United States Antimony Corporation — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Unaudited consolidated results cover antimony, precious metals recovery, and U.S. zeolite operations.
Key financial results
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $2.092 million | $2.370 million | $6.781 million | $7.828 million |
| Gross profit (loss) | $(177,129) | $54,068 | $(90,869) | $446,505 |
| Operating income (loss) | $865,740 | $(227,162) | $305,918 | $(507,205) |
| Net income (loss) | $1,267,447 | $(262,565) | $670,222 | $(670,823) |
| Net income (loss) available to common | $1,255,285 | $(274,727) | $633,735 | $(707,310) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(350,916) | $491,253 |
Q3 basic and diluted earnings per share were $0.02; nine-month EPS was $0.01, versus a $(0.01) loss per share in 2017. The filing reports Q3 EBITDA of $1.493 million and nine-month EBITDA of $1.348 million, compared with losses of $55,390 and $33,598, respectively, in 2017. These are non-GAAP measures.
Revenue declined 12% in Q3 and 13% for the nine-month period. Antimony revenue fell to $1.367 million in Q3 and $4.541 million year to date; zeolite revenue rose to $653,365 and $2.027 million, respectively. Precious-metals revenue was $71,820 in Q3 and $213,523 year to date.
Liquidity, debt, and cash flow
- At September 30, cash and cash equivalents were $519,282; certificates of deposit were $252,954. Total current assets were $2.063 million against current liabilities of $3.686 million, leaving negative working capital of $1.623 million, improved from $2.372 million negative at year-end 2017.
- Nine-month cash flow from operations was negative $350,916. Investing activities provided $1.088 million, principally the $1.5 million plant-transaction proceeds, offset by $411,571 in capital spending. Financing used $252,329. Cash and cash equivalents increased $485,184; cash, cash equivalents, and restricted cash totaled $576,516 at period-end.
- Bank notes were $100,000; long-term debt carrying value was $1.671 million, including $669,407 current. The company also reported $1.134 million of Hillgrove advances payable. The $202,000 credit lines were drawn by $100,000.
- Total assets were $17.451 million and stockholders’ equity was $11.222 million. Common shares outstanding were 68,227,171 at September 30.
Material changes and unusual items
- Q3 net income included a $1.5 million payment associated with acquiring and dismantling the Reynosa antimony plant, recorded as operating income, and a $443,110 gain from reversal of a Mexican tax assessment accrual. The company paid $157,500 in related tax-representation fees.
- Antimony sales volumes fell to 335,613 pounds in Q3 from 422,391 pounds; nine-month volume decreased to 1.096 million pounds from 1.475 million. Average selling prices were $4.07/lb in Q3 and $4.14/lb for nine months, versus $4.25 and $3.97 in 2017.
- Zeolite volumes increased 33% in Q3 and 15% year to date. Q3 zeolite net income declined to $84,447 from $132,859; nine-month net income increased to $373,167 from $348,488.
- Management attributes continuing antimony operating challenges principally to production costs in Mexico. It reported reduced Mexican labor and processing costs, but interruptions in North American raw-material supply reduced availability; the supplier said normal shipments would resume after November 5, 2018.
- The company issued 739,018 common shares in May 2018 to settle $175,000 of directors’ fees payable; additional directors’ fees of $131,250 were accrued for payment in stock.
Outlook, risks, and controls
- Management stated that negative working capital, a $25.9 million accumulated deficit, and recurring operating losses raised doubt about the company’s ability to continue as a going concern over the next twelve months. Management nevertheless believed operating improvements, cash flows, and additional operating capital would allow it to meet obligations.
- Management planned to increase Mexican raw-material supply and production, advance the Puerto Blanco cyanide leach circuit, and expand mine output. Testing of the leach circuit was expected in Q4 2018, with further precious-metals recovery work anticipated; the filing gives no quantified earnings or revenue guidance.
- The filing estimated $350,000–$500,000 to complete Reynosa plant decommissioning and about $350,000 for precious-metals leach-circuit construction. Management said available liquidity and expected operating cash flow would cover commitments and debt service, despite negative operating cash flow for the first nine months.
- After quarter-end, the company agreed to sell Reynosa real property for $700,000, with $150,000 received November 8 and remaining installments scheduled through February 2019.
- Disclosure controls were deemed ineffective due to material weaknesses in financial-reporting control design and monitoring, segregation of duties, and management oversight. The company said it planned independent reviews, improved procedures, and consultation with experts for complex transactions.
- Other stated risks include antimony price and production volatility, supply interruptions, changing market conditions, regulatory risks, and execution of Mexican operating and construction plans.
Most important facts for investors to verify
- Whether recurring operations can generate positive cash flow and address the going-concern risk, apart from the $1.5 million plant payment and tax-settlement gain.
- Whether North American raw-material shipments resumed as expected and Mexican supply and production plans can offset interruptions.
- Actual costs, timing, and recoveries from the Reynosa dismantling and Puerto Blanco leach-circuit projects, and collection of the remaining property-sale installments.
- Debt-service capacity, related-party Hillgrove advances, and the extent to which working-capital improvement is sustainable.
- Remediation and independent validation of the disclosed material weaknesses in internal controls.
- Customer concentration: the three largest customers represented 57% of Q3 revenue and 53% of nine-month revenue.