SOURCE: China Armco Metals, Inc.

May 15, 2013 18:00 ET

China Armco Metals Announces First Quarter 2013 Financial Results

SAN MATEO, CA--(Marketwired - May 15, 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 the first quarter of 2013.

SUMMARY FINANCIALS

 
 First quarter 2013 Results
  Q1 2013 Q1 2012 CHANGE
 Revenue $14.3 million $49.3 million   -71%
 Gross Profit $0.64 million $1.46 million   -56%
 Net Income (Loss) ($1.09 million) ($1.66 million)    n/a
 EPS (Fully Diluted)   ($0. 05)   ($0.10)    n/a
       

First Quarter of 2013 Financial Results

For the quarter ended March 31, 2013, net revenue decreased to $14.3 million compared to $49.3 million for the same period of 2012. The decline in sales in the quarter resulted from the significant decrease of $35.9 million, or 87%, in our trading business sales which the Company proactively reacted to the metal ore market change and slowed down our trading activities to manage risks. China Armco sold 32,286 tons various metal ores at an average price of $166 per ton through its trading business compared to sales of a total of 324,849 tons various ores at an average price of $127 per ton in the first quarter of 2012. China Armco's metal recycling business contributed $9.0 million in sales during the first three months of 2013, increased 12% compared to $8.0 million in sales in same period of 2012.

Gross profit for the first quarter of 2013 decreased 56% to $0.64 million, compared to $1.46 million in the first quarter of 2012 mainly due to the decline in trading business. Gross profits for the trading and metal recycling business were $0.002 million and $0.63 million respectively. Gross margin for the trading business declined to 0.3% and recycling businesses increased to 7%, compared to 3% for trading business and 2% for recycling business in the first quarter of 2012 respectively.

Operating expenses remained at approximately $1.7 million for the first quarter of 2013 compared to same period of 2012. As a percentage of sales, operating expenses were 11.8% and 3.4% in the first quarter of 2013 and 2012, respectively, the increase primarily due to the significant decrease in our trading business sales and a one-time leasing fee adjustment in the first quarter of 2013.

Operating loss for the first quarter of 2013 was $1.05 million compared to an operating loss of $0.23 million in the first quarter of 2012.

Net loss for the first quarter of 2013 was $1.09 million, or $0.05 loss per diluted share, compared to net loss $1.66 million or $0.10 per share for the same period last year. The weighted average diluted shares outstanding increased from 16.7 million in the first quarter of 2012 to 23.3 million in the first quarter of 2013, due to equity issuance for capital raise, payment and compensation and converted debt after the end of first quarter of 2012 .

Mr. Kexuan Yao, Chairman and CEO of China Armco stated, "Although the China steel industry had a turnaround from losses to profits for the first quarter, the total profit posted a downward trend with record-high output over the first three months of 2013 suggesting that the sector remained weak due to fiercer competition amid industrial overcapacity. Our trading business was adversely affected by the market resulting in sharp declines on net revenues and gross margins during the quarter. However, our revenue and gross margin in our recycling business continued to grow steady; the quantities of scrap metals processed and sold from our recycling facility in the first quarter continued to increase compared to the first quarter of 2012. We believe our solid and sound foundation in the industry, our strong relationship with our customers and suppliers around the world, and the strategy we have developed will enable us to overcome various challenges and fully leverage our operating model to generate incremental revenue and profitability, especially, recently in the second quarter we have started to increase our production of recycled nonferrous metal scraps which is expected to further improve our recycling business profitability."

Financial Conditions

As of March 31, 2013, the Company had $1.33 million in cash and cash equivalents, compared to $1.37 million at the end of 2012. Working capital was $1.4 million and a current ratio of 1.03:1 on March 31, 2013 compared to $0.3 million and 1.01:1 on December 31, 2012. Total accounts receivable decreased $7.6 million to $8.1 million at the end of the first quarter of 2013 compared to $15.7 million at the year end of 2012 primarily due to the payment we received in the first quarter for our scrap metal sales made during 2012. Inventories increased $5.4 million at March 31, 2013 from December 31, 2012, primarily due to the inventories of $3.57 million of Chrome ore and the increase of scrap metal inventories for increased production. We have signed sales contracts and received deposits for the sales order of the Chrome ore inventories which are expected to be delivered in the second quarter. As of March 31, 2013, shareholders' equity was $42 million, essentially flat from December 31, 2012.

The Company had a $3.3 million net cash inflow from operations in the first quarter of 2013 compared to a net cash outflow of $26.1 million in the same period last year. During the first quarter of 2013, China Armco successfully sold (delivered) or locked sales contracts (to be delivered) for all of our metal ores inventories and scrap metals recycled in the quarter to control market risks and speed up capital turnover. The Company has bank facilities, which provide for cash borrowings or the issuance of commercial letters of credit required in its metal ore trading business, aggregating $57 million. Approximately $37 million was available under these facilities at March 31, 2013.

Business Updates

Our trading business decreased to approximately $5.4 million in net revenues during the first quarter of 2013 compared to $41.3 million in the same period in 2012. In the first quarter of 2013, to manage market risks, we significantly decreased new purchase of metal ore and locked sales orders for our ore inventories of $3.57 million to be delivered in second quarter. We continued to firm our business relationship with worldwide suppliers and stabilize our supply capacity. We believe 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 progress in this year which we have obtained support from several large banks.

During the first quarter of 2013, despite the Chinese New Year holiday and the weak demand and market, both production and revenues for our recycling business continued to increase compared to the same period of last year. The scrap metals recycled at our recycling facility increased by 75% to 43,795 MT compared to 25,071 MT in the same period of last year. Our scrap metal business sold approximately 23,001 MT of scrap metals, generating approximately $9.0 million of revenue. By comparison, for the first quarter of 2012, our scrap metal business sold approximately 16,753 MT of scrap metals, generating approximately $8.0 million of revenue. The gross profit margin for our recycling business also increased significantly to 7% for the first quarter in 2013 compared to 2% for same period of 2012 due to the improvement of our recycling business operation. Through the past two years' operation, we have achieved many accomplishments in fundamental aspects of our recycling business, 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. In addition, as an effort to improve our operation and profitability of the recycling business, we strived to obtain a series of qualifications from the Chinese government. Recently in the second quarter of 2013 we have increased our production of recycled nonferrous metal scraps which is expected to further improve our recycling business profitability. We expect to continue to expend resources to build and firm our customer/business partner bases and supply chain for our recycling business, and recent developments include negotiations on businesses cooperation with large state-owned China steel mills and overseas suppliers.

Conference Call

The Company will conduct a conference call at 5:00 p.m. ET on Monday, May 20, 2013. To attend the call, please use the dial-in information below. When prompted, ask for the "China Armco Metals call" and/or be prepared to provide the conference ID.

   
Conference Call  
Date: Monday, May 20, 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# 414423: 2013 1st Quarter Financial Results Call
Webcast link: http://www.investorcalendar.com/IC/CEPage.asp?ID=170982
   

The playback of the webcast can be accessed until 08/20/2013. 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://windows.microsoft.com/en-us/windows/download-windows-media-player

Teleconference Replay:

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

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

Replay Passcode needs Conference ID#: 414423

Conference ID#: 414423

Teleconference will be available for replay until 11:59 PM 06/03/2013

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.

Forward-Looking 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 of government imposed energy restrictions and resulting blackouts and 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 operations, institution of governmental regulations relating to our businesses and the international economic climate, and the cautionary statements and risk factor disclosures contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the year ended December 31, 2012.

-- FINANCIAL TABLES --

   
   
CHINA ARMCO METALS, INC.  
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)  
               
  For the Three     For the Three  
  Months Ended     Months Ended  
  March 31, 2013     March 31, 2012  
  (Unaudited)     (Unaudited)  
               
NET REVENUES $ 14,343,077     $ 49,284,191  
               
COST OF GOODS SOLD   13,698,412       47,824,094  
               
GROSS MARGIN   644,665       1,460,097  
               
OPERATING EXPENSES:              
  Selling expenses   29,226       130,523  
  Professional fees   196,497       114,595  
  General and administrative expenses   1,046,694       945,583  
  Operating cost of idle manufacturing facility   423,221       497,224  
               
    Total operating expenses   1,695,638       1,687,925  
               
LOSS FROM OPERATIONS   (1,050,973 )     (227,828 )
               
OTHER (INCOME) EXPENSE:              
  Interest income   (2,725 )     (1,052 )
  Interest expense   729,372       786,512  
  Foreign currency transaction (gain) loss - marketable securities   -       35,553  
  Impairment other than temporary - marketable securities   -       386,941  
  Change in fair value of derivative liability   (615,946 )     549  
  Loan guarantee expense   12,500       16,667  
  Other (income) expense   (75,896 )     119,807  
               
    Total other (income) expense   47,305       1,344,977  
               
LOSS BEFORE INCOME TAXES PROVISION   (1,098,278 )     (1,572,805 )
               
INCOME TAX PROVISION   (8,510 )     87,403  
               
NET LOSS   (1,089,768 )     (1,660,208 )
               
OTHER COMPREHENSIVE INCOME (LOSS):              
  Change in unrealized income (loss) of marketable securities   5,499       797  
  Foreign currency translation gain (loss)   (239,518 )     237,466  
               
COMPREHENSIVE LOSS $ (1,323,787 )   $ (1,421,945 )
               
NET LOSS PER COMMON SHARE - BASIC AND DILUTED:              
               
  Net loss per common share - basic and diluted $ (0.05 )   $ (0.10 )
               
  Weighted Average Common Shares Outstanding - basic and diluted   23,304,334       16,668,006  
               
See accompanying notes to the consolidated financial statements.  
   
   
   
CHINA ARMCO METALS, INC.  
CONSOLIDATED BALANCE SHEETS  
   
     March 31,       December 31,   
    2013     2012  
    (Unaudited)        
                 
ASSETS                
CURRENT ASSETS:                
  Cash   $ 1,327,506     $ 1,367,171  
  Pledged deposits     8,767,003       4,590,829  
  Marketable securities     1,219,140       1,213,641  
  Bank acceptance notes receivable     1,123,667       7,926  
  Accounts receivable, net     8,147,497       15,699,390  
  Inventories     18,810,715       13,378,445  
  Advance on purchases     3,381,326       2,238,652  
  Prepayments and other current assets     1,502,408       453,299  
                 
    Total Current Assets     44,279,262       38,949,353  
                 
PROPERTY, PLANT AND EQUIPMENT                
  Property, plant and equipment     43,651,046       43,319,218  
  Accumulated depreciation     (7,023,448 )     (6,284,162 )
                 
    PROPERTY, PLANT AND EQUIPMENT, net     36,627,598       37,035,056  
                 
LAND USE RIGHTS                
  Land use rights     6,509,360       6,473,761  
  Accumulated amortization     (321,522 )     (260,897 )
                 
    LAND USE RIGHTS, net     6,187,838       6,212,864  
                 
      Total Assets   $ 87,094,698     $ 82,197,273  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
CURRENT LIABILITIES:                
  Loans payable   $ 12,179,406     $ 19,109,930  
  Banker's acceptance notes payable and letters of credit     14,346,281       8,624,734  
  Current maturities of capital lease obligation     3,076,534       2,615,296  
  Accounts payable     4,708,366       1,141,583  
  Advances received from Chairman and CEO     121,922       -  
  Customer deposits     3,319,213       1,577,194  
  Corporate income tax payable     401,572       407,621  
  Derivative warrant liability     314,571       306,708  
  Value added tax and other taxes payable     1,239,007       2,504,677  
  Accrued expenses and other current liabilities     3,158,528       2,355,903  
                 
    Total Current Liabilities     42,865,400       38,643,646  
                 
LONG-TERM LIABILITIES                
  Capital lease obligation, net of current maturities     1,336,113       1,749,955  
  Long-term debt - CEO     1,004,128       -  
                 
    Total Long-Term Liabilities     2,340,241       1,749,955  
                 
      Total Liabilities     45,205,641       40,393,601  
                 
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, 24,470,743 and 20,139,698 shares issued and outstanding, respectively     24,471       20,320  
  Additional paid-in capital     32,947,104       31,542,083  
  Retained earnings     5,666,931       6,756,699  
  Accumulated other comprehensive income (loss):                
    Change in unrealized gain on marketable securities     5,499       -  
    Foreign currency translation gain     3,245,052       3,484,570  
                 
    Total Stockholders' Equity     41,889,057       41,803,672  
                 
    Total Liabilities and Stockholders' Equity   $ 87,094,698     $ 82,197,273  
                 
See accompanying notes to the consolidated financial statements.  
   
   
   
CHINA ARMCO METALS, INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
                 
    For the Three     For the Three  
    Months Ended     Months Ended  
    March 31, 2013     March 31, 2012  
    (Unaudited)     (Unaudited)  
                 
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (1,089,768 )   $ (1,660,208 )
                 
Adjustments to reconcile net loss to net cash provided by (used in) operating activities                
  Depreciation expense     706,402       704,941  
  Amortization expense     59,190       12,422  
  Change in fair value of derivative liability     (615,946 )     549  
  (Gain) loss from foreign currency exchange rate change on marketable securities     -       35,553  
  Impairment other than temporary - marketable securities     -       386,941  
  Stock based compensation     411,625       155,382  
  Changes in operating assets and liabilities:                
    Bank acceptance notes receivable     (1,115,698 )     (158,265 )
    Accounts receivable     7,635,827       (27,480,173 )
    Inventories     (5,354,655 )     22,233,344  
    Advance on purchases     (1,130,362 )     (3,138,063 )
    Prepayments and other current assets     (1,113,145 )     362,154  
    Accounts payable     3,468,335       (15,217,453 )
    Customer deposits     1,733,345       (3,386,988 )
    Taxes payable     (1,285,492 )     277,761  
    Advance for Stock Subscription     -       820,715  
    Accrued expenses and other current liabilities     980,317       -  
                 
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES     3,289,975       (26,051,388 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
  Proceeds from release of pledged deposits     3,756,871       8,413,409  
  Payment made towards pledged deposits     (7,907,848 )     (9,534,359 )
  Purchase of property, plant and equipment     (97,858 )     (1,297,120 )
                 
NET CASH USED IN INVESTING ACTIVITIES     (4,248,835 )     (2,418,070 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
  Proceeds from loans payable     9,503,386       43,404,164  
  Repayment of loans payable     (16,504,984 )     (16,372,992 )
  Banker's acceptance notes payable     5,674,121       1,899,185  
  Repayment of capital lease obligation     (71,329 )     (528,916 )
  Advances from (repayment to) Chairman and CEO     187,929       19,016  
  Proceeds from Related Party Loan     1,004,128       -  
  Proceeds from sales of common stock     1,621,356       -  
                 
NET CASH PROVIDED BY FINANCING ACTIVITIES     1,414,607       28,420,457  
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH     (495,412 )     (11,727 )
                 
NET CHANGE IN CASH     (39,665 )     (60,728 )
                 
Cash at beginning of the period     1,367,171       1,042,591  
                 
Cash at end of the period   $ 1,327,506     $ 981,863  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:                
    Interest paid   $ 729,372     $ 786,512  
    Income tax paid   $ 1,777     $ -  
                 
NON CASH FINANCING AND INVESTING ACTIVITIES:                
  Accrued compensation paid in common shares in lieu of cash   $ -     $ 15,591  
                 
See accompanying notes to the consolidated financial statements. 
   

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