Armco Metals Holdings Announces Third Quarter 2013 Financial Results

Armco Metals Holdings Announces Third Quarter 2013 Financial Results 
SAN MATEO, CA -- (Marketwired) -- 11/14/13 --  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                   For the   
                           For the       Three       For the       Three    
                         Nine Months     Months    Nine Months     Months   
                            Ended        Ended        Ended        Ended    
                          September    September    September    September  
                           30, 2013     30, 2013     30, 2012     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                                                            
   facilit
y                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                                    

  
For more information, please contact: 
Company:
US Contact:
Christina Xiong
Armco Metals Holdings, Inc.
Office: 650.212.7620 
Email: ir@armcometals.com
Website: www.armcometals.com 
China Contact:
Ripple Zhang
Investor Relations
Office: 021-62375286
Email: ripple.zhang@armcometals.com
Website: www.armcometals.com 
 
 
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