SOURCE: Armco Metals Holdings, Inc.

August 14, 2014 17:00 ET

Armco Metals Holdings Announces Financial Results for the Second Quarter of 2014

Revenue From Metal Recycling Operations Rebounds in the Second Quarter of 2014

SAN MATEO, CA--(Marketwired - Aug 14, 2014) -  Armco Metals Holdings, Inc. ("Armco Metals Holdings") (NYSE MKT: AMCO), a U.S. based company that engages in the import, sale, and distribution of metal ore and non-ferrous metals in the People's Republic of China, recycles scrap metals used by steel mills in the production of recycled steel and provides sourcing and pricing services for various metals to its network of customers, today announced its financial results for the second quarter of 2014.

SUMMARY FINANCIALS

 
Second Quarter 2014 Results
    Q2 2014   Q2 2013
Net Revenues   $32.9 million   $27.7 million
Gross Profit   $3.1 million   $2.4 million
Income from Operations   $1.8 million   $1.1 million
Net Income (Loss)   $(0.8) million   $0.9 million
EPS (Fully Diluted) Income (Loss)   $(0.01)   $0.04
         

Second Quarter of 2014 Financial Results
For the second quarter of 2014ended June 30, 2014, net revenue was $32.9 million, a 19% increase compared to net revenue of $27.7 million recorded in the second quarter of 2013. The increase in revenue in the second quarter of 2014 was primarily due to an increase of $8.3 million in the sale of scrap metals and an increase of $2.9 million in sales of steel billet, partially offset by a $2.4 million decline in sales of manganese ore, a $1.3 million decrease in sales of chrome ore, and a $0.7 million decrease in sales of titanium. Our recycling business generated revenue of $26.2 million while our trading business generated revenue of $6.7 million, accounting for 80% and 20% of our total revenue, respectively. Revenue from our recycling business rebounded significantly from Q1 2014 revenues of $2.6 million. Gross profit for the second quarter of 2014 was $3.1 million as compared to gross profit of $2.4 million in the second quarter of 2013. Gross margin in the second quarter of 2014 was 9.3% compared to 8.5% in the second quarter of 2013. The significant increase in gross profit and gross margin was largely due to a significant improvement in margins in our trading business.

Total operating expenses for the second quarter of 2014 remained flat at $1.3 million as compared to the second quarter of 2013. We recorded operating income of $1.8 million in the second quarter of 2014, a 64% increase compared to operating income of $1.1 million in the second quarter of 2013. Our results of operations in the second quarter of 2014 resulted in a net loss of $(0.8) million or $(0.01) per basic and diluted share on 50.8 million weighted average shares outstanding inclusive of a $1.6 million increase in interest expense associated with the conversion of convertible notes. This compared to net income of $0.9 million or $0.04 per basic and diluted share on 24.0 million weighted average shares outstanding in the same period of 2013.

First Six Months of 2014 Financial Results
Armco Metals' revenues in the first half of 2014 increased slightly to $42.8 million compared to revenues for the same period of 2013 of $42.0 million, primarily due to the decrease in trading business sales in first quarter of 2013. Gross profit for the first six months of 2014 was $1.9 million compared to $3.0 million in the 2013 period. The decline in gross profit was largely attributable adverse market conditions in the scrap metal industry. In the first six months of 2014 our recycling business contributed 67% and 52% of our net revenue and gross profit respectively.

Operating expenses increased to $3.5 million from $ 2.9 million, primarily due to an increase in general and administrative expenses of $0.25 and an increase in operating cost of idle manufacturing facility of $0.19 million. Net loss and per share loss were ($4.4) million and ($0.11), respectively, in the first half of 2014. The weighted average diluted shares outstanding were 40.3 million as of June 30, 2014, a 37% increase from 24.0 million in the same period of 2013. Net loss and per share loss were ($0.14) million and ($0.01), respectively, in the first half of 2013.

In reviewing the financial performance for the second quarter of 2014, Mr. Kexuan Yao, Chairman and CEO of Armco Metals, remarked that, "In the second quarter of 2014 we experienced a strong rebound in sales from our metal recycling business. We believe the implementation of our "platform strategy" sales model in this business, where we work with our customers more closely, lower our market risks by sharing them with our customers has helped us increase our sales with less or without additional working capital. We are encouraged by our return to generating income from both our market segments and will look to build on this improvement from the first quarter in the second half of 2014."

Select Balance Sheet Items

As of June 30, 2014, the Company had $0.7 million in cash and cash equivalents, compared to $0.6 million at year-end of 2013. The Company's current ratio improved to 1.23:1 at June 30, 2014 as compared to 1.02:1 on December 31, 2013. As of June 30, 2014, shareholders' equity improved to $47.7 million compared to $42.6 million at December 31, 2013.

Draco Acquisition

The Company is evaluating a change in the structure of its acquisition of Draco Resources, Inc. in order to satisfy initial listing standards with the NYSE MKT. The Company continues to pursue a substantial interest in Draco and expects that a restructured agreement with Draco will be formalized following management discussions.

ABOUT ARMCO METALS HOLDINGS, INC.

Armco Metals Holdings, Inc. is engaged in the sale and distribution of metal ore and non-ferrous metals throughout China and is in the recycling business in China. Armco Metals' customers include some of the fastest growing steel producing mills and foundries throughout China. Raw materials are acquired from a global group of suppliers located in various countries, including, but not limited to, Brazil, India, Indonesia, Ukraine and the United States. Armco Metals' product lines include ferrous and non-ferrous ore, iron ore, chrome ore, nickel ore, magnesium, copper ore, manganese ore, steel billet and recycled scrap metals. For more information about Armco Metals, please visit http://www.armcometals.com.

SAFE HARBOR STATEMENT

In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Armco Metals Holdings, Inc., is hereby providing cautionary statements identifying certain important factors that could cause our actual results to differ materially from those projected in forward-looking statements (as defined in such act). Any statements that are not historical facts and that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, indicated through the use of words or phrases such as "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "intends," "plans," "believes" and "projects") are forward-looking and involve estimates and uncertainties which could cause actual results to differ materially from those expressed in the forward-looking statements. These statements include, but are not limited to, our expectations regarding our net revenues and production related to our scrap metal recycling operations, including our ability to operate the facility efficiently and profitability, the sufficiency of our working capital, pricing and volatile demand for our product lines, the extent of government imposed energy and monetary policy restrictions and resulting blackouts and associated impact on our trading and recycling operations, our ability to consummate the pending acquisition of Draco Resources, Inc., risks associated with the success of its future business and operations, and the significant dilution to our stockholders if the acquisition of Draco Resources, Inc. is closed.

We caution that investors should not place undue reliance on any forward-looking statements herein. Further, any forward-looking statement speaks only as of the date on which such statement is made. We qualify all of our forward-looking statements in this press release by these cautionary statements including those made in Part II, Item 1A. Risk Factors appearing in our Quarterly Report on Form 10-Q for the period ended March 31, 2014, as well as in Part I. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2013 and our other filings with the Securities and Exchange Commission. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

   
Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)  
                         
    For the Six Months Ended June 30, 2014 (Unaudited)     For the Three Months Ended June 30, 2014 (Unaudited)     For the Six Months Ended June 30, 2013 (Unaudited)     For the Three Months Ended June 30, 2013 (Unaudited)  
Start Dates   2014-01-01     2014-04-01     2013-01-01     2013-04-01  
End/Instant Dates   2014-06-30     2014-06-30     2013-06-30     2013-06-30  
NET REVENUES   42,797,893     32,879,242     42,027,253     27,684,176  
COST OF GOODS SOLD   40,898,856     29,816,401     39,031,199     25,332,787  
GROSS MARGIN   1,899,037     3,062,841     2,996,054     2,351,389  
OPERATING EXPENSES:                        
  Selling expenses   202,690     101,835     89,686     60,460  
  Professional fees   355,782     141,328     316,985     120,488  
  General and administrative expenses   1,975,580     537,454     1,722,671     675,977  
  Operating cost of idle manufacturing facility   1,007,214     472,242     815,639     392,418  
    Total operating expenses   3,541,266     1,252,859     2,944,981     1,249,343  
INCOME (LOSS) FROM OPERATIONS   (1,642,229 )   1,809,982     51,073     1,102,046  
OTHER EXPENSE:                        
  Interest income   (98,800 )   (532 )   (46,861 )   (44,136 )
  Interest expense   2,641,772     1,968,830     1,111,683     382,311  
  Change in fair value of derivative liability   108,975     586,884     (920,338 )   (304,392 )
  Loan guarantee expense   13,002     -     22,833     10,333  
  Other (income) expense   75,028     16,725     (36,218 )   39,678  
    Total other expense   2,739,977     2,571,907     131,099     83,794  
INCOME (LOSS) BEFORE INCOME TAXES PROVISION   (4,382,206 )   (761,925 )   (80,026 )   1,018,252  
INCOME TAX PROVISION   -     -     61,688     70,198  
NET INCOME (LOSS)   (4,382,206 )   (761,925 )   (141,714 )   948,054  
OTHER COMPREHENSIVE INCOME (LOSS):                        
  Change in unrealized income (loss) of marketable securities   32,468     10,530     (411,606 )   (417,105 )
Foreign currency translation gain (loss)   (372,778 )   35,780     906,893     1,146,411  
COMPREHENSIVE LOSS   (4,722,516 )   (715,615 )   353,573     1,677,360  
NET INCOME (LOSS) PER COMMON SHARE - BASIC AND DILUTED:                        
  Net income (loss) per common share - basic and diluted   (0.11 )   (0.01 )   (0.01 )   0.04  
  Weighted Average Common Shares Outstanding - basic and diluted   40,320,346     50,808,455     23,974,603     23,974,603  
                         
                         
             
Consolidated Balance Sheets (Unaudited)            
    Rows in grey represent parenthetical data  
    June 30, 2014 (Unaudited)        
Start Dates            
End/Instant Dates   2014-06-30     2013-12-31  
ASSETS            
CURRENT ASSETS:            
  Cash   702,802     596,557  
  Pledged deposits   505,714     4,652,222  
  Marketable securities   551,597     519,129  
  Accounts receivable, net   23,318,809     25,595,516  
  Inventories   13,248,882     20,456,920  
  Advance on purchases   1,268,903     733,285  
  Prepayments and other current assets   774,718     1,181,371  
  Total Current Assets   40,371,425     53,735,000  
PROPERTY, PLANT AND EQUIPMENT            
  Property, plant and equipment   44,535,389     44,856,611  
  Accumulated depreciation   (10,695,728 )   (9,360,933 )
    PROPERTY, PLANT AND EQUIPMENT, net   33,839,661     35,495,678  
LAND USE RIGHTS            
  Land use rights   6,633,807     6,681,779  
  Accumulated amortization   (474,665 )   (416,478 )
    LAND USE RIGHTS, net   6,159,142     6,265,301  
      Total Assets   80,370,228     95,495,979  
LIABILITIES AND STOCKHOLDERS' EQUITY            
CURRENT LIABILITIES:            
  Loans payable   19,641,087     27,415,638  
  Banker's acceptance notes payable and letters of credit   1,764,803     8,473,217  
  Current maturities of capital lease obligation   1,060,710     904,990  
  Accounts payable   2,698,968     10,062,463  
  Advances received from Chairman and CEO   792,431     668,332  
  Due to related party   250,146     403,141  
  Customer deposits   1,879,761     649,488  
  Corporate income tax payable   819,686     822,207  
  Derivative warrant liability   19,559     61,429  
  Value added tax and other taxes payable   2,500,956     2,202,331  
  Accrued expenses and other current liabilities   1,224,489     1,228,753  
    Total Current Liabilities   32,652,596     52,891,989  
      Total Liabilities   32,652,596     52,891,989  
COMMITMENTS AND CONTINGENCIES   nil     nil  
STOCKHOLDERS' EQUITY:            
  Preferred stock, $0.001 par value; 1,000,000 shares authorized; none issued or outstanding   0     0  
    Preferred stock par value (Parenthetical)   0.001     0.001  
    Preferred stock, shares authorized (Parenthetical)   1,000,000     1,000,000  
    Preferred stock, shares issued (Parenthetical)   0     0  
    Preferred stock, shares outstanding (Parenthetical)   0     0  
  Common stock, $0.001 par value, 74,000,000 shares authorized, 54,958,437 and 29,876,327 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively   54,958     29,876  
    Common stock, par value (Parenthetical)   0.001     0.001  
    Common stock, shares authorized (Parenthetical)   74,000,000     74,000,000  
    Common stock, shares issued (Parenthetical)   54,958,437     29,876,327  
    Common stock, shares outstanding (Parenthetical)   54,958,437     29,876,327  
  Additional paid-in capital   45,601,982     35,790,906  
  Deferred compensation   -        
  Statutory surplus reserve and common welfare fund   -     -  
  Retained earnings   (1,756,919 )   2,625,287  
  Accumulated other comprehensive income (loss):   -        
    Change in unrealized gain on marketable securities   (662,044 )   (694,512 )
    Foreign currency translation gain   4,479,655     4,852,433  
    Total Stockholders' Equity   47,717,632     42,603,990  
    Total Liabilities and Stockholders' Equity   80,370,228     95,495,979  
             
             
Consolidated Statements of Cash Flows (Unaudited)        
             
    For the Six Months Ended June 30, 2014 (Unaudited)     For the Six Months Ended June 30, 2013 (Unaudited)  
Start Dates   2014-01-01     2013-01-01  
End/Instant Dates   2014-06-30     2013-06-30  
CASH FLOWS FROM OPERATING ACTIVITIES:            
  Net loss   (4,382,206 )   (141,714 )
  Adjustments to reconcile net loss to net cash provided by (used in) operating activities            
  Depreciation expense   1,405,506     1,432,247  
  Amortization expense   61,322     90,552  
  Change in fair value of derivative liability   108,975     (920,338 )
  Gain on disposal of property   (339 )   -  
  Amortization of debt discount   1,985,325     -  
  Stock based compensation   1,182,781     501,815  
  Reversal of inventory reserve   (541,834 )   -  
  Changes in operating assets and liabilities:            
    Bank acceptance notes receivable   -     (1,132,558 )
    Accounts receivable   2,116,260     6,640,189  
    Inventories   7,619,601     (7,689,157 )
    Advance on purchases   (538,812 )   (40,034 )
    Prepayments and other current assets   396,061     (761,181 )
    Accounts payable   (7,266,050 )   3,883,794  
    Customer deposits   1,237,852     (1,323,944 )
    Taxes payable   315,184     (1,291,579 )
    Advance for stock subscription   -     (80,000 )
    Accrued expenses and other current liabilities   29,042     (1,246,756 )
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES   3,728,668     (2,078,664 )
CASH FLOWS FROM INVESTING ACTIVITIES:            
  Proceeds from release of pledged deposits   5,932,261     5,517,104  
  Payment made towards pledged deposits   (1,809,397 )   (11,041,193 )
  (Purchase) Disposal of property, plant and equipment   1,628     (165,656 )
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES   4,124,492     (5,689,745 )
CASH FLOWS FROM FINANCING ACTIVITIES:            
  Proceeds from loans payable   11,535,286     20,909,692  
  Repayment of loans payable   (12,970,719 )   (24,503,446 )
  Banker's acceptance notes payable   (6,663,274 )   7,376,187  
  Proceeds from capital lease obligation   162,600     -  
  Repayment of capital lease obligation   -     (315,572 )
  Advances from (repayment to) Chairman and CEO   144     2,153,815  
  Advances from (repayment to) related party   (32,534 )   -  
  Proceeds from Related Party Loan   -     1,019,302  
  Proceeds from sales of common stock   -     1,621,356  
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   (7,968,497 )   8,261,334  
EFFECT OF EXCHANGE RATE CHANGES ON CASH   221,582     (703,283 )
NET CHANGE IN CASH   106,245     (210,358 )
  Cash at beginning of the period   596,557     1,367,171  
  Cash at end of the period   702,802     1,156,813  
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:            
  Interest paid   236,240     1,211,724  
  Income tax paid   -     7,157  
NON CASH FINANCING AND INVESTING ACTIVITIES:            
  Debt discount due to convertible features   1,950,820     -  
  Reclassification from short-term debt to convertible debt   5,554,468     -  
  Reclassification of derivative liability to equity   2,101,665     -  
  Change in fair value of marketable security   32,468     -  
  Common shares issued for conversion of convertible notes and accrued interest   6,551,712     -  
             
             

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