Notes to Consolidated Financial Statements (Unaudited)
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 periods
ended 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.
Going Concern Consideration
At June
30, 2018, the
Company’s consolidated
financial statements show negative working capital of approximately
$2.8 million and accumulated deficit of approximately $27.2
million. In addition, the Company had recurring net
losses. These factors indicate that there may be doubt
regarding the ability to continue as a going concern for the next
twelve months.
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 June 30, 2018, the average sale
price for antimony is approximately $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 six months of
2018, we endured supply interruptions from our North American
supplier, and 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 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 with our North
American supplier has helped us with our cash flow in 2018 from our
antimony division.
In
2017, we 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, we adjusted
operating approaches at Madero that has 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 expected to be completed this
fall.
In
2017, management implemented wage and other cost reductions at the
corporate level that has 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.
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
1.
Basis
of Presentation, Continued:
Over the past several years, the Company has been
able to make required principal payments on its debt from cash
generated from operations without the need for additional
borrowings or selling shares of its common stock. The Company plans
to continue keeping current on its debt payments in 2018 through
cash flows from operations while using the additional operating
capital to continue with the expansion of our Mexican operation and
to improve our working capital. Management believes that the
actions taken to increase production and reduce costs, along with
the expected additional operating capital, will enable the Company
meet its obligations for the next twelve
months
.
2.
Developments
in Accounting Pronouncements
Accounting Standard Updates Adopted
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 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 June 30, 2018
and December 31, 2017 and $63,274 as of June 30, 2017 and December
31, 2016, as well as amounts previously reported for cash and cash
equivalents.
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
2.
Developments
in Accounting Pronouncements, Continued:
Accounting Standards Updates to Become Effective in Future
Periods
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. We are currently evaluating
the potential impact of implementing this update on our
consolidated financial statements.
3.
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 quarter and six month periods ended June 30, 2018
and June 30, 2017, is not applicable since any additions to
outstanding shares related to common stock equivalents would be
anti-dilutive.
As of
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:
|
|
|
|
|
Warrants
|
250,000
|
250,000
|
|
Convertible
preferred stock
|
1,751,005
|
1,751,005
|
|
Total possible
dilution
|
2,001,005
|
2,001,005
|
Our
products consist of the following:
●
Antimony: includes
antimony oxide, sodium antimonate, and
antimony metal
●
Zeolite:
includes course and fine zeolite crushed in various
sizes.
●
Precious Metals: includes
refined gold and
silver
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.
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
4.
Revenue
Recognition, Continued
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 three and six month periods ended June 30, 2018
and 2017 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antimony
|
$
1,492,520
|
$
2,077,300
|
$
3,174,333
|
$
4,063,808
|
|
Zeolite
|
682,534
|
616,414
|
1,373,240
|
1,228,426
|
|
Precious
metals
|
81,293
|
144,766
|
141,703
|
165,577
|
|
|
$
2,256,347
|
$
2,838,480
|
$
4,689,276
|
$
5,457,811
|
The
following is sales information by geographic area based on the
location of customers for the three and six month periods ended
June 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
$
1,878,244
|
$
2,653,227
|
$
4,125,935
|
$
4,950,282
|
|
Canada
|
378,103
|
185,253
|
563,341
|
507,529
|
|
|
$
2,256,347
|
$
2,838,480
|
$
4,689,276
|
$
5,457,811
|
Sales
of products to significant customers were as follows for the three
and six month periods ended June 30, 2018 and 2017:
|
|
For the
Three Months Ended
|
|
|
|
|
|
|
|
|
Mexichem Speciality
Compounds
|
$
669,103
|
$
769,998
|
$
1,397,681
|
$
1,556,423
|
|
East Penn
Manufacturing Inc.
|
-
|
363,979
|
-
|
512,621
|
|
Kohler
Corporation
|
334,778
|
501,320
|
651,550
|
946,498
|
|
Ampacet
Corporation
|
146,118
|
-
|
330,260
|
-
|
|
ZEO,
Inc.
|
185,730
|
-
|
306,701
|
-
|
|
|
$
1,335,729
|
$
1,635,297
|
$
2,686,192
|
$
3,015,542
|
|
%
of Total Revenues
|
59.20
%
|
57.60
%
|
57.30
%
|
55.30
%
|
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
4.
Revenue
Recognition, Continued:
Accounts receivable
from largest customers were as follows for June 30, 2018 and
December 31, 2017:
|
|
|
|
|
Nutreco Canada,
Inc.
|
$
-
|
$
25,657
|
|
Ralco Mix
Products
|
-
|
16,000
|
|
Mexichem Speciality
Compounds
|
148,211
|
-
|
|
Axens North
America, Inc.
|
38,404
|
-
|
|
Teck American,
Inc.
|
82,733
|
241,627
|
|
|
$
269,348
|
$
283,284
|
|
%
of Total Receivables
|
58.40
%
|
78.10
%
|
Our
trade accounts receivable balance related to contracts with
customers was $461,291 at 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 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 June 30, 2018 and December
31, 2017 is as follows:
|
|
|
|
|
|
|
|
|
Sodium
antimonate
|
$
56,091
|
$
-
|
|
Antimony
oxide
|
225,099
|
408,217
|
|
Antimony with
precious metal content
|
23,474
|
35,554
|
|
Antimony
ore
|
165,280
|
187,133
|
|
Total
antimony
|
469,944
|
630,904
|
|
Zeolite
|
242,752
|
283,805
|
|
|
$
712,696
|
$
914,709
|
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
6.
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 (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.
|
Accounts
Receivble
|
|
|
|
Accounts receivable
- non factored
|
$
455,851
|
$
351,699
|
|
Accounts receivable
- factored with recourse
|
5,440
|
10,880
|
|
Accounts
receivable - net
|
$
461,291
|
$
362,579
|
7.
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 term of one year and, and as of 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 2019.
At June
30, 2018 and December 31, 2017, 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
|
$
99,999
|
$
98,863
|
|
|
|
|
|
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
|
91,010
|
93,702
|
|
Total notes payable
to the bank
|
$
191,009
|
$
192,565
|
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
8.
Notes
Payable to Bank, Continued:
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.
|
Long-Term debt at
June 30, 2018 and December 31, 2017, 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.
|
$
2,725
|
$
8,054
|
|
Note payable to Cat
Financial Services, bearing interest at 6%;
|
|
|
|
payable in monthly
installments of $1,300; maturing
|
|
|
|
August 2019;
collateralized by equipment.
|
21,243
|
27,096
|
|
Note payable to Cat
Financial Services, bearing interest at 6%;
|
|
|
|
payable in monthly
installments of $778; maturing
|
|
|
|
December 2022;
collateralized by equipment.
|
37,972
|
40,278
|
|
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.
|
9,630
|
13,344
|
|
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.
|
12,106
|
15,776
|
|
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.
|
682,229
|
715,709
|
|
Obligation payable
for Guadalupe Mine, non-interest bearing,
|
|
|
|
annual
payments from $60,000 to $149,078 through 2026, net of
discount.
|
937,431
|
951,711
|
|
|
1,717,482
|
1,786,114
|
|
Less current
portion
|
(632,655
)
|
(546,988
)
|
|
Long-term
portion
|
$
1,084,827
|
$
1,239,126
|
At June
30, 2018, principal payments on debt are due as
follows:
|
12 Months Ending
June 30,
|
|
|
|
|
|
|
|
|
2019
|
710,481
|
(77,826
)
|
632,655
|
|
2020
|
320,163
|
(62,435
)
|
257,728
|
|
2021
|
207,185
|
(48,238
)
|
158,947
|
|
2022
|
157,601
|
(39,188
)
|
118,413
|
|
2023
|
155,499
|
(32,594
)
|
122,905
|
|
Thereafter
|
483,069
|
(56,235
)
|
426,834
|
|
|
$
2,033,998
|
$
(316,516
)
|
$
1,717,482
|
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
10.
Related
Party Transactions
During
the three and six months ended 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 June 30, 2018 and 2017, the Company
paid $2,461 and $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 six months ended June 30, 2018, which has been repaid as of
June 30, 2018.
During the three and six months ended June 30,
2018, and the year ended December 31, 2017, 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 is fully reserved for at June 30, 2018 and December 31,
2017.
Management estimates the effective tax rate at 0% for
the current year.
Mexican Tax
Assessment
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 June 30,
2018, the assessed amount is $694,752 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.
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. For the three and six months ended June 30, 2018, the
Company recognized a $62,752 and $12,752 decrease, respectively,
and for the three and six months ended June 30, 2017, recognized a
$51,642 and $10,191 decrease, respectively, due to the change in
exchange rates. 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 other tax years and have advised the
Company that they do not expect the Company to have a tax liability
for those years relating to similar issues.
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
Issuance of Common Stock for Payable to Board of
Directors
During
the six month period ended June 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 during the three and six months ended June 30, 2017, the
Company accrued $43,750 and $87,500, respectively, in
directors’ fees payable that will be paid in common
stock.
On May
3, 2018, the Board of Directors was issued a total of 739,018
shares of common stock for $175,000 in directors’ fees that
were payable at December 31, 2017. In addition during the quarter
and six months ended June 30, 2018, the Company accrued $43,750 and
$87,500, respectively, in directors’ fees payable 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 may be
sold directly or shipped to the United States operation for
finishing 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.
Segment
disclosure regarding sales to major customers is located in Note
4.
|
Properties,
plants
|
|
|
|
and
equipment, net:
|
|
|
|
Antimony
|
|
|
|
United
States
|
$
1,661,616
|
$
1,687,997
|
|
Mexico
|
11,266,118
|
11,452,507
|
|
Subtotal
Antimony
|
12,927,734
|
13,140,504
|
|
Precious
metals
|
649,741
|
642,774
|
|
Zeolite
|
1,277,151
|
1,349,619
|
|
Total
|
$
14,854,626
|
$
15,132,897
|
|
Total
Assets:
|
|
|
|
Antimony
|
|
|
|
United
States
|
$
2,317,937
|
$
2,510,323
|
|
Mexico
|
11,950,342
|
12,073,219
|
|
Subtotal
Antimony
|
14,268,279
|
14,583,542
|
|
Precious
metals
|
649,741
|
642,774
|
|
Zeolite
|
1,827,447
|
1,904,938
|
|
Total
|
$
16,745,467
|
$
17,131,254
|
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
|
$
-
|
$
-
|
$
-
|
$
-
|
|
Mexico
|
70,892
|
47,033
|
110,977
|
75,716
|
|
Subtotal
Antimony
|
70,892
|
47,033
|
110,977
|
75,716
|
|
Precious
Metals
|
-
|
16,582
|
40,988
|
59,582
|
|
Zeolite
|
8,691
|
8,030
|
22,423
|
15,946
|
|
Total
|
$
79,583
|
$
71,645
|
$
174,388
|
$
151,244
|
|
Segment
Operations for the three
months ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
1,492,520
|
$
-
|
$
1,492,520
|
$
81,293
|
$
682,534
|
$
2,256,347
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
$
13,170
|
$
97,844
|
$
111,014
|
$
17,011
|
$
47,072
|
$
175,097
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations
|
391,895
|
(808,575
)
|
(416,680
)
|
114,801
|
141,826
|
(160,053
)
|
|
|
|
|
|
|
|
|
|
Other income
(expense):
|
(1,938
)
|
41,630
|
39,692
|
-
|
(2,424
)
|
37,268
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
$
389,957
|
$
(766,945
)
|
$
(376,988
)
|
$
114,801
|
$
139,402
|
$
(122,785
)
|
|
Segment
Operations for the three
months ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
2,077,300
|
$
-
|
$
2,077,300
|
$
144,766
|
$
616,414
|
$
2,838,480
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
$
18,700
|
$
145,875
|
$
164,575
|
$
-
|
$
49,800
|
$
214,375
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations
|
844,257
|
(1,089,834
)
|
(245,577
)
|
144,766
|
132,640
|
31,829
|
|
|
|
|
|
|
|
|
|
Other income
(expense):
|
(11,965
)
|
(33,605
)
|
(45,570
)
|
-
|
(3,214
)
|
(48,784
)
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
$
832,292
|
$
(1,123,439
)
|
$
(291,147
)
|
$
144,766
|
$
129,426
|
$
(16,955
)
|
United
States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued:
13.
Business
Segments, Continued:
|
Segment
Operations for the six
months ended
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
3,174,333
|
$
-
|
$
3,174,333
|
$
141,703
|
$
1,373,240
|
$
4,689,276
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
$
26,380
|
$
297,366
|
$
323,746
|
$
34,021
|
$
94,892
|
$
452,659
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations
|
589,934
|
(1,551,357
)
|
(961,423
)
|
107,682
|
293,919
|
(559,822
)
|
|
|
|
|
|
|
|
|
|
Other income
(expense):
|
(2,716
)
|
(29,488
)
|
(32,204
)
|
-
|
(5,199
)
|
(37,403
)
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
$
587,218
|
$
(1,580,845
)
|
$
(993,627
)
|
$
107,682
|
$
288,720
|
$
(597,225
)
|
|
Segment
Operations for the six
months ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$
4,046,026
|
$
17,782
|
$
4,063,808
|
$
165,577
|
$
1,228,426
|
$
5,457,811
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
$
38,200
|
$
292,050
|
$
330,250
|
|
$
99,800
|
$
430,050
|
|
|
|
|
|
|
|
|
|
Income (loss) from
operations
|
1,173,160
|
(1,841,012
)
|
(667,852
)
|
165,577
|
222,232
|
(280,043
)
|
|
|
|
|
|
|
|
|
|
Other income
(expense):
|
(23,044
)
|
(98,569
)
|
(121,613
)
|
-
|
(6,602
)
|
(128,215
)
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
$
1,150,116
|
$
(1,939,581
)
|
$
(789,465
)
|
$
165,577
|
$
215,630
|
$
(408,258
)
|
On July 31, 2018, the Company entered into a Member Interest and
Share Capital Purchase Agreement (the “Agreement”) with
Great Lakes Chemical Corporation and Lanxess Holding Company US
Inc., as the sellers, and the Company as the buyer. The transaction
is expected to close on August 31, 2018. Under the
Agreement, the Company will acquire a subsidiary of the sellers
which includes an antimony plant, equipment and land located in
Reynosa, Mexico. The Company plans to disassemble,
salvage and transport the antimony plant and equipment for use in
its existing operations in both Mexico and the United States. The
project will involve moving heavy equipment and could take up to a
year.
ITEM
2.
Management’s
Discussion and Analysis of Results of Operations and
FinancialCondition
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.
|
Antimony -
Combined USA
|
|
|
|
|
|
and
Mexico
|
|
|
|
|
|
Lbs of Antimony
Metal USA
|
161,044
|
345,152
|
424,664
|
804,818
|
|
Lbs of Antimony
Metal Mexico:
|
165,214
|
160,204
|
317,558
|
248,388
|
|
Total
Lbs of Antimony Metal Sold
|
326,258
|
505,356
|
742,222
|
1,053,206
|
|
Average Sales
Price/Lb Metal
|
$
4.57
|
$
4.11
|
$
4.28
|
$
3.86
|
|
Net
loss/Lb Metal
|
$
(1.16
)
|
$
(0.58
)
|
$
(1.34
)
|
$
(0.75
)
|
|
|
|
|
|
|
|
Gross antimony
revenue
|
$
1,492,520
|
$
2,077,300
|
$
3,174,333
|
$
4,063,808
|
|
|
|
|
|
|
|
Cost of sales -
domestic
|
(834,627
)
|
(1,009,940
)
|
(2,024,663
)
|
(2,309,821
)
|
|
Cost of sales -
Mexico
|
(795,125
)
|
(1,055,002
)
|
(1,511,093
)
|
(1,786,460
)
|
|
Operating
expenses
|
(279,448
)
|
(257,935
)
|
(600,000
)
|
(635,379
)
|
|
Non-operating
expenses
|
39,692
|
(45,570
)
|
(32,204
)
|
(121,613
)
|
|
|
(1,869,508
)
|
(2,368,447
)
|
(4,167,960
)
|
(4,853,273
)
|
|
|
|
|
|
|
|
Net
loss - antimony
|
(376,988
)
|
(291,147
)
|
(993,627
)
|
(789,465
)
|
|
Depreciation,&
amortization
|
111,014
|
164,575
|
323,746
|
330,250
|
|
EBITDA
- antimony
|
$
(265,974
)
|
$
(126,572
)
|
$
(669,881
)
|
$
(459,215
)
|
|
|
|
|
|
|
|
Precious
Metals
|
|
|
|
|
|
Ounces
sold
|
|
|
|
|
|
Gold
|
15
|
51
|
29
|
133
|
|
Silver
|
4,960
|
8,639
|
9,841
|
17,552
|
|
|
|
|
|
|
|
Gross precious
metals revenue
|
$
81,293
|
$
144,766
|
$
141,703
|
$
165,577
|
|
Production costs,
royalties, and shipping costs
|
33,508
|
-
|
(34,021
)
|
-
|
|
Net
income - precious metals
|
114,801
|
144,766
|
107,682
|
165,577
|
|
Depreciation
|
17,011
|
-
|
34,021
|
-
|
|
EBITDA
- precious metals
|
$
131,812
|
$
144,766
|
$
141,703
|
$
165,577
|
|
|
|
|
|
|
|
Zeolite
|
|
|
|
|
|
Tons
sold
|
3,578
|
3,422
|
7,331
|
6,775
|
|
Average Sales
Price/Ton
|
$
190.76
|
$
180.13
|
$
187.32
|
$
181.32
|
|
Net
income (Loss)/Ton
|
$
38.96
|
$
37.82
|
$
39.38
|
$
31.83
|
|
|
|
|
|
|
|
Gross zeolite
revenue
|
$
682,534
|
$
616,414
|
$
1,373,240
|
$
1,228,426
|
|
Cost of
sales
|
(518,757
)
|
(470,646
)
|
(1,033,239
)
|
(972,524
)
|
|
Operating
expenses
|
(21,951
)
|
(13,128
)
|
(46,082
)
|
(33,670
)
|
|
Non-operating
expenses
|
(2,424
)
|
(3,214
)
|
(5,199
)
|
(6,602
)
|
|
Net
income - zeolite
|
139,402
|
129,426
|
288,720
|
215,630
|
|
Depreciation
|
47,072
|
49,800
|
94,892
|
99,800
|
|
EBITDA
- zeolite
|
$
186,474
|
$
179,226
|
$
383,612
|
$
315,430
|
|
|
|
|
|
|
|
Company-wide
|
|
|
|
|
|
Gross
revenue
|
$
2,256,347
|
$
2,838,480
|
$
4,689,276
|
$
5,457,811
|
|
Production
costs
|
(2,114,999
)
|
(2,535,588
)
|
(4,603,016
)
|
(5,068,805
)
|
|
Operating
expenses
|
(301,401
)
|
(271,063
)
|
(646,082
)
|
(669,049
)
|
|
Non-operating
expenses
|
37,268
|
(48,784
)
|
(37,403
)
|
(128,215
)
|
|
Net
income (loss)
|
(122,785
)
|
(16,955
)
|
(597,225
)
|
(408,258
)
|
|
Depreciation,&
amortization
|
175,097
|
214,375
|
452,659
|
430,050
|
|
EBITDA
|
$
52,312
|
$
197,420
|
$
(144,566
)
|
$
21,792
|
PART I - FINANCIAL INFORMATION, CONTINUED:
ITEM
2. Management’s Discussion and Analysis of Results of
Operations and Financial Condition, continued:
Company-Wide
For the
second quarter of 2018, we recognized a net loss of $122,785, on
sales of $2,256,347, compared to a net loss of $16,955 in the
second quarter of 2017 on sales of $2,838,480. The loss in the
second 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. During the first six
months of 2018, we endured supply interruptions from our North
American supplier, and 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
three and six months ended June 30, 2018, EBITDA was $52,312 and
$(144,566), compared to $197,420 and $21,792 for the same periods
of 2017.
Net
non-cash expense items totaled $287,780 and for the three months
ended June 30, 2018 and included $175,097 for depreciation and
amortization, $21,120 for amortization of debt discount, $43,750
for director compensation and $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 $282,985 for the three months ended
June 30, 2017 and included $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
three and six months ended June 30, 2018, general and
administrative expenses were $186,411 and 337,242, respectively
compared to $138,995 and $343,559 for the same periods in
2017.
Antimony
For the
three and six months ended June 30, 2018, we sold 326,258 and
742,222 pounds of antimony compared to 505,356 and 1,053,206 pounds
for the three and six months ended June 30, 2017. The raw material
received from our North American supplier decreased by
approximately 184,000 pounds. We did not see an increase in raw
material from Mexico for the second quarter of 2018, but we did see
an increase of approximately 69,000 pounds for the six months ended
June 30, 2018.
The
average sales price of antimony during the three and six months
ended June 30, 2018 was $4.57 and $4.28 per pound compared to $4.11
and $3.86 during the same periods in 2017.
The
cyanide leach circuit at Puerto Blanco has been permitted, and
construction of the leach circuit is 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 and
load haul equipment. The use of pneumatic hammers is planned in
lieu of explosives.
Precious
Metals
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.
For the
three and six months ended June 30, 2018, EBITDA for precious
metals was $131,812 and $141,703, compared to $144,766 and $165,577
for the same periods of 2017.
The
estimated recovery of precious metals per metric ton, after the
caustic leach and cyanide leach circuits, is as
follows:
|
Metal
|
|
|
|
|
|
Gold
|
|
90
%
|
|
$
37.80
|
|
Silver
|
|
90
%
|
$
15.50/oz
|
$
45.61
|
|
Antimony
|
0.652
%
|
70
%
|
|
$
41.52
|
|
Total
|
|
|
|
$
124.93
|
Current
and prior years’ revenue from precious metals is as
follows:
|
Precious Metal
Sales Silver/Gold
|
|
|
|
|
|
Montana
|
|
|
|
|
|
Ounces Gold Shipped
(Au)
|
89.12
|
108.10
|
107.00
|
29.43
|
|
Ounces Silver
Shipped (Ag)
|
30,421
|
38,123
|
32,021
|
9,841
|
|
Revenues
|
$
491,426
|
$
556,650
|
$
480,985
|
$
141,703
|
|
Australian
- Hillgrove
|
|
|
|
|
|
Ounces Gold Shipped
(Au)
|
-
|
496.65
|
90.94
|
-
|
|
Revenues -
Gross
|
-
|
$
597,309
|
$
96,471
|
-
|
|
Revenues to
Hillgrove
|
-
|
(481,088
)
|
(202,584
)
|
-
|
|
Revenues to
USAC
|
-
|
$
116,221
|
$
(106,113
)
|
-
|
|
Total
Revenues
|
$
491,426
|
$
672,871
|
$
374,872
|
$
141,703
|
Bear River Zeolite
(BRZ)
For the
three and six months ended June 30, 2018, BRZ sold 3,578 and 7,331
tons of zeolite compared to 3,422 and 6,775 tons in the same
periods of 2017, up 156 tons or 4.6% for the three months and 556
tons or 8.2% for the six months. .
BRZ
realized a profit of $139,402 after depreciation of $47,072 in the
second quarter of 2018, compared to $129,426 after depreciation of
$49,800 in the second quarter of 2017. The increase in profit from
our zeolite operations was $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 the three and six months ended June 30, 2018
of $186,474 and $383,612, compared to $179,225 and 315,430 for the
same periods in 2017.
We are
anticipating continued growth in all areas of zeolite
sales.
Financial
Position
|
Financial
Condition and Liquidity
|
|
|
|
|
|
|
|
Current
assets
|
$
1,442,819
|
$
1,562,270
|
|
Current
liabilities
|
(4,209,889
)
|
(3,934,726
)
|
|
Net
Working Capital
|
$
(2,767,070
)
|
$
(2,372,456
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by
operations
|
$
197,817
|
$
239,654
|
|
Cash used for
capital outlay
|
(174,388
)
|
(151,244
)
|
|
Cash provided
(used) by financing:
|
|
|
|
Net
proceeds (payments to) factor
|
(5,440
)
|
20,471
|
|
Proceeds
from notes payable to bank
|
-
|
24,827
|
|
Change
in check issued and payable
|
82,330
|
(12,776
)
|
|
Advances
from related party
|
75,000
|
-
|
|
Payment
on advances from related party
|
(75,000
)
|
-
|
|
Payment
of notes payable to bank
|
(1,556
)
|
-
|
|
Principal
paid on long-term debt
|
(110,872
)
|
(106,439
)
|
|
Net
change in cash and cash equivalents
|
$
(12,109
)
|
$
14,493
|
Our net
working capital decreased by approximately $395,000 from December
31, 2017. Our cash decreased by approximately $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 a decrease in inventories of approximately
$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 by $191,009 at June 30, 2018.
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 June 30, 2018. 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 June 30, 2018. 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
June 30, 2018
.