United States Antimony Corporation — Q2 2011 Form 10-Q
Reporting period: Three and six months ended June 30, 2011; unaudited consolidated results. The company operates antimony and zeolite businesses. Mexican antimony production is an intermediate process, with product finished in the United States.
Financial results and position
- Q2 revenue: $3.05 million, up 46% from $2.09 million in Q2 2010. Antimony revenue rose to $2.58 million from $1.53 million; zeolite revenue declined to $470,258 from $560,698.
- Q2 gross profit and margin: $340,511 and 11.2%, compared with $273,241 and 13.1% a year earlier. Operating income was $123,623 versus $231,941. Net income was $86,428 versus $204,583 in the financial statements; reported basic and diluted earnings per share were nil.
- First-half revenue: $5.89 million, up 68% from $3.50 million. Gross profit was $687,031 (11.7% margin), versus $391,664 (11.2%). Net income was $131,791 versus $120,466.
- Cash flow, first half: Operating cash use was $232,868, compared with $7,457 used in the prior-year period. Investing cash use was $1.04 million, primarily for property, plant and equipment. Financing provided $1.14 million, mainly from common-stock sales. Cash declined $134,583 to $314,278.
- Liquidity and debt at June 30: Current assets were $2.69 million and current liabilities $1.33 million (current ratio about 2.0). Total debt was approximately $269,938, including $84,012 current, compared with approximately $127,796 at December 31, 2010. Accounts receivable were $1.09 million and inventory $764,849.
- Capital investment and equity: First-half capital expenditures were $1.36 million, chiefly in Mexico. The company issued 2.105 million restricted common shares during Q2 for $842,000. At June 30, 59.35 million common shares were outstanding; shares outstanding and reserved exceeded the 60 million authorized by 449,300.
Changes, outlook and risks
- Antimony sales growth reflected higher selling prices and demand for raw materials; first-half volume was 772,829 pounds versus 759,691, while average price rose to $6.06 per pound from $3.33. Antimony production cost also increased, to $5.16 per pound from $2.59.
- Zeolite first-half revenue fell to $862,865 from $972,444, and the division recorded a $4,892 gross loss versus $121,888 gross profit. Management cited increased maintenance and labor costs. No specific financial guidance was provided; management cautioned that interim results are not necessarily indicative of full-year results.
- Three customers accounted for 60% of antimony revenue in the quarter per the notes; MD&A states 68% for Q2 and 69% for the first half. Concentration makes the business vulnerable to losing key customers.
- Management disclosed material weaknesses in disclosure controls and internal control over financial reporting, including limited accounting expertise, inadequate segregation of duties, insufficient expertise for complex transactions, and material audit adjustments. Planned remediation included independent review and consulting external experts.
- Risks include ongoing royalty litigation (no accrual or loss range estimated for one suit), environmental remediation costs that may exceed accruals and cannot currently be estimated, and $55,567 of accrued outstanding MSHA assessments. The company also reported factoring expense of $73,414 for the first half.
- The company planned to pursue an increase in authorized common shares in the second half of 2011 and said it did not plan near-term common-stock sales or stock-plan grants. Preferred stock has liquidation preferences and cumulative dividends, and Series D conversion is subject to available authorized shares.
Key facts for investors to verify
- Reconcile the Q2 2010 net-income comparison: the statements show $204,583, while MD&A cites $121,425.
- Reconcile the reported Q2 customer concentration figures of 60% in the notes and 68% in MD&A.
- Assess cash needs and funding for continued capital spending, working capital, and debt obligations given operating cash use and the decline in cash.
- Track progress on authorized-share capacity and internal-control remediation, as well as the outcomes of royalty litigation and environmental obligations.