Business Context and Reporting Period
Company: United States Antimony Corporation (USAC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2011
Operations: USAC operates two primary segments: Antimony (mining and refining in the U.S. and Mexico) and Zeolite (mining in Idaho). The company is classified as a smaller reporting company.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Revenues | $2,838,039 | $1,414,826 |
| Cost of Revenues | $2,491,519 | $1,296,403 |
| Gross Profit | $346,520 | $118,423 |
| Gross Margin | 12.2% | 8.4% |
| Net Income (Loss) | $45,363 | $(84,117) |
| Operating Cash Flow | $391,506 | $(56,404) |
| Cash and Equivalents (End of Period) | $1,543,176 | $96,083 |
| Total Debt (Current + Noncurrent) | $142,150 | Not explicitly stated (Current: $45,389; Noncurrent: $82,407) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 100.6% year-over-year, driven primarily by a 143.7% increase in Antimony division sales ($2.45M vs $1.00M). This was due to increased raw material supply and higher sales volume (387,092 lbs sold).
- Profitability Turnaround: The company reported a net income of $45,363, reversing a net loss of $84,117 in the prior year quarter. Operating income improved from a loss of $75,859 to a profit of $103,566.
- Byproduct Revenue: Revenue from precious metals (silver and gold) byproducts surged to $331,200 in Q1 2011, compared to $40,017 in Q1 2010, attributed to soaring metal prices and increased production.
- Cost Increases: Cost of goods sold rose significantly due to higher raw material costs. Antimony production cost per pound increased to $4.95 from $2.22.
- Liquidity: Cash and cash equivalents grew by $1.09 million, fueled by operating cash flow and $783,470 in proceeds from the sale of common stock.
Guidance, Outlook, Risks, and Contingencies
- Management Commentary: Management attributes the improved results to increased antimony sales volume and favorable precious metal prices. The Mexico operation continues to incur losses as it produces intermediate products shipped to the U.S. for finishing.
- Customer Concentration Risk: Approximately 48% of antimony revenues in Q1 2011 came from two customers (Kohler, Inc. and Polymer Products Corporation). Loss of these customers could adversely affect the business.
- Internal Control Weaknesses: The company disclosed material weaknesses in internal controls, including a lack of segregation of duties, insufficient accounting expertise on the Board, and prior material misstatements requiring audit adjustments.
- Legal and Environmental: The company is involved in litigation regarding royalty payments. While one liability is accrued, the outcome of another suit is uncertain. Environmental reclamation costs are accrued but subject to regulatory changes and estimation uncertainties.
- Capital Expenditures: Investing activities used $100,265, primarily for property, plant, and equipment in Mexico.
Investor Verification Checklist
- Customer Dependency: Verify the stability of contracts with Kohler, Inc. and Polymer Products Corporation, which represent nearly half of antimony revenue.
- Internal Controls: Assess the timeline and effectiveness of management's plan to remediate material weaknesses in financial reporting and segregation of duties.
- Debt and Liquidity: Monitor the company's ability to service its debt ($142k total) and fund ongoing capital projects in Mexico without further equity dilution.
- Raw Material Costs: Evaluate the sustainability of the gross margin given the significant year-over-year increase in raw material costs for antimony production.
- Legal Exposure: Track the status of the ongoing royalty litigation to determine if additional liabilities may be accrued.