SOURCE: China Armco Metals, Inc.

November 15, 2010 17:17 ET

China Armco Metals Reports Financial Results for the Third Quarter Ended September 30, 2010

SAN MATEO, CA--(Marketwire - November 15, 2010) - China Armco Metals, Inc. (NYSE Amex: CNAM), a distributor of imported metal ore and metal recycler with a new state of the art scrap metal recycling facility in China, today announced its financial results for the third quarter of 2010.

Nine Months and Third Quarter 2010 Financial Results

Net revenues for the first nine months of 2010 were $44.3 million compared to the $55.2 million recorded in the first nine months of 2009. The decrease in revenue is largely due to a continued decline in customer demand that began midway through the second quarter of 2010 resulting from the Chinese government measures to prevent the real estate industry from overheating coupled with government imposed energy restrictions in at least 18 provinces that began in September 2010 in an effort to meet the energy consumption and emissions targets set by the 11th Five Year Plan (2006-2010) affecting output in the steel industry. Net revenues for the third quarter of 2010 were $18.7 million compared to the $27.3 million recorded in the third quarter of 2009 and reflect a significant drop in demand for metal ores from our steel customers resulting from these restrictive government policies. In the third quarter of 2010 we also experienced power blackouts at our recycling facility which caused our facility to be idled for two weeks during this period of time. Management anticipates that energy restrictions will continue for the remainder of 2010 affecting both our distribution and recycling operations in the fourth quarter.

Gross margins for the third quarter of 2010 improved to 4.9% as compared to 3.8% in the third quarter of 2009 resulting in gross profit of $914,000 and $1.0 million respectively. Operating expenses for the third quarter of 2010 were $1.0 million, as compared to $453,000 in the third quarter of 2009. Increases in operating expenses which are comprised of selling expenses and general and administrative expenses, were a result of stock based compensation, increases in operational costs in our U.S. offices and costs associated with additional staff in our metal recycling operations.

We recorded a net loss of ($400,000) inclusive of $15,000 in income taxes for the third quarter of 2010 compared to a net loss of ($1.4) million recorded for the third quarter of 2009 inclusive of a one-time adjustment in tax accruals resulting in income taxes of $1.1 million. We recorded a loss per diluted share of ($0.03) in the third quarter of 2010 as compared to a loss per diluted share of ($0.14) recorded in the third quarter of 2009. The net loss for the first nine months of 2010 was ($594,000) or ($0.04) per diluted share as compared to net income of $2.0 million or $0.20 per diluted share for the first nine months of 2009.

Our September 30, 2010 balance sheet reflects the efforts we have made to position our company for business expansion with shareholder equity reaching $44.0 million and cash of $3.6 million as compared to December 31, 2009, where shareholder equity was $17.1 million with cash of $744,000. Working capital also increased to $9.5 million as compared to $5.3 million in December 31, 2009.

Our performance in the third quarter of 2010 was affected by a number of governmental and macroeconomic factors taking place in China. While management sees the power restrictions ending by the end of 2010 it remains uncertain as to the extent and duration of the power restrictions for the fourth quarter. Management believes there will be sufficient demand for our scrap metal to enable us to quickly recover following the end of the energy restrictions beginning in 2011 and also believes results from our distribution business will significantly improve with the lifting of restrictions as steel output resumes on a more normal level. We will further discuss our operating results during the conference call today, November 15, 2010 at 5:00PM EST.

Commenting on China Armco Metals' financial performance, Kexuan Yao, its CEO and Chairman stated, "We faced temporary external challenges in the third quarter which negatively affected our operations and while these conditions will still remain in the fourth quarter of 2010 we remain on strong financial footing and are poised to rapidly accelerate our growth beginning in 2011. We believe we have the right management team and are positioned in the right business segments to achieve exceptional results for our company and shareholders. We are confident that as we navigate through these short term challenges we will emerge as a significant leader in metal recycling for years to come."

China Armco Metals Conference Call to discuss the Company's financial results for the second quarter of 2010.

The conference call will take place at 5:00 p.m. EST on Monday, November 15, 2010. Anyone interested in participating should call (877) 407-9210 if calling within the United States or (201) 689-8049 if calling internationally approximately 5 to 10 minutes prior to 5:00 p.m. Participants should ask for the China Armco Metals Third Quarter 2010 Financial Results conference call.

This call is being webcast at: http://www.investorcalendar.com/IC/CEPage.asp?ID=162515 The playback of the webcast can be accessed until February 15, 2011. 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

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 has entered the recycling business with the recent launch of operations of a 1-million ton per year shredder and recycler of metals located on 32 acres of land. China Armco maintains customers throughout China which includes the fastest growing steel producing mills and foundries in the PRC. Raw materials are supplied from global suppliers in India, Hong Kong, Nigeria, Brazil, Turkey, and the Philippines. China Armco's product lines include ferrous and non-ferrous ore, iron ore, chrome ore, nickel ore, magnesium, copper ore, manganese ore and steel billet. The recycling facility is expected to be capable of recycling one million metric tons of scrap metal per year which will position China Armco as one of the 10 largest recyclers of scrap metal in China. China Armco estimates the recycled metal market in China as 70 million metric tons. For more information about China Armco, please visit http://www.armcometals.com.

                                                September 30, December 31,
                                                    2010          2009
                                                ------------  ------------
                                                (Unaudited)
ASSETS
CURRENT ASSETS:
Cash                                            $  3,553,832  $    743,810
Pledged deposits                                   3,078,438       779,169
Accounts receivable, net                          20,882,226    28,390,528
Inventories                                        9,245,620       496,149
Advance on purchases                               1,750,426     3,903,782
Prepaid value added taxes                          1,105,337             -
Prepayments and other current assets               5,212,808     3,513,538
                                                ------------  ------------
Total Current Assets                              44,828,687    37,826,976
                                                ------------  ------------

INVESTMENT in Apollo Minerals                      3,396,658             -
PROPERTY, PLANT AND EQUIPMENT, net                32,741,540    19,642,861
LAND USE RIGHT, net                                2,167,899     2,158,234
                                                ------------  ------------
Total Assets                                    $ 83,134,784  $ 59,628,071
                                                ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable                                      8,168,507    17,021,558
Current maturities of long-term debt               4,478,882     2,193,881
Accounts payable                                  16,735,082     6,841,584
Advances from stockholder                          1,029,679        35,475
Customer deposits                                  2,265,186     2,453,098
Corporate income tax payable                       1,086,580     1,990,277
Value added tax and other taxes payable               84,231     1,312,455
Accrued expenses and other current liabilities     1,436,723       654,756
                                                ------------  ------------
Total Current Liabilities                         35,284,870    32,503,084
                                                ------------  ------------

LONG-TERM DEBT                                     3,732,402     6,581,641
DERIVATIVE LIABILITY                                 136,500     3,417,974
                                                ------------  ------------
Total Liabilities                                 39,153,772    42,502,699
                                                ------------  ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value, 74,000,000
 shares authorized, 15,274,282 and 10,310,699
 shares issued and outstanding                        15,274        10,310
Additional paid-in capital                        30,875,345     2,556,966
Deferred compensation                             (2,340,698)     (676,500)
Retained earnings                                 14,342,813    14,936,915
Accumulated other comprehensive income:            1,088,278       297,681
                                                ------------  ------------
Total Stockholders' Equity                        43,981,012    17,125,372
                                                ------------  ------------
Total Liabilities and Stockholders' Equity      $ 83,134,784  $ 59,628,071
                                                ============  ============




                                 For the                  For the
                            Three Months Ended        Nine Months Ended
                        ------------------------  ------------------------
                              September 30,             September 30,
                        ------------------------  ------------------------
                            2010         2009         2010         2009
                        -----------  -----------  -----------  -----------
NET REVENUES            $18,682,407  $27,312,276   44,258,579   55,207,948
COST OF GOODS SOLD       17,768,877   26,279,225   42,589,285   49,542,143
                        -----------  -----------  -----------  -----------
GROSS PROFIT                913,530    1,033,051    1,669,294    5,665,805
                        -----------  -----------  -----------  -----------

OPERATING EXPENSES:
Selling expenses            154,168      139,503      876,265      551,899
General and
 administrative
 expenses                   876,475      313,268    2,078,469      905,869
                        -----------  -----------  -----------  -----------
Total operating
 expenses                 1,030,643      452,771    2,954,734    1,457,768
                        -----------  -----------  -----------  -----------

(LOSS) INCOME FROM
 OPERATIONS                (117,113)     580,280   (1,285,440)   4,208,037

OTHER EXPENSE (INCOME):
Interest expense             75,563       56,727      154,822      148,865
Import and export
 agency income                    -            -            -      (52,335)
Gain from vendor price
 adjustment                       -            -     (963,259)           -
Loss (gain) on change
 in fair value of
 derivative liability        13,215      573,544      (92,912)     648,268
Loss on forward foreign
 currency contracts               -       12,079            -            -
Loan guarantee expense       93,749            -      125,332            -
Other expense (income)       84,523      236,181      (62,724)     333,353
Total other expense
 (income)                   267,050      878,531     (838,741)   1,078,151
                        -----------  -----------  -----------  -----------
(LOSS) INCOME BEFORE
 TAXES                     (384,163)    (298,251)    (446,699)   3,129,886
                        -----------  -----------  -----------  -----------

INCOME TAXES                 15,531    1,140,343      147,403    1,140,418

                        -----------  -----------  -----------  -----------
NET (LOSS) INCOME          (399,694)  (1,438,594)    (594,102)   1,989,468
                        -----------  -----------  -----------  -----------

OTHER COMPREHENSIVE
INCOME (LOSS)
Foreign currency
 translation gain
 (loss)                     687,549       40,869      790,597      (17,531)

                        -----------  -----------  -----------  -----------
COMPREHENSIVE INCOME
 (LOSS)                     287,855   (1,397,725)     196,495    1,971,937
                        ===========  ===========  ===========  ===========

NET (LOSS) EARNINGS PER
 COMMON SHARE - BASIC
 AND  DILUTED:
(Loss) earnings per
 share - Basic          $     (0.03) $     (0.14) $     (0.04) $      0.20
(Loss) earnings per
 share - Diluted        $     (0.03) $     (0.14) $     (0.04) $      0.20

Weighted average common
 shares outstanding -
 basic                   15,266,783   10,104,449   13,309,075   10,100,589
Weighted average common
 shares outstanding -
 diluted                 15,266,783   10,104,449   13,309,075   10,100,589

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 guidance and expectations regarding revenues, net income, earnings, scrap metal recycling production and the extent of government imposed blackouts and the adverse impact on our recycling operations and distribution business, as well as our revenues in during the balance of fiscal 2010. 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:

--  China's restrictive energy policy is adversely impacting our
    operations.
--  Continued global economic weakness is expected to reduce demand for
    our products.
--  Our ability to obtain sufficient capital to fund our planned
    expansion and construction of a scrap metal recycling facility.
--  Fluctuations in raw material prices may affect our operating results
    as we may not be able to pass on cost increases to customers.
--  Our ability to manage growth in operations to maximize our potential
    growth and achieve our expected revenues.
--  Our organic growth strategy, if unsuccessful, may result in a negative
    impact on our growth, financial condition, results of operations and
    cash flow.
--  Our ability to successfully complete construction of our proposed
    scrap metal recycling facility, or, even if constructed, our ability
    to operate the proposed recycling facility profitably.
--  Our ability to successfully implement our acquisition growth strategy
    and meet growth and revenue expectations.
--  The lack various legal protections in certain agreements to which we
    are a party and which are material to our operations which are
    customarily contained in similar contracts prepared in the United
    States.
--  Our dependence on our key management personnel.
--  Our inability to meet the accelerated filing and internal control
    reporting requirements imposed by the SEC.
--  The effect of changes resulting from the political and economic
    policies of the Chinese government on our assets and operations
    located in the PRC.
--  The impact on future inflation in China on economic activity in China.
--  The impact of any recurrence of severe acute respiratory syndrome, or
    SAR's, or another widespread public health problem.
--  The limitation on our ability to receive and use our revenues
    effectively as a result of restrictions on currency exchange in China.
--  Our ability to enforce our rights due to policies regarding the
    regulation of foreign investments in China.
--  The restrictions imposed under recent regulations relating to offshore
    investment activities by Chinese residents and the increased
    administrative burden we face and the creation of regulatory
    uncertainties that may limit or adversely affect our ability to
    complete the business combination with our PRC based subsidiaries.
--  Our ability to comply with the United States Foreign Corrupt Practices
    Act which could subject us to penalties and other adverse consequences.
--  Our ability to establish adequate management, legal and financial
    controls in the PRC.
--  The provisions of our articles of incorporation and bylaws which may
    delay or prevent a takeover which may not be in the best interests of
    our shareholders.
--  Our controlling stockholders may take actions that conflict with your
    interests.

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 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, 2009.

Contact Information

  • Contact:
    China Armco Metals, Inc.
    Richard Galterio
    U.S. Representative
    954-363-7333
    ir@armcometals.com