republic of China |   |   | Discontinued Operations |   |   | Total |   |
|---------------------------------------|--------|---------------|--------|--------|----------------------------------|--------|--------|-------------------------|--------|--------|-------|--------|
| Revenues                              |   | $             | 1,793  |   |                             | $      | 39,241 |                    |   | $      | -     |   |   | $ | 41,034 |   |
| Revenues – related party        |   |          | -      |   |                             |   | 4,589  |                    |   |   | -     |   |   |   | 4,589 |   |
| Total revenues                        |   | $             | 1,793  |   |                             | $      | 43,830 |                    |   | $      | -     |   |   | $ | 45,623 |   |
| Identifiable assets at March 31, 2010 |   | $             | 18,180 |   |                             | $      | 64,707 |                    |   | $      | 247   |   |   | $ | 83,134 |   |

----

| Description         |   | March 31, 2011 |      |   | March 31, 2010 |   |
|---------------------|--------|----------------|-----------|--------|----------------|--------|
|                |   |           |      |   |           |   |
| U.S. Operations     |   | $              | 1,988,141 |   |           | $      | (713,835) |   |
| China Operations    |   |           | (52,445)  |   |           |   | (462,131) |   |
| Brunei Operations   |   |           | 1,282,045 |   |           |   | 1,884,813 |   |
| Total income (loss) |   | $              | 3,217,741 |   |           | $      | 708,847 |   |

| Description                                      |   | March 31, 2011 |     |   | March 31, 2010 |   |
|--------------------------------------------------|--------|----------------|----------|--------|----------------|--------|
|                                             |   |           |     |   |           |   |
| Current:                                         |   |           |     |   |           |   |
|      Federal            |   | $              | (35,000  | )      |           |   | - |   |
|      State              |   |           | -        |   |           |   | - |   |
|      Chinese Operations |   |           | (32,641) |   |           |   | (54,924 |  ) |
| Total benefit                                    |   |           | (67,641) |   |           |   | (54,924 |  ) |
| Deferred:                                        |   |           |     |   |           |   |   |   |
|      Federal            |   |           | -        |   |           |   | - |   |
|      State              |   |           | -        |   |           |   | - |   |
| Total provision                                  |   |           | -        |   |           |   | - |   |
| Grand total                                      |   | $              | (67,641) |   |           | $      | (54,924) |   |

| Description                                                          |   | March 31, 2011 |      |
|----------------------------------------------------------------------|--------|----------------|-----------|
|                                                                 |   |           |      |
| Income tax (expense) benefit provision at Federal statutory rate     |   | $              | 1,126,209 |   |
| State income tax (expense) benefit, net of Federal (expense) benefit |   |           | 115,839   |   |
| Effect of reduced foreign income tax rates                           |   |           | (699,781) |   |
| Reduction of net operating loss carry forward                        |   |           | (474,626) |   |
| Income tax expense                                                   |   | $              | 67,641    |   |

----

|                                    |   | 2011   |       |   | 2010   |   |
|-----------------------------------------|--------|--------|------------|--------|--------|--------|
|                                    |   |   |       |   |   |   |
| Non-current tax assets and liabilities: |   |   |       |   |   |   |
| Net operating loss carry forwards       |   |   | 3,191,088  |   |   |   | 4,266,942 |   |
| Valuation allowance                     |   |   | (3,191,088 | )      |   |   | (4,266,942 | ) |
| Net deferred tax assets                 |   | $      | -          |   |   | $      | - |   |

----

----

----

| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
|---------|----------------------------------------------------------------------------------------------|

|   | • |   | “fiscal 2011” – October 1, 2010 through September 30, 2011                 |
|--------|---------|--------|----------------------------------------------------------------------------------------------|
|   | • |   | “first quarter of fiscal 2011” – October 1, 2010 through December 31, 2010 |
|   | • |   | “second quarter of fiscal 2011” – January 1, 2011 through March 31, 2011   |
|   | • |   | “first six months of fiscal 2011” – October 1, 2010 through March 31, 2011 |
|   | • |   | “fiscal 2010” — October 1, 2009 through September 30, 2010.           |
|   | • |   | “first quarter of fiscal 2010” – October 1, 2009 through December 31, 2009 |
|   | • |   | “second quarter of fiscal 2010” – January 1, 2010 through March 31, 2010   |
|   | • |   | “first six months of fiscal 2010” – October 1, 2009 through March 31, 2010 |
|   | • |   | “2009 transition period” — January 1, 2009 through September 30, 2009.     |
|   | • |   | “fiscal 2008” — January 1, 2008 through December 31, 2008.            |

----

----

----

|                    |   | For the Three Months Ended March 31, |   |   |          |   |
|-------------------------|--------|--------------------------------------|--------|--------|---------------|--------|
|                    |   | 2011                                 |   |   | 2010          |   |   |   |   |
| (Dollars in thousands)  |   | Unaudited                            |   |   | Unaudited     |   |   |   |   |
|                    |   | Revenues                             |   |   | % of Revenues |   |   | Revenues |   |   | % of Revenues |   |   | % increase (decrease) |   |
| Magnesium segment       |   | $                                    | 24,263 |   |          |   | 57 | % |   | $ | 9,786 |   |   |   | 42 | % |   |   | 148 | % |
| Basic materials segment |   |                                 | 16,411 |   |          |   | 39 | % |   |   | 12,360 |   |   |   | 53 | % |   |   | 33 | % |
| Consulting segment      |   |                                 | 1,594  |   |          |   | 4 | % |   |   | 1,225 |   |   |   | 5 | % |   |   | 30 | % |
| Total consolidated      |   | $                                    | 42,268 |   |          |   | 100 | % |   | $ | 23,371 |   |   |   | 100 | % |   |   | 81 | % |

|                    |   | For the Six Months Ended March 31, |   |   |          |   |
|-------------------------|--------|------------------------------------|--------|--------|---------------|--------|
|                    |   | 2011                               |   |   | 2010          |   |   |   |   |
| (Dollars in thousands)  |   | Unaudited                          |   |   | Unaudited     |   |   |   |   |
|                    |   | Revenues                           |   |   | % of Revenues |   |   | Revenues |   |   | % of Revenues |   |   | % increase (decrease) |   |
| Magnesium segment       |   | $                                  | 45,552 |   |          |   | 52 | % |   | $ | 18,079 |   |   |   | 40 | % |   |   | 152 | % |
| Basic materials segment |   |                               | 35,593 |   |          |   | 40 | % |   |   | 25,751 |   |   |   | 56 | % |   |   | 38 | % |
| Consulting segment      |   |                               | 6,893  |   |          |   | 8 | % |   |   | 1,793 |   |   |   | 4 | % |   |   | 285 | % |
| Total consolidated      |   | $                                  | 88,038 |   |          |   | 100 | % |   | $ | 45,623 |   |   |   | 100 | % |   |   | 93 | % |

----

|                    | For the Three Months Ended March 31, |    |          |   |   |
|-------------------------|--------------------------------------|---------|---------------|--------|--------|
|                    | 2011                                 |    | 2010          |   |   |   |   |
| (Dollars in thousands)  | Unaudited                            |    | Unaudited     |   |   |   |   |
|                    | Amount                               |    | % of Revenues |   | Amount |   | % of Revenues |   |   | % increase (decrease) |   |
| Revenues                |                                 |  $ | 42,268        |   | 100    | % |   |  $ | 23,371 |   | 100 |   | % | 81 | % |
| Cost of revenues        |                                 |    | 39,043        |   | 92     | % |   |   | 21,377 |   | 91 |   | % | 83 | % |
| Gross profit            |                                 |    | 3,225         |   | 8      | % |   |   | 1,994 |   | 9 |   | % | 62 | % |
| Net operating expenses  |                                 |    | 3,129         |   | 7      | % |   |   | 2,469 |   | 11 |   | % | 27 | % |
| Operating Income (loss) |                                 |  $ | 96            |   | -      | % |   |  $ | (475 | ) | (2 | )  | % | - | % |

|                    | For the Six Months Ended March 31, |          |          |   |   |
|-------------------------|------------------------------------|---------------|---------------|--------|--------|
|                    | 2011                               |          | 2010          |   |   |   |   |
| (Dollars in thousands)  | Unaudited                          |          | Unaudited     |   |   |   |   |
|                    | Amount                             |          | % of Revenues |   | Amount |   | % of Revenues |   |   | % increase (decrease) |   |
| Revenues                |                               |  $       | 88,038        |   | 100    | % |  $ | 45,623 |   | 100 |   | % | 93 | % |
| Cost of revenues        |                               |          | 78,282        |   | 89     | % |   | 41,805 |   | 92 |   | % | 87 | % |
| Gross profit            |                               |          | 9,756         |   | 11     | % |   | 3,818 |   | 8 |   | % | 156 | % |
| Net operating expenses  |                               |          | 6,357         |   | 7      | % |   | 5,263 |   | 12 |   | % | 21 | % |
| Operating Income (loss) |                               |  $  | 3,399         |   | 4      | % |  $ | (1,445 | )  | (4 | )  | % | - | % |

----

----

----

----

| (Amounts in thousands)                           |   | March 31, 2011 |    |   | September 30, 2010 |   |   | Increase / (decrease) |   |   | % Increase /(decrease) |   |
|--------------------------------------------------|--------|----------------|---------|--------|--------------------|--------|--------|-----------------------|--------|--------|------------------------|--------|
| Cash                                             |   | $              | 9,434   |   |               | $      | 10,111 |                  |   | $      | (677)                  |   |   |   | (7) | % |
| Marketable securities                            |   |           | 12,807  |   |               |   | 2,221  |                  |   |   | 10,586                 |   |   |   | 477 | % |
| Accounts and notes receivable, net               |   |           | 20,043  |   |               |   | 15,236 |                  |   |   | 4,807                  |   |   |   | 32 | % |
| Accounts receivable – related party        |   |           | 8,230   |   |               |   | 7,680  |                  |   |   | 550                    |   |   |   | 7 | % |
| Inventories, net                                 |   |           | 9,628   |   |               |   | 6,373  |                  |   |   | 3,255                  |   |   |   | 51 | % |
| Prepaid expenses and other assets                |   |           | 11,213  |   |               |   | 8,552  |                  |   |   | 2,661                  |   |   |   | 31 | % |
| Total current assets                             |   |           | 72,169  |   |               |   | 55,989 |                  |   |   | 16,180                 |   |   |   | 29 | % |
| Property and equipment, net                      |   |           | 37,141  |   |               |   | 37,512 |                  |   |   | (371)                  |   |   |   | (1) | % |
| Total assets                                     |   |           | 111,927 |   |               |   | 95,862 |                  |   |   | 16,065                 |   |   |   | 17 | % |
|                                             |   |           |    |   |               |   |   |                  |   |   |                   |   |   |   |   |   |
| Accounts payable and accrued expenses            |   |           | 9,977   |   |               |   | 11,251 |                  |   |   | (1,274)                |   |   |   | (11) | % |
| Accounts and other payable – related party |   |           | 8,035   |   |               |   | 3,973  |                  |   |   | 4,062                  |   |   |   | 102 | % |
| Advances from customers                          |   |           | 2,205   |   |               |   | 2,797  |                  |   |   | (592)                  |   |   |   | (21) | % |
| Other liabilities                                |   |           | 3,074   |   |               |   | 1,074  |                  |   |   | 2,000                  |   |   |   | 186 | % |
| Loans payable – short terms                |   |           | 2,424   |   |               |   | 5,614  |                  |   |   | (3,190)                |   |   |   | (57) | % |
| Total current liabilities                        |   | $              | 26,996  |   |               | $      | 25,667 |                  |   | $      | 1,329                  |   |   |   | 5 | % |

| Country                         |   | March 31, 2011 |      |   | September 30, 2010 |   |
|---------------------------------|--------|----------------|-----------|--------|--------------------|--------|
| United States                   |   | $              | 4,944,734 |   |               |   | 52 | % |   | $ | 4,851,329 |   |   |   | 48 | % |
| China                           |   |           | 4,489,308 |   |               |   | 48 | % |   |   | 5,259,489 |   |   |   | 52 | % |
| Total cash and cash equivalents |   | $              | 9,434,042 |   |               |   | 100 | % |   | $ | 10,110,818 |   |   |   | 100 | % |

----

| (Amounts in thousands)  |   | March 31, 2011 |    |   | September 30, 2010 |   |
|-------------------------|--------|----------------|---------|--------|--------------------|--------|
| Magnesium segment       |   | $              | 68,444  |   |               | $      | 62,415 |   |
| Basic Materials segment |   |           | 23,609  |   |               |   | 22,988 |   |
| Consulting segment      |   |           | 19,627  |   |               |   | 10,212 |   |
| Discontinued Operations |   |           | 247     |   |               |   | 247 |   |
| Total                   |   | $              | 111,927 |   |               | $      | 95,862 |   |

|                                                |   | Magnesium |   |   | Basic Materials |   |   | Consulting |   | Discontinued Operations |   | Consolidated |   |
|-----------------------------------------------------|--------|-----------|--------|--------|-----------------|--------|--------|------------|--------|-------------------------|--------|--------------|--------|
| Accounts and notes receivable                       |   | $         | 8,901  |   |            |   | 10,981 |       |   |                    | 161    |         |   |   |   | 20,043 |   |
| Accounts and other receivable – related party |   |      | 7,120  |   |            |   | 1,110  |       |   |                    |   |         |   |   |   | 8,230 |   |
| Inventories, net                                    |   |      | 6,490  |   |            |   | 3,138  |       |   |                    |   |         |   |   |   | 9,628 |   |
| Prepaid expenses and other current assets           |   |      | 6,767  |   |            |   | 2,347  |       |   |                    | 2,099  |         |   |   |   | 11,213 |   |
| Total current assets                                |   |      | 32,388 |   |            |   | 20,303 |       |   |                    | 19,427 |         | 51     |   |   | 72,169 |   |
|                                                |   |      |   |   |            |   |   |       |   |                    |   |         |   |   |   |   |   |
| Accounts payable and accrued expenses               |   |      | 5,496  |   |            |   | 3,973  |       |   |                    | 508    |         |   |   |   | 9,977 |   |
| Loans payable – short term                    |   |      |   |   |            |   | 1,924  |       |   |                    | 500    |         |   |   |   | 2,424 |   |
| Accounts and other payable – related party    |   |      | 7,406  |   |            |   | 629    |       |   |                    |   |         |   |   |   | 8,035 |   |
| Advances from customers and deferred revenues       |   |      | 1,189  |   |            |   | 566    |       |   |                    | 450    |         |   |   |   | 2,205 |   |
| Other Payable                                       |   |      | 249    |   |            |   | 2,802  |       |   |                    | 23     |         |   |   |   | 3,074 |   |
| Total current liabilities                           |   | $         | 11,721 |   |            |   | 10,532 |       |   |                    | 4,728  |         |   |   |   | 26,981 |   |

----

----

----

| Segment                 |   | March 31, 2011 |   | September 30, 2010 |       |
|-------------------------|--------|----------------|--------|--------------------|------------|
| Magnesium segment       | $      | 18,271,221     |   | $                  | 16,741,614 |   |
| Basic Materials segment |   | 3,682,029      |   |               | 3,258,934  |   |
| Consulting segment      |   |           |   |               | -          |   |
| Total                   | $      | 21,953,250     |   | $                  | 20,000,548 |   |

|   | • |   | 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. |

----

----

----

|   | • |   | Fluctuations in the pricing and availability of magnesium and in levels of customer demand.                                                                                                                                                                                                        |
|--------|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | Changes in the prices of magnesium and magnesium-related products.                                                                                                                                                                                                                                 |
|   | • |   | Our ability to implement our expansion plans for growing our business through increased magnesium production capacity and acquisitions and development of our commodity trading business.                                                                                                          |
|   | • |   | Fluctuations in the cost or availability of coke gas and coal.                                                                                                                                                                                                                                     |
|   | • |   | Loss of orders from any of our major customers.                                                                                                                                                                                                                                                    |
|   | • |   | The value of the equity securities we accept as compensation is subject to adjustment which could result in losses to us in future periods.                                                                                                                                                        |
|   | • |   | Our ability to effectively integrate our acquisitions and to manage our growth and our inability to fully realize any anticipated benefits of acquired business.                                                                                                                                   |
|   | • |   | Our need for additional financing which we may not be able to obtain on acceptable terms, the dilutive effect additional capital raising efforts in future periods may have on our current shareholders and the increased interest expense in future periods related to additional debt financing. |
|   | • |   | Our dependence on certain key personnel.                                                                                                                                                                                                                                                           |
|   | • |   | Difficulties we have in establishing adequate management, cash, legal and financial controls in the PRC.                                                                                                                                                                                           |
|   | • |   | Our ability to maintain an effective system of internal control over financial reporting.                                                                                                                                                                                                          |
|   | • |   | 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.                                                                                      |
|   | • |   | Potential impact of PRC regulations on our intercompany loans.                                                                                                                                                                                                                                     |
|   | • |   | Our ability to assure that related party transactions are fair to our company.                                                                                                                                                                                                                     |
|   | • |   | Yuwei Huang, our executive vice president – magnesium, director and an officer of several of our magnesium subsidiaries and his daughter Lifei Huang is also an owner and executive officer of several companies which directly compete with our magnesium business.                         |
|   | • |   | The impact of a loss of our land use rights.                                                                                                                                                                                                                                                       |
|   | • |   | Our ability to comply with the United States Foreign Corrupt Practices Act which could subject us to penalties and other adverse consequences.                                                                                                                                                     |
|   | • |   | Limits under the Investment Company Act of 1940 on the value of securities we can accept as payment for our business consulting services.                                                                                                                                                          |
|   | • |   | Our acquisition efforts in future periods may be dilutive to our then current shareholders.                                                                                                                                                                                                        |
|   | • |   | The risks and hazards inherent in the mining industry on the operations of our basic materials segment.                                                                                                                                                                                            |
|   | • |   | Our inability to enforce our rights due to policies regarding the regulation of foreign investments in the PRC.                                                                                                                                                                                    |
|   | • |   | The impact of environmental and safety regulations, which may increase our compliance costs and reduce our overall profitability.                                                                                                                                                                  |
|   | • |   | 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 impact of Chinese economic reform policies.                                                                                                                                                                                                                                                    |
|   | • |   | The influence of the Chinese government over the manner in which our Chinese subsidiaries must conduct our business activities.                                                                                                                                                                    |
|   | • |   | The impact on future inflation in the PRC on economic activity in the PRC.                                                                                                                                                                                                                         |
|   | • |   | The impact of any natural disasters and health epidemics in China.                                                                                                                                                                                                                                 |
|   | • |   | The impact of labor laws in the PRC may adversely affect our results of operations.                                                                                                                                                                                                                |
|   | • |   | The limitation on our ability to receive and use our revenues effectively as a result of restrictions on currency exchange in the PRC.                                                                                                                                                             |
|   | • |   | Fluctuations in the value of the RMB may have a material adverse effect on your investment.                                                                                                                                                                                                        |
|   | • |   | Delisting of our securities from trading by NASDAQ could adversely affect the market liquidity of our common stock, our ability to obtain financing for the continuation of our operations and harm our business.                                                                                  |
|   | • |   | The market price for shares of our common stock has been and may continue to be highly volatile and subject to wide fluctuations.                                                                                                                                                                  |

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| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
|---------|-------------------------------------------------------------|

| Item 4. | Controls and Procedures. |
|---------|--------------------------|

|   | • |   | a lack of an integrated financial accounting system,                                                                                                                         |
|--------|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | a lack of internal control over financial reporting related to our consolidated financial results, and                                                                       |
|   | • |   | a lack of qualified accounting personnel who have sufficient knowledge in dealing with the complex U.S. GAAP accounting and financial issues in our cross border operations. |

|   | • |   | Upon completion of the evaluation of Ufida NC, an enterprise-wide financial software system, we are in the early stages of implementing this system that we initially plan to roll out for testing in phases prior to the end of fiscal 2011. We expect that this system will enhance our management and reporting capabilities and standardize the process and access to financial reports in a timely manner in our magnesium segment; and |
|--------|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • |   | We will continue to conduct ongoing reviews of our internal control over financial reporting.                                                                                                                                                                                                                                                                                                                                                     |

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| Item 1. | Legal Proceedings. |
|---------|--------------------|

| Item 1A. | Risk Factors |
|----------|--------------|

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

| Item 3. | Defaults Upon Senior Securities. |
|---------|----------------------------------|

| Item 4. | (Removed and Reserved). |
|---------|-------------------------|

| Item 5. | Other Information. |
|---------|--------------------|

| Item 6. | Exhibits |
|---------|----------|

| Exhibit No. |   | Description of Exhibit |
|-------------|--------|------------------------|
|        | 3.1    |                   | Certificate of Incorporation Incorporated by reference to the Form 10-SB as filed on June 17, 1999 (incorporated herein by reference to Exhibit 3.1 as part of the Company’s Form 10-SB as filed with the Commission on June 17, 1999 (Commission File No. 000-26415)). |
|        | 3.2    |                   | Bylaws (incorporated herein by reference to Exhibit 3.2 filed as a part of the Company’s Form 10-Q filed with the Commission on August 8, 2008 (Commission File No. 001-33694)). |
|        | 3.3    |                   | Certificate of Amendment to the Certificate of Incorporation (incorporated herein by reference to Exhibit 3.3 as part of the Company’s Current Report on Form 8-K filed with the Commission on August 17, 2006 (Commission File No. 000-26415)). |
|        | 3.4    |                   | Certificate of Domestication of China Direct, Inc. (incorporated herein by reference to Exhibit 3.4 as part of the Company’s Current Report on Form 8-K filed with the Commission on June 27, 2007 (Commission File No. 000-26415)). |
|        | 3.5    |                   | Form of Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock (incorporated herein by reference to Exhibit 3.5 as part of the Company’s Current Report on Form 8-K filed with the Commission on February 12, 2008 (Commission File No. 001-33694)). |
|        | 4.1    |                   | Form of common stock purchase warrant (incorporated herein by reference to Exhibit 4.1 as part of the Company’s Current Report on Form 8-K filed with the Commission on February 12, 2008 (Commission File No. 001-33694)). |

----

|   | 4.2   |   | Form of common stock purchase warrant (incorporated herein by reference to Exhibit 10.2 as part of the Company’s Current Report on Form 8-K filed with the Commission on June 17, 2009 (Commission File No. 001-33694)).                                                                                                                                                                                                                     |
|--------|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 4.3   |   | Form of $2.00 Common Stock Purchase Warrant (incorporated herein by reference to Exhibit 4.3 as part of the Company’s Form 8-K as filed with the Commission on January 4, 2011 (Commission File No. 000-233694)).                                                                                                                                                                                                                            |
|   | 10.1  | +      | Employment Agreement dated August 16, 2006 with Dr. Yuejian (James) Wang (incorporated herein by reference to Exhibit 10.9 as part of the Company’s Current Report on Form 8-K filed with the Commission on August 17, 2006 (Commission File No. 000-26415)).                                                                                                                                                                      |
|   | 10.2  | +      | Employment Agreement dated August 16, 2006 with Mr. Marc Siegel (incorporated herein by reference to Exhibit 10.10 as part of the Company’s Current Report on Form 8-K filed with the Commission on August 17, 2006 (Commission File No. 000-26415)).                                                                                                                                                                              |
|   | 10.3  | +      | Employment Agreement dated August 16, 2006 with Mr. David Stein (incorporated herein by reference to Exhibit 10.11 as part of the Company’s Current Report on Form 8-K filed with the Commission on August 17, 2006 (Commission File No. 000-26415)).                                                                                                                                                                              |
|   | 10.4  | +      | Employment Agreement dated August 16, 2006 with Yi (Jenny) Liu (incorporated herein by reference to Exhibit 10.12 as part of the Company’s Current Report on Form 8-K filed with the Commission on August 17, 2006 (Commission File No. 000-26415)).                                                                                                                                                                                    |
|   | 10.5  | +      | Evolve One, Inc. Stock Option Plan, as amended (incorporated herein by reference to Exhibit 10.1 as part of the Company’s Form S-8 filed with the Commission on January 11, 2005 (Commission File No. 333-121963)).                                                                                                                                                                                                                          |
|   | 10.6  | +      | 2005 Equity Compensation Plan (incorporated herein by reference to Exhibit 99.1 as part of the Company’s Registration Statement on Form S-8 filed with the Commission on June 16, 2005 (Commission File No. 333-125871)).                                                                                                                                                                                                                    |
|   | 10.7  | +      | 2006 Equity Compensation Plan (incorporated herein by reference to Exhibit 10.14 as part of the Company’s Current Report on Form 8-K filed with the Commission on August 17, 2006 (Commission File No. 000-26415)).                                                                                                                                                                                                                          |
|   | 10.8  | +      | 2006 Stock Compensation Plan (incorporated herein by reference to Exhibit 10.1 as part of the Company’s Registration Statement on Form S-8 filed with the Commission on October 30, 2006 (Commission File No. 333-138297)).                                                                                                                                                                                                                  |
|   | 10.13 |   | Contract for Sino-Foreign Equity Joint Venture between Asia Magnesium Co., Ltd., Shanxi Senrun Coal Chemistry Co., Ltd. and Taiyuan YiWei Magnesium Industry Co., Ltd. dated December 12, 2006 (incorporated herein by reference to Exhibit 10.1 as part of the Company’s Quarterly Report on Form 10-QSB for the period ended June 30, 2007 filed with the Commission on August 8, 2007 (Commission File No. 000-26415)).                   |
|   | 10.14 |   | Asia Magnesium Ownership Transfer Agreement dated July 1, 2007 between Jiang Dong and Capital One Resource Co., Ltd. (incorporated herein by reference to Exhibit 10.2 as part of the Company’s Quarterly Report on Form 10-QSB for the period ended June 30, 2007 filed with the Commission on August 8, 2007 (Commission File No. 000-26415)).                                                                                        |
|   | 10.15 |   | Shangxi Gu County Golden Magnesium Co., Ltd. Investment Agreement Supplement dated May 30, 2007 among Taiyuan YiWei Magnesium Co., Ltd., Asia Magnesium Co., Ltd. and Shanxi Senrun Coal Chemistry Co. Ltd. (incorporated herein by reference to Exhibit 10.3 as part of the Company’s Quarterly Report on Form 10-QSB for the period ended June 30, 2007 filed with the Commission on August 8, 2007 (Commission File No. 000-26415)). |
|   | 10.16 |   | Consulting and Management Agreement dated June 27, 2007 between Mr. Aihua Hu and Capital One Resource Co., Ltd. (incorporated herein by reference to Exhibit 10.4 as part of the Company’s Quarterly Report on Form 10-QSB for the period ended June 30, 2007 filed with the Commission on August 8, 2007 (Commission File No. 000-26415)).                                                                                             |
|   | 10.17 |   | Stock Purchase Agreement dated August 24, 2007 between CDI China, Inc., China Direct, Inc. and Sense Holdings, Inc. (incorporated herein by reference to Exhibit 10.1 as part of the Company’s Current Report on Form 8-K filed with the Commission on August 28, 2007 (Commission File No. 000-26415)).                                                                                                                                     |
|   | 10.18 |   | Joint Venture Agreement dated September 28, 2007 among Shanxi Jinyang Coal And Coke Group Co., Ltd., Runlian Tian and CDI China, Inc. (incorporated herein by reference to Exhibit 10.1 as part of the Company’s Quarterly Report on Form 10-QSB for the period ended September 30, 2007 filed with the Commission on November 14, 2007 (Commission File No. 000-26415)).                                                                    |
|   | 10.19 |   | Securities Purchase Agreement dated February 11, 2008 (incorporated herein by reference to Exhibit 10.19 as part of the Company’s Current Report on Form 8-K filed with the Commission on February 12, 2008 (Commission File No. 001-33694)).                                                                                                                                                                                                |
|   | 10.20 |   | Registration Rights Agreement dated February 11, 2008 (incorporated herein by reference to Exhibit 10.20 as part of the Company’s Current Report on Form 8-K filed with the Commission on February 12, 2008 (Commission File No. 001-33694)).                                                                                                                                                                                                |
|   | 10.21 | +      | Option Agreement dated August 16, 2006 between China Direct, Inc. and David Stein (incorporated herein by reference to Exhibit 10.3 filed as a part of the Company’s Form S-8 filed with the Commission on November 11, 2007 (Commission File No. 333-147603)).                                                                                                                                                                              |

----

|   | 10.22 | +      | Employment Agreement dated August 7, 2008 between China Direct, Inc. and Dr. Yuejian (James) Wang (incorporated herein by reference to Exhibit 10.22 filed as a part of the Company’s Form 10-Q filed with the Commission on August 8, 2008 (Commission File No. 001-33694)).                                                                                                                                             |
|--------|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10.23 | +      | Employment Agreement dated August 7, 2008 between China Direct, Inc. and Marc Siegel (incorporated herein by reference to Exhibit 10.23 filed as a part of the Company’s Form 10-Q filed with the Commission on August 8, 2008 (Commission File No. 001-33694)).                                                                                                                                                          |
|   | 10.24 | +      | Employment Agreement dated August 7, 2008 between China Direct, Inc. and David Stein (incorporated herein by reference to Exhibit 10.24 filed as a part of the Company’s Form 10-Q filed with the Commission on August 8, 2008 (Commission File No. 001-33694)).                                                                                                                                                          |
|   | 10.25 | +      | Form of Restricted Stock Agreement for Executive Officer awards under the Company’s 2008 Executive Stock Incentive Plan (incorporated herein by reference to Exhibit 10.25 filed as a part of the Company’s Form 10-Q filed with the Commission on August 8, 2008 (Commission File No. 001-33694)).                                                                                                                 |
|   | 10.26 | +      | Form of Restricted Stock Agreement for Non-Executive Officer awards under the Company??s 2008 Non-Executive Stock Incentive Plan (incorporated herein by reference to Exhibit 10.26 filed as a part of the Company’s Form 10-Q filed with the Commission on August 8, 2008 (Commission File No. 001-33694)).                                                                                                              |
|   | 10.27 | +      | Form of Restricted Stock Agreement for awards to Directors under the Company’s 2008 Non-Executive Stock Incentive Plan (incorporated herein by reference to Exhibit10.27 filed as a part of the Company?痵 Form 10-Q filed with the Commission on August 8, 2008 (Commission File No. 001-33694)).                                                                                                                  |
|   | 10.28 |   | Joint Venture Agreement entered into between CDI Shanghai Management Co., Ltd. and Chi Chen dated September 20, 2008 (incorporated herein by reference to Exhibit 10.28 filed as a part of the Company’s Form 10-Q filed with the Commission on August 8, 2008 (Commission File No. 001-33694)).                                                                                                                          |
|   | 10.29 | +      | Form of November 13, 2008 Amendment to Employment Agreements dated August 7, 2008 between China Direct, Inc. and Dr. Yuejian (James) Wang, Marc Siegel and David Stein (incorporated herein by reference to Exhibit 10.29 filed as a part of the Company’s Current Report on Form 10-Q for the period ended September 30, 2008 filed with the Commission on November 13, 2008 (Commission File No. 001-33694)). |
|   | 10.30 | +      | Option Agreement dated August 16, 2006 between China Direct, Inc. and Dr. Yuejian (James) Wang (incorporated herein by reference to Exhibit 10.1 filed as a part of the Company’s Form S-8 filed with the Commission on November 11, 2007 (Commission File No. 333-147603)).                                                                                                                                              |
|   | 10.31 | +      | Option Agreement dated August 16, 2006 between China Direct, Inc. and Marc Siegel (incorporated herein by reference to Exhibit 10.2 filed as a part of the Company’s Form S-8 filed with the Commission on November 11, 2007 (Commission File No. 333-147603)).                                                                                                                                                           |
|   | 10.32 |   | Baotou Changxin Magnesium Co., Ltd. Investment Agreement dated February 20, 2008 among CDI China, Inc., Excel Rise Technology Co., Ltd. and Three Harmony (Australia) Pty, Ltd. (incorporated herein by reference to Exhibit 10.1 as part of the Company’s Current Report on Form 8-K filed with the Commission on February 26, 2008 (Commission File No. 001-33694)).                                                    |
|   | 10.33 |   | Baotou Changxin Magnesium Co., Ltd. Articles of Association dated January 31, 2008 (incorporated herein by reference to Exhibit 3.1 as part of the Company’s Current Report on Form 8-K filed with the Commission on February 26, 2008 (Commission File No. 001-33694)).                                                                                                                                                  |
|   | 10.34 |   | Investment Framework Agreement dated as of April 26, 2008 by and between Baotou Xinjin Magnesium Co., Ltd. and CDI China, Inc. (incorporated herein by reference to Exhibit 10.18 as part of the Company’s Current Report on Form 8-K filed with the Commission on May 1, 2008 (Commission File No. 001-33694)).                                                                                                          |
|   | 10.35 | +      | Independent Board of Directors Compensation Plan (incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 3, 2008 (Commission File No. 001-33694)).                                                                                                                                                                                                                |
|   | 10.36 | +      | Compensation Award to Yi (Jenny) Liu on December 3, 2008 (incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 5, 2008 (Commission File No. 001-33694)).                                                                                                                                                                                                    |
|   | 10.37 |   | Lease Agreement dated August 21, 2007 between 431 Fairway Associates, LLC and China Direct, Inc. (incorporated herein by reference to Exhibit 10.37 filed as a part of the Company’s Form 10-K filed with the Commission on March 31, 2009 (Commission File No. 001-33694)).                                                                                                                                              |
|   | 10.38 | +      | Consulting Agreement dated January 23, 2009 between China Direct, Inc. and Marc Siegel (incorporated herein by reference to Exhibit 10.1 as part of the Company’s Current Report on Form 8-K filed with the Commission on January 26, 2009 (Commission File No. 001-33694)).                                                                                                                                              |
|   | 10.39 | +      | Separation and Severance Agreement dated January 23, 2009 between China Direct, Inc. and Marc Siegel (incorporated herein by reference to Exhibit 10.2 as part of the Company’s Current Report on Form 8-K filed with the Commission on January 26, 2009 (Commission File No. 001-33694)).                                                                                                                                |
|   | 10.40 |   | Stock Purchase Agreement dated January 23, 2009 between China Direct, Inc. and Marc Siegel (incorporated herein by reference to Exhibit 10.3 as part of the Company’s Current Report on Form 8-K filed with the Commission on January 26, 2009 (Commission File No. 001-33694)).                                                                                                                                          |
|   | 10.41 |   | Lock-Up Agreement dated January 23, 2009 between China Direct, Inc. and Marc Siegel (incorporated herein by reference to Exhibit 10.4 as part of the Company’s Current Report on Form 8-K filed with the Commission on January 26, 2009 (Commission File No. 001-33694)).                                                                                                                                                 |

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|   | 10.42 | +      | Compensation Arrangements with I. Andrew Weeraratne (incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the Commission on January 26, 2009 (Commission File No. 001-33694)).                                                                                                                                                                                                                             |
|--------|-------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10.43 | +      | Compensation Arrangements with Philip Y. Shen, Ph.D. effective January 26, 2009 (incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the Commission on January 26, 2009 (Commission File No. 001-33694)).                                                                                                                                                                                                 |
|   | 10.44 | +      | Amendment dated January 23, 2009 to Yuejian (James) Wang, Ph.D.’s Employment Agreement (incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the Commission on January 26, 2009 (Commission File No. 001-33694)).                                                                                                                                                                                    |
|   | 10.45 |   | Stock Purchase Agreement dated August 24, 2007 between Sense Holdings, Inc., CDI China, Inc. and China Direct, Inc. (incorporated herein by reference to Exhibit 10.1 as part of the Company’s Current Report on Form 8-K filed with the Commission on August 28, 2007 (Commission File No. 000-26415)).                                                                                                                                      |
|   | 10.46 | +      | Severance Agreement dated May 23, 2008 between China Direct, Inc. and Lazarus Rothstein (incorporated herein by reference to Exhibit 10.46 as part of the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 14, 2009 (Commission File No. 001-33694)).                                                                                                                                                              |
|   | 10.47 |   | Form of Securities Purchase Agreement dated as of March 23, 2009 between the Company and the Purchasers (incorporated herein by reference to Exhibit 10.1 as part of the Company’s Current Report on Form 8-K filed with the Commission on June 17, 2009 (Commission File No. 001-33694)).                                                                                                                                          |
|   | 10.48 |   | Continuous Offering Program Agreement dated October 14, 2009 between China Direct Industries, Inc. and Rodman & Renshaw, LLC (incorporated herein by reference to Exhibit 10.1 as part of the Company’s Current Report on Form 8-K filed with the Commission on October 15, 2009 (Commission File No. 001-33694)).                                                                                                                        |
|   | 10.49 | +      | Letter Agreement between China Direct Industries, Inc. and Andrew Wang dated as of December 23, 2009 (incorporated herein by reference to Exhibit 10.1 as part of the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2009 (Commission File No. 001-33694)).                                                                                                                                                   |
|   | 10.50 | +      | Separation Agreement between China Direct Industries, Inc. and Andrew Wang dated as of December 23, 2009 (incorporated herein by reference to Exhibit 10.2 as part of the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2009 (Commission File No. 001-33694)).                                                                                                                                               |
|   | 10.51 |   | Equity Transfer Agreement dated July 13, 2010 entered into among CDI China, Inc., Pine Capital Enterprises, Inc., Taiyuan Yiwei Magnesium Industry Co., Ltd. and Taiyuan Ruiming Yiwei Magnesium Industry Co., Ltd. (incorporated herein by reference to Exhibit 10.1 as part of the Company’s Current Report on Form 8-K filed with the Commission on July 15, 2010 (Commission File No. 001-33694)).                                   |
|   | 10.52 |   | Amendment dated July 20, 2010 to Equity Transfer Agreement dated July 13, 2010 entered into among CDI China, Inc., Pine Capital Enterprises, Inc., Taiyuan Yiwei Magnesium Industry Co., Ltd. and Taiyuan Ruiming Yiwei Magnesium  Industry Co., Ltd.                                                                                                                                                                                     |
|   | 10.53 |   | Amendment dated October 28, 2010 to Equity Transfer Agreement dated July 13, 2010 entered into among CDI China, Inc., Pine Capital Enterprises, Inc., Taiyuan Yiwei Magnesium Industry Co., Ltd. and Taiyuan Ruiming Yiwei Magnesium  Industry Co., Ltd. (incorporated herein by reference to Exhibit 10.53 as part of the Company?痵 Form 10-K as filed with the Commission on December 23, 2010 (Commission File No. 001-33694)). |
|   | 10.54 |   | Engagement Letter dated December 30, 2010 between China Direct Industries, Inc. and Rodman & Renshaw, LLC (incorporated herein by reference to Exhibit 10.54 as part of the Company’s Form 8-K as filed with the Commission on January 4, 2011 (Commission File No. 001-33694)).                                                                                                                                                          |
|   | 10.55 |   | Form of Securities Purchase Agreement dated December 30, 2010 (incorporated herein by reference to Exhibit 10.55 as part of the Company’s Form 8-K as filed with the Commission on January 4, 2011 (Commission File No. 001-33694)).                                                                                                                                                                                                          |
|   | 10.56 |   | “At-the-Market” Program Agreement between China Direct Industries, Inc. and Global Hunter Securities, LLC dated February 14, 2011.                                                                                                                                                                                                                                                                                                      |
|   | 10.57 |   | Stock Transfer Agreement dated May 6, 2011 between CDI China, Inc. and Kong Tung and Hui Dong (Incorporated herein by reference to Exhibit 10,1 as part of the Company’s Form 8-K as filed with the Commission on May 12, 2011.                                                                                                                                                                                                               |
|   | 31.1  | *      | Section 302 Certificate of Chief Executive Officer.                                                                                                                                                                                                                                                                                                                                                                                            |
|   | 31.2  | *      | Section 302 Certificate of Principal Financial and Accounting Officer.                                                                                                                                                                                                                                                                                                                                                                         |
|   | 32.1  | *      | Section 906 Certificate of Chief Executive Officer and Principal Financial and Accounting Officer.                                                                                                                                                                                                                                                                                                                                             |

|    | + |   | Management contract or compensatory plan or arrangement. |
|--------------|---|--------|----------------------------------------------------------|
|         | * |   | Filed herewith.                                          |

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|                     |                                         |   |
|--------------------------|----------------------------------------------|--------|
|                     | CHINA DIRECT INDUSTRIES, INC.                |
|                     |                                         |
|  Date: May 16, 2010 | By: /s/ Yuejian (James) Wang                 |
|                     | Yuejian (James) Wang,                        |
|                     | Chairman and Chief Executive Officer         |
|                     | (Principal Executive Officer)                |
|                     |                                         |
|                     |                                         |
|                     |                                         |
|  Date: May 16, 2010 | By: /s/ Andrew X Wang                        |
|                     | Andrew X Wang                                |
|                     | Chief Financial Officer                      |
|                     | (Principal Financial and Accounting Officer) |
|                     |                                         |

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