United States Antimony Corporation — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013; unaudited consolidated results. Comparisons are with the corresponding 2012 periods unless stated otherwise.
Financial results and liquidity
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $2.558 million | $2.655 million | $8.480 million | $9.207 million |
| Gross profit | $116,494 | $137,626 | $52,448 | $547,275 |
| Gross margin | 4.6% | 5.2% | 0.6% | 5.9% |
| Operating loss | $148,800 | $156,189 | $803,420 | $295,168 |
| Net loss | $158,813 | $175,125 | $1.086 million | $287,589 |
For the first nine months, operating cash flow was $48,659, investing cash outflow was $1.743 million, and financing cash inflow was $778,155. Cash fell by $915,969 to $84,842. Capital expenditures were $1.743 million. At September 30, total debt was approximately $405,000, including $141,611 current; the company reported no outstanding borrowings under its $202,000 credit line.
Balance-sheet current assets were $1.923 million and current liabilities $2.446 million, implying working capital of approximately negative $523,000. Total assets were $13.881 million. Accounts payable were $1.848 million, up from $1.181 million at year-end 2012.
Material changes and operating trends
- Nine-month revenue declined 7.9% year over year, while gross profit fell sharply. Antimony segment gross profit shifted to a $255,637 loss from $421,037 profit; zeolite gross profit increased to $308,085 from $126,238.
- Antimony metal sold was 1.223 million pounds in the first nine months, slightly below 1.253 million pounds in 2012. The average selling price was $5.38 per pound versus $5.33. Management reported the market price had fallen to $4.22 per pound at September 30, 2013, from a 2011 high of $8.11.
- Mexico production increased, but permits restricted use of equipment and explosives. Management said a supplier’s temporary raw-material delivery shortfall affected Q2 and Q3, with deliveries subsequently resumed. Zeolite nine-month revenue fell approximately $409,000, despite higher Q3 tonnage.
- Common shares outstanding increased to 62,621,726 from 61,896,726 at year-end. A Q2 private placement generated $653,604 net proceeds and included 362,500 warrants exercisable at $1.20.
Outlook, risks, and unusual items
- No formal earnings or revenue guidance was provided. Management expected increased Mexican production and precious-metals revenue as permits allowed, and stated it expected adequate liquidity to meet commitments and service debt.
- Management estimated approximately $500,000 of construction and improvement commitments over the next 12 months, including about $250,000 for the natural-gas pipeline. The pipeline was substantially complete; PEMEX hookup was expected by December 31, 2013. Management projected natural gas could reduce Mexican fuel costs by 75% once operational.
- Management said permits remained necessary for certain Mexican mining and processing activities, including processing concentrates estimated to contain 8,500 ounces of silver and 25 ounces of gold. It also halted further Los Juarez mining and milling expenditures pending a permit.
- Commodity-price exposure is material: management stated that a $2-per-pound decline in antimony sales price could reduce gross profit by about $1 per pound. Three largest customers represented 66.2% of Q3 revenue; management warned that losing a key customer could materially harm results.
- The company recorded a $229,451 tax expense after fully reserving its net deferred tax asset because realization of tax benefits was not considered more likely than not. The 2013 warrant issuance generated a $72,000 derivative liability at quarter-end; some holders had rescinded the relevant cash-payment provision.
- Disclosure controls were deemed ineffective due to material weaknesses, including inadequate segregation of duties and material audit adjustments identified during the prior year-end audit. Management described CFO review procedures as mitigating measures; no significant control changes were made during the quarter.
Important facts for investors to verify
- The filing contains inconsistent liquidity figures: the balance sheet reports current liabilities of $2,445,823, while MD&A uses $2,517,823 and reports working capital of negative $594,695. Balance-sheet amounts imply negative working capital of approximately $522,695.
- Cash-flow operating cash flow for the nine months is $48,659 in the statement, but MD&A’s liquidity table shows $526,419. The cash-flow statement reports 2012 operating cash flow of $388,703.
- Net loss is reported as $1,085,588 in the operations statement and $1,085,586 in the cash-flow statement; segment and MD&A revenue totals also vary slightly from the consolidated statement.
- Confirm the status and timing of Mexican permits, pipeline hookup, planned production increases, customer concentration, and the warrant provision rescissions. The filing’s interim results are not necessarily indicative of full-year results.