China Armco Metals Inc. (CNAM)

[viking86]

The contract doesnt obligate them to purchase 37K tons scrap per month, it's up to 37K tons per month. I take it to mean they have the right to purchase up to 37K tons per month at some preferential price for the rest of the year but can order a lesser quantity as needed.

It's true that they shipped out only 10K tons of recycled scrap in June while the original 100MM sales contract with the steel maker was to deliver 23K tons per month starting Mar/April 2010. So yes, they are a few months behind. I am not sure if they will be able to meet the guidance of 220M rev for revenue which implies 100M (or 10x monthly shipments of 23K tons in 2010) from the recycling biz. Maybe Q2 report will shed more light on this.

My guess the reason why the CEO exercized 1MM of options @ 5/sh on April 14 (just 10 days before the 37KT/month supply contract was inked) plus a bunch of other warrants exercizes in the same time period was to have enough immediately liquid funds to pay the local scrap suppliers for whatever was needed for the first one or two planned shipments in May and June. But then they had a delay due to power outages. Assuming they ordered only 20K tons supply at $225/ton as you suggested, they would have to pay 4.5MM total to the suppliers in May/June which was covered by the 6.7MM proceeds from option/warrant redemptions. The nicest thing about this is they have secured enough scrap supplies with this deal (37KT vs. 23KT per month needed) plus ample available funds for both ore and scrap orders for the foreseeable future.

On April 14, 2010, Mr. Kexuan Yao, Chairman and Chief Executive Officer of China Armco Metals, Inc. (the “Company”), exercised an option to purchase 1,000,000 shares of its common stock at an exercise price of $5.00 per share resulting in proceeds to the Company of $5,000,000. Additionally, from March 2010 through April 14, 2010, investors exercised warrants to purchase 1,338,152 shares of the Company’s common stock at an exercise price of $5.00 per share resulting in proceeds to the Company of $6,690,760 and 76,679 shares were issued in connection with the cashless exercise of warrants.