XASE:CNAM Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

cami_10q-063012.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
(Mark One)
 
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2012
 
or
 
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________________ to __________________________
 
Commission File Number: 001-34631
CHINA ARMCO METALS, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
26-0491904
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 
   
One Waters Park Drive, Suite 98, San Mateo, CA
94403
(Address of principal executive offices)
(Zip Code)
 
(650) 212-7620
(Registrant's telephone number, including area code)
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]    No [   ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X]    No [   ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer [   ]                                                                                              Accelerated filer [   ]
Non-accelerated filer (Do not check if a smaller reporting company) [   ]              Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [  ]       No [X]

As of August 13, 2012, 18,223,727 shares of common stock, par value $0.001, are issued and outstanding.
 
 
 

 

TABLE OF CONTENTS
 
   
Page No.
 
PART I - FINANCIAL INFORMATION
 
Item 1.
Financial Statements.
F-1
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
5
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
16
     
Item 4.
Controls and Procedures.
17
 
PART II - OTHER INFORMATION
 
Item 1.
Legal Proceedings.
18
     
Item 1A.
Risk Factors.
18
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
19
     
Item 3.
Defaults Upon Senior Securities.
19
     
Item 4.
Mine Safety Disclosures.
19
     
Item 5.
Other Information.
19
     
Item 6.
Exhibits.
19
 
 
2

 

Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results
 
This Report contains forward-looking statements. The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. A list of factors that could cause our actual results of operations and financial condition to differ materially is set forth below, and these factors are discussed in greater detail under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011:
 
We operate in cyclical industries and we experience volatile demand for our products.
Our ability to operate our scrap metal recycling facility efficiently and profitably.
Our ability to obtain sufficient capital to fund a potential expansion of our scrap metal recycling facility.
Our ability to establish adequate management, legal and financial controls in the United States and the PRC.
The availability to us of supplies of metal ore and scrap metal upon favorable terms.
The availability of electricity to operate our scrap metal recycling facility.
Fluctuations in raw material prices may affect our operating results as we may not be able to pass on cost increases to customers.
The lack of various legal protections in certain agreements to which we are a party which are customarily contained in similar contracts prepared in the United States and which are material to our operations.
Our dependence on our key management personnel.
Our potential inability to meet the filing and internal control reporting requirements imposed by the SEC.
The effect of changes resulting from the political and economic policies of the Chinese government on our assets and operations located in the PRC.
The limitation on our ability to receive and use our revenues effectively as a result of restrictions on currency exchange in the PRC.
The impact on future inflation in China on economic activity in China.
Our ability to enforce our rights due to policies regarding the regulation of foreign investments in the PRC.
The restrictions imposed under 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 any business combinations 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.
 
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 and other factors could cause our actual results of operations and financial condition 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.
 
 
3

 
 
INDEX OF CERTAIN DEFINED TERMS USED IN THIS REPORT
 
When used in this report the terms:
 
 
 
“Armco HK” or “Armco & Metawise” refers to Armco Metals International Limited, a limited liability company established under the laws of Hong Kong.
 
 
“Armco Shanghai” refers to Armco Metals (Shanghai) Holdings. Ltd., a wholly-owned foreign enterprise and limited liability company established under the laws of the People’s Republic of China.
 
 
“China Armco Metals,” “we,” “us” or “our” refers to China Armco Metals, Inc., a Nevada corporation, and its subsidiaries.

 
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended.

 
“Henan Armco” refers to Henan Armco & Metawise Trading Co., Ltd., a limited liability company established under the laws of the People’s Republic of China.
 
 
“Lianyungang Armco” refers to Armco (Lianyungang) Holdings, Ltd., a wholly-owned foreign enterprise and limited liability company established under the laws of the People’s Republic of China.
 
 
 “PRC”, “China”, and “Chinese” refer to the People’s Republic of China.

 
“Renewable Metals” refers to Armco (Lianyungang) Renewable Resources Co., Ltd. (formerly known as Armet (Lianyungang) Scraps Co., Ltd.), a limited liability company established under the laws of the People’s Republic of China.

 
“SEC” refers to the United States Securities and Exchange Commission;
 
 
4

 
 
 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
 
                 
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)
 
                 
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)
 
                 
LAND USE RIGHT, net
   
6,232,117
     
6,213,482
 
                 
Total Assets
 
$
77,043,748
   
$
95,295,353
 
                 
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
 
                 
Total Liabilities
   
37,481,320
     
52,960,037
 
                 
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
 
 
See accompanying notes to the consolidated financial statements.
 
 
F-1

 
 
 CHINA ARMCO METALS, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 
 
             
   
For the
Six Months
Ended
June 30, 2012
   
For the
Three Months
Ended
June 30, 2012
   
For the
Six Months
Ended
June 30, 2011
   
For the
Three Months
Ended
June 30, 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
 
                                 
Total other (income) expense
   
1,778,006
     
433,029
     
1,171,335
     
510,347
 
                                 
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
 
                                 
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
 
                                 
COMPREHENSIVE INCOME (LOSS)
 
$
(3,110,063)
   
$
(1,688,118)
   
$
(1,957,953)
   
$
(1,228,067)
 
                                 
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  
 
 See accompanying notes to the consolidated financial statements.
 
 
F-2

 
 
CHINA ARMCO METALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Year Ended December 31, 2011 and for the Interim Period Ended June  30, 2012
(Unaudited)
 
 
   
Common Stock, $0.001 Par Value
               
Accumulated Other Comprehensive Income (Loss)
       
    Number of Shares     Amount    
Additional Paid-in Capital
   
Retained Earnings
   
Change in Unrealized Loss on Marketable Securities
   
Foreign Currency Translation Gain
   
Total Stockholders' Equity
 
                                           
Balance, December 31, 2010
    14,840,948     $ 14,841     $ 28,966,596     $ 12,711,039     $ (506,278 )   $ 1,643,567     $ 42,829,765  
                                                         
Loan guarantee services received and shares vested from common shares issued to Chaoyang Steel on June 11, 2010 for 5 year loan guarantee services expiring June 30, 2016
    33,333       33       89,633                               89,666  
                                                         
Issuance of common stock to an employee pursuant to 2009 Stock Incentive Plan for services valued at $3.38 per share granted on October 6, 2010
    55,378       55       187,125                               187,180  
                                                         
Issuance of common stock to HCI for public relation services for first quarter 2011
    10,800       11       29,040                               29,051  
                                                         
Issuance of common shares to an employee for future services
    10,000       10       27,390                               27,400  
                                                         
Issuance of common shares to an employee for future services
            -       (27,400 )                             (27,400 )
                                                         
Amortization of deferred employee services                     260,693                               260,693  
                                                         
Loan guarantee services received and shares vested from common shares issued to Chaoyang Steel on June 11, 2010 for 5 year loan guarantee services expiring June 30, 2016
    33,333       34       45,299                               45,333  
                                                         
Issuance of common stock to HCI for public relation services for second quarter 2011
    10,800       10       14,678                               14,688  
                                                         
Loan guarantee services received and shares vested from common shares issued to Chaoyang Steel on June 11, 2010 for 5 year loan guarantee services expiring June 30, 2016
    33,333       33       13,634                               13,667  
                                                         
Issuance of common shares for conversion of accrued expenses-Director cash compensation
    17,371       18       23,742                               23,760  
                                                         
Issuance of common stock to HCI for public relation services for 3rd quarter 2011
    10,800       10       4,418                               4,428  
                                                         
Loan guarantee services received and shares vested from common shares issued to Chaoyang Steel on June 11, 2010 for 5 year loan guarantee services expiring June 30, 2016
    33,333       34       9,366                               9,400  
                                                         
Issuance of common stock to HCI for public relation services for 4th quarter 2011
    7,200       7       2,146                               2,153  
                                                         
Issuance of common stock to an employee pursuant to 2009 Stock Incentive Plan for services valued at $0.27 per share granted on December 15, 2011
    264,379       265       71,119                               71,384  
                                                         
Issuance of common stock to Directors for 2011 services
    60,000       60       16,140                               16,200  
                                                         
                                                         
Comprehensive income (loss)
                                                       
Net Loss
                            (3,345,004 )                     (3,345,004 )
Change in unrealized loss on marketable securities
                                    505,481               505,481  
Foreign currency translation gain
                                            1,577,471       1,577,471  
                                                         
Total comprehensive income (loss)
                                                    (1,262,052 )
                                                         
Appropriation to statutory reserves
                                                    -  
Appropriation to employee welfare funds                                                     -  
Dividends paid
                                                    -  
Dividends declared
                                                    -  
                                                         
Balance, December 31, 2011
    15,421,008       15,421       29,733,619       9,366,035       (797 )     3,221,038       42,335,316  
                                                         
Loan guarantee services received and quarterly shares vested from common shares issued to Chaoyang Steel on June 11, 2010 for 5 year loan guarantee services expiring June 30, 2016
    33,333       33       16,634                               16,667  
                                                         
Issuance of restricted stock to a Director pursuant to the 2009 Stock Incentive Plan for future services valued at $0.2851 per share granted on December 19, 2011
    6,250       6       1,776                               1,782  
                                                         
Issuance of restricted stock to a Director pursuant to the 2009 Stock Incentive Plan for future services valued at $0.2851 per share granted on December 19, 2011
                    (1,782 )                             (1,782 )
                                                         
Issuance of common stock to an employee pursuant to the 2009 Stock Incentive Plan for services valued at $0.57 per share granted on February 6, 2012
    57,743       58       33,260                               33,318  
                                                         
Issuance of restricted stock to CEO pursuant to an employment agreement for future services valued at $0.499 per share granted on February 8, 2012
    1,500,000       1,500       747,000                               748,500  
                                                         
Issuance of restricted stock to CEO pursuant to the 2009 Stock Incentive Plan for future services valued at $0.499 per share granted on February 8, 2012
                    (748,500 )                             (748,500 )
                                                         
Amortization of deferred employee services                     240,725                               240,725  
                                                         
Loan guarantee services received and quarterly shares vested from common shares issued to Chaoyang Steel on June 11, 2010 for 5 year loan guarantee services expiring June 30, 2016
    33,333       34       14,263                               14,297  
                                                         
Issuance of common shares for legal services to All Bright for service so one year starting from Apirl 1, 2012
    75,000       75       32,093                               32,168  
                                                         
Issuance of restricted stock to a Director for future services valued at $0.69 per share granted on May 4, 2012
    50,000       50       34,450                               34,500  
                                                      -  
Issuance of restricted stock to a Director for future services valued at $0.69 per share granted on May 4, 2012
                    (34,500 )                             (34,500 )
                                                         
Comprehensive income (loss)
                                                       
Net Loss
                            (3,365,596 )                     (3,365,596 )
Change in unrealized loss on marketable securities                                     797               797  
Foreign currency translation gain
                                            254,736       254,736

XASE:CNAM Quarterly Report 10-Q Filling

XASE:CNAM Stock - Get Quarterly Report SEC Filing of XASE:CNAM stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XASE:CNAM Quarterly Report 10-Q Filing - 6/30/2012
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