United States Antimony Corporation — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014; financial statements are unaudited. The company operates U.S. and Mexican antimony businesses and a U.S. zeolite business.
Financial performance
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $2.95 million | $2.56 million | $8.17 million | $8.48 million |
| Gross profit (loss) | $(270,260) | $116,494 | $(461,657) | $52,448 |
| Gross margin | (9.2%) | 4.6% | (5.6%) | 0.6% |
| Operating loss | $(542,005) | $(148,800) | $(1.30) million | $(803,420) |
| Net loss | $(559,329) | $(158,813) | $(1.34) million | $(1.09) million |
Q3 revenue increased about 15% year over year, but the company moved from gross profit to gross loss. Nine-month revenue declined about 4%, and losses widened. Nine-month antimony metal sales volume rose to 1.30 million pounds from 1.22 million, while average selling price fell to $4.82 per pound from $5.38. Zeolite revenue was $1.61 million for the nine months, with reported segment profit of $178,156, down from $276,149.
Cash flow, liquidity and debt
- Cash and cash equivalents were $538,174 at September 30, compared with $20,343 at year-end 2013. Working capital was positive $368,418, versus a deficit of $568,777 at year-end.
- Nine-month operating cash flow was negative $1.13 million; investing cash outflow, primarily capital spending, was $1.32 million. Financing provided $2.96 million, including $3.07 million net proceeds from common-stock sales and warrant exercises. Ending cash increased $517,831.
- Total current liabilities were $2.59 million. Long-term debt, including its current portion, had a carrying value of $883,209; bank notes were fully repaid. The company also had $326,272 due to its receivables factor.
- Receivables factoring is with recourse: the company may have to repay overdue factored receivables, and the CEO personally guarantees the amount due. A $202,000 bank line of credit was undrawn at quarter-end.
Changes, operations and outlook
- Management attributed 2014 losses chiefly to lower antimony prices and excess Mexican production/holding costs. These costs were $70,373 in Q3 and $599,459 for the nine months. Mexican output faced permitting, processing, mine-startup and logistics constraints; management reported a large backlog of unprocessed material.
- Furnace number nine entered service in Q3; three additional furnaces started in November, reportedly increasing Mexican furnace capacity by 50% at an approximate cost of $504,000. A natural-gas pipeline was completed in September 2014; management expects gas to reduce Mexican fuel costs by 65% when fully in use.
- Management said it expected increased Mexican antimony and precious-metals output and believed cash and future operating cash flow would cover the next 12 months of debt service and approximately $250,000 of construction/improvement commitments. This is management’s outlook, not a guarantee; the filing provides no quantified company-wide earnings or revenue guidance.
- Antimony price exposure is material: management noted raw materials were about half of Q3 cost of goods sold and that production costs are largely fixed. Three customers accounted for about 60% of nine-month revenue; listed major customers accounted for about 76% of receivables at quarter-end.
- Other commitments include scheduled payments for San Miguel mining rights and the Soyatal mine; the first $200,000 Soyatal payment was due January 1, 2015. The Wadley mine lease was renewed in June 2014 at $34,800 per month. The filing reports no legal proceedings.
Controls, contingencies and unusual items
Management concluded disclosure controls were ineffective at September 30 because of material weaknesses: inadequate segregation of duties and material financial-statement misstatements identified during the prior year-end audit requiring adjustments. Management described compensating review procedures; it reported no significant control changes during the quarter. Deferred tax assets were fully reserved, reflecting uncertainty over realization. Common shares outstanding increased to 66,027,453 from 63,156,206 at year-end, including shares issued for financing, debt settlement and services.
Investor facts to verify
- Whether Mexican furnaces, mills, mines and transport can achieve expected utilization and lower per-unit costs, and whether the reported inventory backlog can be processed and sold.
- Antimony price and raw-material trends, customer concentration, and the effect of further price changes on margins and cash needs.
- Cash burn, access to the undrawn credit line, factoring obligations and recourse exposure, upcoming debt payments, and funding of capital commitments.
- Progress in remediating the disclosed control weaknesses and whether future filings report effective controls.
- The timing and commercial contribution of expected precious-metals production and the anticipated natural-gas savings.