United States Antimony Corporation — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012. Unaudited consolidated results cover the company’s antimony and zeolite operations, including Mexican facilities. Results for the interim period are not necessarily indicative of full-year results.
Key financial metrics
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $2.66 million | $3.33 million | $9.21 million | $9.26 million |
| Gross profit | $138,000 | $826,000 | $547,000 | $1.35 million |
| Gross margin | 5.2% | 24.8% | 5.9% | 14.6% |
| Operating income (loss) | ($156,000) | $763,000 | ($295,000) | $990,000 |
| Net income (loss) | ($175,000) | $708,000 | ($288,000) | $840,000 |
| Operating cash flow | Not separately presented | Not separately presented | $389,000 | $178,000 |
At September 30, cash and cash equivalents were $2.38 million, with $243,000 in certificates of deposit, including two pledged as collateral. Working capital was $3.41 million, up from $992,000 at December 31, 2011; current assets were $5.09 million and current liabilities $1.69 million. Total debt was $443,000, of which $306,000 was current. The company reported no borrowings on its $202,000 credit line. Nine-month capital expenditures were $2.64 million, principally for antimony operations in Mexico.
Cash flow for the first nine months included $2.54 million used in investing and $4.52 million provided by financing, mainly from common-stock sales. The filing reports $4.62 million of net stock-sale proceeds in the cash flow statement and describes approximately $4.7 million in its liquidity discussion.
Material changes and operating results
- Q3 revenue fell 20% year over year; nine-month revenue was nearly flat. Nine-month cost of revenue rose 9%, reducing gross profit 59%.
- Antimony metal sales volume was 371,598 pounds in Q3, down 14% year over year, while the reported sales price declined to $5.31 per pound from $6.15. Nine-month antimony operating income fell to $421,000 from $1.26 million.
- Nine-month zeolite revenue rose to $2.00 million from $1.44 million. Q3 zeolite operating results were a loss of $18,000 versus income of $94,000 in Q3 2011.
- General and administrative expense increased substantially; management cited approximately $88,000 in one-time NYSE MKT listing costs during Q3. The company also issued shares to directors for services.
- Common shares outstanding increased to 61.79 million from 59.35 million at year-end 2011. The company sold 2.06 million shares during the first nine months and issued warrants in connection with stock sales.
Outlook, risks, and contingencies
- Management said the Puerto Blanco flotation plant in Mexico came online in early October and expected Mexican output to increase as operations ramped up. It anticipated lower raw-material costs per pound and higher precious-metals revenue, but stated that Mexico startup costs would continue during the remainder of 2012.
- A natural-gas pipeline for the Mexican smelter was expected to cost approximately $1 million, with about $132,000 spent by September 30 and completion expected in nine months. Management projected a 75% reduction in Mexican fuel costs after the switch from propane.
- Management expected zeolite pricing improvements to continue through year-end, but provided no quantified financial guidance. It said it was seeking to reduce elevated general and administrative costs.
- Antimony prices are market-based, and raw materials represented approximately 50% of cost of goods sold. Management estimated that a $2-per-pound decline in sales price could reduce gross profit by about $1 per pound.
- Three customers generated approximately 56% of nine-month revenue, versus 53% in 2011. The factoring arrangement is with recourse; the company may have to reimburse the factor for overdue receivables.
- The company reported material weaknesses in disclosure controls: inadequate segregation of duties and material financial-statement misstatements identified during the prior year-end audit. Management planned independent review of material transactions and consultation with outside experts; an audit committee with three independent directors had been appointed.
- MSHA-related assessments were accrued at $7,360 at September 30. The filing reports no legal proceedings and no outstanding senior securities.
Important facts for investors to verify
- Reconcile operating cash flow: the cash flow statement reports $389,000 for the first nine months of 2012, while the MD&A liquidity table reports $482,560.
- Confirm the cash-flow and MD&A descriptions of stock-sale proceeds and financing cash flow, which use different amounts.
- Track the Mexico mill ramp-up, pipeline spending, completion timing, and whether projected production and fuel-cost savings materialize.
- Assess the impact of antimony pricing, customer concentration, and recourse factoring on margins and liquidity.
- Monitor remediation of the disclosed material weaknesses and the effect of additional share and warrant issuance on dilution.