Gross profit for the fourth quarter of 2012 increased 732% to $4.4 million, compared to $0.5 million in the fourth quarter of 2011. Gross margin increased to 11.6%, compared to 5.5% in the same period in 2011.
Operating expenses increased by 119% to $2.6 million for the fourth quarter of 2012 from $1.2 million for the fourth quarter of 2011.
Operating income for the fourth quarter of 2012 increased 362% to 1.75 million, compared to an operating loss of $0.67 million in the fourth quarter of 2011.
Net income for the fourth quarter of 2012 was $0.6 million, or $0.03 per diluted share, compared to a loss of ($1.5) million or ($0.10) per share for the same period last year. Diluted earnings per share were a $0.14 loss and $0.22 loss for the year ended December 31, 2012 and December 31, 2011, respectively.
Results for the Year Ended December 31, 2012
Net revenues in 2012 remained at approximately $106 million, compared to 2011. By business section, the net revenues from our metal recycling business increased by $17.8 million, or by 41%, to $61.6 million, compared to 2011; our net revenues for our metal ore trading business decreased approximately 28% in 2012 to $45.0 million, compared to $62.5 million in 2011. Our recycling business accounted for approximately 60% of our total revenue and has first time exceeded trading business, becoming the major sources of our net revenue and gross profit. Gross profit for the full year 2012 was $8.5 million, an increase of 45% from $5.8 million for the year ended December 31, 2011. Gross margins increased to 8.0% in 2012 compared to 5.5% in 2011, which was primarily attributable to higher margins on sales of scrap metal valued at $61.6 million in 2012 with a gross margin of 10.2%.
Operating expenses of $7.6 million in 2012 increased by $0.8 million, or 12.5%, compared to 2011, primarily due to an increase in general and administrative expenses of $1.4 million including $0.8 million of non-cash stock compensation to officers and employees, and an increase in selling expenses of $0.12 million. Selling expenses include commissions, salaries and travel for the sales agents and warehouse fees. These increases were partially offset by a decrease in professional fees of $0.55 million including legal fees, audit fees, investor relations, website design and SEC filing services, and a decrease in operating cost of our idle manufacturing facility of $0.14 million. Our net loss in 2012 was $2.6 million, compared to net loss of $3.3 million in 2011, the decrease in loss primarily related to the increase in gross profit of $2.6 million as a result of improved gross margin in our recycling business.
In reviewing the financial performance for the quarter and year ended 2012, Mr. Kexuan Yao, Chairman and CEO of China Armco, was pleased that the company has made substantial improvement on its recycling business during this past year. Mr. Yao remarked that, "Although 2012 proved to be a challenging year for China steel industry, financially we achieved positive operating results from our operations in 2012 and were profitable in both the third and fourth quarter of 2012 with significant growth in our recycling business. The results are very important to us because this is the first time we had a profitable annual operation results and a consecutive profitable quarters since we officially started our recycling business operation in 2010. More importantly, the recycling business has replaced the trading business and has become the major source of our net revenue and gross profit. We believe the metal recycling business will continue to be the major growth driver for our company."
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