SOURCE: Armco Metals Holdings, Inc.

November 14, 2013 17:12 ET

Armco Metals Holdings Announces Third Quarter 2013 Financial Results

SAN MATEO, CA--(Marketwired - Nov 14, 2013) - Armco Metals Holdings, Inc. (NYSE MKT: AMCO) ("Armco Metals" or the "Company"), a distributor of imported metal ore and metal recycler in China, today announced its financial results for the third quarter and the first nine months of 2013.

SUMMARY FINANCIALS

 
Three months ended September 30,
  2013 2012 CHANGE
Net Revenues $20.5 million $15.4 million 33%
Gross Profit -$1.9 million $1.9 million -197%
Net Income (Loss) -($3.5 million) $0.13 million -2,733%
EPS (Fully Diluted) (Loss) (-$0.14) $0.01 N/A
 
Nine months ended September 30,
  2013 2012 CHANGE
Net Revenues $62.5 million $68.9 million -9%
Gross Profit $1.1 million $4.1 million -72.5%
Net Loss -$3.7 million -$3.2 million N/A
EPS (Fully Diluted) (Loss) -$0.15 -$0.18 N/A
       

Third Quarter of 2013 Financial Results

For the quarter ended September 30, 2013, net revenue increased by 33% to $20.5 million, of which the metal recycling sales decreased by 12% to $12.0 million from $13.4 million and the metal ores trading sales increased by 323% to $8.5 million from $2.0 million, respectively, compared to the same period of 2012. The Company sold 30,469 metric tons ("MT") of recycled scrap metal compared to 38,752 MT sold in the third quarter of 2012, and the production of recycled scrap metal decreased by 23% to 34,692 MT from 44,793 MT in the third quarter of 2012. The decrease in the recycling business sales was due to the soften demand for our product in the quarter. The increase in the trading business sales was caused by a $7.0 million increase in sales of chromium ore and the increase was partially offset by a $0.7 million decrease in sales of manganese ore. The type of products we buy and sell are subject to change and are dependent upon availability and the demands of our customers.

"We experienced a difficult quarter for the industry witnessing a softened scrap metal market with wide fluctuation and sharp decline in price," explained Mr. Kexuan Yao, Chairman and CEO of the Company. "We suffered losses in both our metal recycling and trading business this quarter, especially a substantial loss in the recycling business. Management conducted a series of in-depth analysis on the operating results and the strategy how to better manage market risks in our business. Although disappointed by the result of the quarter, our management is still confident about our business model and operation which are still under development and the Company will be constantly adjusting its strategy to adapt to the market change and maintain its operation flexibility."

Gross profit for the third quarter of 2013 was -$1.9 million compared to $1.9 million in the third quarter of 2012. Gross margin was -9.1% compared to 12.5% for same period of last year. The decrease in profit margin was primarily due to a significant decrease of gross margin in our scrap recycling business from 14% to -15.5% as result of the sluggish scrap metal market with wide fluctuation and sharp decline in steel scrap price in the quarter during which we purchased raw materials at a higher cost and resulted an approximately $1.5 million of inventory deprecation in our recycling business.

Our operating expenses decreased to $1.2 million from $1.4 million a year ago. The decrease in operating expenses was primarily due to decreased general and administrative expenses and professional fees.

Our operating loss for the third quarter of 2013 was a -$3.1 million compared to an income of $0.54 million in the third quarter of 2012.

Our net loss for the third quarter of 2013 was -$3.5 million, or -$0.14 per diluted share, compared to an income of $0.13 million, or $0.01 per diluted share, in the same period last year. The weighted average diluted shares outstanding increased from 19.5 million in the third quarter of 2012 to 24.7 million in the third quarter of 2013.

First Nine Months of 2013 Financial Results

Our net revenue decreased in the first nine months of 2013, from $68.9 million a year ago to $62.5 million. Sales in the metal recycling business were $39.8 million, an increase of $14.8 million from the same period last year. Metal ores trading generated $22.7 million of sales compared to $43.9 million in the comparable period a year ago. The decline in trading sales was primarily a result of a decrease in the sales of iron ore $35 million, partially offset by the increase in the sales of chrome ore of $7.9 million, manganese ore of $2.5 million, and titanium ore of $0.7 million. Our gross profit decreased by $3 million to $1.1 million, with a gross margin of 1.8% compared to $4.1 million with a gross margin of 6.0% for the first nine months of 2012.

Our operating expenses decreased from $5.0 million to $4.2 million, primarily due to a decrease in general and administrative expenses and operating cost of idle manufacturing facility. Net loss and net loss per share were -$3.7 million and -$0.15, respectively, in the first nine months of 2013. The weighted average diluted shares outstanding were 24.2 million, a 33% increase from 18.2 million in the first nine months of 2012.

Financial Condition

The Company ended the third quarter of 2013 with $2.8 million in cash, compared to $1.4 million at the end of 2012. Working capital was -$1.12 million and a current ratio of 0.98:1 on September 30, 2013 compared to $0.3 million and 1.01:1 on December 31, 2012. The increase in working capital from end of 2012 was mainly a result of more cash flow from financing activities. Total accounts receivable were $7.8 million at the end of the third quarter of 2013 compared to $15.7 million at year-end 2012. The decrease in accounts receivable was primarily due to the timing difference between the sales and collections of sales of Chrome and scrap metal transactions. The account receivable for our 15,000 MT scrap metal sales to a customer has been received in November 2013. Accounts receivable has been maintained at low level due to improved collections and the successful transition to the Company's pre-selling strategy. Total shareholders' equity was $40.7 million at September 30, 2013.

The Company had $5.25 million net cash outflow from operations the first nine months of 2013 and spent $0.2 million on capital expenditures. Net cash inflow from financing activities was $8.6 million. Armco Metals had approximately $53 million of credit available on nine bank lines with an aggregate capacity of $85 million at September 30, 2013.

Business Updates

Our metal ore trading business decreased by approximately 48% in net revenues during the first nine months of 2013 compared to the same period in 2012. The decline in trading business sales was primarily due to the adjustment that the Company proactively made to the operation in response to the change in metal ore market where the Company slowed down its trading activities to manage risks. The Company reduced sales of iron ore significantly and increased sales of manganese ore and chrome ore to diversify and balance product sales for managing market risks. In the fourth quarter, the Company signed a sales contract value at approximately $18 million to provide corrosion resistant plate to the customer and the delivery of the product has started. The Company continued to strengthen business relationship with its suppliers and develop customer base while looking for new business opportunities in metal ore trading. We added five new customers for our trading business and the trading business sales from new customers for the first nine months of 2013 were approximately $5.8 million. Meanwhile, we continued to develop our new "Commodity Financing" model and obtained support from several large banks.

In the third quarter, our scrap metal recycling business was adversely affected by the softened scrap metal market with wide fluctuation and sharp decline in price resulting in decreases in sales and production, as well as a significant decrease in gross profit margin in the quarter compared to same period of prior year. However, for the first nine months of 2013, the sales and production for our scrap metal recycling business both increased significantly. Overall sales increased from approximately 62,083 MTs in the first nine months of 2012 to approximately 96,063 MTs in the first nine months of 2013, representing 55% growth. The production of scrap metals for the first nine months of 2013 increased 62% to 131,236 MTs from 80,779 MTs in the same period of 2012. The Company continued to develop new customers to expand its customer base for its recycling business. For the first nine months of 2013 we added two new customers and the recycling business sales generated from new customers amounted to $7.8 million. The recycling business contributed 64% and 75% of our net revenue and gross profit, respectively, for the nine months ended September 30, 2013. The management continues to believe that the secular shift to more environmentally friendly energy production materials and methods will drive the underlying demand for recycled steel.

Conference Call 

Date: Friday, November 15, 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#13572840: 2013 Third Quarter Financial Results Call 

Webcast link: http://www.investorcalendar.com/IC/CEPage.asp?ID=171900  

The playback of the webcast can be accessed until 02/17/2014.

Teleconference Replay:

Replay Number (Toll Free): 1-877-660-6853

Replay Number (International): 1-201-612-7415

Replay Passcode needs Conference ID#: 13572840 Teleconference will be available for replay until 11:59 PM 11/29/2013

About Armco Metals Holdings, Inc.

Armco Metals Holdings, Inc. is engaged in the sale and distribution of metal ore and non-ferrous metals throughout the PRC and is in the recycling business in the PRC. Armco Metals' customers throughout China include some of the fastest growing steel producing mills and foundries in the PRC. Raw materials are acquired from a global group of suppliers located in diverse 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, and steel billet and recycled scrap metals. For more information about Armco Metals, please visit http://www.armcometals.com.

 
ARMCO METALS HOLDINGS, INC
(FORMERLY CHINA ARMCO METALS, 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, 2013     September 30, 2013     September 30, 2012     September 30, 2012  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
                                 
NET REVENUES   $ 62,497,489     $ 20,470,236     $ 68,939,767     $ 15,360,842  
                                 
COST OF GOODS SOLD                                
  Cost of goods sold     59,377,256       20,827,982       64,834,976       13,441,066  
  Lower of cost or market adjustment     1,991,275       1,509,350       -       -  
                                   
    Total cost of goods sold     61,368,531       22,337,332       64,834,976       13,441,066  
                                 
GROSS PROFIT     1,128,958       (1,867,096 )     4,104,791       1,919,776  
                                 
OPERATING EXPENSES:                                
  Selling expenses     131,033       41,347       308,902       39,550  
  Professional fees     320,629       3,644       179,560       73,626  
  General and administrative expenses     2,431,288       708,617       3,018,709       834,253  
  Operating cost of idle manufacturing facility     1,283,120       467,481       1,489,693       427,872  
                                   
    Total operating expenses     4,166,070       1,221,089       4,996,864       1,375,301  
                                 
  INCOME (LOSS) FROM OPERATIONS     (3,037,112 )     (3,088,185 )     (892,073 )     544,475  
                                 
OTHER (INCOME) EXPENSE:                                
  Interest income     (84,263 )     (37,402 )     (162,252 )     (118,079 )
  Interest expense     1,476,816       365,133       1,709,883       498,581  
  Foreign currency transaction (gain) loss - marketable securities     -       -       36,255       (25,740 )
  Impairment other than temporary - marketable securities     -       -       386,941       -  
  Change in fair value of derivative liability     (928,915 )     (8,577 )     (88 )     (217 )
  Loan guarantee expense     35,500       12,667       43,614       12,650  
  Forgiveness of debt     -       -       (16,343 )     (16,343 )
  Other (income) expense     101,823       138,041       197,681       66,833  
                                   
    Total other (income) expense     600,961       469,862       2,195,691       417,685  
                                 
INCOME (LOSS) BEFORE INCOME TAX PROVISION     (3,638,073 )     (3,558,047 )     (3,087,764 )     126,790  
                                 
INCOME TAX PROVISION     49,070       (12,618 )     143,177       (7,865 )
                                 
INCOME (LOSS) FROM CONTINUING OPERATIONS     (3,687,143 )     (3,545,429 )     (3,230,941 )     134,655  
                                 
                                 
NET INCOME ( LOSS)     (3,687,143 )     (3,545,429 )     (3,230,941 )     134,655  
                                 
OTHER COMPREHENSIVE INCOME (LOSS):                                
  Change in unrealized income (loss) of marketable securities     (123,552 )     288,054       797       -  
  Foreign currency translation gain (loss)     1,128,312       221,419       176,876       (77,860 )
                                 
COMPREHENSIVE INCOME ( LOSS)   $ (2,682,383 )   $ (3,035,956 )   $ (3,053,268 )   $ 56,795  
                                 
NET INCOME ( LOSS) PER COMMON SHARE - BASIC AND DILUTED:                                
                                 
  Net Income (loss) per common share - basic and diluted   $ (0.15 )   $ (0.14 )   $ (0.18 )   $ 0.01  
  Net income (loss) per common share - diluted   $ (0.15 )   $ (0.14 )   $ (0.18 )   $ 0.01  
                                   
  Weighted Average Common Shares Outstanding - basic and diluted     24,228,958       24,693,663       18,201,385       19,469,163  
  Weighted Average Common Shares Outstanding - diluted     24,228,958       24,693,663       18,201,385       19,469,163  
                                 
 See accompanying notes to the consolidated financial statements.
F-3
 
 
 
ARMCO METALS HOLDINGS, INC  
(FORMERLY CHINA ARMCO METALS, INC.)  
CONSOLIDATED BALANCE SHEETS  
             
    September 30, 2013     December 31, 2012  
    (Unaudited)        
                 
ASSETS                
CURRENT ASSETS:                
  Cash   $ 2,761,520     $ 1,367,171  
  Pledged deposits     6,338,496       4,590,829  
  Marketable securities     1,090,089       1,213,641  
  Bank acceptance notes receivable     1,635,769       7,926  
  Accounts receivable, net     7,831,856       15,699,390  
  Inventories     21,981,311       13,378,445  
  Advance on purchases     1,619,771       2,238,652  
  Prepayments and other current assets     1,166,568       453,299  
                   
    Total Current Assets     44,425,380       38,949,353  
                 
PROPERTY, PLANT AND EQUIPMENT                
  Property, plant and equipment     44,629,206       43,319,218  
  Accumulated depreciation     (8,604,711 )     (6,284,162 )
                   
    PROPERTY, PLANT AND EQUIPMENT, net     36,024,495       37,035,056  
                 
LAND USE RIGHTS                
  Land use rights     6,647,304       6,473,761  
  Accumulated amortization     (383,678 )     (260,897 )
                   
    LAND USE RIGHTS, net     6,263,626       6,212,864  
                 
      Total Assets   $ 86,713,501     $ 82,197,273  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
CURRENT LIABILITIES:                
  Loans and convertible note payable   $ 23,968,968     $ 19,109,930  
  Banker's acceptance notes payable and letters of credit     10,254,073       8,624,734  
  Current maturities of capital lease obligation     2,074,275       2,615,296  
  Accounts payable     1,434,150       1,141,583  
  Advances received from Chairman and CEO     953,827       -  
  Loan from CEO     1,025,407       -  
  Customer deposits     1,812,458       1,577,194  
  Corporate income tax payable     361,761       407,621  
  Derivative liability - convertible note     114,586       -  
  Derivative liability - warrant     -       306,708  
  Value added tax and other taxes payable     1,407,832       2,504,677  
  Accrued expenses and other current liabilities     1,324,999       2,355,903  
  Deposit for stock subscription     813,815       -  
                   
    Total Current Liabilities     45,546,151       38,643,646  
                 
LONG-TERM LIABILITIES                
  Capital lease obligation, net of current maturities     466,278       1,749,955  
                   
    Total Long-Term Liabilities     466,278       1,749,955  
                     
      Total Liabilities     46,012,429       40,393,601  
                 
COMMITMENTS AND CONTINGENCIES                
                 
STOCKHOLDERS' EQUITY:                
  Preferred stock par value $0.001: 1,000,000 shares authorized; none issued or outstanding    
-
     
-
 
  Common stock par value $0.001: 74,000,000 shares authorized, 24,626,992 and 20,319,698 shares issued and outstanding, respectively    
24,627
     
20,320
 
  Additional paid-in capital     33,117,559       31,542,083  
  Retained earnings     3,069,556       6,756,699  
  Accumulated other comprehensive income (loss):                
    Change in unrealized gain (loss) on marketable securities     (123,552 )     -  
    Foreign currency translation gain     4,612,882       3,484,570  
                     
    Total Stockholders' Equity     40,701,072       41,803,672  
                     
    Total Liabilities and Stockholders' Equity   $ 86,713,501     $ 82,197,273  
                 
See accompanying notes to the consolidated financial statements.
F-2
 
 
 
ARMCO METALS HOLDINGS, INC  
(FORMERLY CHINA ARMCO METALS, INC.)  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
             
    For the Nine Months     For the Nine Months  
    Ended     Ended  
    September 30, 2013     September 30, 2012  
    (Unaudited)     (Unaudited)  
                 
Net loss   $ (3,687,143 )   $ (3,230,941 )
                 
Adjustments to reconcile net loss to net cash provided by (used in) operating activities                
  Loss on write-off of prepaid income taxes     -       119,635  
  Depreciation expense     2,160,238       2,035,465  
  Amortization expense     115,787       37,219  
  Change in fair value of derivative liability     (928,915 )     (88 )
  Amotization on discount on note     1,480       -  
  (Gain) loss from foreign currency exchange rate change on marketable securities     -       36,255  
  Impairment other than temporary - marketable securities     -       386,941  
  Stock based compensation     582,236       787,588  
    Bank acceptance notes receivable     (1,627,631 )     -  
    Accounts receivable     8,276,715       (1,974,982 )
    Inventories     (7,525,611 )     16,067,502  
    Advance on purchases     (19,986 )     366,161  
    Prepaid value added taxes     -       350,275  
    Prepayments and other current assets     (769,536 )     667,709  
    Bank acceptance notes payable     (1,628 )     -  
    Accounts payable     220,374       (16,394,678 )
    Customer deposits     192,984       (4,283,980 )
    Taxes payable     (1,159,877 )     142,650  
    Accrued expenses and other current liabilities     (1,084,168 )     (300,445 )
                 
NET CASH USED IN OPERATING ACTIVITIES     (5,254,681 )     (5,187,715 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
  Proceeds from release of pledged deposits     16,370,116       18,666,779  
  Payment made towards pledged deposits     (17,994,943 )     (16,154,504 )
  (Purchase) disposal of property, plant and equipment     (169,369 )     (810,090 )
                 
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES     (1,794,196 )     1,702,185  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from loans payable     35,857,925       53,038,261  
Repayment of loans payable     (31,233,878 )     (45,629,273 )
Banker's acceptance notes payable     1,399,762       1,485,814  
Repayment of capital lease obligation     (1,941,717 )     (1,635,420 )
Repayment of long-term debt     -       (3,951,632 )
Advances from (repayment to) Chairman and CEO     1,019,701       (253,262 )
Proceeds from Related Party Loan     1,025,407       -  
Deposit for stock subscription     813,815       -  
Proceeds from sales of common stock     1,621,356       -  
                 
NET CASH PROVIDED BY FINANCING ACTIVITIES     8,562,371       3,054,488  
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH     (119,145 )     (22,222 )
                 
NET CHANGE IN CASH     1,394,349       (453,265 )
                 
Cash at beginning of the period     1,367,171       1,042,591  
                 
Cash at end of the period   $ 2,761,520     $ 589,328  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:                
    Interest paid   $ 1,629,969     $ 1,709,883  
    Income tax paid   $ 51,298     $ -  
                 
See accompanying notes to the consolidated financial statements.
F-5
 
 
 

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