UAMY United States Antimony Corp

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 six month periods ended June 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021.

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, 2020.

Going Concern Consideration

At June 30, 2021, the Company’s consolidated financial statements show working capital of approximately $21.6 million and an accumulated deficit of approximately $32.6 million. The Company has incurred losses for the past two fiscal years which are principally a result of the Company’s antimony operations due to both depressed antimony prices and production costs incurred in Mexico. To improve conditions, the Company continues searching for areas to reduce these production costs.

In the first six months of 2021, the Company raised net proceeds of approximately $23.3 million from sale of shares of its common stock and approximately $1.8 million from the exercise of stock purchase warrants. These funds have been and will continue to be used for general corporate purposes, working capital, hiring of additional labor, leverage for reducing legacy contracts, additional managerial staff at USAC and BRZ headquarters, a revised website including measures aimed at increased visibility for advertising, more labor at its Mexican smelter, repair and improved infrastructure at the Mexican smelter, potential securement of additional antimony mine reserves in Mexico, and improvement of furnaces in Montana. With the funds raised, management believes the Company has sufficient funds to sustain its operations and meet its financial obligations during the 12 months following the date of issuance of these consolidated financial statements.

2.

Developments in Accounting Pronouncements

Accounting Standards Updates Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update contains a number of provisions intended to simplify the accounting for income taxes. The update was adopted as of January 1, 2021, and its adoption did not have a material impact on the Company’s consolidated financial statements.

2.

Developments in Accounting Pronouncements, Continued:

Accounting Standards Updates to Become Effective in Future Periods

In August 2020, the FASB issued ASU No.2019-12 Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update is to address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. The update is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years and with early adoption permitted. Management is evaluating the impact of this update on the Company’s consolidated financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

3.  

 Income (Loss) Per Common Share

Basic income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income (loss) per share reflects the potential dilution that could occur if stock warrants were exercised. The following is a reconciliation of the numerator and denominator used in the basic and diluted computation of net income (loss) per share:

4.

Revenue Recognition

Products consist of the following:

•

Antimony: includes antimony oxide, sodium antimonate, antimony trisulfide, and antimony metal

• 

Zeolite: includes coarse and fine zeolite crushed in various sizes

•

Precious Metals: includes unrefined and refined gold and silver

Sales of products for the three and six month periods ended June 30, 2021 and 2020 were as follows:

The following is sales information by geographic area based on the location of customers for the three and six month periods ended June 30, 2021 and 2020:

Sales of products to significant customers were as follows for the three and six month periods ended June 30, 2021 and 2020:

Sales to

Largest Customers

Company A

Company B

Company C

Company D

% of Total Revenues

At June 30, 2021, the Company had a sales order backlog of 1,922 tons of zeolite and 287,000 pounds of antimony.

4.

Revenue Recognition, Continued:

Accounts receivable from largest customers were as follows at June 30, 2021 and December 31, 2020:

Our trade accounts receivable balance related to contracts with customers was $601,315 at June 30, 2021 and $238,634 at December 31, 2020. Our products do not involve any warranty agreements and product returns are not typical.

5.

Inventories

Inventories at June 30, 2021 and December 31, 2020 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. Inventories at June 30, 2021 and December 31, 2020 are as follows

Antimony oxide inventory consisted of finished product oxide held at the Company’s plants in Montana and Mexico. Antimony concentrates and ore were held primarily at sites in Mexico and are essentially raw material. The Company’s zeolite inventory consists of salable zeolite material.

At June 30, 2021 and December 31, 2020, the antimony inventory in Mexico was valued at estimated net realizable value.

6.

Commitments and Contingencies

The Company pays various royalties on the sale of zeolite products. On a combined basis, royalties vary from 8%-13%. During the three and six month periods ended June 30, 2021, the Company had royalty expense of $69,437 and $131,567, respectively. During the three and six month periods ended June 30, 2020, the Company had royalty expense of $61,468 and $125,618, respectively. At June 30, 2021 and December 31, 2020, the Company had accrued royalties payable of $348,734 and $434,981, respectively, which is included in accrued liabilities. The Company is currently in negotiations with certain royalty holders to modify the terms of the agreements.

7.

Notes Payable to Bank

At June 30, 2021 and December 31, 2020, the Company had the following notes payable to bank: 

The notes are paid in full as of June 30, 2021 and the lien on the Certificate of Deposit has been released. An amount of $210,184 of the Certificate of Deposit was released during the six months ended June 30, 2021 and the cash was transferred to the checking account, leaving a Certificate of Deposits balance of $44,028 at June 30, 2021 compared to $254,212 at December 31, 2020.

8.

Debt

Long-Term debt at June 30, 2021 and December 31, 2020 is as follows:

Note payable to Zeo Inc., non interest bearing,

payable in 11 quarterly installments of $8,300 with a final payment of $8,700;

maturing December 2022; uncollateralized.

Note payable to Cat Financial Services, bearing interest at 6%;

payable in monthly installments of $778; maturing

December 2022; collateralized by equipment.

Note payable to Phyllis Rice, bearing interest

at 1%; payable in monthly installments of $2,000; originally maturing

March 2015; collateralized by equipment.

Less current portion

Long-term portion

At June 30, 2021, principal payments on debt are due as follows:

9.

Related Party Transactions

The Company’s previous President and Chairman rented equipment to the Company and charged the Company for lodging and meals provided to consultants, customers and other parties by an entity that he owned. The amount due to his estate as of June 30, 2021 and December 31, 2020 was $0 and $171,017. During the six months ended June 30, 2021, the Company paid off the full amount of $171,017 to his estate for reimbursement of these expenses.

During 2019, the Company’s previous President and Chairman advanced funds to the Company that had a balance at December 31, 2020 of $56,215. During the six month period ended June 30, 2021, the Company paid First Security Bank on behalf of the Company’s previous President and Chairman $56,215. The balance of the advances due to him at June 30 ,2021 is $0.

The Interim Chief Executive Officer of the Company has an advance due from the Company of $200 at December 31, 2020. During the six month period ended June 30, 2021, the Company paid $200 to him as reimbursement on these advances.

During the six months ended June 30, 2021, the Interim President of the Company incurred expenses of $16,994 for which he has not yet been reimbursed that are included in payables to related party on the consolidated balance sheet at June 30, 2021.

10.

Stockholder’s Equity

In February 2021, the Company sold shares of its common stock in two separate transactions: On February 3, 2021, 15,300,000 shares were sold at $0.70 for gross proceeds of $10,710,000; and on February 18, 2021, 10,990,000 shares were sold at $1.30 for gross proceeds of $14,287,000. A total of $1,654,820 of cash issuance costs were incurred on these sales.

At June 30, 2021 and December 31, 2020, the Company accrued $166,250 and $110,000, respectively, in directors’ fees payable that will be paid in common stock.

During the three month period ended June 30, 2021, the Company issued 41,667 shares of common stock and received $27,084 in cash from the exercise of warrants; no warrants were exercised during the three month period ended June 30, 2020.

During the six-month period ended June 30, 2021, the Company issued 3,765,477 shares of common stock and received $1,790,703 in cash from the exercise of warrants. For the same period in 2020, the Company issued 250,000 shares of common stock in satisfaction of related party debt of $62,500 from the exercise of warrants.

Warrants

Concurrent with the February 3, 2021 sale of common stock, the Company sold warrants to purchase 7,650,000 shares of common stock at an exercise price of $0.85 per share. The warrants are initially exercisable six months following issuance and expire five and one-half years from the issuance date. In connection with the February 2021 sales of common stock, the Company also issued 1,606,500 warrants with an exercise price of $0.85 and 804,000 warrants with an exercise price of $0.46 as commission to the placement agent. These warrants expire in early 2026.

Transactions in common stock purchase warrants for the six month period ended June 30, 2021 and the year ended December 31, 2020 are as follows:

These warrants expire as follows:

11.

Income and Other Taxes

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. SAT’s assessment was based on the disallowance of specific costs that the Company deducted on the 2013 USAMSA income tax return. The Company engaged accountants and tax attorneys in Mexico to defend its position. The assessment was settled in 2018 with no assessment against the Company.

In early 2019, the Company was notified that SAT re-opened its audit of USAMSA’s 2013 income tax return and, in November 2019, SAT assessed the Company $16.3 million pesos, which was approximately $818,000 USD as of June 30, 2021. Management reviewed the 2019 assessment notice from SAT and, similar to the earlier assessment, believes the findings have no merit. The Company engaged a tax attorney in Mexico to defend its position. An appeal was filed by the Company in November 2019 suspending SAT from taking immediate action regarding the assessment. The Company posted a guarantee of the amount in March 2020 as is required under the appeal process. In August 2020, the Company filed a lawsuit against SAT for resolution of the process and, in December 2020, filed closing arguments. Management expects the appeal process to continue through 2021.

At June 30, 2021 and December 31, 2020, management assessed the possible outcomes for this tax audit and believes, based on discussions with its tax attorney in Mexico, that the most likely outcome will be that the Company will be successful in its appeal resulting in no tax due. Management determined that no amount should be accrued at June 30, 2021 and December 31, 2020 relating to this potential tax liability. There can be no assurance that the Company’s ultimate liability, if any, will not have a material adverse effect on the Company’s results of operations or financial position. If an issue addressed during the SAT audit is resolved in a manner inconsistent with management expectations, the Company will adjust its current net operating loss carryforward, or accrue penalties, interest, and tax associated with the assessment.

Other Taxes

In 2016, USAMSA imported coal from the United States to its smelter in Mexico to process Australian concentrates associated with the Hillgrove agreement (Note 12). At that time, the Company applied for and was granted a Maquiladora (IMMEX), in accordance with a Manufacturing and Export Services Industry program offered by the Mexican government to attract and promote foreign investment in Mexico. With the IMMEX, all imported goods to Mexico that are also exported in altered form are exempt from the requirement of paying the 16% tax (IVA). The Company did not pay IVA on any of the imported coal used to process the Australian concentrates. In 2020, the Company was informed by the SAT that it owed the 16% IVA money for all the coal imported for the processing of the Australian concentrates. Additionally, there were penalties and fees that SAT added to the total amount. In late 2020, the Company filed a motion before the Taxpayer’s Defense Agency (PRODECON), but the motion was denied. To avoid exorbitant penalties, the Company elected to pay the assessed amount in early 2021. For the year ended December 31, 2020, the Company recognized an export tax expense of $1,120,730 and accrued a liability for this assessment. The assessment was settled with a payment of $1,120,730 during the three month period ended March 31, 2021.

12.

Hillgrove Advances Payable

On November 7, 2014, the Company entered into an advance and concentrate processing agreement with Hillgrove Mines Pty Ltd of Australia (Hillgrove) in which the Company was advanced funds from Hillgrove to build facilities to process Hillgrove antimony concentrate. The Company has not processed Hillgrove concentrate for more than two years. The agreement requires the Company to pay the advance balance after Hillgrove issues a stop notice. Payments would begin 90 days after the stop notice issue date and be made in six equal and quarterly installments. Hillgrove was acquired by Red River Resources LTD (“Red River”) during 2019. The balance of the advance liability due was $1,134,221 at December 31, 2020. In April 2021, the Company successfully negotiated a settlement with Red River for an agreed upon amount of $1,020,799 which was paid on paid on April 8, 2021. The Company recognized a gain on settlement of the advance in the amount of $113,422 during the three month period ended June 30, 2021.

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 Puerto Blanco mill and the Madero smelter at the Company’s Mexico operation bring antimony up to an intermediate or finished stage, which may be sold directly or shipped to the United States operation for finishing at the Thompson Falls, Montana plant. The Puerto Blanco mill in Mexico is the site of our crushing and flotation plant, and a cyanide leach plant which will recover precious metals after the ore goes through the crushing and flotation cycles. A precious metals recovery plant is operated in conjunction with the antimony processing plant at Thompson Falls, Montana, where a 99% precious metals mix will be produced. 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, although the Company does have a sales operation in Canada.

Segment disclosure regarding sales to major customers is located in Note 4.