PART I - FINANCIAL INFORMATION, CONTINUED:
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
7.
Long – Term Debt:
Long-Term
debt at March 31, 2017 and December 31, 2016, is as
follows:
|
|
|
|
|
|
Note
payable to First Security Bank, bearing interest at
6%;
|
|
|
payable
in monthly installments of $917; maturing
|
|
|
September
2018; collateralized by equipment.
|
$
15,755
|
$
18,246
|
Note
payable to Cat Financial Services, bearing interest at
6%;
|
|
|
payable
in monthly installments of $1,300; maturing
|
|
|
August
2019; collateralized by equipment.
|
37,248
|
40,556
|
Note
payable to Wells Fargo Bank, bearing interest at 4%;
|
|
|
payable
in monthly installments of $477; maturing
|
|
|
December
2016; collateralized by equipment.
|
-
|
473
|
Note
payable to De Lage Landen Financial Services,
|
|
|
bearing
interest at 3.51%; payable in monthly installments of
$655;
|
|
|
maturing
September 2019; collateralized by equipment.
|
18,195
|
20,581
|
Note
payable to De Lage Landen Financial Services,
|
|
|
bearing
interest at 3.51%; payable in monthly installments of
$655;
|
|
|
maturing
December 2019; collateralized by equipment.
|
20,581
|
22,944
|
Note
payable to Phyllis Rice, bearing interest
|
|
|
at
1%; payable in monthly installments of $2,000;
maturing
|
|
|
March
2015; collateralized by equipment.
|
14,146
|
14,146
|
Obligation
payable for Soyatal Mine, non-interest bearing,
|
|
|
annual
payments of $100,000 or $200,000 through 2019, net of
discount.
|
762,167
|
776,319
|
Obligation
payable for Guadalupe Mine, non-interest bearing,
|
|
|
annual
payments from $60,000 to $149,078 through 2026, net of
discount.
|
966,216
|
970,651
|
|
1,834,308
|
1,863,916
|
Less
current portion
|
(433,993
)
|
(391,046
)
|
Long-term
portion
|
$
1,400,315
|
$
1,472,870
|
At
March 31, 2017, principal payments on debt are due as
follows:
Year Ending March 31,
|
|
2018
|
433,993
|
2019
|
272,496
|
2020
|
275,467
|
2021
|
172,936
|
2022
|
108,312
|
Thereafter
|
571,104
|
|
$
1,834,308
|
PART I - FINANCIAL INFORMATION, CONTINUED:
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
8.
Hillgrove Advances Payable
On
November 7, 2014, the Company entered into a loan and processing
agreement with Hillgrove Mines Pty Ltd of Australia (Hillgrove) by
which Hillgrove will advance the Company funds to be used to expand
their smelter in Madero, Mexico, and in Thompson Falls, Montana, so
that they may process antimony and gold concentrates produced by
Hillgrove’s mine in Australia. The agreement requires that
the Company construct equipment so that it can process
approximately 200 metric tons of concentrate initially shipped by
Hillgrove, with a provision so that the Company may expand to
process more than that. The parties agreed that the equipment will
be owned by USAC and USAMSA. The final terms of when the repayment
takes place have not yet been agreed on. The agreement called for
the Company to sell the final product for Hillgrove, and Hillgrove
to have approval rights of the customers for their products. The
agreement allows the Company to recover its operating costs as
approved by Hillgrove, and to charge a 7.5% processing fee and a
2.0% sales commission. The initial term of the agreement is five
years; however, Hillgrove may suspend or terminate the agreement at
its discretion. The Company may terminate the agreement and begin
using the furnaces for their own production if Hillgrove fails to
recommence shipments within 365 days of a suspension notice. At
March 31, 2017, the net amount due to Hillgrove for advances was
$1,134,216. As of March 31, 2107, repayment of the advances is not
expected to occur within the next twelve months so the balance is
classified as a long term liability.
9. Concentrations of Risk:
Sales to Three
|
|
Largest Customers
|
|
|
Kohler
Corporation
|
$
445,178
|
$
432,283
|
East
Penn Manufacturing
|
148,643
|
536,413
|
Mexichem
Speciality Compounds
|
786,425
|
590,423
|
|
$
1,380,246
|
$
1,559,119
|
% of Total Revenues
|
52.70
%
|
46.90
%
|
|
|
|
Three Largest
|
|
|
Accounts Receivable
|
|
|
Kohler
Corporation
|
$
149,124
|
$
211,295
|
Accupowder
International
|
|
110,000
|
Mexichem
Speciality Compounds
|
135,680
|
95,062
|
Nutreco
Canada Inc.
|
28,139
|
-
|
|
$
312,943
|
$
416,357
|
% of Total Receivables
|
56.50
%
|
48.00
%
|
PART I - FINANCIAL INFORMATION, CONTINUED:
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
10.
Related Party Transactions:
During
the three months ended March 31, 2017 and 2016, the Chairman of the
audit committee and compensation committee received $4,500 and
$9,000, respectively, for services performed. See Note 12 for
shares of common stock issued to directors.
During
the three months ended March 31, 2017 and 2016, the Company paid
$2,480 and $13,710, respectively, to John Lawrence, our President
and Chief Executive Officer, as reimbursement for equipment used by
the Company.
11.
Income
Taxes:
During
the quarter ended March 31, 2017, and the year ended December 31,
2016, the Company determined that a valuation allowance equal to
100% of any deferred tax asset was appropriate, as management of
the Company cannot determine that it is more likely than not the
Company will realize the benefit of a net deferred tax asset. The
net effect is that the deferred tax asset as of December 31, 2016,
and any deferred tax assets that may have been incurred since then,
are fully reserved for at March 31, 2017.
Management
estimates the effective tax rate at 0% for the current
year.
In
2015, the Mexican tax authority (“SAT”) initiated an
audit of the USAMSA’s 2013 income tax return. In October
2016, as a result of its audit, SAT assessed the Company $13.8
million pesos, which is approximately $666,400 in U.S. Dollars
(“USD”) as of December 31, 2016. Approximately $285,000
USD of the total assessment is interest and penalties. SAT’s
assessment is based on the disallowance of specific costs that the
Company deducted on the 2013 USAMSA income tax return. These
disallowed costs were incurred by the Company for USAMSA’s
business operations. SAT claims that the costs were not deductible
or were not supported by appropriate documentation. At March 31,
2017, the assessed amount is $737,000 in U.S dollars.
Management has
reviewed the assessment notice from SAT and believes numerous
findings have no merit. The Company has engaged accountants and tax
attorneys in Mexico to defend its position. An appeal has been
filed which is expected to be completed during 2017.
At
December 31, 2016, management has estimated possible outcomes for
this assessment and believes it will ultimately pay an amount
ranging from 30% of the total assessment to the total assessed
amount. The Company’s agreement with the tax professionals is
that the professionals will receive 30% of the amount of tax relief
they are able to achieve.
At
December 31, 2016, we accrued a potential liability of $410,510 USD
of which $259,490 is for unpaid income taxes, $75,510 is for
interest expense, and $49,952 is for penalties. The amount accrued
represents management’s best estimate of the amount that will
ultimately be paid. The outcome could vary from this estimate. At
March 31, 2017, the Company recognized a $41,151 increase due to
the change in exchange rate. Fluctuation in exchange rates has an
ongoing impact on the amount the Company will pay in U.S.
dollars.
If an
issue addressed during the SAT audit is resolved in a manner
inconsistent with management expectations, the Company will adjust
its net operating loss carryforward, or accrue any additional
penalties, interest, and tax associated with the audit. Our tax
professionals in Mexico have reviewed and filed tax returns with
the SAT for 2014 and 2015, and have advised us that they do not
expect us to have a tax liability for those years relating to
similar issues.
PART I - FINANCIAL INFORMATION, CONTINUED:
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
12.
Stockholder’s
Equity:
Issuance of Common Stock for Payable to Board of
Directors
During
the quarter ended March 31, 2016, the Board of Directors was issued
a total of 550,000 shares of common stock for $137,500 in
directors’ fees that were payable at December 31, 2015. In
addition during the quarter, the Company accrued $37,500 in
directors’ fees payable that will be paid in common
stock.
During
the quarter ended March 31, 2017, the Board of Directors was issued
a total of 421,875 shares of common stock for $168,750 in
directors’ fees that were payable at December 31, 2016. In
addition during the quarter, the Company accrued $43,750 in
directors’ fees payable that will be paid in common
stock.
13.
Business Segments:
The
Company is currently organized and managed by four segments, which
represent our operating units: United States antimony operations,
Mexican antimony operations, precious metals recovery and United
States zeolite operations.
The
Madero smelter and Puerto Blanco mill at the Company’s Mexico
operation brings antimony up to an intermediate stage, which may be
sold directly or shipped to the United States operation for
finishing and sales at the Thompson Falls, Montana plant. The
precious metals recovery plant is operated in conjunction with the
antimony processing plant at Thompson Falls, Montana. The Zeolite
operation produces Zeolite near Preston, Idaho. Almost all of the
sales of products from the United States antimony and Zeolite
operations are to customers in the United States.
Disclosure
of the activity relating to our precious metals recovery requires
that it be reported as a separate business segment. The prior
period comparative information has been reclassified to reflect
this change.
Segment
disclosure regarding sales to major customers is located in Note
9.
Properties,
plants
and equipment, net:
|
|
|
Antimony
|
|
|
United
States
|
$
1,674,831
|
$
1,694,331
|
Mexico
|
11,866,975
|
11,984,467
|
Subtotal
Antimony
|
13,541,806
|
13,678,798
|
Precious
metals
|
587,615
|
544,615
|
Zeolite
|
1,430,469
|
1,472,553
|
Total
|
$
15,559,890
|
$
15,695,966
|
|
|
|
Total Assets:
|
|
|
Antimony
|
|
|
United
States
|
$
2,360,482
|
$
2,495,842
|
Mexico
|
12,749,939
|
12,681,109
|
Subtotal
Antimony
|
15,110,421
|
15,176,951
|
Precious
metals
|
587,615
|
544,615
|
Zeolite
|
2,021,275
|
2,044,432
|
Total
|
$
17,719,311
|
$
17,765,998
|
PART I - FINANCIAL INFORMATION, CONTINUED:
United States Antimony Corporation and Subsidiaries
Notes
to Consolidated Financial Statements (Unaudited),
Continued:
13.
Business
Segments, Continued:
|
For the three months ended
|
Capital expenditures:
|
|
|
Antimony
|
|
|
United
States
|
$
-
|
$
1,035
|
Mexico
|
28,683
|
207,886
|
Subtotal
Antimony
|
28,683
|
208,921
|
Precious
Metals
|
43,000
|
19,365
|
Zeolite
|
7,916
|
41,769
|
Total
|
$
79,599
|
$
270,055
|
Segment Operations for the three
|
|
|
|
|
|
months ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
1,968,725
|
$
17,782
|
$
20,811
|
$
612,012
|
$
2,619,330
|
|
|
|
|
|
|
Depreciation
and amortization
|
19,500
|
146,175
|
-
|
50,000
|
215,675
|
|
|
|
|
|
|
Income
(loss) from operations
|
328,900
|
(751,176
)
|
20,811
|
89,592
|
(311,873
)
|
|
|
|
|
|
|
Other
income (expense):
|
(11,078
)
|
(64,965
)
|
-
|
(3,387
)
|
(79,430
)
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
$
317,822
|
$
(816,141
)
|
$
20,811
|
$
86,205
|
$
(391,303
)
|
Segment Operations for the three
|
|
|
|
|
|
months ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
2,504,564
|
$
16,668
|
$
217,617
|
$
583,354
|
$
3,322,203
|
|
|
|
|
|
|
Depreciation
and amortization
|
15,500
|
188,650
|
|
57,000
|
261,150
|
|
|
|
|
|
|
Income
(loss) from operations
|
884,197
|
(1,279,512
)
|
182,848
|
30,170
|
(182,297
)
|
|
|
|
|
|
|
Other
income (expense):
|
(5,975
)
|
-
|
-
|
(368
)
|
(6,343
)
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
$
878,222
|
$
(1,279,512
)
|
$
182,848
|
$
29,802
|
$
(188,640
)
|
PART I - FINANCIAL INFORMATION, CONTINUED:
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
ITEM
2.
Management’s
Discussion and Analysis of Results of Operations and Financial
Condition
General
Certain
matters discussed are forward-looking statements that involve risks
and uncertainties, including the impact of antimony prices and
production volatility, changing market conditions and the
regulatory environment and other risks. Actual results may differ
materially from those projected. These forward-looking statements
represent our judgment as of the date of this filing. We disclaim,
however, any intent or obligation to update these forward-looking
statements.
Results of Operations by Division
|
|
|
Antimony and Precious Metals
|
|
|
Combined USA and Mexico
|
|
|
Lbs
of Antimony Metal Canada
|
459,666
|
486,752
|
Lbs
of Antimony Metal Mexico
|
88,184
|
426,089
|
Total Lbs of Antimony Metal Sold
|
547,850
|
912,841
|
Sales
Price/Lb Metal
|
$
3.63
|
$
2.76
|
Net income (loss)/Lb Metal
|
$
(0.87
)
|
$
(0.24
)
|
|
|
|
Gross
antimony revenue - net of discount
|
1,986,507
|
2,521,232
|
Precious
metals revenue
|
20,811
|
217,617
|
Production
and shipping costs
|
(1,780,410
)
|
(2,210,291
)
|
Mexico
non-production costs
|
(126,707
)
|
(195,642
)
|
General
and administrative - non-production
|
(386,468
)
|
(347,871
)
|
Net
interest and gain on sale of asset
|
(25,566
)
|
663
|
EBITDA
|
(311,833
)
|
(14,292
)
|
Depreciation
& amortization
|
(165,675
)
|
(204,150
)
|
Net income (loss) - antimony and precious metals
|
$
(477,508
)
|
$
(218,442
)
|
|
|
|
Zeolite
|
|
|
Tons sold
|
3,353
|
3,097
|
Sales
Price/Ton
|
$
182.53
|
$
188.36
|
Net income (Loss)/Ton
|
$
25.71
|
$
9.62
|
|
|
|
Gross
zeolite revenue
|
612,012
|
583,354
|
Production
costs, royalties and shipping costs
|
(448,446
)
|
(479,061
)
|
General
and administrative - non-production
|
(25,849
)
|
(18,010
)
|
Net
interest
|
(1,512
)
|
519
|
EBITDA
|
136,205
|
86,802
|
Depreciation
|
(50,000
)
|
(57,000
)
|
Net income (loss) - zeolite
|
$
86,205
|
$
29,802
|
|
|
|
Company-wide
|
|
|
Gross
revenue
|
$
2,619,330
|
$
3,322,203
|
Production
costs
|
(2,228,856
)
|
(2,689,352
)
|
Mexico
non-production costs
|
(126,707
)
|
(195,642
)
|
General
and administrative - non-production
|
(412,317
)
|
(365,881
)
|
Net
interest
|
(27,078
)
|
1,182
|
EBITDA
|
(175,628
)
|
72,510
|
Depreciation
& amortization
|
(215,675
)
|
(261,150
)
|
Net income (loss)
|
$
(391,303
)
|
$
(188,640
)
|
PART I - FINANCIAL INFORMATION, CONTINUED:
ITEM
2.
Management’s
Discussion and Analysis of Results of Operations and Financial
Condition, continued:
The
Mexico non-production costs for the three months ending March 31,
2017, are primarily due to holding costs from inactivity at the Los
Juarez, Guadalupe, and Soyatal mines and the Puerto Blanco mill, as
well as the foreign exchange loss on the outsanding tax liability
in Mexico. The loss of production at the Madero smelter from
transitioning to Mexican raw material due to the closing of the
Hillgrove mine in Australia and the subsequent loss of Hillgrove
raw material contributed to non-production costs during the first
quarter of 2017.
Company-Wide
For the
first quarter of 2017, we recognized a net loss of $391,303 on
sales of $2,619,330, compared to a net loss of $188,640 in the
first quarter of 2016 on sales of $3,322,203. 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.
For the
first quarter of 2017, EBITDA was a negative $175,628 compared to a
positive EBITDA of $72,510 for the same period of
2016.
For the
first quarter of 2017, the non-production general and
administrative expenses were $412,317 compared to $365,881 for the
same period of 2016.
Antimony
We
began the mining and processing of ore from our own Mexican mines
during Q1of 2017 and although it had produced 132,184 pounds, only
88,184 pounds were sold. Producing fromour own Mexican mines will
allow the Company to benefit from 100% of the price increases
rather than a processing fee and a small percent of the price
increases.
The
average sales price of antimony during Q1 2017 was $3.63 per pound
compared to $2.76 during the same period in 2016. Unfortunately, we
realized only a small part of the price increase because we were
selling approximately three months ahead. We are no longer taking
orders this far in advance.
The
metallurgical problems with the Los Juarez ore have been solved,
and we are processing the ore presently in inventory. As soon as we
are permitted, we will complete construction of our leach circuit
at the Puerto Blanco mill if it is needed.
In
response to the loss of the raw material supply from Australia, we
are implementing the following actions:
●
At the Wadley mine,
production is being increased with more miners. The use of
pneumatic hammers is planned in lieu of explosives.
●
At the Soyatal
mine, we have begun the direct shipping of high grade ore from the
mine directly to the Madero smelter.
PART I - FINANCIAL INFORMATION, CONTINUED:
ITEM
2.
Management’s
Discussion and Analysis of Results of Operations and Financial
Condition, continued:
Precious Metals
The
caustic leach of flotation concentrates from Los Juarez was
successful, and the sequential pilot production of the Los Juarez
gold, silver, and antimony project has commenced at an initial rate
of 400 metric tons per month. Assuming that the pilot testing of
Los Juarez is economic, the production will be ramped up to 2,000
metric tons per month. In addition, a cyanide leach circuit to
increase the recoveries of precious metals from mill tailings and
the completion of a 400 ton capacity mill at Puerto Blanco will be
considered.
Precious Metals Sales
|
|
|
|
|
Silver/Gold
|
|
|
|
|
Montana
|
|
|
|
|
Ounces
Gold Shipped (Au)
|
64.77
|
89.12
|
108.10
|
24.60
|
Ounces
Silver Shipped (Ag)
|
29,480.22
|
30,420.75
|
38,123.46
|
8,639.39
|
Revenues
|
$
461,083
|
$
491,426
|
$
556,650
|
$
133,506
|
Australian - Hillgrove
|
|
|
|
|
Ounces
Gold Shipped (Au)
|
|
|
496.65
|
57.25
|
Revenues
- Gross
|
|
|
$
597,309
|
$
53,971
|
Revenues
to Hillgrove
|
|
|
(481,088
)
|
(166,666
)
|
Revenues
to USAC
|
|
|
$
116,221
|
$
(112,695
)
|
|
|
|
|
|
Total Revenues
|
$
461,083
|
$
491,426
|
$
672,871
|
$
20,811
|
Bear River Zeolite (BRZ)
During
Q1 2017, BRZ sold 3,353 tons of zeolite compared to 3,097 tons in
the same period of 2016, up 256 tons or 8.3%.
BRZ
realized a profit of $86,205 in Q1 of 2017, compared to $29,802 in
2016. The increase in our profit from our zeolite operations was
$56,403 (189%).
BRZ
realized an EBITDA for Q1 2017 of $136,205 compared to $86,802 for
the same period in 2016, an increase of $49,403
(56.9%).
Our new
sales program for zeolite products has two field representatives
and a research person that prepares sales brochures and literature.
At this time this effort is adding new customers.
PART I - FINANCIAL INFORMATION, CONTINUED:
ITEM
2.
Management’s
Discussion and Analysis of Results of Operations and Financial
Condition, continued:
Financial Position
Financial Condition and Liquidity
|
|
|
|
|
|
Current
Assets
|
$
1,733,777
|
$
2,326,089
|
Current
liabilities
|
(3,754,101
)
|
(2,948,379
)
|
Net
Working Capital
|
$
(2,020,324
)
|
$
(622,290
)
|
|
|
|
Cash
provided (used) by operations
|
$
143,613
|
$
252,476
|
Cash
used for capital outlay
|
(79,599
)
|
(245,702
)
|
Cash
provided (used) by financing:
|
|
|
Net
proceeds (payments to) factor
|
(4,388
)
|
84,083
|
Proceeds
from notes payable to bank
|
15,985
|
-
|
Change
in check issued and payable
|
(21,519
)
|
-
|
Payment
of notes payable to bank
|
-
|
(44,912
)
|
Principal
paid on long-term debt
|
(53,020
)
|
(41,824
)
|
Net
change in cash
|
$
1,072
|
$
4,121
|
Our net
working capital decreased by approximately $331,000 from December
31, 2016. Our cash increased by approximately $1,000 during the
same period. The decrease in our net working capital was primarily
due to an increase of approximately $325,000 in accounts payable,
and expenditures of approximately $80,000 for capital outlay. An
increase in inventory of approximately $55,000 and decreases in our
current liabilities increased our working capital. We have
estimated commitments for construction and improvements, including
$50,000 to finish building and installing precious metals leach
circuits. We believe that with our current cash balance, along with
the future cash flow from operations, 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 by $183,302 at March 31, 2017.
ITEM
3.
None
PART I - FINANCIAL INFORMATION, CONTINUED:
Management’s
Discussion and Analysis of Results of Operations and Financial
Condition, continued:
ITEM
4. Controls and Procedures
EVALUATION OF
DISCLOSURE CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our reports
under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and
communicated to management, as appropriate, to allow timely
decisions regarding required disclosure. Our chief financial
officer conducted an evaluation of the effectiveness of the
Company's disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as
of March 31, 2017. It was determined that there were material
weaknesses affecting our disclosure controls and procedures and, as
a result of those weaknesses, our disclosure controls and
procedures were not effective as of March 31, 2017. These material
weaknesses are as follows:
●
Inadequate design
of internal control over the preparation of the financial
statements and financial reporting processes;
●
Inadequate
monitoring of internal controls over significant accounts and
processes including controls associated with domestic and Mexican
subsidiary operations and the period-end financial reporting
process; and
●
The absence of
proper segregation of duties within significant processes and
ineffective controls over management oversight, including antifraud
programs and controls.
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.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no significant changes made to
internal controls over financial reporting for the quarter ended
March 31, 2017
.