United States Antimony Corporation - 10-Q quarterly report FY2014 Q1

For the transition period                              to                             

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The accompanying notes are an integral part of the consolidated financial statements

The accompanying notes are an integral part of the consolidated financial statements

 

The accompanying notes are an integral part of the consolidated financial statements

 

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 periods ended March 31, 2014, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2014.

Certain consolidated financial statement amounts for the three month periods ended March 31, 2013, have been reclassified to conform to the 2014 presentation.  These reclassifications had no effect on the net income (loss) or accumulated deficit as previously reported.

Management estimates their effective tax rate at 0% for the current year.

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, 2013.

During the three months ended March 31, 2014 and 2013, the Company incurred interest expense of $11,689 and $6,058, respectively, of which $11,575, and $4,597, respectively, has been capitalized as part of the cost of construction projects in Mexico.

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 periods ended March 31, 2014 and March 31, 2013, is not applicable since any additions to outstanding shares related to common stock equivalents would be anti-dilutive.

As of March 31, 2014 and 2013, 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:

Inventories at March 31, 2014, and December 31, 2013, consisted primarily of finished antimony products, antimony metal, antimony ore, and finished zeolite products that are stated at the lower of first-in, first-out cost or estimated net realizable value. Finished antimony products, antimony metal and finished zeolite products costs include raw materials, direct labor and processing facility overhead costs and freight. Inventory at March 31, 2014 and December 31, 2013, is as follows:

The Company factors designated trade receivables pursuant to a factoring agreement with LSQ 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 83% of the face value of the receivable by wire transfer. The Factor withholds 15% as retainage, and 2% as a servicing fee.  Upon payment by the customer, we receive the remainder of the amount due from the factor.  The 2% servicing fee is recorded on the consolidated statement of operations in the period of sale to the factor. John Lawrence, CEO, is a personal guarantor of the amount due to 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.

 

During the three months ended March 31, 2014 and 2013, the Chairman of the audit committee and compensation committee received $9,000 and $9,000, respectively, for services performed.

During the three months ended March 31, 2014 and 2013, the Company paid $3,732  and $23,085, respectively, to John Lawrence, our President and Chief Executive Officer, as reimbursement for equipment used by the Company.

During the three months ended March 31, 2014 and 2013, the Company paid royalty expenses, based on sales of zeolite, of $15,605, and $12,482, respectively, to a company controlled by the estate of Al Dugan, formerly a significant stockholder and the father of a former director.

The Company had recognized a deferred tax asset of $229,451 as of December 31, 2012. During the year ended December 31, 2013, the Company recognized a valuation allowance equal to 100% of the net deferred tax asset, as management of the Company cannot determine that it is more likely than not the Company will realize the benefit of the net deferred tax asset. The net effect is that the deferred tax asset as of December 31, 2013, and any deferred tax assets that may have been incurred since then, are fully reserved for at March 31, 2014.

During the quarter ended March 31, 2014, shareholders exercised their rights to convert warrants into 125,000 shares common stock for $170,000.

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 is currently organized and managed by three segments, which represent our operating units: United States antimony operations, Mexican antimony operations and United States zeolite operations.  The Company’s Other operating costs include, general and administrative expenses, freight and delivery, and other non-production related costs. Other income and expense consists primarily of interest income and expense and factoring expense.

The Madero smelter and Puerto Blanco mill at the Company’s Mexico operation brings antimony up to an intermediate stage, which is then shipped to the United States operation for finishing and sales at the Thompson Falls, Montana plant. The Zeolite operation produces Zeolite near Preston, Idaho. Almost all of the sales of products from the United States antimony and Zeolite operations are to customers in the United States.

Segment disclosure regarding sales to major customers is located in Notes 9.

 

This report contains both historical and prospective statements concerning the Company and its operations.  Prospective statements (known as "forward-looking statements") may or may not prove true with the passage of time because of future risks and uncertainties.  The Company cannot predict what factors might cause actual results to differ materially from those indicated by prospective statements.

           Table of Precious Metals Sales

ITEM 2. Management’s Discussion and Analysis of Results of Operations and FinancialCondition, continued:

For the first quarter of 2014, we incurred a loss of $358,170 compared to a loss of $408,825 during the same quarter of 2013. The loss in 2014 was primarily due to the decline in the price of antimony metal from $5.65 during quarter 1 of 2013 to $4.85 in 2014, a decrease of $.80 per lb (15%).  The $358,170 loss in the first quarter of 2014 was after non-cash expenses of $185,462 for depreciation and amortization. Our precious metals revenue in the first quarter of 2014 was equivalent to $.35 per pound of antimony sold. The amount of metal produced in Mexico was approximately 152,000 lbs for the first quarter of 2014 compared to approximately 148,000 pounds produced for the first quarter of 2013, an increase of 2.7%.  The production from Mexico would have been greater except for additional permits needed to operate new equipment and to use explosives at the Soyatal, and Gaudalupe mining properties.  The operator of the Guadalupe property received an explosives permit subsequent to September 30, 2013, and expects to significantly increase their output of feed to our mill at Puerto Blanco during 2014.  Overall, the pounds of antimony produced and sold was up approximately 33,000 lbs ($186,000), or 8%, from the same quarter in the prior year, but the sales price per pound was down approximately $.80 ($366,000), or 15%, from the prior year quarter.  Antimony oxide prices have now fallen from a high of $8.11 per lb in 2011, to $4.29 per lb at March 31, 2014.  The cost of production in the USA was up by approximately $54,000 from the same quarter in the prior year, primarily due to the increase in the price of propane fuel for our furnaces. The non-production costs in Mexico of $77,468 for the three months ended March 31, 2014, were down from $200,750 the same period a year ago, a decrease of 61%.  The decrease was a result of better performance at our Mexican mining operations.  Our operating expenses in Mexico included depreciation and amortization charges of $116,406. We now have approximately two months of smelter feed stockpiled and paid for, and we are increasing our furnace capacity at our Madero smelter to catch up with our increased raw material production. The increase in production in Mexico was made despite continuing permit restrictions at the mining properties and the installation and testing of new Los Juarez precious metals smelting equipment.  Our efforts in Mexico are resulting in increased product that will be shipped to our Montana plant.  In addition, we expect to have increased revenue from precious metals from our Mexico division.

We contracted in July, 2012, to install a natural gas pipeline for our Mexico smelter operation that we now expect to cost $1.8MM in total.  Our fuel costs are our largest expense in Mexico, and we are expecting the switch from propane to natural gas to decrease our Mexico fuel costs by 75% when the pipeline is complete.  The pipeline is substantially completed, and hookup by PEMEX should be finalized by June 1, 2014.

Zeolite sales for the quarter ending March 31, 2014, increased by approximately $109,000 compared to the same period in 2013.  The first quarter of 2014 realized a net profit of approximately $108,000 compared to a net profit of approximately $68,000 for the first quarter of 2013, an increase of 58.8%. The sales price decreased by approximately $20 per ton from the same period of the prior year.  There was an increase in the tons of zeolite sold of approximately 800 tons for the quarter ended March 31, 2014, over the comparable period for 2013, an increase of 32%.  We have installed new equipment at BRZ to produce a water filtration product that could represent a major market.

 Our general and administrative costs were lower for the three months ended March 31, 2014, than the same period for prior year, but management is still seeking ways to bring these costs down.

PART I - FINANCIAL INFORMATION, CONTINUED:

ITEM 2. Management’s Discussion and Analysis of Results of Operations and FinancialCondition, continued:

Our net working capital decreased by approximately $583,000 from December 31, 2013.  Our cash decreased by approximately $15,000 during the same period.  The decrease in our net working capital was primarily due to approximately $316,000 of capital expenditures, a $170,000 EBITDA loss, a decrease in accounts receivable of approximately $297,000 and $31,000 paid on long-term debt. Approximately $170,000 cash from the sale of stock, $354,000 from a decrease in inventory, $69,000 borrowing, and the net increase of approximately $460,000 in current liabilities provided cash.  We have estimated commitments for construction and improvements, including $150M for the natural gas pipeline, of approximately $350M over the next twelve months. We believe that with our current cash balance, along with the future cash flow from operations, we have adequate liquid assets to meet these commitments and service our debt for the next twelve months.  We have lines of credit of $202,000 which have been drawn down by $154,503 at March 31, 2014.

We sell our antimony products based on a world market price, and we buy a majority of our raw material based on the same market prices.  Analysis of our costs indicate that, for the quarter ended March 31, 2014, 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, 2014, a $2 per pound decrease in our sales price would have likely caused our gross profit to decrease $1 per pound.

PART I - FINANCIAL INFORMATION, CONTINUED:

ITEM 4.  Controls and Procedures

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, 2014.  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, 2014. These material weaknesses are as follows:

MANAGEMENT'S REMEDIATION INITIATIVES

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

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no significant changes made to internal controls for the quarter ended March 31, 2014.

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