United States Antimony Corporation — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Unaudited consolidated financial statements; filed August 14, 2018. The company operates antimony, precious-metals recovery, and zeolite businesses in the United States and Mexico. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $2.256 million | $2.838 million | $4.689 million | $5.458 million |
| Gross profit | $141,348 | $302,893 | $86,260 | $392,437 |
| Gross margin | 6.3% | 10.7% | 1.8% | 7.2% |
| Operating loss | $(160,053) | $31,829 | $(559,822) | $(280,043) |
| Net loss | $(122,785) | $(16,955) | $(597,225) | $(408,258) |
| Net loss available to common shareholders | $(134,947) | $(29,117) | $(621,550) | $(432,583) |
| EBITDA, as presented by the company | $52,312 | $197,420 | $(144,566) | $21,792 |
- Revenue mix and operations: Six-month revenue included antimony of $3.174 million, zeolite of $1.373 million, and precious metals of $142,000. Antimony sales volume fell to 742,222 pounds from 1,053,206 pounds, while the average antimony selling price rose to $4.28 per pound from $3.86. Zeolite sales volume increased 8.2% for the six months, and the company reported higher zeolite earnings.
- Cash flow: For the six months, operating activities provided $197,817, investing activities used $174,388, and financing activities used $35,538. Cash and cash equivalents declined $12,109 to $15,878; cash, cash equivalents, and restricted cash totaled $79,223 at period end, including $63,345 of restricted cash.
- Liquidity: Current assets were $1.443 million and current liabilities $4.210 million, resulting in negative working capital of $2.767 million, versus $2.372 million negative at December 31, 2017. Certificates of deposit were $252,954. The company reported $202,000 in bank credit lines, of which $191,009 was drawn.
- Debt and obligations: Long-term debt, including its current portion, was $1.717 million net of discount; bank notes were $191,009. Hillgrove advances payable were $1.134 million. Total liabilities were $6.791 million. The company also reported $430,358 of income taxes payable, including accruals related to a Mexican tax assessment.
Material changes versus prior comparable periods
- Q2 revenue decreased about 21% year over year, and gross profit fell by $162,000; the quarter shifted from operating income to an operating loss. For the first half, revenue declined about 14% and gross profit fell about 78%.
- Management attributed the Q2 loss principally to reduced raw-material receipts from its North American supplier. Antimony pounds sold fell about 35% for the quarter and 30% for the six months despite higher average selling prices.
- Antimony operations remained loss-making: the company reported a six-month antimony segment loss of $994,000, compared with $789,000 in 2017. Mexico operations generated a six-month segment operating loss of $1.551 million; U.S. antimony operations and zeolite were profitable.
- The company issued 739,018 common shares in May to settle $175,000 of directors’ fees payable. Shares outstanding were 68,227,171 at August 14, 2018.
Outlook, risks, contingencies, and unusual items
- Going concern and funding: Management cited recurring losses, approximately $2.8 million of negative working capital, and a $27.2 million accumulated deficit as factors that may raise doubt about the company’s ability to continue as a going concern over the next twelve months. Management believes cost reductions, increased production, operating agreements, and expected operating capital will enable it to meet obligations; the filing does not establish that the anticipated capital or agreements are assured.
- Supply and production: The North American supplier notified the company that shipments would be suspended from September 17 through November 5, 2018 because of raw-material shortages. Management expected normal supply to resume afterward and planned to increase Mexican raw-material supply. These developments could affect output and cash generation.
- Projects and forecasts: The company expected testing of the Puerto Blanco cyanide leach circuit in Q4 2018, with the tailings pond liner anticipated by the end of September. Management described planned Mexican mine production increases and anticipated continued zeolite sales growth. These are forward-looking expectations, not reported results.
- Acquisition after quarter end: On July 31, 2018, the company agreed to acquire a subsidiary that includes an antimony plant, equipment, and land in Reynosa, Mexico. Closing was expected August 31, 2018. The company planned to dismantle and move equipment for use in existing operations, a project that could take up to a year. Purchase price and financing details are not clear in the provided filing text.
- Tax contingency: Mexico’s SAT assessed approximately $694,752 at June 30, 2018 relating to the company’s 2013 tax return. The company appealed and disputed the findings; it had accrued $410,510 as its estimated liability, and the ultimate outcome could differ.
- Internal controls: Management concluded disclosure controls were not effective at June 30, 2018 because of material weaknesses, including inadequate control design and monitoring, insufficient segregation of duties, and ineffective management-oversight and antifraud controls. No significant changes to internal control over financial reporting were reported during the quarter.
- Other: The company states that it adopted the new revenue-recognition standard in 2018 with no impact on reported revenue timing or amounts. It reported no legal proceedings in the relevant filing section.
Key facts for investors to verify
- Whether the company secures the operating capital and agreements it expects, and how it will address negative working capital and near-term obligations.
- Whether the supplier interruption and planned sourcing shift affect antimony production, sales volumes, and margins as expected.
- Actual completion, cost, funding, and recoveries from the Puerto Blanco leach project and Mexican mine ramp-up.
- Closing terms, purchase price, funding, and execution risks for the Reynosa plant acquisition and equipment relocation.
- Developments in the Mexican tax appeal and whether the recorded $410,510 accrual is adequate relative to the assessment.
- Progress in remediating the disclosed material weaknesses in financial reporting controls.