SOURCE: China Armco Metals, Inc.

March 29, 2013 17:00 ET

China Armco Metals Announces Financial Results for the Fourth Quarter and Full Year of 2012

SAN MATEO, CA--(Marketwire - Mar 29, 2013) -  China Armco Metals, Inc. (NYSE MKT: CNAM) ("China Armco" or "the Company"), a distributor of imported metal ore and metal recycler, today announced its financial results for its fourth quarter and for the fiscal year ended December 31, 2012.

SUMMARY FINANCIALS

 
Fourth Quarter 2012 Results
    Q4 2012   Q4 2011   CHANGE
Sales   $38.0 million   $9.5 million   298%
Gross Profit   $4.4 million   $0.5 million   732%
Income (Loss) from Operations   $1.75 million   ($0.67) million   362%
Net Income (Loss)   $0.6 million   ($1.5) million   141%
EPS (Fully Diluted) (Loss)   $0.03   ($0.10)   N/A
             
 
Full Year 2012 Results
    FY 2012   FY 2011   CHANGE
Sales   $106.6 million   $106.2 million   0.33%
Gross Profit   $8.5 million   $5.8 million   45%
Income (Loss) from Operations   $0.9 million   ($0.9) million   194%
Net Income (Loss)   ($2.6) million   ($3.3) million   22%
EPS (Fully Diluted) (Loss)   ($0.14)   ($0.22)   N/A
             

Fourth Quarter of 2012 Financial Results

For the quarter ended December 31, 2012, net revenue increased 298% to $38 million due to the significant increase in sales in our recycling business as result of steel market rebound in China in the period. In response to the market rebound, we quickly and proactively react to the market changes, speeded up processing of the raw materials acquired at a low cost during the market downturn, and sales of the products to our existing customers successfully. During the fourth quarter of 2012, our net revenue in the scrap metal recycling business increased significantly by 430% to $36.6 million from $6.9 million in the fourth quarter of 2011. Our production increased substantially by 337% to 69,687 metric tons ("MT") from 15,948 MT in the fourth quarter of 2011. Despite the great uncertainties surrounding global economies, we believe the demand for iron ore on a global basis and the Chinese scrap steel demand will grow in 2013. We intend to continue our strategy to secure longer term ore and scrap metal supply contracts with our customers, ensuring a more stable supply of inventory.

Gross profit for the fourth quarter of 2012 increased 732% to $4.4 million, compared to $0.5 million in the fourth quarter of 2011. Gross margin increased to 11.6%, compared to 5.5% in the same period in 2011.

Operating expenses increased by 119% to $2.6 million for the fourth quarter of 2012 from $1.2 million for the fourth quarter of 2011.

Operating income for the fourth quarter of 2012 increased 362% to 1.75 million, compared to an operating loss of $0.67 million in the fourth quarter of 2011.

Net income for the fourth quarter of 2012 was $0.6 million, or $0.03 per diluted share, compared to a loss of ($1.5) million or ($0.10) per share for the same period last year. Diluted earnings per share were a $0.14 loss and $0.22 loss for the year ended December 31, 2012 and December 31, 2011, respectively.

Results for the Year Ended December 31, 2012

Net revenues in 2012 remained at approximately $106 million, compared to 2011. By business section, the net revenues from our metal recycling business increased by $17.8 million, or by 41%, to $61.6 million, compared to 2011; our net revenues for our metal ore trading business decreased approximately 28% in 2012 to $45.0 million, compared to $62.5 million in 2011. Our recycling business accounted for approximately 60% of our total revenue and has first time exceeded trading business, becoming the major sources of our net revenue and gross profit. Gross profit for the full year 2012 was $8.5 million, an increase of 45% from $5.8 million for the year ended December 31, 2011. Gross margins increased to 8.0% in 2012 compared to 5.5% in 2011, which was primarily attributable to higher margins on sales of scrap metal valued at $61.6 million in 2012 with a gross margin of 10.2%.

Operating expenses of $7.6 million in 2012 increased by $0.8 million, or 12.5%, compared to 2011, primarily due to an increase in general and administrative expenses of $1.4 million including $0.8 million of non-cash stock compensation to officers and employees, and an increase in selling expenses of $0.12 million. Selling expenses include commissions, salaries and travel for the sales agents and warehouse fees. These increases were partially offset by a decrease in professional fees of $0.55 million including legal fees, audit fees, investor relations, website design and SEC filing services, and a decrease in operating cost of our idle manufacturing facility of $0.14 million. Our net loss in 2012 was $2.6 million, compared to net loss of $3.3 million in 2011, the decrease in loss primarily related to the increase in gross profit of $2.6 million as a result of improved gross margin in our recycling business.

In reviewing the financial performance for the quarter and year ended 2012, Mr. Kexuan Yao, Chairman and CEO of China Armco, was pleased that the company has made substantial improvement on its recycling business during this past year. Mr. Yao remarked that, "Although 2012 proved to be a challenging year for China steel industry, financially we achieved positive operating results from our operations in 2012 and were profitable in both the third and fourth quarter of 2012 with significant growth in our recycling business. The results are very important to us because this is the first time we had a profitable annual operation results and a consecutive profitable quarters since we officially started our recycling business operation in 2010. More importantly, the recycling business has replaced the trading business and has become the major source of our net revenue and gross profit. We believe the metal recycling business will continue to be the major growth driver for our company."

Mr. Yao further stated that "Our recycling production started in the late of 2010 and the operation has experienced difficulties and ups and downs due to market volatility and our learning curve for entering the new business. However, through the past two years' operation, we have achieved many accomplishments in fundamental aspects such as optimizing production process, improving cost control and management, developing and streamlining supply chain, establishment of long term strategic partnership with key clients, obtaining various qualifications and licenses, and building our brand in the industry. All of these are valuable intangible assets to the Company and has been and will continue to contribute to our development and growth."

Financial Condition

As of December 31, 2012, the Company had $1.4 million in cash and cash equivalents, compared to $1.0 million at year-end 2011. The Company had working capital of $0.3 million and a current ratio of 1.01:1 on December 31, 2012 compared to $1.6 million and 1.03:1 on December 31, 2011. The decrease in working capital was mainly due to increases in value added tax and other taxes payable of $2.5 million as result of increased sales which we could get 50% refund in the future, $0.4 million income tax due to the increased net income in our subsidiaries, and $0.3 million derivative warrant liability which will be expiring in August 2013. As of December 31, 2012, shareholders' equity was $41.8 million, slightly down from $42.3 million at the end of 2011. 

The Company had $9 million net cash used in operations in 2012 compared to a net inflow of $14.3 million in 2011. The change primarily reflects a decrease in accounts payable of $17.4 million, an increase in accounts receivable of $14.9 million and a decrease in inventories of $20 million in the year ended 2012 compared to year ended 2011. The Company invested a total of approximately $50 million in the aggregate to acquire land use rights and to construct and purchase equipment for scrap metal facilities we operated. We maintain seven bank facilities with lines of credit totaling approximately $57 million in the aggregate. Approximately $33 million remained available at December 31, 2012. An additional $20 million bank facility's renewal is currently in process.

Business Outlook

China Armco continues to make steady progress in its metal recycling business and to refine and develop its metal trading business model. In 2012 our sales increased significantly with improved gross margin in compared to 2011 in our recycling business while trading business sales decreased in 2012 due to economy slow down and market condition in the PRC. By March 25, 2012, the Company's trading business has delivered metal ores to its customers approximately 21,000 tons and 17,000 tons to be delivered. We continued to work with our global metal ore suppliers to seize market opportunities with manageable market risks. In third quarter we signed a financing mandate letter with Deutsche Bank. The new financing facility is custom-tailored for our new "Commodity Financing" model which enables us to provide financing service for our clients and liquidate the ore inventories stockpiled at the ports. We continue to work on and expect to make some major progresses on the new "Commodity Financing" model in 2013 which could significantly increase the growth potential of the Company. 

In the metal recycling business, in 2012, the Company made substantial improvement both financially and fundamentally. As of result of our efforts and achievements, we have seen the first consecutive profitable quarters in the last two quarters of 2012 since we officially started our recycling business operation in 2010. More importantly, our recycling business has exceeded the trading business and has become the major source of our net revenue and gross profit. This is a milestone for our recycling business development which reflects the successful transition of our main business from high-volatility metal ore trading business to scrap metal recycling with stable margin and lower risk. We expect to continue to expend our overseas supply channels and recent development included negotiations on business cooperation with Japan and U.S. suppliers. During the third quarter our recycling business obtained new qualifications for scrap recycling operation. The updated qualification certificate allows our facility to recycle scrap metals imported from abroad without the requirement to use agents, who charge the company a fee. This is expected to substantially lower the company's cost by removing the agent fee in its operation and thus improve operating profit margin. The removal of the previous qualification limitation also enhances the company's capability on raw materials sourcing and purchasing and improves the company's operating capacity. Moreover, in the fourth quarter our recycling business further obtained the qualification from Chinese regulators to import and process various scrap metals, including waste metal appliances, scrap wires/cables and waste electric motors, from overseas to China directly. This is a milestone for the Company's supply chain development. With the license, China Armco can import and process scrap metals from overseas directly, which will significantly improve its global sourcing capability and cost control by removing import agents and directly working with global suppliers. More importantly, this license is the key to the Company's business strategy which it aims to generate excess profits in processing imported scrap metals by capitalizing on China labor cost advantages and its state-of-the-art scrap metal recycling facility. By year end of 2012, China Armco also expanded its purchases from overseas markets, acquiring approximately 12,000 MT of unprocessed scrap metals. By March 25, 2013, the Company has received orders in aggregate approximately 360,000 MTs for 2013 and beyond and has delivered approximately $26,500 and additional $10,000 in the shipping process.

Recently our recycling facility has been certified as a Demonstration Base for Steel Scrap Processing and Distribution by the China Steel Scrap Industrial Associations, and therefore could benefit from a 50% value added tax (VAT) refund in 2013 according to the upcoming policy of the Chinese government. The Company will benefit from the certification as well as the possible tax refund. The tax refund when effective could lower our costs and increase our profits by a large margin. Also, with the certification we are allowed to act as procurement agency for other uncertified companies, which could boost our domestic purchases and total sales as well.

In addressing the issues faced by the Company's recycling operations for 2012, Chairman Yao noted that "Our Facility is fully capable of ramping up to satisfy an expected increase in production volumes. With the benefit of the greater efficiency of recycling operations and its strategic port location advantages, we are cautiously optimistic that we can operate profitably with potentially higher gross margins. Perhaps, most importantly, while enduring these tumultuous times, we wish to express our sincere appreciation to our customers, suppliers, vendors, as well as all of our long-term stockholders and banking institutions, for their unwavering support. All our credit facilities have been renewed on favorable terms, reflecting their continual confidence in our management team, our strategies and its future business prospects for success. As a result, we continue to remain optimistic for our business prospects for 2013, despite the existence of the world's economies mercurial nature."

Conference Call   

Date:  Monday, April 1, 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# 411414:  2012 Fourth Quarter & Year End Financial Results Call

Webcast link:   http://www.investorcalendar.com/IC/CEPage.asp?ID=170704   

The playback of the webcast can be accessed until 07/01/2013. To access the webcast, you will need to have the Windows Media Player on your desktop. For the free download of the Media Player, please visit: http://www.microsoft.com/windows/windowsmedia/en/download/default.asp

Teleconference Replay:
Replay Number (Toll Free): 1-877-660-6853
Replay Number (International): 1-201-612-7415
Replay Passcode needs Conference ID#: 411414
Teleconference will be available for replay until 11:59 PM 04/15/2013

About China Armco Metals, Inc.

China Armco Metals, 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. China Armco's 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. China Armco's 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 China Armco, 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, China Armco Metals, 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") may be forward-looking and may 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 and the extent that any of China's energy restrictions that have and could be imposed upon us from time to time in the future with resulting blackouts having and adverse impact on our recycling operations.

In addition, any such statements are qualified in their entirety by reference to, and are accompanied by, the following key factors that have a direct bearing on our results of operations:

We caution that the factors described herein could cause actual results to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. 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. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations 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. 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 results of operations, the institution of China and US governmental regulations relating to our businesses and the general economic climate of volatility around the world, 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, 2012.

   
   
CHINA ARMCO METALS, INC.  
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)  
   
    For the Year Ended December 31, 2012      For the Year Ended December 31, 2011   
                 
                 
NET REVENUES   $ 106,569,474     $ 106,216,065  
                 
COST OF GOODS SOLD     98,102,412       100,363,253  
                 
GROSS PROFIT     8,467,062       5,852,812  
                 
OPERATING EXPENSES:                
  Selling expenses     413,352       293,887  
  Professional fees     278,502       824,275  
  General and administrative expenses     5,112,131       3,699,401  
  Operating cost of idle manufacturing facility     1,807,313       1,946,369  
                   
    Total operating expenses     7,611,298       6,763,932  
                 
INCOME (LOSS) FROM OPERATIONS     855,764       (911,120 )
                 
OTHER (INCOME) EXPENSE:                
  Interest income     (190,999 )     (102,456 )
  Interest expense     2,001,535       1,792,885  
  Foreign currency transaction (gain) loss - marketable securities     36,957       (220,881 )
  Impairment other than temporary - marketable securities     386,941       1,980,000  
  Change in fair value of derivative liability     306,505       (137,940 )
  Loan guarantee expense     59,744       158,066  
  Investment credit - government     -       (1,547,030 )
  Forgiveness of debt     (16,343 )     -  
  Other (income) expense     148,097       278,578  
                   
    Total other (income) expense     2,732,437       2,201,222  
                 
INCOME (LOSS) BEFORE INCOME TAXES PROVISION     (1,876,673 )     (3,112,342 )
                 
INCOME TAX PROVISION     732,663       232,662  
                 
NET INCOME (LOSS)     (2,609,336 )     (3,345,004 )
                 
OTHER COMPREHENSIVE INCOME (LOSS):                
  Change in unrealized income (loss) of marketable securities     797       505,481  
  Foreign currency translation gain (loss)     263,532       1,577,471  
                 
COMPREHENSIVE INCOME (LOSS)   $ (2,345,007 )   $ (1,262,052 )
                 
NET INCOME (LOSS) PER COMMON SHARE - BASIC AND DILUTED:                
                 
  Net income (loss) per common share - basic and diluted   $ (0.14 )   $ (0.22 )
                   
  Weighted Average Common Shares Outstanding - basic and diluted     18,482,234       15,366,743  
                 
See accompanying notes to the consolidated financial statements.  
   
   
   
CHINA ARMCO METALS, INC.  
CONSOLIDATED BALANCE SHEETS  
             
    December 31, 2012     December 31, 2011  
                 
                 
ASSETS                
CURRENT ASSETS:                
  Cash   $ 1,367,171     $ 1,042,591  
  Pledged deposits     4,590,829       8,357,670  
  Marketable securities     1,213,641       1,636,742  
  Bank acceptance notes receivable     7,926       -  
  Accounts receivable, net     15,699,390       758,500  
  Inventories     13,378,445       33,344,547  
  Advance on purchases     2,238,652       3,079,684  
  Prepaid corp income taxes - Renewable Metals     -       467,546  
  Prepayments and other current assets     453,299       1,744,047  
                   
    Total Current Assets     38,949,353       50,431,327  
                 
                 
PROPERTY, PLANT AND EQUIPMENT                
  Property, plant and equipment     43,319,218       42,165,437  
  Accumulated depreciation     (6,284,162 )     (3,514,893 )
                 
    PROPERTY, PLANT AND EQUIPMENT, net     37,035,056       38,650,544  
                 
LAND USE RIGHTS                
  Land use rights     6,473,761       6,422,956  
  Accumulated amortization     (260,897 )     (209,474 )
                   
    LAND USE RIGHTS, net     6,212,864       6,213,482  
                   
                   
      Total Assets   $ 82,197,273     $ 95,295,353  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
CURRENT LIABILITIES:                
  Loans payable   $ 19,109,930     $ 6,711,898  
  Banker's acceptance notes payable and letters of credit     8,624,734       8,178,029  
  Current maturities of capital lease obligation     2,615,296       2,195,177  
  Current maturities of long-term debt     -       3,931,745  
  Accounts payable     1,141,583       18,543,129  
  Advances received from Chairman and CEO     -       607,009  
  Customer deposits     1,577,194       5,851,769  
  Corporate income tax payable     407,621       99,042  
  Derivative warrant liability - current portion     306,708       -  
  Value added tax and other taxes payable     2,504,677       1,150  
  Accrued expenses and other current liabilities     2,355,903       2,713,532  
                   
    Total Current Liabilities     38,643,646       48,832,480  
                 
CAPITAL LEASE OBLIGATION, net of current maturities     1,749,955       4,127,354  
                 
LONG-TERM DEBT, net of current maturities     -       -  
                 
DERIVATIVE LIABILITY, net of current portion     -       203  
                 
      Total Liabilities     40,393,601       52,960,037  
                 
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, 20,319,698 and 15,421,008 shares issued and outstanding, respectively     20,320       15,421  
  Additional paid-in capital     31,542,083       29,733,619  
  Retained earnings     6,756,699       9,366,035  
  Accumulated other comprehensive income (loss):                
    Change in unrealized loss on marketable securities     -       (797 )
    Foreign currency translation gain     3,484,570       3,221,038  
                     
    Total Stockholders' Equity     41,803,672       42,335,316  
                     
    Total Liabilities and Stockholders' Equity   $ 82,197,273     $ 95,295,353  
                 
See accompanying notes to the consolidated financial statements.  
   
   
   
CHINA ARMCO METALS, INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
             
    For the Year     For the Year  
    Ended     Ended  
    December 31, 2012     December 31, 2011  
                 
                 
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (2,609,336 )   $ (3,345,004 )
                 
Adjustments to reconcile net loss to net cash used in operating activities                
  Depreciation expense     2,742,995       2,726,315  
  Amortization expense     49,766       49,376  
  Change in fair value of derivative liability     306,505       (137,940 )
  (Gain) loss from foreign currency exchange rate change on marketable securities     36,957       (220,881 )
  Impairment other than temporary - marketable securities     386,941       1,980,000  
  Stock based compensation     1,444,019       580,423  
  Changes in operating assets and liabilities:                
    Bank acceptance notes receivable     (7,926 )     -  
    Accounts receivable     (14,935,416 )     18,569,271  
    Inventories     20,095,232       (22,498,388 )
    Advance on purchases     865,391       (852,982 )
    Prepaid value added taxes     471,244       -  
    Prepayments and other current assets     1,369,997       2,688,460  
    Bank acceptance notes payable     1,585       -  
    Accounts payable     (17,410,355 )     14,992,427  
    Customer deposits     (4,320,862 )     (491,603 )
    Taxes payable     2,812,095       (990,833 )
    Accrued expenses and other current liabilities     (310,424 )     1,305,792  
                 
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES     (9,011,592 )     14,354,433  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
  Proceeds from release of pledged deposits     20,718,637       50,146,115  
  Payment made towards pledged deposits     (16,902,377 )     (45,373,468 )
  Purchase of property, plant and equipment     (826,350 )     (2,967,453 )
  Purchase of land use rights     -       (2,664,162 )
                 
NET CASH PROVIDED BY INVESTING ACTIVITIES     2,989,910       (858,968 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
  Proceeds from loans payable     64,716,249       61,308,627  
  Repayment of loans payable     (52,413,180 )     (79,757,796 )
  Banker's acceptance notes payable     380,433       3,837,383  
  Proceeds from mortgage payable     -       5,897,617  
  Repayment of mortgage payable     (2,007,291 )     (1,934,133 )
  Repayment of long-term debt     (3,962,844 )     (4,718,094 )
  Advances from (repayment to) Chairman and CEO     (319,306 )     (192,385 )
                 
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES     6,394,061       (15,558,780 )
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH     (47,799 )     7,990  
                 
NET CHANGE IN CASH     324,580       (2,055,325 )
                 
Cash at beginning of the year     1,042,591       3,097,917  
                 
Cash at end of the year   $ 1,367,171     $ 1,042,591  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:                
    Interest paid   $ 2,001,337     $ 1,792,885  
    Income tax paid   $ -     $ 1,224,230  
                 
NON CASH FINANCING AND INVESTING ACTIVITIES:                
  Accrued director cash compensation paid in common shares in lieu of cash   $ -     $ -  
  Accrued compensation paid in common shares in lieu of cash   $ -     $ 282,323  
  Advance payments used towards construction in progress and land use rights   $ -     $ 4,468,337  
  Common shares issued for conversion of advances from Chairmand and CEO   $ 353,753     $ -  
                 
See accompanying notes to the consolidated financial statements.  
   

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