Notes to Consolidated Financial Statements (Unaudited)
1.
Basis
of Presentation:
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 nine month periods
ended September 30, 2017 are not necessarily indicative of the
results that may be expected for the full year ending December 31,
2017.
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, 2016.
Certain
consolidated financial statement amounts for the three and nine
month periods ended September 30, 2016, have been reclassified to
conform to the 2017 presentation. These reclassifications had no
effect on the net income (loss) or cash flows or accumulated
deficit as previously reported.
Going Concern Consideration
At
September 30, 2017, our financial statements show that we have a
negative working capital of approximately $2.14 million and an
accumulated deficit of approximately $26.1 million. In addition, we
have incurred losses for the prior three years. These factors
indicate that there may be doubt regarding our ability to continue
as a going concern for the next twelve months.
During
the past twelve months, the price of antimony has increased from a
low of $3.07 per pound for the third quarter of 2016 to an average
price of $4.25 for the third quarter of 2017. We have gross profit
and a positive cash flow from our U.S. operations at this price.
Our operations in Mexico are still in a transitional phase since
the loss of our raw material supply from Hillgrove of Australia. We
are focusing our production at our Wadley mine to increase grade
and output, and we have recently seen ore from there assaying 50%
antimony. We are also trying new production techniques, and have
found that we can process direct shipping ore successfully at our
Madero smelter which will result in a reduction in our operating
costs in Mexico going forward.
We have
reduced costs at our Mexico locations, most notably a reduced
monthly lease payment of $11,600 for the Wadley mine from $23,200
for June 2016, and we have also reduced the cost for labor at the
same mine. We have reduced administrative costs by approximately
$81,000 from the prior year third quarter at the corporate level.
Our capital outlay should be minimal in the near future; and we
completed paying for the Los Juarez mining concessions in 2016
which were a major outlay in prior years.
Our
zeolite operations continue to operate profitably and provide cash
to our operations. We are aggressively seeking new markets for our
zeolite products, and we now have an outside sales staff that is
working to obtain new customers and have had some
success.
We
believe that the combination of the above will enable us to stay in
operation and meet our financial obligations for the next twelve
months and further.
PART I - FINANCIAL INFORMATION, CONTINUED:
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
2.
Income
(Loss) Per Common Share:
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 three and nine month periods ended September 30,
2017 and June 30, 2016, is not applicable since any additions to
outstanding shares related to common stock equivalents would be
anti-dilutive.
As of
September 30, 2017 and 2016, 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:
|
|
|
Warrants
|
250,000
|
250,000
|
Convertible
preferred stock
|
1,751,005
|
1,751,005
|
Total
possible dilution
|
2,001,005
|
2,001,005
|
Inventories at
September 30, 2017 and December 31, 2016 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 September 30, 2017 and
December 31, 2016, is as follows:
|
|
|
|
|
|
Antimony
Metal
|
$
-
|
$
112,300
|
Antimony
Oxide
|
452,871
|
326,126
|
Antimony
Concentrates
|
19,017
|
30,815
|
Antimony
Ore
|
151,841
|
181,815
|
Total antimony
|
623,729
|
651,056
|
Zeolite
|
316,151
|
204,581
|
|
$
939,880
|
$
855,637
|
PART I - FINANCIAL INFORMATION, CONTINUED:
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
4.
Accounts
Receivable and Due to Factor:
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 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.
Accounts Receivble
|
|
|
Accounts
receivable - non factored
|
$
332,660
|
$
401,720
|
Accounts
receivable - factored with recourse
|
163,737
|
150,399
|
Accounts receivable - net
|
$
496,397
|
$
552,119
|
5.
Commitments
and Contingencies:
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 mandatory term of one year and, as of September
30, 2017, requires payments of $10,000 plus a tax of $1,600 per
month. The lease is renewable each year with a 15 day notice to the
lessor, and agreement of terms. The lease is scheduled for renewal
in June 2018.
PART I - FINANCIAL INFORMATION, CONTINUED:
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
6.
Notes
Payable to Bank:
At September 30, 2017 and December 31, 2016, the Company had the
following notes payable to bank:
|
|
|
|
|
|
Promissory
note payable to First Security Bank of Missoula,
|
|
|
bearing
interest at 3.150%, payable on demand, collateralized
|
|
|
by
a lien on Certificate of Deposit
|
$
3,027
|
$
76,350
|
|
|
|
Promissory
note payable to First Security Bank of Missoula,
|
|
|
bearing
interest at 3.150%, payable on demand, collateralized
|
|
|
by
a lien on Certificate of Deposit
|
99,999
|
90,967
|
|
|
|
Total
notes payable to the bank
|
$
103,026
|
$
167,317
|
These
notes are personally guaranteed by John C. Lawrence the
Company’s President and Chairman of the Board of Directors.
The maximum amount available for borrowing under each note is
$99,999.
Long-Term
debt at September 30, 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.
|
$
10,660
|
$
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.
|
30,545
|
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.
|
14,567
|
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.
|
16,985
|
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.
|
731,862
|
776,319
|
Obligation
payable for Guadalupe Mine, non-interest bearing,
|
|
|
annual
payments from $60,000 to $149,078 through 2026, net of
discount.
|
959,350
|
970,651
|
|
1,778,115
|
1,863,916
|
Less
current portion
|
(495,134
)
|
(391,046
)
|
Long-term
portion
|
$
1,282,981
|
$
1,472,870
|
PART I - FINANCIAL INFORMATION, CONTINUED:
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
7.
Long
– Term Debt, Continued:
Year Ending September 30,
|
|
|
2018
|
495,134
|
|
2019
|
307,810
|
|
2020
|
215,795
|
|
2021
|
128,742
|
|
2022
|
111,467
|
|
Thereafter
|
519,167
|
|
|
$
1,778,115
|
|
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
September 30, 2017, the net amount due to Hillgrove for advances
was $1,134,196. As of September 30, 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.
PART I - FINANCIAL INFORMATION, CONTINUED:
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
9. Concentrations of Risk:
|
For the Three Months Ended
|
For the Nine Months Ended
|
Sales to Three
|
|
|
|
|
Largest Customers
|
|
|
|
|
Ampacet
Corporation
|
$
150,234
|
$
-
|
$
-
|
$
-
|
Mexichem
Specialty Compounds Inc.
|
909,965
|
414,157
|
2,466,388
|
1,524,253
|
Kohler
Corporation
|
512,451
|
362,770
|
1,458,949
|
972,083
|
East
Penn Corporation
|
-
|
245,514
|
512,641
|
965,564
|
|
$
1,572,650
|
$
1,022,441
|
$
4,437,978
|
$
3,461,900
|
% of Total Revenues
|
66
%
|
36
%
|
57
%
|
38
%
|
|
|
|
|
|
|
|
|
|
|
Three Largest
Accounts Receivable
|
|
|
|
|
Kohler
Corporation
|
$
169,991
|
$
133,705
|
|
|
Earth
Innovations Inc.
|
31,522
|
33,150
|
|
|
Axens
North America, Inc.
|
31,237
|
-
|
|
|
East
Penn Corporation
|
-
|
135,828
|
|
|
|
$
232,750
|
$
302,683
|
|
|
% of Total Receivables
|
47.00
%
|
58.20
%
|
|
|
10.
Related
Party Transactions:
During
the three and nine months ended September 30, 2017 and 2016, the
Chairman of the audit committee and compensation committee received
$4,500 and $9,000, and $4,500 and $18,000, respectively, for
services performed. See Note 12 for shares of common stock issued
to directors.
During
the three and nine months ended September 30, 2017 and 2016, the
Company paid $2,715 and $8,989, and $2,480 and $11,310,
respectively, to John Lawrence, President and Chief Executive
Officer, as reimbursement for equipment used by the
Company.
During
the nine months ended September 30, 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 September 30,
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 was 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 September
30, 2017, the assessed amount is $746,000 in U.S
dollars.
PART I - FINANCIAL INFORMATION, CONTINUED:
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
11.
Income Taxes, Continued:
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.
At
December 31, 2016, management 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, the Company accrued a potential liability of
$410,510 USD of which $285,048 was for unpaid income taxes, $75,510
was for interest expense, and $49,952 was 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 September 30, 2017, the Company recognized a $49,000
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. The
Company’s tax professionals in Mexico have reviewed and filed
tax returns with the SAT for 2014, 2015, and 2016, and have advised
the Company that they do not expect the Company to have a tax
liability for those years relating to similar issues.
12.
Stockholder’s Equity:
Issuance of Common Stock for Payable to Board of
Directors
During
the nine months ended September 30, 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, the Company accrued $131,250 in directors’ fees
payable as of September 30, 2017, that will be paid in common
stock.
During
the nine months ended September 30, 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, the Company accrued $112,500 in directors’ fees
payable as of September 30, 2016, that will be paid in common
stock.
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 is
typically 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.
PART I - FINANCIAL INFORMATION, CONTINUED:
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
13.
Business
Segments, Continued:
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.
|
For the three months ended
|
For the nine months ended
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
Antimony
|
|
|
|
|
United
States
|
$
22,241
|
$
-
|
$
22,241
|
$
1,040
|
Mexico
|
45,326
|
26,130
|
121,042
|
201,882
|
Subtotal
Antimony
|
67,567
|
26,130
|
143,283
|
202,922
|
Precious
Metals
|
24,798
|
85,804
|
84,379
|
247,500
|
Zeolite
|
35,856
|
61,284
|
51,803
|
123,075
|
Total
|
$
128,221
|
$
173,218
|
$
279,465
|
$
573,497
|
Properties,
plants
and equipment, net:
|
|
|
Antimony
|
|
|
United
States
|
$
1,697,360
|
$
1,694,331
|
Mexico
|
11,677,840
|
11,984,467
|
Subtotal
Antimony
|
13,375,200
|
13,678,798
|
Precious
metals
|
588,650
|
544,615
|
Zeolite
|
1,374,356
|
1,472,553
|
Total
|
$
15,338,206
|
$
15,695,966
|
|
|
|
Total Assets:
|
|
|
Antimony
|
|
|
United
States
|
$
2,543,350
|
$
2,495,842
|
Mexico
|
12,338,179
|
12,681,109
|
Subtotal
Antimony
|
14,881,529
|
15,176,951
|
Precious
metals
|
588,650
|
544,615
|
Zeolite
|
2,020,575
|
2,044,432
|
Total
|
$
17,490,754
|
$
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:
Segment Operations for the three
|
|
|
|
|
|
months ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
1,796,775
|
$
-
|
$
78,245
|
$
494,694
|
$
2,369,714
|
|
|
|
|
|
|
Depreciation
and amortization
|
14,200
|
127,675
|
15,100
|
50,200
|
207,175
|
|
|
|
|
|
|
Income
(loss) from operations
|
435,497
|
(861,683
)
|
63,145
|
135,879
|
(227,162
)
|
|
|
|
|
|
|
Other
income (expense):
|
(11,611
)
|
(20,772
)
|
-
|
(3,020
)
|
(35,403
)
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
$
423,886
|
$
(882,455
)
|
$
63,145
|
$
132,859
|
$
(262,565
)
|
Segment Operations for the three
|
|
|
|
|
|
months ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
2,025,755
|
$
3,557
|
$
240,238
|
$
577,149
|
$
2,846,699
|
|
|
|
|
|
|
Depreciation
and amortization
|
20,000
|
136,875
|
-
|
53,400
|
210,275
|
|
|
|
|
|
|
Income
(loss) from operations
|
723,628
|
(1,421,013
)
|
240,238
|
109,163
|
(347,984
)
|
|
|
|
|
|
|
Income
tax expense
|
-
|
(411,490
)
|
-
|
-
|
(411,490
)
|
|
|
|
|
|
|
Other
income (expense):
|
(9,406
)
|
(24,617
)
|
-
|
(3,560
)
|
(37,583
)
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
$
714,222
|
$
(1,857,120
)
|
$
240,238
|
$
105,604
|
$
(797,057
)
|
|
|
|
|
|
|
Segment Operations for the nine
|
|
|
|
|
|
months ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
5,842,801
|
$
17,782
|
$
243,822
|
$
1,723,120
|
$
7,827,525
|
|
|
|
|
|
|
Depreciation
and amortization
|
42,900
|
397,325
|
47,000
|
150,000
|
637,225
|
|
|
|
|
|
|
Income
(loss) from operations
|
1,618,156
|
(2,680,293
)
|
196,821
|
358,110
|
(507,206
)
|
|
|
|
|
|
|
Other
income (expense):
|
(34,654
)
|
(119,341
)
|
-
|
(9,622
)
|
(163,617
)
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
$
1,583,502
|
$
(2,799,634
)
|
$
196,821
|
$
348,488
|
$
(670,823
)
|
Segment Operations for the nine
|
|
|
|
|
|
months ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
6,621,732
|
$
3,557
|
$
564,581
|
$
1,976,758
|
$
9,166,628
|
|
|
|
|
|
|
Depreciation
and amortization
|
60,400
|
431,975
|
|
160,000
|
652,375
|
|
|
|
|
|
|
Income
(loss) from operations
|
2,582,390
|
(4,028,767
)
|
564,581
|
243,429
|
(638,367
)
|
|
|
|
|
|
|
Income
tax expense
|
-
|
(423,490
)
|
-
|
-
|
(423,490
)
|
|
|
|
|
|
|
Other
income (expense):
|
(23,837
)
|
(49,122
)
|
-
|
(7,517
)
|
(80,476
)
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
$
2,558,553
|
$
(4,501,379
)
|
$
564,581
|
$
235,912
|
$
(1,142,333
)
|
PART I - FINANCIAL INFORMATION, CONTINUED:
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued: