Business context and reporting period
United States Antimony Corporation’s unaudited Form 10-Q covers the three months ended March 31, 2019, with comparisons to Q1 2018. Its operations include antimony in the United States and Mexico, precious-metals recovery, and Bear River zeolite.
Financial performance and position
| Metric | Q1 2019 / Mar. 31, 2019 | Comparable period / Dec. 31, 2018 |
|---|---|---|
| Revenue | $2.456 million | $2.433 million in Q1 2018; up 1.0% |
| Gross profit (loss) and margin | $(69,053); approximately (2.8%) | $(55,088); approximately (2.3%) in Q1 2018 |
| Operating loss | $(683,767) | $(399,769) in Q1 2018 |
| Net loss | $(707,460); $(0.01) per share | $(474,440); $(0.01) per share in Q1 2018 |
| EBITDA, as reported by the company | $(484,187) | $(196,878) in Q1 2018 |
| Operating cash flow | $(85,590) | $163,661 in Q1 2018 |
| Cash and cash equivalents | $43,504 | $56,650 at Dec. 31, 2018 |
| Certificates of deposit | $253,552 | $252,954 at Dec. 31, 2018 |
| Working capital | $(2.336) million | $(1.614) million at Dec. 31, 2018 |
| Total assets / liabilities | $17.297 million / $6.444 million | $17.557 million / $6.132 million at Dec. 31, 2018 |
Cost of revenues exceeded sales, resulting in a negative gross margin. Cash, cash equivalents and restricted cash totaled $100,751 at quarter-end; certificates of deposit are reported separately. Capital spending was $312,568, partly offset by $400,000 collected on the land-sale note. Cash and restricted cash decreased $13,146 during the quarter.
At March 31, reported bank notes payable were $113,125, long-term debt including current portion was $1.694 million, and Hillgrove advances payable were $1.134 million. The company also disclosed $424,608 of delinquent payments associated with the Soyatal and Guadalupe mine obligations. Current liabilities were $3.856 million against current assets of $1.520 million.
Material changes versus Q1 2018
- Revenue increased modestly, but net loss widened by $233,020 and operating loss widened by $283,998. Operating expenses rose to $614,714 from $344,681, including higher salaries and benefits and $76,130 of other operating expenses.
- Antimony sales volume increased to 443,148 pounds from 415,964 pounds, while average selling price declined to $3.85 per pound from $4.04. Antimony segment loss increased to $874,426 from $616,640; Mexico antimony operations reported an $820,963 loss.
- Zeolite revenue was $726,015 versus $690,707; segment net income improved to $159,450 from $149,319. Precious-metals revenue fell to $24,527 from $60,410.
- Operating cash flow shifted from positive $163,661 to negative $85,590. Capital expenditures increased to $312,568 from $94,805.
- In January, the company issued 200,000 common shares valued at $136,000 to its CFO for services. Shares outstanding rose to 68,427,171 from 68,227,171 at year-end.
Outlook, risks, contingencies and unusual items
- Going concern: Management cited negative working capital of approximately $2.3 million, accumulated deficit of approximately $26.4 million, recurring losses and the Q1 loss as factors that may raise substantial doubt about the company’s ability to continue as a going concern over the next 12 months. Management believes planned operating improvements and cash flows will allow it to meet obligations; this depends on execution.
- Management outlook: The 2019 plan targets doubling 2018 antimony output, reducing costs through higher production and direct shipment of Mexican metal, and achieving positive cash flow from Mexican antimony production by year-end. Management expected the Puerto Blanco cyanide leach circuit to begin testing in Q2 2019 and precious-metals income to begin in Q3. It also anticipated continued zeolite sales growth. These are forward-looking expectations, not reported results.
- Antimony operations were loss-making: management reported an antimony loss of $874,426 and EBITDA of $(714,465). Management attributed continuing losses principally to production costs in Mexico; Q1 antimony prices were stable or slightly lower year over year.
- Q1 costs included $76,130 to demolish the Reynosa antimony plant, $136,000 in stock-based CFO compensation, and $60,000 for the NYSE listing, according to management. The company also spent on plant and equipment and estimated a further $100,000 was needed to complete precious-metals leach construction.
- Management said it believed current liquidity, future operating cash flows and operating agreements would cover commitments and debt service for 12 months. However, the filing reports a substantial working-capital deficit and overdue mine-obligation payments. Bank lines of credit totaled $202,000, of which $113,125 had been drawn.
- Disclosure controls and procedures were deemed ineffective as of March 31, 2019 due to material weaknesses in financial-reporting control design and monitoring, segregation of duties, and management oversight, including antifraud controls. The company said it planned remediation, but reported no significant control changes during the quarter.
- The Wadley mine lease was due for renewal in June 2019. Notes payable to the bank are payable on demand and personally guaranteed by the CEO; factoring of receivables is with recourse and also personally guaranteed by the CEO.
Most important facts for investors to verify
- Whether Mexican antimony production and unit costs improved enough to meet management’s output and year-end positive-cash-flow targets.
- Whether the Puerto Blanco leach circuit was completed and began testing as planned, and whether precious-metals production generated revenue.
- How the company funded operations and debt service given negative working capital, low cash balances, delinquent mine payments and negative operating cash flow.
- Whether the reported control weaknesses were remediated and independently tested.
- The status and renewal terms of the Wadley lease, the overdue mine-obligation balances, and any related-party funding or guarantees.