SAN MATEO, CA -- (Marketwire) -- 08/14/12 -- China Armco Metals, Inc. (NYSE MKT: CNAM) ("China Armco" or the "Company"), 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 its second quarter 2012 and first half year 2012.
SUMMARY FINANCIALS
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Three months ended June 30
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Q2 2012 Q2 2011 CHANGE
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Sales $4.3 million $31.0 million -86%
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Gross Profit $0.7 million $1.3 million -46%
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Net Income -$1.7 million -$1.3million N/A
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EPS (Fully Diluted) (Loss) ($0.09) ($0.08) N/A
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Second Quarter of 2012 Financial Results
For the quarter ended June 30, 2012, net revenue decreased 86% to $4.3 million, of which the metal recycling sales decreased 87% to $2.9 million from $22.1 million and the metal ores trading sales decreased by 84% to $1.4 million from $8.8 million, respectively, compared to the same period of 2011. The Company sold 6,719 metric tons ("MT") of recycled scrap metal compared to 47,662MT sold in the second quarter of 2012, and the production of recycled scrap metal decreased by 70% to 10,915 MT from 36,322 MT in the second quarter of 2011. The decrease in the trading business sales was composed of a $3.9 million decrease in sales of iron ore, a $2.4 million decrease in sales of manages ore, and a $1.1 million decrease in sales of chromium ore.
"Domestic steel market condition in the PRC deteriorated as the slowdown of China's economy in the second quarter of 2012," explained Mr. Kexuan Yao, Chairman and CEO of China Armco. "In response to the deteriorating market in the second quarter we significantly reduced our trading and production activities to control market risks. Consequently, we experienced a significant decline in metal ore sales across the board and scrap metals sales as well in the second quarter of 2012. However, although the market is still weak we have seen some sure signs of a move to pro-growth policy in the PRC and we expect recovery will pick up momentum in the late of 2012. With the expected improvement of our supply chain management, we are well-positioned to capture a growing share of an increasing market demand for our products when the market recovers."
Gross profit for the second quarter of 2012 was $0.7 million compared to $1.3 million in the second quarter of 2011. Gross margin was 16.9% compared to 4.4% for same period of last year. The profit margin increase was primarily due to an adjustment as result of invoicing changes for transactions in prior quarter.
Operating expenses decreased to $1.9 million from $2.1 million a year ago. The decrease in operating expenses was primarily due to decreased professional fees and selling expenses associated with lower level of sales.
Operating income for the second quarter of 2012 was a $1.2 million loss compared to a $0.7 million loss in the second quarter of 2011.
Net loss for the second quarter of 2012 was $1.7million, or $0.09 per diluted share, compared to a $1.3 million loss, or $0.08 per share, in the same period last year. The weighted average diluted shares outstanding increased from 15.4 million in the second quarter of 2011 to 18.5 million in the second quarter of 2012.
Financial Condition
The Company ended the second quarter of 2012 with $0.9 million in cash, compared to $1.0 million at the end of 2011. Working capital was -$2.57 million and a current ratio of 0.93:1 on June 30, 2012 compared to $1.6 million and 1.03:1 on December 31, 2011. The decrease in working capital from end of 2011 was mainly as result of operating loss, interest expense, and wrote off on marketable securities of investment. Total accounts receivable were $0.79 million at the end of the second quarter of 2012 compared to $0.76 million at year-end 2011. 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 $39.6 million at June 30, 2012.
The Company had $4.95 million net cash outflow from operations the first half of 2012 and spent $1.3 million on capital expenditures. Net cash inflow from financing activities was $7.65 million. China Armco had approximately $63 million of credit available on seven bank lines with an aggregate capacity of $79 million at June 30, 2012.
First Half 2012 Financial Results
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Six months ended June 30
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1H 2012 1H 2011 CHANGE
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Sales $53.6 million $80.7 million -34%
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Gross Profit $2.2million $4.5 million -52%
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Net Income -$3.4 million -$0.7 million N/A
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EPS (Fully Diluted) (Loss) ($0.19) ($0.05) N/A
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China Armco's sales decreased in the first half of 2012, from $80.7 million a year ago to $53.6 million. Sales in the metal recycling business were $11.6 million, a decrease of $16.9 million from the same period last year. Metal ores trading generated $41.9 million of sales compared to $52.2 million in the comparable period a year ago. In response to the deteriorating market due to China economy slowdown in first half of 2012 the company significantly reduced its trading and production activities to control market risks. While expanding its sources of raw material and developing a supply chain network locally to increase and stabilize the availability of raw materials, China Armco is also seeking to expend its overseas supply channels and recent development included negotiations on business cooperation with U.S. and Japan suppliers.
Gross profit decreased by $2.3 million to $2.2 million, with a gross margin of 4% compared to $4.5 million for the first six months of 2011.
Operating expenses decreased from $3.8 million to $3.6 million, primarily due to decrease in professional fees and selling expenses. Net loss and per share loss were $3.3 million and $0.19, respectively, in the first half of 2012. The weighted average diluted shares outstanding were 17.6 million, a 15% increase from 15.3 million in the first six months of 2011.
Business Updates
The metal ore trading business decreased about 20% in net revenues during the first half of 2012 compared to the same period in 2011 due to deteriorating market as result of China economy slowdown. During the difficult time for whole industry, the Company continued to solidify business relationships with its suppliers while reducing purchases and inventory to control market risk. Management also works with clients and financial institutions to refine business model in trading business and believes it will benefit to all parties.
The scrap metal recycling business was adversely affected by the economy slowdown in the PRC. Sales decreased substantially from approximately 61,192 in the first six months of 2011 to approximately 23,471 MT in the first six months of 2012. The Company ended the second quarter with 1,278 MT of recycled scrap steel yet to be delivered. The Company has concentrated its efforts on streamlining the production and operations by developing standardized production processes, improving cost controls with greater precision and efficiencies. The Company continues to work on developing a supply chain network locally and expanding overseas supply channels and recent development included negotiations on business cooperation with U.S. and Japan suppliers. 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.
In June 2012, the Company renewed the operating agreement with Lianyungang Hebang Renewable Resources Co., Ltd. ("Hebang"), an unrelated third party, to lease storage and production capacity at Hebang's facilities located in Guanyun City, Jiangsu province. The agreement allows China Armco to secure and store raw materials at a reasonable cost while reducing the cost of transportation. Guanyun City is located approximately 60 miles (direction) from the Company's metal recycling facilities in Lianyungang. Hebang has provided 11,396 MT raw materials since the first lease started last June.
Conference Call
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Conference Call Name China Armco Metals Second Quarter 2012
Conference Call
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Date: Wednesday, August 15, 2012
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Time: 12:00 pm Eastern Time, US
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Conference Line Dial-In (U.S.): +1-877-407-9210
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International Dial-In: +1-201-689-8049
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Conference Call ID 398547
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Webcast link: http://www.investorcalendar.com/IC/CEPa
ge.asp?ID=169437
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Please dial in at least 10 minutes before the call to ensure timely participation.
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Teleconference will be available for replay until 11:59 PM 08/29/2012
About China Armco Metals, Inc.
China Armco Metals, Inc. trades metal ore and recycles scrap metal within the PRC, which is the world's largest importer of iron ore and has the world's largest market for scrap metal. Through its trading business, the company sells and distributes metal ore and non-ferrous metals within the PRC. Through its recently launched recycling business, the company recycles scrap metal (primarily steel) at its facility located in the Jiangsu province of the PRC and sells the recycled product to steel mills within the PRC. Materials used in the company's trading business are sourced from global suppliers in India, Hong Kong, Nigeria, Brazil, Turkey and the Philippines, and raw materials in the recycling business are sourced primarily from local suppliers. For more information about China Armco, please visit http://www.armcometals.com.
Safe Harbor Statement
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to our operations, results of operations and other matters that are based on our current expectations, estimates, forecasts and projections. 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" "expect," "anticipate," "estimate," "intend," "plan," "believe," "project," "may", "potential," "opportunity" and "should") are intended to identify forward-looking statements and may involve risks and uncertainties that 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 programs and policies announced by the PRC government on our operations or any forward looking statement in this press release.
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. Such factors include, but are not limited to: fluctuations in the prices of metals, ore and scrap metal, the growth rate of the Chinese and world economy and related economic factors, fluctuations in supply and demand of metals, ore and scrap metal, our ability to secure supplies of metals, ore and scrap metal upon favorable terms, our ability to resell metals and ores at current market prices and on favorable terms, our ability to finance the purchase price of metals, ore and scrap metal (and the continued willingness of our Chairman to personally guarantee such financing), our ability to repay our indebtedness, our ability to retain current customers and suppliers and attract new customers and suppliers, our ability to continue to improve production rates at our recycling facility, our ability to establish adequate management, legal and financial controls in the United States and China, the actions (including for example electric power limitations and currency controls) of government and regulatory bodies in China and United States, the negative market and governmental reaction to "reverse merger" Chinese companies due to high profile frauds and other problems noted in the press, and the cautionary statements and risk factors contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the year ended December 31, 2011, as amended by Form 10-K/A, and our Quarterly Report on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012. Most of these factors are beyond our ability to predict or control. New factors that could cause actual results to differ materially from those expressed in the forward-looking statements 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. Each 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.
-- Financial Tables --
CHINA ARMCO METALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the For the For the For the
Six Three Six Three
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2012 2012 2011 2011
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
NET REVENUES $53,578,925 $ 4,294,734 $80,652,790 $30,968,138
COST OF GOODS SOLD 51,393,910 3,569,816 76,134,622 29,618,739
----------- ----------- ----------- -----------
GROSS PROFIT 2,185,015 724,918 4,518,168 1,349,399
OPERATING EXPENSES:
Selling expenses 269,352 138,829 542,048 270,524
Professional fees 105,934 89,222 628,805 500,640
General and
administrative
expenses 2,184,456 1,140,990 1,768,376 872,967
Operating cost of idle
manufacturing
facility 1,061,821 564,597 899,786 428,436
----------- ----------- ----------- -----------
Total operating
expenses 3,621,563 1,933,638 3,839,015 2,072,567
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
OPERATIONS (1,436,548) (1,208,720) 679,153 (723,168)
----------- ----------- ----------- -----------
OTHER (INCOME) EXPENSE:
Interest income (44,173) (43,121) (29,384) (25,050)
Interest expense 1,211,302 424,790 963,428 409,175
Foreign currency
transaction (gain)
loss - marketable
securities 61,995 26,442 (92,869) 90,997
Impairment other than
temporary -
marketable securities 386,941 - - -
Change in fair value
of derivative
liability 129 (420) (128,120) (76,897)
Loan guarantee expense 30,964 14,297 134,999 45,333
Other (income) expense 130,848 11,041 323,281 66,789
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Total other (income)
expense 1,778,006 433,029 1,171,335 510,347
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LOSS BEFORE INCOME TAXES (3,214,554) (1,641,749) (492,182) (1,233,515)
INCOME TAX PROVISION 151,042 63,639 242,871 67,708
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NET LOSS (3,365,596) (1,705,388) (735,053) (1,301,223)
OTHER COMPREHENSIVE
INCOME (LOSS):
Change in unrealized
loss of marketable
securities 797 - (2,109,512) (514,858)
Foreign currency
translation gain 254,736 17,270 886,612 588,014
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COMPREHENSIVE INCOME
(LOSS) $(3,110,063) $(1,688,118) $(1,957,953) $(1,228,067)
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NET LOSS PER COMMON
SHARE - BASIC AND
DILUTED:
Net loss per common
share - basic and
diluted $ (0.19) $ (0.09) $ (0.05) $ (0.08)
=========== =========== =========== ===========
Weighted Average
Common Shares
Outstanding - basic
and diluted 17,561,985 18,455,833 15,336,338 15,352,020
=========== =========== =========== ===========
CHINA ARMCO METALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2012 December 31, 2011
----------------- -----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 879,174 $ 1,042,591
Pledged deposits 9,903,019 8,357,670
Marketable securities 1,188,603 1,636,742
Accounts receivable 792,629 758,500
Inventories 13,644,232 33,344,547
Advance on purchases 3,915,252 3,079,684
Prepaid corp income taxes -
Renewable Metals 470,818 467,546
Prepayments and other current assets 1,174,876 1,744,047
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Total Current Assets 31,968,603 50,431,327
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 43,798,927 42,165,437
Accumulated depreciation (4,955,899) (3,514,893)
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PROPERTY, PLANT AND EQUIPMENT, net 38,843,028 38,650,544
LAND USE RIGHT
Land use right 6,467,918 6,422,956
Accumulated amortization (235,801) (209,474)
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LAND USE RIGHT, net 6,232,117 6,213,482
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Total Assets $ 77,043,748 $ 95,295,353
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable $ 12,669,654 $ 6,711,898
Banker's acceptance notes payable
and letters of credit 11,402,689 8,178,029
Current maturities of capital lease
obligation 2,350,734 2,195,177
Current maturities of long-term debt 3,959,267 3,931,745
Accounts payable 982,070 18,543,129
Advances received from Chairman and
CEO 300,255 607,009
Customer deposits 740,157 5,851,769
Corporate income tax payable 362,825 99,042
Value added tax and other taxes
payable 34,515 1,150
Accrued expenses and other current
liabilities 1,736,585 2,713,532
----------------- -----------------
Total Current Liabilities 34,538,751 48,832,480
CAPITAL LEASE OBLIGATION, net of
current maturities 2,942,237 4,127,354
DERIVATIVE LIABILITY 332 203
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Total Liabilities 37,481,320 52,960,037
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value;
1,000,000 shares authorized; none
issued or outstanding - -
Common stock, $0.001 par value,
74,000,000 shares authorized,
17,176,667 and 15,421,008 shares
issued and outstanding,
respectively 17,177 15,421
Additional paid-in capital 30,069,038 29,733,619
Retained earnings 6,000,439 9,366,035
Accumulated other comprehensive
income (loss):
Change in unrealized loss on
marketable securities - (797)
Foreign currency translation gain 3,475,774 3,221,038
----------------- -----------------
Total Stockholders' Equity 39,562,428 42,335,316
----------------- -----------------
Total Liabilities and
Stockholders' Equity $ 77,043,748 $ 95,295,353
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CHINA ARMCO METALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six For the Six
Months Months
Ended Ended
June 30, 2012 June 30, 2011
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(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,365,596) $ (735,053)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation expense 1,417,754 1,322,537
Amortization expense 24,861 24,287
Change in fair value of derivative liability 129 (128,120)
(Gain) loss from foreign currency exchange
rate change on marketable securities 61,995 (92,869)
Impairment other than temporary - marketable
securities 386,941 -
Stock based compensation 506,926 311,523
Bank acceptance notes receivable - (154,715)
Accounts receivable (29,284) 18,900,255
Inventories 19,814,593 (2,995,412)
Advance on purchases (814,011) (4,870,851)
Prepayments and other current assets 580,859 2,809,624
Accounts payable (17,569,656) (1,386,949)
Customer deposits (5,152,574) 7,121,994
Taxes payable 297,140 (956,651)
Accrued expenses and other current
liabilities (1,112,164) (5,263,344)
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NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (4,952,087) 13,906,256
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from release of pledged deposits 12,163,902 27,057,004
Payment made towards pledged deposits (13,665,517) (26,247,324)
Purchases of property and equipment (1,343,721) (1,263,008)
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NET CASH USED IN INVESTING ACTIVITIES (2,845,336) (453,328)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable 51,324,318 45,707,764
Repayment of loans payable (45,456,352) (61,873,516)
Banker's acceptance notes payable 3,167,414 1,918,465
Repayment of mortgage payable (1,073,817) -
Repayment of capital lease obligation - (388,186)
Advances from (repayment to) Chairman and
CEO (306,762) (72,760)
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NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 7,654,801 (14,708,233)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (20,794) (17,357)
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NET CHANGE IN CASH (163,417) (1,272,662)
Cash at beginning of period 1,042,591 3,097,917
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Cash at end of period $ 879,174 $ 1,825,255
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SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Interest paid $ 1,256,282 $ 963,428
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Income tax paid $ - $ 1,205,932
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Company:
US Contact:
Christina Xiong
Investor Relations
China Armco Metals, Inc.
Office: 650.212.7620
Email: christina@armcometals.com
Website: www.armcometals.com
China Contact:
Julie Gu
Investor Relations
Office: 021-62375286
Email: julie.gu@armcometals.com
Website: www.armcometals.com
