Armco Metals Holdings Announces Financial Results for the First Quarter of 2014

SAN MATEO, CA--(Marketwired - May 20, 2014) - 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 the first quarter of 2014.

SUMMARY FINANCIALS

First Quarter 2014 Results
		Q1 2014		Q1 2013
Net Revenues		$10.0 million		$14.3 million
Gross Profit (Loss)		$(1.2) million		$0.6 million
Income (Loss) from Operations		$(3.5) million		$(1.1) million
Net Income (Loss)		$(3.6) million		$(1.1) million
EPS (Fully Diluted) (Loss)		$(0.12)		$(0.05)

First Quarter of 2014 Financial Results

For the first quarter of 2014, ended March 31, 2014, net revenue was $10.0 million, a 31% decrease compared to net revenue of $14.3 million recorded in the first quarter of 2013. The decline in revenue in the first quarter of 2014 was primarily due to a decrease of $7.6 million in the sale of scrap metals and a decrease of $1.2 million in the sales of manganese ore, partially offset by an increase of $1.2 million in sales of billet and an increase of $0.2 million in sales of chrome ore. Our recycling business generated revenue of $2.6 million while our trading business generated revenue of $7.3 million, accounting for 26% and 74% of our total revenue, respectively. Gross profit for the first quarter of 2014 was $(1.2) million as compared to gross profit of $0.6 million in the first quarter of 2013. Gross margin (loss) in the first quarter of 2014 was (11.7%) compared to 4.5% in the first quarter of 2013. The significant decrease in gross profit and gross margin was largely due to a significant increase in cost of goods sold in our recycling business as a result of a sharp decline in scrap metal prices and a $0.4 million inventory write off.

Total operating expenses for the first quarter of 2014 increased to $2.3 million compared to $1.7 million for the same period in 2013. The increase in total operating expenses was due to an increase of $0.39 million in general and administrative expenses, an increase of $0.11 million in operating cost of idle manufacturing facility, an increase in of $0.07 million in selling expenses, and an increase of $0.02 million in professional fees.

We recorded an operating loss of $(3.5) million in the first quarter of 2014 as compared to an operating loss of $(1.1) million in the first quarter of 2013. Our results of operations in the first quarter of 2014 resulted in a net loss of $(3.6) million or $(0.12) per basic and diluted share on 30.1 million weighted average shares outstanding compared to a net loss of $(1.3) million or $(0.05) per basic and diluted share on 23.3 million weighted average shares outstanding in the same period of 2013.

In reviewing the financial performance for the first quarter of 2014, Mr. Kexuan Yao, Chairman and CEO of Armco Metals, remarked that, "The first quarter of 2014 was one of the most challenging quarters we have experienced in our company's history, particularly in the steel industry. Declining scrap metal prices resulted in negative margins and sharply reduced sales. We have responded to these challenges by implementing our 'platform strategy' sales model in our recycling business where we work with our customers more closely, lower our market risks by sharing them with our customers, and increase our sales with less or without additional working capital. We believe successful implementation of this model will significantly improve the efficiency and utilization of our facility and leverage our processing capabilities. This should ultimately help us improve our results in the current environment and accelerate growth when conditions improve."

Select Balance Sheet Items

As of March 31, 2014, the Company had $1.0 million in cash and cash equivalents, compared to $0.6 million at year-end 2013. The Company had a current ratio of 0.99:1 at March 31, 2014 as compared to 1.02:1 on December 31, 2013. As of March 31, 2014, shareholders' equity was $40.1 million compared to $42.6 million at December 31, 2013.

Conference Call
The conference call will take place at 5:00 pm. EDT on Tuesday, May 20, 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.

Date: Tuesday, May 20, 2014

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# 13582975: 2014 First Quarter End Financial Results Call

Webcast link: http://www.investorcalendar.com/IC/CEPage.asp?ID=172779

The playback of the webcast can be accessed until 08/20/2014.

Teleconference Replay:

Replay Number (Toll Free): 1-877-660-6853

Replay Number (International): 1-201-612-7415

Replay Passcode needs Conference ID#: 13582975

Teleconference will be available for replay until 11:59 PM 06/03/2014

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 http://www.armcometals.com.

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 certain 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 net revenues and production related to our scrap metal recycling operations, including our ability to operate the facility efficiently and profitability, the sufficiency of our working capital, pricing and volatile demand for our product lines, the extent of government imposed energy and monetary policy restrictions and resulting blackouts and associated impact on our trading and recycling operations, our ability to consummate the pending acquisition of Draco Resources, Inc., risks associated with the success of its future business and operations, and the significant dilution to our stockholders if the acquisition of Draco Resources, Inc. is closed.

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. We qualify all of our forward-looking statements in this press release by these cautionary statements including those made in Part II, Item 1A. Risk Factors appearing in our Quarterly Report on Form 10-Q for the period ended March 31, 2014, as well as in Part I. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2013 and our other filings with the Securities and Exchange Commission. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business 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. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

Financial Statements

ARMCO METALS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
				For the Three Months				For the three Months
				Ended				Ended
				March 31, 2014				March 31, 2013
				(Unaudited)				(Unaudited)
NET REVENUES				$	9,918,651			$	14,343,077
COST OF GOODS SOLD					11,082,455				13,698,412
GROSS MARGIN					(1,163,804	)			644,665
OPERATING EXPENSES:
	Selling expenses				100,855				29,226
	Professional fees				214,454				196,497
	General and administrative expenses				1,438,126				1,046,694
	Operating cost of idle manufacturing facility				534,972				423,221
		Total operating expenses			2,288,407				1,695,638
LOSS FROM OPERATIONS					(3,452,211	)			(1,050,973	)
OTHER (INCOME) EXPENSE:
	Interest income				(98,268	)			(2,725	)
	Interest expense				672,942				729,372
	Change in fair value of derivative liability				(477,909	)			(615,946	)
	Loan guarantee expense				13,002				12,500
	Other (income) expense				58,303				(75,896	)
		Total other (income) expense			168,070				47,305
LOSS BEFORE INCOME TAXES PROVISION					(3,620,281	)			(1,098,278	)
INCOME TAX PROVISION					-				(8,510	)
NET LOSS					(3,620,281	)			(1,089,768	)
OTHER COMPREHENSIVE INCOME (LOSS):
	Change in unrealized income (loss) of marketable securities				21,938				5,499
	Foreign currency translation gain (loss)				(408,558	)			(239,518	)
COMPREHENSIVE LOSS				$	(4,006,901	)		$	(1,323,787	)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED:
	Net loss per common share - basic and diluted			$	(0.12	)		$	(0.05	)
	Weighted Average Common Shares Outstanding - basic and diluted				30,052,787				23,304,334
See accompanying notes to the unaudited consolidated financial statements.
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ARMCO METALS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
					March 31, 2014				December 31, 2013
					(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash				$	1,000,304			$	596,557
	Pledged deposits					1,046,872				4,652,222
	Marketable securities					541,067				519,129
	Accounts receivable, net					18,459,055				25,595,516
	Inventories					16,787,158				20,456,920
	Advance on purchases					749,387				733,285
	Prepayments and other current assets					2,136,796				1,181,371
		Total Current Assets				40,720,639				53,735,000
PROPERTY, PLANT AND EQUIPMENT
	Property, plant and equipment					44,491,820				44,856,611
	Accumulated depreciation					(9,988,674	)			(9,360,933	)
		PROPERTY, PLANT AND EQUIPMENT, net				34,503,146				35,495,678
LAND USE RIGHTS
	Land use rights					6,626,488				6,681,779
	Accumulated amortization					(443,587	)			(416,478	)
		LAND USE RIGHTS, net				6,182,901				6,265,301
			Total Assets		$	81,406,686			$	95,495,979
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Loans payable				$	22,511,856			$	27,415,638
	Banker's acceptance notes payable and letters of credit					3,116,049				8,473,217
	Current maturities of capital lease obligation					897,501				904,990
	Accounts payable					5,118,495				10,062,463
	Advances received from Chairman and CEO					755,805				668,332
	Due to related party					397,371				403,141
	Customer deposits					2,821,930				649,488
	Corporate income tax payable					820,036				822,207
	Derivative warrant liability					1,367,535				61,429
	Value added tax and other taxes payable					1,831,056				2,202,331
	Accrued expenses and other current liabilities					1,653,038				1,228,753
		Total Current Liabilities				41,290,672				52,891,989
			Total Liabilities			41,290,672				52,891,989
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, 33,770,176 and 29,876,327 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively					33,770				29,876
	Additional paid-in capital					37,305,937				35,790,906
	Retained earnings					(994,994	)			2,625,287
	Accumulated other comprehensive income (loss):
		Change in unrealized gain on marketable securities				(672,574	)			(694,512	)
		Foreign currency translation gain				4,443,875				4,852,433
		Total Stockholders' Equity				40,116,014				42,603,990
		Total Liabilities and Stockholders' Equity			$	81,406,686			$	95,495,979
See accompanying notes to the unaudited consolidated financial statements.
F-2

ARMCO METALS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
				For the Three Months				For the Three Months
				Ended				Ended
				March 31, 2014				March 31, 2013
				(Unaudited)				(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss				$	(3,620,281	)		$	(1,089,768	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
	Depreciation expense				706,766				706,402
	Amortization expense				30,782				59,190
	Change in fair value of derivative liability				(477,909	)			(615,946	)
	Amortization of debt discount				494,593				-
	Stock-based compensation				1,017,031				411,625
	Write-down of inventories				390,173				-
	Changes in operating assets and liabilities
		Bank acceptance notes receivable			-				(1,115,698	)
		Accounts receivable			8,777,149				7,635,827
		Inventories			3,136,203				(5,354,655	)
		Advance on purchases			269,806				(1,130,362	)
		Prepayments and other current assets			(1,080,644	)			(1,113,145	)
		Accounts payable			(4,898,046	)			3,468,335
		Customer deposits			501,493				1,733,345
		Taxes payable			(354,926	)			(1,285,492	)
		Accrued expenses and other current liabilities			152,365				980,317
NET CASH PROVIDED BY OPERATING ACTIVITIES					5,044,555				3,289,975
CASH FLOWS FROM INVESTING ACTIVITIES:
	Proceeds from release of pledged deposits				5,409,660				3,756,871
	Payment made towards pledged deposits				(1,816,273	)			(7,907,848	)
	Purchase of property, plant and equipment				-				(97,858	)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES					3,593,387				(4,248,835	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from loans payable				6,082,898				9,503,386
	Repayment of loans payable				(9,299,060	)			(16,504,984	)
	Banker's acceptance notes payable				(5,326,288	)			5,674,121
	Repayment of capital lease obligation				-				(71,329	)
	Advances from (repayment to) Chairman and CEO				77,918				187,929
	Advances from (repayment to) related party				78				-
	Proceeds from related party loan				-				1,004,128
	Proceeds from sales of common stock				-				1,621,356
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES					(8,464,454	)			1,414,607
EFFECT OF EXCHANGE RATE CHANGES ON CASH					230,259				(495,412	)
NET CHANGE IN CASH					403,747				(39,665	)
Cash at beginning of the period					596,557				1,367,171
Cash at end of the period				$	1,000,304			$	1,327,506
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
		Interest paid		$	175,553			$	729,372
		Income tax paid		$	-			$	1,777
NON CASH FINANCING AND INVESTING ACTIVITIES:
	Debt discount due to convertible features			$	1,901,282			$	-
	Reclassification of derivative liability to additional paid-in capital			$	117,267			$	-
	Change in fair value of marketable securities			$	21,938			$	-
	Common shares issued for conversion of convertible notes and accrued interest			$	375,372			$	-
See accompanying notes to the unaudited consolidated financial statements.
F-5