UNITED STATES ANTIMONY CORP quarterly report, Q2 FY2017

United States Antimony Corporation — Q2 2017 Form 10-Q

Reporting period: Three and six months ended June 30, 2017; unaudited. The company operates U.S. and Mexican antimony businesses, precious-metals recovery, and a U.S. zeolite business. Unless noted otherwise, amounts are in U.S. dollars.

Financial results and position

Metric	Q2 2017	Q2 2016	Six months 2017	Six months 2016
Revenue	$2.838 million	$3.014 million	$5.458 million	$6.320 million
Gross profit	$302,893	$189,615	$392,437	$396,926
Operating income (loss)	$31,829	($108,126)	($280,043)	($290,383)
Net income (loss)	($16,955)	($156,670)	($408,258)	($345,276)
EBITDA, as presented by management	$197,420	$68,780	$21,792	$108,824

Gross margin was approximately 10.7% in Q2 2017 versus 6.3% a year earlier; six-month gross margin was approximately 7.2% versus 6.3%.
Net loss available to common stockholders was $29,117 for Q2 and $432,583 for the six months, after preferred dividends. Basic and diluted loss per share were reported as nil for Q2 and ($0.01) for the six-month period.
Six-month operating cash flow was positive $239,654, compared with $256,983 in 2016. Investing cash outflow was $151,244, mainly capital spending; financing cash outflow was $73,917. Cash increased $14,493 to $24,550.
At June 30, current assets were $1.655 million and current liabilities $3.598 million, producing negative working capital of $1.943 million, versus $1.690 million at year-end 2016. Certificates of deposit were $252,298; restricted reclamation cash was $63,274.
Total liabilities were $6.431 million. Debt included $1.804 million of long-term debt before current classification, $192,144 of demand bank notes, and $1.134 million payable to Hillgrove. The company also had $170,870 due to its receivables factor. Bank notes are secured by certificates of deposit and personally guaranteed by the CEO.

Changes versus comparable periods

Q2 revenue decreased about 6% year over year, while the net loss narrowed by about 89%. Six-month revenue fell about 14%, while the net loss widened by about 18%.
Antimony sales volume fell to 505,356 pounds in Q2 from 732,802 pounds; six-month volume fell to 1,053,206 pounds from 1,645,643 pounds. Management attributed the decline to the end of Hillgrove concentrate shipments in late 2016. Average antimony selling prices increased to $4.11 per pound in Q2 from $2.81, and to $3.86 for the six months from $2.79.
Zeolite Q2 tonnage sold declined 19% to 3,422 tons, but segment net income increased 29% to $129,426. Six-month zeolite net income rose 65% to $215,630, which management attributed to improved plant efficiency.
Mexican antimony operations remained in transition after Hillgrove feedstock ended. Management reported lower Mexican non-production costs and said producing from company-owned Mexican mines could allow it to capture more of antimony price increases.

Outlook, risks, and notable items

Going concern: Management cited negative working capital of about $1.9 million, an accumulated deficit of about $25.8 million, and losses in each of the prior three years as factors raising substantial doubt about the company’s ability to continue as a going concern over the next 12 months. Management nevertheless believes operations and available resources can meet obligations, based on improved antimony prices, positive U.S. operating cash flow, cost reductions, and profitable zeolite operations.
Operating plans: Management described efforts to increase grade and output at the Wadley mine, process direct-shipping ore at the Madero mill, restart or advance work at Mexican properties, and complete precious-metals leach-circuit work. It estimated about $50,000 of commitments for leach-circuit construction and improvements and expected near-term capital outlay to be minimal. These are forward-looking plans, not assured outcomes.
Tax contingency: Mexico’s tax authority assessed approximately $13.8 million pesos; the U.S.-dollar assessment was stated as $762,000 at June 30, 2017. The company appealed and accrued $410,510 at year-end 2016 as its best estimate of the amount ultimately payable. A $51,642 foreign-exchange loss increased the recorded amount during the first half. The company reported a $365,120 Mexican VAT refund receivable that management believes could offset the eventual assessment; the timing and outcome remain uncertain.
Hillgrove agreement: The $1.134 million advance balance remains payable, with repayment terms not finalized. Hillgrove may suspend or terminate the processing agreement at its discretion; it permitted the company to use furnaces previously dedicated to Hillgrove concentrates.
Other unusual items and risks: Management cited approximately $124,732 of precious-metals settlement costs during Q1 2017. The company factors selected receivables with recourse, receives 83% of invoice value initially, and the CEO personally guarantees amounts due to the factor. Three largest customers represented 57.3% of Q2 revenue and 55.3% of six-month revenue.
Controls: Management concluded disclosure controls were ineffective at June 30, 2017, citing material weaknesses in financial-reporting control design, monitoring, segregation of duties, and management oversight. It said it planned independent review of material transactions and consultation with experts for complex transactions; no significant control changes were made during the quarter.
The filing provides no formal numerical revenue or earnings guidance. Management’s outlook depends on antimony prices, production and market conditions, Mexican operations, and regulatory developments.

Key facts for investors to verify

Whether Mexican mine production and mill changes can replace lost Hillgrove feedstock and restore antimony volumes and margins.
Whether operating cash generation, available credit, and the VAT refund can address the working-capital deficit, debt service, and the Mexican tax assessment.
The progress and cost of the precious-metals leach circuit and the recovery economics of Los Juarez ore and tailings.
Resolution and final payment exposure for the Mexican tax appeal, including exchange-rate effects and the VAT refund timing.
Whether the company remediates the disclosed material weaknesses in internal controls and sustains improved performance in zeolite and antimony operations.