United States Antimony Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited consolidated results. The company operates U.S. and Mexican antimony businesses and a U.S. zeolite business.
Key financial metrics
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Revenue | $2.947 million | $2.952 million, down 0.2% |
| Gross profit (loss) | $(104,053); gross margin approximately (3.5%) | $(52,540); approximately (1.8%) |
| Net income (loss) | $440,028; $0.01 per share | $(358,170); $(0.01) per share |
| Operating cash flow | $(236,702) in the cash flow statement | $38,629 |
| Cash and certificates of deposit | $386,266 at March 31 | $372,830 at December 31, 2014 |
| Current assets / current liabilities | $3.611 million / $2.832 million | $2.304 million / $2.293 million |
| Total assets / total liabilities | $18.194 million / $4.630 million | $16.545 million / $3.549 million |
| Debt and advances | $71,906 bank borrowing; $871,082 long-term debt, including current portion; $880,532 Hillgrove advances payable | Bank borrowing was zero at year-end; long-term debt was $874,606 and Hillgrove advances payable were $161,339 |
Net working capital was approximately $779,000. Cash increased by $12,403; investing activities used $108,710 and financing activities provided $357,815. The reported profit was not supported by positive operating cash flow. The filing does not provide a clear consolidated operating margin; reported gross margin was negative.
Material changes and operating results
- Net income swung from a year-earlier loss, but primarily because a vendor credited $927,018 for alleged raw-material overcharges. The credit was recognized as a gain; without it, reported earnings would have been materially lower.
- Antimony sales volume increased 18% to 521,956 pounds, while reported average selling price declined from $4.85 to $4.29 per pound. U.S. production costs fell, but Mexican non-production costs rose to $419,495 from $77,468.
- Zeolite revenue fell to $584,760 from $658,449; sales volume declined to 3,032 tons from 3,350 tons. The segment reported a loss of $18,905 versus income of $108,492.
- Inventory increased to $2.307 million from $1.434 million, including $938,133 of antimony concentrates. Management said Australian concentrate processing increased work in progress, with related fees not recognized until inventory is sold.
- Capital expenditures were $538,470, primarily in Mexico. Property, plant and equipment rose to $13.835 million.
Outlook, risks, and contingencies
- Management expected to complete Hillgrove furnace and equipment work in Mexico and said it believed available liquidity, future operating cash flow, expected Mexican tax refunds, and further Hillgrove advances would cover commitments and debt service over the next 12 months. No earnings or revenue guidance was provided.
- The filing describes construction and improvement commitments using unclear figures—“$500M” for Hillgrove work and approximately “$600M” over the next 12 months. The intended amounts are not clear from the text.
- The company’s Mexican IMMEX certification had expired and renewal was pending. Without renewal, imports may incur a 16% Mexican tax; approximately $154,000 was on deposit with Mexican tax authorities and management expected a refund upon recertification. Management warned denial could have a major effect on Mexican operations.
- Hillgrove concentrate processing, use of multiple small furnaces, Mexican operating costs, and inactivity at Los Juarez and Puerto Blanco weighed on operations. Management described plans for a pilot mill and cyanide-leach plant; these were plans, not completed operating results.
- The company did not make a $100,000 Soyatal debt payment due in January 2015 and had begun $5,000 monthly payments under an informal arrangement while terms were negotiated. Mining and supply agreements also expose the company to ore-grade shortfalls and unrecovered advances.
- Antimony sales and raw-material costs are linked to world prices; management stated that a $2-per-pound sales-price decline could reduce gross profit by about $1 per pound. Three customers represented 54.82% of Q1 revenue.
- Management reported material weaknesses in disclosure controls, including insufficient segregation of duties and audit adjustments for material misstatements. The filing says the controls evaluation was as of March 31, 2014, an apparent date inconsistency for this Q1 2015 report. No significant control changes were reported during the quarter.
- The filing reports no legal proceedings. It also notes that operating results for the quarter may not indicate full-year results.
Important facts for investors to verify
- Reconcile the $927,018 vendor credit in the financial statements and notes with MD&A’s stated $914,770 adjustment, and assess whether the credit is nonrecurring or disputed.
- Reconcile operating cash used of $236,702 in the cash flow statement with $327,512 shown in the MD&A liquidity table. The MD&A table also gives current assets and current liabilities that differ from the balance sheet.
- Clarify the intended dollar amounts and funding sources for the stated “$500M” and “$600M” capital commitments, and confirm progress and costs of Hillgrove-related construction.
- Check the status and financial consequences of IMMEX recertification, including recovery of the $154,000 tax deposit and any import taxes incurred.
- Monitor inventory conversion and cash generation, Hillgrove advances and obligations, the Soyatal payment arrangement, and the company’s ability to fund operations and capital needs.
- Assess the impact of customer concentration, antimony price changes, and the disclosed control weaknesses; verify the correct date of management’s controls evaluation.