SOURCE: China Armco Metals, Inc.
August 13, 2010 17:01 ET
China Armco Metals Reports Financial Results for the Second Quarter Ended June 30, 2010
SAN MATEO, CA--(Marketwire - August 13, 2010) - China Armco Metals, Inc. (NYSE Amex: CNAM), a
distributor of imported metal ore and metal recycler with a new state of
the art scrap metal recycling facility in China, today announced its
financial results for the second quarter of 2010.
Six Months and Second Quarter 2010 Financial Results
Net revenues for the first six months of 2010 were $25.6 million compared
to the $27.9 million recorded in the first six months of 2009. The decrease
in revenue is largely due to a sharp decline in customer demand midway
through the second quarter of 2010 resulting from the Chinese government
measures to restrain the real estate industry from overheating. As a
result, net revenues for the second quarter of 2010 were $17.0 million
compared to the $22.5 million recorded in the second quarter of 2009. In
the second quarter we experienced a significant decline in metal ore sales
as purchasers curtailed orders in light of these policies. Management sees
these pressures easing in the coming quarters and has already seen a marked
pickup in activity from customers.
The soft demand in the second quarter of 2010 coupled with a declining
price environment caused severe pressure on the Company's gross margins
resulting in gross profit margins declining to 1.2% in the second quarter
of 2010 as compared to 18.3% in the second quarter of 2009. Additionally,
there was a heavy concentration of sales of lower margin iron ore in the
second quarter of 2010 compared to a large high margin shipment of chromium
contributing substantially to gross margins in the second quarter of 2009.
Operating expenses for the second quarter of 2010 were $1.0 million, as
compared to $671,000 in the second quarter of 2009. Increases in operating
expenses, which are comprised of selling expenses and general and
administrative expenses, were a result of stock-based compensation,
increases in operational costs in our US offices and costs associated with
additional staff in our metal recycling operations.
We recorded a net loss of ($248,000) for the second quarter of 2010
compared to a net income of $3.1 million recorded for the second quarter of
2009. This resulted in a loss per diluted share of ($0.02) as compared to
earnings per diluted share of $0.31 in the second quarter of 2009. The net
loss for the first six months of 2010 was ($194,408) or ($0.02) per diluted
share as compared to net income of $3.4 million or $0.34 per diluted share
in the first six months of 2009.
Our June 30, 2010 balance sheet reflects the efforts we have made to
position our company for business expansion, with shareholder equity
reaching $42.9 million and cash of $3.2 million as compared to December 31,
2009, where shareholder equity was $17.1 million with cash of $744,000.
Working capital also increased to $18.6 million as compared to $5.3 million
at December 31, 2009.
Financial Forecast for Full Year of 2010
While performance in the second quarter of 2010 suffered from a number of
macroeconomic factors, we have made significant strides in the launch of
our metal recycling facility. Installation of equipment along with
government approvals was completed in the second quarter of 2010 with some
minor delays during our testing phase. However, we were able to deliver
approximately 10,500 metric tons of finished product to end customers in
the second quarter. Production will accelerate substantially in the third
quarter and we are seeing a strong pickup in ore trading activity as well.
Based on our current production and delivery schedules in metal recycling,
coupled with current quoting activity in our trading operations, we
anticipate a very strong performance for the remainder of 2010. The longer
than anticipated testing phase in our metal recycling operations and soft
second quarter has caused management to revise its financial guidance for
2010. Management now expects revenues for the full year of 2010 to exceed
$180 million, with net income exceeding $10 million. Management expects its
metal recycling operations to become the largest contributor to revenues,
progressively accelerating in the second half of 2010. We will further
discuss our operating results as well as our outlook for the remainder of
2010 during the conference call today, August 13, 2010 at 5:00PM EST.
Commenting on China Armco Metals' financial performance, Kexuan Yao, its
CEO and Chairman, stated, "While the second quarter was particularly
challenging, we have launched our recycling operations and see production
accelerating. We have significantly strengthened our balance sheet and
secured significant additional borrowing capacity, giving us a great deal
more financial flexibility to rapidly grow our business. We intend to make
every effort to maintain a high rate of production for the remainder of
2010. As we head into our traditionally stronger quarters we believe we
are poised for a period of significant earnings growth and we intend to
deliver on our aggressive plan for the benefit of our shareholders."
China Armco Metals Conference Call to discuss the Company's financial
results for the second quarter of 2010.
The conference call will take place at 5:00 p.m. EST on Friday, August 13,
2010. Anyone interested in participating should call (877) 407-9210 if
calling within the United States or (201) 689-8049 if calling
internationally approximately 5 to 10 minutes prior to 5:00 p.m.
Participants should ask for the China Armco Metals Second Quarter 2010
Financial Results conference call.
This call is being webcast at:
http://www.investorcalendar.com/IC/CEPage.asp?ID=160960. The playback of
the webcast can be accessed until August 13, 2011. To access the webcast,
you will need to have the Windows Media Player on your desktop. For the
free download of the Media Player, please visit:
http://www.microsoft.com/windows/windowsmedia/en/download/default.asp.
About China Armco Metals, Inc.
China Armco Metals, Inc. is engaged in the sale and distribution of metal
ore and non-ferrous metals throughout the PRC and has entered the recycling
business with the recent launch of operations of a 1-million ton per year
shredder and recycler of metals located on 32 acres of land acquired by
China Armco. China Armco maintains customers throughout China which
includes the fastest growing steel producing mills and foundries in the PRC.
Raw materials are supplied from global suppliers in India, Hong Kong,
Nigeria, Brazil, Turkey, and the Philippines. China Armco's product lines
include ferrous and non-ferrous ore, iron ore, chrome ore, nickel ore,
magnesium, copper ore, manganese ore and steel billet. The recycling
facility is expected to be capable of recycling one million metric tons of
scrap metal per year which will position China Armco as one of the 10
largest recyclers of scrap metal in China. China Armco estimates the
recycled metal market in China as 70 million metric tons. For more
information about China Armco, please visit http://www.armcometals.com.
CHINA ARMCO METALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
June 30, 2010 2009
-------------- --------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 3,165,154 $ 743,810
Pledged deposits 1,580,764 779,169
Marketable securities 3,656,981 -
Accounts receivable, net 12,026,543 28,390,528
Inventories 3,813,377 496,149
Advance on purchases 5,106,360 3,903,782
Prepaid value added taxes 1,342,876 -
Prepayments and other current assets 1,566,648 3,513,538
------------- -------------
Total Current Assets 32,258,703 37,826,976
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, net 30,305,862 19,642,861
LAND USE RIGHTS, net 2,144,244 2,158,234
------------- -------------
Total Assets 64,708,809 59,628,071
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable - 17,021,558
Current maturities of long-term debt - 2,193,881
Accounts payable 9,986,556 6,841,584
Advances from stockholder 375,194 35,475
Customer deposits 1,279,812 2,453,098
Corporate income tax payable 1,716,452 1,990,277
Value added tax and other taxes payable 54,587 1,312,455
Accrued expenses and other current
liabilities 235,191 654,756
------------- -------------
Total Current Liabilities 13,647,792 32,503,084
------------- -------------
LONG-TERM DEBT 8,078,019 6,581,641
DERIVATIVE LIABILITY 123,285 3,417,974
------------- -------------
Total Liabilities 21,849,096 42,502,699
------------- -------------
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, 14,763,320 and 10,310,699
shares issued and outstanding, respectively 14,763 10,310
Additional paid-in capital 28,374,631 2,556,966
Deferred compensation (672,916) (676,500)
Retained earnings 14,742,506 14,936,915
Accumulated other comprehensive income:
Foreign currency translation gain 400,729 297,681
Total Stockholders' Equity 42,859,713 17,125,372
------------- -------------
Total Liabilities and Stockholders' Equity $ 64,708,809 $ 59,628,071
============= =============
The notes to our unaudited consolidated financial statements are an
integral part of these consolidated financial statements.
CHINA ARMCO METALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2010 2009 2010 2009
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
NET REVENUES $16,999,602 $22,537,814 $25,576,172 $27,895,672
COST OF GOODS SOLD 16,802,757 18,415,683 24,820,408 23,262,918
----------- ----------- ----------- -----------
GROSS PROFIT 196,845 4,122,131 755,764 4,632,754
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling expenses 379,392 385,103 722,097 412,396
General and
administrative
expenses 631,122 285,960 1,201,994 592,601
----------- ----------- ----------- -----------
Total operating
expenses 1,010,514 671,063 1,924,091 1,004,997
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
OPERATIONS (813,669) 3,451,068 (1,168,327) 3,627,757
----------- ----------- ----------- -----------
OTHER (INCOME) EXPENSE:
Interest income (5,631) (45,018) (5,856) (45,018)
Interest expense - 119,120 85,115 137,156
Import and export
agency income - (47,244) - (47,244)
Gain from vendor price
adjustment - - (963,259) -
Loss (gain) on change
in fair value of
derivative liability (427,881) 244,550 (106,127) 74,724
Loss on forward
foreign currency
contracts - (12,079) - (12,079)
Loan guarantee cost 31,583 - 31,583 -
Other (income) expense (149,647) 66,945 (147,247) 97,172
----------- ----------- ----------- -----------
Total other (income)
expense (551,576) 326,274 (1,105,791) 204,711
----------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES (262,093) 3,124,794 (62,536) 3,423,046
INCOME TAXES (14,461) (716) 131,872 74
----------- ----------- ----------- -----------
NET INCOME (247,632) 3,125,510 (194,408) 3,422,972
----------- ----------- ----------- -----------
OTHER COMPREHENSIVE
INCOME (LOSS):
Foreign currency
translation gain
(loss) 99,109 (31,956) 103,048 (58,401)
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME $ (148,523) $ 3,093,554 $ (91,360) $ 3,364,571
=========== =========== =========== ===========
NET EARNINGS PER COMMON
SHARE - BASIC AND
DILUTED:
- Earning per share
- Basic $ (0.02) $ 0.31 $ (0.01) $ 0.34
- Earnings per share
- Diluted $ (0.02) $ 0.31 $ (0.01) $ 0.34
Weighted Average
Common Shares
Outstanding
- basic 13,900,753 10,096,538 13,900,753 10,096,538
Weighted Average
Common Shares
Outstanding
- diluted 13,900,753 10,096,538 13,900,753 10,096,538
The notes to our unaudited consolidated financial statements are an
integral part of these consolidated financial statements.
Safe Harbor Statement
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, China Armco Metals, Inc., is hereby
providing cautionary statements identifying important factors that could
cause our actual results to differ materially from those projected in
forward-looking statements (as defined in such act). Any statements that
are not historical facts and that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, indicated through the use of words or
phrases such as "will likely result," "are expected to," "will continue,"
"is anticipated," "estimated," "intends," "plans," "believes" and
"projects") may be forward-looking and may involve estimates and
uncertainties which could cause actual results to differ materially from
those expressed in the forward-looking statements. These statements include,
but are not limited to, our guidance and expectations regarding revenues,
net income, earnings and scrap metal production. In addition, any such
statements are qualified in their entirety by reference to, and are
accompanied by, the following key factors that have a direct bearing on our
results of operations:
-- We operate in a business that is cyclical and where demand can be
volatile.
-- Our dependence on adequate supply and availability of raw materials.
-- The principal markets we serve are highly competitive.
-- Our customers' inability to fulfill their contractual obligations
during uncertain economic conditions.
-- Loss of order volumes from any of our major customers could result in a
significant decline in our sales and our cash flows may be reduced.
-- Equipment upgrades and equipment failures may lead to production
curtailments or shutdowns.
-- Our need for additional financing to fund expansion of our recycling
facility and working capital for our metal ore business and the
potentially dilutive effects of those activities.
-- Our ability to manage growth in operations to maximize our potential
growth and achieve our expected revenues.
-- The lack various legal protections in certain agreements to which we
are a party and which are material to our operations which are
customarily contained in similar contracts prepared in the United
States.
-- Our dependence on our key management personnel.
-- The effect of changes resulting from the political and economic
policies of the Chinese government on our assets and operations
located in the PRC.
-- The influence of the Chinese government over the manner in which our
Chinese subsidiaries must conduct our business activities.
-- The impact on future inflation in the PRC on economic activity in the
PRC.
-- The impact of any recurrence of severe acute respiratory syndrome, or
SAR's, or another widespread public health problem.
-- The limitation on our ability to receive and use our revenues
effectively as a result of restrictions on currency exchange in the
PRC.
-- Our ability to enforce our rights due to policies regarding the
regulation of foreign investments in the PRC.
-- The restrictions imposed under recent regulations relating to offshore
investment activities by Chinese residents and the increased
administrative burden we face and the creation of regulatory
uncertainties that may limit or adversely affect our ability to
complete the business combination with our PRC based subsidiaries.
-- Our ability to comply with the United States Foreign Corrupt Practices
Act which could subject us to penalties and other adverse consequences.
-- Our ability to establish adequate management, legal and financial
controls in the PRC.
-- The provisions of our articles of incorporation and bylaws which may
delay or prevent a takeover which may not be in the best interests of
our shareholders.
-- Our controlling stockholders may take actions that conflict with your
interests.
We caution that the factors described herein could cause actual results to
differ materially from those expressed in any forward-looking statements we
make and that investors should not place undue reliance on any such
forward-looking statements. Further, any forward-looking statement speaks
only as of the date on which such statement is made, and we undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to reflect
the occurrence of anticipated or unanticipated events or circumstances. New
factors emerge from time to time, and it is not possible for us to predict
all of such factors. Further, we cannot assess the impact of each such
factor on our results of operations or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements. This press release is
qualified in its entirety by the cautionary statements and risk factor
disclosure contained in our Securities and Exchange Commission filings,
including our Annual Report on Form 10-K for the year ended December 31,
2009.