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, 2011 (the "Form 10-K").

We are on a calendar year; as such the three month period ended March 31, is referred to as our "first quarter". The past year ended December 31, 2011 is referred to as "2011", the current year ending December 31, 2012 is referred to as "2012", and the coming year ended December 31, 2013 is referred to as "2013".

The unaudited interim consolidated financial statements furnished in this report reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2011and notes thereto contained in the Company's Annual Report on Form 10-K filed with the SEC on March 31, 2012.

OVERVIEW OF OUR PERFORMANCE AND OPERATIONS

Our Business and Recent Developments

We import, sell and distribute to the metal refinery industry in the People's Republic of China a variety of metal ore, including iron, chrome, nickel, copper and manganese ore as well as non-ferrous metals and coal. We obtain these raw materials from global suppliers in Brazil, India, South America, Oman, Turkey, Nigeria, Indonesia, and the Philippines and distribute them in the PRC. We also recycle scrap metal to steel mills for their use in the production of recycled steel.

Chinese steel industry slowed down and suffered quarterly losses first time in ten years during the first quarter of 2012. The domestic steel production continued to increase while the steel consumption in the PRC saw the first time decline for the past three years in the first quarter of 2012 compared to the same period of last year. The main reasons of the fall in the domestic demand of steel were the adverse impact on steel consumption by restrictions on the real estate industry implemented by the PRC government, the first drop in spending on infrastructure constructions in recent years, and also the slowdown of steel consumption from other big steel consumers, including the automotive, ship and equipment manufacturing industries. The increased production and declined demand exacerbated the oversupply and inventory backlog which depressed steel and metal ore prices in the first quarter of 2012. Moreover, starting on February 1, 2012, the government increased the resources tax imposed on iron ore mines by approximately $0.5 per metric ton and further increased the industry's costs. As a consequent, both our metal ore trading and recycling businesses in the first quarter of 2012 have been adversely affected by the factors described above.

We continue to refine our business model in response to fluctuations in market prices. We seek to secure longer term supply contracts in response to known opportunities rather than sell goods purchased in the spot market. Where possible, we structure transaction-specific terms with our customers in order to better manage risk and ensure an acceptable profit margin. While this process can limit certain trading opportunities, we believe that it will enhance our competitive position as the market for ore prices recover. We are also evaluating other methods to manage market risks in the future, such as hedging.

We formally commenced the operation of our scrap metal recycling facility in the Banqiao Industrial Zone of Lianyungang Economic Development Zone in the Jiangsu province of the PRC (the "Facility") in the third late quarter of 2010. This facility recycles automobiles, machinery, building materials, dismantled ships and various other scrap metals. We sell and distribute the recycled scrap metal to the metal refinery industry in the PRC utilizing our existing network of metal ore customers. During the first quarter of 2012, the scrap metals recycled at our recycling facility increased by 103% to 25,071 MT compared to 12,373 MT in the same period of last year. Despite of the increase in output of recycled scrap metals, production of our recycling facility still operated significantly below capacity due to seasonal factors and to certain other factors described below. Traditionally the first quarter of each year sees the lowest production for Chinese scrap metal recyclers due to the Chinese New Year holiday, which can last for as long as three or four weeks, when facilities are shut down and stricter restrictions are enforced on the transportation of scrap metals materials. In addition, due to the market downturn, our recycling business customers and other steel mills had sluggish sales and excess inventory with tight cash position, which resulted in lower demand and purchases in the first quarter of 2012. Consequently, for the first quarter of 2012, our scrap metal business sold approximately 16,753 MT of scrap metals, generating approximately $8.7 million of revenue and $0.14 million of gross profit. By comparison, for the first quarter of 2011, our scrap metal business sold approximately 14,435 MT of scrap metals, generating approximately $6.3 million of revenue and $0.4 million of gross profit.

We continue to believe that our recycling business will become a strong growth driver for our Company as natural resources continue to be depleted and larger amounts of unprocessed scrap metal become available as a result of increases in consumer demand for products made from steel that eventually are recycled. We also believe the profit margin of our recycling business will gradually stabilize and could further increase as we gain more experience in operating our Facility, marketing our products and establishing our reputation and presence in the recycled scrap metal industry. We have conducted a series of cost testing and variance analysis to improve our cost control and implement precise management in our recycling operations. We also developed a strategy to expand our sources of raw material and to establish a supply chain network locally to increase and stabilize the availability of raw materials near and for our recycling operation. We expect to continue to expend our overseas supply channels and recent development included negotiations on business cooperation with U.S. and Japan suppliers.

We invested a total of approximately $50.2 million in the aggregate to acquire land use rights and to construct and purchase equipment for the Facility. These capital expenditures were funded from a portion of the net proceeds we received from sales of securities and debt and vendor financing. In 2012, we continued to secure financing for our business. We maintain seven bank facilities, which provide for the issuance of commercial lines of credit for letters of credit in the aggregate amount of $102 million with approximately $ 58 million available to us at March 31, 2012. These bank facilities improve our ability to finance our continued business expansion and help us develop our brand in the industries we operate in.

During the first quarter of 2012, our net revenues remained at $49 million compared to the same period in 2011. Due to the deteriorating of the market situation, our gross profit margin decreased drastically during the current period to 3%, compared to 6% during the same period in 2011. Our trading business and recycling business gross profit margins were 3% and 2%, respectively. Our trading business has historically experienced fluctuations in gross profit as a result of fluctuations in the market prices of ore and metals that we sell. In this regard, gross profit margins ranged from 6 % for the first quarter of 2011, to 4 % for the second quarter of 2011, to 2% for the third quarter of 2011, and to -23% for the fourth quarter of 2011.

As noted above, our recycling business generated a gross profit margin of 2% for the first quarter of 2012, which represents a sharp decrease from the 6% gross profit margin in this business for same period in 2011. We believe this decrease in gross profit margin for the first quarter of 2012 is primarily due to the deteriorated market condition in the period, which was the most difficult quarter for the industry in the PRC for recent years and was the first time in 10 years Chinese steel industry suffered quarterly losses. .

We had a net loss of $1.66 million during the first quarter of 2012 due to significant decreases in gross margins on both our trading business and recycling business, compared to same period in 2011. Our total assets at March 31, 2012 increased $10 million, or 10%, compared to December 31, 2011, which was mainly due to an $27.5 million increase in accounts receivable resulting from the sale of 230,000 MT iron ore against L/C (generating an accounts receivable of $26.85 million) , an $3.2 million increase in advance on purchases for our recycling production, and a $1.2 million increase in pledged deposits, offset by a $22.1 million decrease in inventories due to the sales of iron ore. We expect to collect the payments for the sales of iron ore within the second quarter of 2012.

We have a capital lease obligation of $3.56 million (net of current maturities) with current maturities of such capital lease of $2.3 million for our recycling operation, and a current maturities of long-term debt of 3.96 million related to our investment in the Facility. Loans payable increased $27 million, Banker's acceptance notes payable increased by $1.95 million, accounts payable decreased by $15 million, and customers deposits decreased $3.3 million, while inventories decreased $22 million, accounts receivable increased $27 million, advances on purchases increased $3.2 million and pledged deposits increased $1.2 million at March 31, 2012 from December 31, 2011.

Our Outlook

Although the industry experienced difficult time during the first quarter of 2012, we believe the low-income housing construction, on-going urbanization and increasing domestic consumption in the PRC will continue to support the growth of the steel industry, evidencing a higher demand for our products with an associated revenue growth. We also expect our recycling business to benefit substantially from the measures and policies to be implemented gradually by the Chinese government according to its 12th Five Year Plan (2011-2015). Under this plan, China intends to restructure its iron and steel industry to be more energy efficient and have increased environmental protection by adopting and developing the most advanced technology in the world.

Metal Ore Trading. The metal ore prices decreased overall in the first quarter of 2012 compared same period of 2011. The price decreases were due to a sluggish steel market, as the steel sector posted widespread losses in the first quarter. We believe steel companies are likely to further tighten purchases of raw materials and the price of imported iron ore is likely to trend downward in the short-term. We expect the price of iron ore may stabilize at its current level in a longer term which is supported by the growth of demand in the PRC. Our trading business remained at approximately $40 million in net revenues during the first quarter of 2012 compared to the same period in 2011. In the first quarter of 2012, we completed large order sales of iron ores quickly and lowered our inventory level substantially to control market risks. We continued to firm our business relationship with large suppliers and stabilize our supply capacity .We believe our effort to build our supply capacity will benefit us in the long term and strengthen our market position in the industry in the PRC.

Scrap Metal Recycling. The gross profit margin for our recycling business decreased significantly to 2% for the first quarter in 2012 compared to 6 % for same period of 2011 due to the factors described above, although the net revenue generating in first quarter increased approximately 30% compared to first quarter of 2011. We believe that our recycling operations will generate greater revenue growth in the remaining quarters of 2012 as we gain more operational experience and create efficiencies at the Facility. Moreover, with the increase in our sales force, we have commenced a concerted effort to increase our brand name in the market, establishing our reputation on the recycling business. We believe that we will benefit from the PRC governmental mandates to increase the use of scrap metal steel as it encourages the use of scrap as opposed to the use of iron ore to satisfy the demand for steel products per China's Five Year Plan and related national policies. We have concentrated our efforts on streamlining our production and operations by developing standardized production processes, improving cost controls with greater precision and efficiencies. With the expected improvement of our supply chain management, we anticipate that our recycling operation will be the largest drive of revenues for the foreseeable future. We intend to devote a significant amount of our resources towards the improvement of our operations and if appropriate, its expansion. At the same time, we will continue to pursue our strategy to create a local network of raw material suppliers for our Facility and expand our oversea supply channels.

While we believe our business is well positioned to grow in the coming years, we will need to continue our efforts to provide capital liquidity to support that growth, although we can offer no assurances that we can acquire such capital on terms acceptable to us.

RESULTS OF OPERATIONS

       The table below summarizes the consolidated operating results for the
three months ended March 31, 2012 and 2011. The percentages represent each line
item as an approximate percentage of net revenues unless otherwise noted.

                                   For the Three Months Ended March 31,
                               2012                         2011                        $ Change        % Change
Net revenues               $ 49,284,191       100.0 %   $ 49,684,652       100.0 %   $    (400,461)          -0.8 %
Cost of goods sold           47,824,094        97.0 %     46,515,883        93.6 %        1,308,211           2.8 %
Gross profit                  1,460,097         3.0 %      3,168,769         6.4 %      (1,708,672)         -53.9 %

Total operating expenses      1,687,925         3.4 %      1,766,448         3.6 %         (78,523)          -4.4 %
Operating income (loss)       (227,828)        -0.5 %      1,402,321         2.8 %      (1,529,151)        -109.0 %

Net Revenues

Net revenues of $49.3 million in the first quarter of 2012 slightly decreased $0.4 million compared to the same period in 2011, primarily due to a decrease of $11 million in the sales of pellets, partially offset by an increase of $5.5 million in the sales of iron ore, an increase of $3.0 million in sales of chrome ore, and an increase of $1.7 million in the sales of scrap metals.

Cost of Goods Sold

Cost of goods sold includes the cost of the products we purchase from our vendors and shipping and handling costs on shipments from such vendors. Cost of goods sold in the first quarter of 2012 was $47.8 million, representing a gross profit margin of 3%, compared to a gross profit margin of 6% in the same period in 2011. The gross profit margin of 3% in the first quarter of 2012 represents a compound margin for our trading and recycling businesses, which generated gross profit margins of 3% and 2% for the period, respectively. Our trading business and recycling business each generated a gross profit margin of 6% for the same period of 2011.

Total Operating Expenses

Operating expenses of $1.69 million in the first quarter of 2012 decreased by $78,000, or 4% compared to the same period in 2011, resulted from a decrease of $141,000 in selling expenses and a decrease of $111,000 in professional fees. Such decrease was partially offset by an increase of $148,000 in general and administrative expenses and an increase of $26,000 in operating cost of idle manufacturing facility.

General and administrative expenses include salaries and office expenses. Our general and administrative costs increased by $148,000, or 17%, in the first quarter of 2012 as compared to the same period in 2011 primarily due to an increase of $73,000 in stock based compensation to our Chairman and CEO as well as other employees and Written off uncollectible prepayments of $72,000 .

Professional fees include legal, accounting, SEC filing consultant, investor relation and public relation consultant fees. Our professional fees decreased by $111,000, or 87% in the first quarter compared to same period of 2011as we used less expensive but cost-effective services and also took some outsourced job in-house to save cost.

Operating costs of idle facility remained approximately $0.5 million of costs that were mainly depreciation expenses of idle manufacturing facilities due to under utilization of the production facility in the first quarter of 2012 compared to same period of 2011..

Selling expenses include commissions, salaries, and travel for our sales agents. Selling expenses as a percentage of net revenues were 0.26% in the first quarter of 2012 as compared to 1% in the first quarter of 2011. Selling expenses decreased by $141,000 mainly due to decreases in port charges and lower warehousing expenses as a result of faster sales of inventory in the first quarter of 2012 as compared to the same period of 2011.

Total Other (Income) Expense

Total other expense of $1.3 million in the first quarter of 2012 increased $0.7 million from the comparable period in 2011, during which we had total other expense of $0.7million. The increase in total other expense was primarily due to an increase of $386,000 in impairment other than temporary-marketable securities from our investment in Apollo minerals, an increase of $232,000 in interest expense, an increase of $ 219,000 in foreign currency transaction (gain) loss - marketable securities , and an increase of $52,000 in change in fair value of derivative liability. These increases were partially offset by a decrease of $137,000 in other expense and a decrease of $73,000 in loan guarantee expense. Interest expense increased $232,000 as a result of increased short term borrowings of $29 million incurred inour business operation.

Income Tax Expense

Income tax expense of $87,000 in the first quarter of 2012 were decreased by $88,000, compared to the same period in 2011, primarily due to a decrease in net income tax accrual for income taxes on the operations of our Hong Kong subsidiary during 2012 (using an effective tax rate of 16.5%).

Net Income (Loss)

Net income (loss) of ($1.66 million) in the first quarter of 2012 decreased $2.2 million compared to the same period in 2011, primarily due to a significantly decreased gross margin (reflecting a decrease of $1.7 million in gross profit) and the increase of $0.7million in total other expense.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability of a company to generate adequate amounts of cash to meet its cash needs.

At March 31, 2012 and December 31, 2011, we had cash and cash equivalents of approximately $ 1 million. At March 31, 2012, our working capital was ($1million) as compared to $1.6 million at December 31, 2011.

As of March 31, 2012, we had invested a total of approximately $50.2 million for the acquisition of land use rights, construction and equipment purchases for the facilities we operate. We expect to expand the production capacity at the facilities in the future and to build or acquire additional facilities in the future, depending on market conditions. We have not set a timeframe for this expansion.

Moreover, we have not yet determined how we plan to finance this future expansion if we determine to proceed with it. Unless we can obtain additional financing on terms we deem favorable to us, we will be unable to complete any such expansion or construct additional facilities in the future, and there can be no assurance that we will be successful in obtaining any such additional financing, or that such financing would be on terms deemed to be desirable or favorable to our management. Furthermore, in the event we do obtain such financing, there can be no assurance that such investment will result in enhanced operating performance or produce significant revenues and related profits in the future.

In addition, we will continue to need to fund future capital expenditures for our existing operations, to service our debt and to purchase the raw materials required in our recycling operations. We have historically financed our cash needs primarily through the sales of our common stock and warrants, internally generated funds and debt financing. We collect cash from our customers based on our sales to them and their respective payment terms.

We believe we can get sufficient working capital for our operations for at least the next 12 months. We have bank facilities which provide for cash borrowings or the issuance of commercial letters of credit that we require in our metal ore trading business in the aggregate amount of $102 million. Approximately $58 million was available under these facilities at March 31, 2012.

Substantially all of our cash reserves are held in the form of RMB in bank accounts at financial institutions located in the PRC. Cash held in banks in the PRC is not insured. As described above under "Risk Factors," the Chinese regulatory authorities impose a number of restrictions regarding RMB conversions and restrictions on foreign investments. Accordingly, our cash on deposit in banks in the PRC is not readily deployable by us for purposes outside of China.

On December 20, 2011, Armco HK entered into a Banking Facilities Agreement with DBS Bank (Hong Kong) Limited of $20,000,000 for issuance of commercial letters of credit in connection with the Company's purchase of metal ore. The Company pays interest at LIBOR or DBS Bank's cost of funds plus 2.50% per annum on issued letters of credit in addition to an export bill collection commission equal to 1/8% of the first $50,000 and 1/16% of the balance and an opening commission of 1/4% on the first $50,000 and 1/16% of the balance for each issuance. Amounts advanced under this facility are repaid from the proceeds of the sale of metal ore. The lender may terminate the facility at anytime at its sole discretion. The facility is secured by the charge on cash deposit of the borrower, the borrower's restricted pledged deposit in the minimum amount of 3% of the letter of credit amount, the Company's letter of comfort and the guarantee of Mr. Kexuan Yao. At March 31, 2012, the balance outstanding under this facility was $1,501,800.

On July 29, 2011, Armco HK obtained a $30,000,000 line of credit from ING Bank Hong Kong Branch for issuance of letters of credit to finance the purchase of metal ore along with a sub-limit facility for freight advance of $3,000,000. The letters of credit require the Company to pledge cash equal to 5% of the letter of credit, subject to increase by the lender in the event of price fluctuations and market demand while the letter of credit remains open. The Company pays interest at the lender's cost of funds plus 250 basis points per annum on issued letters of credit in addition to an export bill collection commission equal to 1/4% of the first $50,000 and 1/16% of the balance for each issuance. Amounts advanced under this line of credit are repaid from the proceeds of the sale of metal ore. The lender may terminate the facility at anytime at its sole discretion. The facility is secured by the Company's restricted cash deposit in the minimum amount of 5% of the letter of credit amount, the Company's guarantee, the guarantee of Mr. Kexuan Yao and a security interest in the contract for the purchase of the ore for which the letter of credit has been issued and the contract for the sale of the ore. At March 31, 2012, the balance outstanding under this facility was $33 million.

On September 30, 2011, Armco HK, entered into Amendment No. 2 to the March 25, 2009 uncommitted Trade Finance Facility with RZB Austria Finance (Hong Kong) Limited. The amendment provides for the issuance of $15,000,000 of commercial letters of credit in connection with the purchase of metal ore, an increase of $5,000,000 over the amounts provided for in the March 25, 2010 facility. The Company pays interest at 200 basis points per annum plus the lender's cost of funds per annum on issued letters of credit in addition to fees upon issuance of the letter of credit of 1/16% for issuance commissions, negotiation commissions, commission-in-lieu and collection commissions. Amounts advanced under this facility are repaid from the proceeds of the sale of metal ore. The lender may, however, terminate the facility at anytime or at its sole discretion upon the occurrence of any event which causes a material market disruption in respect of unusual movement in the level of funding costs to the lender or the unusual loss of liquidity in the funding market. The lender has the sole discretion to decide whether or not such event has occurred. The facility is secured by restricted cash deposits held by the lender, the personal guarantee of Mr. Kexuan Yao, the Company's guarantee and a security interest in the contract for the purchase of the ore for which the letter of credit has been issued and the contract for the sale of the ore. At March 31, 2012, no balance was outstanding under this facility.

On June 18, 2011, Henan Armco obtained a RMB 70,000,000 (approximately $11 million) line of credit from Guangdong Development Bank Zhengzhou Branch for issuance of letters of credit to finance the purchase of metal ore. The term of this facility is one year. The Company pays interest at 120% of the applicable base rate for lending published by the People's Bank of China ("PBC") at the time the loan is made on issued letters of credit. The credit facility is secured by the guarantee provided by Mr. Kexuan Yao and Renewable Metals jointly and the pledge of moveable assets provided by the borrower. Amounts advanced under this line of credit are repaid from the proceeds of the sale of metal ore. At March 31, 2012, the balance outstanding under this facility was $1,728,000.

On November 26, 2011, Henan Armco obtained a RMB 20,000,000 (approximately U.S. $3.2 million) line of credit from China Minsheng Bank, Zhengzhou Branch, for issuance of letters of credit to finance the purchase of metal ore and scrap metal expiring one year from the date of issuance. The facility is guaranteed by Renewable Metals and Mr. Kexuan Yao, the Company's Chairman and Chief Executive Officer. At March 31, 2012, the outstanding under this facility was $1,294,141.

On January 30, 2012, Renewable Metals entered into a line of credit facility in the amount of RMB75, 000,000 (approximately $11.8 million) from Bank of China, Lianyungang Branch for the purchase of raw materials. The term of the facility . . .