United States Antimony Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparative period is Q1 2019. The company reports antimony operations in the U.S. and Mexico, precious-metals recovery, and U.S. zeolite operations. Figures are unaudited and in U.S. dollars unless noted.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $1.743 million | $2.456 million |
| Gross profit (loss) | $101,177 | ($69,053) |
| Gross margin | 5.8% | (2.8%) |
| Operating loss | ($302,946) | ($683,767) |
| Net loss | ($308,882) | ($707,460) |
| Net loss available to common shareholders | ($321,044) | ($719,622) |
| Operating cash flow | ($36,265) | ($85,590) |
| Capital expenditures | $96,271 | $312,568 |
| EBITDA, as reported by the company | ($82,601) | ($484,187) |
Revenue fell 29.0% year over year. Antimony sales were $1.121 million, zeolite sales $559,360, and precious-metals sales $62,206. Antimony revenue declined from $1.706 million; zeolite from $726,015; precious-metals revenue increased from $24,527. Net loss per share was reported as “Nil” for 2020 and ($0.01) for 2019.
Liquidity at March 31: Current assets were $1.150 million and current liabilities $3.940 million, resulting in negative working capital of $2.790 million (versus $2.696 million at December 31, 2019). Cash and cash equivalents were $23,068; certificates of deposit were $254,212 and restricted reclamation cash was $57,261. Cash, cash equivalents, and restricted cash totaled $80,329 at quarter-end, down $92,438 during the quarter. The company reported a $199,998 bank credit-line limit, of which $199,554 was drawn.
Debt and obligations: Bank notes payable were $199,554 and long-term debt was $122,190, including $55,802 current. Hillgrove advances totaled $1.134 million, of which $378,074 was classified current. Total liabilities were $5.211 million. Bank notes are payable on demand and secured by certificates of deposit; they are personally guaranteed by the CEO.
Material changes and operating drivers
- Antimony volume sold decreased to 295,453 pounds from 443,148 pounds; the average selling price fell to $3.06 per pound from $3.85. Management cited supply constraints, reduced North American and Mexican raw-material receipts, and lower antimony market prices. It reported an antimony segment loss of $482,629, improved from $874,426.
- Zeolite volume declined 27% to 2,809 tons from 3,841 tons. Segment net income was $135,139 versus $159,450, while the average selling price increased to $199.13 per ton from $189.02.
- Precious-metals revenue increased to $62,206 from $24,527, reflecting greater gold and silver shipments from North American sources.
- Operating expenses decreased to $404,123 from $614,714; salaries and benefits and other operating expenses were notably lower. The company’s reported EBITDA loss narrowed to $82,601 from $484,187.
- Common shares outstanding rose to 69,911,436 from 69,661,436 after the CEO exercised a warrant for 250,000 shares at $0.25 per share; $62,500 of related-party advances was satisfied through the exercise.
Outlook, risks, and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern over the next 12 months, citing negative working capital, a $29.7 million accumulated deficit, and recurring losses. Management believes it can meet debt payments and expects cash-flow improvement, but states its plans may not alleviate the substantial doubt.
- Management outlook: The company planned to continue seeking ways to lower Mexican production costs and expected the Puerto Blanco cyanide leach plant to begin pilot production of Los Juarez material in Q3 2020. Management expected precious-metals sales from the circuit to improve cash flow in the second half of 2020. It anticipated continued growth in zeolite sales. These are forward-looking expectations, not guarantees.
- COVID-19: The company changed work, production, maintenance, and spending practices in response to the pandemic. It warned that deferred production, lost revenue, or added costs could affect results; the overall impact remained uncertain.
- Post-quarter financing: On April 22, 2020, the company received a $443,400 Paycheck Protection Program loan, bearing 1% interest and maturing April 22, 2022. It intended to use the proceeds for qualifying expenses; some or all may be forgivable subject to program terms.
- Mexican tax dispute: Mexico’s tax authority assessed approximately $696,000 relating to the company’s 2013 return. The company appealed, posted a required guarantee, and accrued no liability because management believed the appeal would succeed. The appeal was expected to continue through 2020 and into 2021; an adverse outcome could materially affect results or financial position.
- Other obligations and concentration: A Mexican antimony-mining lease requires monthly payments of $10,000 plus $1,700 tax and was due for renewal in June 2020. Management anticipated a possible Hillgrove stop notice in 2020 that could trigger repayment of the advance. Five significant customers accounted for 36.4% of Q1 revenue; the largest customer group disclosed was 50.47% of accounts receivable at March 31.
- Controls: Management found material weaknesses in financial-reporting controls, including inadequate control design and monitoring, insufficient segregation of duties, and ineffective management oversight. Disclosure controls were deemed ineffective; no significant control changes were made during the quarter.
- Other items: Antimony inventory in Mexico was written down to estimated net realizable value; the write-down was $22,475 at March 31. Management reported no legal proceedings and no market-risk disclosures for the period.
Most important facts for investors to verify
- Whether the company can fund operations and meet obligations given $2.790 million negative working capital, limited cash, and the disclosed going-concern substantial doubt.
- Whether antimony supply, production costs, and prices improve, and whether Mexican operations can reduce losses.
- Whether the Puerto Blanco leach circuit starts pilot production as planned and delivers the expected precious-metals cash flow.
- The status and eventual outcome of the Mexican tax appeal, including potential tax, interest, or penalties.
- The terms, qualifying use, and potential forgiveness of the $443,400 PPP loan, and any repayment trigger under the Hillgrove agreement.
- Progress in remediating material weaknesses in internal controls and the continuing effects of COVID-19 on operations and demand.