United States Antimony Corporation (NYSE American: UAMY) — Q3 2020 Form 10-Q
Period: Quarter and nine months ended September 30, 2020; filed November 16, 2020. The company operates antimony, precious-metals recovery, and zeolite businesses in the United States and Mexico.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1.007 million | $1.788 million | $4.335 million | $6.517 million |
| Gross profit (loss) | $(435,091) | $(270,817) | $(349,975) | $(513,065) |
| Gross margin | (43.2%) | (15.1%) | (8.1%) | (7.9%) |
| Net loss | $(993,240) | $(568,592) | $(1.576) million | $(1.762) million |
| Net loss per share | $(0.01) | $(0.01) | $(0.02) | $(0.03) |
- Management-reported EBITDA was negative $775,590 in Q3 and negative $909,108 for the nine months, versus negative $282,436 and negative $1.029 million in the comparable 2019 periods.
- Year-to-date operating cash use was $566,587; investing cash use was $220,455; financing provided $2.107 million. Cash and cash equivalents were $1.435 million at quarter-end, and cash plus restricted cash was $1.492 million.
- Current assets of $2.477 million and current liabilities of $3.589 million produced negative working capital of $1.112 million. Total liabilities were $5.219 million.
- Reported obligations included a $443,400 PPP loan, $150,796 in bank notes payable on demand, $102,220 in long-term debt, and $1.134 million due under Hillgrove advances. The filing classifies $378,074 of Hillgrove advances as current.
Material changes and operating results
- Q3 revenue fell about 44% year over year, while the quarterly net loss widened about 75%. For the nine-month period, revenue declined about 33% but net loss improved about 11%.
- Antimony revenue fell to $477,273 in Q3 from $1.081 million; pounds sold declined to 146,842 from 343,438. For nine months, antimony revenue was $2.509 million versus $4.294 million. Management cited supply constraints, reduced material received from suppliers, depressed prices, and high Mexican production costs. The average antimony selling price rose modestly, but the segment remained loss-making.
- The company did not renew its Wadley mine lease and recorded a $318,502 impairment/write-off of related assets. It also reduced Mexican antimony production and incurred a one-time worker termination fee, which management said significantly increased the Mexican Q3 loss.
- Zeolite revenue declined to $481,126 in Q3 from $651,563, and nine-month revenue fell to $1.653 million from $2.082 million. The segment remained profitable; management linked weaker sales partly to reduced swimming-pool activity during the pandemic.
- Precious-metals revenue was $48,832 in Q3 and $173,029 for nine months. Common shares outstanding increased from 69.7 million at year-end 2019 to 75.9 million at September 30, 2020, including a July sale of shares and warrants that generated $1.813 million net of issuance costs.
Outlook, risks, and unusual items
- Going concern: Management and the auditor-identified financial statements disclose substantial doubt about the company’s ability to continue as a going concern for the next 12 months, citing negative working capital, accumulated deficit of about $30.9 million, and recurring losses. Management’s plans may not resolve the uncertainty.
- Management intends to de-emphasize antimony, pursue production-cost reductions, and focus resources on completing the Mexico precious-metals leach system. Pilot production was scheduled for the first half of 2021; the company expected the circuit to come online in the second half of 2021 and anticipated improved cash flow from precious-metals sales. These are expectations, not guarantees.
- The company said it had less than $100,000 in estimated commitments to complete the leach circuits and believed available cash and expected operating cash flow would cover commitments and debt service for 12 months. This assertion should be considered alongside the disclosed going-concern doubt and operating cash outflow.
- The $443,400 PPP loan bears 1% interest and matures in April 2022. The company intended to apply for forgiveness; forgiveness had not been recognized as of quarter-end. A separate $10,000 government grant was recognized as income.
- Mexico’s tax authority assessed approximately $738,000 related to the 2013 tax return. The company appealed, posted a required guarantee, expects no tax due, and accrued no liability; an adverse outcome could materially affect results or financial position.
- Hillgrove may issue a stop notice that would trigger repayment terms. Bank notes are payable on demand, and the bank and company were considering changes to the personal guarantee after the former CEO’s death in June 2020. The company’s executive vice president became interim CEO.
- COVID-19 measures, including altered production schedules and deferred activity, could affect operating results. The filing also reports ineffective disclosure controls and procedures due to material weaknesses in financial-reporting controls, monitoring, segregation of duties, and management oversight.
Most important facts for investors to verify
- Whether the Mexico leach circuit was completed and began production on the stated schedule, and whether it generated the projected cash flow.
- Current cash runway, operating cash burn, working-capital position, and ability to service demand and other debt obligations.
- Progress and outcome of the PPP forgiveness application, Mexican tax appeal, and any Hillgrove stop notice or bank-guarantee changes.
- Antimony supply, production costs, sales volumes, and the profitability of antimony and zeolite operations.
- Remediation of the disclosed material weaknesses and potential dilution from outstanding warrants, including the 5.743 million warrants issued in July 2020.