United States Antimony Corporation - 10-Q quarterly report FY2015 Q1

Washington, D.C. 20549

 

 

 

 

 

 

 

 

 

UNITED STATES ANTIMONY CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD

ENDED MARCH 31, 2015

(UNAUDITED)

TABLE OF CONTENTS

 

 

 

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

United States Antimony Corporation and Subsidiaries

Consolidated Balance Sheets

The accompanying notes are an integral part of the consolidated financial statements.

 

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION, CONTINUED:

United States Antimony Corporation and Subsidiaries

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 month period ended March 31, 2015, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2015.

Certain consolidated financial statement amounts for the three month period ended March 31, 2014, have been reclassified to conform to the 2015 presentation.  These reclassifications had no effect on the net income (loss) or accumulated deficit as previously reported.

Management estimates their effective tax rate at 0% for the current year, and accordingly no income tax provision has been recognized.

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, 2014.

During the three months ended March 31, 2015 and 2014, the Company incurred interest expense of $12,766 and $11,689, respectively, of which $12,340 and $11,575, respectively, has been capitalized as part of the cost of construction projects in Mexico.

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.  Warrants equivalent to approximately 100,000 shares of common stock have been added to the weighted average shares of outstanding common stock at March 31, 2015, to determine the diluted income per share for the quarter ending March 31, 2015.

As of March 31, 2015 and 2014, 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:

 

PART I - FINANCIAL INFORMATION, CONTINUED:

United States Antimony Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited), Continued:

Inventories at March 31, 2015, and December 31, 2014, consisted primarily of finished antimony products, antimony metal, antimony ore, and finished zeolite products that are stated at the lower of first-in, first-out cost or estimated net realizable value. Finished antimony products, antimony metal and finished zeolite products costs include raw materials, direct labor and processing facility overhead costs and freight. Inventory at March 31, 2015 and December 31, 2014, is as follows:

 

During the first quarter of 2015 the Company discovered it had been overcharged for raw material purchases from a vendor.  The Company brought the matter to the vendor’s attention and received a $927,018 credit to accounts payable due the vendor that has been recorded as gain on liability adjustment at March 31, 2015.

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.

 

 

PART I - FINANCIAL INFORMATION, CONTINUED:

United States Antimony Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited), Continued:

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.

 

 

On March 7, 2012 and on April 4, 2012 the Company entered into a supply agreement and a loan agreement, respectively, (“the Agreements”) with several individuals collectively referred to as ‘Grupo Roga’ or ‘Guadalupe.’  The individuals are the holders of mining concessions located in Mexico in which the Company is interested.  The supply agreement specified that the Company would advance monies to Guadalupe for specific expenses, including repairs of road and payment of mining taxes.  In addition, the Company agreed to purchase antimony ore mined at Guadalupe and pay for mining and trucking costs incurred with the condition that the ore maintain a grade of 3% or more of recoverable antimony. The advances are to be repaid by deducting 10% from the value of each antimony ore shipment. During quarter 1 of 2015 and 2014, the recoverable grade of antimony was less than 3% and the amounts due the Company from Guadalupe increased as a result of recoverable antimony shortfalls.

The Agreements with Guadalupe granted the Company an option to purchase the concessions outright for $2,000,000. The Agreements also provide that in event of a breach of the terms by Guadalupe that the Company has a right to enter the property and take possession of the mining concessions. The advances are collateralized by a mortgage on the concessions.  As of March 31, 2015, and December 31, 2014, the Company had cumulative loans and advances due from Guadalupe of $630,802 and $605,737, respectively, included in its other assets.

 

On October 30, 2009, the Company entered into a supply agreement with the owners of the Soyatal concessions similar to that of Guadalupe. During the term of the supply agreement the Company funded certain of Soyatal’s equipment purchases, tax payments, labor costs, milling and trucking costs, and other expenses incurred in the Soyatal mining operations for approximately $140,000. In addition to the advances for mining costs, the Company purchased antimony ore from Soyatal that failed to meet agreed upon antimony metal recoveries and resulted in approximately $320,000 of excess advances paid to Soyatal. On April 4, 2012, the Company negotiated an option to purchase the Soyatal properties for $1,500,000, and made a deposit on the option of $55,000.

 

 

PART I - FINANCIAL INFORMATION, CONTINUED:

United States Antimony Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited), Continued:

On August 5, 2013, the Company notified the owners of Soyatal that it was exercising the option to purchase the Soyatal property. The option exercise agreement allowed the Company to apply all amounts previously due the Company (the “Purchase Price Credits”) by Soyatal of $420,411 to the purchase price consideration. At December 31, 2013, the Company had Purchase Price Credits of approximately $325,000 which can be used as payments on the note at the rate of $100,000 per year until gone.  The Company is obligated to make payments of $200,000 annually through 2020, and a final payment of $100,000 is due in 2021.  The debt payable for the Soyatal mine is non-interest bearing. In 2013, the Company recorded the debt and the related Soyatal mine asset by determining the net present value of the contractual stream of payments due using a 6% discount rate.

During 2014, $45,752 of the discount was amortized to the Soyatal debt, resulting in a discounted amount owed of $808,293 and a remaining debt discount of approximately $166,248 at December 31, 2014.  The Company agreed to pay the Soyatal debt holder $100,000 during 2014 as part of the down payment agreement, and at March 31, 2015, $17,605 of this amount was still owed.  In addition, the Company did not make the $100,000 payment due in January of 2015.  The Company has begun making payments of $5,000 per month that have been informally agreed to by the parties while the future payment terms of the Soyatal debt are negotiated.  These payments have been recorded as reductions to the Soyatal debt.

6.           Commitments and Contingencies:

In 2005, AM signed an option agreement that gives AM the exclusive right to explore and develop the San Miguel I and San Miguel II concessions for annual payments.  Total payments will not exceed $1,430,344, reduced by taxes paid.  During the three months ended March 31, 2015 and the year ended December 31, 2014, $0 and $200,000, respectively, was paid and capitalized as mineral rights in accordance with the Company’s accounting policies.  At March 31, 2015, the following payments are scheduled: $100,000 on June 15, 2015 and $192,000 on December 15, 2015.

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 requires payments of $34,800 per month.  The lease is renewable each year with a 15 day notice to the lessor, and agreement of terms.   The lease was renewed in June of 2014.

From time to time, the Company is assessed fines and penalties by the Mine Safety and Health Administration (“MSHA”).  Using appropriate regulatory channels, management may contest these proposed assessments, and has accrued $716 and, $0, in other accrued liabilities as of March 31, 2015, and December 31, respectively, related to these settled claims.

During the first quarter of 2015, we discovered that our IMMEX certification had expired and that we would be required to renew it.  Without our IMMEX certification, we are required to pay the Mexican national sales tax of 16% on all items we import into Mexico, including our capital items and the concentrates we are receiving from Hillgrove of Australia.  IMMEX requires that we export a minimum of 60% of everything we import into Mexico.  We believe that we have met this requirement at this time.  At March 31, 2015, we had approximately $154,000 on deposit with the Mexican tax authorities, which is included in other assets, and it is our understanding that this will ultimately be refunded to us upon re-certification.  We have applied for renewal of our certification, and we believe that we are in compliance with the export requirement and will be approved for renewal of our certification. If we are not granted renewed IMMEX certification, it will have a major impact on our Mexican operations.  We do not know when the renewal will be approved, but our application is presently under review.

 

 

 

PART I - FINANCIAL INFORMATION, CONTINUED:

United States Antimony Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited), Continued:

7.           Notes Payable to Bank:

During 2012, the Company negotiated a new credit facility increasing the Company’s lines of credit by $202,000.  As part of this agreement, the Company has pledged two $101,000 certificates of deposit as collateral.  The increased loan facility allows us access to borrowings at an interest rate of 5.0% for the portion of the credit line used.  At March 31, 2015, we had drawn $71,906 which was reported as notes payable to bank. This note is personally guaranteed by John C. Lawrence the Company’s President and Chairman of the Board of Directors.

At March 31, 2015 and December 31, 2014, the Company had the following notes payable to the bank:

 

8.           Long – Term Debt:

 

 

PART I - FINANCIAL INFORMATION, CONTINUED:

United States Antimony Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited), Continued:

8.           Long – Term Debt, Continued:

 

9.           Concentrations of Risk:

10.           Related Party Transactions:

During the three months ended March 31, 2015 and 2014, the Chairman of the audit committee and compensation committee received $9,000 and $9,000, respectively, for services performed.

During the three months ended March 31, 2015 and 2014, the Company paid $13,710 and $3,732, respectively, to John Lawrence, our President and Chief Executive Officer, as reimbursement for equipment used by the Company.

During the three months ended March 31, 2015 and 2014, the Company paid royalty expenses, based on sales of zeolite, of $13,097, and $15,605, respectively, to a company controlled by the estate of Al Dugan, formerly a significant stockholder and the father of a former director.

PART I - FINANCIAL INFORMATION, CONTINUED:

United States Antimony Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited), Continued:

11.           Income Taxes:

The Company has sufficient net operating losses to offset the taxable income from the first quarter of 2015.   During the quarter ended March 31, 2015, and the year ended December 31, 2014, 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, 2014, and any deferred tax assets that may have been incurred since then, are fully reserved for at March 31, 2015.

12.           Stockholder’s Equity:

During the quarter ended March 31, 2014, shareholders exercised their rights to convert warrants into 125,000 shares common stock for $170,000.

During the quarter ended March 31, 2015, the Board of Directors was issued a total of 183,825 shares of common stock for $125,000 in director’s fees that were payable at December 31, 2014.  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, 2015, 5,000 shares were issued to Bert Denton for services totaling $2,950.

The Company's Board of Directors has the authority to issue stock warrants for the purchase of preferred or unregistered common stock to directors and employees of the Company. No warrants were issued or exercised during the quarter ended March 31, 2015.

Transactions in common stock warrants are as follows:

 

PART I - FINANCIAL INFORMATION, CONTINUED:

United States Antimony Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited), Continued:

13.           Business Segments:

Segment disclosure regarding sales to major customers is located in Notes 9.

 

 

 

 

PART I - FINANCIAL INFORMATION, CONTINUED:

United States Antimony Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited), Continued:

13.           Business Segments, Continued:

 

PART I - FINANCIAL INFORMATION, CONTINUED:

ITEM 2.                      Management’s Discussion and Analysis of Results of Operations and Financial Condition

 

 

ITEM 2.                      Management’s Discussion and Analysis of Results of Operations and Financial Condition, continued:

 

 

 

ITEM 2.                      Management’s Discussion and Analysis of Results of Operations and Financial Condition,  continued:

 

For the first quarter of 2015, we realized a net income of $440,028 on sales of $2,947,381, compared to a loss of $358,170 in the first quarter of 2014 on sales of $2,952,314. The profit was due to a negotiated adjustment of $914,770 to the Company’s cost of raw materials. The gain from the price adjustment has been reported as other operating income.

Our cost of revenues was greater than revenues in the first quarter of 2015 primarily due to:

 

 

ITEM 2.                      Management’s Discussion and Analysis of Results of Operations and FinancialCondition, continued:

 

 

 

 

 

ITEM 2.                      Management’s Discussion and Analysis of Results of Operations and Financial Condition, continued:

      ITEM 3.  Quantitative and Qualitative Disclosure about Market Risk

We sell our antimony products based on a world market price, and we buy a majority of our raw material based on the same market prices.  Analysis of our costs indicate that, for the quarter ended March 31, 2015, raw materials were approximately 50% of our cost of goods sold.  Most of our production costs are fixed in nature, and could not be decreased readily without decreasing our production.  During the quarter ending March 31, 2015, a $2 per pound decrease in our sales price would have likely caused our gross profit to decrease $1 per pound.

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, 2014.  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, 2014. These material weaknesses are as follows:

 

MANAGEMENT'S REMEDIATION INITIATIVES

We are aware of these material weaknesses and have procedures to ensure that independent review of material transactions is performed.  We have internal control measures to mitigate the lack of segregation of duties as follows:

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no significant changes made to internal controls for the quarter ended March 31, 2015.

PART II - OTHER INFORMATION

Item 1.                  LEGAL PROCEEDINGS

None

Item 2.                  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the quarter ended March 31, 2014, shareholders exercised their rights to convert warrants into 125,000 shares common stock for $174,000.  An adjustment to accrued offering costs for $5,716 was made for the quarter ended March 31, 2014.

Item 3.                  DEFAULTS UPON SENIOR SECURITIES

The registrant has no outstanding senior securities.

Item 4.                  MINE SAFETY DISCLOSURES

The information concerning mine safety violations or other regulatory matters required by Section 1503 (a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this Annual Report.

Item 5.                  OTHER INFORMATION

None

Item 6.                  EXHIBITS AND REPORTS ON FORM 8-K

 

SIGNATURES