Armco Metals Holdings Announces Financial Results for the Fourth Quarter and Full Year of 2013

Armco Metals Holdings Announces Financial Results for the Fourth Quarter and  Full Year of 2013  SAN MATEO, CA -- (Marketwired) -- 04/04/14 --  Armco Metals Holdings, Inc. ("Armco Metals Holdings") (NYSE MKT: AMCO), a U.S. based company that engages in the import, sale, and distribution of metal ore and non-ferrous metals in the People's Republic of China, recycles scrap metals used by steel mills in the production of recycled steel and provides sourcing and pricing services for various metals to its network of customers, today announced its financial results for its fourth quarter and for the fiscal year ended December 31, 2013.  SUMMARY FINANCIALS                                                                                   ---------------------------------------------------------------------------- Fourth Quarter 2013 Results                                                  ----------------------------------------------------------------------------                                           Q4 2013              Q4 2012       ---------------------------------------------------------------------------- Sales                                  $66.2 million        $38.0 million    ---------------------------------------------------------------------------- Gross Profit                           $2.2 million         $4.4 million     ---------------------------------------------------------------------------- Income (Loss) from Operations          $0.4 million         $1.75 million    ---------------------------------------------------------------------------- Net Income (Loss)                     $(0.4) million        $0.6 million     ---------------------------------------------------------------------------- EPS (Fully Diluted) (Loss)                ($0.01)               $0.03        ----------------------------------------------------------------------------                                                                                                                                                           ---------------------------------------------------------------------------- Full Year 2013 Results                                                       ----------------------------------------------------------------------------                                           FY 2013              FY 2012       ---------------------------------------------------------------------------- Sales                                 $128.7 million       $106.6 million    ---------------------------------------------------------------------------- Gross Profit                           $3.3 million         $8.5 million     ---------------------------------------------------------------------------- Income (Loss) from Operations         ($2.6) million        $0.9 million     ---------------------------------------------------------------------------- Net Income (Loss)                     ($4.1) million       ($2.6) million    ---------------------------------------------------------------------------- EPS (Fully Diluted) (Loss)                ($0.17)              ($0.14)       ----------------------------------------------------------------------------    Fourth Quarter of 2013 Financial Results  For the fourth quarter ended December 31, 2013, net revenue increased 74% to $66.2 million due to a significant increase in sales in our metal trading business which totaled $40.0 million as compared to $1.1 million in the same period in 2012. Revenues from our recycling business in the fourth quarter of 2013 declined to $26.2 million as compared to $36.6 million in the same period in 2012, largely due to price decline and weak demand. Gross profit for the fourth quarter of 2013 was $2.2 million as compared to $4.4 million in the fourth quarter of 2012. We recorded operating income of $0.4 million in the fourth quarter of 2013 as compared to operating income of $1.75 million in the fourth quarter of 2012. Our operations resulted in a net loss of ($0.4) million or (0.01) per diluted share in the fourth quarter of 2013 compared to net income of $0.6 million in the 2012 quarter, or $0.03 per diluted share. Diluted loss per share was ($0.17) and ($0.14) for the year ended December 31, 2013 and December 31, 2012, respectively.  Results for the Year Ended December 31, 2013  Net revenues in 2013 reached $128.7 million, a 21% increase from $106.6 million in 2012. By business section, the net revenues from our metal recycling business increased by $3.3 million, or by 5%, to $64.9 million, compared to 2012; our net revenues for our metal trading business increased approximately 42% in 2013 to $63.8 million, compared to $45.0 million in 2012. The increase was largely due to sales of stainless steel and nickel which we added to our product offerings in 2013 as well as sales of chrome. This was partially offset by a reduction in sales of iron ore due to corporate risk management initiatives. Our recycling business accounted for approximately 50.4% of our total revenue and continued to exceed our metal trading business as the largest source of our net revenue. Gross profit for the full year 2013 was $3.3 million, a decrease of 54% from $8.5 million for the year ended December 31, 2012. Gross margins decreased to 3.0% in 2013 compared to 8.0% in 2012, which was primarily attributable to lower margin sales in both our trading and recycling businesses. Gross margins were also negatively impacted by an inventory write-off of $2.3 million to reflect industry price declines.  Operating expenses of $5.9 million in 2013 decreased by $1.7 million, or 22.1% compared to 2012, primarily due to the decrease in general and administrative expenses of $1.7 million, and a decrease in selling expense of $0.24 million. The decrease was partially offset by an increase in professional fees of $0.23 million. Operating cost of idled manufacturing facility, one of our major operating costs, remained flat at $1.8 compared to 2012.  Our net loss in 2013 was $4.1 million, compared to net loss of $2.6 million in 2012, the increase in net loss is primarily due to a decrease in gross profit of $5.2 million as a result of a significant decline in gross margin, partially offset by a decrease in total operating expenses of $1.7 million, a decrease in other expenses of $1.6 million, and a decrease in tax expense of $0.31 million.  In reviewing the financial performance for the quarter and year ended 2013, Mr. Kexuan Yao, Chairman and CEO of China Armco, was pleased that the company was able to grow revenue in both business sections and particularly in metal trading during this past year. Mr. Yao remarked that "2013 proved to be another very challenging year for the China steel industry. While we made significant sales gains and reduced overall expenses we suffered the effects of rapidly declining prices in the second half of 2013 which negatively impacted gross margins in both metal trading and metal recycling. The recycling business continued to be our largest source of revenue and we continue to believe the metal recycling business will continue to be the major growth driver for our company."  Mr. Yao further stated that "We intend to further our improvements in cost control, developing and streamlining our supply chain, and the establishment of long term strategic partnership with key clients. As we position the company for a cyclical recovery in the steel industry we will continue our efforts to obtain additional qualifications and licenses to increase our business, and build our brand in the industry. We have driven sales growth in a very challenging environment while reducing costs significantly. We believe this will serve as a springboard for significant financial improvement when our end markets improve."  Select Balance Sheet Items  As of December 31, 2013, the Company had $0.6 million in cash and cash equivalents, compared to $1.4 million at year-end 2012. The Company had working capital of $0.8 million and a current ratio of 1.02:1 on December 31, 2012 compared to $0.3 million and 1.01:1 on December 31, 2012. As of December 31, 2013, shareholders' equity was $42.6 million, slightly up from $41.8 million at the end of 2012.   Business Outlook  Our financial performance during 2013 showed increased sales with a substantially lower gross margin in comparison to 2012 as a result of a difficult pricing environment pressuring margins and resulting in a $2.3 million inventory write-down. Looking at 2014, management believes China's steel demand is expected to grow at a slower pace while China's crude steel output growth expect to fall in 2014 and domestic steel prices are estimated to remain at cyclically low levels. In the middle and long term, we believe that the low income housing construction, ongoing urbanization and increasing domestic consumption in China will continue to support the growth of the steel industry. In the long run, we also expect our recycling business to benefit substantially from the measures and policies to be implemented gradually by the Chinese government according to its 12th Five Year Plan (2011-2015). Under this plan, China intends to restructure its iron and steel industry to be more energy efficient and have increased environmental protection by adopting and developing the most advanced technology in the world.   In our Metal Trading business we experienced high volatility in metal ore prices in 2013. The imported iron ore price rebounded rapidly in July from June and reached its high in the middle of August then began to fall into the fourth quarter. We anticipate the price of iron ore may stabilize at its current level in 2014. We continued to firm our business relationship with worldwide suppliers and stabilize our supply capacity. We believe that 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 progresses which we have obtained support from several banks.   In our Metal Recycling business we experienced weak market for steel scrap in 2013 which may continue in 2014 while steel price are expected to stabilize after the decline in the second half of 2013. However, in the long-term, we believe the country's ongoing urbanization process will increase new steel demand and eventually drive the steel scrap market during the 13th Five-Year-Plan period. We intend to devote a significant amount of our resources towards the improvement of our operations and if appropriate, its expansion. At the same time, we will continue to pursue our strategy to create a local network of raw material suppliers for our recycling facility and expand our oversea supply channels. In addition, we will continue to develop our new sale and operation model in recycling business described above to obtain more customers and business opportunities under the model in the coming years.   The company intends to explore potential merger and acquisition opportunities in businesses related to the steel industry in 2014 in an effort to diversify its revenue streams while leveraging its current customer base. As of March 2014 the Company has entered into negotiations with one such candidate for a potential merger opportunity.  The conference call will take place at 5:00 pm. EDT on Friday, April 4, 2014. To attend the call, please use the dial-in information below. When prompted, ask for the "Armco Metals call" and/or be prepared to provide the conference ID.  Conference Call       Date: Friday, April 4, 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# 13579516: 2013 Fourth Quarter and Year End Financial Results Call      Webcast link:  The playback of the webcast can be accessed until July 7, 2014.   Teleconference Replay:  Replay Number (Toll Free): 1-877-660-6853  Replay Number (International): 1-201-612-7415  Replay Passcode needs Conference ID#: 13579516  Teleconference will be available for replay until 11:59 PM 04/21/2014  ABOUT ARMCO METALS HOLDINGS, INC.  Armco Metals Holdings, Inc. is engaged in the sale and distribution of metal ore and non-ferrous metals throughout China and is in the recycling business in China. Armco Metals' customers include some of the fastest growing steel producing mills and foundries throughout China. Raw materials are acquired from a global group of suppliers located in various 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, steel billet and recycled scrap metals. For more information about Armco Metals, please visit  SAFE HARBOR STATEMENT   In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Armco Metals Holdings, 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") are forward-looking and 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, pricing and demand for our product lines and the extent of government imposed energy and monetary policy restrictions and resulting blackouts and associated impact on our trading and recycling operations.   We caution that investors should not place undue reliance on any forward-looking statements herein. 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. 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 disclosure contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the year ended December 31, 2013, and our subsequent filing with the Securities and Exchange Commission.                                                                                                                                                                                        ARMCO METALS HOLDINGS, INC.                             CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)                                                                                                                             For the Year      For the Year                                                   Ended             Ended                                                  December 31,      December 31,                                                   2013              2012                                                 ----------------  ----------------                                                                                                                                                            NET REVENUES                             $    128,738,194  $    106,569,474                                                                               COST OF GOODS SOLD                            125,426,672        98,102,412                                           ----------------  ----------------                                                                               GROSS PROFIT                                    3,311,522         8,467,062                                                                               OPERATING EXPENSES:                                                            Selling expenses                                177,118           413,352    Professional fees                               512,474           278,502    General and administrative expenses           3,397,191         5,112,131    Operating cost of idle manufacturing                                          facility                                     1,840,967         1,807,313                                           ----------------  ----------------                                                                                   Total operating expenses                    5,927,750         7,611,298                                           ----------------  ----------------                                                                               INCOME (LOSS) FROM OPERATIONS                  (2,616,228)          855,764                                           ----------------  ----------------                                                                               OTHER (INCOME) EXPENSE:                                                        Interest income                                (325,256)         (190,999)   Interest expense                              2,157,156         2,001,535    Foreign currency transaction (gain)                                           loss - marketable securities                         0            36,957    Impairment other than temporary -                                             marketable securities                                0           386,941    Change in fair value of derivative                                            liability                                     (929,883)          306,505    Loan guarantee expense                           45,733            59,744    Forgiveness of debt                                   0           (16,343)   Other expense                                   145,849           148,097                                           ----------------  ----------------                                                                                   Total other (income) expense                1,093,599         2,732,437                                           ----------------  ----------------                                                                               LOSS BEFORE INCOME TAXES PROVISION             (3,709,827)       (1,876,673)                                                                              INCOME TAX PROVISION                              421,585           732,663                                           ----------------  ----------------                                                                               NET LOSS                                       (4,131,412)       (2,609,336)                                                                              OTHER COMPREHENSIVE INCOME (LOSS):                                             Change in unrealized income (loss) of                                         marketable securities                         (694,512)              797    Foreign currency translation gain             1,367,863           263,532                                           ----------------  ----------------                                                                               COMPREHENSIVE LOSS                       $     (3,458,061) $     (2,345,007)                                          ================  ================                                                                               NET LOSS PER COMMON SHARE - BASIC AND                                         DILUTED:                                                                                                                                                   Net loss per common share - basic and                                         diluted                               $          (0.17) $          (0.14)                                          ================  ================                                                                                 Weighted Average Common Shares                                                Outstanding - basic and diluted             24,886,617        18,482,234                                           ================  ================                                                                                     See accompanying notes to the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                   ARMCO METALS HOLDINGS, INC.                                                  CONSOLIDATED BALANCE SHEETS                                                                                                                                                                                                                                         December     December                                                        31, 2013     31, 2012                                                      -----------  -----------                                                                                                                                                            ASSETS                                                                       CURRENT ASSETS:                                                                Cash                                             $   596,557  $ 1,367,171    Pledged deposits                                   4,652,222    4,590,829    Marketable securities                                519,129    1,213,641    Bank acceptance notes receivable                           -        7,926    Accounts receivable, net                          25,595,516   15,699,390    Inventories                                       20,456,920   13,378,445    Advance on purchases                                 733,285    2,238,652    Prepayments and other current assets               1,181,371      453,299                                                     -----------  -----------                                                                                   Total Current Assets                            53,735,000   38,949,353                                                                               PROPERTY, PLANT AND EQUIPMENT                                                  Property, plant and equipment                     44,856,611   43,319,218    Accumulated depreciation                          (9,360,933)  (6,284,162)                                                    -----------  -----------                                                                                   PROPERTY, PLANT AND EQUIPMENT, net              35,495,678   37,035,056                                                                               LAND USE RIGHTS                                                                Land use rights                                    6,681,779    6,473,761    Accumulated amortization                            (416,478)    (260,897)                                                    -----------  -----------                                                                                   LAND USE RIGHTS, net                             6,265,301    6,212,864                                                     -----------  -----------                                                                                                                                                                  Total Assets                                 $95,495,979  $82,197,273                                                     ===========  ===========                                                                               LIABILITIES AND STOCKHOLDERS' EQUITY                                         CURRENT LIABILITIES:                                                           Loans payable                                    $27,415,638  $19,109,930    Banker's acceptance notes payable and letters of                              credit                                            8,473,217    8,624,734    Current maturities of capital lease obligation       904,990    2,615,296    Accounts payable                                  10,062,463    1,141,583    Advances received from Chairman and CEO              668,332            -    Due to related parties                               403,141            -    Customer deposits                                    649,488    1,577,194    Corporate income tax payable                         822,207      407,621    Derivative liabilities - current portion              61,429      306,708    Value added tax and other taxes payable            2,202,331    2,504,677    Accrued expenses and other current liabilities     1,228,753    2,355,903                                                     -----------  -----------                                                                                   Total Current Liabilities                       52,891,989   38,643,646                                                                               CAPITAL LEASE OBLIGATION, net of current                                      maturities                                                  -    1,749,955                                                     -----------  -----------                                                                                     Total Liabilities                             52,891,989   40,393,601                                                     -----------  -----------                                                                               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, 29,876,327 and 20,319,698                                 shares issued and outstanding as of December                                 31, 2013 and 2012, respectively                      29,876       20,320    Additional paid-in capital                        35,790,906   31,542,083    Retained earnings                                  2,625,287    6,756,699    Accumulated other comprehensive income (loss):                                 Change in unrealized loss on marketable                                       securities                                       (694,512)           -      Foreign currency translation gain                4,852,433    3,484,570                                                     -----------  -----------                                                                                   Total Stockholders' Equity                      42,603,990   41,803,672                                                     -----------  -----------                                                                                   Total Liabilities and Stockholders' Equity     $95,495,979  $82,197,273                                                     ===========  ===========                                                                                     See accompanying notes to the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                   ARMCO METALS HOLDINGS, INC.                                             CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                                                                                                  For the Year   For the Year                                                     Ended          Ended                                                      December 31,   December 31,                                                      2013           2012                                                     -------------  -------------  CASH FLOWS FROM OPERATING ACTIVITIES:                                        Net loss                                       $  (4,131,412) $  (2,609,336) Adjustments to reconcile net loss to net cash                                 used in operating activities                                                  Depreciation expense                             2,847,606      2,742,995    Amortization expense                               145,499         49,766    Writ-down of inventories                         2,291,915              -    Change in fair value of derivative liability      (929,883)       306,505    Amortization of debt discount                        8,004              -    Loss from foreign currency exchange rate                                      change on marketable securities                         -         36,957    Impairment other than temporary - marketable                                  securities                                              -        386,941    Stock based compensation                         1,377,715      1,444,019    Shares issued for financing cost                    21,155              -  Adjustments to reconcile net loss to net cash                                 used in operating activities                                                  Changes in operating assets and liabilities:                                   Bank acceptance notes receivable                  (8,072)        (7,926)     Accounts receivable                           (9,319,280)   (14,935,416)     Inventories                                   (8,838,672)    20,095,232      Advance on purchases                           1,556,395        865,391      Prepaid value added taxes                              -        471,244      Prepayments and other current assets            (780,339)     1,369,997      Banker's acceptance notes payable               (422,970)         1,585      Accounts payable                               8,690,406    (17,410,355)     Customer deposits                               (957,536)    (4,320,862)     Taxes payable                                     92,685      2,812,095      Accrued expenses and other current                                            liabilities                                  (1,163,596)      (310,424)                                                -------------  -------------                                                                               NET CASH USED IN OPERATING ACTIVITIES             (9,520,380)    (9,011,592)                                                                              CASH FLOWS FROM INVESTING ACTIVITIES:                                          Proceeds from release of pledged deposits       21,162,708     20,718,637    Payment made towards pledged deposits          (21,077,956)   (16,902,377)   Purchase of property, plant and equipment         (167,962)      (826,350)                                                -------------  -------------                                                                               NET CASH PROVIDED BY (USED IN) INVESTING                                      ACTIVITIES                                          (83,210)     2,989,910                                                                               CASH FLOWS FROM FINANCING ACTIVITIES:                                          Proceeds from loans payable                     49,611,412     64,716,249    Repayment of loans payable                     (39,959,898)   (52,413,180)   Banker's acceptance notes payable                        -        380,433    Repayment of capital lease obligation           (3,552,805)    (2,007,291)   Repayment of long-term debt                              -     (3,962,844)   Advances from (repayment to) Chairman and                                     CEO                                               754,740       (319,306)   Advances from (repayment to) related parties       368,081              -    Proceeds from sales of common stock              1,621,356              -                                                 -------------  -------------                                                                               NET CASH PROVIDED BY FINANCING ACTIVITIES          8,842,886      6,394,061                                                                               EFFECT OF EXCHANGE RATE CHANGES ON CASH               (9,910)       (47,799)                                                -------------  -------------                                                                               NET CHANGE IN CASH                                  (770,614)       324,580                                                                               Cash at beginning of the year                      1,367,171      1,042,591                                                 -------------  -------------                                                                               Cash at end of the year                        $     596,557  $   1,367,171                                                 =============  =============                                                                               SUPPLEMENTAL DISCLOSURE OF CASH FLOWS                                         INFORMATION:                                                                    Interest paid                              $   1,951,630  $   2,001,337                                                 =============  =============      Income tax paid                            $      12,615  $           -                                                 =============  =============                                                                               NON CASH FINANCING AND INVESTING ACTIVITIES:                                   Debt discount due to convertible feature     $      60,795  $           -                                                 =============  =============    Reclassification of derivative liability                                      from equity                                 $     623,809  $           -                                                 =============  =============    Common shares issued for conversion of                                        advances from Chairman and CEO              $   1,045,369  $     353,753                                                 =============  =============    Common shares issued for conversion of                                        short-term loan                             $     816,593  $           -                                                 =============  =============                                                                                     See accompanying notes to the consolidated financial statements.           Contact: CONTACT INFORMATION:  Armco Metals Holdings, Inc. US Investor Relations Contact Christina Xiong Office: 650.212.7620 Email:  Website:   China  Ripple Zhang Office: 86-21-62375286 Email:  Website:    
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