United States Antimony Corporation — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. The company operates U.S. and Mexican antimony businesses, precious-metals recovery, and Bear River zeolite. Unless noted otherwise, amounts are U.S. dollars.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $2.433 million | $2.619 million; down 7.1% |
| Gross profit (loss) | $(55,088); gross margin about -2.3% | $89,544; gross margin about 3.4% |
| Operating loss | $(399,769) | $(311,873) |
| Net loss | $(474,440) | $(391,303) |
| Net loss available to common stockholders | $(486,602), or $(0.01) per share | $(403,465), or $(0.01) per share |
| Operating cash flow | $163,661 provided | $143,613 provided |
| Capital spending | $94,805 | $79,599 |
| Cash and cash equivalents at period-end | $12,381 | $27,987 at December 31, 2017 |
| Working capital | $(2.744) million | $(2.372) million at December 31, 2017 |
| Total liabilities | $6.848 million | $6.755 million at December 31, 2017 |
Cash, cash equivalents and restricted cash totaled $75,726 at quarter-end under the cash-flow presentation; this includes $63,345 restricted for reclamation bonds. Certificates of deposit were a further $252,717, but were pledged as collateral for bank notes. Current liabilities were $4.062 million versus current assets of $1.319 million. Debt included $97,117 of bank notes payable on demand, $1.759 million of other debt (including current maturities), and $1.134 million of Hillgrove advances payable. The filing does not provide a single total-debt figure combining these categories.
Material changes and operating results
- Antimony revenue fell to $1.682 million from $1.987 million. Sales volume declined to 415,964 pounds from 547,850 pounds, despite the average selling price rising to $4.04 per pound from $3.63. Management attributed the loss primarily to reduced raw-material receipts from its North American supplier; interruptions occurred during Q1.
- Antimony operations recorded a $616,640 segment loss, compared with $498,319 in Q1 2017. Management reported a loss of $1.48 per pound versus $0.88 per pound a year earlier.
- Zeolite revenue increased to $690,707 from $612,012. Segment profit rose to $149,319 from $86,205; sales volume increased 11.9% to 3,753 tons.
- Precious-metals revenue was $60,410, compared with $20,811 in reported revenue in Q1 2017; the segment recorded a $7,119 loss versus $20,811 profit. The MD&A separately reports higher 2017 gross precious-metals revenue and a Hillgrove-related settlement/offset, so the differing presentation should be checked against the detailed statements.
- General and administrative expense declined to $150,831 from $200,592, but total operating loss worsened as gross profit turned negative. EBITDA, as presented by management, was negative $196,878 versus negative $175,628.
- Operating cash flow improved year over year, supported in part by a $273,615 inventory reduction. Cash declined $15,606 after investing outflows of $94,805 and financing outflows of $84,462.
Outlook, risks and contingencies
- Going concern and liquidity: The filing identifies recurring losses, negative working capital of approximately $2.7 million, and accumulated deficit of approximately $27.0 million as factors that may raise substantial doubt about the company’s ability to continue as a going concern over the next twelve months. Management says cost reductions and planned production increases should allow it to meet obligations and debt payments, and expects operating cash flow to support liquidity; these expectations are not assured.
- Operating plans: Management expects North American supplier quantities to normalize for the remainder of 2018, plans to increase production from its Mexican mines, and expects the Puerto Blanco cyanide leach circuit to be completed in the fall of 2018. It expects the leach circuit to support precious-metals recovery. Estimated construction and improvement commitments were $100,000, including $50,000 for leach circuits.
- Market and execution risks: Results depend on antimony prices, raw-material availability, production levels, Mexican operating costs, and regulatory conditions. Management noted that Q1 supplier interruptions reduced production and that Mexican production costs have been a major contributor to continuing losses.
- Tax dispute: Mexico’s tax authority assessed approximately $757,247 at March 31, 2018, including interest and penalties, relating to the company’s 2013 Mexican income-tax return. The company appealed and believes findings lack merit; it had accrued $410,510 before a $50,000 foreign-exchange-related increase. The ultimate amount payable could differ.
- Other exposures: Factored receivables are with recourse, and CEO John Lawrence personally guarantees the amount due to the factor. He also personally guarantees the demand bank notes, which are collateralized by certificates of deposit. The Wadley mining lease, requiring monthly payments of $10,000 plus tax, was scheduled for renewal in June 2018.
- Financial reporting controls: Management concluded disclosure controls were ineffective at March 31, 2018 because of material weaknesses involving control design, monitoring, segregation of duties, management oversight, and antifraud controls. Remediation was planned; no significant control changes were made during the quarter.
- The company adopted the new revenue-recognition standard on January 1, 2018 and reported no impact on revenue timing or amounts. It was evaluating the future balance-sheet impact of the lease-accounting standard.
Most important facts for investors to verify
- Whether antimony feedstock supply normalized after Q1 and whether higher selling prices translate into improved margins and cash generation.
- Progress, cost, permits and expected commissioning of the Puerto Blanco leach circuit, and the planned ramp-up of Mexican mine production.
- Availability of liquidity to address the $2.744 million working-capital deficit, debt maturities, and stated construction commitments, given very low unrestricted cash.
- Outcome and potential cash impact of the Mexican tax assessment and appeal.
- Remediation of the disclosed material weaknesses and any subsequent developments in internal controls.
- Customer concentration: the three largest customers accounted for 50.5% of Q1 revenue; verify ongoing customer demand and receivable collection.