United States Antimony Corporation — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This is an annual report, not a standalone fourth-quarter filing. USAC produces antimony and zeolite products through operations in the U.S., Mexico, and Idaho.
Financial performance and position
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $13.12 million | $9.07 million |
| Gross profit; gross margin | $1.67 million; 12.8% | $1.37 million; 15.1% |
| Operating income | $891,531 | $429,365 |
| Net income | $636,920 | $805,213 |
| Net income available to common shareholders | $588,271 | $756,565 |
| Basic and diluted EPS | $0.01 | $0.01 |
| Cash from operations | $564,041 | $307,350 |
| Cash and cash equivalents at year-end | $5,427 | $448,861 |
| Current assets / current liabilities | $2.82 million / $1.60 million | $1.85 million / $784,322 |
| Total debt | $237,849 | $127,796 |
| Total assets / total liabilities | $8.99 million / $2.23 million | $5.86 million / $974,229 |
Revenue rose 44.6%, while gross profit increased 21.9% and net income fell 20.9%. The prior-year result included a $493,000 deferred tax benefit; 2011 included $105,610 in income tax expense. Gross margin declined despite higher sales. Current assets were largely receivables and inventory, and year-end cash was minimal. Investing used $2.24 million, primarily for property, plant, and equipment; financing provided $1.23 million, including $1.16 million from stock sales.
Antimony revenue was $10.41 million, up from $6.17 million; precious-metals revenue was $667,813. Antimony division gross profit rose to $1.56 million from $903,560. Zeolite revenue fell to $2.04 million from $2.42 million, and gross profit fell to $118,185 from $470,172. Management attributed weaker zeolite results partly to the nonrecurring 2010 Department of Energy nuclear-remediation contract. Antimony revenue growth primarily reflected higher metal prices; average antimony metal selling price reported by the company rose to $7.43/lb from $4.34/lb.
Business changes, outlook, and risks
- Mexico operations began producing in 2011. Management expected the Los Juarez mine, Puerto Blanco flotation mill, and Madero smelter to provide a significant portion of raw materials beginning in the second quarter of 2012. It expected increased supply to support production, reduce costs, and improve precious-metal recovery; these are forward-looking expectations, not reported results.
- The company remained dependent on outside raw-material suppliers while developing Mexican sources. It reported that China supplies approximately 92% of world antimony demand and warned that commodity-price declines could materially reduce revenue, profit, and cash flow.
- Three customers represented 72% of 2011 sales; the largest customer represented 28%. Sales concentration and supplier dependence create operating risks.
- USAC reported no SEC-defined proven or probable reserves for its antimony or zeolite properties. It disclosed a historical Mexican government estimate for a deposit but explicitly stated that the SEC does not recognize it and that USAC claims no reserves.
- Environmental and asset-retirement accruals totaled $241,500 at year-end. The company said potential losses beyond accrued amounts could not be reasonably estimated and had no environmental liability insurance. Material additional remediation or regulatory requirements could affect cash flow and profitability.
- Receivables were factored with full recourse at a 2% fee; 2011 factoring expense was $154,206. The company president personally guaranteed obligations under the arrangement, with company property pledged as security to him.
- After year-end, USAC issued 1,102,500 shares at $2.00 each, raising $2.205 million; each share included a two-year warrant to buy another share at $2.50. This issuance increases potential dilution.
- The financial-statement audit opinion was unqualified, but the auditor issued an adverse opinion on internal control over financial reporting. Material weaknesses included inadequate control design and documentation, lack of segregation of duties, and insufficient controls and expertise over GAAP application. The audit identified material misstatements not initially detected by company controls.
- The company reported no material pending legal proceedings. It paid no common-stock dividends in the preceding five years and did not expect to do so in the foreseeable future.
Most important facts for investors to verify
- Whether Mexico’s mine, mill, and smelter achieved the anticipated production ramp and whether internally sourced feed actually lowered costs and improved recoveries.
- Whether operating cash generation can support investment and working-capital needs, given year-end cash of $5,427, growing receivables and inventory, and continued factoring.
- Customer and supplier concentration, antimony-price sensitivity, and the effect of changes in commodity prices on margins and inventory values.
- Progress in remediating the disclosed internal-control material weaknesses, especially given the audit-identified misstatements.
- Environmental obligations and any additional costs beyond the $241,500 accrued, along with the status and terms of the factoring guarantee and related-party collateral.
- Share-count and dilution effects from the post-year-end share-and-warrant offering and other outstanding preferred stock and warrants.