United States Antimony Corporation (NYSE American: UAMY) — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Financial statements are unaudited. The company operates antimony, precious-metals recovery and zeolite businesses in the United States and Mexico.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $1.585 million | $2.272 million | $3.328 million | $4.729 million |
| Gross profit (loss) | $(16,061) | $(173,195) | $85,116 | $(242,248) |
| Operating loss | $(276,476) | $(460,418) | $(579,422) | $(1.144) million |
| Net loss | $(274,283) | $(486,039) | $(583,165) | $(1.193) million |
| EBITDA, as reported | $(50,916) | $(262,766) | $(133,517) | $(746,954) |
- Q2 revenue declined about 30% year over year; first-half revenue fell about 30%. Antimony sales were the largest contributor to the decline. Q2 gross margin was approximately negative 1%; first-half gross margin was approximately 2.6%.
- First-half operating cash use was $279,934, versus $154,987 in 2019. Investing cash use was $200,166, while financing provided $488,009, including $443,400 from a PPP loan. Cash and cash equivalents increased $7,909 to $123,415; certificates of deposit were $254,212 and restricted cash was $57,261.
- At June 30, current assets were $1.198 million and current liabilities $3.720 million, for negative working capital of $2.522 million. Total liabilities were $5.329 million; stockholders’ equity was $8.077 million. Debt and advances include the $443,400 SBA/PPP note, $165,931 in bank notes, $111,858 in long-term debt, and $1.134 million in Hillgrove advances payable.
- Antimony pounds sold fell to 233,698 in Q2 and 529,151 for the first half, versus 418,129 and 861,277, respectively, in 2019. Average antimony selling prices increased to $3.90/lb in Q2 and $3.84/lb in the first half, but the company reported antimony losses.
Changes versus prior comparable periods
- Although revenue fell, net losses narrowed in Q2 and the first half, and gross results improved from losses to a small first-half profit. Management attributed continuing losses principally to depressed antimony prices and high Mexican production costs; it also cited supply constraints.
- Zeolite revenue declined to $612,715 in Q2 and $1.172 million for the first half. Segment net income was $113,038 and $248,176, respectively, below the prior-year periods.
- Precious-metals revenue was $61,992 in Q2 and $124,198 in the first half. The company issued 250,000 shares on exercise of a warrant during the first half; common shares outstanding were 70,206,899 at quarter-end.
Outlook, risks and unusual items
- Going concern: The company disclosed substantial doubt about its ability to continue as a going concern for the next 12 months, citing negative working capital, accumulated deficit of approximately $29.9 million and recurring losses. Management’s plans do not remove that uncertainty.
- Management plans to reduce antimony production emphasis and costs and prioritize completion of the Mexico precious-metals leach system. Pilot production was expected in Q3 2020, with management anticipating improved cash flow from precious-metals sales in the second half. Less than $100,000 of construction commitments remained, according to management.
- On July 27, 2020, after quarter-end, the company raised $1.849 million net in a private placement of 5,742,858 shares at $0.35 each; each share included a warrant exercisable at $0.46. Proceeds were intended for the Mexico recovery system and general corporate purposes.
- The company received a $443,400 PPP loan at 1% interest, maturing April 2022. Forgiveness depends on qualifying use and is not assured. It also recognized $10,000 of nonrepayable government grant income.
- In July, the company decided not to renew its Wadley, Mexico antimony mining lease. It planned to assess approximately $320,000 of related assets for impairment in Q3.
- Mexico’s tax authority assessed approximately $696,000 related to the 2013 tax return. The company appealed, posted a required guarantee, and recorded no liability, while warning that an adverse outcome could materially affect results or financial position.
- COVID-19 operating changes could defer production and revenue or add costs; the ultimate impact was uncertain. The company also reported ineffective disclosure controls and procedures due to material weaknesses in financial-reporting controls, monitoring, segregation of duties and management oversight.
- Founder, CEO and Chairman John C. Lawrence died June 16, 2020; Executive Vice-President John C. Gustaven was appointed interim CEO. The company and its bank were considering changes to guarantees on demand notes previously guaranteed by Mr. Lawrence.
Investor verification priorities
- Progress, commissioning and operating performance of the Mexico leach system, and whether precious-metals production generates the cash flow management expects.
- Cash runway, working-capital needs, debt service and the company’s ability to address the going-concern uncertainty.
- PPP loan forgiveness status and compliance with qualifying-use requirements.
- Outcome of the Mexican tax appeal and any related guarantee, penalties or liability.
- Impairment review of Wadley assets and effects of ending the lease.
- Remediation of disclosed material weaknesses and the impact of the July share-and-warrant financing on dilution.