United States Antimony Corporation — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019; unaudited. The company produces antimony products and precious metals, and operates a zeolite business.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $2,272,283 | $2,256,347 | $4,728,648 | $4,689,276 |
| Gross profit (loss) | $(173,195) | $141,348 | $(242,248) | $86,260 |
| Operating loss | $(460,418) | $(160,053) | $(1,144,185) | $(559,822) |
| Net loss | $(486,039) | $(122,785) | $(1,193,499) | $(597,225) |
| Operating cash flow | Not separately presented for the quarter | $(154,987) | $197,817 |
- Revenue increased modestly year over year, but cost of revenue rose faster, turning gross profit into a loss. Gross margin was approximately negative 7.6% in Q2 2019 versus positive 6.3% in Q2 2018.
- Company-reported EBITDA was $(262,766) for Q2 and $(746,954) for the first half, versus $52,312 and $(144,566), respectively, in the segment/MD&A table for 2018. The MD&A narrative gives the 2018 six-month EBITDA as $(144,546), a $20 discrepancy.
- At June 30, cash and cash equivalents were $45,762; certificates of deposit were $253,552; and restricted cash was $57,247. Current assets of $1,440,007 were below current liabilities of $4,180,942, producing negative working capital of $2,740,935, compared with negative $1,614,362 at year-end 2018.
- Total liabilities were $6,576,892. Debt included $199,998 of bank notes, $1,680,098 of long-term debt before current/noncurrent presentation, and $1,134,221 of Hillgrove advances payable. Stockholders’ equity was $10,542,335.
- Six-month investing cash outflow was $73,578, including $473,578 of capital spending and $400,000 collected on the land-sale note. Financing provided $217,677; cash and cash equivalents decreased by $10,888.
Changes versus prior period
- Antimony sales volume rose to 861,277 pounds for the first half from 742,222 pounds, but the average selling price fell 12.9% to $3.73 per pound. Q2’s average price fell 21.0% year over year to $3.61.
- Antimony operations recorded a first-half loss of about $1.58 million, worse than about $994,000 a year earlier; Mexican antimony operations remained a major source of losses. Zeolite first-half net income increased to $338,037 from $288,720.
- Precious-metals revenue declined to $85,050 for the first half from $141,703. Overall first-half net loss approximately doubled, while revenue was nearly flat.
- Capital expenditures rose to $473,578 from $174,388. The company also collected the $400,000 remaining land-sale payment during Q1 2019.
Outlook, risks and unusual items
- Management disclosed recurring losses, negative working capital and a $26.9 million accumulated deficit, stating these conditions raise substantial doubt about the company’s ability to continue as a going concern over the next 12 months. Management believes planned production growth, cost reductions, precious-metals revenue and new capital will allow it to meet obligations; these plans are uncertain.
- Management expected higher Mexican antimony output in the second half of 2019, lower unit costs from direct Mexican metal sales and newly installed large rotating furnaces, and precious-metals pilot production in Q3 with anticipated income in Q4. The Puerto Blanco leach circuit and tailings pond work were still underway.
- Antimony prices and production volatility, costs at Mexican operations, and uncertainty around China trade were cited as risks; management said orders slowed late in Q2. The filing provides no formal earnings or revenue guidance.
- As of August 14, 2019, the company had received payment and was completing a $444,160 common-stock placement, approximately 925,333 shares with half-warrants exercisable at $0.65 for three years. Proceeds were intended for the precious-metals circuit and Montana smelter repairs.
- Debt-payment concerns include $432,069 of past-due Soyatal Mine principal, with the creditor accepting $2,500 monthly through June 2020, and $59,308 delinquent on the Guadalupe Mine obligation; the company was working with lenders to modify terms. The filing says it had not received a default notice from the Guadalupe lenders.
- Disclosure controls were deemed ineffective due to material weaknesses in financial-reporting control design and monitoring, segregation of duties, and management oversight. No significant control changes were reported during the quarter. The filing reports no legal proceedings.
Investor verification priorities
- Track cash generation, working-capital needs and whether the announced private placement was completed and deployed as planned.
- Verify Mexican production ramp-up, furnace performance, leach-circuit completion and actual precious-metals recoveries and sales against management’s timetable.
- Monitor antimony prices, sales volumes, unit costs, customer demand and the effect of supplier and China-trade conditions.
- Confirm resolution of overdue mine-related debt payments and continued compliance with debt obligations.
- Assess remediation of the disclosed internal-control material weaknesses and clarify the filing’s $20 discrepancy in comparative six-month EBITDA.