SOURCE: Armco Metals Holdings, Inc.

April 04, 2014 17:43 ET

Armco Metals Holdings Announces Financial Results for the Fourth Quarter and Full Year of 2013

SAN MATEO, CA--(Marketwired - Apr 4, 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 its fourth quarter and for the fiscal year ended December 31, 2013.

SUMMARY FINANCIALS

 
Fourth Quarter 2013 Results
    Q4 2013   Q4 2012
Sales   $66.2 million   $38.0 million
Gross Profit   $2.2 million   $4.4 million
Income (Loss) from Operations   $0.4 million   $1.75 million
Net Income (Loss)   $(0.4) million   $0.6 million
EPS (Fully Diluted) (Loss)   ($0.01)   $0.03
         
 
Full Year 2013 Results
    FY 2013   FY 2012
Sales   $128.7 million   $106.6 million
Gross Profit   $3.3 million   $8.5 million
Income (Loss) from Operations   ($2.6) million   $0.9 million
Net Income (Loss)   ($4.1) million   ($2.6) million
EPS (Fully Diluted) (Loss)   ($0.17)   ($0.14)
         

Fourth Quarter of 2013 Financial Results

For the fourth quarter ended December 31, 2013, net revenue increased 74% to $66.2 million due to a significant increase in sales in our metal trading business which totaled $40.0 million as compared to $1.1 million in the same period in 2012. Revenues from our recycling business in the fourth quarter of 2013 declined to $26.2 million as compared to $36.6 million in the same period in 2012, largely due to price decline and weak demand. Gross profit for the fourth quarter of 2013 was $2.2 million as compared to $4.4 million in the fourth quarter of 2012. We recorded operating income of $0.4 million in the fourth quarter of 2013 as compared to operating income of $1.75 million in the fourth quarter of 2012. Our operations resulted in a net loss of ($0.4) million or (0.01) per diluted share in the fourth quarter of 2013 compared to net income of $0.6 million in the 2012 quarter, or $0.03 per diluted share. Diluted loss per share was ($0.17) and ($0.14) for the year ended December 31, 2013 and December 31, 2012, respectively.

Results for the Year Ended December 31, 2013

Net revenues in 2013 reached $128.7 million, a 21% increase from $106.6 million in 2012. By business section, the net revenues from our metal recycling business increased by $3.3 million, or by 5%, to $64.9 million, compared to 2012; our net revenues for our metal trading business increased approximately 42% in 2013 to $63.8 million, compared to $45.0 million in 2012. The increase was largely due to sales of stainless steel and nickel which we added to our product offerings in 2013 as well as sales of chrome. This was partially offset by a reduction in sales of iron ore due to corporate risk management initiatives. Our recycling business accounted for approximately 50.4% of our total revenue and continued to exceed our metal trading business as the largest source of our net revenue. Gross profit for the full year 2013 was $3.3 million, a decrease of 54% from $8.5 million for the year ended December 31, 2012. Gross margins decreased to 3.0% in 2013 compared to 8.0% in 2012, which was primarily attributable to lower margin sales in both our trading and recycling businesses. Gross margins were also negatively impacted by an inventory write-off of $2.3 million to reflect industry price declines.

Operating expenses of $5.9 million in 2013 decreased by $1.7 million, or 22.1% compared to 2012, primarily due to the decrease in general and administrative expenses of $1.7 million, and a decrease in selling expense of $0.24 million. The decrease was partially offset by an increase in professional fees of $0.23 million. Operating cost of idled manufacturing facility, one of our major operating costs, remained flat at $1.8 compared to 2012.

Our net loss in 2013 was $4.1 million, compared to net loss of $2.6 million in 2012, the increase in net loss is primarily due to a decrease in gross profit of $5.2 million as a result of a significant decline in gross margin, partially offset by a decrease in total operating expenses of $1.7 million, a decrease in other expenses of $1.6 million, and a decrease in tax expense of $0.31 million.

In reviewing the financial performance for the quarter and year ended 2013, Mr. Kexuan Yao, Chairman and CEO of China Armco, was pleased that the company was able to grow revenue in both business sections and particularly in metal trading during this past year. Mr. Yao remarked that "2013 proved to be another very challenging year for the China steel industry. While we made significant sales gains and reduced overall expenses we suffered the effects of rapidly declining prices in the second half of 2013 which negatively impacted gross margins in both metal trading and metal recycling. The recycling business continued to be our largest source of revenue and we continue to believe the metal recycling business will continue to be the major growth driver for our company."

Mr. Yao further stated that "We intend to further our improvements in cost control, developing and streamlining our supply chain, and the establishment of long term strategic partnership with key clients. As we position the company for a cyclical recovery in the steel industry we will continue our efforts to obtain additional qualifications and licenses to increase our business, and build our brand in the industry. We have driven sales growth in a very challenging environment while reducing costs significantly. We believe this will serve as a springboard for significant financial improvement when our end markets improve."

Select Balance Sheet Items

As of December 31, 2013, the Company had $0.6 million in cash and cash equivalents, compared to $1.4 million at year-end 2012. The Company had working capital of $0.8 million and a current ratio of 1.02:1 on December 31, 2012 compared to $0.3 million and 1.01:1 on December 31, 2012. As of December 31, 2013, shareholders' equity was $42.6 million, slightly up from $41.8 million at the end of 2012.

Business Outlook

Our financial performance during 2013 showed increased sales with a substantially lower gross margin in comparison to 2012 as a result of a difficult pricing environment pressuring margins and resulting in a $2.3 million inventory write-down. Looking at 2014, management believes China's steel demand is expected to grow at a slower pace while China's crude steel output growth expect to fall in 2014 and domestic steel prices are estimated to remain at cyclically low levels. In the middle and long term, we believe that the low income housing construction, ongoing urbanization and increasing domestic consumption in China will continue to support the growth of the steel industry. In the long run, we also expect our recycling business to benefit substantially from the measures and policies to be implemented gradually by the Chinese government according to its 12th Five Year Plan (2011-2015). Under this plan, China intends to restructure its iron and steel industry to be more energy efficient and have increased environmental protection by adopting and developing the most advanced technology in the world.

In our Metal Trading business we experienced high volatility in metal ore prices in 2013. The imported iron ore price rebounded rapidly in July from June and reached its high in the middle of August then began to fall into the fourth quarter. We anticipate the price of iron ore may stabilize at its current level in 2014. We continued to firm our business relationship with worldwide suppliers and stabilize our supply capacity. We believe that our effort to build our supply capacity will benefit us in the long term and strengthen our market position in the industry in the PRC. Moreover, we continued to develop our new "Commodity Financing" model and expect to make some major progresses which we have obtained support from several banks.

In our Metal Recycling business we experienced weak market for steel scrap in 2013 which may continue in 2014 while steel price are expected to stabilize after the decline in the second half of 2013. However, in the long-term, we believe the country's ongoing urbanization process will increase new steel demand and eventually drive the steel scrap market during the 13th Five-Year-Plan period. We intend to devote a significant amount of our resources towards the improvement of our operations and if appropriate, its expansion. At the same time, we will continue to pursue our strategy to create a local network of raw material suppliers for our recycling facility and expand our oversea supply channels. In addition, we will continue to develop our new sale and operation model in recycling business described above to obtain more customers and business opportunities under the model in the coming years.

The company intends to explore potential merger and acquisition opportunities in businesses related to the steel industry in 2014 in an effort to diversify its revenue streams while leveraging its current customer base. As of March 2014 the Company has entered into negotiations with one such candidate for a potential merger opportunity.

The conference call will take place at 5:00 pm. EDT on Friday, April 4, 2014. To attend the call, please use the dial-in information below. When prompted, ask for the "Armco Metals call" and/or be prepared to provide the conference ID.

Conference Call      

Date: Friday, April 4, 2013   

Time: 5:00 p.m. Eastern Time, US   

Conference Line Dial-In (U.S.):  1-877-407-9210   

International Dial-In: 1-201-689-8049   

Conference ID# 13579516: 2013 Fourth Quarter and Year End Financial Results Call   

Webcast link: http://www.investorcalendar.com/IC/CEPage.asp?ID=172560

The playback of the webcast can be accessed until July 7, 2014.

Teleconference Replay:
Replay Number (Toll Free): 1-877-660-6853
Replay Number (International): 1-201-612-7415
Replay Passcode needs Conference ID#: 13579516
Teleconference will be available for replay until 11:59 PM 04/21/2014

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 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 revenues and production related to our scrap metal recycling operations, pricing and demand for our product lines and the extent of government imposed energy and monetary policy restrictions and resulting blackouts and associated impact on our trading and recycling operations.

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, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. This press release is qualified in its entirety by the following, including, but not limited to, any expectations with respect to the Company's revenues and operations, institution of governmental regulations relating to our businesses and the international economic climate, and the cautionary statements and risk factor disclosure contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the year ended December 31, 2013, and our subsequent filing with the Securities and Exchange Commission.

   
   
ARMCO METALS HOLDINGS, INC.  
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)  
                 
    For the Year
Ended
December 31, 2013
    For the Year
Ended
December 31, 2012
 
             
                 
NET REVENUES   $ 128,738,194     $ 106,569,474  
                 
COST OF GOODS SOLD     125,426,672       98,102,412  
                 
GROSS PROFIT     3,311,522       8,467,062  
                 
OPERATING EXPENSES:                
  Selling expenses     177,118       413,352  
  Professional fees     512,474       278,502  
  General and administrative expenses     3,397,191       5,112,131  
  Operating cost of idle manufacturing facility     1,840,967       1,807,313  
                   
    Total operating expenses     5,927,750       7,611,298  
                 
INCOME (LOSS) FROM OPERATIONS     (2,616,228 )     855,764  
                 
OTHER (INCOME) EXPENSE:                
  Interest income     (325,256 )     (190,999 )
  Interest expense     2,157,156       2,001,535  
  Foreign currency transaction (gain) loss - marketable securities     0       36,957  
  Impairment other than temporary - marketable securities     0       386,941  
  Change in fair value of derivative liability     (929,883 )     306,505  
  Loan guarantee expense     45,733       59,744  
  Forgiveness of debt     0       (16,343 )
  Other expense     145,849       148,097  
                 
    Total other (income) expense     1,093,599       2,732,437  
                 
LOSS BEFORE INCOME TAXES PROVISION     (3,709,827 )     (1,876,673 )
                 
INCOME TAX PROVISION     421,585       732,663  
                 
NET LOSS     (4,131,412 )     (2,609,336 )
                 
OTHER COMPREHENSIVE INCOME (LOSS):                
  Change in unrealized income (loss) of marketable securities     (694,512 )     797  
  Foreign currency translation gain     1,367,863       263,532  
                 
COMPREHENSIVE LOSS   $ (3,458,061 )   $ (2,345,007 )
                 
NET LOSS PER COMMON SHARE - BASIC AND DILUTED:                
                 
  Net loss per common share - basic and diluted   $ (0.17 )   $ (0.14 )
                 
  Weighted Average Common Shares Outstanding - basic and diluted     24,886,617       18,482,234  
                 
See accompanying notes to the consolidated financial statements.
 
 
   
   
ARMCO METALS HOLDINGS, INC. 
CONSOLIDATED BALANCE SHEETS 
                 
                 
    December 31, 2013     December 31, 2012  
                 
                 
ASSETS                
CURRENT ASSETS:                
  Cash   $ 596,557     $ 1,367,171  
  Pledged deposits     4,652,222       4,590,829  
  Marketable securities     519,129       1,213,641  
  Bank acceptance notes receivable     -       7,926  
  Accounts receivable, net     25,595,516       15,699,390  
  Inventories     20,456,920       13,378,445  
  Advance on purchases     733,285       2,238,652  
  Prepayments and other current assets     1,181,371       453,299  
                   
    Total Current Assets     53,735,000       38,949,353  
                 
PROPERTY, PLANT AND EQUIPMENT                
  Property, plant and equipment     44,856,611       43,319,218  
  Accumulated depreciation     (9,360,933 )     (6,284,162 )
                   
    PROPERTY, PLANT AND EQUIPMENT, net     35,495,678       37,035,056  
                 
LAND USE RIGHTS                
  Land use rights     6,681,779       6,473,761  
  Accumulated amortization     (416,478 )     (260,897 )
                   
    LAND USE RIGHTS, net     6,265,301       6,212,864  
                   
                   
      Total Assets   $ 95,495,979     $ 82,197,273  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
CURRENT LIABILITIES:                
  Loans payable   $ 27,415,638     $ 19,109,930  
  Banker's acceptance notes payable and letters of credit     8,473,217       8,624,734  
  Current maturities of capital lease obligation     904,990       2,615,296  
  Accounts payable     10,062,463       1,141,583  
  Advances received from Chairman and CEO     668,332       -  
  Due to related parties     403,141       -  
  Customer deposits     649,488       1,577,194  
  Corporate income tax payable     822,207       407,621  
  Derivative liabilities - current portion     61,429       306,708  
  Value added tax and other taxes payable     2,202,331       2,504,677  
  Accrued expenses and other current liabilities     1,228,753       2,355,903  
                   
    Total Current Liabilities     52,891,989       38,643,646  
                 
CAPITAL LEASE OBLIGATION, net of current maturities     -       1,749,955  
                 
      Total Liabilities     52,891,989       40,393,601  
                 
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, 29,876,327 and 20,319,698 shares issued and outstanding as of December 31, 2013 and 2012, respectively     29,876       20,320  
  Additional paid-in capital     35,790,906       31,542,083  
  Retained earnings     2,625,287       6,756,699  
  Accumulated other comprehensive income (loss):                
    Change in unrealized loss on marketable securities     (694,512 )     -  
    Foreign currency translation gain     4,852,433       3,484,570  
                     
    Total Stockholders' Equity     42,603,990       41,803,672  
                     
    Total Liabilities and Stockholders' Equity   $ 95,495,979     $ 82,197,273  
                 
See accompanying notes to the consolidated financial statements.
 
 
   
   
ARMCO METALS HOLDINGS, INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
                 
    For the Year
Ended
December 31, 2013
    For the Year
Ended
December 31, 2012
 
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (4,131,412 )   $ (2,609,336 )
Adjustments to reconcile net loss to net cash used in operating activities                
  Depreciation expense     2,847,606       2,742,995  
  Amortization expense     145,499       49,766  
  Writ-down of inventories     2,291,915       -  
  Change in fair value of derivative liability     (929,883 )     306,505  
  Amortization of debt discount     8,004       -  
  Loss from foreign currency exchange rate change on marketable securities     -       36,957  
  Impairment other than temporary - marketable securities     -       386,941  
  Stock based compensation     1,377,715       1,444,019  
  Shares issued for financing cost     21,155       -  
Adjustments to reconcile net loss to net cash used in operating activities                
  Changes in operating assets and liabilities:                
    Bank acceptance notes receivable     (8,072 )     (7,926 )
    Accounts receivable     (9,319,280 )     (14,935,416 )
    Inventories     (8,838,672 )     20,095,232  
    Advance on purchases     1,556,395       865,391  
    Prepaid value added taxes     -       471,244  
    Prepayments and other current assets     (780,339 )     1,369,997  
    Banker's acceptance notes payable     (422,970 )     1,585  
    Accounts payable     8,690,406       (17,410,355 )
    Customer deposits     (957,536 )     (4,320,862 )
    Taxes payable     92,685       2,812,095  
    Accrued expenses and other current liabilities     (1,163,596 )     (310,424 )
                 
NET CASH USED IN OPERATING ACTIVITIES     (9,520,380 )     (9,011,592 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
  Proceeds from release of pledged deposits     21,162,708       20,718,637  
  Payment made towards pledged deposits     (21,077,956 )     (16,902,377 )
  Purchase of property, plant and equipment     (167,962 )     (826,350 )
                 
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES     (83,210 )     2,989,910  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
  Proceeds from loans payable     49,611,412       64,716,249  
  Repayment of loans payable     (39,959,898 )     (52,413,180 )
  Banker's acceptance notes payable     -       380,433  
  Repayment of capital lease obligation     (3,552,805 )     (2,007,291 )
  Repayment of long-term debt     -       (3,962,844 )
  Advances from (repayment to) Chairman and CEO     754,740       (319,306 )
  Advances from (repayment to) related parties     368,081       -  
  Proceeds from sales of common stock     1,621,356       -  
                 
NET CASH PROVIDED BY FINANCING ACTIVITIES     8,842,886       6,394,061  
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH     (9,910 )     (47,799 )
                 
NET CHANGE IN CASH     (770,614 )     324,580  
                 
Cash at beginning of the year     1,367,171       1,042,591  
                 
Cash at end of the year   $ 596,557     $ 1,367,171  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:                
    Interest paid   $ 1,951,630     $ 2,001,337  
    Income tax paid   $ 12,615     $ -  
                 
NON CASH FINANCING AND INVESTING ACTIVITIES:                
  Debt discount due to convertible feature   $ 60,795     $ -  
  Reclassification of derivative liability from equity   $ 623,809     $ -  
  Common shares issued for conversion of advances from Chairman and CEO   $ 1,045,369     $ 353,753  
  Common shares issued for conversion of short-term loan   $ 816,593     $ -  
                 
See accompanying notes to the consolidated financial statements.
 
 

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