The unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, as well as the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation of the interim financial statements have been included. Operating results for the three and six month periodperiods ended March 31,June 30, 2018 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2018.

For further information refer to the financial statements and footnotes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

The continuing losses are principally a result of the Company’s antimony operations and in particular to the production costs incurred in Mexico.

Regarding the antimony division, prices improved during 2017 with an average sale price of $4.01 per pound. Through MarchJune 30, 2018, the average sale price for antimony is approximately $4.04$4.28 per pound. Additionally, in November 2017, the Company renegotiated its domestic sodium antimonite supply agreement resulting in a lower cost per antimony per pound of approximately $0.44. During the first quartersix months of 2018, we endured supply interruptions from our North American supplier, but weand they have notified us that, due to a lack of raw material, they will be suspending shipments to us from September 17, 2018 to November 5, 2018. We anticipate that normal supply quantities will resume for the remainder of 2018. With the2018 after November 5. We have been able to continue with operations due to our Mexican raw material, and we will be directing our resources to increasing that supply source. The new supply agreement in place, most of the market increase in antimony prices is expected to result in increased Companywith our North American supplier has helped us with our cash flow in 2018 from itsour antimony division.

In 2017, the Companywe reduced costs for labor at the Mexico locations which has resulted in a lower overall production costs in Mexico which has continued into 2018. In the fourth quarter 2017, the Companywe adjusted operating approaches at Madero that will likely result in a decrease inhas resulted decreased operating costs for fuel, natural gas, electricity, and reagents for 2018. Although total production activity in Mexico decreased in 2017 due to the lack of Hillgrove concentrates, the Company’s 2018 plan involves ramping up production at its own antimony properties in Mexico. We are anticipating agreements that will provide us with operating capital to achieve this (See Note 14). In addition, a new leach circuit expected to come on line during 2018 in Mexico will result in more extraction of precious metals. The portion of the precious metals recovery system at the Madero smelter is complete and the cyanide leach circuit being built at the Puerto Blanco plant is in progress with completion expected to be completed this fall.

In 2017, management implemented wage and other cost reductions at the corporate level that will keephas kept administrative costs stable in 2018. The Company expects to continue paying a low cost for propane in Montana through 2018, which in years past has been a major operating cost.

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 Revenue Recognition, replacing guidance currently codified in Subtopic 605-10 Revenue Recognition-Overall. The new ASU establishes a new five step principles-based framework in an effort to significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. In August 2015, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. ASU No. 2015-14 deferred the effective date of ASU No. 2014-09 until annual and interim reporting periods beginning after December 15, 2017. We adopted ASU No. 2014-09 as of January 1, 2018 using the modified-retrospective transition approach. There was no impact of adoption of the update to our consolidated financial statements for the three and six months ended March 31,June 30, 2018.

We performed an assessment of the impact of implementation of ASU No. 2014-09, and concluded it does not change the timing of revenue recognition or amounts of revenue recognized compared to how we recognize revenue under our current policies. Adoption of ASU No. 2014-09 involves additional disclosures, where applicable, on (i) contracts with customers, (ii) significant judgments and changes in judgments in determining the timing of satisfaction of performance obligations and the transaction price, and (iii) assets recognized for costs to obtain or fulfill contracts. See Note 4 for information on our sales of products.

In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update provides guidance on classification for cash receipts and payments related to eight specific issues. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We adopted this update as of January 1, 2018.

In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash. The update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We adopted this update as of January 1, 2018. Cash, cash equivalents, and restricted cash on the consolidated statements of cash flows includes restricted cash of $63,345 as of March 31,June 30, 2018 and December 31, 2017 and $63,274 as of March 31,June 30, 2017 and December 31, 2016, as well as amounts previously reported for cash and cash equivalents.

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842). The update modifies the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases. The update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently reviewing our leases and compiling the information required to implement the new guidance. See Note 7 for information on future commitments related to our operating leases; the present value of these leases will be recognized on our balance sheet upon implementation of the new guidance. We are currently evaluating the potential impact of implementing this update on our consolidated financial statements.

Basic earnings per share is calculated by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated based on the weighted average number of common shares outstanding during the period plus the effect of potentially dilutive common stock equivalents, including warrants to purchase the Company's common stock and convertible preferred stock. Management has determined that the calculation of diluted earnings per share for the quartersquarter and six month periods ended March 31,June 30, 2018 and March 31,June 30, 2017, is not applicable since any additions to outstanding shares related to common stock equivalents would be anti-dilutive.

As of March 31,June 30, 2018 and 2017, the potentially dilutive common stock equivalents not included in the calculation of diluted earnings per share as their effect would have been anti-dilutive are as follows:

Our products consist of the following:

For our antimony and zeolite products, revenue is recognized upon the completion of the performance obligation which is met when the transaction price can be reasonably estimated and revenue is recognized generally at the time when risk is transferred. We have determined the performance obligation is met and title is transferred either upon shipment from our warehouse locations or upon receipt by the customer as specified in individual sales orders. The performance obligation is met because at that time, 1) legal title is transferred to the customer, 2) the customer has accepted the product and obtained the ability to realize all of the benefits from the product, 3) the customer has the significant risks and rewards of ownership to it, 4) it is very unlikely product will be rejected by the customer upon physical receipt, and 5) we have the right to payment for the product. Shipping costs related to the sales of antimony and zeolite products are recorded to cost of sales as incurred. For zeolite products, royalty expense due a third party by the Company is also recorded to cost of sales upon sale in accordance with terms of underlying royalty agreements.

For sales of precious metals, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer. Refining and shipping costs related to sales of precious metals are recorded to cost of sales as incurred.

Sales of products for the thee-monththree and six month periods ended March 31,June 30, 2018 and 2017 were as follows:

Our trade accounts receivable balance related to contracts with customers was $412,546$461,291 at March 31,June 30, 2018 and $362,579 at December 31, 2017. Our products do not involve any warranty agreements and product returns are not typical.

We have determined our contracts do not include a significant financing component. For antimony and zeolite sales contracts, we may factor certain receivables and receive final payment within 30 days of the performance obligation being met. For antimony and zeolite receivables not factored, we typically receive payment within 10 days. For precious metals sales, a provisional payment of 75% is typically received within 45 days of the date the product is delivered to the customer. After an exchange of assays, a final payment is normally received within 90 days of product delivery.

Inventories at March 31,June 30, 2018 and December 31, 2017 consisted primarily of finished antimony products, antimony metal, antimony ore, and finished zeolite products that are stated at the lower of first-in, first-out cost or estimated net realizable value. Finished antimony products, antimony metal and finished zeolite products costs include raw materials, direct labor and processing facility overhead costs and freight. Inventory at March 31,June 30, 2018 and December 31, 2017 is as follows:

The Company factors designated trade receivables pursuant to a factoring agreement with LSQ Funding Group L.C., an unrelated factor (the “Factor”).  The agreement specifies that eligible trade receivables are factored with recourse. We submit selected trade receivables to the factor, and receive 83% of the face value of the receivable by wire transfer. The Factor withholds 15% as retainage, and 2% as a servicing fee. Upon payment by the customer, we receive the remainder of the amount due from the factor. The 2% servicing fee is recorded on the consolidated statement of operations in the period of sale to the factor. John Lawrence, CEO, is a personal guarantor of the amount due to Factor. 

Trade receivables assigned to the Factor are carried at the original invoice amount less an estimate made for doubtful accounts.  Under the terms of the recourse provision, the Company is required to reimburse the Factor, upon demand, for factored receivables that are not paid on time.  Accordingly, these receivables are accounted for as a secured financing arrangement and not as a sale of financial assets.  The allowance for doubtful accounts (if any) is based on management’s regular evaluation of individual customer’s receivables and consideration of a customer’s financial condition and credit history.  Trade receivables are written off when deemed uncollectible.  Recoveries of trade receivables previously written off are recorded when received.  Interest is not charged on past due accounts.

We present the receivables, net of allowances, as current assets and we present the amount potentially due to the Factor as a secured financing in current liabilities.

In June of 2013, the Company entered into a lease to mine antimony ore from concessions located in the Wadley Mining district in Mexico. The lease calls for a term of one year and, and as of March 31,June 30, 2018, requires payments of $10,000 plus a tax of $1,700, per month. The lease is renewable each year with a 15 day notice to the lessor, and agreement of terms. The next lease is scheduled for renewal in June 2018.2019.

These notes are personally guaranteed by John C. Lawrence the Company’s Chief Executive Officer and Chairman of the Board of Directors. The maximum amount available for borrowing under each note is $99,999.

During the three and six months ended March 31,June 30, 2018 and 2017, the Chairman of the audit committee and compensation committee received $4,500 and $4,500, respectively, for services performed. See Note 12 for shares of common stock issued to directors.

During the three and six months ended March 31,June 30, 2018 and 2017, the Company paid $2,461 and $2,895,$4,555, and $2,480 and $5,054, respectively, to John Lawrence, our President and Chief Executive Officer, as reimbursement for equipment used by the Company. Mr. Lawrence advanced the Company $75,000 for ongoing operating expenses during the threesix months ended March 31,June 30, 2018, which is still outstanding at March 31, 2018 and is included in payable to related party.has been repaid as of June 30, 2018.

 

For the firstsecond quarter of 2018, we recognized a net loss of $474,440,$122,785, on sales of $2,432,929,$2,256,347, compared to a net loss of $391,303$16,955 in the firstsecond quarter of 2017 on sales of $2,619,330.$2,838,480. The loss in the first Quartersecond quarter of 2018 was primarily due to a decrease in the raw materials received from our North American supplier. The loss in the first quarter of 2017 was primarily due to the loss of raw material from Hillgrove Mines of Australia. We also recognized approximately $124,732 of settlement costs related to our precious metals production during the first quarter of 2017. Hillgrove Mines has given us permission to use the LRF and other furnaces built for their use for our own production. During the first quartersix months of 2018, we endured supply interruptions from our North American supplier, butand we have been notified that due to a lack of raw material, they will not be able to supply us with raw material from September 17, 2018 through November 5, 2018. We anticipate that normal supply quantities from our North American supplier will resume for the remainder of 2018. We will be directing our resources during that time to increasing our supply of raw material from Mexico.

For the first quarter ofthree and six months ended June 30, 2018, EBITDA was a negative $196,878$52,312 and $(144,566), compared to a negative $175,628$197,420 and $21,792 for the same periodperiods of 2017.

Net non-cash expense items totaled $343,969$287,780 and for the first quarter ofthree months ended June 30, 2018 and included $277,562$175,097 for depreciation and amortization, $21,120 for amortization of debt discount, $43,750 for director compensation and $1,537$47,813 for other items. Net non-cash expense items totaled $572,065 for the six months ended June 30, 2018 and included $452,659 for depreciation and amortization, $42,240 of debt discount, $87,500 for director compensation and $(10,334) for other items.

Net non-cash expense items totaled $284,285$282,985 for the three months ended June 30, 2017 and included $215,675$214,375 for depreciation and amortization, $23,413 for amortization of debt discount, $43,750 for director compensation and $1,447 for other items. Net non-cash expense items totaled $618,238 for the six months ended June 30, 2017 and included $430,050 for depreciation and amortization, $46,828 of debt discount, $87,500 for director compensation and $53,860 for other items.

For the first quarter ofthree and six months ended June 30, 2018, general and administrative expenses were $150,831$186,411 and 337,242, respectively compared to $200,592$138,995 and $343,559 for the same period ofperiods in 2017.

For the first quarter ofthree and six months ended June 30, 2018, we sold 415,964326,258 and 742,222 pounds of antimony compared to 547,850505,356 and 1,053,206 pounds for the first quarter ofthree and six months ended June 30, 2017. OurThe raw material received from our North American supplier decreased by approximately 184,000 pounds. We did not see an increase in raw material from North America decreased by approximately 196,000 pounds,Mexico for the second quarter of 2018, but was partially offset bywe did see an increase of approximately 64,00069,000 pounds in raw material from Mexico.

The average sales price of antimony during Q1the three and six months ended June 30, 2018 was $4.04$4.57 and $4.28 per pound compared to $3.63$4.11 and $3.86 during the same periodperiods in 2017.

The cyanide leach circuit at Puerto Blanco has been permitted, and construction of the leach circuit is underway.underway, and we expect to start testing during the fourth quarter of 2018. The largest project is the construction of the tailings pond, and we are anticipating it will be ready for a liner by the end of September 2018. Construction of the equipment is underway in Montana, and the leach plant floor with a containment lip has been completed. The equipment will be placed directly on the floor, and we do not believe that a building will be necessary. During the construction phase, our metallurgical lab in Montana has been busy testing and confirming the metallurgy. Three technical discoveries were made that will increase recovery, expedite processing, and cut costs.

At the Wadley mine, production is being increased with more miners.miners and load haul equipment. The use of pneumatic hammers is planned in lieu of explosives.

The caustic leach of flotation concentrates from Los Juarez was successful, and the pilot production of the Los Juarez gold, silver, and antimony will commence with the completion of the cyanide leach plant at Puerto Blanco.

The estimated recovery of precious metals per metric ton, after the caustic leach and cyanide leach circuits, is as follows:

During Q1For the three and six months ended June 30, 2018, BRZ sold 3,7533,578 and 7,331 tons of zeolite compared to 3,3533,422 and 6,775 tons in the same periodperiods of 2017, up 400156 tons or 11.9%4.6% for the three months and 556 tons or 8.2% for the six months. .

BRZ realized a profit of $149,319$139,402 after depreciation of $47,072 in Q1the second quarter of 2018, compared to $86,205$129,426 after depreciation of $49,800 in Q1ofthe second quarter of 2017. The increase in profit from our zeolite operations was $63,144 (73.2%)$9,976 or 6.9%. For the six months ended June 30, 2018, BRZ realized a gross profit of $288,720 after depreciation of $94,982 compared to a gross profit of $215,630 after depreciation of $99,800, an increase of $73,090 or 32%.

BRZ realized an EBITDA for Q1ofthe three and six months ended June 30, 2018 of $197,139,$186,474 and $383,612, compared to $136,205$179,225 and 315,430 for the same periodperiods in 2017, an increase of $60,934 (44.7%).2017.

Our net working capital decreased by approximately $370,000$395,000 from December 31, 2017. Our cash decreased by approximately $15,600$12,000 during the same period. The decrease in our net working capital was primarily due to an increase of approximately $50,000 in the current portion of long term debt and an increase of approximately $50,000 for foreign income taxes due to foreign exchange rates, a decrease in inventories of approximately $275,000 and expenditures of approximately $95,000 for capital outlay.$200,000. We have estimated commitments for construction and improvements of $100,000, including $50,000 to finish building and installing the precious metals leach circuits. We believe that with our current cash balance, along with the future cash flow from operations and operating agreements, we have adequate liquid assets to meet these commitments and service our debt for the next twelve months. We have lines of credit of $202,000 which have been drawn down to $97,117by $191,009 at March 31,June 30, 2018.

None

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We are aware of these material weaknesses and will develop procedures to ensure that independent review of material transactions is performed. The chief financial officer will develop internal control measures to mitigate the lack of inadequate documentation of controls and the monitoring of internal controls over significant accounts and processes including controls associated with the period-ending reporting processes, and to mitigate the segregation of duties within significant accounts and processes and the absence of controls over management oversight, including antifraud programs and controls.

 

We plan to consult with independent experts when complex transactions are entered into.