10QSB

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

FORM 10-QSB

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

For the quarterly period ended March 31, 2007

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From ____ to _____

Commission File Number: 000-16283

CATHAY MERCHANT GROUP, INC.
(Exact name of small business issuer as specified in its charter)

DELAWARE	04-2608713
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Unit 803, Dina House, Ruttonjee Centre, 11 Duddell Street, Central,
Hong Kong SAR, China
(Address of principal executive offices)

Issuer's telephone number, including area code: (852) 2537-3613

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities 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. [X] YES [   ] NO

Indicate by check mark whether the registrant is a shell company (as defined in Role 12b-2 of the Exchange Act).
[   ] YES [X] NO

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding of the issuer's common stock as at May 8, 2007 was 18,890,579.

Transitional Small Business Disclosure Format (check one): [   ] YES [X] NO

CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES
QUARTERLY REPORT - FORM 10-QSB
THREE MONTHS ENDED MARCH 31, 2007

TABLE OF CONTENTS

	Page
PART I
Item 1. Consolidated Financial Statements	3
Item 2. Management's Discussion and Analysis or Plan of Operation	10
Item 3. Controls and Procedures	14
PART II
Item 1. Legal Proceedings	14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3. Defaults Upon Senior Securities	14
Item 4. Submission of Matters to a Vote of Security Holders	14
Item 5. Other Information	15
Item 6. Exhibits	15
Signatures	18

Forward Looking Statements

          Certain statements contained in this quarterly report and other written material and oral statements made from time to time by us do not relate strictly to historical or current facts. As such, they are considered "forward-looking statements" that provide current expectations or forecasts of future events. Such statements are typically characterized by terminology such as "believe", "anticipate", "should", "intend", "plan", "expect", "estimate", "project", "strategy" and similar expressions. Our forward-looking statements generally relate to the prospects for our ability to identify new business opportunities, develop new business strategies and execute such business strategies. These statements are based upon assumptions and assessments made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors our management believes to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, including the following: our ability to identify and evaluate business opportunities that will achieve profitable operations while maintaining sufficient cash to operate our business and meet our liquidity requirements; our ability to obtain financing, if required, on terms acceptable to us, if at all; our ability to successfully attract strategic partners and to market both new and existing products and services domestically and internationally; exposure to lawsuits and regulatory proceedings; governmental laws and regulations affecting domestic and foreign operations; our ability to identify and complete diversification opportunities; and the impact of acquisitions, divestitures, restructurings, product withdrawals and other unusual items. Except as required by applicable law, our company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

		MARCH 31,			DECEMBER 31,
		2007			2006
		(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents	$	4,392		$	4,610
Restricted cash		73			73
Receivables		2,150			1,060
Due from affiliates		899			632
Inventories		14,909			15,212
Prepaid expenses and other		55			90
Total current assets		22,478			21,677
Non-current Assets:
Deferred credit facility costs		163			183
Property, plant and equipment		1,695			1,566
Purchase option agreements		16,421			16,204
Goodwill		3,243			3,243
Deferred tax benefits		822			811
Total non-current assets		22,344			22,007
Total assets	$	44,822		$	43,684
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	15,990		$	13,694
Due to affiliates		7,475			9,248
Total current liabilities		23,465			22,942
Long-term Liabilities:
Debt		11,587			11,434
Other liabilities		20			26
Total long-term liabilities		11,607			11,460
Total liabilities		35,072			34,402
Stockholders' Equity:
Common stock		2,038			2,038
Additional paid-in capital		28,031			28,031
Accumulated deficit		(16,333	)		(16,613	)
Treasury stock, at cost		(5,313	)		(5,313	)
Cumulative translation adjustment		1,327			1,139
Total stockholders' equity		9,750			9,282
Total liabilities and stockholders' equity	$	44,822		$	43,684

See accompanying notes.

3

CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

		THREE MONTHS ENDED
		March 31, 2007			March 31, 2006
		(UNAUDITED)
Product sales, net	$	27,503		$	20,912
Cost of goods sold		26,105			20,013
		1,398			899
General and administrative expenses		1,284			1,295
Operating income (loss)		114			(396	)
Other income (expense):
Interest and financing charges, net		(84	)		(185	)
Miscellaneous		253			41
		169			(144	)
Income (loss) before income tax		283			(540	)
Income tax expenses		(3	)		(4	)
Net income (loss)	$	280		$	(544	)
Net income (loss) per common share, basic and diluted	$	0.01		$	(0.03	)

See accompanying notes.

4

CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(DOLLARS IN THOUSANDS)

		THREE MONTHS ENDED
		March 31, 2007		March 31, 2006
		(UNAUDITED)
Net income (loss)	$	280	$	(544	)
Other comprehensive income, foreign currency translation
adjustment		188		344
Comprehensive income (loss)	$	468	$	(200	)

See accompanying notes.

5

CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

		THREE MONTHS ENDED
		MARCH 31,
		2007			2006
		(UNAUDITED)
OPERATING ACTIVITIES:
Net income (loss)	$	280		$	(544	)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization		116			81
Foreign exchange		119			221
Changes in operating assets and liabilities:
Receivables		(1,055	)		(38	)
Due from affiliates		(256	)		(204	)
Inventories		497			157
Prepaid expenses and other current assets		37			(39	)
Accounts payable and accrued expenses		2,078			(255	)
Due to affiliates		(1,847	)		1,733
Net cash provided by (used in) operating activities		(31	)		1,112
INVESTING ACTIVITIES:
Purchase of fixed assets		(201	)		(87	)
Net cash used in investing activities		(201	)		(87	)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options		-			32
Net cash provided by financing activities		-			32
Effects of foreign exchange on cash and cash equivalents		14			43
Changes in cash and cash equivalents		(218	)		1,100
Cash and cash equivalents, beginning of period		4,610			3,843
Cash and cash equivalents, end of period	$	4,392		$	4,943
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid	$	-		$	-
Interest expenses paid	$	-		$	-

See accompanying notes.

6

CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          The notes to these consolidated financial statements are presented United States Dollars, unless otherwise indicated. Euro is a legal tender used by the majority of the member states of the European Union. With the exception of per share amounts, amounts are presented in thousands.

Description of Business

          Cathay Merchant Group, Inc. (the “Company” or “Cathay”) is an aluminum manufacturing company.

          On June 30, 2005, the Company, acting through its wholly-owned subsidiary, Cathay Merchant Group Limited (“CMG”), acquired all of the shares of MAW Mansfelder Aluminiumwerk GmbH (“MAW” – formerly AWP Aluminium Walzprodukte GmbH) and AFM Aluminiumfolie Merseburg GmbH (“AFM”). MAW and AFM are incorporated under the laws of Germany.

Basis of Presentation

          The unaudited interim period consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such SEC rules and regulations. The interim period consolidated financial statements should be read together with the audited consolidated financial statements and accompanying notes included in the Company's latest annual report on Form 10-KSB for the year ended December 31, 2006. In the opinion of the Company, the unaudited consolidated financial statements contained herein contain all adjustments (which are of a normal recurring nature) necessary to present a fair statement of the results of the interim periods presented. The results for the periods presented herein may not be indicative of the results for any subsequent period or the entire year.

2. EARNINGS (LOSS) PER SHARE

          Basic earnings (loss) per share is determined by dividing net income applicable to common shares by the average number of common shares outstanding for the period. Diluted earnings (loss) per share is determined using the same method as basic earnings per share except that the weighted average number of common shares outstanding includes potential dilutive effect of stock options.

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

		THREE MONTHS ENDED
		MARCH 31,
		2007		2006
		(UNAUDITED)
Net income (loss), basic and diluted	$	280	$	(544	)
Weighted-average shares, basic		18,891		18,834
Effect of dilutive securities		34		-
Weighted-average shares, diluted		18,925		18,834
Earnings (loss) per share, basic and diluted	$	0.01	$	(0.03	)

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CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

3. INVENTORIES

          Inventories consist of raw materials, work-in-process, and finished goods. Inventories are recorded at the lower of cost (specific identification and first-in first-out methods) or market and consist of the following at March 31, 2007:

Raw materials	$	6,046
Work in progress		6,644
Finished goods		2,219
	$	14,909

4. BUSINESS SEGMENT INFORMATION

          During the three months ended March 31, 2007, the Company operated in one reportable business segment: manufacturing of aluminum products.

          The following tables disclose the Company’s sales by product types for the three months ended March 31, 2007:

	THREE MONTHS ENDED
	March 31, 2007
By product types
Sheets	$   1,297
Strips	6,783
Blanks	4,478
Foils	11,164
Other	3,781
	$ 27,503

          As of March 31, 2007, there was no material change in total assets from December 31, 2006.

5. RELATED PARTIES TRANSACTIONS

          During the three months ended March 31, 2007, the Company had the following transactions with MFC Merchant Bank S.A.(“MFC Bank”), MFC Commodities GmbH and its parent company Mass Financial Corp. (“Mass”).

a)      Deposited its cash and cash equivalents with MFC Bank. Interest income on the deposit was $21. Such deposit amounted to $3,158 as at March 31, 2007.

b)      Sold products $21,736 (representing 79% of total sales of products) and paid marketing fee of $617 to MFC Commodities GmbH.

c)      Accrued or Paid interest of $121 to Mass.

6. RECENT ACCOUNTING PRONOUNCEMENTS

          FASB Interpretation ("FIN") No. 48: Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No.109, clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. This interpretation (1) prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and (2) provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This interpretation is effective for fiscal years beginning after December 15, 2006. Management’s preliminary assessment does not indicate that this new standard has a significant impact on our financial position.

8

CATHAY MERCHANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

7. SUBSEQUENT EVENTS

          In April 2007, the Company entered into amendment agreements with Grundstuckfonds Sachsen-Anhalt GmbH to extend the expiry date of both lease and purchase agreements to 2010.

          In May 2007, the Company and MFC Merchant Bank cancelled the credit facility and the fees for such facility were settled.

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

Overview

          Our primary business involves the manufacturing of aluminium products. Our wholly-owned subsidiary, Cathay Merchant Group Ltd., a company incorporated under the laws of Samoa ("Cathay Ltd."), acquired all of the shares of AWP Aluminium Walzprodukte GmbH and AFM Aluminiumfolie Merseburg GmbH on June 30, 2005. The companies were acquired for a combined purchase price of $18.5 million (€15,300,000). AWP Aluminium Walzprodukte was based in Berlin, Germany, and operated an aluminium rolling mill through its wholly-owned subsidiary, MAW Mansfelder Aluminiumwerke GmbH. In 2006, AWP Aluminium Walzprodukte merged with and into MAW Mansfelder Aluminiumwerke, with MAW Mansfelder Aluminiumwerke continuing on as the surviving corporation. Its products include aluminium sheets, foils, strips and blanks for use by industrial and commercial fabricators of aluminium products. On the same date, we also acquired AFM Aluminiumfolie Merseburg, which operates an aluminium rolling mill factory in Merseburg, Germany and produces aluminium foil for flexible (food and beverage) packaging, pharmaceutical packaging and other technical applications.

          We hold property interests in certain land, buildings and capital property where the two aluminium mills are located pursuant to the terms of two lease agreements with Grundstuckfonds Sachsen-Anhalt GmbH, a company wholly-owned by the State of Saxony-Anhalt, Germany ("GSA").

          Total combined production from the two mills during the year ended December 31, 2006 was 28,892 metric tonnes of finished products. The maximum total combined annual production from the two mills is 40,000 metric tonnes. The principal market for all of our aluminium products is primarily Europe, and we intend to utilize our acquisitions as a trading platform for Chinese companies involved in the export of aluminium products to Europe.

          We, through Cathay Ltd., acquired all of the outstanding shares of AFM Aluminiumfolie Merseburg, pursuant to a share purchase agreement dated June 30, 2005, from an unrelated third party for a purchase price of $8.5 million (€7,020,000). We paid $4.8 million (€4,000,000) in cash at closing on June 30, 2005 and the balance of the purchase price is evidenced by an unsecured promissory note in the principal amount of $3.7 million (€3,020,000), maturing on June 30, 2008. The note bears interest at the rate of 4.2% per annum, payable annually, and calculated on the basis of the actual number of days elapsed and on the basis of a 365-day year. The note was issued by Cathay Ltd. and is guaranteed by us.

          We acquired all of the outstanding shares of AWP Aluminium Walzprodukte pursuant to a share purchase agreement dated June 30, 2005, between Cathay Ltd. and Blake International, a former wholly-owned subsidiary of KHD Humboldt Wedag International Ltd., for a purchase price of $10.0 million (€8,280,000). We paid $4.8 million (€4,000,000) in cash at closing on June 30, 2005 and the balance of the purchase price is evidenced by an unsecured promissory note in the principal amount of $5.2 million (€4,280,000), maturing on June 30, 2008. The note bears interest at the rate of 4.2% per annum, payable annually, and calculated on the basis of the actual number of days elapsed and on the basis of a 365-day year. The note was issued by Cathay Ltd. and is guaranteed by us. Blake International was a wholly-owned subsidiary of KHD Humboldt Wedag which, at the time of the transaction, was an affiliate and significant shareholder of our company.

          Our aluminium rolled products are semi-finished products including sheets, foils, strips and blanks that constitute the raw materials for the manufacture of finished goods which are completed by our customers. Our aluminium rolling mills produce products for industrial and commercial purposes. The process of producing semi-finished aluminium products requires subsequent rolling, or cold rolling, and finishing steps such as annealing, coating, leveling or slitting to achieve the desired thicknesses and metal properties.

          Aluminium has several characteristics that provide value for diverse applications. Compared to substitute metals, aluminium is light-weight, has a high strength-to-weight ratio and is resistant to corrosion. Aluminium's greatest advantage, however, is that it can be recycled repeatedly without any material decline in performance or quality. Recycling of aluminium provides significant energy savings compared to the production of aluminium from other primary sources with significantly lower capital equipment costs.

          We generally purchase primary aluminium at prices set on the London Metal Exchange plus a premium that varies by geographic region of delivery, form and alloy.

          Industrial and commercial fabricators in the construction and automotive supply industry represent the largest

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customers for MAW Mansfelder Aluminiumwerke's products. Aluminium rolled products developed for this market segment are often decorative, offer insulating properties, are durable and corrosion resistant, and have a high strength-to-weight ratio. Aluminium siding, gutters, and downspouts comprise a significant amount of construction volume. Other applications include doors, windows, awnings, canopies, façades, roofing and ceilings. Most of the customers of MAW Mansfelder Aluminiumwerke receive shipments in the form of aluminium sheets, foils, strips and blanks which are later fabricated according to our customers' specifications. Demand for most of MAW Mansfelder Aluminiumwerke's products is seasonal, with higher demand occurring in the spring, summer and fall months and lower demand in the winter months. Accordingly, our aluminium mills typically generate higher revenues in the spring, summer and fall months.

          The majority of our products are sold to two subsidiaries of Mass Financial Corp., which provide marketing services and re-sell the products to end-user customers. Mass Financial currently holds 5,256,844, or 27.8%, of our common shares as of May 4, 2007.

          The aluminium rolled products market is highly competitive. We face competition from a number of companies in Germany and from European companies selling their products to our markets. Our primary competitors in Europe are Norsk Hydro A.S.A., Alcan, Alcoa, Novelis and Corus. We compete based on our price, product quality, the ability to meet customers' specifications, short delivery times and range of products offered. We also use sophisticated technical equipment and focus on high-end niche markets in order to maintain our competitive advantage.

          In addition to competition from within the aluminium rolled products industry, we face competition from non-aluminium materials, as fabricators and end-users have, in the past, demonstrated a willingness to substitute other materials for aluminium. Aluminium competes with plastic and steel in building products applications. Factors affecting competition with substitute materials include price, ease of manufacture, consumer preference and performance characteristics.

          The following discussion and analysis of the results of operations and financial condition of our company for the three months ended March 31, 2007 should be read in conjunction with the consolidated financial statements and related notes included in this quarterly report, as well as our most recent annual report on Form 10-KSB for the year ended December 31, 2006 filed with the United States Securities and Exchange Commission.

Results of Operations – Three Months Ended March 31, 2007

          Net product sales for the three months ended March 31, 2007 were $27.5 million, compared to $20.9 million in the same period in 2006. Cost of goods sold for the three months ended March 31, 2007 were $26.1 million, compared to $20.0 million in the same period in 2006.

          All of our revenues during the quarter ended March 31, 2007 were generated by our two aluminum rolling mills.

          AFM Aluminiumfolie Merseburg's products include those that utilize aluminium foil because of its light weight, recyclability and formability and because it has a wide variety of uses in packaging. Aluminium foil can be processed to create a very thin foil that can be plain or printed and is typically laminated to plastic or paper to form an internal seal for a variety of packaging applications including flexible (food and beverage) packaging, pharmaceutical packaging and other technical applications. Customers typically order coils of such foil in a range of thicknesses from 6 microns to 50 microns. AFM Aluminiumfolie Merseburg enters into annual supply agreements with a majority of its larger customers that are typically concluded during the fall and winter months to cover the customers' requirements for the following year. This makes AFM Aluminiumfolie Merseburg's revenues relatively predictable at an early time in the year.

          The aluminium products of MAW Mansfelder Aluminiumwerke are sold to distributors, as well as end-users, principally for use by industrial and commercial fabricators of aluminium products whereas the aluminium products of AFM Aluminiumfolie Merseburg are sold exclusively to industrial fabricators.

          General and administrative expenses were $1.3 million for the three months ended March 31, 2007 and 2006, respectively.

          We reported a net income of $0.3 million, or $0.01 per common share, for the three months ended March 31, 2007, compared to a net loss of $0.5 million, or $0.03 per common share, in the same period in 2006.

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LIQUIDITY AND CAPITAL RESOURCES

          At March 31, 2007, the Company had a working capital deficiency of $0.1 million, compared to $1.3 million at December 31, 2006.

          We entered into a five-year $20 million revolving credit facility dated April 26, 2004 with MFC Merchant Bank, which is to mature in March 2009. In August 2004, MFC Merchant Bank converted $1,575,000 of the principal that we have drawn under the credit facility into 3,150,000 shares of our common stock at the exercise price of $0.50 per share. As of March 31, 2007, we have an unused portion of a credit facility of $18,425,000. We are required to pay interest on any outstanding principal amount that we have drawn down under the credit facility on the first banking day of each calendar month, at an annual rate of Libor (being the one month London Inter-Bank Offered Rate fixed daily by the British Bankers Association) plus 3.5%, based on a 360 day year. The credit facility is secured by a first fixed and specific charge and security interest on all of our property, assets and undertakings imposed under our promissory note in the aggregate principal amount of $20,000,000, and a floating charge on all of our company’s other property, assets and undertakings not specifically mortgaged and charged under the promissory note, including after-acquired assets or the proceeds of any and all assets. Our obligations under the credit facility are also secured by a pledge agreement in the aggregate principal amount of $20,000,000, pursuant to which we have pledged to MFC Merchant Bank all or our existing and future pecuniary claims against third parties. In May 2007, our company and MFC Merchant Bank cancelled the credit facility.

          As a result of our revenues from our aluminium rolling mills, we believe that we have sufficient working capital to meet operating expenses during the next twelve months. Currently, we are also seeking investments in or acquisitions of companies, technologies or products. We also intend to exercise our two purchase option agreements. The first option agreement is dated September 26, 2002 between AFM Aluminiumfolie Merseburg and GSA. Pursuant to the terms of the option agreement, we have the right to purchase certain lands, buildings and capital property located in the city of Merseburg, Germany at a price of $4.5 million (€3,400,000) until September 30, 2007. In April 2007, we entered into an amendment agreement with GSA to extend the expiry date to December 31, 2010. The second option agreement is dated October 26, 2004 between MAW Mansfelder Aluminiumwerk and GSA, whereby we have the right to purchase certain land, buildings and equipment located in the city of Httstedt, Germany, at a price of $4.0 million (€3,035,000) until July 31, 2009. In April 2007, we entered into an amendment agreement with GSA to extend the expiry date to July 31, 2010 and reduced the purchase price to $3.8 million (€2,844,000). We may need additional capital if we pursue such opportunities that we may identify through such activities. Should the need arise, we will consider financing alternatives, including the possibility of effecting private placements of our securities.

          There is no assurance that management will find suitable opportunities or effect the necessary financial arrangements for such investments, or provide the capital needed for the acquired activities.

Operating Activities

          Operating activities used cash of $31,000 for the three months ended March 31, 2007, and provided cash of $1.1 million in the same period in 2006.

Investing Activities

          Investing activities used cash of $0.2 million for the three months ended March 31, 2007, compared to $87,000 in the same period in 2006.

Financing Activities

          Financing activities provided cash of $nil for the three months ended March 31, 2007, compared to $32,000 in the same period in 2006.

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Off-Balance Sheet Arrangements

          Our company has no outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. Our company does not engage in trading activities involving non-exchange traded contracts.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

          The preparation of financial statements in conformity with generally accepted accounting principles requires management of our company 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 revenues and expenses during the reporting periods.

          Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. We are currently in the aluminium manufacturing and trading business and have identified certain accounting policies, described below, that are the most important to the portrayal of our current financial condition and results of operations.

Revenue Recognition

          Our primary business is aluminum manufacturing and trading and our revenue primarily comes from the sale of aluminum products produced and sold. We receive orders from customers, process and convert the raw materials into finished goods, and ship the finished goods at the instructions of our customers. It is a simple manufacturing and trading process. The revenue is recognized when the finished goods are delivered, the terms of the sales are known and complied with and no significant obligations remain. Management believes that the risk of misstating the revenue is very remote and the only major misstatement, if any, comes from the period-end cut-off.

     Our return policy is governed by the provisions of the German Civil Code and the German Commercial Code. It stipulates that the seller has to transfer the product free from defects in materials and workmanship to the purchaser. To be deemed free from defects, the product has to be of the quality the two parties agreed on in their contract, when being transferred. If the product is not free from defects during the warranty period of two years, German law offers four possible claims to the purchaser:

• Subsequent improvements or subsequent delivery to the choice of the purchaser. Other options for the purchaser only arise if the seller subsequently fails to perform his contractual duty.

• After unsuccessfully requesting improvements of the product, the purchaser may withdraw from the contract, in which case a full cash refund is mandatory and the product has to be returned to the seller.

• Instead of withdrawing, the purchaser may keep the product and consider a reduction of the purchase price.

• The purchaser might claim compensation for the non-performance of the sale.

          Once an order has been placed by the purchaser and accepted by the seller the purchaser has no legal right to withdraw from the contract, unless the seller fails to perform his duties. A mutual cancellation is subject to the acceptance of the seller and depends on the individual situation.

Goodwill Impairment

          A goodwill impairment loss should be recognized when the carrying amount of the goodwill exceeds the fair value of the goodwill. An impairment loss should not be reversed if the fair value subsequently increases. We consider, but such consideration is not limited to, the following factors to determine the goodwill impairment:

• a significant adverse change in legal factors or in the business climate;

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• an adverse action or assessment by a regulator;

• unanticipated competition;

• loss of key personnel;

• a more-likely-than-not expectation that a significant portion or all of a reporting unit will be sold or otherwise disposed of;

• the testing for write-down or impairment of a significant asset group within a reporting unit; or

• the recognition of a goodwill impairment loss in its separate financial statements by a subsidiary that is a component of the reporting unit.

Impairment of Long-Lived Assets

          We periodically evaluate long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review of recoverability, we estimate future cash flows expected to result from the use of the asset and its eventual disposition. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require our management to make subjective judgments. In addition, the time periods for estimating future cash flows is often lengthy, which increases the sensitivity of the assumptions made. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets can vary within a wide range of outcomes. Our management considers the likelihood of possible outcomes in determining the best estimate of future cash flows.

ITEM 3.           CONTROLS AND PROCEDURES.

          We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

          As of March 31, 2007, the end of the quarter covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

          There have been no significant changes in our internal controls over financial reporting that occurred during our most recent quarter that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS.

          In the ordinary course of conducting our business, we may become subject to litigation and claims regarding various matters. There was no outstanding litigation as of March 31, 2007.

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

          None.

14

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES.

          None.

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

          None.

ITEM 5.           OTHER INFORMATION.

          None.

ITEM 6.           EXHIBITS.

Exhibits Required by Item 601 of Regulation SB

Exhibit		Filed
Number	Exhibit Title	Herewith	Form	Filing Date
(3)(i)	Articles of Incorporation
3.1.1	Certificate of Incorporation of Cathay Merchant Group, Inc., a Delaware corporation		S-1	April 13, 1981
3.1.2	Certificate of Amendment to Certificate of Incorporation of Cathay Merchant Group, Inc., a Delaware corporation		10-Q	January 31, 1987
3.1.3	Certificate of Amendment to Certificate of Incorporation of Cathay Merchant Group, Inc., a Delaware corporation		10-K	July 28, 1990
3.1.4	Certificate of Amendment to Certificate of Incorporation of Cathay Merchant Group, Inc., a Delaware corporation		10-KSB	July 31, 1997
3.1.5	Certificate of Amendment to Certificate of Incorporation of Cathay Merchant Group, Inc., a Delaware corporation		8-K	June 5, 1998
3.1.6	Certificate of Designations of Series A Convertible Preferred Stock of Cathay Merchant Group, Inc., a Delaware Corporation		8-K	June 5, 1998
3.1.7	Certificate of Designations of Series B 5% Convertible Preferred Stock of Cathay Merchant Group, Inc., a Delaware Corporation		8-K	February 9, 1999

15

Exhibit		Filed
Number	Exhibit Title	Herewith	Form	Filing Date
3.1.8	Certificate of Amendment to Certificate of Incorporation of Cathay Merchant Group, Inc., a Delaware corporation		8-K	January 10, 2000
3.1.9	Certificate of Amendment to Certificate of Incorporation of Cathay Merchant Group, Inc., a Delaware corporation		8-K	October 7, 2004
3(ii)	By-laws
3.2.1	Amended Bylaws of Cathay Merchant Group, Inc., a Delaware corporation		8-K	May 17, 2000
(10)	Material contracts
10.1	Credit Facility Agreement dated as of April 26, 2004, between Cathay Merchant Group, Inc. and MFC Merchant Bank S.A.		8-K	April 30, 2004
10.2	Financial Advisory Agreement dated January 1, 2004, between Cathay Merchant Group, Inc. and MFC Merchant Bank S.A.		10-KSB	October 29, 2004
10.3	Memorandum of Understanding dated January 28, 2005, between Cathay Merchant Group (Shanghai) Wind Energy Co., Ltd. and Kangbao County Government of Hebei Province and Chuzhangdi Town Government.		10-KSB	October 31, 2005
10.4	Wind Park Project Land Use Rights Agreement dated February 23, 2005, between Cathay Merchant Group (Shanghai) Wind Energy Co., Ltd. and Kangbao County Government.		10-KSB	October 31, 2005
10.5	Share Purchase Agreement dated June 30, 2005, between Cathay Merchant Group Limited and Blake International Limited.		8-K	June 30, 2005
10.6	Promissory Note dated June 30, 2005, between Cathay Merchant Group Limited and Cathay Merchant Group, Inc.		8-K	June 30, 2005

16

Exhibit		Filed
Number	Exhibit Title	Herewith	Form	Filing Date
10.7	Share Purchase Agreement dated June 30, 2005, between Cathay Merchant Group Limited and Universal Metals Limited.		8-K	June 30, 2005
10.8	Promissory Note dated June 30, 2005, between Cathay Merchant Group Limited and Cathay Merchant Group, Inc.		8-K	June 30, 2005
10.9	Lease Agreement dated September 18, 2002, between GSA Grundstucksfonds Sachsen-Anhalt GmbH and MAW Mansfelder Aluminiumwerk GmbH		10-KSB	April 2, 2007
10.10	Lease Agreement dated September 26, 2002, between GSA Grundstucksfonds Sachsen-Anhalt GmbH and MFC Aluminiumfolie Merseburg GmbH		10-KSB	April 2, 2007
10.11	Purchase Option Agreement dated September 26, 2002, between GSA Grundstucksfonds Sachsen-Anhalt GmbH and MFC Aluminiumfolie Merseburg GmbH		10-KSB	April 2, 2007
10.12	Agreement dated October 26, 2004, between GSA Grundstucksfonds Sachsen-Anhalt GmbH and MAW Mansfelder Aluminiumwerk GmbH		10-KSB	April 2, 2007
10.13	Service Agreement dated August 22, 2005, between our company and Stefan Feuerstein		10-KSB	April 2, 2007
10.14	Amendment to Service Agreement effective August 1, 2006, between our company and Stefan Feuerstein		10-KSB	April 2, 2007
10.15*	Document of Notary dated March 19, 2007	X
10.16*	Amendment to Lease Agreement dated April 11, 2007	X
10.17*	Amendment to Lease Agreement dated April 11, 2007	X
10.18*	Amendment to Lease Agreement dated April 11, 2007	X

17

Exhibit		Filed
Number	Exhibit Title	Herewith	Form	Filing Date
(31)	Section 302 Certifications
31.1	Chief Executive Officer and Chief Financial Officer	X
(32)	Section 906 Certifications
32.1	Chief Executive Officer and Chief Financial Officer	X

18

SIGNATURES

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

Dated: May 15, 2007	CATHAY MERCHANT GROUP, INC.
	By:	/s/ Michael J. Smith
		Michael J. Smith
		Chief Executive Officer, President and
		Chief Financial Officer
		(Principal Executive Officer,
		Principal Accounting Officer and
		Principal Financial Officer)

19

EX-10.15

English Translation

Certified Copy

Document
of the Notary
Wolfgang Gründer
Magdeburg

I hereby certify the congruence of the following copy with the original presented to me

Magdeburg, 19 March 2007

sgd. Gründer

English Translation

Roll of Deeds No. 7722007

Negotiated in Magdeburg on 15 March 2007 appearing before me,

Notary

Wolfgang Gründer

with offices in 39104 Magdenburg, Breiter Weg 10 a,

Mr. Klaus Dieter Theise, born 10 August 1956 in Lübeck
Residing at: 39104 Magdeburg, Kantstr. 5
Known personally

Not acting in his own name but rather

a)	according to the data as the sole authorized managing director of the company below
	who declares that he is subsequently acting for the
	GSA Grundstücksfonds Sachsen-Anhalt GmbH, headquartered in Magdeburg, recorded in the Trade Register of the Local Court of Stendal under HR B 108973, Business address: 39104 Magdeburg, Kantstraße 5,

- hereinafter referred to as “Seller“ -

b)	as the authorized representative, subject to the approval in the form for the Land Register for the company called
	MAW Mansfelder Aluminiumwerk GmbH, headquartered in Hettstedt, recorded in the Trade Register of the Local Court of Stendal under HR B 215674, Business address: 06333 Hettstedt, Lichtlöcherberg 40

- hereinafter referred to as “Purchaser“ -

English Translation

The persons appearing, acting as reported, declare:

FOREWORD:

With the document from the notary Peter Krolopp in Magdeburg (Roll of Deeds no.: 1032/2004) dated 26 October 2004, the Seller offered the Purchaser the object of sale (property and machines) described in greater detail in the above document under Sec. 1 for purchase. This offer is to be modified by mutual consent. To avoid misunderstandings, the previous offer, in which modifications will be made, will be reproduced in its entirety below.

1. In A. (Offer for the conclusion of a sales agreement for property and machines and equipment) the following changes are agreed:

1.01       I.2 (Binding Term, Acceptance) will be changed as follows:

The Seller is irrevocably bound to this offer up to and including 31 July 2010. The recipient of the offer may only accept the offer up to this date. The agreement will be implemented if the recipient of the offer declares in writing to a notary within the period named; the receipt of the acceptance document by the Seller is not relevant.

1.02       I.4 (Power of Attorney for Conveyance) will be modified as follows:

The Seller will grant the recipient of the offer a power of attorney free of the restrictions of Art. 181 BGB (German Civil Code), after the acceptance of the offer permitting the Purchaser to state or repeat the conveyance for the Seller as well as to submit any and all declarations which are required for or serve to execute the agreement. Here the principles of Part B, with regard to the liability for presentation, are to be observed.

The notary certifying the conveyance is to be instructed only to present the document which contains the conveyance after the provisions of the sales agreement Part B “Contents of the Sales Agreement” Bo. 10.02 are presented to the Land Registry.

The power of attorney expires at the end of 31 July 2010.

English Translation

2.         In B. (Contents of the Sales Agreement), the following modifications were agreed: 2.01 1 (Description of the Property)1.01 (Status of Land Register) will be modified as follows

Land Register	Großömer
Land Register office	Hettstedt

Land register sheet		1424
No.	Land	Land parcel	M²	Type and location
	2	271	84,565	Industrial and commercial
Encumbrances in Sec. II		No.1		Easement (right of way) for the specific owner of the property 1394/130 of Land 2, Großörner district
		No. 2		Easement (cable/pipe-break rights, natural gas, drinking water, process water, waste water and electrical energy line rights) for the specific owner of the properties No. 29, 36, 39, 50, 58 – entered in Großörner, sheet 1317 – and the properties Nos. 18, 28 - entered in Großörner, sheet 1254
		No. 3		Priority notice of conveyance regarding the partial area with a size of about 47,333 m² for the Aluwerk Hettstedt GmbH
Encumbrances in Sec. III		No encumbrances
		GSA Grundstücksfonds Sachsen-Anhalt GmbH

The purchase area consists of a location and size known exactly in its nature to the parties to the agreement, with an approximate size of 30,977 m² from the land parcel 271, which is marked in yellow in Appendix 1 of this document.

2.02       No. 3 (Purchase Option) will be completely cancelled.

English Translation

4.          PURCHASE PRICE AND PAYMENT OF THE PURCHASE PRICE

4.01        Purchase price

The net purchase price is EUR 2,844,000 (in words – two million eight hundred and forty-four thousand euros). Of this sum, EUR 2,000,000 are allocated for the machines listed in appendices 2 and 3.

Should the responsible tax authorities not accept this distribution of the purchase price, this will be at the cost of the Purchaser.

Due to the fact that the Seller is acting with a fiduciary mandate and on behalf of the State of Saxony-Anhalt, it is to be assumed that the Seller is not authorized to deduct the input tax. Should the Seller nevertheless be required to pay the value-added tax, this will be assumed by the Purchaser and the purchase price will be increased accordingly.

4.02        Due date of purchase price

The purchase price falls due four weeks after the notary has sent a written memo to the Purchaser that the following prerequisites (“conditions for payment being due”) have been met.

4.03        Conditions for payment being due (to be monitored by notary)

a)	The notary has a certified copy of the title in which the Seller is entered as the owner of the properties to be sold and that any notices to the benefit of the Purchaser are not superseded by encumbrances after the conclusion of the agreement; encumbrances in which the Purchaser has cooperated in or assumed may precede the notice.
b)	The local government confirms that it has no purchase options or that these will not be exercised:
c)	The documents for the release of the property from mortgages to the extent agreed upon have been entrusted to the notary in deed form and the creditors do not request any price greater than the (net) purchase price for the free use of the release documents.
d)	The official permits required for this agreement are available.

To calculate the four-week deadline, the postal stamp of the memorandum sent to the address of the Purchaser as noted in this document will be decisive.

English Translation

4.04        Payment of Purchase Price

When the notary has informed the Purchaser in writing, the purchase price is to be paid, free of charges, onto the Seller’s account at the Norddeutsche Landesbank Magdeburg (BLZ 250 500 00) acct. no. 122 037 948 with the reference “8539-7890-000”.

4.05        Default

The Purchaser is in arrears if the Purchaser does not pay the purchase price within four weeks after the signing notary has sent the memorandum on the due date for the payment (event in terms of Art. 286 (2) No. 2 German Civil Court); a separate reminder is not required. The Purchaser will have to pay the statutory default interest, regardless of the obligation to pay additional damages for being in default.

4.06        Transfer of the Ownership of the Objects Sold as per Appendices 2 and 3

The parties are in agreement that the ownership of the objects in appendices 2 and 3 will be transferred to the Purchaser on the condition precedentthat the payment of the purchase price has been made.

The transfer of the objects of the sale as per appendices 2 and 3 occurs on the day after the payment of the purchase price due.

5.          SUBJUGATION TO EXECUTION

The Purchaser subjugates itself to the Seller for immediate foreclosure for the purchase price of EUR 2,844,000 and default interest of 5 % annually above the discount rate. Due to the principle of stipulation for the foreclosure, the default interest is due starting with the day of the certification of the acceptance of the purchase offer. Executable copies and clauses may not be issued without proof of the settlement date. There is no reversal of the burden of proof.

A reversal of the burden of proof is, however, not associated with this so that it is the obligation of the creditor to prove the existence or maturity of the claim in case a counter-claim is brought against the execution.

8.          RIGHTS OF THE BUYER IN CASE OF DEFECTS

8.01        General

After the notary instructed the participants about the differences between the agreements on properties and conditions and guarantees as well as the statutory rights associated with them and the

English Translation

opportunities, limitations and legal consequences of exclusions of liability and the assumption of encumbrances, the participants continued.

8.02        Assurances

The Seller assures that he is not aware of hidden defects and that he is not maliciously concealing hidden defects.

The Seller does, however, assure that he is not aware of the so-called co-usage rights of third parties as per the ZGB of the former GDR.

8.03        Exclusion of liability

The Purchaser has inspected the object of sale. The Purchaser is purchasing this in the current, used, age-related condition. The rights of the Purchaser for material defects of the property and the buildings or objects purchased are excluded except where arranged in this agreement. This also applies for any claims for damages, unless the Seller acted with intent.

The current condition is that existing at the time of the acceptance of the offer. Neither is the Seller liable for defects arising after this point in time.

8.04        Contamination

The Seller does not vouch for the object of purchase being free of ecological contamination, other environmental damage and hygienic burdens or other environmentally relevant issues such as garbage or asbestos-containing building materials (“freedom from contamination”). The freedom from contamination is therefore not arranged or guaranteed as a characteristic.

8.05        Notice of exemption

a)

With the Notice of Exemption from the Halle Regional Council from 16 February 1996, the previous owner was partially exempted from the costs of the public-legal responsibility and private liability claims for damages which were caused by the operation of equipment or the use of the property prior to 1 July 1990 and from which a hazard for the public safety and order arises as well as from corresponding damage claims. The Purchaser is aware of the exemption.

b)

With the purchase agreement dated 18 February 2002 with the Aluhett Aluminiumwerk GmbH, the Seller assumed the rights resulting from the Notice of Exemption – to the extent that they were for that object of sale – and to the extent that these rights are

English Translation

	transferable and enforceable.
c)	The Purchaser will submit an application to the state agency for the exemption from contamination within three months of concluding the agreement to transfer the rights resulting from the Notice of Exemption from the Halle Regional Council from 18 February 1996 to the extent that these rights on the object of sale as per Article 1 of this agreement are applicable for the Purchaser. Should the Purchaser not submit this application within the three-month period, the Seller has the right to withdraw.
d)	The Seller provides no guarantee that the conditions of the Notice of Exemption of Contamination were met; the Purchaser waives the assertion of any claims against the Seller resulting from the notice and/or its transfer. The Seller is not obligated to take any measures which enforce the notice or that are necessary to maintain its validity. The Purchaser has no claim of any kind against the Seller or its legal predecessor on the basis of regulations contained in this section about the announcement of the Notice of Exemption of Contamination after the transfer of resultant rights to the Purchaser.

8.06 The Seller assures that - with the exception of no. 8.05 d) – there are no official conditions which have not been met and that the Seller is not aware that the current usage contradicts public-legal regulations. The Seller assures that the Seller is not aware of building defects of which the Purchaser is not aware or which the Purchaser might not be justifiably aware of.

8.07        Rights and Encumbrances

a)             Encumbrances in Section II and III of the Land Register

The Seller is obligated to make the property sold free of encumbrances and restrictions in the land register, to the extent that they are not assumed by the Purchaser or authorized with the Purchaser’s approval. The Purchaser assumes the following:

Encumbrances in Sec. II	No. 1 and 2
Encumbrances in Sec. III	none

The Purchaser does not, in any case, assume any restoration notices entered in the land register. Should there be such a note, the Purchaser has the right to withdraw from the agreement.

b)             Building encumbrances and easements not entered

Building encumbrances and easements not entered in the land register will be assumed by the Purchaser. The Seller declares that he has not initiated entries in the building encumbrances index

English Translation

and that the Seller is not aware of any building encumbrances. The participants were made aware of the possibility to inspect the building encumbrances index.

c)             Contractual object in acceding territory

The object of the agreement is located in the new German states. In view of that fact the participants were instructed about the particularities of real estate law in the new German states, in particular about the possibility of the existence of in rem rights of usage, third-party building ownership not listed in the land register and possible purchase options. The Seller is not aware of the existence of such rights. The Seller, however, points out that no investigations were conducted in this regard.

The Purchaser reserves the right to withdraw from the portion of the contract pertaining to the law of obligations by means of a written statement in a registered letter, if the there should be ownership of the building and/or co-usage rights to the building and equipment (“old rights”) for the object of the agreement stemming from the former GDR law and, within a period of three months beginning with the delivery of the announcement by the Seller to the Purchaser about the existence of such rights, the Seller has not achieved an agreement on a waiver or another release of encumbrance from the holder of the old rights. The right to withdraw is granted to the Purchaser only if the Purchaser has informed the Seller of the existence of old rights within 6 months after the effective conclusion of this agreement (effective acceptance of the offer) and the withdrawal is stated at the latest 4 months after the delivery of the above-mentioned announcement to the Seller.

8.08        Historical preservation

The Seller assures that he is not aware that the object of the agreement is historically protected as per the State Historical Protection Act. It is a matter of the Purchaser to establish clarity in the matter.

8.09        Conditions of usage

The object of the agreement is leased to the Purchaser.

Until the effective conclusion of the agreement (acceptance of the offer) and payment of the purchase price due, the regulations between the parties are defined by the existing lease.

8.10        Right of withdrawal

In case

- the rights from the Notice of Exemption from the Halle Regional Council from 16 February 1996 are not transferred to the Purchaser to the extent which these rights of the object of the sale are described in Art. 1 of this agreement (see No. 8.05 (c)), or

- other rights or encumbrances exist than those listed in No. 8.07 a,

English Translation

the Purchaser has a right of withdrawal. The right of withdrawal must be stated to the Seller in a registered letter with return receipt. The notary is to be informed with a copy. In case of a withdrawal, the Seller will bear the costs of this document and its execution as well as the rescinding of the agreement. In case of a withdrawal of the agreement the Purchaser is obligated to immediately delete the entries in the land register made to his benefit (and the financing mortgaging rights authorized at his behest) at his costs.

The right of withdrawal by the Purchaser in this no. 8.10 is limited to one year beginning with the date of the effective acceptance of this offer.

(3) These changes in the offer for the conclusion of a sales agreement for property and machines and equipment is on the condition precedent that an agreement is concluded on the usage of the transverse parts plant and the annealing furnace in the stamping hall.

The other arrangements in the sales offer (roll of deeds no. 1032/2004) of the notary Peter Krolopp in Magdeburg) from 26 October 2004 remain unaffected by this first amendment.

The costs for this first amendment of the offer for the conclusion of a sales agreement for property and machines and equipment related to the modification of the sales object and the purchase price will be borne by the Seller.

The costs for this first amendment of the offer for the conclusion of a sales agreement for property and machines and equipment related to the modification of the extension of the binding deadline will be borne by the recipient of the offer.

Otherwise the costs for the offer from 26 October 2004 (Roll of Deeds 1032/2004 of the notary Krolopp in Magdeburg) continue to apply.

The costs of this document will be borne in the following ratio by the contractual parties

- GSA Grundstücksfonds Sachsen-Anhalt GmbH	1/3
- MAW Mansfelder Aluminiumwerk GmbH	2/3.

This transcript was read to the persons appearing by the notary, then approved by all those appearing and signed in their own hand by him and the notary:

Sgd. Theise
Sgd. Gründer, notary

EX-10.16

English Translation

1^st Amendment of the Lease from 1-2 September 2004
effective as of 1 March 2007

Between the	GSA Grunstücksfonds Sachsen-Anhalt GmbH
	Kantstraße 5, 39104 Magdeburg
	Represented by the Managing Director Klaus-Dieter Theise
	Acting in his own name, but as the fiduciary mandate and on account of the
	State of Saxony-Anhalt
	- lessor -
And the	MAW Mansfelder Aluminiumwerk GmbH
	Lichtlöcherberg 40, 06333 Hettstedt
	Represented by the managing directors Harald Springer and Jürgen Eger
	- lessee -

Agree to the following amendments/supplements to the lease of 1-2 September 2004 as of 1 March 2007:

1           Art. 1 (Object of Lease) paragraph 1 will be modified as follows:

The industrial property of the former company property of the Aluhett Aluminiumwerk GmbH in Großörner, a section of the property listed in the Land Register of Großörner, sheet 1424 under no. 1, land parcel 271, land 2 along with buildings – in the attached map = Appendix 1 in yellow (“company property”). The company property consists of the following (unsurveyed) area:

Sheet 1424 no. 1                               Land 2                               Land parcel 271                               (ca.) 30,977 m²

2           Art. 2 (Term of Lease) paragraph 1 will be modified as follows:

The lease ends, as long as it is not extended or prematurely terminated in accordance with the conditions of this paragraph, on 31 December 2015. It is possible at the earliest and exclusively for the tenant to terminate the lease at 31 December 2009 with a period of notification of three months. If the lease is not terminated by a party at 31 December 2015 with a notification period of six months, the lease will be considered to be concluded for an undetermined period of time and can be terminated by either party with a notification period of six months to the end of the specific year of the lease.

3           Art. 3 (Rent and Secondary Costs) paragraph 1 and paragraph 6 will be modified as follows:

1.          The rent for the lease object consists of a basic monthly rent and the secondary costs (together “rent”).

The secondary costs are determined in accordance with the Operating Costs Directive (BetrKVO) in the version applicable since 2004. The allocable costs and the costs included in the lump sum are shown in nos. 1 to 17 of the Appendix 3 of this agreement. They are to be paid on a monthly basis as a lump sum. An annual settlement will not be made.

English Translation

As of 1 March 2007 the monthly rent is:

Basic monthly rent:	EUR 15,475.00
Secondary costs:	EUR 1,084.20
Total rent:	EUR 16,559.20

	(In words: sixteen-thousand, five-hundred and fifty-nine 20/100 euros)
6.	For the period starting 1 January 2010 the following will apply:
	Should the “Consumer Index for Germany” published by the Statistisches Bundesamt base year 2000 = 100, change by more than 2.5% compared to the value in column “Overall Index” for January 2009, the contractual partners may request an adjustment of the rent effective 1 January 2010. The criterion for the adjustment is the percentage change of the Index.
	In the subsequent period a further adjustment may be requested with the same deadline of 1 January each year, if the published value has changed by more than 2.5% from the previously adjusted value.
	Should the consumer price index agreed upon here no longer be continued, a valid cost of living index will be applied that is comparable to the agreed upon index.

4	Art. 8 (Contractual Use, Transfer to Third Parties) paragraph 4 will be modified as follows:
	A subletting is only permitted for the purpose of exercising the usage as per Art. 1 No. 4 and requires the prior written approval of the lessor. The tenant is not authorized to transfer the rights from this lease or allow the transfer to third parties without the approval of the lessor.
	In case of unauthorized transfer of use the tenant is obligated to terminate this immediately. The lessor retains the right to sue for damages for the unauthorized transfer of use and the right to an extraordinary cancellation.

5 Art. 16 (Vehicle Scale, 20-kV Station, Gas Station, Parking Areas, Washroom and Changing Facilities in the Administration Building, Annealing Furnace with Batch Equipment Bldg. 6, Transverse Plant II Bldg. 6) will be modified as follows:

Art. 16
Vehicle Scale, Gas Station, Parking Areas,
Washroom and Changing Facilities

1.	The tenant is granted the sole, cost-free use of the following objects/equipment: Gas station on the lease object Gas station (in blue) Vehicle scales (yellow) Car park (green) Washroom and changing rooms in administration building.
2.	The lessor is obligated to guarantee the functionality of the objects/equipment as per no. 1. The lessor is not liable for damages in connection with the use of the objects/equipment, unless the lessor acts with malicious intent or gorss negligence.

All other provisions of the lease from 1-2 September 2004 remain in affect and unchanged and are not affected by these amendments/supplements

Magdeburg 11 April 07	Hettstedt 11 April 07
GSA Grundstücksfonds	MAW Mansfelder Aluminiumwerk GmbH
Sachsen-Anhalt GmbH
K.-D. Theise	H Springer                                                   J. Eger

EX-10.17

English Translation

1^st Amendment of the Lease from 25 September 2004

Between the	GSA Grundstücksfonds Sachsen-Anhalt GmbH
	Kantstraße 5, 39104 Magdeburg
	Represented by the Managing Director Klaus-Dieter Theise
	acting in his own name, but as the fiduciary mandate and on account of the State of
	Saxony-Anhalt
	- lessor -
And the	AFM aluminiumfolie Merseburg GmbH August-Bebel-Straße 1,
	06217 Merseburg
	Represented by the managing directors Bernd Gebhardt and Peter Ruhle
	- lessee -

Each individually a “party“ and together the “parties“

Preamble:

The lessee acquired the property and the mobile and immobile assets of FWM Folienwerk Merseburg GmbH i.I. in accordance with the fiduciary mandate of the State of Saxony-Anhalt. The lessor is acting in its own name, but as mandated and on the account of the State of Saxony-Anhalt.

In August-Bebel-Straße in Merseburg (“site”) the Folienwerk Merseburg GmbH i.I. ran a foil rolling mill consisting of a rolling mill (“rolling mill”) and a refiner (“refiner”). With the lease of 26 September 2002 the lessor leased the rolling mill, and the areas of the site associated with it, to the lessee. The refiner and the areas of the site associated areas were leased to the company Flex –Team GmbH Flexible Verpackungen (“Flex-Team”). After Flex-Team moved its operations away from Merseburg and left the site, the parties concluded the lease of 25 September 2004 for additional areas and buildings at the site.

The parties amended the lease form 25 September 2004 as follows:

Art. 2 Section 1 (Term of Lease, Handover) will be amended as follows:

1. The lease ends, if it is not extended or prematurely terminated in accordance with the provisions of this section, on 31 December 2015. For the first time and only on 30 September 2007 and 31 December 2009 may the lease be cancelled by the lessee on 30 September 2007 and 31 December 2009, respectively, with a notification period of three months. If the lease relationship is not cancelled by either party for 31 December 2015 with a notification period of 6 months, the lease will be considered as concluded indefinitely and may be cancelled by either party to the end of the current year of the lease with a notification period of 6 months. Notifications of cancellation must be made in writing to be effective.

The following Art. 2 Section 3 will be added:

3. The following will apply for the period after 1 January 2010:

Should the “Consumer Index for Germany” published by the Statistisches Bundesamt base year 2000 = 100, change by more than 2.5% compared to the value in column “Overall Index” for January 2009, the contractual partners may request an adjustment of the rent effective 1 January 2010. The criterion for the adjustment is the percentage change of the Index.

In the subsequent period a further adjustment may be requested with the same deadline of 1 January each year, if the published value has changed by more than 2.5% from the previously adjusted value.

English Translation

Should the consumer price index agreed upon here no longer be continued, a valid cost of living index aill be applied that is comparable to the agreed upon index.

All other provisions of the lease from 1-2 September 2004 remain in affect and unchanged and are not affected by these amendments/supplements

Magdeburg 11 April 07	Merseburg 11 April 07
GSA Grundstücksfonds	AFM aluminiumfolie merseburg GmbH
Sachsen-Anhalt GmbH
K.-D. Theise	Bernd Gebhardt and Peter Ruhle

EX-10.18

English Translation

1^st Amendment of the Lease from 26 September 2002

Between the	GSA Grunstücksfonds Sachsen-Anhalt GmbH
	Kantstraße 5, 39104 Magdeburg
	Represented by the Managing Director Klaus-Dieter Theise
	acting in his own name, but as the fiduciary mandate and on account of the State of
	Saxony-Anhalt
	- lessor -
And the	AFM aluminiumfolie Merseberg GmbH August-Bebel-Straße 1,
	06217 Merseburg
	Represented by the managing directors Bernd Gebhardt and Peter Ruhle
	- lessee -

The lease of 26 September 2002 will be amended as follows:

No. 5.01 (Term of Lease):

The lease ends, if it is not extended or prematurely terminated in accordance with the provisions of this section, on 31 December 2015. For the first time and only on 31 December 2009 may the lease be cancelled by the lessee on 31 December 2009, with a notification period of three months. If the lease relationship is not cancelled by either party for 31 December 2015 with a notification period of 6 months, the lease will be considered as concluded indefinitely and may be cancelled by either party to the end of the current year of the lease with a notification period of 6 months. Notifications of cancellation must be made in writing to be effective.

The following No. 5.04 will be added:

5.04 The following will apply for the period after 1 January 2010:

Should the “Consumer Index for Germany” published by the Statistisches Bundesamt base year 2000 = 100, change by more than 2.5% compared to the value in column “Overall Index” for January 2009, the contractual partners may request an adjustment of the rent effective 1 January 2010. The criterion for the adjustment is the percentage change of the Index.

In the subsequent period a further adjustment may be requested with the same deadline of 1 January each year, if the published value has changed by more than 2.5% from the previously adjusted value.

Should the consumer price index agreed upon here no longer be continued, a valid cost of living index aill be applied that is comparable to the agreed upon index.

All other provisions of the lease from 1-2 September 2004 remain in affect and unchanged and are not affected by these amendments/supplements

Magdeburg 11 April 07	Merseburg 11 April 07
GSA Grundstücksfonds	AFM aluminiumfolie merseburg GmbH
Sachsen-Anhalt GmbH
K.-D. Theise	Bernd Gebhardt and Peter Ruhle

EX-31.1

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael J. Smith, certify that:

1.           I have reviewed this quarterly report on Form 10-QSB of Cathay Merchant Group, Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d-15(f)) for the registrant and have:

(a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: May 15, 2007

By:	/s/ Michael J. Smith
	Michael J. Smith
	Chief Executive Officer and
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Cathay Merchant Group, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

(1) the Quarterly Report on Form 10-QSB of the Company for the quarterly period ended March 31, 2007 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated May 15, 2007

By:	/s/ Michael J. Smith
	Michael J. Smith
	Chief Executive Officer and
	Chief Financial Officer