The following discussion should be read in conjunction with the information contained in our unaudited consolidated financial statements and the notes thereto appearing elsewhere herein and in conjunction with the Management's Discussion and Analysis set forth in our Annual Report on Form 10-K for the year ended December 31, 2008.

We are on a calendar year; as such the three months period ending March 31, is our first quarter. The year ended December 31, 2008 is referred to as "2008" and the coming year ending December 31, 2009 is referred to as "2009".

Our Business

We import, sell and distribute metal ores and non-ferrous metals to the metal refinery industry in China. We obtain raw materials from global suppliers in Brazil, India, South America, Oman, Turkey, Iran, Libya, Nigeria, Indonesia, and the Philippines. We distribute these raw materials to the metal refinery industry within China including but not limited to iron ore, coal, chrome ore, nickel ore, copper ore, scrap metal, and manganese ore.

We are in the process of constructing a scrap metal recycling facility in the Banqiao Industrial Zone of Lianyungang Economic Development Zone in the Jiangsu province of the PRC. Upon completion of our planned metal recycling facility, we will seek to recycle automobiles, machinery, building materials, dismantled ships and various other scrap metals and will sell and distribute recycled scrap metal to the metal refinery industry utilizing our existing network of metal ore customers in the PRC. We expect to commence recycling operations in the fourth quarter of 2009.

Effective June 27, 2008, Armco entered into an agreement to be acquired by us. Following the close of the acquisition we changed our former corporate name Cox Distributing, Inc. to China Armco Metals, Inc.

China is the largest developing country in the world, and the demand for steel has been growing steadily over the past decade as the country continues to experience an industrial revolution. Management estimates domestic steel production should continue to witness significant growth as China continues to grow. The steel industry is an important basic industry of the national economy of China, and plays a vital role in the recent industrialization efforts of the country. As witnessed over the last decade, the production of steel has increased dramatically throughout the world, and particular in China. According to the www.worldsteel.org, in 2008 worldwide crude steel production amounted to 1,330 million metric ton ("mmt"). This is a decrease of 1.2% compared to 2007. 2008 is the second consecutive year that world steel production has been over 1,300 mmt. China's crude steel production in 2008 reached 502 mmt, an increase of 2.6% from 2007. Production volume in China has more than doubled within five years, from 222 mmt in 2002. China's share of world steel production continued to grow in 2008 producing 38% of world total crude steel.

We believe recycling operations will become strong growth drivers worldwide as natural resources continue to be depleted and the amount of unprocessed scrap metal becomes available as a result of increases in consumer demand for products made from steel that eventually are recycled. We intend to invest substantially all of the $6.6 million in net proceeds we raised in our private offering of our common stock and warrants we closed in August 2008 to fund the construction of our planned scrap metal recycling facility beginning in the third quarter of 2008. This planned investment is in addition to the approximately $3 million of investment capital we have expended on this project in 2007 and 2008.

Our Performance

For the three months ended March 31, 2009, we experienced a decrease in net revenues, income and an increase in assets. The decrease in net revenues and net income was mainly attributable to the worldwide economic slowdown and decrease in demand due to the slowdown in worldwide construction and outputs. The performance was offset by increased costs incurred in connection with the planning and construction of our scrap metal recycling facility which we expect to complete in the fourth quarter of 2009.

Presentation of Financial Statements

The presentation of the statements of operations included in Part 1, Item 1 in this Form 10-Q have been modified to allow for the reporting of deductions from net income to arrive at income (loss) applicable to common stockholders. Items reflected in our comprehensive income for the periods reported are now included in our financial notes to the unaudited financial statements included in this Form 10-Q.

Net Revenues

Net revenues for the first quarter of 2009 and 2008 were $5.4 million and $9.8 million, respectively. This represents a decrease in our net revenues of 45% compared to the first quarter of 2008. This decrease was mainly contributable to the global economic slowdown which adversely affected our net revenues.

In November 2008, the Chinese government announced a $586 billion domestic economic stimulus program aimed at bolstering domestic economic activity. The two-year program includes tax rebates, spending in housing, infrastructure, agriculture, health care and social welfare, and a tax deduction for capital spending by companies. We expect to see a benefit to the Chinese economy from this stimulus program. However in the short-term, it remains to be seen whether domestic consumption can compensate for slower export growth, and the impact this will have on our revenues through the balance of this year.

Cost of Revenues

Cost of revenues for the first quarter of 2009 and 2008 were $4.8 million and $8.5 million, respectively. This decrease of 43% is directly related to the 45% decrease in our net revenues. Our cost of revenues as a percentage of revenues during the first quarter of 2009 and 2008 were 90% and 87%, respectively. These changes as a percentage of revenues are indicative of our product mix in the first quarter of 2009 as compared to the comparable period in 2008.

Total Operating Expenses

Operating expenses for the first quarter of 2009 and 2008 were $333,934 and $227,522, respectively. This represents an increase of 33% compared to the first quarter of 2008. Our operating expenses are comprised of selling expenses as well as general and administrative expenses. These increases are a result of increased levels of sales operations and additional costs related to our Armet Lianyungang subsidiary and our U.S. offices. Armet Lianyungang, our wholly owned subsidiary, is constructing a scrap metal recycling facility in the Banqiao Industrial Zone of Lianyungang Economic Development Zone in Jiangsu province. Toward this end, we have expanded operational staff to support the recycling operations.

The table below summarizes the consolidated operating results for the three months ended March 31, 2009 and 2008.

               (in 000's)                 For the three months ended March 31,
                                             2009                         2008

        Revenues                   $     5,358            -       $     9,775        -
        Cost of revenues                 4,847           90 %           8,545       87 %
        Gross profit                       511           10 %           1,230       13 %

        Total operating expenses           302            6 %             228        2 %
        Operating (loss) income    $       209            4 %     $     1,002       10 %

Other Income (expense)

Total other expense for the first quarter of 2009 and 2008 was $48,263 and $5,830, respectively. During the three months ended March 31, 2009, we had interest expense of $18,036 and other expenses of $17,178 and $13,049 in our Armet and Henan Armco subsidiaries, respectively.

Income tax benefit (expense)

Income tax expense decreased to $790 in the first quarter of 2009 as compared to $258,653 in the first quarter of 2008 primarily as a result of the decrease in taxable income generated on a consolidated basis during the period. Armco is exempt from Hong Kong income taxes since none of its income was from Hong Kong sources and no provision for income taxes has been made. Armco's statutory tax rate is 17.5% and is subject to Hong Kong SAR income taxes as of January 1, 2008.

For the first quarter of 2009 and 2008 our net income totaled $127,636 and $737,613, respectively. The decrease in our net income is attributable to the reduced revenues as a result of the global economic slowdown mentioned herein.

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At March 31, 2009 and December 31, 2008 we had cash and cash equivalents of $1,314,624 and $3,253,533, respectively. At March 31, 2009 our working capital was $9.8 million as compared to $10.7 million at December 31, 2008. We have historically met our liquidity requirements utilizing internally generated cash derived from our operations.

We intend to invest substantially all of the $6.5 million of the net proceeds from our 2008 Offering to fund the construction of our planned scrap metal recycling facility beginning in the first quarter of 2009. We intend to use the balance of the net offering proceeds for working capital to expand our metal ore distribution business. Upon completion of the construction of the scrap metal recycling facility, we estimate to sell recycled scrap metal utilizing our existing network of customers. In addition to the net proceeds of our 2008 Offering we will need to secure additional investment capital and/or bank and vendor financing to provide sufficient funds to complete this project. There is no assurance, however, that we will be successful in obtaining the additional financing that we require or that such financing may not be on terms deemed to be desirable to our management. In the event we are successful, there is no assurance that such investment will result in enhanced operating performance. Unless we can obtain additional financing, we will be unable to complete construction of our planned scrap steel recycling project. Any inability on our part to secure additional financing during 2008, as needed, will have a material adverse effect on our growth plans.

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

                                          March 31       December 31,       Increase /
                                            2008             2008           (decrease)          %

Cash                                    $  1,314,624     $   3,253,533     $ (1,938,909 )          -60 %
Pledged deposits                           2,943,372                 -        2,943,372            100 %
Accounts receivable, net                  14,790,318        16,722,307       (1,931,989 )          -12 %
Inventories, net                           1,820,018           197,402        1,622,616            822 %
Advance on purchases                       3,318,919         3,680,872         (361,953 )          -10 %
Prepayments and other current assets         520,814           379,452          141,362             37 %
Total current assets                      24,708,065        24,233,566          474,499              2 %
Property and equipment, net                3,417,019         2,377,816        1,039,203             44 %
Land use rights, net                       2,161,800         2,208,902          (47,102 )           -2 %
Total assets                              30,286,884        28,820,284        1,466,600              5 %

Loans Payable                                      -         2,914,345       (2,914,345 )         -100 %
Accounts payable                          11,953,646         6,694,534        5,259,112             79 %
Customer deposits                          2,083,705         2,613,653         (529,948 )          -20 %
Taxes payable                                775,247         1,039,312         (264,065 )          -25 %
Total current liabilities                 14,871,747        13,531,338        1,340,409             10 %
Total liabilities                       $ 14,871,747     $  13,531,338     $  1,340,409             10 %

At March 31, 2009, our cash totaled $1,314,624 as compared to $3,253,533 at December 31, 2008.

Our current assets at March 31, 2009 increased $474,499, or approximately 2%, from December 31, 2008; this reflects increases in current asset items including cash, inventories, prepayments and other current assets. These increases were partially offset by a decrease in accounts receivable and advance on purchases. Our total and current liabilities increased by approximately $1.3 million, or 10%, at March 31, 2009 from December 31, 2008; this reflects an increase in accounts payable which was partially offset by a decrease in loans payable, customer deposits, and taxes payable.

Our accounts receivable decreased to $14.8 million compared to $16.7 million as of our prior year end. This represents a decrease of approximately 12% which was mainly due to efficient collection efforts.

Inventories increased $1.6 million, or approximately 2% at March 31, 2009 from the prior year end. This occurred due to timing differences between our receipt of product and shipment to our customers.

Our prepayment and other current assets increased $141,362 as of March 31, 2009 over our prior year end.

Advances on purchases decreased $361,953, or approximately 10%, and consisted of prepayments to vendors for merchandise, security and deposits.

Our accounts payable increased $5.3 million or approximately 79% over the prior year end. This increase was partially offset by the decrease in customer deposits and taxes payable of approximately 20% and 25%, respectively. Additionally, we had no loans payable as of March 31, 2009 as compared to the balance of $2,914,345 as of December 31, 2008.

2008 Offering

Between July and August 2009 we sold $7,419,729 (net proceeds of $6,585,468) worth of securities to 92 accredited investors through the sale of 24.73 units. Each unit sold in the 2008 Offering consists of 100,000 shares of Common Stock, $.001 par value per share at a per share purchase price of $3.00, and five year warrants to purchase 100,000 shares of Common Stock with an exercise price of $5.00 per share (the "Warrants"). The accredited investors entered into a subscription agreement with the Company; the material terms of which are set forth in the exhibits filed with our Form 8-K filed on August 1, 2008.

Statement of Cash Flows

For the first quarter of 2009, our cash totaled $1,314,624 and consisted of $5,150,317 provided by operating activities, $4,008,632 used in investing activities, and $3,086,318 used in financing activities.

For the first quarter of 2008, our cash totaled $145,127 and consisted of $236,934 provided by operating activities, $172,211 used in investing activities, and $893,620 used in financing activities.

Cash (Used in) Provided by Operating Activities

For the first quarter of 2009 cash provided by operations of $5.2 million comprised of our net income of $127,636, adjustments to net income for depreciation and amortization of $57,681, a decrease in accounts receivable of $1,907,901, and an increase in accounts payable of $5.3 million. These were partially offset by inventory purchases of $1.6 million, a decrease in customer deposits of $521,128, and an increase in accrued expenses and current liabilities of $244,474.

For the first quarter of 2009 cash provided by operations of $236,934 was comprised of our net income of $737,613, adjustments to net income for depreciation and amortization of $21,214, an increase in accounts payable of $5.7 million, an increase in customer deposits of $786,574, and an increase in accrued expenses and current liabilities of $317,283. These were partially offset by an increase in accounts receivable of $6.0 million, and a decrease in advance on purchases of $1.1 million.

For the first quarter of 2009 cash used in investing activities of $4.0 million, and was due to purchases of property and equipments and construction projects during the period of $1,065,260, and payments made towards pledged deposits of $2,943,372.

For the first quarter of 2008 cash used in investing activities of $172,211 was due to payments toward pledged deposits of $167,959 and purchases of property and equipments of $4,252.

Cash provided by Financing Activities

For the first quarter of 2009 cash used in financing activities of $3.1 million, which was mainly due to repayments of loan payable of $2.9 million and payments to related parties of $196,973, these were partially offset by proceeds from the exercise of warrants of $25,000.

For the first quarter of 2008 cash used in financing activities of $893,620 was due to payments to related parties.

Off Balance Sheet Arrangements

Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have:

- Any obligation under certain guarantee contracts;
- Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;
- Any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our stock and classified in stockholder's equity in our statement of financial position; and
- Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.

Critical Accounting Policies

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

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

Recently Issued Accounting Pronouncements

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

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

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

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

In May 2008, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard No. 162 "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"). The purpose of this standard is to provide a consistent framework for determining what accounting principles should be used when preparing U.S. GAAP financial statements. SFAS 162 categorizes accounting pronouncements in a descending order of authority. In the instance of potentially conflicting accounting principles, the standard in the highest category must be used. This statement will be effective 60 days after the SEC approves the Public Company Accounting and Oversight Board's related amendments. The Company believes that SFAS 162 will have no impact on their existing accounting methods.

On December 30, 2008, FASB issued FASB Staff Position ("FSP") No. FAS 132(R)-1, " Employers' Disclosures About Postretirement Benefit Plan Assets ", which amends Statement of Financial Accounting Standards No. 132(R), " Employers' Disclosures About Pensions and Other Postretirement Benefits" ("SFAS No.
132(R)") to require more detailed disclosures about plan assets, including investment strategies, major categories of plan assets, concentrations of risk within plan assets, and valuation techniques used to measure the fair value of plan assets consistent with fair value hierarchy model described in SFAS No. 157, " Fair Value Measurements ". The Company does not anticipate that the adoption of this statement will have any effect on its financial condition and results of operations since it does not have any postretirement plans.

In April 2009, FASB issued FASB Staff Position ("FSP") Financial Accounting Standard ("FAS") 157-4 "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly". Based on the guidance, if an entity determines that the level of activity for an asset or liability has significantly decreased and that a transaction is not orderly, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transaction or quoted prices may be necessary to estimate fair value in accordance with Statement of Financial Accounting Standards (SFAS) No. 157 "Fair Value Measurements". This FSP is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Company does not anticipate that the adoption of this statement will have any effect on its financial condition and results of operations.

In April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board ("APB") 28-1 "Interim Disclosures about Fair Value of Financial Instruments". The FSP amends SFAS No. 107 "Disclosures about Fair Value of Financial Instruments" to require an entity to provide disclosures about fair value of financial instruments in interim financial information. This FSP is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Company does not anticipate that the adoption of this statement will have any effect on its financial condition and results of operations.

In April 2008, the FASB issued FSP FAS 142-3, "Determination of the Useful Life of Intangible Assets". The FSP states that in developing assumptions about renewal or extension options used to determine the useful life of an intangible asset, an entity needs to consider its own historical experience adjusted for entity-specific factors. In the absence of that experience, an entity shall consider the assumptions that market participants would use about renewal or extension options. This FSP is to be applied to intangible assets acquired after January 1, 2009. The adoption of this FSP did not have an impact on the financial statements.

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

Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management's plans and . . .