United States Antimony Corporation - 10-Q quarterly report FY2013 Q2

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

(Mark One)

 

UNITED STATES ANTIMONY CORPORATION

(Exact name of registrant as specified in its charter)

 

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Indicate by check mark whether the registrant is a shell company as defined by Rule 12b-2 of the Exchange Act.

At August 9, 2013, the registrant had outstanding 62,621,726 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.

 

UNITED STATES ANTIMONY CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD

ENDED JUNE 30, 2013

TABLE OF CONTENTS

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Consolidated Balance Sheets

United States Antimony Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Certain consolidated financial statement amounts for the three and six month periods ended June 30, 2012 have been reclassified to conform to the 2013 presentation. These reclassifications had no effect on the net income (loss) or accumulated deficit as previously reported.

 

Management estimates their effective tax rate at 39% 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, 2012.

 

During the six months ended June 30, 2013 and 2012, the Company incurred interest expense of $46,416 and $23,600, respectively, of which $9,415 and $23,600, 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 and six month periods ended June 30, 2013 and the six month period ended June 30, 2012, is not applicable since any additions to outstanding shares related to common stock equivalents would be anti-dilutive.

 

As of June 30, 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:

 

Inventories at June 30, 2013, and December 31, 2012, 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 allocated based on production quantity. Inventory at June 30, 2013, and December 31, 2012, is 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.

 

 

United States Antimony Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited), Continued:

Included in Other Assets at June 30, 2013 are credits of approximately $379,000 for advances we have made to the previous Soyatal operator for equipment and antimony ore mill feed which we plan to utilize as an offset to our purchase of the Soyatal property 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 June 30, 2013 we had received approximately 26 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 $335,000. 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 June 30, 2013.

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 six months ended June 30, 2013, and the year ended December 31, 2012, $65,217 and $86,956, respectively, was paid and 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. The Company has accrued $5,431 in other accrued liabilities as of June 30, 2013, related to such assessments.

During the six months ended June 30, 2012, the Company negotiated a new credit facility increasing the Company’s lines of credit by $202,000. As part of this agreement, we have pledged two $101,000 certificates of deposit as collateral. The increased loan facility allows us access to borrowings at an interest rate of 3.15% for the portion of the credit line used. At June 30, 2013, we did not have any outstanding line of credit debt.

In June of 2013 the Company entered into a lease to mine antimony ore from concessions located in the Wadley Mining district in Mexico. The lease calls for a mandatory term of 2 years and requires payments of $25,000 per month for the first six months of the term and $30,000 per month for the remaining months of the term.

 

 

PART I - FINANCIAL INFORMATION, CONTINUED:

United States Antimony Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited), Continued:

7. Long – Term Debt:

 

United States Antimony Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited), Continued:

 

 

During the first three and six months of 2012, the Company paid $6,655 and $22,026, respectively, to directors of the Company for services provided in permitting and other construction related activities at Mexican mill sites. The Company did not pay any fees to directors for services provided in permitting and construction activities in 2013.

During the first three and six months of 2013 and 2012, the Company paid $23,085 and $37,945 in 2013, respectively, and $16,875 and $38,715, respectively, in 2012, to John Lawrence, our president and Chief Executive Officer, as reimbursement for equipment used by the Company.

The Company recognized a deferred income tax provision of $229,451 during the quarter ended June 30, 2013. The provision provides 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.

During the second quarter of 2013 the Company sold an aggregate of 725,000 of its unregistered common stock to existing stockholders and other parties for $680,192, net of offering costs. In connection with the sale 362,500 warrants to purchase shares of the Company’s common stock for $1.20 were issued. The warrants expire in one year and contained a provision that require the Company to make a cash payment to holders of the warrants equal to the Black-Scholes value of the remaining unexercised portion of the warrant in the event of a Fundamental Transaction.

 

Notes to Consolidated Financial Statements (Unaudited), Continued:

Generally accepted accounting principles require the Company to account for the warrants as a derivative liability. At June 28, 2013, the closing date of the private placement, the Company recorded a derivative liability associated with the warrants of $108,750.

 

The fair value of the warrants was estimated at the date of grant using the Black-Scholes option pricing model using the following assumptions:

 

 

During the six months ended June 30, 2012, the Company sold an aggregate of 2,056,334 shares of unregistered common stock to existing stockholders and other parties for $4,711,842. In connection with the sales of the Company’s common stock, 1,028,167 warrants to purchase shares of the Company’s common stock at $2.50 per share, and 1,425,982 warrants at $3.50 per share, were issued. Expenses of $414,661 connected to the issuance of the unregistered shares were deducted from additional paid in capital.

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. During the first six months of 2012, the company issued 149,500 shares of unregistered common stock with a fair market value of $358,800 to the Directors as compensation for past and future services. During the first six months of 2012, the Company awarded 39,406 of the remaining 53,665 shares of unregistered common stock to its directors for services, having a fair value of $151,191, based on the current stock price at the date awarded. 6,423 new shares with a fair value of $25,000 were issued to directors who were not board members at December 31, 2011. This expense is classified with general and administrative expense in the consolidated statement of operations.

 

 

11. Stockholder’s Equity, Continued:

 

 

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:

 

United States Antimony Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited), Continued:

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 the segments is as follows:

United States Antimony Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited), Continued:

12. Business Segments, continued:

 

 

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.

 

 

 

For the three and six month periods ended June 30, 2013 compared to the three and six month periods ended June 30, 2012.

 

 

The amount of metal produced in Mexico was approximately 201,000 lbs for the second quarter of 2013 compared to approximately 70,000 pounds for the second quarter of 2012, an increase of 186%. The production from Mexico would have been greater except for additional permits needed to operate new equipment and to use explosives at the Soyatal, Gaudalupe, and Wadley mining properties. The applications for the permits have been submitted, and we believe that it is only a matter of time until they are approved. Overall, the pounds of antimony produced and sold was up approximately 42,000 lbs ($225,000) from the same quarter in the prior year, but the sales price per pound was down $1.14 ($494,000) from the prior year quarter. Antimony prices have now fell from a high of $8.11 per lb in 2011, to $4.22 per lb at June 30, 2013. The cost of production in the USA was down by approximately $470,000 and $603,000 for the quarter and six months due to the decrease in the price and amount of raw material purchased, but the cost of product from Mexico was up approximately $580,000 and $802,000 for the quarter and six months, respectively, due to the increase in the amount of product made in Mexico. The non-production costs in Mexico for the three and six months ended June 30, 2013, were down from the same periods a year ago due to the increase in production. The increase in production in Mexico was made despite permitting restrictions at the Puerto Blanco mill that kept production to approximately one-third of capacity. A temporary decrease in the delivery of raw materials to the Montana smelter from a major supplier in the second quarter of 2013 resulted in decreased results for the quarter, but the deliveries have resumed and are on schedule. As previously noted, we will have more antimony products from Mexico, and the cost of raw material per pound of antimony produced in Mexico will decrease as we are able to increase production there. 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 presently have unprocessed concentrates in our Mexico inventory that contain an estimated 8,500 ounces of silver and 25 ounces of gold that we cannot process until we have the proper permits.

 

 

We contracted in July, 2012, to install a natural gas pipeline for our Mexico smelter operation that we now expect to cost $1.5MM in total. Our fuel costs are our second largest expense after raw material 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 September 30, 2013.

We spent approximately $125,000 on mining and milling of Los Juarez minerals in anticipation of receiving a permit, but have halted expenditures until the permit is granted. We have put the construction of the 500 ton per day mill on hold as we consider if a different mill site would be a better alternative. We made the first lease payment of $30,000 on the Wadley mine in June 2013, and we made the final payment of approximately $90,000 for the land at Puerto Blanco.

 

Our zeolite sales decreased by approximately $225,000 and $374,000 for the quarter and six months ended June 30, 2013, over the comparable periods for 2012, and the sales price per ton also decreased from the prior year. This was due to a decrease in the tons of zeolite sold of approximately 693 and 1,426 tons for the quarter and six months ended June 30, 2013, over the comparable periods for 2012, and a decrease in the sales price due to the mix of products sold.

Our general and administrative costs are higher than the prior year, and management is aggressively seeking ways to bring this cost down. At this time, due to the prices of commodities and the need for additional permits in Mexico, we could not determine when we would use the tax benefits being carried forward, and were required to write them down, which resulted in an income tax expense of $229,451.

 

Our net working capital decreased by approximately $1,480,000 from December 31, 2012. Our cash decreased by approximately $635,000 during the same period. The decrease in cash was primarily due to approximately $1,255,000 of capital expenditures, a $364,000 EBITDA loss, and $182,000 paid on long-term debt. Approximately $680,000 cash from the sale of stock, $314,000 from a decrease in inventory, and the net change of approximately $134,000 in current assets and liabilities other than inventory provided cash. We have estimated commitments for construction and improvements, including $250M for the natural gas pipeline, of approximately $500M over the next twelve months. We have suspended costs for the installation of the 500 ton per day flotation plant as we explore other installation sites. We made the final annual payment of approximately $90,000 for the land at Puerto Blanco in the quarter ending June 30, 2013. We believe that with approximately $365,000 of cash, along with future cash flow from operations, we have adequate liquid assets to meet these commitments and service our debt. We have lines of credit of $202,000 which have not been drawn on at June 30, 2013.

 

 

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 and six months ended June 30, 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 and six months ending June 30, 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 June 30, 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 June 30, 2013. 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 June 30, 2013.

 

 

PART II - OTHER INFORMATION

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 six month period ended June 30, 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.

 

Certifications

 

Certifications Pursuant to the Sarbanes-Oxley Act

 

SIGNATURES