SOURCE: Armco Metals Holdings, Inc.

November 14, 2014 08:30 ET

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

Revenue From Metal Recycling Operations in the Third Quarter Rises to $32 Million, a Year Over Year Increase of 167%

SAN MATEO, CA--(Marketwired - Nov 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 third quarter of 2014.

 
Third Quarter 2014 Results
    Q3 2014   Q3 2013   Change %
Net Revenues   $32.2 million   $20.5 million   57%
Gross Profit (Loss)   $8.4 million   ($1.9) million   542%
Income (Loss) from Operations   $7.3 million   ($3.1) million   335%
Net Income (Loss)   $4.8 million   ($3.5) million   237%
EPS (Fully Diluted) (Loss)   $0.09   ($0.14)   164%
             

Third Quarter of 2014 Financial Results

For the third quarter of 2014 ended September 30, 2014, net revenue was $32.2 million, a 57% increase compared to net revenue of $20.5 million recorded in the third quarter of 2013. The increase in revenue in the third quarter of 2014 was due to an increase of $20.0 million in revenue from our recycling business partially offset by a decrease of $8.5 million in sales from our trading business. Our recycling business generated revenue of $32.1 million while our trading business generated revenue of $0.1 million. Revenue from our recycling business continued to strengthen from Q2 2014 revenues of $26.2 million. Gross profit for the third quarter of 2014 was $8.4 million as compared to negative gross profit of ($1.9) million in the third quarter of 2013. Gross margin in the third quarter of 2014 was 26.1% compared to (9.1%) in the third quarter of 2013. The significant increase in gross profit and gross margin was largely due to a considerable improvement in revenues and our ability to sort out high margin non-ferrous scrap from raw materials acquired at lower prices and a $1.5 million reversal in inventory reserve in the quarter.

Total operating expenses for the third quarter of 2014 were $1.1 million, a 6% decrease as compared to the third quarter of 2013. We recorded income from operations of $7.3 million in the third quarter of 2014 compared to loss from operations of ($3.1) million in the third quarter of 2013. Our operations in the third quarter of 2014 resulted in net income of $4.8 million, or $0.09 per basic and diluted share on 55.0 million and 55.3 million weighted average basic and diluted shares outstanding respectively. This compared to a net loss of ($3.5) million or ($0.14) per basic and diluted share on 24.7 million weighted average shares outstanding in the same period of 2013.

First Nine Months of 2014 Financial Results

Armco Metals' revenues in the first nine months of 2014 reached $75 million, an increase of 20% compared to revenues of $62.5 million recorded in the first nine months of 2013. The increase was primarily due to a significant increase in sales from our recycling business partially offset by a decline in revenue from our trading business. Gross profit for the first nine months of 2014 was $10.3 million and gross margin was 13.7% compared to gross profit of $1.1 million and gross margin 1.8% in the 2013 period. The increase in gross margin was partially attributable to a $1.9 million reversal in inventory reserve in the period.

Operating expenses for the first nine months of 2014 increased to $4.7 million from $4.2 million in the comparable 2013 period, primarily due to increased professional fees, general and administrative expenses and selling expenses. For the first nine months of 2014 our operations resulted in net income of $0.4 million or $0.01 per basic and diluted share on 45.3 million and 45.2 million weighted average basic and diluted shares outstanding respectively. This compares to a net loss of ($3.7) million or ($0.15) per basic and diluted share recorded in the first nine months of 2013 on 24.2 million weighted average basic and diluted shares outstanding.

In reviewing the financial performance for the third quarter of 2014, Mr. Kexuan Yao, Chairman and CEO of Armco Metals, remarked that, "In the third quarter of 2014 we continued to gain momentum in our metal recycling business and recorded strong revenue growth and profitability despite a continued weak environment in our end markets. Through effective management of the recycling process we were able to extract a substantial amount of additional value from our raw materials helping us to significantly improve our financial performance. We also were able to recover some of the previous write downs of inventory. We are excited to return to profitability, not only in the quarter but for the first nine months as well, and we will look to build on that profitability in the fourth quarter. We will also focus on opportunistically improving performance in our trading business in a challenging global environment. One of the ways we believe we can accomplish this is through our recent agreement with a supplier in Chile to purchase and distribute wood chips. We believe this new opportunity can provide healthy gross margins and help to diversify our trading business to reduce volatility. We look forward to providing additional updates as to our progress in this new opportunity in the coming quarters as we set the stage for 2015 and beyond."

Select Balance Sheet Items

As of September 30, 2014, the Company had $0.5 million in cash and cash equivalents, compared to $0.6 million at year-end 2013. The Company's current ratio improved to 1.24:1 at September 30, 2014 as compared to 1.02:1 on December 31, 2013. As of September 30, 2014, shareholders' equity improved to $52.7 million compared to $42.6 million at December 31, 2013.

Draco Acquisition

In light of recent developments disclosed in the Company's Form 8K filing with the SEC on November 2, 2014, the Company believes the vote to acquire an interest in Draco Resources and the election of Songqiang Chen to its board of directors which is scheduled to take place on November 17, 2014 should be deferred. A detailed description of the matter can be found in that filing. 

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.

   
ARMCO METALS HOLDINGS, INC.  
CONSOLIDATED BALANCE SHEETS  
   
    September 30, 2014     December 31, 2013  
    (Unaudited)        
ASSETS                
CURRENT ASSETS:                
  Cash   $ 544,741     $ 596,557  
  Pledged deposits     497,899       4,652,222  
  Marketable securities     432,520       519,129  
  Accounts receivable, net     53,682,200       25,595,516  
  Inventories     13,966,770       20,456,920  
  Advance on purchases     632,933       733,285  
  Prepayments and other current assets     828,429       1,181,371  
    Total Current Assets     70,585,492       53,735,000  
PROPERTY, PLANT AND EQUIPMENT                
  Property, plant and equipment     44,547,476       44,856,611  
  Accumulated depreciation     (11,392,774 )     (9,360,933 )
    PROPERTY, PLANT AND EQUIPMENT, net     33,154,702       35,495,678  
LAND USE RIGHTS                
  Land use rights     6,635,640       6,681,779  
  Accumulated amortization     (505,393 )     (416,478 )
    LAND USE RIGHTS, net     6,130,247       6,265,301  
Total Assets   $ 109,870,441     $ 95,495,979  
LIABILITIES AND STOCKHOLDERS' EQUITY                
CURRENT LIABILITIES:                
  Loans payable   $ 17,611,095     $ 27,415,638  
  Banker's acceptance notes payable and letters of credit     1,765,291       8,473,217  
  Current maturities of capital lease obligation     719,800       904,990  
  Accounts payable     26,100,236       10,062,463  
  Advances received from Chairman and CEO     846,690       668,332  
  Due to related party     411,880       403,141  
  Customer deposits     1,465,206       649,488  
  Corporate income tax payable     2,607,237       822,207  
  Derivative warrant liability     5,688       61,429  
  Value added tax and other taxes payable     3,885,994       2,202,331  
  Accrued expenses and other current liabilities     1,707,725       1,228,753  
    Total Current Liabilities     57,126,842       52,891,989  
Total Liabilities     57,126,842       52,891,989  
COMMITMENTS AND CONTINGENCIES                
STOCKHOLDERS' EQUITY:                
  Preferred stock, $0.001 par value; 1,000,000 shares authorized; none issued or outstanding    
 -
     
 -
 
  Common stock, $0.001 par value, 74,000,000 shares authorized, 55,693,745 and 29,876,327 shares issued shares and outstanding as of September 30, 2014 and December 31, 2013, respectively    
 55,694
     
 29,876
 
  Additional paid-in capital     45,791,572       35,790,906  
  Retained earnings     3,043,735       2,625,287  
  Accumulated other comprehensive income (loss):                
    Change in unrealized gain (loss) on marketable securities     (623,879 )     (694,512 )
    Foreign currency translation gain     4,476,477       4,852,433  
    Total Stockholders' Equity     52,743,599       42,603,990  
    Total Liabilities and Stockholders' Equity   $ 109,870,441     $ 95,495,979  
                     
   
ARMCO METALS HOLDINGS, INC.  
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)  
   
    For the Nine Months     For the Three Months     For the Nine Months     For the Three Months  
    Ended     Ended     Ended     Ended  
    September 30, 2014     September 30, 2014     September 30, 2013     September 30, 2013  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
NET REVENUES   $ 74,996,063     $ 32,198,170     $ 62,497,489     $ 20,470,236  
COST OF GOODS SOLD     64,698,705       23,799,849       61,368,531       22,337,332  
GROSS MARGIN     10,297,358       8,398,321       1,128,958       (1,867,096 )
                                 
OPERATING EXPENSES:                                
  Selling expenses     256,624       53,934       131,033       41,347  
  Professional fees     473,472       117,690       320,629       3,644  
  General and administrative expenses     2,577,582       602,002       2,431,288       708,617  
  Operating cost of idle manufacturing facility     1,381,049       373,835       1,283,120       467,481  
    Total operating expenses     4,688,727       1,147,461       4,166,070       1,221,089  
INCOME (LOSS) FROM OPERATIONS     5,608,631       7,250,860       (3,037,112 )     (3,088,185 )
                                 
OTHER EXPENSE:                                
  Interest income     (99,118 )     (318 )     (84,263 )     (37,402 )
  Interest expense     3,274,244       632,472       1,476,816       365,133  
  Loss on sale of marketable securities     43,434       43,434       -       -  
  Change in fair value of derivative liability     107,378       (1,597 )     (928,915 )     (8,577 )
  Loan guarantee expense     13,002       -       35,500       12,667  
  Other (income) expense     61,339       (13,689 )     101,823       138,041  
                                 
    Total other expense     3,400,279       660,302       600,961       469,862  
                                 
INCOME (LOSS) BEFORE INCOME TAXES PROVISION     2,208,352       6,590,558       (3,638,073 )     (3,558,047 )
                                 
INCOME TAX PROVISION     1,789,904       1,789,904       49,070       (12,618 )
                                 
INCOME (LOSS) FROM CONTINUING OPERATIONS     418,448       4,800,654       (3,687,143 )     (3,545,429 )
NET INCOME (LOSS)     418,448       4,800,654       (3,687,143 )     (3,545,429 )
                                 
OTHER COMPREHENSIVE INCOME (LOSS):                                
  Change in unrealized gain (loss) on marketable securities     70,633       38,165       (123,552 )     288,054  
  Foreign currency translation gain (loss)     (375,956 )     (3,178 )     1,128,312       221,419  
COMPREHENSIVE INCOME (LOSS)   $ 113,125     $ 4,835,641     $ (2,682,383 )   $ (3,035,956 )
NET INCOME (LOSS) PER COMMON SHARE - BASIC AND DILUTED:                                
Net income (loss) per common share - basic   $ 0.01     $ 0.09     $ (0.15 )   $ (0.14 )
Net income (loss) per common share - diluted   $ 0.01     $ 0.09     $ (0.15 )   $ (0.14 )
Weighted Average Common Shares Outstanding - basic     45,175,355       54,955,318       24,228,958       24,693,663  
Weighted Average Common Shares Outstanding - diluted     45,303,480       55,312,625       24,228,958       24,693,663  
                                 
   
ARMCO METALS HOLDINGS, INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
   
    For the Nine Months     For the Nine Months  
    Ended     Ended  
    September 30, 2014     September 30, 2013  
    (Unaudited)     (Unaudited)  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net Income (loss)   $ 418,448     $ (3,687,143 )
Adjustments to reconcile net income ( loss) to net cash provided by (used in) operating activities                
  Depreciation expense     2,099,052       2,160,238  
  Amortization expense     92,082       115,787  
  Reversal of inventory reserve     (1,958,554 )     -  
  Change in fair value of derivative liability     107,378       (928,915 )
  Amortization of debt discount     1,991,581       1,480  
  Loss on sale of marketable securities     43,434       -  
  Stock based compensation     1,033,908       582,236  
  Stock issued for third-party services     268,002       -  
Adjustments to reconcile net loss to net cash used in operating activities                
  Changes in operating assets and liabilities:                
    Bank acceptance notes receivable     -       (1,627,631 )
    Accounts receivable     (28,274,868 )     8,276,715  
    Inventories     8,314,316       (7,525,611 )
    Advance on purchases     (490,624 )     (19,986 )
    Prepayments and other current assets     340,861       (769,536 )
    Bank acceptance notes payable     -       (1,628 )
    Accounts payable     16,122,951       220,374  
    Customer deposits     821,096       192,984  
    Taxes payable     3,490,127       (1,159,877 )
    Accrued expenses and other current liabilities     596,902       (1,084,168 )
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES     5,016,092       (5,254,681 )
CASH FLOWS FROM INVESTING ACTIVITIES:                
  Proceeds from release of pledged deposits     5,942,529       16,370,116  
  Payment made towards pledged deposits     (1,815,807 )     (17,994,943 )
  Purchase of property, plant and equipment     -       (169,369 )
  Cash received from sale of marketable securities     113,808       -  
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES     4,240,530       (1,794,196 )
CASH FLOWS FROM FINANCING ACTIVITIES:                
  Proceeds from loans payable     11,099,278       35,857,925  
  Repayment of loans payable     (14,486,944 )     (31,233,878 )
  Banker's acceptance notes payable     (6,656,663 )     1,399,762  
  Proceeds from capital lease obligation     162,600       -  
  Repayment of capital lease obligation     (341,574 )     (1,941,717 )
  Advances from (repayment to) Chairman and CEO     172,613       1,019,701  
  Advances from (repayment to) related parties     11,535       1,025,407  
  Proceeds from convertible notes     600,000       -  
  Deposit for stock subscription     -       813,815  
  Proceeds from sales of common stock     -       1,621,356  
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES     (9,439,155 )     8,562,371  
EFFECT OF EXCHANGE RATE CHANGES ON CASH     130,717       (119,145 )
NET CHANGE IN CASH     (51,816 )     1,394,349  
Cash at beginning of the period     596,557       1,367,171  
Cash at end of the period   $ 544,741     $ 2,761,520  
Supplemental disclosure of cash flows information:                
  Interest paid   $ 715,937     $ 1,629,696  
  Income tax paid   $ -     $ 51,298  
Non cash financing and investing activities:                
  Reclassification from short-term debt to convertible debt   $ 5,554,468     $ -  
  Debt discount due to convertible features   $ 1,950,820     $ -  
  Reclassification of derivative liability to (from) equity   $ 2,113,939     $ (623,809 )
  Common shares issued for conversion of convertible notes and accrued interest   $ 6,610,635     $ -  
                 

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