UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(Mark One)

[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

                  For the quarterly report ended June 30, 2007

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

              For the transition period from ________ to _________

                        Commission File Number: 000-26415

                               CHINA DIRECT, INC.
                               ------------------
          (Exact name of small business issuer as specified in charter)

                 Florida                              13-3876100
                 -------                              ----------
     (State or other jurisdiction of               (I.R.S. Employer
      incorporation or organization)              Identification No.)

                      5301 North Federal Highway, Suite 120
                            Boca Raton, Florida 33487
                      -------------------------------------
                    (Address of principal executive offices)

                                 (561) 989-9171
                                 --------------
                           (Issuer's telephone number)

                                 not applicable
                                 --------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [ ] No [X]

                       APPLICABLE ONLY TO COPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: At August 8, 2007 there were
16,327,933 shares of common stock were issued and outstanding.

Transitional Small Business Disclosure Format (Check one) Yes [ ] No [X]

<PAGE>

           CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

         Certain statements in this report contain or may contain
forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking statements. These
factors include, but are not limited to, the risk of doing business in the
People' Republic of China, our ability to implement our strategic initiatives,
our access to sufficient capital, the effective integration of our subsidiaries
in the PRC into a U.S. public company structure, economic, political and market
conditions and fluctuations, government and industry regulation, Chinese and
global competition, and other factors. Most of these factors are difficult to
predict accurately and are generally beyond our control. You should consider the
areas of risk described in connection with any forward-looking statements that
may be made herein. Readers are cautioned not to place undue reliance on these
forward-looking statements and readers should carefully review this report in
its entirety. Except for our ongoing obligations to disclose material
information under the Federal securities laws, we undertake no obligation to
release publicly any revisions to any forward-looking statements, to report
events or to report the occurrence of unanticipated events. These
forward-looking statements speak only as of the date of this report and you
should not rely on these statements without also considering the risks and
uncertainties associated with these statements and our business.

                           OTHER PERTINENT INFORMATION

         All share and per share information contained in this report gives
effect to the 100 for 1 (100:1) reverse stock split of our common stock
effective June 28, 2006.

         When used in this report the terms "China Direct", "we", "us" or "our"
refers to China Direct, Inc., a Florida corporation formerly known as Evolve
One, Inc., and its subsidiaries. Other terms used in this report include:

o    "China Direct Consulting" means China Direct Investments, Inc., a Florida
     corporation and a wholly owned subsidiary of China Direct,

o    "CDI China" means CDI China, Inc., a Florida corporation and a wholly owned
     subsidiary of China Direct,

o    "Lang Chemical" means Shanghai Lang Chemical Co., Ltd., a Chinese limited
     liability company, and a majority owned subsidiary of CDI China,

o    "Chang Magnesium" means Taiyuan Chang Magnesium Co., Ltd., a Chinese
     limited liability company, and a majority owned subsidiary of CDI China

o    "Changxin Trading" means Taiyuan Changxin YiWei Trading Co., Ltd., a
     Chinese limited liability company, and a wholly owned subsidiary of Chang
     Magnesium,

o    "CDI Shanghai Management" means CDI Shanghai Management Co., Ltd., a
     Chinese limited liability company, and a wholly owned subsidiary of CDI
     China,

                                       -2-
<PAGE>

o    "Luma Logistic" means Luma Logistic (Shanghai) Co., Ltd., a Chinese limited
     liability company, and a majority owned subsidiary of CDI China,

o    "Big Tree" means Big Tree Group Corp., a Florida corporation, and a
     majority owned subsidiary of CDI China,

o    "Jieyang Big Tree" means Jieyang Big Tree Toy Enterprise Co., Ltd, a
     Chinese limited liability company, and a wholly owned subsidiary of Big
     Tree,

o    "Jinan" means Jinan Alternative Energy Group Corp. a Florida corporation,
     and a wholly owned subsidiary of CDI China,

o    "CDI Wanda" means CDI Wanda New Energy Co., Ltd., a Chinese limited
     liability company formerly known as Jinan Wanda New Energy Co., Ltd., and a
     majority owned subsidiary of Jinan,

o    "CDI Magnesium" means CDI Magnesium Co., Ltd., a Brunei corporation, and a
     majority owned subsidiary of CDI China,

o    "Capital One Resource" means Capital One Resource Co., Ltd., a Brunei
     corporation, and a wholly owned subsidiary of CDI Shanghai Management,

o    "Excel Rise" means Excel Rise Technology Co., Ltd., a Brunei corporation,
     and a wholly owned subsidiary of Chang Magnesium,

o    "Asia Magnesium" means Asia Magnesium Co., Ltd., a Hong Kong company and a
     wholly owned subsidiary of Capital One Resource., and

o    "Jinwei Magnesium" means Shangxi Gu Country Jinwei Magnesium Corp., Ltd., a
     Chinese limited liability company, and a majority owned subsidiary of Asia
     Magnesium

                                      -3-
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
<TABLE>
                                     CHINA DIRECT, INC. AND SUBSIDIARIES
                                         CONSOLIDATED BALANCE SHEET
                                                June 30, 2007
                                                 (Unaudited)
<CAPTION>
                                                   ASSETS
<S>                                                                                            <C>
Current Assets:
  Cash and cash equivalents ............................................................       $  8,132,795
  Notes receivable .....................................................................            192,031
  Investment in marketable securities held for sale ....................................          3,060,463
  Investment in marketable securities held for sale-related party ......................          1,511,340
  Accounts receivable, net of allowance for doubtful accounts $8,485 ...................         10,250,851
  Inventories ..........................................................................          1,634,963
  Prepaid expenses and other assets ....................................................          6,003,756
  Prepaid expenses-related party .......................................................            418,875
  Other receivables ....................................................................            683,451
  Due from related parties .............................................................          1,434,946
                                                                                               ------------
     Total current assets ..............................................................         33,323,471

Property, plant and equipment, net of accumulated depreciation of $292,239 .............          3,577,621
Prepaid expenses .......................................................................            295,776
Property use rights, net ...............................................................             66,666
                                                                                               ------------

     Total assets ......................................................................       $ 37,263,534
                                                                                               ============

                                    LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Loan payable-short term ..............................................................       $    167,540
  Accounts payable and accrued expenses ................................................          5,229,225
  Accounts payable-related party .......................................................          4,692,308
  Liabilities in connection with acquisitions-related party ............................            368,272
  Advances from customers ..............................................................          3,395,088
  Deferred revenues-short term .........................................................          1,311,635
  Other payables .......................................................................          3,166,027
  Income tax payable ...................................................................            528,099
  Due to related parties ...............................................................             17,336
                                                                                               ------------
    Total current liabilities ..........................................................         18,875,530

Deferred revenues-long term ............................................................            248,950

Minority interest ......................................................................          5,612,124

Stockholders' Equity:

  Preferred Stock: $.0001 par value, 10,000,000 authoirzed, no shares
   issued and outstanding ..............................................................                  -
  Common Stock; $.0001 par value, 1,000,000,000 authorized, 14,900,433
   issued and outstanding ..............................................................              1,490
  Additional paid-in capital ...........................................................          8,232,472
  Deferred compensation ................................................................           (140,920)
  Accumulated comprehensive loss .......................................................           (334,878)
  Retained earnings ....................................................................          4,768,766
                                                                                               ------------

     Total stockholders' equity ........................................................         12,526,930
                                                                                               ------------

     Total liabilities and stockholders' equity ........................................       $ 37,263,534
                                                                                               ============

                          See notes to unaudited consolidated financial statements

                                                     -4-
</TABLE>
<PAGE>
<TABLE>
                                             CHINA DIRECT, INC. AND SUBSIDIARIES
                                            CONSOLIDATED STATEMENTS OF OPERATIONS
                                                         (Unaudited)
<CAPTION>
                                                                   For the Three Months             For the Six Months
                                                                      Ended June 30,                  Ended June 30,
                                                                   2007            2006            2007            2006
                                                               ------------    ------------    ------------    ------------
<S>                                                            <C>             <C>             <C>             <C>
Revenues ...................................................   $ 40,012,970    $    135,417    $ 70,511,910    $    241,832
Revenues-related party .....................................        440,000          45,000         880,000         145,000
                                                               ------------    ------------    ------------    ------------
     Total revenues ........................................     40,452,970         180,417      71,391,910         386,832

Cost of revenues ...........................................     36,742,381         133,534      64,209,395         148,794
                                                               ------------    ------------    ------------    ------------

Gross profit ...............................................      3,710,589          46,883       7,182,515         238,038

Operating expenses:
     Selling, general, and administrative ..................        847,417         503,648       1,684,926         842,088
     Selling, general, and administrative-related party ....              -           5,552               -          11,252
                                                               ------------    ------------    ------------    ------------

     Total operating expenses ..............................        847,417         509,200       1,684,926         853,340
                                                               ------------    ------------    ------------    ------------

     Operating income (loss) ...............................      2,863,172        (462,317)      5,497,589        (615,302)

Other income (expense):
Other income ...............................................        371,433               -         381,369               -
Interest income ............................................         41,855               -          71,021               -
Unrealized gain (loss) on trading securities ...............              -        (138,175)              -         273,500
Realized gain on sale of marketable securities .............        206,236               -         206,236          43,345
Realized loss on sale of marketable securities-related party        (16,041)              -         (32,014)              -
                                                               ------------    ------------    ------------    ------------

Net income (loss) before income taxes ......................      3,466,655        (600,492)      6,124,201        (298,457)

Income taxes (expenses) benefits ...........................       (522,159)        237,795        (754,731)        118,189
                                                               ------------    ------------    ------------    ------------

Net income before minority interest ........................      2,944,496        (362,697)      5,369,470        (180,268)

Minority interest in income of subsidiary ..................       (676,754)              -      (1,230,859)              -

Net income (loss) ..........................................   $  2,267,742    $   (362,697)   $  4,138,611    $   (180,268)
                                                               ------------    ------------    ------------    ------------

Foreign currency translation gain ..........................        167,891               -         248,049               -
                                                               ------------    ------------    ------------    ------------
Unrealized gain (loss) on marketable securities held .......              -               -               -               -
for sale, net of income taxes ..............................         48,315               -        (559,224)              -
                                                               ------------    ------------    ------------    ------------
Unrealized gain (loss) on marketable securities held .......              -               -               -               -
for sale-related party, net of income taxes ................       (214,624)        253,680        (556,082)      1,395,240
                                                               ------------    ------------    ------------    ------------

Comprehensive income (loss) ................................   $  2,269,324    $   (109,017)   $  3,271,354    $  1,214,972
                                                               ============    ============    ============    ============

Basic earnings (loss) per common share .....................   $       0.16    $      (0.04)   $       0.31    $      (0.02)
                                                               ============    ============    ============    ============

Diluted earnings (loss) per common share ...................   $       0.15    $      (0.04)   $       0.27    $      (0.02)
                                                               ============    ============    ============    ============

Basic weighted average common shares outstanding ...........     13,882,955      10,000,000      13,464,666      10,000,000
                                                               ============    ============    ============    ============

Diluted weighted average common shares outstanding .........     15,380,420      10,000,000      15,174,110      10,000,000
                                                               ============    ============    ============    ============

                                  See notes to unaudited consolidated financial statements

                                                             -5-
</TABLE>
<PAGE>
<TABLE>
                                    CHINA DIRECT , INC. AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 (Unaudited)
<CAPTION>
                                                                                     For the Six Months
                                                                                        Ended June 30,
                                                                                     2007           2006
                                                                                 -----------    -----------
<S>                                                                              <C>            <C>
Cash flows from operating activities:
Net income (loss) ............................................................   $ 4,138,611    $  (180,268)
Adjustments to reconcile net income (loss) to net cash used in
 operating activities:
  Depreciation ...............................................................       122,810          1,918
  Bad debt recovery ..........................................................      (102,126)             -
  Stock based compensation ...................................................       196,010              -
  Realized gain on investment in marketable securities .......................      (206,236)       (43,345)
  Realized loss on investment in marketable securities-related party .........        32,014              -
  Unrealized (gain) on investment in trading securities ......................             -       (273,500)
  Fair value of shares received for services .................................    (3,171,500)    (1,098,900)
  Fair value of warrants received for services ...............................      (103,950)             -
  Fair value of investments assigned to employees and consultants for services             -        837,200
  Fair value of options issued to consultants ................................             -        324,050
  Minority interest ..........................................................     1,230,859              -
Changes in operating assets and liabilities:
  Prepaid expenses ...........................................................    (3,506,535)      (667,642)
  Prepaid expenses-related party .............................................      (418,875)             -
  Inventories ................................................................     4,523,227              -
  Accounts receivable ........................................................    (7,455,735)             -
  Other receivables ..........................................................      (683,451)             -
  Accounts payable and accrued expenses ......................................       697,606          5,056
  Accounts payable-related party .............................................     3,145,428              -
  Advance from customers .....................................................       824,360              -
  Other payables .............................................................     2,940,552              -
  Deferred revenues ..........................................................           785        915,750
  Deferred income tax ........................................................        12,929       (232,647)
  Income tax payable .........................................................       (71,600)        59,458
                                                                                 -----------    -----------

Net cash provided by (used in) operating activities ..........................     2,145,183       (352,870)
                                                                                 -----------    -----------

Cash flows from investing activities:
  Due from related parties ...................................................      (996,525)             -
  Cash acquired in acquisition ...............................................        55,777              -
  Decrease in notes receivable ...............................................       750,086              -
  Decrease in restricted cash ................................................       447,713              -
  Proceeds from the sale of marketable securities ............................     1,192,487        115,345
  Purchases of property, plant and equipment .................................      (152,273)        (4,008)
                                                                                 -----------    -----------

Net cash provided by investing activities ....................................     1,297,265        111,337
                                                                                 -----------    -----------

Cash flows from financing activities:
  Repayment of loans payable .................................................    (1,455,746)             -
  Proceeds from advances from related parties ................................        17,336          8,637
  Repayments of advances to customers ........................................      (140,893)             -
  Capital contributed by officers ............................................             -        259,061
  Proceeds from exercises of warrants/options ................................     3,062,500              -
                                                                                 -----------    -----------

Net cash provided by financing activities ....................................     1,483,197        267,698
                                                                                 -----------    -----------

EFFECT OF EXCHANGE RATE ON CASH ..............................................       176,805              -

Net increase in cash .........................................................     5,102,450         26,165

Cash, beginning of year ......................................................     3,030,345         39,983
                                                                                 -----------    -----------

Cash, end of period ..........................................................   $ 8,132,795    $    66,148
                                                                                 ===========    ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid for taxes .....................................................   $   476,995    $    55,000
                                                                                 ===========    ===========

     Cash paid for interest ..................................................   $     5,036    $         -
                                                                                 ===========    ===========

                          See notes to unaudited consolidated financial statements

                                                     -6-
</TABLE>
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

THE COMPANY

China Direct, Inc., a Florida corporation formerly known as Evolve One, Inc.,
and its subsidiaries are referred to in this report as the "Company", or "China
Direct". China Direct Investments, Inc., a Florida corporation and a wholly
owned subsidiary of China Direct, Inc. is referred to in this report as "China
Direct Consulting". CDI China, Inc., a Florida corporation and a wholly owned
subsidiary of China Direct, Inc. is referred to in this report as "CDI China".

Evolve One, Inc. ("Evolve One"), a Delaware corporation, acquired 100% of China
Direct Consulting on August 16, 2006 (the "Transaction") in exchange for
10,000,000 shares of Evolve One common stock, after which the shareholders of
China Direct Consulting owned approximately 95% of the existing shares of Evolve
One. As a result of the Transaction, China Direct Consulting became a wholly
owned subsidiary of Evolve One. For financial accounting purposes, the
Transaction was treated as a recapitalization of Evolve One with the former
stockholders of Evolve One retaining approximately 5% of the outstanding stock.
This Transaction has been accounted for as a reverse acquisition under the
purchase method for business combinations, and accordingly the Transaction has
been treated as a recapitalization of China Direct Consulting, with China Direct
Consulting as the acquirer. The shares issued in the Transaction are treated as
being issued for cash and are shown as outstanding for all periods presented in
the same manner as for a stock split. In September 2006 Evolve One changed its
name to China Direct, Inc. On June 21, 2007, the Company filed a Certificate of
Domestication with the Florida Department of State, resulting in a change of
domicile from the state of Delaware to the state of Florida.

China Direct is a diversified management and consulting company.

Our purpose is twofold; (i) offer turn key consulting services to Chinese
entities and (ii) acquire controlling interests in entities operating within the
Chinese economy. China Direct seeks to provide an infrastructure for
development.

China Direct operates two wholly owned entities; China Direct Consulting and CDI
China. China Direct Consulting serves as a full service consulting and advisory
firm offering a suite of services.

CDI China operates as a management company for Chinese entities. CDI China seeks
to acquire a controlling interest in entities operating in China. We adhere to
PRC rules and regulations governing foreign investment and obtain all relevant
and necessary governmental approvals. Our predominant method of acquiring
Chinese entities is by infusing cash consideration to increase a Chinese
domestic company's registered capital on the basis of an appraisal of assets.
This infusion of capital serves to create a new foreign invested entity ("FIE")
in which our equity ownership percentage is represented by our percentage of
contribution to the total registered capital amount.

CDI China was incorporated under the laws of the State of Florida on August 25,
2006. CDI China was created to acquire a controlling interest in a variety of
Chinese entities engaged in operations which we believe will benefit from the
continued growth of the Chinese economy. Examples of industries in which we will
focus our efforts include manufacturing, technology, mining, healthcare,
packaging, as well as companies involved in importing and exporting activities.
On October 25, 2006, we entered into an agreement to contribute $701,250 to
increase the registered capital of Shanghai Lang Chemical Co., Ltd. ("Lang
Chemical") to $1,400,418. As a result, CDI China holds a 51% majority interest
in the restructured Lang Chemical. Lang Chemical is a distributor of industrial
grade synthetic chemicals within China.

                                       -7-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)

THE COMPANY (CONTINUED)

On December 22, 2006 we entered into an agreement to contribute $2,550,000 to
increase the registered capital of Chang Magnesium Co., Ltd. ("Chang Magnesium")
to $5,471,162. As a result, CDI China holds a 51% majority interest in the
restructured Chang Magnesium. Chang Magnesium was formed to operate a newly
constructed magnesium plant that will process and manufacture a variety of
magnesium products, including magnesium powder, magnesium scrap, and various
grades of magnesium slabs. Taiyuan Changxin YiWei Trading Co., Ltd., ("Changxin
Trading") is a wholly owned subsidiary of Chang Magnesium. In February 2007
Chang Magnesium formed a new entity, Excel Rise Technology Co., Ltd., a Brunei
corporation, as a wholly owned subsidiary ("Excel Rise"). Excel Rise will seek
to operate as an exporter of magnesium products; primary exports will include
various forms of magnesium including but not limited to magnesium powder,
magnesium scrap, and various grades of ordinary magnesium slabs.

In October 2006, we formed a new entity, Luma Logistic (Shanghai) Co., Ltd.,
("Luma Logistic") a Chinese limited liability company, as a 60% majority owned
subsidiary of CDI China. Luma Logistic intended to operate in two business
segments; logistics management and as a commodity wholesaler. Luma Logistic had
no operations for the six months ended June 30, 2007 and was subsequently
dissolved in July, 2007.

In November 2006 we formed a new entity, CDI (Shanghai) Management Co., Ltd.,
("CDI Shanghai Management") as a wholly owned subsidiary of CDI China. CDI
Shanghai Management will provide an operational infrastructure to subsidiaries
of CDI China, as well as providing consulting services to Chinese entities in
regards to mergers and acquisitions, business development, and financial
management. CDI Shanghai Management will supervise and monitor the operations of
the CDI China subsidiaries based in China. CDI Shanghai Management commenced
operations in January 2007. On February 17, 2007, CDI Shanghai Management
created Capital One Resource Co., Ltd., a Brunei corporation, as a wholly owned
subsidiary ("Capital One Resource"). Capital One Resource provides consulting
services to entities doing business in China.

In November 2006, Big Tree Group Corp. ("Big Tree"), a Florida corporation,
formed a new entity Jieyang Big Tree Toy Enterprise Co., Ltd, a Chinese limited
liability company, as a wholly owned subsidiary of Big Tree ("Jieyang Big
Tree").

                                       -8-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)

THE COMPANY (CONTINUED)

On February 12, 2007, and as amended on May 8, 2007, CDI China acquired a 60%
interest in Big Tree, in exchange for 53,654 shares of our common stock valued
at $268,272. The fair value of the common stock is based on the value of the
common stock of $5.00 per share on January 30, 2007. The $268,272 worth of
common stock is reflected in liabilities in connection with acquisitions-related
party in our consolidated balance sheet as of June 30, 2007. As a result, Big
Tree is a majority owned subsidiary of CDI China. Big Tree and its wholly owned
subsidiary, Jieyang Big Tree, will seek to be a reseller and distributor of toys
and related entertainment products within China. Neither Big Tree nor Jieyang
Big Tree had any operations for the period of February 12, 2007, the date of
acquisition, through June 30, 2007. Under the terms of the agreement, we agreed
to make capital infusions in the aggregate of $1,000,000 to Jieyang Big Tree
between March 31, 2007 and October 31, 2007, provided that Big Tree meets the
following benchmarks: revenues of $12.5 million and net income of $625,000 for
the six month period ended June 30, 2007; and revenues of $18.75 million and net
income of $937,500 for the nine months ended September 30, 2007. If made, it is
expected the additional investment capital will be advanced in the form of a
loan, 12% per annum, secured by the 53,654 shares of the our common stock issued
in the transaction. As of June 30, 2007, Big Tree has not satisfied the
conditions necessary to receive the additional investment capital. We anticipate
that Jieyang Big Tree will commence operations in September 2007. SEE NOTE 6-
ACQUISITIONS.

On February 12, 2007 CDI China acquired a 60% majority interest in CDI Magnesium
Co., Ltd., a Brunei corporation ("CDI Magnesium"), in exchange for 25,000 shares
of our common stock valued at $100,000. The fair value of the common stock is
based on the value of the common stock of $4.00 per share on February 6, 2007.
The $100,000 worth of common stock is reflected in liabilities in connection
with acquisitions-related party in our consolidated balance sheet as of June 30,
2007. CDI Magnesium was formed to eventually operate a newly constructed
magnesium plant in Taiyuan, China. It is expected that the plant will process
and manufacture a variety of magnesium alloy by-products. CDI Magnesium had no
operations operations for the period of February 12, 2007, the date of
acquisition, through June 30, 2007. CDI Magnesium expects to commence operations
at the plant in January 2008, until operations commence at the new magnesium
plant, CDI Magnesium intends to operate as a trading company acting as an agent
in the sale of magnesium commencing in September 2007. SEE NOTE 6- ACQUISITIONS.

Jinan Alternative Energy Group Corp. was incorporated in Florida as a wholly
owned subsidiary of CDI China on January 18, 2007 as Wonderful Tech Group Inc.
("Jinan"). On February 7, 2007, Wonderful Tech Group Inc. changed its name to
Jinan Alternative Energy Group Corp. On February 12, 2007 CDI China agreed to
contribute $511,458 to increase the registered capital of Jinan Wanda
Alternative Energy Co., Ltd., to $1,002,859 and form a new Chinese foreign
invested entity Jinan Wanda New Energy Co., Ltd. As a result Jinan holds a 51%
majority interest in Jinan Wanda New Energy Co., Ltd. On March 23, 2007 Jinan
Wanda New Energy Co., Ltd. changed its name to CDI Wanda New Energy Co., Ltd.
("CDI Wanda"). In April 2007, CDI China contributed $511,458 of investment
capital to CDI Wanda. CDI Wanda is located in Jinan, the capital city of
Shandong Province. CDI Wanda is engaged in the alternative energy and recycling
industry. CDI Wanda develops environmentally friendly recycling technological
applications as well as ancillary services related to the operations of
refineries. SEE NOTE 6- ACQUISITIONS.

                                       -9-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and the footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting of
recurring accruals, considered for a fair presentation have been included. Our
year end is December 31, which is denoted herein as our "Fiscal" year. Operating
results for the six months ended June 30, 2007 are not necessarily indicative of
the results that may be expected for Fiscal 2007. The consolidated statements
include the accounts of the Company and its controlled entities, including its
wholly owned and majority owned subsidiaries. All significant inter-company
balances and transactions have been eliminated.

As previously stated, we closed the acquisition of a majority interest of CDI
Wanda on February 12, 2007. Our consolidated statements of operations for the
six months ended June 30, 2007 include the operations of CDI Wanda for the
period of February 12, 2007, the date of acquisition, through June 30, 2007. In
this section we refer to that period as the "CDI Wanda Reporting Period".

As previously stated we closed the acquisition of a majority interest of Big
Tree on February 12, 2007. Our consolidated statements of operations did not
include the operations of Jieyang Big Tree for the period of February 12, 2007,
the date of acquisition, through June 30, 2007 as there were no operations.

As previously stated we closed the acquisition of a majority interest of CDI
Magnesium on February 12, 2007. Our consolidated statements of operations did
not include the operations of CDI Magnesium for the period of February 12, 2007,
the date of acquisition, through June 30, 2007 as there were no operations.

ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. Significant estimates in 2007 and
2006 include the allowance for doubtful accounts of accounts receivable,
stock-based compensation, and the useful life of property, plant and equipment.

CASH AND CASH EQUIVALENTS

For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments with original maturities of three months or less
to be cash equivalents.

                                      -10-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

CONCENTRATION OF CREDIT RISKS

Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and trade accounts receivable. The
Company places its cash with high credit quality financial institutions in the
United States and China. As of June 30, 2007, bank deposits in the United States
exceeded federally insured limits by $3,716,395. At June 30, 2007, the Company
had approximately $3,926,550 in China bank deposits, which cannot be insured. In
China, there is no equivalent federal deposit insurance as in United States. The
Company has not experienced any losses in such accounts through June 30, 2007.

At June 30, 2007, our bank deposits by geographic area are as follows:

         United States .................   $4,206,245
         China .........................    3,926,550
                                           ----------
         Total cash and cash equivalents   $8,132,795
                                           ==========

To reduce its risk, the Company periodically evaluates the credit quality of the
financial institutions at which it holds deposits.

The Company categorizes securities as investment in marketable securities held
for sale and investment in marketable securities held for sale-related party.
One client, Dragon Capital Group Corp., a related party, accounted for all of
our investment in marketable securities held for sale-related party at June 30,
2007 of $1,511,340. These securities were issued to us by Dragon Capital Group
Corp., a related party, which is a non reporting company whose securities are
quoted on the Pink Sheets. Under Federal securities laws these securities cannot
be readily resold by us generally absent a registration of those securities
under the Securities Act of 1933. Dragon Capital Group Corp., a related party,
does not intend to register the securities. Accordingly, while under generally
accepted accounting principles we are required to reflect the fair value of
these securities on our consolidated balance sheet, they are not readily
convertible into cash and we may never realize the carrying value of these
securities.

We provide consulting services to Dragon Capital Group Corp., a related party.
Mr. Lisheng (Lawrence) Wang, the CEO and Chairman of the Board of Dragon Capital
Group Corp., is the brother of Dr. James Wang, our CEO and Chairman.

                                      -11-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

Five clients accounted for the Company's investment in marketable securities
held for sale of $3,060,463 held at June 30, 2007. These securities are
comprised as follows;

                                            INVESTMENT IN MARKETABLE
                                            SECURITIES HELD FOR SALE
            NAME OF THE CLIENT                 AS OF JUNE 30, 2007    PERCENTAGE
------------------------------------------  ------------------------  ----------
Sense Holdings, Inc. .....................         $1,092,500             36%
Dragon International Group Corp. .........            861,363             28%
Linkwell Corporation .....................            653,175             21%
Sunwin International Neutraceuticals, Inc.            320,925             11%
MediaReady, Inc. .........................            132,500              4%
                                            ------------------------  ----------

                                                   $3,060,463            100%
                                            ========================  ==========

CUSTOMER CONCENTRATION

Our subsidiary, China Direct Consulting, provides consulting services pursuant
to written agreements and receives securities as compensation for services
rendered. Five of China Direct Consulting's clients accounted for approximately
78%, and one client, Dragon Capital Group Corp., a related party, accounted for
approximately 19% of the total revenues of $4,585,203 for China Direct
Consulting during the six months ended June 30, 2007.

                                              CONSULTING REVENUES
            NAME OF THE CLIENT                AS OF JUNE 30, 2007     PERCENTAGE
------------------------------------------  ------------------------  ----------
Dragon International Group Corp. .........           $997,133             22%
Sunwin International Neutraceuticals, Inc.            952,911             21%
Dragon Capital Group Corp. ...............            880,000             19%
Shanghai Qinpu Investment Co., Ltd. ......            580,000             13%
Linkwell Corporation .....................            564,000             12%
Sense Holdings, Inc. .....................            480,000             10%
Others ...................................            131,159              3%
                                            ------------------------  ----------

                                                   $4,585,203            100%
                                            ========================  ==========

China Direct Consulting seeks to minimize its customer concentration risk by
diversifying its existing client base.

                                      -12-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

CUSTOMER CONCENTRATION (CONTINUED)

Accounts receivable net of allowance for doubtful accounts of $8,485 at June 30,
2007 was $10,250,851. Of this amount $6,500,096, $3,474,421, $228,333, and
$48,001 were associated with our Chang Magnesium, Lang Chemical, China Direct
Consulting, and CDI Wanda subsidiaries respectively.

One client of Lang Chemical, GuiZhou Crystal Chemical Co., Ltd., accounted for
$2,339,239 or approximately 67% of the total accounts receivable of $3,474,421
reflected for Lang Chemical at June 30, 2007.

Two clients accounted for $1,859,814 or approximately 29% of the total accounts
receivable of $6,500,096 reflected for Chang Magnesium at June 30, 2007. These
clients, XiaMen Trading Co., Ltd and TAK Trading Co., Ltd, represented
$1,220,068 or approximately 19% and $639,746 or approximately 10%, respectively.

Dragon International Group Corp. accounted for the total amount of $228,333 of
accounts receivable reflected for China Direct Consulting at June 30, 2007.

ACCOUNTS RECEIVABLE

Accounts receivable are reported at net realizable value. The Company has
established an allowance for doubtful accounts based upon factors pertaining to
the credit risk of specific customers, historical trends, and other information.
Delinquent accounts are written off when it is determined that the amounts are
uncollectible. At June 30, 2007, the allowance for doubtful accounts was $8,485.

INVENTORIES

Inventories, consisting of raw materials and finished goods related to the
Company's products are stated at the lower of cost or market utilizing the
weighted average method.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash and cash equivalents, investments in marketable
securities held for sale, investment in marketable securities held for
sale-related party, accounts payable and accrued expenses, income tax payable
and due to related parties approximates their fair value due to their short term
maturities. The carrying value of securities held for sale is reflected at their
fair value based on the price of the security as quoted on national or inter
dealer stock exchanges.

                                      -13-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

MARKETABLE SECURITIES

The Company classifies its existing investments in marketable securities held
for sale and investments in marketable securities held for sale-related party in
accordance with SFAS No. 115. Investments in marketable securities held for sale
and investments in marketable securities held for sale-related party consist of
marketable securities, and are stated at fair value. Unrealized gains or losses
on marketable securities held for sale and unrealized gains or losses on
marketable securities held for sale-related party are recognized as an element
of comprehensive income in our operations on a monthly basis based on
fluctuations in the fair value of the security as quoted on national or
inter-dealer stock exchanges. Realized gains or losses on marketable securities
held for sale and realized gains or losses on marketable securities held for
sale-related party are recognized in the consolidated statement of operations as
trading profits when securities are sold.

The Company receives securities which include common stock purchase warrants and
common stock from clients as part of its compensation for services. These
securities are stated at their fair value in accordance with SFAS #115
"Accounting for certain investments in debt and equity securities", and EITF
00-8 "Accounting by a grantee for an equity instrument to be received in
conjunction with providing goods or services". All of the securities are
received from companies whose common stock is listed either on the over the
counter bulletin board or pinks sheets. The common stock and the common stock
purchase warrants received as compensation are typically restricted as to
resale. The policy of China Direct Consulting is to sell securities it receives
as compensation when permitted rather than hold on to these securities as long
term investments, regardless of market conditions in an effort to satisfy our
current obligations. As these securities are often restricted, we are unable to
liquidate these securities until the restriction is removed. The Company
recognizes revenue for such common stock based on the fair value at the time
common stock is granted and for common stock purchase warrants based on the
Black-Scholes valuation model. Unrealized gains or losses on marketable
securities held for sale and unrealized gains or losses on marketable securities
held for sale-related party are recognized as an element of comprehensive income
in our consolidated statement of operations on a monthly basis based on changes
in the fair value of the security as quoted on national or inter-dealer stock
exchanges. Once liquidated, realized gains or losses on the sale of marketable
securities held for sale and realized gains or losses on the sale of marketable
securities held for sale-related party will be reflected in our net income for
the period in which the security was liquidated.

Net unrealized gains related to investments in trading securities for the six
months ended June 30, 2007 and 2006 are $0 and $273,500, respectively. Net
realized gains related to investments in marketable securities for the six
months ended June 30, 2007 and 2006 were $206,236 and $43,345, respectively. Net
realized losses on the sale of marketable securities-related party for the six
months ended June 30, 2007 and 2006 were $32,014 and $0 respectively.

The unrealized gains or losses on marketable securities held for sale, net of
tax effect, for the six months ended June 30, 2007 and June 30, 2006 were
$(559,224) and $0 respectively. The unrealized gains or losses on marketable
securities held for sale-related party, net of tax effect, for the six months
ended June 30, 2007 and June 30, 2006 were $(556,082) and $1,395,240
respectively.

                                      -14-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other assets consist of the fair value of securities of
China Direct Consulting's clients which were assigned to China Direct
Consulting's officers as compensation pursuant to employment agreements,
prepayment to vendors for merchandise that had not yet been shipped, and value
added tax refunds available from the Chinese government. At June 30, 2007 our
consolidated balance sheet includes prepaid expenses and other assets of
$6,003,756. Of this amount, $4,570,862 is related to Chang Magnesium which
represents prepayments to vendors for merchandise that had not yet been shipped
to Chang Magnesium; $492,540 reflects value added tax refunds available from the
Chinese government related to Chang Magnesium; $479,498 relates to China Direct
Consulting, which represents the current portion of the fair value of client
securities China Direct Consulting received as payment for its services which
were assigned to our executive officers, as compensation for their services to
China Direct Consulting pursuant to the terms of those consulting agreements;
$430,929 relates to Lang Chemical which represents a prepayment to vendors for
merchandise that had not yet been shipped to Lang Chemical; $25,797 relates to
CDI Wanda which represents prepayments to vendors for merchandise that had not
yet been shipped to CDI Wanda; and $4,130, relates to Big Tree which represents
prepayments to vendors for merchandise that had not yet been shipped to Jieyang
Big Tree.

At June 30, 2007 our consolidated balance sheet includes prepaid expenses
-related party of $418,875. Prepaid expenses-related party represents $418,514
in payments to Taiyuan YiWei Magnesium Industry Co., Ltd., a related party, for
inventory which has not yet been received by Chang Magnesium. At June 30, 2007,
Lang Chemical prepaid NanTong LangYuan Chemical Co., Ltd. $361 for the future
delivery of inventory. NanTong LangYuan Chemical Co., Ltd. is a company owned by
Jingdong Chen and Qian Zhu, our two minority shareholders of Lang Chemical. See
Note 9-Related Party Transactions.

Non-current prepaid expenses represent the fair value of securities of China
Direct Consulting's clients which were assigned to China Direct Consulting's
officers for services to be rendered to such clients over the term of our
consulting agreements which will be amortized beyond the twelve month period.
Accordingly at June 30, 2007 we reflect a non-current prepaid expense of
$295,776 on our consolidated balance sheet at June 30, 2007.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost and depreciated on a straight
line basis over their estimated useful lives of three to forty years.
Maintenance and repairs are charged to expense as incurred. Significant renewals
and improvements are capitalized.

                                      -15-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

ADVANCES FROM CUSTOMERS

Advances from customers represent prepayments to the Company for merchandise
that had not yet been shipped to the customer. The Company will recognize the
advances as revenue as customers take delivery of the goods, in compliance with
its revenue recognition policy. At June 30, 2007 our consolidated balance sheet
reflects advances from customers of $3,395,088 which consist of $3,171,846
related to Chang Magnesium, $129,286 related to Lang Chemical, and $93,956
related to CDI Wanda.

COMPREHENSIVE INCOME

The Company uses Statement of Financial Accounting Standards No. 130 (SFAS 130)
"Reporting Comprehensive Income". Comprehensive income is comprised of net
income and all changes to the statements of stockholders' equity, except those
due to investments by stockholders, changes in paid-in capital and distributions
to stockholders. For the Company, comprehensive income for the six months ended
June 30, 2007 and 2006 included net income, foreign currency translation
adjustments, unrealized gains or losses on marketable securities held for sale,
net of income taxes, and unrealized gains or losses on marketable securities
held for sale-related party, net of income taxes.

FOREIGN CURRENCY TRANSLATION

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

For foreign operations with the local currency as the functional currency,
assets and liabilities are translated from the local currencies into U.S.
dollars at the exchange rate prevailing at the balance sheet date. Revenues and
expenses are translated at weighted average exchange rates for the period to
approximate translation at the exchange rates prevailing at the dates those
elements are recognized in the financial statements. Translation adjustments
resulting from the process of translating the local currency financial
statements into U.S. dollars are included in determining accumulated
comprehensive loss. As of June 30, 2007, the exchange rate for the local
currency, the Chinese dollar or Renminbi ("RMB") was $1 for 7.6248 RMB.

The reporting currency is the U.S. dollar. The functional currency of the
Company's Chinese subsidiaries, is the RMB. The financial statements of the
Chinese subsidiaries are translated into United States dollars using period end
rates of exchange for assets and liabilities, and average rates of exchange for
the period for revenues, costs, and expenses. Net gains and losses resulting
from foreign exchange transactions are included in the consolidated statements
of operations and were not material during the periods presented. The cumulative
translation adjustment and effect of exchange rate changes on cash at June 30,
2007 was $176,805.

                                      -16-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the Company
periodically reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be fully recoverable. The Company recognizes an impairment loss when the sum of
expected undiscounted future cash flows is less than the carrying amount of the
asset. The amount of impairment is measured as the difference between the
asset's estimated fair value and its book value. The Company did not record any
impairment charges during the six months ended June 30, 2007.

MINORITY INTEREST

Under generally accepted accounting principles when losses applicable to the
minority interest in a subsidiary exceed the minority interest in the equity
capital of the subsidiary, the excess is not charged to the majority interest
since there is no obligation of the minority interest to make good on such
losses. The Company, therefore, has included losses applicable to the minority
interest against its interest since the minority owners have no obligation to
make good on the losses. If future earnings do materialize, the Company shall be
credited to the extent of such losses previously absorbed.

As previously stated, as of October 25, 2006 we hold a 51% majority interest of
Lang Chemical.

As previously stated as of December 22, 2006, we hold a 51% majority interest of
Chang Magnesium.

As previously stated in November 2006, Big Tree formed a new entity, Jieyang Big
Tree, a Chinese limited liability company, as a wholly owned subsidiary. On
February 12, 2007 as amended on May 8, 2007, CDI China acquired a 60% majority
equity interest in Big Tree in exchange for 53,654 shares of our common stock of
valued at $268,272. The fair value of the common stock is based on the value of
the shares as mutually agreed on January 30, 2007. The $268,272 worth of common
stock is reflected in Liabilities in connection with acquisitions-related party
in our consolidated balance sheet as of June 30, 2007. As a result CDI China
holds a 60% majority equity interest in Big Tree.

As previously stated, On February 12, 2007, CDI China, Inc. acquired a 60%
majority equity interest in CDI Magnesium in exchange for 25,000 shares of our
common stock valued at $100,000. The fair value of the common stock is based on
the value of the shares as of the date of the agreement. The $100,000 worth of
common stock is reflected in liabilities in connection with acquisitions-related
party in our consolidated balance sheet as of June 30, 2007. As a result CDI
China holds a 60% majority equity interest in CDI Magnesium.

As previously stated, Jinan Alternative Energy Group Corp. was incorporated in
Florida as a wholly owned subsidiary of CDI China on January 18, 2007. On
February 12, 2007 CDI China agreed to contribute $511,458 to increase the
registered capital of CDI Wanda to $1,002,859. In April 2007 we contributed
$511,458 to CDI Wanda. As a result Jinan holds a 51% majority equity interest in
CDI Wanda.

                                      -17-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

INCOME TAXES

Income taxes are accounted for in accordance with SFAS No. 109, Accounting for
Income Taxes. SFAS No. 109 requires the recognition of deferred tax assets and
liabilities to reflect the future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. Measurement of
the deferred items is based on enacted tax laws. In the event the future
consequences of differences between financial reporting bases and tax bases of
the Company's assets and liabilities result in a deferred tax asset, SFAS No.
109 requires an evaluation of the probability of being able to realize the
future benefits indicated by such assets. A valuation allowance related to a
deferred tax asset is recorded when it is more likely than not that some or the
entire deferred tax asset will not be realized.

BASIC AND DILUTED EARNINGS PER SHARE

Basic earnings per share are calculated by dividing net income by the weighted
average number of common stock outstanding during each period. Diluted earnings
per share are computed using the weighted average number of common and dilutive
common share equivalents outstanding during the period. Dilutive common share
equivalents consist of shares issuable upon the exercise of stock options and
warrants. At June 30, 2007, there were options to purchase 7,962,980 shares of
common stock and there were warrants to purchase 7,541,875 shares of common
stock, which could potentially dilute future earnings per share. At June 30,
2006, there were options to purchase 9,046,000 shares of common stock,
respectively, which could potentially dilute future earnings per share.

The following table sets forth the computation of basic and diluted earnings per
share:

                                                    JUNE 30, 2007  JUNE 30, 2006
                                                    -------------  -------------
Numerator:
Net income (loss) ...............................   $  4,138,611   $   (180,268)
                                                    ============   ============

Denominator:
Denominator for basic earnings per share
Weighted average shares outstanding .............     13,464,666     10,000,000

Effect of dilutive warrants and employee stock
options .........................................      1,709,444              -

Denominator for diluted earnings per share
Weighted average shares outstanding .............     15,174,110     10,000,000

Basic earnings (loss) per share .................   $       0.31   $      (0.02)
                                                    ============   ============
Diluted earnings (loss) per share ...............   $       0.27   $      (0.02)
                                                    ============   ============

                                      -18-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

REVENUE RECOGNITION

Revenue is recognized when earned. The Company's revenue recognition policies
are in compliance with the Securities and Exchange Commission's Staff Accounting
Bulletin ("SAB") No. 104 "Revenue Recognition".

China Direct Consulting provides its services pursuant to written agreements
which may vary in duration. Revenues are recognized over the terms of the
agreements. Revenues of China Direct Consulting are derived from a fee for
services rendered.

A significant portion of the services provided by China Direct Consulting are
compensated with securities which include common stock purchase warrants and
common stock from clients. These securities are classified as investment in
marketable securities held for sale and investment in marketable securities held
for sale-related party on the consolidated balance sheet, if still held at the
financial reporting date. These securities are stated at fair value in
accordance with the provision of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
No. 115") and EITF 00-8 "Accounting by a grantee for an equity instrument to be
received in conjunction with providing goods or services".

The securities received, whether in the form of common stock, or common stock
purchase warrants, are typically restricted as to resale. The policy of China
Direct Consulting is to sell securities it receives as compensation when
permitted rather than hold on to these securities as long term investments,
regardless of market conditions in an effort to satisfy our current obligations.
As these securities are often restricted, we are unable to liquidate these
securities until the restriction is removed. The Company recognizes revenue for
such common stock based on the fair value at the time common stock is granted
and for common stock purchase warrants based on the Black-Scholes valuation
model. Unrealized gains or losses on marketable securities held for sale and
unrealized gains or losses on marketable securities held for sale-related party
are recognized as an element of comprehensive income in our consolidated
statement of operations on a monthly basis based on changes in the fair value of
the security as quoted on national or inter-dealer stock exchanges. Once
liquidated, realized gains or losses on the sale of marketable securities held
for sale and realized gains or losses on the sale of marketable securities held
for sale-related party will be reflected in our net income for the period in
which the security was liquidated.

                                      -19-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

REVENUE RECOGNITION (CONTINUED)

Realized gains or losses are recognized in the consolidated statement of
operations when the related common stock or common stock purchase warrants are
exercised and sold. China Direct Consulting recognized revenues amounting to
$4,585,203 and $386,832 for the six months ended June 30, 2007 and 2006,
respectively, of which $3,707,998 and $183,150 were in connection with the
receipt of equity instruments for the six months ended June 30, 2007 and 2006
respectively. Furthermore of these amounts, Dragon Capital Group Corp., a
related party comprised $880,000 and $0 of our revenue in connection with the
receipt of equity instruments for six months ended June 30, 2007 and 2006,
respectively.

                                                    JUNE 30, 2007  JUNE 30, 2006
                                                    -------------  -------------

Cash ............................................   $    877,205   $     58,682
Cash-related party ..............................              -        145,000
                                                    ------------   ------------
Total Cash ......................................   $    877,205   $    203,682

Marketable Securities ...........................   $  2,827,998   $    183,150
Marketable Securities-related party .............        880,000              -
                                                    ------------   ------------
Total Marketable Securities .....................   $  3,707,998   $    183,150

                                                    ------------   ------------
Total China Direct Consulting Revenues ..........   $  4,585,203   $    386,832
                                                    ============   ============

Additionally, the Company has deferred revenues of $1,560,585 in connection with
the receipt of securities at June 30, 2007. The fees due under the contracts
with our consulting clients are amortized over the term of the agreement. Our
consolidated balance sheet at June 30, 2007 appearing elsewhere herein reflects
both deferred revenues short term, which will be recognized during the next
twelve months, and deferred revenues-long term which will be recognized beyond
the twelve months period. China Direct Consulting recorded $1,311,635 of
deferred revenue-short term for the period ended June 30, 2007. This amount
includes the following; securities of Sunwin International Neutraceuticals, Inc.
valued at $674,519, securities of Dragon International Group Corp. valued at
$311,600, securities of MediaReady, Inc. valued at $88,016 and securities of
Sense Holdings, Inc. valued at $237,500. Of the $1,560,585 of deferred revenues
At June 30, 2007, $248,950 will be realized in the year ended December 31, 2008
as the securities are recognized as revenues in accordance with the term of the
agreements.

Lang Chemical, Chang Magnesium, and CDI Wanda record revenue when persuasive
evidence of an arrangement exists, services have been rendered or product
delivery has occurred, the sales price to the customer is fixed or determinable,
and collectibility is reasonably assured. Revenues from the sale of products are
recorded when the goods are shipped, title passes, and collectibility is
reasonably assured.

                                      -20-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

STOCK BASED COMPENSATION

In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment", which
replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R),
companies are required to measure the compensation costs of share based
compensation arrangements based on the grant date fair value and recognize the
costs in the financial statements over the period during which employees are
required to provide services. Share based compensation arrangements include
stock options, restricted share plans, performance based awards, share
appreciation rights and employee share purchase plans. In March 2005 the SEC
issued Staff Accounting Bulletin No. 107, or "SAB 107". SAB 107 expresses views
of the staff regarding the interaction between SFAS No. 123(R) and certain SEC
rules and regulations and provides the staff's views regarding the valuation of
share based payment arrangements for public companies. SFAS No. 123(R) permits
public companies to adopt its requirements using one of two methods. On April
14, 2005, the SEC adopted a new rule amending the compliance dates for SFAS
123R. Companies may elect to apply this statement either prospectively, or on a
modified version of retrospective application under which financial statements
for prior periods are adjusted on a basis consistent with the pro forma
disclosures required for those periods under SFAS 123. Effective January 1,
2006, the Company has fully adopted the provisions of SFAS No. 123R and related
interpretations as provided by SAB 107. As such, compensation cost is measured
on the date of grant as the excess of the current market price of the underlying
stock over the exercise price. Such compensation amounts, if any, are amortized
over the respective vesting periods of the option grant.

RECENT PRONOUNCEMENTS

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" ("FAS 157"). This Statement defines fair
value as used in numerous accounting pronouncements, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosure related to the use of fair value measures in financial statements.
The Statement is to be effective for the Company's financial statements issued
in 2008; however, earlier application is encouraged. The Company is currently
evaluating the timing of adoption and the impact that adoption might have on its
financial position or results of operations.

In September 2006, the Staff of the SEC issued SAB No. 108: "Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements". SAB No. 108 provides guidance on the consideration
of the effects of prior year misstatements in quantifying current year
misstatements for the purpose of determining whether the current year's
financial statements are materially misstated. The SEC staff believes
registrants must quantify errors using both a balance sheet and income statement
approach and evaluate whether either approach results in quantifying a
misstatement that, when all relevant quantitative and qualitative factors are
considered, is material. This Statement is effective for fiscal years ending
after November 15, 2006. The adoption of SAB No. 108 did not have a significant
impact on the company's consolidated financial statements.

                                      -21-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

RECENT PRONOUNCEMENTS (CONTINUED)

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities-including an amendment of FAS 115"
(Statement 159). Statement 159 allows entities to choose, at specified election
dates, to measure eligible financial assets and liabilities at fair value that
are not otherwise required to be measured at fair value. If a company elects the
fair value option for an eligible item, changes in that item's fair value in
subsequent reporting periods must be recognized in current earnings. Statement
159 is effective for fiscal years beginning after November 15, 2007. We are
currently evaluating the potential impact of Statement 159 on our financial
statements. The Company is currently evaluating the timing of adoption and the
impact that adoption might have on its financial position or results of
operations.

NOTE 3 - INVENTORIES

At June 30, 2007, inventories consisted of the following:

         Raw materials    $  745,116
         Finished goods      889,847
                          ----------
                          $1,634,963
                          ==========

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

At June 30, 2007, property, plant and equipment consisted of the following:

                                      Useful Life
                                      -----------
Buildings ........................    10-40 years    $1,667,986
Manufacturing equipment ..........     10 years       1,917,316
Office equipment and furniture ...     3-5 years        229,359
Autos and trucks .................      5 years          55,199
                                                     ----------
Total ............................                    3,869,860

Less: Accumulated Depreciation ...                     (292,239)
                                                     ----------
                                                     $3,577,621
                                                     ==========

For the six months ended June 30, 2007 and 2006, depreciation expense amounted
to $122,810 and $1,918, respectively.

NOTE 5 - PROPERTY USE RIGHTS

In connection with the acquisition of CDI Magnesium, the Company acquired
property use rights valued at $66,666, whereby the Company has rights to use
certain properties until February 12, 2010. The Company will begin amortizing
the property use rights when the magnesium refinery commences operations.

                                      -22-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 6 - ACQUISITIONS

As mentioned earlier, the acquisition of Big Tree closed February 12, 2007. The
Company plans to consolidate substantially all of the operations of Big Tree.
The operations of Jieyang Big Tree are located in China. The Company acquired
Big Tree as part of its ongoing desire to expand its interests in China. Under
the terms of the agreement, the Company will issue common stock to acquire 60%
ownership interest in Big Tree. The Company agreed to issue 53,654 shares of its
common stock, based on the fair value of each share of $5.00 per share on
January 30, 2007; the equivalent of $268,272. As of June 30, 2007, the value of
these shares is reflected as a liability in connection with acquisition-related
party on our consolidated balance sheet. The purchase price was determined based
on arm's length negotiations and no finder's fees or commissions were paid in
connection with the acquisition. The Company accounted for this acquisition
using the purchase method of accounting in accordance with SFAS No. 141. Our
consolidated statements of operations did not include the operations of Big Tree
or Jieyang Big Tree for the period of February 12, 2007, the date of
acquisition, through June 30, 2007 as there were no operations. We expect Big
Tree and its wholly owned subsidiary, Jieyang Big Tree, to commence operations
in September 2007. Under the terms of the agreement, we agreed to make capital
infusions of an aggregate of $1 million to Jieyang Big Tree between June 30,
2007 and October 31, 2007 provided that Jieyang Big Tree meets the following
benchmarks: revenues of $12.5 million and net income of $625,000 for the six
month period ended June 30, 2007; and revenues of $18.75 million and net income
of $937,500 for the nine months ended September 30, 2007. As of June 30, 2007,
Big Tree has not satisfied the conditions necessary to receive the additional
investment capital. If made, it is expected the additional investment capital
will be advanced in the form of a loan, 12% per annum, secured by the 53,654
shares of the our common stock issued in the transaction.

The estimated purchase price and the preliminary adjustments to historical book
value of Big Tree as a result of the acquisition are as follows:

Purchase price .....................................                  $ 268,272
Net Assets Acquired(February 12, 2007):
Total Assets
Cash ...............................................    $   1,329
Prepaid expenses ...................................        3,464
Property and equipment, net ........................        3,100
Due from related parties ...........................      438,421
                                                        ---------
                                                          446,314
Total Liabilities ..................................            -
Other comprehensive income .........................         (806)
                                                        ---------
Total net assets of Big Tree .......................      447,120
% acquired .........................................           60%
                                                        ---------
    Net Assets Acquired(February 12, 2007): ........                    268,272
                                                                      ---------
Purchase price exceed net assets acquired ..........                  $       -
                                                                      =========

                                      -23-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 6 - ACQUISITIONS (CONTINUED)

As mentioned earlier, on February 12, 2007 CDI China agreed to contribute
$511,458 to increase the registered capital of CDI Wanda to $1,002,859. As a
result Jinan holds a 51% majority interest in CDI Wanda. The Company's previous
sole shareholder, Dai Feng, retained a 49% equity interest in CDI Wanda, and
remained as an officer. In April 2007 CDI China contributed $511,458 of
investment capital to CDI Wanda. The purchase price was determined based on
arm's length negotiations and no finder's fees or commissions were paid in
connection with the acquisition. Our consolidated statements of operations
include the operations of CDI Wanda for the period of February 12, 2007, the
date of acquisition, through June 30, 2007. In this section, we refer to that
period as the "CDI Wanda Reporting Period".

The estimated purchase price and the preliminary adjustments to historical book
value of CDI Wanda as a result of the acquisition are as follows:


Purchase price .....................................                  $ 511,458
Net Assets Acquired(February 12, 2007):
Total Assets:
Cash ...............................................    $   54,448
Accounts Receivable ................................         3,028
Prepaid expenses and other receivable ..............     1,062,998
Inventory ..........................................       663,898
Property and equipment, net ........................       983,936
                                                        ----------
                                                         2,768,308
Total Liabilities:
Accounts Payable ...................................        14,265
Loans payable-short term ...........................        64,429
Advance from customer ..............................     1,653,964
Other Payable ......................................       544,249
                                                        ----------
                                                         2,276,907
Total net assets ...................................       491,401
Capital infusion ...................................       511,458
                                                        ----------
Total net assets acquired ..........................     1,002,859
% acquired .........................................            51
                                                        ----------
    Net Assets Acquired(February 12, 2007): ........                    511,458
                                                                      ---------
Net assets acquired exceed purchase price ..........                  $       0
                                                                      =========

                                      -24-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 6 - ACQUISITIONS (CONTINUED)

As mentioned earlier, the acquisition of CDI Magnesium closed February 12, 2007.
The Company plans to consolidate substantially all of the operations of CDI
Magnesium. The operations of CDI Magnesium are located in China. The Company
acquired CDI Magnesium as part of its ongoing desire to expand its interests in
China. Under the term of the agreement, the Company will issue common stock to
acquire 60% ownership interest in CDI Magnesium. The consideration is equal to
60% of the shareholders' equity of CDI Magnesium of $166,666 as of February 12,
2007. The Company agreed to issue 25,000 shares of its common stock, based on
the fair value of each share of $4.00 per share on February 6, 2007,
representing $100,000 or 60% equity interest of CDI Magnesium on the date of
acquisition. As of June 30, 2007, these shares are reflected as a liability in
connection with acquisition-related party. The purchase price was determined
based on arm's length negotiations and no finder's fees or commissions were paid
in connection with the acquisition. The Company accounted for this acquisition
using the purchase method of accounting in accordance with SFAS No. 141. Our
consolidated statements of operations did not include the operations of CDI
Magnesium for the period of February 12, 2007, the date of acquisition, through
June 30, 2007 as there were no operations through June 30, 2007. CDI Magnesium
expects to commence operations at the plant in January 2008, in the meantime,
until operations commence at the new magnesium plant, CDI Magnesium intends to
operate as a trading company acting as an agent in the sale of magnesium
commencing in September 2007.

The estimated purchase price and the preliminary adjustments to historical book
value of CDI Magnesium as a result of the acquisition are as follows:

Purchase price .....................................                  $ 100,000

Net Assets Acquired (February 12, 2007):
Total Assets
Property use rights ................................    $  66,666
Property and equipment, net ........................      100,000
                                                        ---------
                                                          166,666

Total net assets ...................................      166,666
                                                        ---------
% acquired .........................................           60%
                                                        ---------
    Net Assets Acquired(February 12, 2007): ........                    100,000
                                                                      ---------
Purchase price exceed net assets acquired ..........                  $       -
                                                                      =========

                                      -25-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 7 - PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The following unaudited pro forma combined financial information presented
below, gives effect to the acquisitions of Lang Chemical, Chang Magnesium and
CDI Wanda under the purchase method of accounting prescribed by Accounting
Principles Board Opinion No.16, Business Combinations, as if it occurred as of
the beginning of Fiscal 2007 and the beginning of Fiscal 2006.

For the six months ended June 30, 2007 (unaudited):
<TABLE>
<CAPTION>
                    China Direct        Lang           Chang            CDI
                     Consulting       Chemical       Magnesium         Wanda          Proforma
                     6/30/2007       6/30/2007       6/30/2007       6/30/2007       Adjustment       Total
                    ------------    ------------    ------------    ------------    ------------   ------------
<S>                 <C>             <C>             <C>             <C>             <C>            <C>
Revenues ........   $  4,585,203    $ 26,718,525    $ 37,861,436    $  2,300,485    $          -   $ 71,465,649

Cost of Revenues         798,831      26,111,975      35,506,327       1,459,230               -     63,876,363
                    ------------    ------------    ------------    ------------    ------------   ------------

Gross Profit ....      3,786,372         606,550       2,355,109         841,255               -      7,589,286

Operating
Expenses ........        843,085         207,733         184,624         510,376               -      1,745,818
                    ------------    ------------    ------------    ------------    ------------   ------------
Operating Income
(Loss) ..........      2,943,287         398,817       2,170,485         330,879               -      5,843,468

Other Income ....        217,243           2,911         401,781           5,202               -        627,137
                    ------------    ------------    ------------    ------------    ------------   ------------

Income tax
expenses ........       (313,973)        (98,418)       (317,360)           (484)              -       (730,235)
                    ------------    ------------    ------------    ------------    ------------   ------------

Net Income (Loss)      2,846,557         303,310       2,254,906         335,597      (1,417,968)     4,322,402
                    ============    ============    ============    ============    ============   ============

Basic earning
per share .......   $       0.21    $          -    $          -    $          -    $          -   $       0.32
                    ============    ============    ============    ============    ============   ============

Diluted earnings
per share .......   $       0.19    $          -    $          -    $          -    $          -   $       0.28
                    ============    ============    ============    ============    ============   ============

Basic weighted
average common
shares ..........     13,464,666               -               -               -               -     13,464,666
                    ============    ============    ============    ============    ============   ============

Diluted weighted
average common
shares ..........     15,174,110               -               -               -               -     15,174,110
                    ============    ============    ============    ============    ============   ============
</TABLE>

                                      -26-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 7 - PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)

For the six months ended June 30, 2006 (unaudited):
<TABLE>
<CAPTION>
                    China Direct        Lang           Chang            CDI
                     Consulting       Chemical       Magnesium         Wanda          Proforma
                     6/30/2006       6/30/2006       6/30/2006       6/30/2006       Adjustment       Total
                    ------------    ------------    ------------    ------------    ------------   ------------
<S>                 <C>             <C>             <C>             <C>             <C>            <C>
Revenues ........   $    386,832    $ 15,421,914    $ 11,150,506    $    116,231    $          -   $ 27,075,483

Cost of Revenues         148,794      15,226,331      11,028,015         113,019               -     26,516,159
                    ------------    ------------    ------------    ------------    ------------   ------------

Gross Profit ....        238,038         195,583         122,491           3,212               -        559,324

Operating
Expenses ........        853,340         173,926         182,210           3,623               -      1,213,099
                    ------------    ------------    ------------    ------------    ------------   ------------

Operating Income
(Loss) ..........       (615,302)         21,657         (59,719)           (411)              -       (653,775)

Other Income
(Loss) ..........        316,845             833             (12)              -               -        317,666
                    ------------    ------------    ------------    ------------    ------------   ------------

Income tax
expenses ........        118,189          (8,548)              -               -               -        109,641
                    ------------    ------------    ------------    ------------    ------------   ------------

Net Income (Loss)       (180,268)         13,942         (59,731)           (411)         (6,832)      (233,300)
                    ============    ============    ============    ============    ============   ============

Basic earning per
share ...........   $      (0.02)   $          -    $          -    $          -    $          -   $      (0.02)
                    ============    ============    ============    ============    ============   ============

Diluted earnings
per share .. ....   $      (0.02)   $          -    $          -    $          -    $          -   $      (0.02)
                    ============    ============    ============    ============    ============   ============

Basic weighted
average common
shares ..........     10,000,000               -               -               -               -     10,000,000
                    ============    ============    ============    ============    ============   ============

Diluted weighted
average common
shares ..........     10,000,000               -               -               -               -     10,000,000
                    ============    ============    ============    ============    ============   ============
</TABLE>

                                      -27-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 8 - LOANS PAYABLE

Loans payable consisted of the following at June 30, 2007:

Loan due to Agriculture Bank of China Shanghai Branch, dated April
4, 2005, due in quarterly installments through January 4, 2008.
Interest rate at 6.12% Secured by Lang Chemical's building located
in Shanghai .......................................................   $ 101,964

Loan due to JiNan Commercial Bank due on August 3, 2007, Interest
rate at 7.605%, Guaranteed by JiNan WuFa Boiler Company-a non-
related third party ...............................................      65,576

          Total ...................................................     167,540

Less: Current Portion .............................................    (167,540)
                                                                      ---------

Loans payable, long-term-December 2008 ............................   $       -
                                                                      =========

NOTE 9 - RELATED PARTY TRANSACTIONS

The Company currently leases approximately 2,450 square feet of office space for
its headquarters in the U.S. In August 2006, we were leasing approximately 1,171
square feet of office space. Prior to August 2006 we subleased this space from
two related parties, Dr. Wang, our CEO and Mr. Siegel, our President. The
Company incurred approximately $0 and $11,000 in rental expense pursuant to this
subleasing arrangement for the six months ended June 30, 2007 and 2006,
respectively.

At June 30, 2007, Chang Magnesium prepaid Taiyuan YiWei Magnesium Industry Co.,
Ltd., a related party, $418,514 for the future delivery of inventory. At June
30, 2007, Lang Chemical prepaid NanTong LangYuan Chemical Co., Ltd., a related
party, $361 for the future delivery of inventory. Yuwei Huang, our minority
shareholder of Chang Magnesium, is the Chairman of Taiyuan YiWei Magnesium
Industry Co.,Ltd. NanTong LangYuan Chemical Co., Ltd. is owned by Chen,
Jingdong, the CEO and shareholder of Lang Chemical. At June 30, 2007, Chang
Magnesium had $4,692,308 in accounts payable-related party which represents
amounts due to Taiyuan YiWei Magnesium Industry Co., Ltd. for the purchase of
inventory. Taiyuan YiWei Magnesium Industry Co., Ltd. has 49% equity interest in
Chang Magnesium.

At June 30, 2007, we held a due from related party in the amount of $1,434,946.
Included in the amount is a loan of approximately $996,524 due to Chang
Magnesium by Asia Magnesium Industry Co., Ltd., $438,422 of that amount reflects
a loan due from Shantou Dashu Toy Enterprise Co., Ltd. to Big Tree. Guhong
Zheng, our minority shareholder of Big tree, is an owner of Shantou Dashu Toy
Enterprise Co., Ltd.

At June 30, 2007, we held a due to related party in the amount of $17,336.
Included in the amount is a loan of approximately $4,590 due to Dragon Capital
Group Corp., $12,746 of that amount reflects a loan due Robert Zhuang, General
Manager Of CDI Shanghai Management.

                                      -28-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 9 - RELATED PARTY TRANSACTIONS (CONTINUED)

At June 30, 2007, we held a liability in connection with acquisition-due to
related party of $368,272. Included in the amount is $268,272 worth of common
stock due to Guihong Zheng, minority shareholder of Big Tree. CDI China acquired
a 60% interest in Big Tree in exchange for 53,654 shares of our common stock of
China Direct valued at $268,272. The fair value of the common stock is based on
the value of the common stock of $5.00 per share on January 30, 2007. The
$268,272 worth of common stock is reflected in Liabilities in connection with
acquisitions-related party in our consolidated balance sheet as of June 30,
2007.

The remainder of $100,000 reflects the value of common stock due to Wuliang
Zhang, minority shareholder of CDI Magnesium, related to our acquisition of a
60% interest in CDI Magnesium. CDI China, Inc. acquired a 60% majority interest
in CDI Magnesium in exchange for 25,000 shares of our common stock valued at
$100,000. The fair value of the common stock is based on the value of the common
stock of $4.00 per share on February 6, 2007. The $100,000 worth of common stock
is reflected in Liabilities in connection with acquisitions-related party in our
consolidated balance sheet as of June 30, 2007.

NOTE 10 - STOCKHOLDERS' EQUITY

PREFERRED STOCK

China Direct has 10,000,000 shares of preferred stock, par value $.0001
authorized. At June 30, 2007 and 2006, there were no shares of preferred stock
issued and outstanding.

COMMON STOCK

For the six months ended June 30, 2007 and 2006, amortization of stock based
compensation amounted to $ 196,010 and $0, respectively.

During the six months ended June 30, 2007, the Company issued 1,980,000 shares
of common stock in connection with the exercise of common stock options for net
proceeds of $3,062,500. Of these options, 1,000,000 were exercised at $0.30,
205,000 were exercised at $5.00 per share, 375,000 were exercised at $2.50 per
share, while 400,000 were exercised at $2.00 per share.

STOCK OPTION PLANS

During Fiscal 2006 the Company adopted the 2006 Stock Compensation Plan (the
"2006 Plan") under which the Company has reserved and authorized 2,000,000
shares of its common stock. Under the 2006 Plan, the purchase price for
incentive stock options must be at least 100% of the fair market value of our
common stock on the date the option is granted, except that the purchase price
of incentive options must be at least 110% of the fair market value in the case
of an incentive option granted to a person who is a "10% stockholder". A "10%
stockholder" is a person who owns (within the meaning of Section 422(b)(6) of
the Internal Revenue Code of 1986) at the time the incentive option is granted,
shares possessing more than 10% of the total combined voting power of all
classes of our outstanding shares. The purchase price for shares subject to a
non-qualified option must be at least the par value of our common stock.

                                      -29-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 10 - STOCKHOLDERS' EQUITY (CONTINUED)

STOCK OPTION PLAN (CONTINUED)

Under the 2006 Plan, all incentive stock options shall expire on or before the
10th anniversary of the date the option is granted, except under limited
circumstances. In the case of incentive stock options granted to an eligible
employee owning more than 10% of the Company's common stock, these options will
expire no later than five years after the date of the grant. Non-qualified
options shall expire 10 years and one day from the date of grant unless
otherwise provided under the terms of the option grant.

Shares covered by plan options which terminate unexercised will again become
available for grant as additional options, without decreasing the maximum number
of shares issuable under the 2006 Stock Compensation Plan, although such shares
may also be used by us for other purposes.

There were no options granted under the 2006 Plan for the six months ended June
30, 2007.

For the year ended December 31, 2006, the Company granted 3,588,000 options to
consultants and employees with vesting periods not exceeding one year and with
exercise prices ranging from $0.01 to $10.00.

For the six months ended June 30, 2007, the Company granted an aggregate 99,000
options to compensate independent board members and employees. The options
granted to our independent board members vest nine months from date of grant and
have an exercise price of $3.00 per share. The options granted to our employees
have a one year vesting period and exercise price of $5.00.

For the six months ended June 30, 2007, option expenses of $107,632 were
recognized as sales and general and administrative expenses related to options
granted as compensation to employees pursuant to employment agreements. These
options were exercisable upon vesting. These options granted to directors and
employees have a life of 3 to 5 years. The options granted to consultants are
exercisable immediately. The consultant contracts are for up to three years in
duration. For the six months ended June 30, 2007, the amortization of deferred
compensation expenses-options amounted to $22,000.

The following table sets forth the Company's stock option activity during the
six months ended June 30, 2007 and Fiscal 2006:

                                          Shares underlying     Weighted average
                                               options           exercise price
                                          -----------------     ----------------

Outstanding at December 31, 2006 ....         9,843,980              $3.27
   Granted ..........................            99,000               3.48
   Exercised ........................        (1,980,000)              1.55
   Expired or cancelled .............                 -                  -
                                             ----------              -----
Outstanding at June 30, 2007 ........         7,962,980               7.39
                                             ----------              -----
Exercisable at June 30, 2007 ........         5,077,980              $6.76
                                             ----------              -----

Weighted-average exercise price of
options granted during the period ...                                $3.48
                                                                     =====

                                      -30-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 10 - STOCKHOLDERS' EQUITY (CONTINUED)

STOCK OPTION PLAN (CONTINUED)

The weighted average remaining contractual life and weighted average exercise
price of options outstanding at June 30, 2007, for selected exercise price
ranges, is as follows:

Options outstanding:

                                                                      Weighted
                            Weighted                                   average
 Range                      average       Weighted                    exercise
   of       Number of      remaining      average                     price of
exercise     options      contractual     exercise     Options         options
 prices    outstanding    life (Years)      price     Exercisable    exercisable
--------   -----------    ------------    --------    -----------    -----------

 $ 0.01     1,100,000         2.71         $ 0.01      1,100,000       $ 0.01
   2.25           400         7.31           2.25            400         2.25
   2.50     1,863,000         4.00           2.50      1,827,000         2.50
   3.00        75,000         4.00           3.00              -            -
   5.00     1,414,000         4.00           5.00      1,390,000         5.00
   7.50     1,375,000         6.00           7.50              -            -
  10.00     1,375,000         7.00          10.00              -            -
  15.00           500         0.94          15.00            500        15.00
  30.00       760,000         5.00          30.00        760,000        30.00
  56.25            80         7.43          56.25             80        56.25
           -----------    ------------    --------    -----------    -----------
            7,962,980         4.61           7.39      5,077,980       $ 6.76
           -----------    ------------    --------    -----------    -----------

                                      -31-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 10 - STOCKHOLDERS' EQUITY (CONTINUED)

COMMON STOCK PURCHASE WARRANTS

For the six months ended June 30, 2007, the amortization of deferred
compensation expenses related to common stock purchase warrants amounted to
$63,920. These common stock purchase warrants granted to consultants are
exercisable immediately.

A summary of the status of the Company's outstanding common stock purchase
warrants granted as of June 30, 2007 and changes during the period is as
follows:

                                          Shares underlying     Weighted average
                                              warrants           exercise price
                                          -----------------     ----------------

Outstanding at December 31, 2005 ......               -             $    -
   Granted ............................       7,361,875               6.78
   Warrants assumed with reverse merger
   transaction on August 16, 2006 .....         180,000              11.25
   Exercised ..........................               -                  -
   Expired or cancelled ...............               -                  -
                                              ---------             ------
Outstanding at December 31, 2006 ......       7,541,875             $ 6.89
   Granted ............................               -                  -
   Exercised ..........................               -                  -
   Expired or cancelled ...............               -                  -
                                              ---------             ------
Outstanding at June 30, 2007 ..........       7,541,875             $ 6.89
                                              ---------             ------
Exercisable at June 30, 2007 ..........       7,541,875             $ 6.89
                                              ---------             ------

                                      -32-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 10 - STOCKHOLDERS' EQUITY (CONTINUED)

COMMON STOCK WARRANTS (CONTINUED)

The following information applies to all warrants outstanding at June 30, 2007.

                             Warrants                          Warrants
                           Outstanding                       Exercisable
            ---------------------------------------    -----------------------
                             Weighted
                             Average       Weighted                   Weighted
Range of                    Remaining      Average                     Average
Exercise                   Contractual     Exercise                   Exercise
 prices       Shares       Life (Years)      Price       Shares         Price
--------    -----------    ------------    --------    -----------    --------

 $ 2.50         50,000         4.42         $ 2.50         50,000      $ 2.50
 $ 4.00      3,884,375         4.25         $ 4.00      3,884,375      $ 4.00
 $ 7.50         90,000         0.89         $ 7.50         90,000      $ 7.50
 $10.00      3,427,500         4.24         $10.00      3,427,500      $10.00
 $15.00         90,000         0.89         $15.00         90,000      $15.00
            -----------    ------------                -----------
             7,541,875         4.17                     7,541,875
            -----------    ------------                -----------

NOTE 11 - MARKETABLE SECURITIES

China Direct Consulting receives securities which include common stock purchase
warrants and common stock from clients as part of its compensation for services.
The Company categorizes securities with restriction as investment in marketable
securities held for sale and investment in marketable securities held for
sale-related party. Unrealized gains or losses on marketable securities held for
sale and unrealized gains or losses on marketable securities held for
sale-related party are recognized as an element of comprehensive income in our
consolidated statement of operations on a monthly basis based on changes in the
fair value of the security as quoted on national or inter-dealer stock
exchanges. Once liquidated, realized gains or losses on the sale of marketable
securities held for sale and realized gains or losses on the sale of marketable
securities held for sale-related party will be reflected in our net income for
the period in which the security was liquidated.

                                      -33-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 11 -MARKETABLE SECURITIES (CONTINUED)

Their value at the date received and estimated fair market value at June 30,
2007 and 2006 are as follows:

For the six months ended June 30, 2007
<TABLE>
<CAPTION>
                                    January 1,        Amount       Reclassifying     Unrealized        June 30,
                                       2007       received/sold   from/to trading       gain             2007
                                   -----------    -------------   ---------------    -----------     -----------
<S>                                <C>             <C>              <C>              <C>             <C>
Investment in trading
securities ...................     $ 2,166,603     $         -      $(2,166,603)     $         -     $         -

Investment in trading
securities-related party .....         311,611         (47,611)        (264,000)               -               -
                                   -----------     -----------      -----------      -----------     -----------

Total Investment in trading
securities ...................     $ 2,478,214     $   (47,611)     $(2,430,603)     $         -     $         -

Investment in marketable
securities held for sale .....     $         -     $ 1,656,330      $ 2,166,603      $  (762,470)    $ 3,060,463

Investment in marketable
securities held for
sale-related party ...........     $ 1,325,400     $   728,566      $   264,000      $  (806,626)    $ 1,511,340

Total Investment in marketable
securities held for sale .....     $ 1,325,400     $ 2,384,896      $ 2,430,603      $(1,569,096)    $ 4,571,803
</TABLE>

For the six months ended June 30, 2006
<TABLE>
<CAPTION>
                                                    January 1,         Amount        Unrealized        June 30,
                                                       2006        received/sold        gain             2006
                                                   -----------     -------------     -----------     -----------
<S>                                                <C>              <C>              <C>             <C>
Investment in trading securities .............     $   152,800      $   261,700      $   201,500     $   616,000

Investment in marketable securities held for
sale-related party ...........................     $   810,000      $         -      $ 2,310,000     $ 3,120,000
</TABLE>

                                      -34-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 12 - SEGMENT INFORMATION

The following information is presented in accordance with SFAS No. 131,
Disclosure about Segments of an Enterprise and Related Information. For the year
ended December 31, 2006, the Company operated in six reportable business
segments - (1) Shanghai Lang Chemical Co., Ltd. ("Lang Chemical"). Lang Chemical
is a distributor of industrial grade synthetic chemical products; (2) Chang
Magnesium Co., Ltd., ("Chang Magnesium"). Chang Magnesium and its wholly owned
subsidiary Taiyuan Changxin YiWei Trading Co., Ltd. ("Changxin Trading") process
and distribute various forms of magnesium including but not limited to magnesium
powder, magnesium scrap, magnesium alloy and various grades of ordinary
magnesium slabs; (3) Big Tree Group Corp. ("Big Tree") and its wholly owned
subsidiary, Jieyang Big Tree Toy Enterprise Co., Ltd., ("Jieyang Big Tree"),
will seek to be a reseller and distributor of toys and related entertainment
products within China; (4) CDI Magnesium Co., Ltd., ("CDI Magnesium") is
expected to eventually operate a plant will process and manufacture a variety of
magnesium alloy by products; (5) CDI Wanda New Energy Co., Ltd., ("CDI Wanda")
develops environmentally friendly recycling technological applications as well
as ancillary services related to the operations of refineries; and (6) China
Direct Investments, Inc. ("China Direct Consulting") serves as a full service
consulting and advisory firm offering a comprehensive suite of services critical
to the success of Chinese entities seeking to access the U.S. capital markets.
The Company's reportable segments are strategic business units that offer
different products. They are managed separately based on the fundamental
differences in their operations. Condensed information with respect to these
reportable for six months ended June 30, 2007 and 2006 are as follows:

For the six months ended June 30, 2007 (Unaudited):
<TABLE>
<CAPTION>
                 Lang           Chang
                Chemical      Magnesium                                                 China
               (chemical     (magnesium                     CDI                         Direct
                segment)       segment)      Big Tree     Magnesium     CDI Wanda     Consulting    Consolidated
              -----------    -----------    ---------    ----------    -----------    -----------   ------------
<S>           <C>            <C>            <C>          <C>           <C>            <C>            <C>
Revenues .    $26,718,525    $37,861,436    $       -    $        -    $ 2,226,746    $ 3,705,203    $70,511,910

Revenues-
related
party ....              -              -            -             -              -        880,000        880,000

Interest
income
(expense)           3,436         24,528            -             -              -         43,057         71,021

Net (loss)
income ...        202,207      1,150,002            -             -         25,866      2,760,536      4,138,611

Segment
Assets ...    $ 5,213,724    $19,646,136    $ 454,052    $  218,726    $ 1,702,530    $10,028,366    $37,263,534
</TABLE>

For the six months ended June 30, 2006:

The Company had only one segment for the six months ended June 30, 2006 that
being their consulting advisory services segment, accordingly a table is not
presented for segment information for the six months ended June 30, 2006.

                                      -35-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 13 - FOREIGN OPERATIONS

For the six months ended June 30, 2007, the Company derived part of its revenue
from subsidiaries located in the People's Republic of China. Identifiable assets
by geographic areas as of June 30, 2007 are as follows:

                                    Identifiable Assets
                                      at June 30, 2007
                                    -------------------

         United States ..........       $ 9,804,073
         China ..................        27,459,461
                                        -----------
         Total ..................       $37,263,534
                                        ===========

For the six months ended June 30, 2007:

                                      United States   People's Republic of China
                                      -------------   --------------------------

         Revenues ..................    $3,705,203           $66,806,707
         Revenues - related party ..    $  880,000           $         -
         Identifiable assets .......    $9,804,073           $27,459,461

For the six months ended June 30, 2006:

For the six months ended June 30, 2006, all revenues and identifiable assets
were located in the United States; accordingly a table is not presented for
foreign operations for the six months ended June 30, 2006.

NOTE 14 - OPERATING RISK

(a) Country risk

The majority of the Company's revenues will be derived from the sale of
magnesium and chemical products in the Peoples Republic of China ("PRC"). The
Company hopes to expand its operations to countries outside the PRC, however,
such expansion has not been commenced and there are no assurances that the
Company will be able to achieve such an expansion successfully. Therefore, a
downturn or stagnation in the economic environment of the PRC could have a
material adverse effect on the Company's financial condition.

(b) Products risk

In addition to competing with other companies, the Company could have to compete
with larger US companies who have greater funds available for expansion,
marketing, research and development and the ability to attract more qualified
personnel if access is allowed into the PRC market. If U.S. companies do gain
access to the PRC markets, they may be able to offer products at a lower price.
There can be no assurance that the Company will remain competitive should this
occur.

                                      -36-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 14 - OPERATING RISK (CONTINUED)

(c) Exchange risk

The Company can not guarantee that the current exchange rate will remain steady,
therefore there is a possibility that the Company could post the same amount of
profit for two comparable periods and because of a fluctuating exchange rate
actually post higher or lower profit depending on exchange rate of Chinese
Renminbi converted to U.S. dollars on that date. The exchange rate could
fluctuate depending on changes in the political and economic environments
without notice.

(d) Political risk

Currently, PRC is in a period of growth and is openly promoting business
development in order to bring more business into PRC. Additionally PRC allows a
Chinese corporation to be owned by a United States corporation. If the laws or
regulations are changed by the PRC government, the Company's ability to operate
the PRC subsidiaries could be affected.

(e) Key personnel risk

The Company's future success depends on the continued services of executive
management in China and the United States. The loss of any of their services
would be detrimental to the Company and could have an adverse effect on business
development. The Company maintains key-man insurance on the lives of the
executive management. Future success is also dependent on the ability to
identify, hire, train and retain other qualified managerial and other employees.
Competition for these individuals is intense and increasing.

(f) Performance of subsidiaries risk

The majority of the Company's revenues will be derived via the operations of the
Company's majority owned Chinese subsidiaries. Economic, governmental,
political, industry and internal company factors outside of the Company's
control affect each of the subsidiaries. If the subsidiaries do not succeed, the
value of the assets and the price of our common stock could decline.

                                      -37-
<PAGE>

                       CHINA DIRECT, INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2007

NOTE 15 - SUBSEQUENT EVENTS

On April 3, 2007 Capital One Resource entered into an agreement to acquire a
100% equity interest in Asia Magnesium Industry Co., Ltd., a Hong Kong company.
This transaction closed on July 1, 2007. As amended on May 30, 2007, we acquired
Asia Magnesium's right to invest up to $3,380,000 to acquire a 52% interest in
Shangxi Gu Country Jinwei Magnesium Corp., Ltd., a Chinese limited liability
company and joint venture entity ("Jinwei Magnesium") which, upon completion of
manufacturing facilities in 2008 is designed to produce 20,000 tons of magnesium
annually. On July 2, 2007 we paid our initial contribution of $1,050,000 and on
August 1, 2007, we contributed an additional $1,480,000. We expect to contribute
the remaining $850,000 by December 31, 2007.

On July 11, 2007 the Company completed its offer to reduce the exercise price on
up to a maximum of 1,427,500 Class B Warrants. Pursuant to the offer, we
temporarily reduced the exercise price of our Class B Warrants from $10.00 per
share to $3.00 per share. Holders purchased the maximum amount of 1,427,500
Class B Warrants offered, resulting in gross proceeds to China Direct of
$4,282,500. The exercise price and all other terms of the remaining 2,000,000
Class B Warrants remain unchanged. The Company intends to use the proceeds it
received from this warrant exercise for capital commitments, general working
capital purposes as well as mergers and acquisitions.

                                      -38-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The following discussion and analysis of our consolidated financial
condition and results of operations for the six months ended June 30, 2007 and
2006 should be read in conjunction with the unaudited consolidated financial
statements, including footnotes, and other information presented elsewhere in
this Form 10-QSB. Our year end is December 31, which is denoted herein as our
"Fiscal" year.

OVERVIEW

         On August 16, 2006 we acquired 100% of the issued and outstanding stock
of China Direct Consulting in exchange for 10,000,000 shares of our common stock
which, at closing, represented approximately 95% of our issued and outstanding
shares of our common stock. Prior to the transaction we were a shell company for
a limited period of time immediately prior to the acquisition, and previously
had conducted various business operations. As a result, China Direct Consulting
became a wholly owned subsidiary of our company. For financial accounting
purposes, the transaction was treated as a recapitalization of our company with
the former stockholders of our company retaining approximately 5% of the
outstanding stock. As such, our consolidated financial statements have been
prepared as if China Direct Consulting was the acquiror. As a result, the
business of China Direct Consulting became the business of our company.

         China Direct Consulting

         China Direct Consulting was organized in January 2005 and provides
specialized business consulting services exclusively to Chinese entities seeking
access to the U.S. capital markets. China Direct Consulting enters into
agreements with clients to provide services for a consulting fee. Revenues from
China Direct Consulting represented approximately 6.4% of our consolidated
revenues for the six months ended June 30, 2007. The amount of the consulting
fee varies based upon the scope of the services to be rendered. Historically, a
significant portion of the fees earned by China Direct Consulting have been paid
in shares of its client's securities which are valued at fair market value for
the purposes of our revenue recognition. Depending upon the particular client,
China Direct Consulting may receive either unregistered securities or a client
may issue securities directly to our employees. The policy of China Direct
Consulting is to sell securities it receives as compensation when permitted
rather than hold on to these securities as long term investments, regardless of
market conditions, in an effort to satisfy our current obligations.

         The fees due under the contracts with our consulting clients are
amortized over the term of the agreement. Our consolidated balance sheet at June
30, 2007 appearing elsewhere herein reflects both deferred revenues short term,
which will be recognized by us during the next 12 months, and deferred revenues
-long term which will be recognized beyond the 12 month period. In instances
where the securities accepted for payment are issued directly to employees, we
recognize the revenue represented by those securities consistent with our
revenue recognition policy and the net value of those securities, after
deduction of any costs of those revenues, are then deemed compensation paid to
the particular employee.

         Our cost of revenues include direct costs we incur in rendering the
services to our client companies, which include fees paid to professional
resources including but not limited to marketing, legal and accounting services
directly related to each particular client. In addition, we may engage certain
professionals to assist in providing the contracted services to a client
company. The costs associated with these professional resources are included in
our cost of revenues.

                                      -39-
<PAGE>

         Our arrangements with our consulting clients generally provide that
fees paid to China Direct Consulting will cover the costs of various
professional resources including but not limited to attorneys, accounting
personnel and auditors providing services for the client company. As these
professionals generally will not provide services on a fixed fee basis, and the
scope of the services necessary for a particular client company can vary from
project to project, our cost of revenues can ultimately be significantly higher
than initially projected which can adversely impact our gross profit margins.
Some professional fees, such as auditor fees, cannot be satisfied with
securities. Further, our custom is to not satisfy professional fees of any kind
with securities and, as such, the policy of China Direct Consulting is to sell
securities it receives as compensation when permitted rather than hold on to
these securities as long term investments, regardless of market conditions, in
an effort to satisfy our current obligations, due in part to these professional
resources.

         China Direct Consulting receives securities from clients as
compensation for consulting services. While it is not our policy to hold
securities we accept as payment for services as long term investments, we are
not always able to immediately liquidate such securities as a result of either
market conditions or restrictions on resale imposed by Federal securities laws.
Primarily all of the securities China Direct Consulting receives are from small
public companies and are typically restricted as to resale. The policy of China
Direct Consulting is to sell securities it receives as compensation when
permitted rather than hold on to these securities as long term investments,
regardless of market conditions in an effort to satisfy our current obligations.
As these securities are often restricted, we are unable to liquidate these
securities until the restriction is removed. China Direct Consulting recognizes
revenue for such common stock based on the fair value at the time common stock
is granted and for common stock purchase warrants based on the Black-Scholes
valuation model. Unrealized gains or losses on marketable securities held for
sale as well as unrealized gains or losses on marketable securities held for
sale-related party are recognized as an element of comprehensive income in our
consolidated statement of operations on a monthly basis based on changes in the
fair value of the security as quoted on national or inter-dealer stock
exchanges. Once liquidated, we include realized gains or losses on the sale of
marketable securities held for sale and realized gains or losses on the sale of
marketable securities held for sale-related party in our net income for the
period in which the security was liquidated. Fluctuations in the value of
securities can significantly increase our comprehensive income if the price of
the securities increases from the original value assigned to it at the time the
related revenue was recognized. Conversely, if the price were to decline, such
decreases could negatively impact our comprehensive income.

CDI China

         Based upon both the experiences of our management during its first year
of operation as well as the professional background of our principals, during
the third quarter of Fiscal 2006 we expanded the scope of our company through
the establishment of an additional operating division known as CDI China which
is now the focus of our operations.

         CDI China holds a controlling interest in and operates as a management
company for Chinese entities. CDI China seeks to acquire a controlling interest
in entities operating within China which are engaged in businesses we believe
will benefit from the continuing growth of the Chinese economy. Examples of
industries in which we are focusing our efforts include manufacturing,
technology, mining, healthcare, packaging, as well as companies involved in
importing and exporting activities. We have initially targeted medium sized
entities, generally including companies with less than $100 million in annual
revenue, which we believe offer the greatest opportunities for growth.

                                      -40-
<PAGE>

         The business model for CDI China is to acquire controlling interests in
Chinese entities, thereby creating a diversified portfolio of subsidiaries
operating within the Chinese economy. CDI China utilizes resources available to
us by virtue of our public company status to provide working capital and
financial and operational support to augment our subsidiaries' growth. We adhere
to PRC rules and regulations governing foreign investment and obtain all
relevant and necessary governmental approvals. Our predominant method of
acquiring Chinese entities is by infusing cash consideration to increase a
Chinese domestic company's registered capital on the basis of an appraisal of
assets. This infusion of capital serves to create a new foreign invested entity
("FIE") in which our equity ownership percentage is represented by our
percentage of contribution to the total registered capital amount. We then
utilize resources available to us by virtue of our public company status to
provide working capital enabling our portfolio companies to grow their business
and operations. In order to increase the likelihood that we can raise capital as
necessary, in January 2007 we engaged Roth Capital Partners, LLC, a
broker-dealer and member of the National Association of Securities Dealers,
Inc., to serve as our exclusive financial advisor and investment banker.

         During Fiscal 2006 we closed the acquisitions of Lang Chemical and
Chang Magnesium. Lang Chemical specializes in the sale and distribution of
industrial grade synthetic chemicals. Chang Magnesium was formed by Taiyuan
YiWei Magnesium Co. Ltd. to operate a newly constructed magnesium plant that
processes and manufactures a variety of magnesium by-products, including
magnesium powder, magnesium scrap and various grades of magnesium slabs. Taiyuan
YiWei Magnesium Co., Ltd. is a diversified magnesium organization which owns
interests in seven subsidiary magnesium factories, a magnesium alloy factory and
a magnesium powder desulphurization reagent factory, all located in China.
Following our acquisition of Chang Magnesium, Mr. Yuwei Huang, Taiyuan YiWei
Magnesium Co., Ltd.'s Chairman, now also serves as Chang Magnesium's CEO and an
Executive Vice President for CDI Shanghai Management. In June 2006, prior to our
acquisition of Chang Magnesium, Chang Magnesium acquired 100% of Changxin
Trading, an exporter of magnesium products which was formed in November 2003.
China Direct has received all necessary approvals from the relevant governmental
agencies for the valid formation of our entities in the PRC.

         During Fiscal 2006 we also formed several companies, including:

   o In October 2006 we formed Luma Logistic in which CDI China holds a 60%
interest. Following the formation of this entity, we determined the competitive
nature of the proposed business operations and the potential costs associate
with developing this subsidiary were not justified based upon the growth
opportunities of our other segments. In July 2007 we dissolved this entity.

   o In November 2006 we formed CDI Shanghai Management and it commenced
operations in January 2007. CDI Shanghai Management serves as the management
company for our subsidiaries based in the PRC, providing operational support and
infrastructure as well as supervising and monitoring the operations of those
subsidiaries. CDI Shanghai Management also markets the services of both China
Direct Consulting and CDI China in China.

   o In November 2006 Big Tree was formed. As described elsewhere herein, CDI
China subsequently acquired a 60% equity interest.

During the first six months of Fiscal 2007, we have further expanded CDI China's
operations through the following transactions:

                                      -41-
<PAGE>

   o In January 2007 we formed Jinan. In February 2007 Jinan acquired a 51%
equity interest in CDI Wanda. CDI Wanda, organized in 1996 and located in Jinan,
the capital city of Shandong Province, PRC, is engaged in the alternative energy
and recycling industry and provides ancillary services to oil refineries. The
current management of CDI Wanda, Messrs. Dai Feng and Zhou Zaigen, continue to
operate the company following this transaction. Our consolidated statement of
operations for the six months ended June 30, 2007 include the operations of CDI
Wanda for the period of February 12, 2007, the date of acquisition, through June
30, 2007 (the "CDI Wanda Reporting Period").

   o In February 2007 Big Tree acquired a 100% interest in Jieyang Big Tree, a
Sino-American joint venture which was formed in January 2007. Jieyang Big Tree,
which is located in Shantou City, China, focuses on two main areas of operation
within the toy and related entertainment products industry in China which are
(i) the distribution of toys and related entertainment products and (ii) as an
agent of third party OEM manufacturing of toys and related entertainment
products. We expect that Big Tree, and its wholly owned subsidiary, Jieyang Big
Tree, will commence operations in the fourth quarter of 2007.

   o In February 2007 CDI Shanghai Management formed Capital One Resource to
serve as a marketing arm for our company in the greater Asia region outside of
China. Capital One Resource also seeks to market to Hong Kong and Southeast
Asia, leveraging relationships of CDI Shanghai Management within local business
communities as well as with local provincial government officials to assist in
identifying business opportunities. Mr. Xiaowen (Robert) Zhuang, general manager
of CDI Shanghai Management, supervises and monitors the operations of Capital
One Resource. Mr. Zhuang is the brother of Dr. James Wang, our CEO.

   o In February 2007, CDI China acquired a 60% majority interest in CDI
Magnesium, a Brunei corporation in February 2007 by Shanxi Jinyang Coal and Coke
Group Co., Ltd. CDI Magnesium was formed to eventually manage and operate a
newly constructed magnesium alloy plant in Taiyuan, China. It is expected that
the plant will process and manufacture a variety of magnesium alloy products.
CDI Magnesium expects to commence operations at the plant in January 2008. Until
operations at the plant commence, CDI Magnesium intends to operate as a trading
company acting as an agent in the sale of magnesium beginning in September 2007.

   o In February 2007 Chang Magnesium formed Excel Rise as a wholly owned
subsidiary. Excel Rise operates as an exporter of magnesium products to Europe,
Australia and Canada. The major suppliers will be Taiyuan Tongxiang Magnesium
Co. Ltd, Taiyuan Qingchen YiWei Magnesium Industry Co., Ltd., Taiyuan YiWei
Magnesium Factory, Taiyuan YiWei Magnesium Co. Ltd. and Shanxi Nichimen YiWei
Magnesium Industry Co., Ltd., all related parties. Excel Rise's results are
included with Chang Magnesium's results as described herein.

   o In April 2007 Jinan entered into an oral agreement to form a new entity in
coordination with Guangdong Qingyuan Changxin Waste Material Renewable
Processing Co., Ltd. in which Jinan had the option to contribute capital to
acquire a 51% ownership interest in a new joint venture entity. Upon further
review of the opportunity, Jinan did not to pursue this project.

   o As described elsewhere herein, in July 2007, we closed on our 100% equity
interest in Asia Magnesium. As a result we obtained Asia Magnesium's right to
invest up to $3,380,000 to acquire a 52% interest in Shangxi Gu Country Jinwei
Magnesium Corp., Ltd., a Chinese limited liability and joint venture entity
("Jinwei Magnesium") which, upon completion of manufacturing facilities in 2008
is designed to produce 20,000 tons of magnesium annually. On July 2, 2007 we
paid our initial contribution of $1,050,000 and on August 1, 2007, we
contributed an additional $1,480,000. We expect to contribute the remaining
$850,000 by December 31, 2007.

                                      -42-
<PAGE>

         During the six months ended June 30, 2007 our consolidated revenues
included revenues from China Direct Consulting, Lang Chemical, Chang Magnesium,
and CDI Wanda. In the aggregate, revenues from CDI China represented
approximately 93.2% of our consolidated revenues. We did not report any revenues
related to Luma Logistics, Big Tree, or CDI Magnesium during the six months
ended June 30, 2007.

         During the first six months of Fiscal 2007 China Direct Consulting,
Lang Chemical, Chang Magnesium and CDI Wanda have all significantly increased
their revenues from the comparable periods in Fiscal 2006.

         Since our acquisitions of Lang Chemical and Chang Magnesium during the
fourth quarter of Fiscal 2006 and Big Tree, CDI Wanda, and CDI Magnesium in
Fiscal 2007 as of June 30, 2007, we have provided those companies, in the
aggregate, with approximately $3,012,708 of investment capital. Subsequent to
June 30, 2007, we have provided Jinwei Magnesium with $2,488,000 of investment
capital. As described later in this section, we have commitments to fund an
additional $1,600,000 of investment capital to our subsidiaries over the next 12
months. This capital will be used to expand operations and increase margins by
enabling our subsidiaries to operate on better terms than were previously
available to them. In addition management estimates an additional $2,400,000 of
operational expenses will b eincurred by our parent company over the next 12
months.

         We continue to seek expansion of our professional staff at China Direct
Consulting as well as our operating subsidiaries to support growth. We believe
we can assist each of our subsidiaries in their efforts to grow and expand their
business. Furthermore we believe that, with access to capital, each of our
subsidiaries could capitalize on business opportunities and increase profits. In
an effort to fully pursue the expansion of our business plan which includes
providing investment capital to grow the operations of our current subsidiaries
and also build our business through new accretive acquisitions, we may be
required to raise additional investment capital through private or public
financing, although at this time, we have no specific plans to do so.

         During the balance of Fiscal 2007 and beyond we face a number of
challenges in growing our business, such as the continuing integration of our
subsidiaries based in the PRC. Also, we will need to secure additional
investment capital to continue with managements plan of acquiring controlling
interests in additional acquisition targets. This investment capital would be in
addition to our current acquisition and working capital commitments as mentioned
above. During Fiscal 2007 we will continue to work with the management of our
subsidiaries to identify strategies to maximizereturns. These strategies may
take the form of an investment for a new factory, increasing manufacturing
capacity, upgrading of existing facilities, marketing, hiring and training of
additional workforce personnel, or acquiring assets complimentary to these
companies. As a result of the rapid growth of our company since the third
quarter of Fiscal 2006, we also face challenges related to hiring and training
the necessary personnel to manage these operations.

         Even though we are a U.S. company, many of our subsidiaries and their
operations are located in the PRC. As such we face certain risks associated with
doing business in that country. These risks include risks associated with the
ongoing transition from state business ownership to privatization, operating in
a cash-based economy, dealing with inconsistent government policies, unexpected
changes in regulatory requirements, export restrictions, tariffs and other trade
barriers, challenges in staffing and managing operations in a communist country,
differences in technology standards, employment laws and business practices,
longer payment cycles and challenges in collecting accounts receivable, changes
in currency exchange rates and currency exchange controls. We are unable to
control the vast majority of these risks associated both with our operations and
the country in which they are located and these risks could result in
significant declines in our revenues and adversely affect our ability to
continue as a going concern.

                                      -43-
<PAGE>

RESULTS OF OPERATIONS

         For accounting purposes, for the six months ended June 30, 2007 we
reported our operations in four segments:

         o  CDI Consulting, which includes our parent company, CDI Shanghai
            Management and its subsidiary Capital One Resource,

         o  Chang Magnesium,

         o  Lang Chemical, and

         o  CDI Wanda.

SIX MONTHS ENDED JUNE 30, 2007 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2006
<TABLE>
<CAPTION>
                                                   FOR THE SIX     FOR THE SIX
                                                  MONTHS ENDED    MONTHS ENDED      INCREASE/
                                                  JUNE 30, 2007   JUNE 30, 2006     DECREASE
                                                  ------------    ------------    ------------
<S>                                               <C>             <C>             <C>
Revenues ......................................   $ 70,511,910    $    241,832    $ 70,270,078
Revenues-related party ........................        880,000         145,000         735,000
                                                  ------------    ------------    ------------
   Total revenues .............................     71,391,910         386,832      71,005,078
Cost of revenues ..............................     64,209,395         148,794      64,060,601
                                                  ------------    ------------    ------------
Gross profit ..................................      7,182,515         238,038       6,944,477
   Selling, general, and administrative-related
     party ....................................              -          11,252         (11,252)
   Selling, general, and administrative .......      1,684,926         842,088         842,838
                                                  ------------    ------------    ------------
   Total operating expenses ...................      1,684,926         853,340         831,586
   Operating income (loss) ....................      5,497,589        (615,302)      6,112,891
                                                  ------------    ------------    ------------
Other income ..................................        381,369               -         381,369
Interest income ...............................         71,021               -          71,021
Unrealized gain on trading securities .........              -         273,500        (273,500)
Realized gain on sale of marketable securities         206,236          43,345         162,891
Realized loss on sale of marketable
securities-related party ......................        (32,014)              -         (32,014)
                                                  ------------    ------------    ------------
Total other income ............................        626,612         316,845         309,767
                                                  ------------    ------------    ------------
Net income before income taxes ................      6,124,201        (298,457)      6,422,658
Income taxes expense ..........................       (754,731)        118,189        (872,920)
                                                  ------------    ------------    ------------
Net income before minority interest ...........      5,369,470        (180,268)      5,549,738
Minority interest in income of subsidiary .....     (1,230,859)              -      (1,230,859)
                                                  ------------    ------------    ------------
Net income (loss) .............................      4,138,611        (180,268)      4,318,879
Foreign currency translation gain .............        248,049               -         248,049
Unrealized (loss) gain on marketable securities
held for sale, net of income taxes ............       (559,224)              -        (559,224)
                                                  ------------    ------------    ------------
Unrealized (loss) gain on marketable securities
held for sale, net of income taxes ............       (556,082)      1,395,240      (1,951,322)
                                                  ------------    ------------    ------------
Comprehensive income ..........................   $  3,271,354    $  1,214,972    $  2,056,382
                                                  ============    ============    ============
</TABLE>
                                      -44-
<PAGE>

REVENUES

         Our revenues for the six months ended June 30, 2007 were $71,391,910 as
compared to revenues of $386,832 for the six months ended June 30, 2006.
Included in revenues for the six months ended June 30, 2007 were revenues of
$4,585,203 attributable to China Direct Consulting (approximately 6.4% of total
revenues), revenues of $26,718,525 attributable to Lang Chemical (approximately
37.4% of total revenues), revenues of $37,861,436 attributable to Chang
Magnesium (approximately 53% of total revenues), and revenues of $2,226,746
attributable to CDI Wanda (approximately 3.1% of total revenues). For the six
months ended June 30, 2006 our revenues were solely from the operations of China
Direct Consulting.

         China Direct Consulting generates revenues by providing consulting
services to its client companies. China Direct Consulting's revenues for the six
months ended June 30, 2007 increased $4,198,371, or approximately 1,085.3%, as
compared to the six months ended June 30, 2006. This increase is primarily
attributable to revenues from new consulting contracts or additional services
rendered to existing clients.

         Included in China Direct Consulting's revenues for June 30, 2007 are
cash revenues of $877,205 and revenues attributable to the value of securities
received as compensation for its services of $3,707,998. Of the $3,707,998 in
revenues attributable to the value of securities received as compensation,
$2,827,998 is related to compensation received for services rendered to clients
and $880,000 is related to the value of securities received as compensation for
services rendered to a client company which is a related party. Included in
China Direct Consulting's revenues for the six months ended June 30, 2006 are
cash revenues of $58,682 and cash revenues from a related party of $145,000 and
revenues attributable to the value of securities received as compensation for
its services of $183,150.

         For the six months ended June 30, 2007 China Direct Consulting
generated revenues of $880,000 from Dragon Capital Group Corp., a related party,
which represents the value of securities received as compensation. For the six
months ended June 30, 2006, we received cash fees of $145,000 from Dragon
Capital Group Corp., a related party.

         Management expects revenues for China Direct Consulting will continue
to increase during the balance of Fiscal 2007. Following our capital raise in
the fourth quarter of Fiscal 2006 we began expanding our infrastructure to
support the addition of more consulting clients. As well in July 2007 we
received net proceeds of $4,130,378 from the exercise of Class B Warrants. As a
result we have added personnel in the areas of business representation,
accounting, legal and administration and we are actively marketing China Direct
Consulting's services to potential new clients. In addition, China Direct
Consulting will record deferred revenue in each of Fiscal 2007 and Fiscal 2008
which represents revenues China Direct Consulting has received for services
which are being amortized over the term of the consulting agreements. We
anticipate that $1,311,635 will be recognized over the next 12 months, and the
remaining $248,950 will be recognized prior to December 31, 2008.

         Lang Chemical generated revenues of $26,718,525 for the six months
ended June 30, 2007 from the sale and distribution of industrial grade synthetic
chemicals. The majority of Lang Chemical's customers are industrial
manufacturing facilities and trading companies. As described in Note 7-Pro Forma
Financial Information (unaudited) to the consolidated financial statements
appearing elsewhere in this quarterly report, for the six months ended June 30,
2006 Lang Chemical had total revenues of $15,421,914. The increase in revenues
as Compared to the six months ended June 30, 2006 and the six months ended June
30, 2007 is primarily attributable to the expansion of products offered by Lang
Chemical. We anticipate that Lang Chemical's revenues will continue to increase
in the remaining periods of Fiscal 2007.

                                      -45-
<PAGE>

         Chang Magnesium generated revenues of $37,861,436 for the six months
ended June 30, 2007. Chang Magnesium and its wholly owned subsidiaries Changxin
Trading and Excel Rise process and distribute various forms of magnesium
including magnesium powder, magnesium scrap, magnesium alloy and various grades
of ordinary magnesium slabs. As set forth in Note 7 Pro Forma Financial
Information (unaudited) to the consolidated financial statements appearing
elsewhere in this quarterly report, for the six months ended June 30, 2006 Chang
Magnesium had total revenues of $11,150,506. The increase in revenues from the
six months ended June 30, 2006 as compared to the six months ended June 30, 2007
is attributable to the commencement of operations of the refinery as well as the
additional operations of Excel Rise. During the six months ended June 30, 2006
Chang Magnesium's operations were limited to its Changxin Trading subsidiary. We
also reasonably believe Chang Magnesium will report increasing revenues for the
remaining periods of Fiscal 2007.

         For the CDI Wanda Reporting Period, CDI Wanda generated revenues of
$2,226,746 from the sale of alternative energy and recycling applications as
well provided ancillary services to oil refineries. As set forth in Note 7 Pro
Forma Financial Information (unaudited) to the consolidated financial statements
appearing elsewhere in this quarterly report, for the six months ended June 30,
2006 CDI Wanda had total revenues of $116,231. The increase in revenues from the
six months ended June 30, 2006 as compared to the CDI Wanda Reporting Period is
attributable to increased market acceptance of alternative energy and recycling
applications provided by CDI Wanda. For the CDI Wanda Reporting Period, CDI
Wanda generated non-recurring revenues of $1,240,000 from Evermore Energy
Company, located in Australia, and revenues of $415,000 from Russian Aurora
Energy Company located in Russia. Based upon information known to us at this
time, we also reasonably believe it will report increasing revenues for the
remaining periods of Fiscal 2007.

COST OF REVENUES AND GROSS PROFIT

         For the six months ended June 30, 2007, our total cost of revenues was
$64,209,395, as compared to $148,794 for the six months ended June 30, 2006, an
increase of $64,060,601 or approximately 43,053%. Of the total cost of revenues
of $64,209,395, $26,111,975 is attributable to Lang Chemical, $35,506,327 is
attributable to Chang Magnesium, $1,792,262 is attributable to CDI Wanda for the
CDI Wanda Reporting Period (February 12, 2007 through June 30, 2007), and
$798,831 is attributable to China Direct Consulting.

         Cost of revenues for China Direct Consulting includes direct costs it
incurs in rendering the services to its client companies, which include
marketing, business development, legal, auditing and accounting fees directly
related to the particular client. In addition, China Direct Consulting may
engage certain professional resources to assist in providing the contracted
services to the client company and the costs of those professional resources are
included in its cost of revenues. China Direct Consulting's arrangements with
its consulting clients generally provide that its fee will cover the costs of
attorneys, accounting personnel, and auditors working on behalf of the client
company. As these professionals generally will not provide services on a fixed
fee basis, and the scope of the services necessary for a particular client
company can vary from project to project, China Direct Consulting's cost of
revenues can ultimately be significantly higher than it initially projected,
which can adversely impact our gross profit margins. China Direct Consulting's
cost of revenues as a percentage of revenues was approximately 17% for the six
months ended June 30, 2007 as compared to approximately 39% for the six months
ended June 30, 2006. The costs of revenues in future periods will be expensed as
incurred and, accordingly, while the revenues from contracts will be recognized
ratably over the term of the agreement, the gross profit margin on revenues from
these deferred revenues can vary from period to period, as evidenced by the
change from the six months ended June 30, 2007 to the comparable period in
Fiscal 2006.

                                      -46-
<PAGE>

         Lang Chemical's cost of revenues includes the cost of goods it sells.
For the six months ended June 30, 2007, Lang Chemical's cost of revenues was
$26,111,975 or approximately 97.7% of its revenues, which is consistent with its
historical operations. As set forth in Note 7-Pro Forma Financial Information
(unaudited) to the consolidated financial statements appearing elsewhere in this
quarterly report, for the six months ended June 30, 2006, its cost of revenues
was approximately 98.7% of its total sales. We estimate gross margins for Lang
Chemical could potentially improve as a result of their ability to access
capital following our acquisition of control of that company, which could allow
Lang Chemical to garner better terms and as a result improved margins. As well
we estimate gross margins could improve if Lang Chemical could manufacture, sell
and distribute its own products. Our capital expenditure plan for Fiscal 2007
and beyond include capital to construct a manufacturing facility for our Lang
Chemical segment. The anticipated cost of completing this facility is
approximately $3,000,000 and we will need to secure additional investment
capital to complete construction of the facility. We believe operating margins
at Lang Chemical could improve if they were to manufacture, sell and distribute
their own product. As a result although we are not contractually committed to
invest the additional working capital, management of China Direct estimates it
would improve the operating margin of Lang Chemical and would be in the best
interest of China Direct and its shareholders to commit the additional working
capital to our Lang Chemical segment.

         Chang Magnesium's cost of revenues includes the cost of goods it sells.
For the six months ended June 30, 2007, Chang Magnesium's cost of revenues was
$35,506,327 or approximately 93.8% of its revenues. As set forth in Note 7 Pro
Forma Financial Information (unaudited) to the consolidated financial statements
appearing elsewhere in this quarterly report, for the six months ended June 30,
2006 cost of revenues for Chang Magnesium was approximately 98.9% of its total
sales. This reduction in cost of revenues as a percentage of revenues and
improvement in gross margin for the six months ended June 30, 2007 is
attributable to reduced cost of goods on inventory levels maintained at December
31, 2006 which were purchased at a time when market prices of magnesium had
decreased.

         We anticipate that Chang Magnesium will continue to report gross profit
margins ranging from 6% to 8% during the balance of Fiscal 2007. Furthermore we
anticipate gross margins at Chang Magnesium could improve should they be able to
increase the revenues contributed from the manufacturing of magnesium in
relation to the revenues generated by Changing Trading. Chang Magnesium earns a
higher gross profit on the manufacture of magnesium as opposed to the trading of
magnesium. If we could acquire additional magnesium operations for Chang
Magnesium, and increase revenues related to the manufacturing of magnesium, we
estimate gross profit could improve. While we are actively pursuing
opportunities to acquire additional magnesium operations, as of the date of this
report we do not have any agreements in place to acquire additional magnesium
producing facilities. Although we are not contractually committed to invest the
additional working capital, management of China Direct estimates it would
improve the operating margin of Chang Magnesium and would be in the best
interest of China Direct and its shareholders to commit the additional working
capital to our Chang Magnesium segment.

         CDI Wanda's cost of revenues includes the cost of goods it sells. For
the CDI Wanda Reporting Period, its cost of revenues was approximately 80% of
its revenues. As set forth in Note 7 Pro Forma Financial Information (unaudited)
to the consolidated financial statements appearing elsewhere in this quarterly
report, for the six months ended June 30, 2006 cost of revenues for CDI Wanda
was approximately 97% of its total sales. This decrease in the cost of revenues
as a percentage of revenues and the corresponding increase in gross margin for
the six months ended June 30, 2007 is attributable to increased cost associated
with the design of new equipment in 2006 for which there were no comparable
costs for the six months ended June 30, 2007. As CDI Wanda gains experience in
the construction process certain efficiencies have been realized which have
served to reduce the cost of goods sold. We expect CDI Wanda will generate gross
margins of 10% to 15% during the balance of Fiscal 2007.

                                      -47-
<PAGE>

TOTAL OPERATING EXPENSES

         Our total operating expenses for the six months ended June 30, 2007
were $1,684,926 as compared to $853,340 for the six months ended June 30, 2006,
an increase of $831,586, or approximately 97%. Of our total operating expenses
for the six months ended June 30, 2007, $843,085 is attributable to our parent
company, $207,733 is attributable to Lang Chemical, $184,624 is attributable to
Chang Magnesium, $364,679 is attributable to CDI Wanda, and $84,805 is
attributable to CDI China which includes CDI Shanghai Management and its wholly
owned subsidiary Capital One Resource.

         The parent company and China Direct Consulting's operating expenses
decreased $10,255, or approximately 1% for the six months ended June 30 from
2007 to 2006. These operating expenses generally consist of selling, general and
administrative expenses, including officers' and employees' compensation,
professional fees, such as legal, accounting, and professional resources, and
travel expenses. The decrease for the six months ended June 30, 2007 reflects
China Direct Consulting's reduced dependence on external consultants. In the six
months ended June 30, 2007 we increased our infrastructure to support the
expansion of our CDI China business model. As a result we have reduced our
dependence on outside professionals. Notwithstanding the foregoing, we
anticipate operating expenses for the parent company and China Direct Consulting
will increase as we expand our operations and implement our business model.
Included in these anticipated increases are salaries and benefits for additional
employees, increased marketing and advertising expenses as well as increased
professional fees. In addition, we have engaged a consultant to assist in our
efforts to comply with the enactment of Section 404 of the Sarbanes-Oxley Act of
2002 as it relates to small business issuers such as our company. In connection
with our annual report for Fiscal 2007 our management will be required to
provide an assessment of the effectiveness of our internal control over
financial reporting, including a statement as to whether or not internal control
over financial reporting is effective. In order to comply with this requirement
we have engaged Accretive Solutions, Inc. to undertake an analysis of our
internal controls. We expect the costs associated with the development of the
necessary documentation and testing procedures required will be significant due
to the diversity of our operations and the number of subsidiaries located
outside the U.S. We expect this expense will increase considerably for the
remainder of Fiscal 2007 and into Fiscal 2008 as well.

         Lang Chemical's operating expenses include selling expenses as well as
general and administrative expenses. Total operating expenses for Lang Chemical
for the six months ended June 30, 2007 were $207,733, and included selling
expenses of $232,171 and general and administrative expenses of $79,055. The
general and administrative expenses were offset by a bad debt recovery of
$103,493. As set forth in Note 7-Pro Forma Financial Information (unaudited) to
the consolidated financial statements appearing elsewhere in this quarterly
report, for the six months ended June 30, 2006 Lang Chemical had total operating
expenses of $173,926 which represented approximately 1.1% of its revenues for
the six months ended June 30, 2006 as compared to $207,733, (adjusted for the
one time bad debt recovery) or approximately 0.8%, for the six months ended June
30, 2007. Prior to the one time bad debt recovery of $103,493 Lang Chemical
operating expenses were $311,226 or approximately 1.1% of its revenues for the
six months ended June 30, 2007, in line with historical performance. We
anticipate that Lang Chemical's operating expenses for the balance of Fiscal
2007 will be consistent with those recognized for the 12 months ended December
31, 2006.

         Chang Magnesium operating expenses include selling expenses as well as
general and administrative expenses. Total operating expenses for Chang
Magnesium of $184,624 for the six months ended June 30, 2007 generally consist
of selling expenses of $73,699, and general and administrative expenses of
$110,925. As set forth in Note 7-Pro Forma Financial Information (unaudited) to
the consolidated financial statements appearing elsewhere in this quarterly
report, for the six months ended June 30, 2006 Chang Magnesium had total
operating expenses of $182,210 which represented approximately 1.6% of its

                                      -48-
<PAGE>

revenues for the six months ended June 30, 2006 as compared to $184,624, or
approximately 0.05%, for the six months ended June 30, 2007. For the six months
ended June 30, 2006 operating expenses for Chang Magnesium included shipping
expenses as a component of selling expenses, while for the six months ended June
30, 2007, Chang Magnesium passed the shipping expenses along to its customers.
As a result selling expenses were reduced for the six months ended June 30,
2007. However the decrease in selling expenses will be offset by an expected
increase in general and administrative expenses as Chang Magnesium expands their
operations. We anticipate that Chang Magnesium's operating expenses for Fiscal
2007 will be consistent with those recognized for the 12 months ended December
31, 2006, subject to any impact of shipping costs.

         CDI Wanda's total operating expenses include selling expenses as well
as general and administrative expenses. For the CDI Wanda Reporting Period
(February 12, 2007 through June 30, 2007) operating expenses related to CDI
Wanda are $364,679. These operating expenses consist of selling expenses of
$171,976 and general and administrative expenses of $192,703. As set forth in
Note 7 Pro Forma Financial Information (unaudited) to the consolidated financial
statements appearing elsewhere in this quarterly report, for the six months
ended June 30, 2006 CDI Wanda had total operating expenses of $3,623, which
represented approximately 3.1% of its revenues for the six months ended June 30,
2006 as compared to $364,679, or approximately 0.05%, for the CDI Wanda
Reporting Period. We anticipate that CDI Wanda's operating expenses for Fiscal
2007 will be consistent with those recognized for the 12 months ended December
31, 2006.

         CDI China's operating expenses of $84,805 for the six months ended June
30, 2007 consist of general and administrative expenses of related to CDI
Shanghai Management and its wholly owned subsidiary Capital One Resource. CDI
China was created in August 2006; as such there were no operations for the six
months ended June 30, 2006.

OTHER INCOME (EXPENSE)

         Our total other income for the six months ended June 30, 2007 was
$626,612, as compared to $316,845 for the six months ended June 30, 2006, an
increase of $309,767 or approximately 97.8%. The increase is primarily the
result of a recovery of $372,069 worth of accrued income taxes, interest income
of $24,528, and a gain on the conversion of foreign currency of $5,184 related
to our Chang Magnesium segment, and interest income of $43,021, $2,911, and
$5,893 related to China Direct Consulting, Lang Chemical, and CDI Wanda,
respectively. These amounts were offset by interest expense of $1,216 related to
CDI China. The $372,069 of accrued income taxes represents the value of accrued
income taxes at December 31, 2006 which was recovered by Chang Magnesium in the
six months ended June 30, 2007. We realized a gain on the sale of marketable
securities of $174,222 related to our parent company, for the six months ended
June 30, 2007 as compared to no such recovery of accrued income taxes and a
realized gain on the sale of marketable securities of $43,345 for the six months
ended June 30, 2006. Commencing in the first quarter of 2007, we reclassified
investment in trading securities to investment in marketable securities held for
sale; accordingly unrealized gains or losses on marketable securities held for
sale are included as a component of comprehensive income. As described elsewhere
herein, the gain or loss is a result of fluctuations in the market price of the
underlying security. These non cash gains or losses can have a significant
impact, positive or negative, on our results of operations. We recognized
interest income on cash balances held during the six months ended June 30, 2007.

INCOME TAX BENEFIT (EXPENSE)

         For the six months ended June 30, 2007 we recorded an income tax
expense of $754,731 as compared to an income tax expense of $118,189 for the six
months ended June 30, 2006, an increase of $872,920, or approximately 739%. As
we report profitable operations we are required to record income tax expenses on
those operations. However, as the majority of revenues related to China Direct
Consulting are paid in the form of securities, some of which are restricted from

                                      -49-
<PAGE>

sale at the time received, our revenue model creates a risk that we will not
have sufficient cash reserves to satisfy our tax obligations as they become due.
China Direct Consulting provides its services pursuant to written agreements
which may vary in duration. Revenues are recognized over the terms of the
agreements. China Direct Consulting recognized revenues of $3,707,998 and
$183,150 in connection with the receipt of securities, based on the terms of the
consulting contracts, for the six months ended June 30, 2007 and 2006,
respectively. China Direct Consulting recorded deferred revenues of $1,560,585
in connection with the receipt of securities, based on the terms of the
consulting contracts, at June 30, 2007. At June 30, 2007 our consolidated
balance sheet reflects a deferred income tax liability for income tax of $0. The
recognition of these revenues, however, will not provide offsetting cash to us
for the payment of current taxes.

NET INCOME (LOSS)

         For the six months ended June 30, 2007 we reported net income of
$4,138,611 as compared to net loss of $180,268 for the six months ended June 30,
2006, an increase of $4,318,879 or approximately 2,396%. This increase for the
six months ended June 30, 2007 is primarily attributable to net income of
$202,207 from Lang Chemical, adjusted for our 51% ownership interest, $1,150,002
from Chang Magnesium, adjusted for our 51% ownership interest, $25,866 from CDI
Wanda, adjusted for our 51% ownership interest, and $2,760,536 from China Direct
Consulting.

FOREIGN CURRENCY TRANSLATION GAIN (LOSS)

         As described elsewhere herein, the functional currency of our Chinese
subsidiaries is the RMB. The financial statements of our subsidiaries are
translated to U.S. dollars using period end rates of exchange for assets and
liabilities, and average rates of exchange for the period for revenues, costs,
and expenses. Net gains and losses resulting from foreign exchange transactions
are included in the consolidated statements of operations and were not material
during the period presented. We reported a foreign currency translation gain of
$248,049 for the six months ended June 30, 2007 as compared to $0 for comparable
period in Fiscal 2006.

UNREALIZED GAIN ON MARKETABLE SECURITIES HELD FOR SALE, NET OF INCOME TAX

         As described elsewhere herein, if we are unable to liquidate securities
received as compensation these securities are classified on our consolidated
balance sheet as marketable securities held for sale. The unrealized gain on
marketable securities held for sale, net of income tax, represents the change in
the fair value of these securities as of the end of the financial reporting
period. For the six months ended June 30, 2007, we recognized an unrealized loss
of $559,224 on marketable securities held for sale, net of income tax, and an
unrealized loss of $556,082 on marketable securities held for sale-related
party, net of income tax, for a combined total loss on marketable securities
held for sale, net of income tax, and on marketable securities held for
sale-related party, net of income tax, of $1,115,306 as compared to an
unrealized gain of $1,395,240 for the six months ended June 30, 2006, a decrease
of $279,934 or 20.1%. Unrealized gains or losses on marketable securities held
for sale and unrealized gains or losses on marketable securities held for
sale-related party are recognized as an element of comprehensive income in our
consolidated statement of operations on a monthly basis based on changes in the
fair value of the security as quoted on national or inter-dealer stock
exchanges. Once liquidated, the realized gain or loss on the sale will be
reflected in our net income for the period in which the security is liquidated.
At June 30, 2007 and June 30, 2006 the total amount on marketable securities
held for sale reflect securities of Dragon Capital Group Corp., a related party,
and this figure represents the value of securities we received as compensation.
As described elsewhere herein, the unrealized loss is a result of fluctuations
in the market price of underlying securities. These non cash charges, whether
gains or losses, can have a significant impact, positive or negative, on our
results of operations. Furthermore, as described elsewhere herein, we may never
be able to liquidate these securities.

                                      -50-
<PAGE>

COMPREHENSIVE INCOME

         We reported comprehensive income of $3,271,354 for the six months ended
June 30, 2007 as compared to $1,214,972 for the six months ended June 30, 2006,
an increase of $2,056,382, or 169%. Comprehensive income is the sum of our net
income plus unrealized gains or losses on marketable securities held for sale,
net of income tax plus unrealized gains or losses on marketable securities held
for sale-related party, net of income tax. Comprehensive income includes the
gain or loss of on all marketable securities held for sale, including related
party securities. These securities are valued based on changes in the fair value
of the underlying security as quoted on national or inter-dealer stock
exchanges. Once liquidated, the realized gains or losses will be reflected in
our net income for the period in which the security was liquidated. As mentioned
earlier we reported a net income of $4,138,611 and a foreign currency
translation gain of $248,049. These two figures when combined with the total
unrealized loss of $1,115,306 as described in the section above, amounts to
$3,271,354 of comprehensive income for the six months ended June 30, 2007.

LIQUIDITY AND CAPITAL RESOURCES

         Liquidity is the ability of a company to generate funds to support its
current and future operations, satisfy its obligations and otherwise operate on
an ongoing basis. The following table provides certain balance sheet comparisons
between June 30, 2007 and December 31, 2006:
<TABLE>
<CAPTION>
                                                             JUNE 30,     DECEMBER 31,
                                                               2007           2006          CHANGE
                                                           ------------   ------------   ------------
<S>                                                        <C>            <C>            <C>
Working Capital ........................................   $ 14,447,941   $  6,788,638   $  7,659,303
Cash ...................................................      8,132,795      3,030,345      5,102,450
Cash-Restricted ........................................              -        447,713       (447,713)
Notes Receivable .......................................        192,031        942,117       (750,086)
Investment in marketable securities, held for sale .....      3,060,463              -      3,060,463
Investment in marketable securities, held for
sale-related party .....................................      1,511,340      1,325,400        185,940
Investment in trading securities .......................              -      2,166,603     (2,166,603)
Investment in trading securities-related party .........              -        311,611       (311,611)
Accounts receivable, net ...............................     10,250,851      2,770,062      7,480,789
Inventories ............................................      1,634,963      5,494,292     (3,859,329)
Prepaid expenses and other assets ......................      6,003,756      1,272,246      4,731,510
Prepaid expenses-related party .........................        418,875              -        418,875
Other receivables ......................................        683,451              -        683,451
Due from related parties ...............................      1,434,946              -      1,434,946
Total current assets ...................................     33,323,471     17,312,676     16,010,795
Property, plant and equipment, net .....................      3,577,621      2,753,468        824,153
Prepaid expenses-long term .............................        295,776        321,548        (25,772)
Property use rights, net ...............................         66,666              -         66,666
                                                           ------------   ------------   ------------
Total assets ...........................................   $ 37,263,534   $ 20,835,405   $ 16,428,129
                                                           ------------   ------------   ------------

Loans Payable-short term ...............................   $    167,540   $  1,536,064     (1,368,524)
Accounts payable and accrued expenses ..................      5,229,225      4,517,354        711,871
Accounts payable-related party .........................      4,692,308      1,546,880      3,145,428
Liabilities in connection with acquisition-related party        368,272              -              -
Advances from customers ................................      3,395,088        916,764      2,478,324
Deferred revenues-short term ...........................      1,311,635        779,900        531,735
Other payables .........................................      3,166,027         45,623      3,120,404
Income tax payable .....................................        528,099      1,013,920       (485,821)
Due to related parties .................................         17,336        140,893       (123,557)
Deferred income tax payable ............................              -         26,640        (26,640)
Total current liabilities ..............................     18,875,530     10,524,038      8,351,492
Deferred revenues-long term ............................        248,950        779,900       (530,950)
Long-term debt .........................................              -         22,793        (22,793)
                                                           ------------   ------------   ------------
Total Liabilities ......................................   $ 19,124,480   $ 11,326,731   $  7,797,749
                                                           ------------   ------------   ------------
</TABLE>
                                      -51-
<PAGE>

         At June 30, 2007, we held cash and cash equivalents of $8,132,795 and
working capital of $14,447,941. Our working capital increased from $6,788,638 at
December 31, 2006 an increase of $7,659,303. Our cash position increased from
$3,030,345 at December 31, 2006 to $8,132,795, an increase of $5,102,450. At
June 30, 2007 our cash position by geographic area is as follows:

         United States         $4,206,245
         China .......          3,926,550
                               ----------
         Total .......         $8,132,795
                               ==========

         In addition to the increase in cash and cash equivalents of $5,102,450,
our current assets increased to $33,323,471 at June 30, 2007 from $17,312,676 at
December 31, 2006 an increase of $16,010,795 or approximately 92%. Changes in
our total assets from December 31, 2006 to June 30, 2007 include the following:

   o an increase of $7,480,789 in accounts receivable. At June 30, 2007 our
consolidated balance sheet reflects a total accounts receivable due us, net of
allowance for doubtful accounts of $8,485, of $10,250,851 as compared to
$2,770,062 at December 31, 2006. Included in the amount due at June 30, 2007 is
$228,333 due China Direct Consulting, $6,500,096 due Chang Magnesium, $3,474,421
due Lang Chemical, and $48,001 due CDI Wanda. Chang Magnesium, Lang Chemical and
CDI Wanda all generally offer payment terms of 90 days. For the six months ended
June 30, 2007, the average turn on accounts receivable for Chang Magnesium was
21 days, the average turn on accounts receivable for Lang Chemical was 16 days,
and the average turn on accounts receivable for CDI Wanda was 19 days. China
Direct Consulting generally receives payment in full for its services at the
time of contract. We do not anticipate any change in either the terms of sale or
collection history at these companies in Fiscal 2007

   o an increase of $5,150,385 in prepaid expenses and other assets. At June 30,
2007 our consolidated balance sheet reflects prepaid expenses and other assets
of $6,003,756 as compared to prepaid expenses and other assets of $1,272,246 at
December 31, 2006. At June 30, 2007 prepaid expenses and other assets of
$6,003,756 consists of $479,498 related to China Direct, $430,929 related to
Lang Chemical, $5,063,402 related to Chang Magnesium, $25,797 related to CDI
Wanda, and $4,130 related to Big Tree. The $479,498 in prepaid expenses and
other assets related to China Direct Consulting represents the current portion
of the fair value of client securities China Direct Consulting received as
payment for its services which were assigned to our executive officers as
compensation for their services to China Direct Consulting, in accordance with
the terms of 36 month consulting agreements. The $430,929 related to Lang
Chemical represents prepayments to vendors for merchandise that had not yet been
shipped to Lang Chemical. The $5,063,402 related to Chang Magnesium represents
prepayments of $4,570,862 to vendors for merchandise that had not yet been
shipped to Chang Magnesium and $492,540 of value added tax refunds available
from the Chinese government available to Chang Magnesium. The $25,797 related to
CDI Wanda represents prepayments to vendors for merchandise that had not yet
been shipped to CDI Wanda. The $4,130 related to Big Tree represents prepayments
to vendors for merchandise that had not yet been shipped to Jieyang Big Tree.

                                      -52-
<PAGE>

   o an increase of $418,875 in prepaid expenses-related party. At June 30, 2007
our consolidated balance sheet includes prepaid expenses-related party of
$418,875 as compared to prepaid expenses-related party of $0 at December 31,
2006. Prepaid expenses-related party represents payments of $418,514 to Taiyuan
YiWei Magnesium Industry Co., Ltd., a related party, for inventory which has not
yet been received by Chang Magnesium. At June 30, 2007, Lang Chemical prepaid
NanTong LangYuan Chemical Co., Ltd. $361 for the future delivery of inventory.
Taiyuan Yiwei Magnesium Industry Co., Ltd. is a company owned by Yiwei Huang,
our minority shareholder in Chang Magnesium. NanTong LangYuan Chemical Co., Ltd.
is a company owned by Jingdong Chen and Qian Zhu, our two minority shareholders
of Lang Chemical.

   o an increase of $683,451 in other receivables. At June 30, 2007 our
consolidated balance sheet includes other receivables of $683,451 as compared to
other receivables of $ 0 at December 31, 2006. At June 30, 2007 other
receivables consist of $119,238 related to Lang Chemical which represents
advances to sales persons for business travel expenses, these advances are non
interest bearing and payable on demand, $495,851 relate to Chang Magnesium which
represents a refund from a supplier as Chang Magnesium had overpaid on previous
orders, $58,745 relate to CDI Wanda which represent a one time purchase of
materials which were in turn sold to customer at cost in a courtesy transaction,
$7,177 relates to CDI China and represents a security deposit and advance to
employees and the remaining balance of $2,440 relates to China Direct Consulting
related to advances to an employee, which are non interest bearing and payable
upon demand.

   o an increase of $1,434,946 in due from related party which includes:

      o a loan of $996,524 due to Chang Magnesium from Asia Magnesium, during
the three months ended March 31, 2007. These funds were advanced to Asia
Magnesium who in turn contributed the full amount of the loan to Jinwei
Magnesium. Yuwei Huang, our minority shareholder of Chang Magnesium, is the
owner of Taiyuan Yiwei Magnesium Co., Ltd., which has an ownership interest in
Jinwei Magnesium as of December 2006. The loan was contributed to Asia Magnesium
to secure its rights to acquire a 52% equity interest in Jinwei Magnesium, a
foreign investment entity ("FIE") formed to build a magnesium processing
facility. As mentioned above, effective on July 1, 2007, we acquired both a 100%
equity interest in Asia Magnesium and a 52% equity interest in Jinwei Magnesium.
There are no written agreements related to this advance from Chang Magnesium to
Asia Magnesium, which we deem due upon demand. This liability will be eliminated
on our consolidated balance sheet during the third quarter of Fiscal 2007 as a
result of the consolidation of these entities, and

      o a loan of $438,422 due from Shantou Dashu Toy Enterprise Co., Ltd. to
Jieyang Big Tree. This loan was made prior to our acquisition of control of
Jieyang Big Tree. Guihong Zheng, our minority shareholder in Big Tree is an
owner of Shantou Dashu Toy Enterprise Co., Ltd.

   o an increase of $824,153 in property, plant and equipment, net of
accumulated depreciation of $194,812. At June 30, 2007 we reflect property,
plant and equipment, net of accumulated depreciation of $194,812, valued at
$3,577,621 as compared to $2,753,468 at December 31, 2006. This increase is
attributable to increases of $632,671 and $100,000 as a result of our recent
acquisitions of CDI Wanda, CDI Magnesium, respectively, and increases of $13,814
related to our parent company and its wholly owned subsidiary CDI Shanghai
Management, an increases of $24,078 at Lang Chemical, and an increase of $53,590
at Chang Magnesium.

   o an increase of $66,666 in property use rights, net of accumulated
amortization. In connection with the acquisition of CDI Magnesium, we acquired
property use rights valued at $66,666, whereby the Company has rights to use
certain properties until February 12, 2010. We will begin amortizing this
property use rights when the magnesium refinery commences operations.

                                      -53-
<PAGE>

   o a combined increase of $768,189 in total investment in trading securities
and marketable securities held for sale. This increase is due to the following;

      o an increase of $3,060,463 in investment in marketable securities held
for sale. Investment in marketable securities represents the value of securities
held by China Direct Consulting which are restricted from sale. $1,450,094 of
the increase is related to marketable securities received during the six months
ended June 30, 2007 and $1,610,369 is related to the change in the value of
marketable securities held at December 31, 2006. This represents the value of
securities held by China Direct Consulting at June 30, 2007 which were received
as compensation for services rendered. This asset represents securities of
Linkwell Corporation (OTCBB: LWLL), Dragon International Group Corp. (OTCBB:
DRGG), Sunwin International Neutraceuticals, Inc. (OTCBB: SUWN) and Sense
Holdings, Inc. (OTCBB: SEHO), MediaReady, Inc. (OTCBB: MRED) all of which have
fairly liquid trading markets. However, as these shares are all traded in the
over the counter market which is generally not considered as liquid a market as
an exchange such as NASDAQ, AMEX or the NYSE, we may be unable to liquidate
these securities at their current carrying value at such time as we are able to
sell the securities,

      o an increase of $185,940 in investment in marketable securities held for
sale-related party. This amount consists of securities of Dragon Capital Group
Corp., a related party, received as compensation for services. $744,607 of the
increase is related to marketable securities received during the six months
ended June 30, 2007, which was offset by a decrease of $558,667 in the value of
marketable securities held at June 30, 2007 from the carrying value at December
31, 2006. These securities were issued to us by a related party which is a non
reporting company whose securities are quoted on the Pink Sheets. Under Federal
securities laws these securities cannot be readily resold by us generally absent
a registration of those securities under the Securities Act of 1933. Dragon
Capital Group Corp., the related party, does not intend to register the
securities. Accordingly, while under generally accepted accounting principles we
are required to reflect the fair value of these securities on our consolidated
balance sheet, they are not readily convertible into cash and we may never
realize the carrying value of these securities.

   o a decrease of $2,166,603 in investment in trading securities. At June 30,
2007 all securities are reflected as investment in marketable securities held
for sale, and investment in marketable securities held for sale-related party.

   o a decrease of $311,611 in investment in trading securities-related party.
At June 30, 2007 all securities are reflected as investment in marketable
securities held for sale, and investment in marketable securities held for
sale-related party.

         These amounts contributed to a net increase of $768,189 in total
investment in trading securities and marketable securities held for sale.

         These increases were offset by the following:

   o a decrease in notes receivable of $750,086. At June 30, 2007 we reflect
notes receivable of $192,031 as opposed to $942,117 at December 31, 2006. At
June 30, 2007 notes receivable reflect $14,811 and 177,220 due to Lang Chemical
and Chang Magnesium, respectively. At December 31, 2006 we reflected a note
receivable of $942,117 due to Lang Chemical from Shanghai Wujin Chemical Co.,
Ltd. This note was related to the purchase of raw materials from Lang Chemical;
and has been satisfied in the six months ended June 30, 2007.

                                      -54-
<PAGE>

   o a decrease of $3,859,329 in inventory. At June 30, 2007 we reflect
inventories of $1,634,963 as compared to $5,494,292 at December 31, 2006. The
decrease is primarily attributable to a reduction in inventory of approximately
$4,092,314 at Chang Magnesium as a result of increased sales. We expect to
increase our inventory levels at Chang Magnesium to historic levels during the
fourth quarter of 2007. The decrease was offset by the increases of 39,331 at
Lang Chemical and an increase of $193,654 at CDI Wanda.

   o a decrease of $25,772 in prepaid expenses-long term. At June 30, 2007 we
reflect prepaid expenses-long term of $295,776 as compared to $321,548 at
December 31, 2006. This represents prepaid expenses related to China Direct
Consulting which represents the fair value of securities received as
compensation which were assigned to our executive officers, as described above
which will be recognized 12 months beyond the date of our consolidated balance
sheet, and

   o a decrease of $447,713 in restricted cash. During the first quarter of
Fiscal 2007 Lang Chemical satisfied a loan receivable with a bank for which it
had a corresponding deposit of restricted cash. Upon satisfaction of the loan
the cash was released.

         As a result of the foregoing, our total assets increased $16,428,129 at
June 30, 2007 from December 31, 2006. Of the total assets of $37,263,534 at June
30, 2007, $10,028,366 relate to China Direct which includes, CDI China, China
Direct Consulting, CDI Shanghai Management and its wholly owned subsidiary
Capital One Resource, $19,646,136 relate to Chang Magnesium and its wholly owned
subsidiaries Changxin Trading and Excel Rise, $5,213,724 relate to Lang
Chemical, $454,052 relate to Big Tree and its wholly owned subsidiary Jieyang
Big Tree, $218,726 relate to CDI Magnesium, and $1,702,530 related to CDI Wanda.
China Direct assets primarily consist of cash of $4,206,245, investments in
marketable securities held for sale of $3,060,463, investment in marketable
securities held for sale-related party valued at $1,511,340, and accounts
receivable of $228,333. Chang Magnesium assets primarily consist of cash of
$2,515,959, inventory of $1,160,812, property, plant and equipment, net of
accumulated depreciation, valued at $2,317,758, and accounts receivable valued
at $6,500,096. Lang Chemical assets primarily consist of cash of $398,723, notes
receivable of $14,811, accounts receivable of $3,474,421, prepaid expenses and
other assets of $430,929, prepaid expenses-related party of $361, inventory of
$280,497 and property, plant and equipment, net of accumulated depreciation
valued at $494,744.

         Our total liabilities at June 30, 2007 increased $7,797,749 from
December 31, 2006. Principal changes in our total liabilities at June 30, 2007
from December 31, 2006 include the following:

   o an increase of $711,871 in accounts payable and accrued expenses. Accounts
payable increased to $5,229,225 at June 30, 2007 from $4,517,534 at December 31,
2006. At June 30, 2007 the $5,229,225 includes $230,574 due by our parent
company and China Direct Consulting, $2,865,772 due by Lang Chemical, $2,121,883
due by Chang Magnesium, and $10,996 due by CDI Wanda. The increase in accounts
payable at June 30, 2007 from December 31, 2006 is primarily attributable to
vendors' offer of longer payment terms to Lang Chemical and Chang Magnesium in
an effort to forge a relationship with each entity.

   o an increase of $3,145,428 in accounts payable-related party. Accounts
payable-related party increased to $4,692,308 as compared to $1,546,880 at
December 31, 2006. At June 30, 2007 accounts payable-related party represents
amounts due by Chang Magnesium to Taiyuan Yiwei Magnesium Group for the purchase
of raw materials. Taiyuan Yiwei Magnesium Industry Co., Ltd., a company owned by
Yiwei Huang, our minority shareholder in Chang Magnesium.

                                      -55-
<PAGE>

   o an increase of $2,478,324 in advances from customers. Advances from
customers increased to $3,395,088 at June 30, 2007 from $916,764 at December 31,
2006. Advances from customers represent amounts advanced to Chang Magnesium and
Lang Chemical by its customers for product orders which have not yet been
shipped. At June 30, 2007 this amount included $3,171,846 related to Chang
Magnesium as compared to $605,000 at December 31, 2006, and $129,286 related to
Lang Chemical as opposed to $311,000 at December 31, 2006. As well we have
$93,956 related to CDI Wanda for which there was no amount reflected at December
31, 2006. These amounts will be reduced when the corresponding order is shipped.

   o an increase of $3,120,404 in other payables. At June 30, 2007 other
payables are $3,166,027 as compared to $45,623 at December 31, 2006. The
increase is primarily attributable to:

      o $2,540,617 due by Chang Magnesium which includes $1,993,049 due Japan
Material Industry Co., Ltd. As described earlier in this section, during the
first quarter of Fiscal 2007 this company advanced Chang Magnesium $996,524
funds which Chang Magnesium. These funds were advanced to Asia Magnesium who in
turn contributed the full amount of the loan to Jinwei Magnesium. Yuwei Huang,
our minority shareholder of Chang Magnesium, is the owner of Taiyuan Yiwei
Magnesium Co., Ltd., which has an ownership interest in Jinwei Magnesium as of
December 2006. The loan was contributed to Asia Magnesium to secure its rights
to acquire a 52% equity interest in Jinwei Magnesium, a foreign investment
entity ("FIE") formed to build a magnesium processing facility. As mentioned
above, effective on July 2, 2007, we acquired both a 100% equity interest in
Asia Magnesium and a 52% equity interest of Jinwei Magnesium. There are no
written agreements related to this advance from Chang Magnesium to Asia
Magnesium, which we deem due upon demand. During the second quarter of Fiscal
2007, Japan Material Industry Co., Ltd. advanced Chang Magnesium an additional
$996,524. This amount will be advanced to Asia Magnesium related to Jinwei
Magnesium. There are no written agreements related to this advance to Chang
Magnesium which we deem to be an interest free advance, due upon demand. Other
payables related to Chang Magnesium include $262,459 due a third party customer
related to a refund of an advance from a customer;

      o an increase of $792,147 in VAT tax payable as a result of increased
revenues. This increase consists of the following;

         o $285,109 of VAT tax payable related to Chang Magnesium.

         o $383,770 of VAT tax payable related to CDI Wanda

         o $123,268 of VAT tax payable related to Lang Chemical

         o an increase of $118,372 in employee welfare expenses and accrued
   compensation. This increase consists of the following;

         o $11,847 of employee welfare expenses due at Lang Chemical

         o $36,937 of employee welfare expenses due at CDI Wanda

         o $ 65,772 of accrued compensation due at China Direct Consulting as
   employee salaries are paid on the first of the month for the prior month
   service

         o $2,060 of employee welfare expenses due at CDI Magnesium, and

         o $1,756 of employee welfare expenses due at CDI Shanghai Management
   and its wholly owned subsidiary Capital One Resource.

                                      -56-
<PAGE>

   o an increase of $368,272 in liabilities in connection with
acquisitions-related party as a result of the acquisitions of CDI Wanda, Big
Tree and CDI Magnesium. At June 30, 2007 our consolidated balance sheet
reflected due to related party of $368,272 which represented amounts payable to
our subsidiaries for paid in capital. Included in the amount is $268,272 worth
of common stock due to Guihong Zheng and $100,000 reflects the value of common
stock due to Wuliang Zhang, the 40% owner of CDI Magnesium. The Company agreed
to issue 53,654 shares of its common stock to Guihong Zheng, based on the fair
value of each share of $5.00 per share on January 30, 2007; the equivalent of
$268,272. The Company agreed to issue 25,000 shares of its common stock, based
on the fair value of each share of $4.00 per share on February 6, 2007,
equivalent to $100,000 equity of 60% CDI Magnesium on the date of acquisition.
As of June 30, 2007, these shares are reflected as a liability in connection
with acquisition-related party. We agreed to issue the aggregate of 78,654
shares of our common stock, valued at $368,272, to the minority holders of these
companies as consideration for our acquisition of a majority interest. At June
30, 2007 we had yet to issue the shares.

         These increases were offset by the following:

   o a decrease of $485,821 in income tax payable, and

   o a decrease of $1,368,524 in loans payable. Loans payable-short term
decreased to $167,540 at June 30, 2007 as compared to $1,536,064 at December 31,
2006. At June 30, 2007 Lang Chemical had short term obligations to a bank
totaling $101,964 due January 4, 2008 secured by Lang Chemical property. In
addition, at June 30, 2007 CDI Wanda had short term obligations to a bank
totaling $65,576 due August 3, 2007. The decrease in loans payable at June 30,
2007 from December 31, 2006 is primarily attributable to the satisfaction of
loans during the period.

   o a decrease of $123,557 in due to executive officers. At December 31, 2006
our consolidated balance sheet reflected due to executive officers of $140,893
which represented amounts advanced to us by Dr. Wang and Messrs. Siegel and
Stein for working capital. These amounts were satisfied in the first quarter of
2007. At June 30, 2006 $17,336 represents a loan of $4,590 due to Dragon Capital
Group Corp., and a loan of $12,746 due to Robert Zhuang, General Manager of CDI
Shanghai Management. As of August 3, 2007, these amounts have been satisfied.

   o a decrease of $26,640 in deferred income tax payable. Deferred income tax
will be due on deferred revenues when recognized. The recognition of these
revenues, however, may not provide offsetting cash to us for the payment of
these taxes.

   o a decrease of $22,793 in long term debt which reflects the
re-classification of $22,793 from long term debt to loans payable-short term as
these amounts are due within 12 months, and

   o a decrease of $530,950 in deferred revenues-long term. At June 30, 2007 our
consolidated balance sheet reflects deferred revenues-long term of $248,950 as
compared to $779,900 at December 31, 2006. Deferred revenues-long term reflects
revenues of China Direct Consulting which are comprised of securities received
as compensation which are being amortized over the term of the consulting
agreement.

         At June 30, 2007 our total liabilities increased to $19,124,480 from
$11,326,731 at December 31, 2006, an increase of $7,797,749 or approximately
69%. At June 30, 2007, $3,378,692 of our total liabilities are related to our
parent company and consist primarily deferred revenues-short term of $1,311,635,
liabilities in connection with acquisitions of $1,118,272, income tax payable of
$403,489, accounts payable and accrued expenses of $230,574, and advances from
customers of $65,772. At June 30, 2007 total liabilities related to Lang
Chemical are $3,331,913 and primarily consist of accounts payable and accrued

                                      -57-
<PAGE>

expenses of $2,865,772, other payables of $135,115, advances from customers of
$129,286, loans payable-short term of $101,964, and income tax payable of
$99,776. Liabilities related to Chang Magnesium at June 30, 2007 are $12,526,654
and consist primarily of accounts payable-related party of $4,692,308, accounts
payable and accrued expenses of $2,121,883, advances from customers of
$3,171,846 and other payables of $2,540,617. Accounts payable-related party
consists of amounts due to Taiyuan Yiwei Magnesium Industry Co., Ltd., a company
owned by Yiwei Huang, our minority shareholder in Chang Magnesium. As mentioned
earlier, other payables related to Chang Magnesium consist of $1,993,049 due
Japan Material Industry Co., Ltd., $262,459 due a customer for a refund on an
advance from a customer; and $285,109 of value added tax payable. At June 30,
2007 total liabilities related to CDI Wanda are $616,069 and primarily consist
of other payables of $414,778, advances from customers of $93,956, loans
payable-short term of $65,576, income tax payable of $24,834, accounts payable
and accrued expenses of $10,996, and accrued compensation of $5,929.

         At June 30, 2007 our consolidated balance sheet reflects a total
minority interest of $5,612,124, of which $923,086 relates to Lang Chemical,
$3,927,271 relates to Chang Magnesium, $516,253 relates to CDI Wanda, $178,848
relates to Big Tree, and $66,666 relates to CDI Magnesium. The minority interest
represents the equity of the minority shareholders' portion in the subsidiaries
of China Direct.

         For the six months ended June 30, 2007, our net increase in cash was
$5,102,450. This increase consisted of $2,145,183 of total cash provided by
operating activities, $1,297,265 of cash provided by investing activities,
$1,483,197of cash provided by financing activities, and the effect of prevailing
exchange rates on cash of $176,805.

         Net cash provided by operating activities for the six months ended June
30, 2007 was $2,145,183 as compared to net cash used in operating activities of
$(352,870) for the six months ended June 30, 2006, an increase of $2,498,053.
For the six months ended June 30, 2007, our operating subsidiaries used cash in
operating activities to fund increases in inventory of $4,523,227, received
advances from customers of $824,360, fund accounts payable of $697,606, fund
accounts payable-related party of $3,145,428, and fund other payables of
$2,940,552. These increases were primarily offset by non-cash expenses totaling
$2,002,119, a decrease of prepaid expenses of $3,925,410, a decrease of other
receivables of 683,451 and a decrease in accounts receivables of $7,455,735.

         Net cash provided by investing activities was $1,297,265 for the six
months ended June 30, 2007 as compared to net cash used in investing activities
of $111,337 the six months ended June 30, 2006, an increase of $1,185,928. This
change is primarily attributable to an increase of $1,192,487 realized on the
sale of marketable securities held for sale, a decrease of $750,086 in notes
receivable, cash of $55,777 received in conjunction with our acquisitions, a
decrease of $447,713 in restricted cash, a decrease of $996,525 in amounts due
from related parties and the purchase of $152,273 in property, plant and
equipment.

         Net cash provided by financing activities for the six months ended June
30, 2007 was $1,483,197 as compared to $267,698 for the six months ended June
30, 2006, an increase of $1,215,499. This increase includes $17,336 of proceeds
from advances from employees, $3,062,500 of proceeds from exercises of options.
These increases were offset by repayment of loans payable of $1,455,746 related
to Lang Chemical and the repayment of advances in the amount of $140,893 made by
our executive officers during the six months ended June 30, 2007.

         Our capital commitments for Fiscal 2007 include $4,130,000 as
investment capital to various subsidiaries, including $750,000 to Chang
Magnesium, and $3,380,000 to Jinwei Magnesium. We agreed to provide $1,000,000
to Jieyang Big Tree subject to the satisfaction of certain milestones. During
the six months ended June 30, 2007 Japan Material Industry Co., Ltd. loaned

                                      -58-
<PAGE>

Chang Magnesium an aggregate of $1,993,049 of which Chang Magnesium in turn
loaned $996,524 to Asia Magnesium. The remaining balance will be in turn
contributed to Asia Magnesium. Subsequent to the end of the second quarter of
Fiscal 2007 we acquired Asia Magnesium as described elsewhere herein.
Accordingly, we will also need to repay the $1,993,049 loan received from Japan
Material Industry Co., Ltd.

         Furthermore we intend to commit capital to construct a manufacturing
facility for our Lang Chemical segment. The anticipated cost of completing this
facility is approximately $3,000,000 and we will need to secure additional
investment capital to complete construction of the facility. We are not
contractually committed to invest additional working capital to construct the
new manufacturing facility for Lang Chemical; however we believe operating
margins at Lang Chemical could improve if they were to manufacture, sell and
distribute their own product. As a result, although we are not contractually
committed to invest the additional working capital, management of China Direct
believes it would be in the best interest of China Direct and its shareholders
to commit additional working capital to our Lang Chemical segment. In addition,
we have certain other obligations for Fiscal 2007 which include:

   o At June 30, 2007 Lang Chemical had short term obligations to a bank
totaling $101,964 due January 4, 2008 which is secured by Lang Chemical
property. We intend to satisfy this obligation from cash on hand.

   o At June 30, 2007 CDI Wanda had short term obligations to a bank totaling
$65,576 due August 3, 2007. We intend to satisfy this obligation from cash on
hand.

   o Under the terms of various agreements related to our operating subsidiaries
and subject to the satisfaction of certain milestones we have contractually
committed to contribute an aggregate of $1,000,000 to Big Tree. As of the date
of this report Big Tree has not satisfied the conditions necessary to receive
the additional investment capital. In the event Big Tree eventually satisfies
the conditions necessary to require additional working capital, this commitment
will be satisfied either from our working capital or cash generated by
operations.

         Our cash reserves at June 30, 2007 were $8,132,795. In addition, we
received $4,282,500 from the exercise of Class B Warrants in July 2007. These
cash reserves, management believes, enable us to satisfy our projected material
expenditures which include: approximately $2,400,000 for operational expenses
related to our parent company, a remaining acquisition commitment of $750,000
due to Chang Magnesium, an acquisition commitment $3,380,000 to Jinwei
Magnesium, and $1,000,000 working capital expenditure to Big Tree upon Big Tree
satisfying certain operational milestones. However, to fully pursue the
expansion of our business plan which includes providing investment capital to
grow the operations of our current subsidiaries and also build our business
through new accretive acquisitions, we may be required to raise additional
investment capital through private or public financing, although at this time,
we have no specific plans to do so. As described elsewhere herein, during the
first quarter of Fiscal 2007 we engaged Roth Capital Partners as our exclusive
investment banker to provide assistance to us at such time as we seek to enter
the capital markets. While we would prefer to raise capital through the sale of
equity, we could also engage in a debt offering. If we raise additional working
capital through the issuance of equity securities, existing stockholders will in
all likelihood experience significant dilution. If we raise additional working
capital through the issuance of debt, our interest expense will increase and
adversely affect our ability to report profitable operations in future periods.
Furthermore, notwithstanding the engagement of a banking firm, we may not be
able to obtain additional financing when needed or on terms favorable to us.
Since we have no commitment for additional capital, we cannot guarantee that we
will be successful in securing such additional funds. If we are unable to
generate sufficient cash when and as needed, we would not only be unable to

                                      -59-
<PAGE>

fully implement our business model to expand our operations and acquire
additional companies, we could be unable to satisfy our current obligations and
operating expenses. In this event, we could be forced to curtail our plans to
acquire additional companies and be required to restructure our obligations for
capital contributions to these majority owned subsidiaries. Without the
additional capital, those companies will be unable to expand their existing
operations, in the case of Lang Chemical, CDI Wanda and Chang Magnesium, or
otherwise operate, in the cases of Asia Magnesium, Big Tree and CDI Magnesium.
Any inability on our part to secure additional investment capital during the
remainder of Fiscal 2007 as needed will be materially adverse to our results of
operations and liquidity.

CRITICAL ACCOUNTING POLICIES

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

         A summary of significant accounting policies is included in Note 1 to
the audited consolidated financial statements included in this annual report.
Management believes that the application of these policies on a consistent basis
enables us to provide useful and reliable financial information about the
company's operating results and financial condition.

         We record property and equipment at cost. Depreciation and amortization
are provided using the straight-line method over the estimated economic lives of
the assets, which are from five to forty years. Expenditures for major renewals
and improvements which extend the useful lives of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense as
incurred. We review the carrying value of long-lived assets for impairment at
least annually or whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of long-lived
assets is measured by a comparison of its carrying amount to the undiscounted
cash flows that the asset or asset group is expected to generate. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the property, if any, exceeds its
fair market value.

         The Company classifies its existing investments in trading securities,
investments in marketable securities held for sale-related party in accordance
with SFAS No. 115. Investments in trading securities, investments in marketable
securities held for sale-related party, consisting of marketable equity
securities, are stated at fair value. Unrealized gains or losses are recognized
in the consolidated statement of operations on a monthly basis based on
fluctuations in the fair value of the security as quoted on national or
inter-dealer stock exchanges. Realized gains or losses are recognized in the
consolidated statement of operations as trading profits when the securities are
sold.

         As mentioned above, the Company receives securities which include stock
purchase warrants and common and preferred stock from companies as part of its
compensation for services. These securities are stated at fair value in
accordance with SFAS #115 "Accounting for certain investments in debt and equity
securities" and EITF 00-8 "Accounting by a grantee for an equity instrument to

                                      -60-
<PAGE>

be received in conjunction with providing goods or services". Primarily all of
the securities are received from small public companies. The stock and the stock
purchase warrants received are typically restricted as to resale. The policy of
China Direct Consulting is to sell securities it receives as compensation rather
than hold on to these securities as long term investments, regardless of market
conditions in an effort to satisfy our current obligations. The Company
recognizes revenue for such common stock based on the fair value at the time
common stock is granted and for stock purchase warrants based on the
Black-Scholes valuation model. Unrealized gains or losses are recognized in the
consolidated statement of operations on a monthly basis based on changes in the
fair value of the security as quoted on national or inter-dealer stock
exchanges. Unrealized gains or losses on marketable securities held for
sale-related party are recognized as an element of comprehensive income in our
consolidated statement of operations on a monthly basis based on changes in the
fair value of the security as quoted on national or inter dealer stock
exchanges.

         Net unrealized gains related to investments in trading securities for
the six months ended June 30, 2007 and 2006 are $0 and $273,500, respectively.
Net realized gain related to investments in marketable securities for the six
months ended June 30, 2007 and 2006 are $206,236 and $43,345, respectively. Net
realized loss on sale of marketable securities-related party for the six months
ended June 30, 2007 and 2006 are $32,014 and $0 respectively.

         Unrealized (losses) or gains on marketable securities held for sale,
net of income taxes, for the six months ended June 30, 2007 and June 30, 2006
were $(559,224) and $0 respectively.

         Unrealized (losses) or gains on marketable securities held for
sale-related party, net of income taxes, for the six months ended June 30, 2007
and June 30, 2006 were $(556,082) and $1,395,240 respectively.

Stock Based Compensation

         In December 2004, the FASB issued SFAS No. 123(R), "Share-Based
Payment", which replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under
SFAS No. 123(R), companies are required to measure the compensation costs of
share based compensation arrangements based on the grant date fair value and
recognize the costs in the financial statements over the period during which
employees are required to provide services. Share based compensation
arrangements include stock options, restricted share plans, performance based
awards, share appreciation rights and employee share purchase plans. In March
2005 the SEC issued Staff Accounting Bulletin No. 107, or "SAB 107". SAB 107
expresses views of the staff regarding the interaction between SFAS No. 123(R)
and certain SEC rules and regulations and provides the staff's views regarding
the valuation of share based payment arrangements for public companies. SFAS No.
123(R) permits public companies to adopt its requirements using one of two
methods. On April 14, 2005, the SEC adopted a new rule amending the compliance
dates for SFAS 123R. Companies may elect to apply this statement either
prospectively, or on a modified version of retrospective application under which
financial statements for prior periods are adjusted on a basis consistent with
the pro forma disclosures required for those periods under SFAS 123. Effective
January 1, 2006, the Company has fully adopted the provisions of SFAS No. 123R
and related interpretations as provided by SAB 107. As such, compensation cost
is measured on the date of grant as the excess of the current market price of
the underlying stock over the exercise price. Such compensation amounts, if any,
are amortized over the respective vesting periods of the option grant.

         We account for stock options issued to employees in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such,
compensation cost is measured on the date of grant as the excess of the current
market price of the underlying stock over the exercise price. Such compensation

                                      -61-
<PAGE>

amounts, if any, are amortized over the respective vesting periods of the option
grant. We adopted the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" and SFAS 148, "Accounting for Stock-Based
Compensation- -Transition and Disclosure", which permits entities to provide pro
forma net income (loss) and pro forma earnings (loss) per share disclosures for
employee stock option grants as if the fair-valued based method defined in SFAS
No. 123 had been applied. We account for stock options and stock issued to
non-employees for goods or services in accordance with the fair value method of
SFAS 123. In December 2004, the FASB issued FASB Statement No. 123R,
"Share-Based Payment, an Amendment of FASB Statement No. 123" ("FAS No. 123R").
FAS No. 123R requires companies to recognize in the statement of operations the
grant- date fair value of stock options and other equity-based compensation
issued to employees. We adopted FAS No.123R in the first quarter of Fiscal year
2006.

Revenue Recognition

         Revenue is recognized when earned. The Company's revenue recognition
policies are in compliance with the Securities and Exchange Commission's Staff
Accounting Bulletin ("SAB") No. 104 "Revenue Recognition".

         China Direct Consulting provides services pursuant to written
agreements which vary in duration. Revenues are recognized in accordance with
the terms of the agreements. China Direct Consulting's revenues are derived from
a predetermined fixed fee for the services it provides to clients. The fee will
vary based on the scope of the services to be provided.

         A significant portion of the services China Direct Consulting provides
are paid in shares and other equity instruments issued by our clients. These
instruments are classified as marketable securities on the consolidated balance
sheet, if still held at the financial reporting date. These instruments are
stated at fair value in accordance with the provision of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS No.115) and EITF 00-8 "Accounting by a grantee for an
equity instrument to be received in conjunction with providing goods or
services". Primarily all of the equity instruments are received from small
public companies.

         The securities received, whether in the form of stock, or stock
purchase warrants, are typically restricted as to resale. The policy of China
Direct Consulting is to sell securities it receives as compensation rather than
hold on to these securities as long term investments, regardless of market
conditions in an effort to satisfy our current obligations. China Direct
Consulting recognizes revenue for such stock purchase warrants when received
based on the Black-Scholes valuation model. China Direct Consulting recognizes
unrealized gains or losses in the consolidated statement of operations based on
fluctuations in value of the stock purchase warrants as determined by the
Black-Scholes valuation model. Realized gains or losses are recognized in the
consolidated statement of operations when the related stock purchase warrant is
exercised and sold.

         China Direct Consulting recognized revenues amounting to $4,585,203 and
$386,832 for six months ended June 30, 2007 and 2006, respectively, of which
$3,707,998 and $183,150 were in connection with the receipt of equity
instruments for the six months ended June 30, 2007 and 2006 respectively.
Furthermore of these amounts, Dragon Capital Group Corp., a related party
comprised $880,000 and $0 of our revenue in connection with the receipt of
equity instruments for six months ended June 30, 2007 and 2006, respectively.

                                      -62-
<PAGE>

                                                          JUNE 30,     JUNE 30,
                                                            2007         2006
                                                         ----------   ----------

Cash .................................................   $  877,205   $   58,682
Cash-related party ...................................            -      145,000
                                                         ----------   ----------
Total Cash ...........................................   $  877,205   $  203,682

Marketable Securities held for sale ..................   $2,827,998   $  183,150
Marketable Securities held for sale-related party ....   $  880,000   $        -
                                                         ----------   ----------

Total Marketable Securities ..........................   $3,707,998   $  183,150
                                                         ----------   ----------
Total China Direct Consulting Revenues ...............   $4,585,203   $  386,832
                                                         ==========   ==========

         Additionally, the Company has deferred revenues of $1,560,585 in
connection with the receipt of securities at June 30, 2007. The fees due under
the contracts with our consulting clients are amortized over the term of the
agreement. Our consolidated balance sheet at June 30, 2007 appearing elsewhere
herein reflects both deferred revenues short term, which will be recognized
during the next twelve months, and deferred revenues-long term which will be
recognized beyond the twelve month period. China Direct Consulting recorded
$1,311,635 of deferred revenue-short term for the period ended June 30, 2007.
This amount includes the following; securities of Sunwin International
Neutraceuticals, Inc. valued at $674,519, securities of Dragon International
Group Corp. valued at $311,600, securities of MediaReady, Inc. valued at $88,016
and securities of Sense Holdings, Inc. valued at $237,500. $248,950 will be
realized in the year ended December 31, 2008 as the securities are recognized as
revenues in accordance with the term of the agreements.

         Lang Chemical and Chang Magnesium record revenue when persuasive
evidence of an arrangement exists, services have been rendered or product
delivery has occurred, the sales price to the customer is fixed or determinable,
and collectibility is reasonably assured. Lang Chemical and Chang Magnesium
revenues from the sale of products are recorded when the goods are shipped,
title passes, and collectibility is reasonably assured.

RECENT ACCOUNTING PRONOUNCEMENTS

         In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This Statement defines
fair value as used in numerous accounting pronouncements, establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosure related to the use of fair value measures in financial
statements. The Statement is to be effective for the Company's financial
statements issued in 2008; however, earlier application is encouraged. The
Company is currently evaluating the timing of adoption and the impact that
adoption might have on its financial position or results of operations.

         In September 2006, the Staff of the SEC issued SAB No. 108:
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements". SAB No. 108 provides
guidance on the consideration of the effects of prior year misstatements in
quantifying current year misstatements for the purpose of determining whether
the current year's financial statements are materially misstated. The SEC staff
believes registrants must quantify errors using both a balance sheet and income
statement approach and evaluate whether either approach results in quantifying a
misstatement that, when all relevant quantitative and qualitative factors are
considered, is material. This Statement is effective for Fiscal years ending
after November 15, 2006. The adoption of SAB No. 108 did not have a significant
impact on the company's consolidated financial statements.

                                      -63-
<PAGE>

         In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities-including an amendment of FAS
115" (Statement 159). Statement 159 allows entities to choose, at specified
election dates, to measure eligible financial assets and liabilities at fair
value that are not otherwise required to be measured at fair value. If a company
elects the fair value option for an eligible item, changes in that item's fair
value in subsequent reporting periods must be recognized in current earnings.
Statement 159 is effective for Fiscal years beginning after November 15, 2007.
We are currently evaluating the potential impact of Statement 159 on our
financial statements. The Company is currently evaluating the timing of adoption
and the impact that adoption might have on its financial position or results of
operations.

ITEM 3.  CONTROLS AND PROCEDURES

         Our management, which includes our CEO and our Vice President of
Finance, have conducted an evaluation of the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-14(c) promulgated under the
Securities and Exchange Act of 1934, as amended) as of a date (the "Evaluation
Date") as of the end of the period covered by this report. Our management does
not expect that our disclosure controls and procedures will prevent all error
and all fraud. A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control system's
objectives will be met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake. The
design of any system of controls is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions.

         Based upon that evaluation, our management has concluded that our
disclosure controls and procedures are effective for timely gathering, analyzing
and disclosing the information we are required to disclose in our reports filed
under the Securities Exchange Act of 1934, as amended.

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


                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

None

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.  SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

                                      -64-
<PAGE>

ITEM 5.  OTHER INFORMATION

         On April 3, 2007, Capital One Resource entered into an agreement to
acquire a 100% equity interest in Asia Magnesium Industry Co., Ltd., a Hong Kong
company ("Asia Magnesium"). As a amended on May 30, 2007, we obtained Asia
Magnesium's right to invest up to $3,380,000 to acquire a 52% interest in
Shangxi Gu Country Jinwei Magnesium Corp., Ltd., a Chinese limited liability and
joint venture entity ("Jinwei Magnesium") which, upon completion of
manufacturing facilities in 2008 is designed to produce 20,000 tons of magnesium
annually. On July 2, 2007 we paid our initial contribution of $1,050,000 and on
August 1, 2007, we contributed an additional $1,480,000. We expect to contribute
the remaining $850,000 by December 31, 2007.

         On June 27, 2007, our wholly owned subsidiary CDI Shanghai Management
entered into a one year consulting and management agreement with Sense Holdings,
Inc. under which CDI Shanghai Management is engaged to provide support to Sense
Holdings, Inc. in a variety of areas, including assistance with translation of
documents (Chinese/English), identification, evaluation and structure of
potential mergers and acquisitions, advice on corporate structure and capital
events (i.e. divestitures, spin-offs joint ventures), and evaluate and assess
potential sources of investment capital. Sense Holdings, Inc. is a provider of
biometric solutions. As compensation for our services, we received an aggregate
of 5,000,000 shares of Sense Holdings, Inc. common stock.

         On June 27, 2007, our wholly owned subsidiary, Capital One Resource
entered into an agreement with Mr. Aihua Hu in which Hu shall pay to Capital One
Resource a success fee of 20% of any shares of common stock Hu receives as
consideration pursuant to any merger or acquisition with a U.S. public entity in
which Hu utilizes Capital One Resource's consulting services which include:
identifying suitable merger and acquisition candidates, performing due diligence
on potential merger and acquisition candidates, translation of documents and
evaluating and structuring potential mergers and acquisitions.

         On April 24, 2007 our wholly owned subsidiaries, China Direct
Consulting and Capital One Resource (together, the "Consultants"), entered into
a one year agreement with Sunwin International Neutraceuticals, Inc. ("Sunwin")
under which Consultants were engaged to provide support to Sunwin in a variety
of areas, including general business consulting, translation services,
management of professional resources, identification of potential acquisition
targets and investment sources, development of marketing plans and coordination
of its public disclosure. Sunwin manufactures and sells stevioside, a natural
sweetener, veterinary products and herbs used in traditional Chinese medicine.
As compensation for services, Consultants collectively will receive 1,505,000
shares of Sunwin common stock.

                                      -65-
<PAGE>

ITEM 6.  EXHIBITS

Exhibit No.                       Description
-----------                       -----------

10.1     Shangxi Gu Country Jinwei Magnesium Corp., Ltd. joint venture agreement
         dated December 12, 2006

10.2     Asia Magnesium share ownership transfer agreement dated April 3, 2007

10.3     Shangxi Gu Country Jinwei Magnesium Corp., Ltd. joint venture agreement
         supplement dated May 30, 2007

10.4     Consulting agreement between Capital One Resource and Mr. Aihua Hu,
         June 27, 2007

10.5     Consulting agreement between CDI Shanghai Mangement and Sense Holdings,
         Inc. dated June 27, 2007

10.6     Consulting agreement between China Direct Consulting and Capital One
         Resource together, and Sunwin, April 24, 2007

31.1     Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer

31.2     Rule 13a-14(a)/15d-14(a) certificate of Vice President of Finance

32.1     Section 1350 certification of Chief Executive Officer

32.2     Section 1350 certification of Vice President of Finance

                                      -66-
<PAGE>

                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
has caused his report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                      China Direct, Inc.

                                      By: /s/ Yuejian (James) Wang
                                          ------------------------
August 8, 2007                        Yuejian (James) Wang, CEO,
                                      principal executive officer

                                      By: /s/ Yi (Jenny) Liu
                                          ------------------
                                      Yi (Jenny) Liu, Vice President of Finance,
                                      principal accounting and financial officer

                                      -67-