United States Antimony Corporation - 10-Q quarterly report FY2013 Q1

 

For the quarterly period ended March 31, 2013

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (406) 827-3523

At May 10, 2013, the registrant had outstanding 61,896,726 shares of par value $0.01 common stock.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

The unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, as well as the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the interim financial statements have been included. Operating results for the three month period ended March 31, 2013, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2013.

For further information refer to the financial statements and footnotes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Certain consolidated financial statement amounts for the prior year have been reclassified to conform to the 2013 presentation. These reclassifications had no effect on the net loss or accumulated deficit as previously reported.

Basic earnings per share is calculated by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated based on the weighted average number of common shares outstanding during the period plus the effect of potentially dilutive common stock equivalents, including warrants to purchase the Company's common stock and convertible preferred stock. Management has determined that the calculation of diluted earnings per share for the three month period ending March 31, 2013, is not applicable since any additions to outstanding shares related to common stock purchase warrants would be anti-dilutive.

As of March 31, 2013 and 2012, the potentially dilutive common stock equivalents not included in the calculation of diluted earnings per share as their effect would have been anti-dilutive are as follows:

The Company factors designated trade receivables pursuant to a factoring agreement with LSC Funding Group L.C., an unrelated factor (the “Factor”). The agreement specifies that eligible trade receivables are factored with recourse. We submit selected trade receivables to the factor, and receive 85% of the face value of the receivable by wire transfer. Upon payment by the customer, we receive the remainder of the amount due from the factor, less a one-time servicing fee of 2% for the receivables factored. This servicing fee is recorded on the consolidated statement of operations in the period of sale to the factor.

 

Trade receivables assigned to the Factor are carried at the original invoice amount less an estimate made for doubtful accounts. Under the terms of the recourse provision, the Company is required to reimburse the Factor, upon demand, for factored receivables that are not paid on time. Accordingly, these receivables are accounted for as a secured financing arrangement and not as a sale of financial assets. The allowance for doubtful accounts is based on management’s regular evaluation of individual customer’s receivables and consideration of a customer’s financial condition and credit history. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. Interest is not charged on past due accounts.

We present the receivables, net of allowances, as current assets and we present the amount potentially due to the Factor as a secured financing in current liabilities.

At December 31, 2012, we exercised our option to purchase the Soyatal mining property (“Soyatal”), consisting of 283 hectares, for $1,267,431. We were obligated to make a $200,000 down payment by December 31, 2012, of which $92,000 was paid at that time. During the quarter ended March 31, 2013 we paid an additional $9,395 on the remaining $108,000 payment due to Soyatal. At March 31, we owe Soyatal approximately $99,000 for the down payment.

We are also obligated to make payments of $200,000 annually through 2018, and a final payment of $100,000 is due in 2019. This obligation is recorded in long-term debt.

We have credits of approximately $372,000 recorded in other assets at March 31, 2013, for advances to the previous Soyatal operator which can be used as a payment on our debt at a rate of $100,000 per year, or offset from future ore purchase payments which may become due to Soyatal.

In March of 2012 we entered into a supply agreement with Grupo Roga or “Guadalupe” for antimony ore. As of March 31, 2013 we had received approximately 24 metric tons of antimony ore under this agreement. In 2012 and 2013 we made advances to Guadalupe to fund their antimony mining operations. The mining, trucking, and milling costs on this ore have exceeded its value by approximately $247,000. As Guadalupe has agreed to deduct these excess costs through future antimony ore purchases and (or) option payments for the Guadalupe property, we have recorded the excess costs as other assets at March 31, 2013.

 

Payments of principal for the following twelve month periods is as follows:

During the three months ended March 31, 2013 and 2012, approximately 66% and 61% of the Company's revenues were generated by sales to three customers. Loss of any of our key customers could adversely affect our business.

 

In 2005, a subsidiary of the Company signed an option agreement that gives it the exclusive right to explore and develop the San Miguel I and San Miguel II concessions for an annual payment of $50,000, and an option to purchase payment of $100,000 annually. Total payments will not exceed $1,430,344, reduced by taxes paid. During the three months ended March 31, 2013 and March 31, 2012, no payments were made and nothing was capitalized as mineral rights in accordance with the Company’s accounting policies.

From time to time, the Company is assessed fines and penalties by the Mine Safety and Health Administration (“MSHA”). Using appropriate regulatory channels, management may contest these proposed assessments.

During the year ended December 31, 2012, the Company negotiated a credit facility increasing the Company’s lines of credit by $202,000. As part of this agreement, two $101,000 certificates of deposit were pledged as collateral. The increased loan facility allows us access to borrowings at an interest rate of 3.15% of the portion of the credit line used. At March 31, 2013, we did not have any outstanding line of credit debt.

During the first three months of 2013 and 2012, the Company paid $0 and $6,655, respectively, to directors of the Company for services provided in permitting and other construction related activities at Mexican mill sites.

During the first three months of 2013 and 2012, the Company paid $23,085 and $21,840, respectively, to John Lawrence, our President and Chief Executive Officer, as reimbursement for personally owned equipment used by the Company.

No shares or warrants to purchase shares of the Company’s common stock were issued for cash in the first three months of 2013.

During the three month period ended March 31, 2012, the Company sold shares of its restricted common stock directly and through the exercise of outstanding stock purchase warrants as follows: 1,102,500 shares for $2.00 per share ($2,205,000), and 200,000 shares as an exercise of warrants for $.30 per share ($60,000). Expenses of $183,878 connected to the issuance of the unregistered shares were deducted from additional paid in capital. Common stock sold is restricted as defined under Rule 144. In management's opinion, the offer and sale of the securities were made in reliance on exemptions from registration provided by Section 4(2) and Rule 506 of Regulation D of the Securities Act of 1933, as amended and other applicable Federal and state securities laws. Proceeds received on sales of common stock were used for general corporate purposes and capital improvements.

The Company did not issue any stock to the directors for services during the first three months of 2013. The remaining 3,921 prepaid shares from the issuance of stock on January 27, 2012, were treated as awarded as of March 31, 2013, with $6,783 charged to expense and $2,628 charged against additional paid in capital. This expense is classified with general and administrative expense in the consolidated statement of operations.

 

At December 31, 2011, the Company declared, but did not issue, 95,835 shares of unregistered common stock to be paid to its directors for services, having a fair value of $230,004, based on the current stock price at the date declared. On January 27, 2012, the company issued 149,500 shares of unregistered common stock with a fair market value of $401,819 to the Directors as compensation for past and future services. During the first three months of 2012, the Company awarded 22,883 of the remaining 53,665 shares, and 2,710 new shares, of unregistered common stock to its directors for services. This expense is classified with general and administrative expense in the consolidated statement of operations for the period ended March 31, 2011.

The Company's Board of Directors has the authority to issue stock warrants for the purchase of preferred or unregistered common stock to directors and employees of the Company.

Transactions in common stock warrants are as follows:

The Company has two operating segments, antimony and zeolite. Management reviews and evaluates the operating segments exclusive of interest and factoring expenses. Therefore, interest expense and factoring is not allocated to the segments. Selected information with respect to segments is as follows:

The pounds of antimony produced and sold increased approximately 64,400 lbs ($407,000) from the first quarter of 2012, approximately 18%, and the revenue from antimony sales increased by approximately $130,000 in the first quarter of 2013 compared to the same period of 2012. Our sales price per pound was down 10.6%, approximately $0.67 per lb ($273,000), from the same quarter one year ago. This price decrease reflects the decrease in the price of antimony from its peak of $17,000 per metric ton two years ago to less than $10,000 per metric ton in the first quarter of 2013. The pounds of product (raw material) from Mexico increased approximately 52,500 lbs over the same quarter from one year ago. The flotation plant at Puerto Blanco went into a start up phase in early October of 2012, but there was not adequate electrical power to run 24 hour shifts. We were on a reduced production schedule, with no production for approximately 45 days, causing an increase in our per ton production costs. There was an additional transformer installed in March of 2013, and we should see increased production from Mexico in the upcoming quarters. Non-production start up costs incurred in getting the Mexico plants in operation increased by approximately $70,000 for the quarter ended March 31, 2013, as compared to the same quarter for 2012. We expect the non-production costs for Mexico to be substantial for the remainder of 2013 as production is being ramped up and we move forward with the installation of the 500 ton per day plant. We will have more antimony products from Mexico to sell, and the cost of raw material per pound of antimony produced will decrease as we are able to work more recent raw materials from Mexico into our production. We have been processing ore that we purchased during the peak price period, causing our cost of production to be elevated.  In addition, we expect to have increased revenue from precious metals as we process more of the raw materials supplied by our Mexico division. We have tested and placed in production our precious metals circuit beginning the first week of May, 2013, but we have incurred substantial costs in getting the precious metals production started. We contracted in July 2012 to install a natural gas pipeline for our Mexico smelter operation. We have obtained the necessary permits and paid approximately $600,000, which is about 60% of our estimated cost of $1 million. The fuel costs for our smelter at Madero are our second largest expense, after raw material, and we expect the switch from propane to natural gas to decrease our Mexico fuel costs by 75%. We paid approximately $208,000 for propane during the first quarter of 2013, and we expect our fuel cost for natural gas will be in the range of $40,000 to $45,000 per quarter. The pipeline should be completed in three to six months. We delayed processing a shipment of concentrate from Los Juarez ore in the first quarter of 2013 because we needed to complete the installation of additional equipment to maximize the precious metals recovery. We expect to have the equipment permitted, installed and functioning by June 30, 2013.

We had sales of precious metals since 2009 as follows:

Zeolite sales for the first quarter of 2013 decreased by approximately $150,000 compared to the same quarter of 2012. Zeolite sold in the first quarter of 2013 decreased by approximately 930 tons ($187,000) from the tons sold the first quarter of 2012. The sales price per ton for zeolite increased by approximately $15 per ton ($38,000) for the first quarter of 2013, when compared to the same quarter from 2012. The sales price per ton was better than the prior year’s sales price for the same period due to price increases. Production costs decreased approximately $178,000 for the first quarter of 2013, when compared to the same quarter for 2012, due to decreased production activity.

Our general and administrative costs are higher than the same quarter for the prior year, and management is aggressively seeking ways to bring this cost down. During the first quarter of 2013, we incurred $10,000 in charges related to our listing on the NYSE MKT stock exchange, and we are incurring $5,000 more per month in expenses for investor relations. Expenses for Directors’ fees were $0 and $82,399, for the first quarter of 2013 and 2012, respectively.

Our net working capital decreased by approximately $607,000 from December 31, 2012. There was a decrease of approximately $102,000 in cash from operations, compared to a decrease in cash from operations of approximately $113,000 for the same period in 2012. The decrease in cash from operating activities for the first quarter of 2013 was largely due to a loss of approximately $409,000, an increase in accounts receivable of approximately $180,000, and payment of accounts payable of approximately $114,000. We spent approximately $456,000 in 2013 to purchase property, plant and equipment, primarily in Mexico, compared to approximately $564,000 in the same quarter from one year ago. We have estimated commitments for construction and improvements, including $400,000 for the natural gas pipeline, and $400,000 for installation of the 500 tons per day ball mill, of approximately $1,000,000 over the next twelve months. We also have land and debt payments of approximately $420,000 due in the next nine months. We believe that with approximately $400,000 of cash, along with future cash flow from operations, we have adequate liquid assets to meet our commitments and service our debt. We have lines of credit of $202,000 which have not been drawn on at March 31, 2013.

We sell our antimony products based on a world market price, and for the first quarter of 2013, we bought a majority of our raw material based on the same market prices. Analysis of our costs indicate that, for the quarter ended March 31, 2013, raw materials were approximately 50% of our cost of goods sold. Most of our production costs are fixed in nature, and could not be decreased readily without decreasing our production. During the quarter ending March 31, 2013, a $2 per pound decrease in our sales price would have likely caused our gross profit to decrease $1 per pound.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosure. Our chief financial officer conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of March 31, 2013.

It was determined that there were material weaknesses affecting our disclosure controls and procedures and, as a result of those weaknesses, our disclosure controls and procedures were not effective as of March 31, 2013. These material weaknesses are as follows:

MANAGEMENT'S REMEDIATION INITIATIVES

We are aware of these material weaknesses and will develop procedures to ensure that independent review of material transactions is performed. We have developed internal control measures to mitigate the lack of segregation of duties as follows:

In addition, we plan to consult with independent experts when complex transactions are contemplated.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have not been any material changes to internal controls since December 31, 2012.

None

During the three month period ended March 31, 2012, the Company sold shares of its restricted common stock directly and through the exercise of outstanding stock purchase warrants as follows: 1,102,500 shares for $2.00 per share ($2,205,000), and 200,000 shares for $.30 per share ($60,000).

Common stock sold is restricted as defined under Rule 144. In management's opinion, the offer and sale of the securities were made in reliance on exemptions from registration provided by Section 4(2) and Rule 506 of Regulation D of the Securities Act of 1933, as amended and other applicable Federal and state securities laws. Proceeds received on sales of common stock were used for general corporate purposes and capital improvements at both the Mexico plants and at the USA plants.

The registrant has no outstanding senior securities.

Exhibit 95

None

Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the three month period ended March 31, 2013, the Company had no material specified health and safety violations, orders or citations, related assessments or legal actions, mining-related fatalities, or similar events in relation to the Company’s United States operations requiring disclosure pursuant to Section 1503(a) of the Dodd-Frank Act.