United States Antimony Corporation — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017; unaudited. The company operates U.S. and Mexican antimony businesses, precious-metals recovery, and a U.S. zeolite business. Amounts below are U.S. dollars unless stated otherwise.
Financial performance
| Metric | Three months ended Sept. 30, 2017 | Nine months ended Sept. 30, 2017 | Comparable 2016 period |
|---|---|---|---|
| Revenue | $2.370 million | $7.828 million | $2.847 million quarter; $9.167 million nine months |
| Gross profit (loss) | $54,068 | $446,505 | $(41,961) quarter; $354,965 nine months |
| Operating loss | $(227,162) | $(507,205) | $(347,984) quarter; $(638,367) nine months |
| Net loss | $(262,565) | $(670,823) | $(797,057) quarter; $(1.142) million nine months |
| Operating cash flow | Not provided for the quarter | $491,253 | $412,162 nine months |
- Quarterly revenue fell about 17% year over year; nine-month revenue fell about 15%. Net loss narrowed about 67% for the quarter and 41% for the nine months.
- Gross margin was about 2.3% for Q3 and 5.7% for the nine-month period. Company-reported EBITDA was $(55,390) for Q3 and $(33,598) year to date.
- Q3 antimony sales were 422,391 pounds, down from 658,915; average selling price rose to $4.25 per pound from $3.07. Nine-month volume was 1.475 million pounds versus 2.305 million, while average price increased to $3.97 from $2.87.
- Zeolite generated Q3 net income of $132,859 and nine-month net income of $348,488, versus $105,604 and $235,912 in the comparable 2016 periods. Q3 tonnage declined 20% to 2,671 tons, partly due to maintenance.
Financial position and liquidity
- At September 30, cash and cash equivalents were $27,576; certificates of deposit were $252,298. Current assets were $1.740 million and current liabilities $3.880 million, resulting in negative working capital of $2.140 million, versus negative $1.690 million at December 31, 2016.
- Total assets were $17.539 million, total liabilities $6.699 million, and stockholders’ equity $10.840 million. Accumulated deficit was $26.101 million.
- Nine-month investing cash outflow was $279,465, principally capital expenditures; financing cash outflow was $194,269. Cash increased $17,519 to $27,576.
- Long-term debt was $1.778 million, including $495,134 classified as current. Bank notes payable were $103,026. Hillgrove advances payable were $1.134 million and classified as long term. A further $163,737 was due to the receivables factor.
- The company reported $202,000 of bank credit lines, of which $103,026 was drawn, and a Mexican value-added-tax refund receivable of $365,120.
Material changes, outlook and risks
- Management attributed continuing losses principally to the loss of Australian Hillgrove raw-material supply and the transition to Mexican ore. Hillgrove permitted use of the furnaces previously dedicated to its concentrates; repayment terms for its advances had not been finalized.
- Management reported progress in reducing Mexican holding and labor costs, increasing Wadley mine production, and processing direct-shipping ore at the Madero smelter. It described a planned precious-metals leach circuit and continued efforts to restart or improve production at Mexican properties. These operational plans remain subject to execution and permitting.
- Management stated that higher antimony prices supported gross profit and positive cash flow from U.S. operations, and that zeolite remained profitable. It believed cash and future operating cash flow would cover commitments and debt service for the next 12 months, including an estimated $50,000 for leach-circuit construction and improvements. No quantified earnings or revenue guidance was provided.
- Going concern: Negative working capital, a $26.1 million accumulated deficit, and losses in the prior three years raised substantial doubt about the company’s ability to continue as a going concern over the next 12 months. Management believed cost reductions, antimony-price improvement, and zeolite cash generation would allow it to meet obligations.
- Mexican tax dispute: The tax authority’s assessment for the 2013 return was reported at approximately $746,000 at September 30, 2017. The company appealed and disputed findings; it had accrued $459,510 in income taxes payable, including an exchange-rate increase. Management said the ultimate outcome could differ from the accrual.
- Customer concentration: Three largest customers represented 66% of Q3 revenue and 57% of nine-month revenue.
- Controls: Management concluded disclosure controls were ineffective due to material weaknesses in financial-reporting design and monitoring, segregation of duties, and management oversight. It planned independent review and expert consultation for complex transactions; no significant control changes were made during the quarter.
- Other unusual items included $124,732 of precious-metals settlement costs in Q1 2017 and a $49,000 foreign-exchange loss year to date related to the Mexican tax liability. The company also issued 421,875 shares for directors’ fees payable from 2016 and accrued another $131,250 to be paid in stock.
Important facts for investors to verify
- Whether Mexican mine and smelter production can scale reliably and offset the lost Hillgrove supply, including planned leach-circuit work and permitting.
- The timing and recoverability of the $365,120 VAT receivable, and the outcome and potential additional cost of the Mexican tax appeal.
- Near-term liquidity and debt-service capacity given $2.140 million of negative working capital and limited cash on hand.
- Whether customer concentration, antimony-price changes, and zeolite sales growth materially affect future revenue and cash generation.
- Progress in remediating the disclosed material weaknesses in internal controls.