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Item 6 | Item 7Management's Discussion and Analysis or Plan of Operations |
| December 31, | | 2015 | | | | 2014 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balance Sheet Data: | | | | | | | | |
| Current assets | | $ | 2,136,326 | | | $ | 2,303,669 | |
| Property, plant, and equipment-net | | | 16,030,333 | | | | 13,511,803 | |
| Restricted cash | | | 76,012 | | | | 75,754 | |
| Other assets | | | 17,530 | | | | 653,805 | |
| Total assets | | $ | 18,260,201 | | | $ | 16,545,031 | |
| | | | | | | | | |
| Current liabilities | | $ | 2,429,830 | | | $ | 2,292,640 | |
| Long-term debt, net of current portion | | | 1,717,745 | | | | 715,328 | |
| Hillgrove advances payable | | | 1,254,846 | | | | 161,339 | |
| Stock payable to directors for services | | | 137,500 | | | | 125,000 | |
| Accrued reclamation costs | | | 260,327 | | | | 255,190 | |
| Total liabilities | | | 5,800,248 | | | | 3,549,497 | |
| Shareholders' equity | | | 12,459,953 | | | | 12,995,534 | |
| Total liabilities and | | | | | | | | |
| shareholders' equity | | $ | 18,260,201 | | | $ | 16,545,031 | |
| | | | | | | | | |
| Income Statement Data: | | | | | | | | |
| Revenues | | $ | 13,109,003 | | | $ | 10,772,192 | |
| | | | | | | | | |
| Cost of revenues | | | 13,521,363 | | | | 11,111,533 | |
| Operating expenses | | | 1,311,407 | | | | 1,213,548 | |
| Gain on liability adjustments | | | (914,770 | ) | | | | |
| Other (income) expense | | | 29,534 | | | | 42,566 | |
| Total expenses | | | 13,947,534 | | | | 12,367,647 | |
| | | | | | | | | |
| Income (loss) before income taxes | | | (838,531 | ) | | | (1,595,455 | ) |
| Income tax benefit (expense) | | | - | | | | - | |
| Net income (loss) | | $ | (838,531 | ) | | $ | (1,595,455 | ) |
| | | | | | | | | |
| Per Share Data: | | | | | | | | |
| Net income (loss) per share: | | | | | | | | |
| Basic and diluted | | $ | (0.01 | ) | | $ | (0.03 | ) |
| Weighted average shares outstanding: | | | | | | | | |
| Basic and diluted | | | 66,207,241 | | | | 64,605,253 | |
| UAMY/10-K/0001354488-16-006768 |
Item 6 | Excess Mexico production costsDuring the two year period ending December 31, 2015, we incurred excess production costs at our Mexico operations. At the beginning of each year, management determined a standard, or expected, cost to produce antimony products for shipment to Montana for further processing. For 2015 and 2014, the standard costs per pound was $3.95 and $4.45, respectively. The production costs above the standard costs were calculated and reported in the above schedule of results of operations by division as “excess Mexico production costs”, which were $1,086,440 and $688,619 in 2015 and 2014, respectively. The excess Mexico production costs are primarily due to holding costs from inactivity at the Wadley and Los Juarez mines, the Puerto Blanco mill, and the loss of production at the Madero smelter from metalurgical testing and experimenting with various production methods and formulas.OverviewOur cost of production was elevated for the years ended December 31, 2015 and 2014, because we were starting a major mining and production facility in Mexico. The same workers responsible for production were also a significant part of building and testing the manufacturing plants and equipment at Puerto Blanco and Madero, Mexico, which resulted in costs that won’t be incurred when construction and testing is complete. To a lesser degree, we incurred similar testing costs at our plant in Thompson Falls, Montana. In Mexico, there will still be some overlapping costs in 2016 because the smelter is finishing a major expansion in its physical plant. The production from Mexico should be greater for 2016 than 2015 once the plant expansion is complete and the management and crew at the Madero smelter can concentrate their efforts on production activities.The non-cash expense items totaled $1,075,423 for 2015 and included $932,786 for depreciation and amortization, $5,137 for accretion, and $137,500 for director compensation.The non-cash expense items totaled $903,392 for 2014 and included $780,782 for depreciation and amortization, $(2,390) for accretion, and $125,000 for director compensation.We are producing and buying raw materials, which will allow us to ensure a steady flow of products for sale. Our smelter at Madero, Mexico, was producing a significant portion of our raw materials in 2014 and 2015. We will still purchase a significant portion of our raw materials from suppliers for our smelter in Montana.We completed installation of a natural gas pipeline to replace propane as the fuel used in our Mexico smelter in the fourth quarter of 2014. We expected the pipeline to reduce our smelter fuel cost by approximately 75%. Our smelter fuel cost (propane) in Mexico was approximately $700,000 for 2013 and $690,000 using 8 furnaces for the first nine months of 2014, resulting in a cost of approximately $1.27 per pound. Our natural gas cost was $348,260 to produce 1,105,350 pounds of antimony in 2015, or approximately $0.32 per pound, a decrease of $0.95 per pound (74.8%).We are proceeding with the installation of a 400 - 500 ton per day flotation mill that we expect to cost between $400,000 and $500,000 to install. The concrete work for the mill has been completed, and work will be ongoing as we generate cash from operations. This mill will be dedicated to processing ore from the Los Juarez mining property. We are in a waiting period for approval of permits necessary to process the Los Juarez ore. We have adequate crushing capacity in place to feed the 500 ton per day mill and the existing mill. When approved, the restart of production from Los Juarez will create a significant increase in our precious metals revenue for 2016 and years forward.Our principal smelter, precious metals recovery operation, and our Company headquarters remain in Montana. With increased production, we expect to widen our base of customers.Results of OperationsComparison of Years ended December 31, 2015and 2014 |
| Resulta of Operations by Division | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Antimony - Combined USA | | | | | | | | |
| and Mexico | | 2015 | | | | 2014 | | |
| Lbs of Antimony Metal USA | | | 1,381,971 | | | | 1,141,436 | |
| Lbs of Antimony Metal Mexico: | | | 1,105,350 | | | | 586,368 | |
| Total Lbs of Antimony Metal Sold | | | 2,487,321 | | | | 1,727,804 | |
| Average Sales Price/Lb Metal | | $ | 3.97 | | | $ | 4.71 | |
| Net income (loss)/Lb Metal | | $ | (0.54 | ) | | $ | (1.11 | ) |
| | | | | | | | | |
| Gross antimony revenue - net of discount | | $ | 9,863,933 | | | $ | 8,132,410 | |
| Precious metals revenue | | | 491,426 | | | | 461,083 | |
| Production costs - USA | | | (4,265,840 | ) | | | (4,864,603 | ) |
| Product cost - Mexico | | | (4,201,005 | ) | | | (2,609,338 | ) |
| Direct sales and freight | | | (438,582 | ) | | | (295,334 | ) |
| General and administrative - operating | | | (428,022 | ) | | | (288,602 | ) |
| Mexico non-production costs | | | (1,086,440 | ) | | | (688,619 | ) |
| General and administrative - non-operating | | | (1,481,111 | ) | | | (1,234,597 | ) |
| Gain on liability adjustment | | | 914,770 | | | | | |
| Non-operating gains | | | | | | | 14,530 | |
| Net interest | | | (7,718 | ) | | | 6,496 | |
| EBITDA | | | (638,589 | ) | | | (1,366,574 | ) |
| Income taxes | | | | | | | | |
| Depreciation,& amortization | | | (711,345 | ) | | | (559,552 | ) |
| Net income (Loss) - antimony | | $ | (1,349,934 | ) | | $ | (1,926,126 | ) |
| | | | | | | | | |
| Zeolite | | | 2015 | | | | 2014 | |
| Tons sold | | | 15,901 | | | | 11,079 | |
| Average Sales Price/Ton | | $ | 173.17 | | | $ | 195.83 | |
| Net income (Loss)/Ton | | $ | 32.16 | | | $ | 29.85 | |
| | | | | | | | | |
| Gross zeolite revenue | | $ | 2,753,644 | | | $ | 2,169,619 | |
| Production costs | | | (1,266,687 | ) | | | (1,109,386 | ) |
| Direct sales and freight | | | (286,235 | ) | | | (170,964 | ) |
| Royalties | | | (279,435 | ) | | | (222,054 | ) |
| General and administrative - operating | | | (108,847 | ) | | | (81,852 | ) |
| General and administrative - non-operating | | | (80,229 | ) | | | (63,765 | ) |
| Non-operating gains | | | | | | | 30,000 | |
| Net interest | | | 633 | | | | 303 | |
| EBITDA | | | 732,844 | | | | 551,901 | |
| Depreciation | | | (221,441 | ) | | | (221,230 | ) |
| Net income - Zeolite | | $ | 511,403 | | | $ | 330,671 | |
| | | | | | | | | |
| Company-wide | | | 2015 | | | | 2014 | |
| Gross revenue | | $ | 13,109,003 | | | $ | 10,763,112 | |
| Production costs | | | (9,733,532 | ) | | | (8,583,327 | ) |
| Other operating costs | | | (2,627,561 | ) | | | (1,747,425 | ) |
| General and administrative - non-operating | | | (1,561,340 | ) | | | (1,298,362 | ) |
| Gain on liability adjustment | | | 914,770 | | | | | |
| Non-operating gains | | | - | | | | 44,530 | |
| Net interest | | | (7,085 | ) | | | 6,799 | |
| EBITDA | | | 94,255 | | | | (814,673 | ) |
| Income tax benefit (expense) | | | | | | | | |
| Depreciation & amortization | | | (932,786 | ) | | | (780,782 | ) |
| Net income (Loss) | | $ | (838,531 | ) | | $ | (1,595,455 | ) |
| UAMY/10-K/0001354488-16-006768 |
Item 6 | ·
During the two year period ended December 31, 2015, the most significant event affecting our financial performance was the decrease in the price of antimony (see table page 6). During the year ended December 31, 2015, the most significant event was construction and start-up of a plant to process antimony concentrate for Hillgrove LTD of Australia. The expansion of production at our Mexico operations caused our reported operating costs to be elevated when compared to years when we were not initiating the start-up of new production facilities. The Mexican production of antimony (metal contained) and sold was 586,368 pounds during 2014 compared to 1,105,350 pounds for 2015, an increase of 88.5%. 2015 and 2014 are regarded as “start- up years” during which the holding costs, permitting, and metallurgical research was categorized as a “non-production” operating expense. During both years, Los Juarez concentrate was not produced and Soyatal oxide ore was in a research phase at the Puerto Blanco oxide circuit. Guadalupe was not in production for most of 2015while they prepared the underground for mining higher grade rock. The Puerto Blanco mill circuits were utilized less than 10% of their capacity. Going forward, the increased supply of raw material from Mexico and the metal prices for both antimony and precious metals will be the most significant factors influencing our operations. The following are highlights of the significant changes during 2015 and the two year period then ended:
a.
Our sales of antimony for 2015 increased by approximately 759,000 pounds (44%) from 2014. Our revenues from antimony increased in 2015 by approximately $1,712,000 (21%) from 2014 due to an increase in the amount of antimony sold. The average sale price for antimony contained in all products declined from $4.71 in 2014 to $3.96 per pound in 2015, a decrease of $0.75 (15.9%).
b.
The metallurgical problem with the Los Juarez feed has been solved, and mining, milling, and smelting will resume when the necessary permits are obtained. This will put the Puerto Blanco mill in operation. During 2015 and 2014, the Puerto Blanco mill was operating at less than 10% of capacity.
c.
The Soyatal oxide ore recovery problem has been solved, and high grade oxide concentrates can be produced. Oxide mineralized rock from dumps will be mined and underground development will be started when the need for raw materials increases.
d.
Explosives were permitted at Guadalupe in 2014, and underground development has started.
·
Assuming that Guadalupe and Los Juarez feed are going to the Puerto Blanco mill, the 500 ton per day mill that is estimated at 40% of completion will need to be completed.
·
Our cost of goods sold for antimony increased by approximately $1,958,000 for 2015 because of the increase in antimony sold. For the year ended December 31, 2015, costs of goods sold include operating and non-operating production costs from Mexico operations. Our switch to natural gas as a fuel for our smelter at Madero in the fourth quarter of 2014 has provided a significant improvement in our Mexico operating costs for 2015. Prior to 2015, the cost of propane was our second largest operating cost, and the switch to natural gas has decreased the per pound cost by 75%. The cost of goods sold during both years has been impacted by increases in the cost of operating supplies, fuel, trucking, insurance, refractory costs, and steel.
·
Our volume of zeolite sold was up 44%, from 11,079 tons in 2014 to 15,901 tons in 2015. The tons of zeolite sold decreased by approximately 100 tons in 2014 from 2013. Total revenue increased by approximately $584,000 in 2015 and decreased approximately $33,000 in 2014. Our cost of goods sold increased by approximately $452,206 for 2015, and increased by approximately $55,000 for 2014 from 2013. Cost of sales increased for 2015 primarily because we had an increase in the volume of product sold.
·
General and administrative costs, as reported in our statement of operations, include fees paid to directors through stock based compensation. In 2015 and 2014, we incurred $40,000 each year in fees to the NYSE MKT that was included in general and administrative expenses. General and administrative costs for 2015 and 2014 include general and administrative costs related to commencement of production at our facilities in Mexico. The combined general and administrative costs were 5.6%, and 5.8%, of sales for 2015 and 2014, respectively. The combined general and administrative salaries were 3.3%, and 3.9% of sales for 2015 and 2014, respectively.
·
The increase in professional fees for 2015 (approximately $73,000) was primarily due to increased costs related to our audits and financial statement preparation and for attorney fees related to alleged violations of an operating agreement with our former Investor Relations representative.
·
Factoring costs decreased in 2015 from approximately $49,000 in 2014 to approximately $41,000. Factoring costs decreased in 2014 by approximately $22,000 as we were able to reduce our collection time for accounts receivable. The discounts we gave for early payments increased by approximately $23,000 in 2015 from 2014.
SubsidiariesThe Company has a 100% investment in two subsidiaries in Mexico, USAMSA and AM, whose mineral property carrying values were assessed at December 31, 2015 and 2014 for impairment. Management’s assessment of the subsidiaries’ fair value was based on their future benefit to us. |
| | | 2015 | | | | 2014 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Antimony Division - United States: | | | | | | | | |
| Revenues - Antimony (net of discount) | | $ | 9,863,933 | | | $ | 8,132,410 | |
| Revenues - Other | | | | | | | 9,080 | |
| Revenues - Precious metals | | | 491,426 | | | | 461,083 | |
| | | | 10,355,359 | | | | 8,602,573 | |
| Domestic cost of sales: | | | | | | | | |
| Production costs | | | 4,265,840 | | | | 4,864,603 | |
| Depreciation | | | 61,819 | | | | 63,787 | |
| Freight and delivery | | | 311,027 | | | | 243,606 | |
| General and administrative | | | 192,298 | | | | 288,602 | |
| Direct sales expense | | | 65,000 | | | | 51,726 | |
| Total domestic antimony cost of sales | | | 4,895,984 | | | | 5,512,324 | |
| | | | | | | | | |
| Cost of sales - Mexico | | | | | | | | |
| Production costs | | | 3,765,902 | | | | 2,609,338 | |
| Depreciation and amortization | | | 649,525 | | | | 495,765 | |
| Freight and delivery | | | 62,555 | | | | 122,035 | |
| Reclamation accrual | | | 5,137 | | | | 4,839 | |
| Land lease expense | | | 435,103 | | | | 407,493 | |
| Mexico non-production costs | | | 1,086,440 | | | | 22,553 | |
| General and administrative | | | 363,025 | | | | 131,700 | |
| Total Mexico antimony cost of sales | | | 6,367,687 | | | | 3,793,723 | |
| | | | | | | | | |
| Total revenues - antimony | | | 10,355,359 | | | | 8,602,573 | |
| Total cost of sales - antimony | | | 11,263,671 | | | | 9,306,047 | |
| Total gross profit (loss) - antimony | | | (908,312 | ) | | | (703,474 | ) |
| | | | | | | | | |
| Zeolite Division: | | | | | | | | |
| Revenues | | | 2,753,644 | | | | 2,169,619 | |
| Cost of sales: | | | | | | | | |
| Production costs | | | 1,266,687 | | | | 1,109,386 | |
| Depreciation | | | 221,441 | | | | 221,230 | |
| Freight and delivery | | | 289,927 | | | | 87,355 | |
| General and administrative | | | 114,102 | | | | 81,852 | |
| Royalties | | | 279,435 | | | | 222,054 | |
| Direct sales expense | | | 86,100 | | | | 83,609 | |
| Total cost of sales | | | 2,257,692 | | | | 1,805,486 | |
| Gross profit - zeolite | | | 495,952 | | | | 364,133 | |
| | | | | | | | | |
| Total revenues - combined | | | 13,109,003 | | | | 10,772,192 | |
| Total cost of sales - combined | | | 13,521,363 | | | | 11,111,533 | |
| Total gross profit (loss) - combined | | $ | (412,360 | ) | | $ | (339,341 | ) |
| UAMY/10-K/0001354488-16-006768 |
Item 6 | Our net working capital decreased for the year ended December 31, 2015, from a positive amount of $48,261 at the beginning of the year to a negative amount of $293,504 at the end of 2015. Our current assets decreased primarily due to an decrease in our inventories in Montana and in Mexico. The capital improvements were paid for with cash and debt. Our current liabilities increased in most categories during 2015.
During the year ending December 31, 2016, we are planning to finance our improvements with operating cash flow. Our 2016 improvements are expected to include completion of the installation at the Madero smelter, completion of cyanide leach circuits at both Madero and Puerto Blanco, and completing the installation of a 400 - 500 ton per day flotation mill at Puerto Blanco.
In 2015, cash used by operations was primarily due to our net loss of approximately $840,000 which was mostly offset by depreciation and amortization of approximately $932,000. We negotiated decreases in our current liabilities for raw material of approximately $915,000 during 2015.The current portion of our long term debt is serviceable from the cash generated by operations.Our stockholders’ equity section makes note that we have a liquidation preference of $5,884,376 for our preferred stock. This consists of a liquidation payment of $5,281,519 due if we liquidate our company or sell substantially all our assets, and $602,857 of undeclared dividends. The Board of Directors’ does not intend to declare dividends on preferred stock as due and payable at any time in the near future. We do not feel that the liquidation preference and undeclared dividends related to our preferred stock will be an impediment to raising capital in the future by issuing additional shares of common stock, and are not going to affect our liquidity. |
| Financial Condition and Liquidity | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | 2015 | | | | 2014 | | |
| Current Assets | | $ | 2,136,326 | | | $ | 2,303,669 | |
| Current liabilities | | | (2,429,830 | ) | | | (2,255,408 | ) |
| Net Working Capital | | $ | (293,504 | ) | | $ | 48,261 | |
| | | | | | | | | |
| Cash provided (used) by operations | | $ | 358,453 | | | $ | (1,036,375 | ) |
| Cash used for capital outlay | | | (1,704,037 | ) | | | (1,826,553 | ) |
| Cash provided (used) by financing: | | | | | | | | |
| Net payments to factor | | | 468 | | | | (164,387 | ) |
| Proceeds from notes payable to bank | | | 130,672 | | | | | |
| Proceeds from Hillgrove advances | | | 1,198,445 | | | | 198,571 | |
| Payment of notes payable to bank | | | - | | | | (138,520 | ) |
| Principal paid on long-term debt | | | (94,141 | ) | | | (129,530 | ) |
| Proceeds from sales of common stock | | | | | | | 3,070,134 | |
| Proceeds from long-term debt | | | | | | | 130,000 | |
| Received on notes receivable for stock | | | 120,000 | | | | 0 | |
| Net change in cash | | $ | 9,860 | | | $ | 103,340 | |
| UAMY/10-K/0001354488-16-006768 |
PART III | Business Experience of Directors and Executive OfficersJohn C. Lawrence. Mr. Lawrence has been the president and a director since our inception in 1969. Mr. Lawrence was the president and a director of AGAU Mines, Inc., our corporate predecessor. He is a member of the Society of Mining Engineers and a recipient of the Uuno Sahinen Silver Medallion Award presented by Butte Tech, University of Montana. He has a vast background in mining, milling, smelting, chemical processing and oil and gas.Gary D. Babbitt. Mr. Babbitt has experience in the mining industry with approximately 30 years dealing with joint ventures, purchases, royalty leases and contracts. He has a working knowledge of Spanish and has negotiated supply and mining agreements in Mexico. Mr. Babbitt has a B.A. from the Albertson College of Idaho, and earned his J.D. from the University of Chicago.Russell C. Lawrence. Mr. Lawrence has experience in applied physics, mining, refining, excavation, electricity, electronics, and building contracting. He graduated from the University of Idaho in 1994 with a degree in physics, and worked for the Physics Department at the University of Idaho for a period of 10 years. He has also worked as a building contractor and for USAC at the smelter and laboratory at Thompson Falls, for USAMSA in the construction and operation of the USAMSA smelter in Mexico, and for Antimonio de Mexico, S. A. de C. V. at the San Miguel Mine in Mexico.Hart W. Baitis. Mr. Baitis graduated from the University of Oregon in 1971 with a B.S. in Geology, and was awarded a Ph. D. in Geology in 1976. He has 35 years of experience as an exploration geologist in the United States, Canada, Central America, and Mexico. Mr. Baitis is experienced in numerous geologic environments and terrains, and has been involved in all phases of exploration, ranging from field geologist, consultant, management, and acquisition team director.Whitney Ferer. Mr. Ferer was nominated to the board of USAC in February 2012. He worked for 34 years for Aaron Ferer & Sons Co. headquartered in Omaha, Nebraska, where he was the Vice President of Operations and Senior Trader, as well Vice Chairman of the Board of AF&S Co.. He has been involved in the patenting of various processes for the breakdown of plastics and metal recovery, and was Vice President of the Lead & Zinc Division of AF&S. In addition, Mr. Ferer has been active in the trading of all metals, and facilitated the opening of eight offices in the Far East and China for AF&S. Mr. Ferer has recently opened his own company W.H. Ferer Co., LLC. He is one of the largest traders of antimony metal and oxides in the United States and, additionally, he handles approximately 20-30 elements in various forms and grades.Jeffrey D. Wright. Mr. Wright graduated from North Carolina University in 1991, and from the University of Southern California, Marshall School of Business (MBA) in 2004. Mr. Wright was a naval officer from 1991 through 1996, serving aboard the aircraft carrier USS Carl Vinson and the destroyer USS John Young. After duty in the military, Mr. Wright held successively more responsible positions in the securities and finance industry. From 2011 through 2013 he was the managing director metals and mining research for Global Hunter Securities, and he held the same position for H.C. Wainwright for 2013 through 2015.Alicia Hill. Ms. Hill was hired by the Company in 2006 as an accounting assistant, and was eventually promoted to chief accountant responsible for the recording of transactions for three companies. In 2011, she was appointed Company Controller, Secretary, and Treasurer. Ms. Hill has guided the Company through the listing on the NYSE-MKT, in the addition of a new division in Mexico, and has been the liaison with the Company’s auditors through a progressively complicated reporting process.
Daniel L. Parks. Mr. Parks graduated from the University of Idaho in 1974 with a B.S. in Accounting, and was licensed as a certified public accountant in 1976. He worked as an auditor for Coopers & Lybrand for three years, as controller for a lumber manufacturing company for one year, and owned his own accounting practice for thirty years. Mr. Parks was extensively involved in auditing and financial statement preparation during this time.John C. Gustaven. Mr. Gustaven graduated from Rutgers University in 1970 with a BS in chemistry and started work for Harshaw Chemical (purchased by Amspec Chemical Corporation), a major producer of antimony trioxide. Mr. Gustaven took engineering courses from 1976 through 1980, and became president and treasurer of the company in 1983. He was promoted CEO in 1990. Mr. Gustaven designed a new type of production furnace for antimony trioxide that eventually produced 20 million pounds of antimony trioxide per year. Mr. Gustaven is conversant in Spanish, Chinese, and other languages, and travelled to many countries as part of his duties as president of Amspec Chemical Corporation. Mr. Gustaven came to work at United States Antimony Corporation in November of 2011.Matt Keane. Mr. Keane graduated from Mankato State University in 1978 with degrees in geography and environmental studies. Mr. Keane was owner of a construction business and a retail building supply business before becoming the director of sales for United States Antimony Corporation in 2000. Mr. Keane has developed the Company’s growing zeolite sales through Bear River Zeolite and the increase in the Company’s share of the domestic market for antimony products.We are not aware of any involvement by our directors or executive officers during the past five years in legal proceedings that are material to an evaluation of the ability or integrity of any director or executive officer.Board Meetings and Committees Our Board of Directors held four (4) regular meetings during the 2015 calendar year. Each incumbent director attended all of the meetings held during the 2015 calendar year, in the aggregate, by the Board and each committee of the Board of which he was a member.Our Board of Directors established an Audit Committee on December 10, 2011. It consists of four members, Gary Babbitt (Chairman), Whitney Ferer, Jeffrey Wright, and Hart Baitis. None of the Audit Committee members are involved in our day-to-day financial management. Jeffrey Wright is considered a financial expert.During 2011, the Board also established a Compensation Committee and a Nominating Committee.Board Member Compensation Following is a summary of fees, cash payments, stock awards, and other reimbursements to Directors during the year ended December 31, 2015:Directors Compensation |
| Name | | Age | | Affiliation | | Expiration of Term |
| --- | --- | --- | --- | --- | --- | --- |
| | | | | | | |
| John C. Lawrence | | 77 | | Chairman, President, Director | | Annual meeting |
| | | | | | | |
| John C. Gustavsen | | 67 | | First Vice-President | | Annual meeting |
| | | | | | | |
| Russell C. Lawrence | | 47 | | Second Vice-President and Director | | Annual meeting |
| | | | | | | |
| Matthew Keane | | 60 | | Third Vice-President | | Annual meeting |
| | | | | | | |
| Daniel L. Parks | | 67 | | Chief Financial Officer | | Annual meeting |
| | | | | | | |
| Alicia Hill | | 34 | | Secretary, Controller and Treasurer | | Annual meeting |
| | | | | | | |
| Gary D. Babbitt | | 70 | | Director | | Annual meeting |
| | | | | | | |
| Whitney Ferer | | 57 | | Director | | Annual meeting |
| | | | | | | |
| Hart W. Baitis | | 66 | | Director | | Annual meeting |
| | | | | | | |
| Jeffrey D. Wright | | | | Director | | Annual meeting |
| UAMY/10-K/0001354488-16-006768 |
PART III | Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and the holders of 10% or more of our common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and stockholders holding more than 10% of our common stock are required by the regulation to furnish us with copies of all Section 16(a) forms they have filed. Based solely on our review of copies of Forms 3, 4 and 5 furnished to us, Mr. Baitis, Mr. Babbitt, Mr. Ferer, and Mr. Russell Lawrence did not file timely Forms 3, 4 or Form 5 reports during 2015 and 2014.Code of EthicsThe Company has adopted a Code of Ethics that applies to the Company's executive officers and its directors. The Company will provide, without charge, a copy of the Code of Ethics on the written request of any person addressed to the Company at: United States Antimony Corporation, P.O. Box 643, Thompson Falls, MT 59873. |
| Name and Principal Position | | Fees Earned or paid in Cash | | | | Stock Awards | | | | Total Fees, Awards, and Other Compensation | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| John C. Lawrence, Chairman | | | | | | $ | 25,000 | | | $ | 25,000 | |
| Gary D. Babbitt, Director | | $ | 36,000 | | | $ | 25,000 | | | $ | 61,000 | |
| Russell Lawrence, Director | | | | | | $ | 25,000 | | | $ | 25,000 | |
| Hartmut Baitis, Director | | | | | | $ | 25,000 | | | $ | 25,000 | |
| Whitney Ferer, Director | | | | | | $ | 25,000 | | | $ | 25,000 | |
| Jeffrey Wright, Director | | | | | | $ | 12,500 | | | $ | 12,500 | |
| Totals | | $ | 36,000 | | | $ | 137,500 | | | $ | 173,500 | |
| UAMY/10-K/0001354488-16-006768 |
PART III | (2)
These figures represent the fair value, as of the date of issuance, the annual director's fees payable to John C. Lawrence and Russell Lawrence in shares of USAC's common stock.
Compensation for all executive officers, except for the President/CEO position, is recommended to the compensation committee of the Board of Directors by the President/CEO. The compensation committee makes the recommendation for the compensation of the President/CEO. The compensation committee has identified a peer group of mining companies to aid in reviewing the President’s compensation recommendations for executives, and for reviewing the compensation of the President/CEO. The full Board approves the compensation amounts recommended by the compensation committee. Currently, the executive managements’ compensation only includes base salary and health insurance. The Company does not have annual performance based salary increases, long term performance based cash incentives, deferred compensation, retirement benefits, or disability benefits. For the year ended December 31, 2015, Russell Lawrence (VP) received an increase in base compensation of $15,000 annually. The Board of Directors determined that Mr. Lawrence’s compensation for the prior years was not adequate for the duties assigned to Mr. Russell as the Vice President for Latin America, and that a raise was appropriate to compensate for management of the Latin American operations.
Two executive officers, the President/CEO and the Vice-President for the Latin American operations, receive restricted stock awards for their services as Board members.
The following table sets forth information concerning the outstanding equity awards at December 31, 2015, held by our principal executive officer. There were not any other outstanding equity awards or plan based awards to officers or directors as of December 31, 2015. |
| Name and Principal Position | Year | | Salary | | | | Bonus | | | | Stock Awards (2) | | | | Total | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| John C. Lawrence, | 2015 | | $ | 141,000 | | | | N/A | | | $ | 25,000 | | | $ | 166,000 | |
| President and Chief Executive Officer | 2014 | | $ | 141,000 | | | | | | | $ | 25,000 | | | $ | 166,000 | |
| | | | | | | | | | | | | | | | | | |
| John C. Gustaven, | 2015 | | $ | 100,000 | | | | N/A | | | | | | | $ | 100,000 | |
| Executive Vice President | 2014 | | $ | 100,000 | | | | | | | | | | | $ | 100,000 | |
| | | | | | | | | | | | | | | | | | |
| Russell Lawrence, | 2015 | | $ | 120,000 | | | | N/A | | | $ | 25,000 | | | $ | 145,000 | |
| Vice President for LatinAmerica | 2014 | | $ | 105,000 | | | | | | | $ | 25,000 | | | $ | 130,000 | |
| UAMY/10-K/0001354488-16-006768 |
PART III | Item 12 Security Ownership of Certain Beneficial Owners and Management |
| | | | | | | | | | Outstanding Equity Awards at Fiscal Year End | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | | | | | |
| | | Number of Securities Underlying Unexercised Options | | | | | | | Number of Securities Underlying Unexercised Unearned Options | | | | Average Exercise Price | | | Option Exercise Dates |
| | | | | | |
| Name | | | | | |
| | | Exercisable | | | | Unexercisable | | | | | | | | | | |
| | | | # | | | | # | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| John C. Lawrence | | | 250,000 | | | | 0 | | | 0 | | | $ | 0.25 | | None |
| (Chairman of the Board Of | | | | | | | | | | | | | | | | |
| Directors and Chief Executive | | | | | | | | | | | | | | | | |
| Officer) | | | | | | | | | | | | | | | | |
| UAMY/10-K/0001354488-16-006768 |
PART III | (1)
Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of March 30, 2016, are deemed outstanding for computing the percentage of the person holding options or warrants but are not deemed outstanding for computing the percentage of any other person. Percentages are based on a total of 66,316,278shares of common stock, 750,000 shares of Series B Preferred Stock, 177,904 shares of Series C Preferred Stock, and 1,751,005 shares of Series D Preferred Stock outstanding on March 30, 2016. Total voting stock of 68,245,187 shares is a total of all the common stock issued, and all of the Series C and Series D Preferred Stock.
(2)
Includes 4,031,107 shares of common stock and 250,000 stock purchase warrants. Excludes 183,324 shares owned by Mr. Lawrence's sister, as to which Mr. Lawrence disclaims beneficial ownership.
(3)
Includes shares owned by the estate of Al W. Dugan and shares owned by companies owned and controlled by the estate of Al W. Dugan. Excludes 183,333 shares owned by Lydia Dugan as to which the estate of Mr. Dugan disclaims beneficial ownership.
(4)
The outstanding Series C and Series D preferred shares carry voting rights equal to the same number of shares of common stock.
(5)
The outstanding Series B preferred shares carry voting rights only if the Company is in default in the payment of declared dividends. The Board of Directors has not declared any dividends as due and payable for the Series B preferred stock. |
| Title of Class | | Name and Address of Beneficial Owner (1) | | Amount and Nature of Beneficial Ownership | | | | Percent of Class (1) | | | | Percent of all Voting Stock | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Common Stock | | Cardinal capital Management LLC | | | | | | | | | | | | |
| | | Four Greenwich Office Park Greenwich CT 06831 | | | 4,008,694 | | | | 6.07 | % | | | 5.87 | % |
| | | | | | | | | | | | | | | |
| Common Stock | | Reed Family Limited Partnership | | | 4,018,335 | | | | 6.09 | % | | | 5.88 | % |
| | | 328 Adams Street | | | | | | | | | | | | |
| | | Milton, MA 02186 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Common Stock | | The Dugan Family | | | 6,362,927 | (3) | | | 9.64 | % | | | 9.32 | % |
| | | c/o A.W.Dugan | | | | | | | | | | | | |
| | | 1415 Louisana Street, Suite 3100 | | | | | | | | | | | | |
| | | Houston, TX 77002 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Series B Preferred | | Excel Mineral Company | | | 750,000 | (5) | | | 100.00 | % | | | N/A | |
| | | P.O. Box 3800 | | | | | | | | | | | | |
| | | Santa Barbara, CA 93130 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Series C Preferred | | Richard A. Woods | | | 48,305 | (4) | | | 27.10 | % | | | \* | |
| | | 59 Penn Circle West | | | | | | | | | | | | |
| | | Penn Plaza Apts. | | | | | | | | | | | | |
| | | Pittsburgh, PA 15206 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Series C Preferred | | Dr. Warren A. Evans | | | 32,203 | (4) | | | 18.10 | % | | | \* | |
| | | 69 Ponfret Landing Road | | | | | | | | | | | | |
| | | Brooklyn, CT 06234 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Series C Preferred | | Edward Robinson | | | 32,203 | (4) | | | 18.10 | % | | | \* | |
| | | 1007 Spruce Street, 1st floor | | | | | | | | | | | | |
| | | Philadelphia, PA 19107 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Series C Preferred | | All Series C Preferred Shareholders as a Group | | | 177,904 | (4) | | | 100.00 | % | | | \* | |
| | | | | | | | | | | | | | | |
| Common Stock | | John C. Lawrence | | | 4,281,107 | (2) | | | 83.35 | % | | | 6.66 | % |
| | | | | | | | | | | | | | | |
| | | Russell Lawrence | | | 280,654 | | | | 5.46 | % | | | \* | |
| | | | | | | | | | | | | | | |
| | | Hart Baitis | | | 171,180 | | | | 3.33 | % | | | \* | |
| | | | | | | | | | | | | | | |
| | | Garry Babbitt | | | 169,254 | | | | 3.29 | % | | | \* | |
| | | | | | | | | | | | | | | |
| | | Whitney Ferer | | | 119,704 | | | | 2.33 | % | | | \* | |
| | | | | | | | | | | | | | | |
| | | Jeffrey Wright | | | 50,000 | | | | \* | | | | \* | |
| | | | | | | | | | | | | | | |
| | | Mathew Keane | | | 10,300 | | | | \* | | | | \* | |
| | | | | | | | | | | | | | | |
| | | Daniel Parks | | | 54,000 | | | | 1.05 | | | | \* | |
| | | | | | | | | | | | | | | |
| Common Stock | | All Directors and Executive Officers as a Group | | | 5,136,199 | | | | 100.00 | % | | | 7.53 | % |
| | | | | | | | | | | | | | | |
| Series D Preferred | | John C. Lawrence | | | 1,590,672 | (4) | | | 90.80 | % | | | 2.40 | % |
| | | | | | | | | | | | | | | |
| | | Leo Jackson | | | 102,000 | | | | 5.80 | % | | | \* | |
| | | | | | | | | | | | | | | |
| | | Garry Babbitt | | | 58,333 | | | | 3.40 | % | | | \* | |
| | | | | | | | | | | | | | | |
| Series D Preferred | | All Series D Preferred Shareholders as a Group | | | 1,751,005 | (4) | | | 100.00 | % | | | 2.70 | % |
| | | | | | | | | | | | | | | |
| Common Stock and Preferred Stock w/voting rights | | All Directors and Executive Officers as a Group | | | 5,136,199 | (2) | | | 72.55 | % | | | 7.53 | % |
| | | | | | | | | | | | | | | |
| | | All preferred Shareholders that are officers or directors | | | 1,751,005 | (4) | | | 27.45 | % | | | 2.56 | % |
| | | | | | | | | | | | | | | |
| Common and Preferred Voting Stock | | All Directors and Executive Officers as a Group | | | 6,887,204 | | | | 100.00 | % | | | 10.09 | % |
| UAMY/10-K/0001354488-16-006768 |
PART III | * Filed herewith. |
| 14.0 | | Code of Ethics\* |
| --- | --- | --- |
| | | |
| 31.1 | | Rule 13a-14(a)/15d-14(a) Certifications, Certification of John C. Lawrence\* |
| | | |
| 32.1 | | Section 1350 Certifications, Certification of John C. Lawrence\* |
| | | |
| 44.1 | | CERCLA Letter from U.S. Forest Service filed as an exhibit to USAC form 10-QSB for the quarter ended June 30, 2000 (File No. 001-08675) are incorporated herein by this reference and filed as an exhibit to USAC's Form 10-KSB for the year ended December 31, 1995 (File No. 1-8675) is incorporated herein by this reference |
| UAMY/10-K/0001354488-16-006768 |
F-5 | The Company's revenues from antimony sales are strongly influenced by world prices for such commodities, which fluctuate and are affected by numerous factors beyond the Company's control, including inflation and worldwide forces of supply and demand. The aggregate effect of these factors is not possible to predict accurately. |
| Sales to Three | | For the Year Ended | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Largest Customers | | December 31, 2015 | | | | December 31, 2014 | | |
| Alpha Gary Corporation | | $ | 3,142,586 | | | $ | 3,289,766 | |
| East Penn Manufacturing Inc | | | 1,236,250 | | | | 720,966 | |
| Kohler Corporation | | | 1,736,914 | | | | 2,091,565 | |
| | | $ | 6,115,750 | | | $ | 6,102,297 | |
| % of Total Revenues | | | 46.70 | % | | | 56.65 | % |
| | | | | | | | | |
| Three Largest | | | | | | | | |
| Accounts Receivable | | December 31, 2015 | | | | December 31, 2014 | | |
| Gopher Resources | | $ | 141,570 | | | | | |
| Earth Innovations Inc | | | | | | | 62,019 | |
| Teck American Inc | | | 80,946 | | | | 227,239 | |
| Milestone AV Technologies Inc. | | | | | | | 42,075 | |
| Wildfire Construction | | | 43,327 | | | | - | |
| | | $ | 265,843 | | | $ | 331,333 | |
| % of Total Receivables | | | 62.90 | % | | | 72.87 | % |
| UAMY/10-K/0001354488-16-006768 |
F-11 | Factoring fees paid by the Company during the years ended December 31, 2015 and 2014, were $41,117 and $49,364, respectively. For the years ended December 31, 2015 and 2014, net accounts receivable of approximately $2.10 million and $2.30 million, respectively, were sold under the agreement.Proceeds from the sales were used to fund inventory purchases and operating expenses. The agreement is for a term of one year with automatic renewal for additional one-year terms.5.InventoriesThe major components of the Company's inventories at December 31, 2015 and 2014 were as follows: |
| Accounts Receivble | | December 31, 2015 | | | | December 31, 2014 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Accounts receivable - non factored | | $ | 412,922 | | | $ | 445,391 | |
| Accounts receivable - factored with recourse | | | 13,782 | | | | 13,314 | |
| less allowance for doubtful accounts | | | (4,031 | ) | | | (4,031 | ) |
| Accounts receivable - net | | $ | 422,673 | | | $ | 454,674 | |
| UAMY/10-K/0001354488-16-006768 |
F-11 | At December 31, 2015 and 2014, antimony metal consisted principally of recast metal from antimony-based compounds, and metal purchased from foreign suppliers. Antimony oxide inventory consisted of finished product oxide held at the Company's plant. Antimony concentrates and ore was held primarily at sites in Mexico and is essentially raw material, carried at cost. At December 31, 2015, antimony inventory is valued at net realizable value. The Company's zeolite inventory consists of salable zeolite material held at BRZ's Idaho mining and production facility, and is carried at cost. |
| | | 2015 | | | | 2014 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Antimony Metal | | $ | 102,207 | | | $ | 40,352 | |
| Antimony Oxide | | | 332,068 | | | | 718,982 | |
| Antimony Concentrates | | | 133,954 | | | | 33,545 | |
| Antimony Ore | | | 319,631 | | | | 447,262 | |
| Total antimony | | | 887,860 | | | | 1,240,141 | |
| Zeolite | | | 206,378 | | | | 193,398 | |
| | | $ | 1,094,238 | | | $ | 1,433,539 | |
| UAMY/10-K/0001354488-16-006768 |
F-12 | At December 31, 2015 and 2014, the Company had $891,576 and $1,113,847 of assets that were considered to be construction in progress and had not yet been depreciated. |
| 2015 | | USAC | | | | MEXICO | | | | BRZ | | | | TOTAL | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Plant & Equipment | | $ | 872,548 | | | $ | 7,497,791 | | | $ | 3,347,629 | | | $ | 11,717,968 | |
| Buildings | | | 247,210 | | | | 900,992 | | | | 349,946 | | | | 1,498,148 | |
| Mineral Rights and Interests | | | - | | | | 3,743,352 | | | | - | | | | 3,743,352 | |
| Land & Other | | | 3,274,572 | | | | 2,529,294 | | | | 15,310 | | | | 5,819,176 | |
| | | | 4,394,330 | | | | 14,671,429 | | | | 3,712,885 | | | | 22,778,644 | |
| Accumulated Depreciation | | | (2,456,928 | ) | | | (2,131,624 | ) | | | (2,159,759 | ) | | | (6,748,311 | ) |
| | | $ | 1,937,402 | | | $ | 12,539,805 | | | $ | 1,553,126 | | | $ | 16,030,333 | |
| | | | | | | | | | | | | | | | | |
| 2014 | | USAC | | | | MEXICO | | | | BRZ | | | | TOTAL | | |
| Plant & Equipment | | $ | 814,183 | | | $ | 6,159,064 | | | $ | 3,166,701 | | | $ | 10,139,948 | |
| Buildings | | | 243,248 | | | | 834,269 | | | | 349,946 | | | | 1,427,463 | |
| Mineral Rights | | | - | | | | 2,058,737 | | | | - | | | | 2,058,737 | |
| Land & Other | | | 3,274,572 | | | | 2,426,607 | | | | - | | | | 5,701,179 | |
| | | | 4,332,003 | | | | 11,478,677 | | | | 3,516,647 | | | | 19,327,327 | |
| Accumulated Depreciation | | | (2,395,109 | ) | | | (1,482,098 | ) | | | (1,938,317 | ) | | | (5,815,524 | ) |
| | | $ | 1,936,894 | | | $ | 9,996,579 | | | $ | 1,578,330 | | | $ | 13,511,803 | |
| UAMY/10-K/0001354488-16-006768 |
F-13 | The Company’s total asset retirement obligation and accrued reclamation costs of $260,327 and $255,190 at December 31, 2015 and 2014, respectively, include reclamation obligations for Idaho and Montana operations of $107,500.8.Other AssetsGuadalupeOn 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.’ During the term of the supply agreement the Company funded certain of Guadalupe’s equipment purchases, tax payments, labor costs, milling and trucking costs, and other expenses incurred in the Guadalupe mining operations for approximately $112,000. In addition to the advances for mining costs, the Company purchased antimony ore from Guadalupe that failed to meet agreed upon antimony metal recoveries and resulted in approximately $475,000 of excess advances paid to Guadalupe.The Agreements with Guadalupe granted the Company an option to purchase the concessions outright for $2,000,000. On September 29, 2015, the Company notified the owners of Guadalupe that it was exercising the option to purchase the Guadalupe property. The option exercise agreement allowed the Company to apply all amounts previously due the Company by Guadalupe of $586,893 to the purchase price consideration, resulting in a net obligation for the purchase of the Guadalupe mine of $1,413,107. The Company is obligated to make annual payments that vary from $60,000 to $149,077 annually through 2026. The debt payments are non-interest bearing. The Company determined the net present value of the future contractual stream of payments to be $972,722 using a 6% discount rate. The Company recorded $972,722 as the cost of the concessions and the debt payable equal to total payments due of $1,413,107 less a discount of $440,385. The discount is being amortized to interest expense using the effective interest method over the life of the debt. As of December 31, 2015, the Company had made $15,000 in payments toward this debt and amortized $14,591 of discount as interest expense. The net balance of the debt at December 31, 2015 was $972,312. |
| Asset Retirement Obligation | | | | |
| --- | --- | --- | --- | --- |
| Balance December 31, 2013 | | $ | 150,080 | |
| Accretion adjustment during 2014 | | | (2,390 | ) |
| Balance December 31, 2014 | | | 147,690 | |
| Accretion during 2015 | | | 5,137 | |
| Balance December 31, 2015 | | $ | 152,827 | |
| UAMY/10-K/0001354488-16-006768 |
F-15 | 10. Notes Payable to BankAt December 31, 2015, the Company had the following notes payable to the bank: |
| Year Ending December 31, | | | | |
| --- | --- | --- | --- | --- |
| 2016 | | $ | 181,287 | |
| 2017 | | | 121,266 | |
| 2018 | | | 220,584 | |
| 2019 | | | 305,303 | |
| 2020 | | | 303,413 | |
| Thereafter | | | 767,179 | |
| | | $ | 1,899,032 | |
| UAMY/10-K/0001354488-16-006768 |
F-15 | 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 $99,998. There were no notes payable to bank at December 31, 2014.
11. 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. If a stop notice is issued between one year and two years, there is a formula to prorate the repayment amount from 50% to 81.25%. If a stop order is issued after two years, the repayment obligation is 81.25% of the funds advanced at that point. At December 31, 2015, management has determined that it is likely that the Company’s repayment obligation will be 81.25% of the total amounts advanced. As of December 31, 2015, Hillgrove has advanced the Company a total of $1,397,016. Of this amount, approximately 18.75% or $262,408 has been recorded as deferred earned credit and is being recognized ratably through the period ending November 7, 2016 which is when the 81.25% repayment terms of the agreement is applicable. During the year ended December 31, 2015, $125,191 of the deferred earned credit was recognized with the remaining balance of $120,238 to be recognized in 2016. At December 31, 2015, the amount due to Hillgrove for the advances is $1,134,608 which is approximately 81.25% of the total amount advanced. |
| Promissory note payable to First Security Bank of Missoula, bearing interest at 3.150%, maturing February 27, 2016, payable on demand, collateralized by a lien on Certificate of Deposit number 48614 | | $ | 36,881 | |
| --- | --- | --- | --- | --- |
| Promissory note payable to First Security Bank of Missoula, bearing interest at 3.150%, maturing February 27, 2016, payable on demand, collateralized by a lien on Certificate of Deposit number 48615 | | | 93,791 | |
| | | | | |
| Total notes payable to bank | | $ | 130,672 | |
| UAMY/10-K/0001354488-16-006768 |
F-17 | At December 31, 2015, warrants for purchase of 250,000 shares of the Company’s common stock for $0.25 per share are outstanding and have no expiration date. These warrants are owned by the Company’s president.Preferred StockThe Company's Articles of Incorporation authorize 10,000,000 shares of $0.01 par value preferred stock available for issuance with such rights and preferences, including liquidation, dividend, conversion, and voting rights, as the Board of Directors may determine.Series BDuring 1993, the Board established a Series B preferred stock, consisting of 750,000 shares. The Series B preferred stock has preference over the Company's common stock and Series A preferred stock; has no voting rights (absent default in payment of declared dividends); and is entitled to cumulative dividends of $0.01 per share per year, payable if and when declared by the Board of Directors. During the years ended December 31, 2015 and 2014 the Company recognized $7,500 in Series B preferred stock dividend. In the event of dissolution or liquidation of the Company, the preferential amount payable to Series B preferred stockholders is $1.00 per share plus dividends in arrears. No dividends have been declared or paid with respect to the Series B preferred stock. The Series B Preferred stock is no longer convertible to shares of the Company’s common stock. At December 31, 2015 and 2014, cumulative dividends in arrears on the outstanding Series B shares were $157,500 and $150,000, respectively.Series CDuring 2000, the Board established a Series C preferred stock, consisting of 205,996 shares. In 2002, 28,092 shares were converted to common stock and cancelled, leaving 177,904 Series C preferred shares authorized and outstanding. The Series C preferred stock has preference over the Company’s common stock and has voting rights equal to that number of shares outstanding, but no conversion or dividend rights. In the event of dissolution or liquidation of the Company, the preferential amount payable to Series C preferred stockholders is $0.55 per share. |
| | | Number of Warrants | | | | Exercise Prices | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balance, December 31, 2013 | | | 2,489,407 | | | $ | 0.25 - $4.50 | |
| Warrants exercised | | | (310,625 | ) | | $ | 1.20-$1.60 | |
| Warrants expired | | | (1,451,865 | ) | | | | |
| Balance, December 31, 2014 | | | 726,917 | | | $ | 0.25 - $4.50 | |
| Warrants expired | | | (476,917 | ) | | | | |
| Balance, December 31, 2015 | | | 250,000 | | | $ | 0.25 | |
| UAMY/10-K/0001354488-16-006768 |
F-19 | At December 31, 2015, the Company has United States net operating loss carry forwards of approximately $186,000 that expire at various dates between 2030 and 2035. In addition, the Company has Montana state net operating loss carry forwards of approximately $2,313,000 which expire between 2017 and 2022, and Idaho state net operating loss carry forwards of approximately $940,000, which expire between 2033 and 2035. The Company has approximately $8.4 million of Mexican net operating loss carry forwards which expire between 2022 and 2025.At December 31 2015 and 2014, the Company had deferred tax assets arising principally from net operating loss carry forwards for income tax purposes. As management cannot determine that it is more likely than not the benefit of the net deferred tax asset will be realized, a valuation allowance equal to 100% of the net deferred tax asset has been recorded at December 31, 2015 and 2014.The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax loss for the years ended December 31, 2015 and 2014, due to the following: |
| | | 2015 | | | | 2014 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Deferred tax asset: | | | | | | | | |
| Foreign exploration costs | | $ | 87,494 | | | | 127,936 | |
| Foreign net operating loss carry forward | | | 2,515,954 | | | | 1,926,341 | |
| loss carry forward | | | 185,472 | | | | 337,890 | |
| Deferred tax asset | | | 2,788,920 | | | | 2,392,167 | |
| | | | | | | | | |
| Valuation allowance (foreign) | | | (2,515,954 | ) | | | (1,926,341 | ) |
| Valuation allowance (federal) | | | (90,220 | ) | | | (266,711 | ) |
| Total deferred tax asset | | | 182,746 | | | | 199,115 | |
| | | | | | | | | |
| Deferred tax liability: | | | | | | | | |
| Property, plant, and equipment | | | (181,224 | ) | | | (197,593 | ) |
| Other | | | (1,522 | ) | | | (1,522 | ) |
| Total deferred tax liability | | | (182,746 | ) | | | (199,115 | ) |
| | | | | | | | | |
| Net Deferred Tax Asset | | $ | - | | | $ | - | |
| UAMY/10-K/0001354488-16-006768 |
F-20 | In addition, during 2014, Mr. Lawrence loaned the Company $65,300 for short-term operating capital and was paid back without interest during 2014.16.Commitments and ContingenciesIn 2005, Antimonio de Mexico, S. A. (“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 years ended December 31, 2015 and 2014, $127,500 and $200,000, respectively, was paid and capitalized as mineral rights in accordance with the Company’s accounting policies. At December 31, 2015, the following payments are scheduled: $65,000 by March 31, 2016.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 $29,000 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 2015.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. At December 31, 2015 and 2014, the Company has no accruals relating to such assessments. |
| | | 2015 | | | | 2014 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balance, beginning of year | | $ | 8,357 | | | $ | 15,549 | |
| Aircraft rental charges | | | 30,867 | | | | 30,561 | |
| Payments and advances, net | | | (6,828 | ) | | | (37,753 | ) |
| Balance, end of year | | $ | 32,396 | | | $ | 8,357 | |
| UAMY/10-K/0001354488-16-006768 |
Results of Operations by Division | During the two year period ended December 31,
2016, the most significant event affecting our financial
performance was the decrease in the price of antimony (see table
page 6). During the first half of 2016, the price for antimony hit
a seven year low. By the ended of 2016, we stopped the processing
of antimony concentrate for Hillgrove Mines, Ltd., of Australia and
started production from our own mines in Mexico. The Mexican
production from our own mines was very low in 2015 and 2016 due to
the processing of concentrates from Hillgrove. Antimony (metal
contained) produced and sold from Hillgrove concentrates was
1,105,350 pounds during 2015 compared to 1,513,923 pounds for 2016,
an increase of 37%. The Puerto Blanco mill circuits were utilized
less than 10% of their capacity. Going forward, the increased
supply of raw material from Mexico and the metal prices for both
antimony and precious metals will be the most significant factors
influencing our operations.
During
the two year period ending December 31, 2016, we incurred excess
production costs at our Mexico operations. At the end of each year,
management determined an estimated portion of each operating unit
that was operating at less than expected capacity and assigned a
portion of that years cost to excess operating costs. The
production costs above the expected costs were reported in the
above schedule of results of operations by division as
“excess Mexico production costs”, which were $357,706
in 2016 and $1,086,440 in 2015. The excess Mexico production costs
are primarily due to holding costs from inactivity at the Wadley
and Los Juarez mines, the Puerto Blanco mill, and the loss of
production at the Madero smelter from metalurgical testing and
experimenting with various production methods and
formulas.
The
following are highlights of the significant changes during 2016 and
the two year period then ended: |
| | 2016 | 2015 |
| --- | --- | --- |
| Antimony Division - United States: | | |
| Revenues - Antimony (net of discount) | $8,744,170 | $9,863,933 |
| Revenues - Precious metals | 672,871 | 491,426 |
| | 9,417,041 | 10,355,359 |
| Domestic cost of sales: | | |
| Production costs | 3,274,100 | 4,265,840 |
| Depreciation | 81,328 | 61,819 |
| Freight and delivery | 419,256 | 311,027 |
| General and administrative | 272,161 | 192,298 |
| Direct sales expense | 65,652 | 65,000 |
| Total domestic antimony cost of sales | 4,112,497 | 4,895,984 |
| | | |
| Cost of sales - Mexico | | |
| Production costs | 3,480,252 | 3,765,902 |
| Depreciation and amortization | 704,541 | 649,525 |
| Freight and delivery | 113,412 | 62,555 |
| Reclamation accrual | 5,454 | 5,137 |
| Land lease expense | 261,154 | 435,103 |
| Mexico non-production costs | 357,706 | 1,086,440 |
| General and administrative | 178,048 | 363,025 |
| Total Mexico antimony cost of sales | 5,100,567 | 6,367,687 |
| | | |
| Total revenues - antimony | 9,417,041 | 10,355,359 |
| Total cost of sales - antimony | 9,213,064 | 11,263,671 |
| Total gross profit (loss) - antimony | 203,977 | (908,312) |
| | | |
| Zeolite Division: | | |
| Revenues | 2,473,094 | 2,753,644 |
| Cost of sales: | | |
| Production costs | 1,210,832 | 1,266,687 |
| Depreciation | 213,868 | 221,441 |
| Freight and delivery | 226,258 | 289,927 |
| General and administrative | 178,881 | 114,102 |
| Royalties | 258,206 | 279,435 |
| Direct sales expense | 52,375 | 86,100 |
| Total cost of sales | 2,140,420 | 2,257,692 |
| Gross profit - zeolite | 332,674 | 495,952 |
| | | |
| Total revenues - combined | 11,890,135 | 13,109,003 |
| Total cost of sales - combined | 11,353,484 | 13,521,363 |
| Total gross profit (loss) - combined | $536,651 | $(412,360) |
| UAMY/10-K/0001654954-17-002854 |
Subsidiaries | Our net
working capital decreased for the year ended December 31, 2016,
from a negative amount of $293,504 at the beginning of
the year to a negative amount of $1,689,568 at the end of 2016. Our
current assets decreased primarily due to a decrease in our
inventories and accounts receivable, in Montana and in Mexico. The
capital improvements were paid for with cash and debt. Our current
liabilities increased primarily in the amount of accrued income
taxes payable and the current portion of long term debt due during
2016.
During
the year ending December 31, 2017, we are planning to finance our
improvements with operating cash flow. Our 2017 improvements are
expected to include improvements at both the Madero smelter and the
Thompson Falls smelter, and completing the installation of a leach
circuit at Puerto Blanco.
In
2016, cash provided by operations was primarily due to a reduction
of our inventories of approximately $239,000. We negotiated
decreases in our current liabilities for raw material of
approximately $915,000 during 2015.
The
current portion of our long term debt is serviceable from the cash
generated by operations.
At
December 31, 2016, our financial statements show that we have
negative working capital of approximately $1.7 million and
accumulated deficit of approximately $25.4 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 year ended December 31, 2016, we endured some of the lowest
prices for antimony in the past seven years, with an average sales
price for our products of only $2.98 per pound of metal
contained. As of late March 2017, the price for antimony
metal contained is approximately $4.00 per pound. While we
experience increase in our raw material cost in the United States
as a result, most of the $1.02 market increase will result in
increased cash flow.
In
addition, we have cut costs for our labor at our Mexico locations
which will result in a lower cost of raw material from Mexico.
These cuts have resulted from not processing concentrates from
Hillgrove Mines of Australia LTD in 2017. This has resulted in a
large reduction in our work force at our Madero smelter, along with
a significant decrease in our operating costs for fuel, natural
gas, electricity, and reagents. Although our total production in
Mexico will decrease due to the lack of Hillgrove concentrates, we
are ramping up production from our own mining properties. We are
currently on schedule to have seventeen small rotating furnaces in
operation by the second quarter of 2017.
In
addition, we have implemented wage and other cost reductions across
at the corporate level that will decrease our administrative costs
in 2017. We expect to continue paying a low cost for propane in
Montana, which in years past has been a major operating
cost.
In
2017, we have negotiated a reduced monthly lease cost for the
Wadley mine approximately $11,600 a decrease from $23,200 per
month. In addition, we paid the final installment to purchase
mining concessions in the Los Juarez mining area. In 2015 and
2016, we paid $100,000 and $68,600, respectively, for these
concession rights.
We
believe that our current circumstances and actions taken by
management will enable us to be actively operating for the next
twelve months.
Our
stockholders’ equity section makes note that we have a
liquidation preference of $5,884,376 for our preferred stock. This
consists of a liquidation payment of $5,281,519 due if we liquidate
our company or sell substantially all our assets, and $651,506 of
undeclared dividends. The Board of Directors’ does not intend
to declare dividends on preferred stock as due and payable at any
time in the near future. We do not feel that the liquidation
preference and undeclared dividends related to our preferred stock
will be an impediment to raising capital in the future by issuing
additional shares of common stock, and are not going to affect our
liquidity. |
| Financial Condition and Liquidity | | |
| --- | --- | --- |
| | 2016 | 2015 |
| Current Assets | $1,692,555 | $2,136,326 |
| Current liabilities | (3,382,123) | (2,429,830) |
| Net Working Capital | $(1,689,568) | $(293,504) |
| | | |
| Cash provided (used) by operations | $425,837 | $358,453 |
| Cash used for capital outlay | (583,029) | (1,704,037) |
| Cash provided (used) by financing: | | |
| Net payments from factor | 136,617 | 468 |
| Proceeds from notes payable to bank | 36,645 | 130,672 |
| Proceeds from (paymrnts to) Hillgrove advances | - | 1,198,445 |
| Principal paid on long-term debt | (175,238) | (94,141) |
| Checks issued and payable | 35,682 | - |
| Received on notes receivable for stock | - | 120,000 |
| Net change in cash | $(123,486) | $9,860 |
| UAMY/10-K/0001654954-17-002854 |
Item 6 | Excess Mexico production costsDuring the three year period ending December 31, 2014, we incurred excess production costs at our Mexico operations. At the beginning of each year, management determined a standard, or expected, cost to produce antimony products for shipment to Montana for further processing. For 2014, 2013, and 2012, the standard costs per pound was $4.45, $4.04, and $4.51, respectively. The production costs above the standard costs were calculated and reported in the above schedule of results of operations by division as “excess Mexico production costs”, which were $688,619, $1,095,839, and 678,053 in 2014, 2013, and 2012, respectively. The excess Mexico production costs are primarily due to holding costs from inactivity at the Los Juarez mine and the Puerto Blanco mill, and the loss of production at the Madero smelter from metalurgical testing and experimenting with various production methods and formulas.OverviewOur cost of production was elevated for the years ended December 31, 2013 and 2014, because we were starting a major mining and production facility in Mexico. The same workers responsible for production were also a significant part of building and testing the manufacturing plants and equipment at Puerto Blanco and Madero, Mexico, which resulted in costs that won’t be incurred when construction and testing is complete. To a lesser degree, we incurred similar costs at our plant in Thompson Falls, Montana. In Mexico, there will still be some overlapping costs in the first six months of 2015 because the smelter is in the process of a major expansion in its physical plant. The production from Mexico should be significantly greater for 2015 than 2014 once the plant expansion is complete.The non-cash expense items totaled $908,172 for 2014 and included $780,782 for depreciation and amortization, $(2,390) for accretion, and $125,000 for director compensation.The non-cash expense items totaled $1,076,229 for 2013 and included $688,738 for depreciation and amortization, $8,040 for accretion, $150,000 for director compensation, and $229,451 for an increase in the valuation allowance for deferred income taxes.We are producing and buying raw materials, which will allow us to ensure a steady flow of products for sale. Our smelter at Madero, Mexico, was producing a significant portion of our raw materials in 2014. We will still purchase raw materials from suppliers for our smelter in Montana. |
| Results of Operations by Division | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Antimony - Combined USA | | | | | | | | | | | | |
| and Mexico | | 2014 | | | | 2013 | | | | 2012 | | |
| Lbs of Antimony Metal USA | | | 1,141,436 | | | | 931,789 | | | | 1,031,164 | |
| Lbs of Antimony Metal Mexico: | | | 586,368 | | | | 647,393 | | | | 372,046 | |
| Total Lbs of Antimony Metal Sold | | | 1,727,804 | | | | 1,579,182 | | | | 1,403,210 | |
| Average Sales Price/Lb Metal | | $ | 4.71 | | | $ | 5.30 | | | $ | 6.24 | |
| Net income (loss)/Lb Metal | | $ | (1.11 | ) | | $ | (1.30 | ) | | $ | (0.62 | ) |
| | | | | | | | | | | | | |
| Gross antimony revenue - net of discount | | $ | 8,132,410 | | | $ | 8,375,158 | | | $ | 8,753,449 | |
| Precious metals revenue | | | 461,083 | | | | 369,706 | | | | 647,554 | |
| Production costs - USA | | | (4,864,603 | ) | | | (4,592,019 | ) | | | (5,665,806 | ) |
| Product cost - Mexico | | | (2,609,338 | ) | | | (2,614,860 | ) | | | (1,677,927 | ) |
| Direct sales and freight | | | (295,334 | ) | | | (285,274 | ) | | | (279,694 | ) |
| General and administrative - operating | | | (288,602 | ) | | | (275,312 | ) | | | (353,656 | ) |
| Excess Mexico production costs | | | (688,619 | ) | | | (1,095,839 | ) | | | (678,053 | ) |
| General and administrative - non-operating | | | (1,234,597 | ) | | | (1,325,902 | ) | | | (1,193,583 | ) |
| Non-operating gains | | | 14,530 | | | | 73,551 | | | | | |
| Net interest | | | 6,496 | | | | (346 | ) | | | 6,059 | |
| EBITDA | | | (1,366,574 | ) | | | (1,371,137 | ) | | | (441,657 | ) |
| Income taxes | | | | | | | (229,451 | ) | | | (167,107 | ) |
| Depreciation & amortization | | | (559,552 | ) | | | (448,036 | ) | | | (263,214 | ) |
| Net income (Loss) - antimony | | $ | (1,926,126 | ) | | $ | (2,048,624 | ) | | $ | (871,978 | ) |
| | | | | | | | | | | | | |
| Zeolite | | | 2014 | | | | 2013 | | | | 2012 | |
| Tons sold | | | 11,079 | | | | 11,182 | | | | 12,189 | |
| Average Sales Price/Ton | | $ | 195.83 | | | $ | 196.96 | | | $ | 216.73 | |
| Net income (Loss)/Ton | | $ | 29.85 | | | $ | 36.44 | | | $ | 25.72 | |
| | | | | | | | | | | | | |
| Gross zeolite revenue | | $ | 2,169,619 | | | $ | 2,202,414 | | | $ | 2,641,699 | |
| Production costs | | | (1,109,386 | ) | | | (1,096,731 | ) | | | (1,618,816 | ) |
| Direct sales and freight | | | (170,964 | ) | | | (162,143 | ) | | | (169,346 | ) |
| Royalties | | | (222,054 | ) | | | (211,095 | ) | | | (234,343 | ) |
| General and administrative - operating | | | (81,852 | ) | | | (62,133 | ) | | | (47,456 | ) |
| General and administrative - non-operating | | | (63,765 | ) | | | (44,242 | ) | | | (47,819 | ) |
| Gain on sale of equipment | | | 30,000 | | | | | | | | | |
| Net interest | | | 303 | | | | (260 | ) | | | (701 | ) |
| EBITDA | | | 551,901 | | | | 625,810 | | | | 523,218 | |
| Depreciation | | | (221,230 | ) | | | (218,356 | ) | | | (209,776 | ) |
| Net income - Zeolite | | $ | 330,671 | | | $ | 407,454 | | | $ | 313,442 | |
| | | | | | | | | | | | | |
| Company-wide | | | 2014 | | | | 2013 | | | | 2012 | |
| Gross revenue | | $ | 10,763,112 | | | $ | 10,947,278 | | | $ | 12,042,702 | |
| Production costs | | | (8,583,327 | ) | | | (8,303,610 | ) | | | (8,962,549 | ) |
| Other operating costs | | | (1,747,425 | ) | | | (2,091,796 | ) | | | (1,762,548 | ) |
| General and administrative - non-operating | | | (1,298,362 | ) | | | (1,370,144 | ) | | | (1,241,402 | ) |
| Non-operating gains | | | 44,530 | | | | 73,551 | | | | | |
| Net interest | | | 6,799 | | | | (606 | ) | | | 5,358 | |
| EBITDA | | | (814,673 | ) | | | (745,327 | ) | | | 81,561 | |
| Income tax benefit (expense) | | | | | | | (229,451 | ) | | | (167,107 | ) |
| Depreciation & amortization | | | (780,782 | ) | | | (666,392 | ) | | | (472,990 | ) |
| Net income (Loss) | | $ | (1,595,455 | ) | | $ | (1,641,170 | ) | | $ | (558,536 | ) |
| UAMY/10-K/0001354488-15-001160 |
Item 6 | We have completed installation of a natural gas pipeline to replace propane as the fuel used in our Mexico smelter. The pipeline was finished in the fourth quarter of 2014. We expect the pipeline will reduce our smelter fuel cost by approximately 75%. Our smelter fuel cost (propane) in Mexico was approximately $700,000 for 2013 and $690,000 using 8 furnaces for the first nine months of 2014. Our natural gas cost was approximately $125,000 using 12 furnaces for the fourth quarter of 2014.We are proceeding with the installation of a 400 - 500 ton per day flotation mill that we expect to cost between $400,000 and $500,000 to install. The concrete work for the mill has been completed, and work will be ongoing as we generate cash from operations. This mill will be dedicated to processing ore from the Los Juarez mining property. We are in a waiting period for approval of permits necessary to process the Los Juarez ore. We have adequate crushing capacity in place to feed the 500 ton per day mill and the existing mill.When approved, the restart of production from Los Juarez will create a significant increase in our precious metals revenue for 2015 and years forward.Our principal smelter, precious metals recovery operation, and our Company headquarters remain in Montana. With increased production, we expect to widen our base of customers.Results of OperationsComparison of Years ended December 31, 2014, 2013, and 2012 |
| | | Lbs of Antimony | | |
| --- | --- | --- | --- | --- |
| Mexico Prodution Activity: | | Metal Contained | | |
| Direct Shipping Ore (DSO) | | | | |
| Wadley property | | | 425,200 | |
| Guadalupana area | | | 101,261 | |
| Miscellaneous mines | | | 122,944 | |
| Concentrate from Mill | | | | |
| Guadalupe | | | 48,158 | |
| Soyatal | | | 30,450 | |
| Total Lbs delivered to Madero | | | 728,013 | |
| | | | | |
| UAMY/10-K/0001354488-15-001160 |
Item 6 | ●
During the three year period ended December 31, 2014, the most significant event affecting our financial performance was the decrease in the price of antimony (see table page 6). During the year ended December 31, 2014, the most significant event was an agreement to process antimony concentrate for Hillgrove LTD of Australia. The expansion of production at our Mexico operations caused our reported operating costs to be elevated when compared to years when we were not initiating the start-up of new production facilities. The Mexican production of antimony (metal contained) and sold was 586,368 pounds during 2014 compared to 647,393 pounds for 2013, a decrease of 9.4%. 2013 and 2014 are regarded as “start- up years” during which the holding costs, permitting, and metallurgical research was categorized as a “non-production” operating expense. During both years, Los Juarez concentrate was not produced and Soyatal oxide ore was in a research phase at the Puerto Blanco oxide circuit. Guadalupe shipped dump material while they obtained an explosives license and prepared the underground for mining higher grade rock. The Puerto Blanco mill circuits were utilized less than 10% of their capacity. Going forward, the increased supply of raw material from Mexico and the metal prices for both antimony and precious metals will be the most significant factors influencing our operations. The following are highlights of the significant changes during 2014 and the three year period then ended:
a.
Our sales of antimony for 2014 increased by approximately 149,000 lbs from 2013. Our revenues from antimony decreased in 2013 by approximately $378,000 (4%) from 2012 primarily due to a decrease in the price of antimony metal. Revenues from antimony sales in 2014 were approximately $243,000 (3%) smaller than 2013 due to a decrease in the price of antimony. The average sale price for antimony contained in all products declined from $6.24 in 2012 to $5.30 in 2013, a decrease of $0.94 (17.7%), and from $5.30 to $4.71 in 2014, a decrease of $0.59 (11.1%).
b.
The metallurgical problem with the Los Juarez feed has been solved, and mining, milling, and smelting will resume when the necessary permits are obtained. This will put the Puerto Blanco mill in operation. During 2013 and 2014, the Puerto Blanco mill was operating at less than 10% of capacity.
c.
The Soyatal oxide ore recovery problem has been solved, and high grade oxide concentrates are being produced. Oxide mineralized rock from dumps will be mined and underground development will be started.
d.
Explosives were permitted at Guadalupe in 2014, and underground development has started. A lack of capital by the operator has hampered production.
●
Assuming that Guadalupe and Los Juarez feed are going to the Puerto Blanco mill, the 500 ton per day mill that is estimated at 40% of completion will need to be completed.
●
If the Mexican “non-production” holding expenses for properties that are being developed are excluded, the cost of production of 1,780,134 pounds of contained metal was $4.10 per pound for 2013 and $4.45 for 2014. The average sale price during 2013 and 2014 was $5.30 and $4.71 per pound, respectively.
●
Our cost of goods sold for antimony decreased by approximately $5,000 for 2014 even though our production increased, and our cost of goods sold for 2013 increased by approximately $583,000 from 2012 primarily due to an increase in raw material costs and start-up costs in Mexico. For the three years ending December 31, 2014, costs of goods sold include operating and non-operating production costs from Mexico operations. As production increased in Mexico, we saw an increase in our smelter costs through the third quarter of 2014 due to the high cost of propane in Mexico. Our switch to natural gas as a fuel for our smelter at Madero in the fourth quarter of 2014 has provided a significant improvement in our Mexico operating costs. In addition to the cost of propane, the cost of goods sold during all years has been impacted by an increase in the cost of operating supplies, such as fuel, trucking, insurance, refractory costs, and steel.
●
Our volume of zeolite sold was down less than 1% in 2014, from 11,182 tons in 2013 to 11,079 tons in 2014, and by approximately 8% in 2013, from 12,189 tons in 2012 to 11,182 tons in 2013. Total revenue decreased by approximately $33,000 in 2014 and approximately $439,000 in 2013. In 2012, we sold more products with additives, which are higher priced, than we did in 2013. Our cost of goods sold increased by approximately $44,500 for 2014, and decreased by approximately $522,000 for 2013 from 2012, primarily because we had a decrease in the volume of product sold in 2013, and because we did not pre-purchase as many supplies. We inventoried the cost of additives, drying, blending, and overall operating costs for a special product mix prepared in advance for winter sales in 2013 and 2014.
●
General and administrative costs, as reported in our statement of operations, include fees paid to directors through stock based compensation. In 2014, 2013 and 2012, we incurred $40,000, $40,000 and $88,000, respectively, in fees to the NYSE MKT that were included in general and administrative expenses. General and administrative costs for 2014, 2013 and 2012 include general and administrative costs related to commencement of production at our facilities in Mexico. The combined general and administrative costs were 5.8%, 6.7%, and 6.7% of sales for 2014, 2013 and 2012, respectively.
●
The decrease in professional fees for 2014 and 2013 (approximately $17,000 and $34,000, respectively) was primarily due to decreased costs related to our audits and financial statement preparation. The increase in professional fees for 2012 from 2011, (approximately $52,500) was primarily due to increased costs related to our audits and financial statement preparation during the year we became listed on the NYSE MKT.
Factoring costs decreased in 2014, and were similar in 2013 to 2012. Factoring costs decreased in 2014 by approximately $22,000 as we were able to reduce our collection time for accounts receivable. The discounts we gave for early payments increased by approximately $42,100 in 2013 from 2012.
●
For the year ended December 31, 2010, we determined that it was likely that we would be profitable in the future, and that it was appropriate to record a tax benefit of $493,000 for the value of tax losses from prior years that could be used to reduce income tax in future periods. For the years ended December 31, 2013, 2012, and 2011, this benefit was reduced by $229,451, $167,107, and $96,442, respectively, for increases in the valuation allowance due to changed expectations about when we would have taxable income, and changes in the components that made up the base for calculating the future tax benefit.
SubsidiariesThe Company has a 100% investment in two subsidiaries in Mexico, USAMSA and AM, whose carrying value was assessed at December 31, 2014, 2013, and 2012, for impairment. Management’s assessment of the subsidiaries’ fair value was based on their future benefit to us. |
| | | 2014 | | | | 2013 | | | | 2012 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Antimony Division - United States: | | | | | | | | | | | | |
| Revenues - Antimony (net of discount) | | $ | 8,132,410 | | | $ | 8,375,158 | | | $ | 8,745,321 | |
| Revenues - Other | | | 9,080 | | | | 73,551 | | | $ | 8,128 | |
| Revenues - Precious metals | | | 461,083 | | | | 369,706 | | | | 647,554 | |
| | | | 8,602,573 | | | | 8,818,415 | | | | 9,401,003 | |
| Domestic cost of sales: | | | | | | | | | | | | |
| Production costs | | | 4,864,603 | | | | 4,592,019 | | | | 5,665,806 | |
| Depreciation | | | 63,787 | | | | 61,574 | | | | 40,979 | |
| Freight and delivery | | | 243,606 | | | | 227,179 | | | | 218,563 | |
| General and administrative | | | 288,602 | | | | 275,313 | | | | 370,838 | |
| Direct sales expense | | | 51,726 | | | | 58,095 | | | | 61,131 | |
| Total domestic antimony cost of sales | | | 5,512,324 | | | | 5,214,180 | | | | 6,357,317 | |
| | | | | | | | | | | | | |
| Cost of sales - Mexico | | | | | | | | | | | | |
| Production costs | | | 2,609,338 | | | | 2,614,860 | | | | 1,677,927 | |
| Depreciation and amortization | | | 495,765 | | | | 386,462 | | | | 222,235 | |
| Freight and delivery | | | 122,035 | | | | 52,628 | | | | 111,652 | |
| Reclamation accrual | | | 4,839 | | | | 8,040 | | | | 8,040 | |
| Land lease expense | | | 407,493 | | | | 202,364 | | | | 27,720 | |
| Mexico non-production costs | | | 22,553 | | | | 644,993 | | | | 174,852 | |
| General and administrative | | | 131,700 | | | | 187,814 | | | | 148,321 | |
| Total Mexico antimony cost of sales | | | 3,793,723 | | | | 4,097,161 | | | | 2,370,747 | |
| | | | | | | | | | | | | |
| Total revenues - antimony | | | 8,602,573 | | | | 8,818,415 | | | | 9,401,003 | |
| Total cost of sales - antimony | | | 9,306,047 | | | | 9,311,341 | | | | 8,728,064 | |
| Total gross profit (loss) - antimony | | | (703,474 | ) | | | (492,926 | ) | | | 672,939 | |
| | | | | | | | | | | | | |
| Zeolite Division: | | | | | | | | | | | | |
| Revenues | | | 2,169,619 | | | | 2,202,414 | | | | 2,641,699 | |
| Cost of sales: | | | | | | | | | | | | |
| Production costs | | | 1,109,386 | | | | 1,096,731 | | | | 1,618,816 | |
| Depreciation | | | 221,230 | | | | 218,356 | | | | 209,776 | |
| Freight and delivery | | | 87,355 | | | | 83,618 | | | | 93,260 | |
| General and administrative | | | 81,852 | | | | 62,133 | | | | 47,457 | |
| Royalties | | | 222,054 | | | | 211,095 | | | | 234,343 | |
| Direct sales expense | | | 83,609 | | | | 78,525 | | | | 76,086 | |
| Total cost of sales | | | 1,805,486 | | | | 1,750,458 | | | | 2,279,738 | |
| Gross profit - zeolite | | | 364,133 | | | | 451,956 | | | | 361,961 | |
| | | | | | | | | | | | | |
| Total revenues - combined | | | 10,772,192 | | | | 11,020,829 | | | | 12,042,702 | |
| Total cost of sales - combined | | | 11,111,533 | | | | 11,061,799 | | | | 11,007,802 | |
| Total gross profit (loss) - combined | | $ | (339,341 | ) | | $ | (40,970 | ) | | $ | 1,034,900 | |
| | | | | | | | | | | | | |
| UAMY/10-K/0001354488-15-001160 |
Item 6 | Our net working capital increased for the year ended December 31, 2014, from a negative amount of $568,777 at the beginning of the year to a positive amount of $11,029 at the end of 2014. Our current assets increased primarily due to an increase in our inventories in Montana and in Mexico. The capital improvements were mainly financed by the sale of stock.
Our net working capital decreased for the year ended December 31, 2013, from a positive amount of $1,480,487 at the beginning of the year to a negative amount of $568,777 at the end of 2013. During 2013, our current assets decreased and our current liabilities increased primarily due to expenditures for capital improvements in Mexico. The capital improvements in 2013 were mainly financed by the sale of stock and an increase in current liabilities. Our financial condition and liquidity improved for the year ended December 31, 2012. This was due to an increase in our cash provided by operations and the sale of stock each year. We used most of our resources from operating cash flows and the sale of stock to expand and improve our mine, mill, and smelter production facilities in Mexico. Over the three year period, we raised approximately $8,842,000 from issuing stock, and we used approximately $9,162,000, including $1,779,000 of assets purchased with debt, for capital improvements in Mexico ($8,072,000), Montana ($466,000), and at the Bear River Zeolite plant ($629,000). In Mexico, we completed the final installation of the crusher, ball mill and flotation circuit, four additional furnaces at Madero, started the installation of a 500 ton per day ball mill, and paid for final construction of a natural gas pipeline.During the year ending December 31, 2015, we are planning to finance our improvements with operating cash flow. Our 2015 improvements are expected to include installation of more furnaces at both the Madero smelter and the Thompson Falls smelter, building an expanded smelter and warehouse building at Thompson Falls, and completing the installation of a 400 - 500 ton per day flotation mill at Puerto Blanco.In 2014, cash used by operations was primarily due to our net loss of approximately $1.595 million and an increase of approximately $534,000 in our inventories and other assets. We had cash provided of approximately $1.226 million from non-cash expenses (depreciation and amortization), stock issued for expenses, decrease in accounts receivable, an increase in accounts payable, and cash advanced from Hillgrove mines.In 2013, cash provided by operations was primarily due to an increase in accounts payable and other accrued liabilities.In 2012, cash provided by operations was primarily due to the collection of approximately $978,000 of accounts receivable, which were approximately $1,438,000 at the beginning of the year, and approximately $460,000 as of December 31, 2012.The current portion of our long term debt is serviceable from the cash generated by operations.Our stockholders’ equity section makes note that we have a liquidation preference of $5,835,727 for our preferred stock. This consists of a liquidation payment of $5,281,519 due if we liquidate our company or sell substantially all our assets, and $554,208 of undeclared dividends. The Board of Directors’ does not intend to declare dividends on preferred stock as due and payable at any time in the near future. We do not feel that the liquidation preference and undeclared dividends related to our preferred stock will be an impediment to raising capital in the future by issuing additional shares of common stock, and are not going to affect our liquidity. |
| Financial Condition and Liquidity | | | |
| --- | --- | --- | --- |
| | | 2014 | | | | 2013 | | | | 2012 | | |
| Current Assets | | $ | 2,303,669 | | | $ | 1,910,564 | | | $ | 3,103,128 | |
| Current liabilities | | | (2,292,640 | ) | | | (2,479,341 | ) | | | (1,622,641 | ) |
| Net Working Capital | | $ | 11,029 | | | $ | (568,777 | ) | | $ | 1,480,487 | |
| | | | | | | | | | | | | |
| Cash provided (used) by operations | | $ | (1,036,375 | ) | | $ | 234,820 | | | $ | 526,419 | |
| Cash used for capital outlay | | | (1,826,553 | ) | | | (2,733,762 | ) | | | (3,513,901 | ) |
| Cash provided (used) by financing: | | | | | | | | | | | | |
| Net proceeds from Hillgrove advances | | | 198,571 | | | | - | | | | - | |
| Proceeds from notes payable to bank | | | - | | | | 138,520 | | | | - | |
| Payments on notes to bank | | | (138,520 | ) | | | | | | | | |
| Payments on long-term debt | | | (129,530 | ) | | | (273,405 | ) | | | (464,936 | ) |
| Proceeds from long-term debt | | | 130,000 | | | | 352,000 | | | | - | |
| Sale of Stock | | | 3,070,134 | | | | 1,147,194 | | | | 4,624,763 | |
| Other | | | (164,387 | ) | | | 154,165 | | | | (176,961 | ) |
| Net change in cash | | $ | 103,340 | | | $ | (980,468 | ) | | $ | 995,384 | |
| UAMY/10-K/0001354488-15-001160 |
PART III | Business Experience of Directors and Executive OfficersJohn C. Lawrence. Mr. Lawrence has been the president and a director since our inception. Mr. Lawrence was the president and a director of AGAU Mines, Inc., our corporate predecessor, since the inception of AGAU Mines, Inc. in 1968. He is a member of the Society of Mining Engineers and a recipient of the Uuno Sahinen Silver Medallion Award presented by Butte Tech, University of Montana. He has a vast background in mining, milling, smelting, chemical processing and oil and gas.Gary D. Babbitt. Mr. Babbitt has experience in mining industry with approximately 30 years dealing with joint ventures, purchases, royalty leases and contracts. He has a working knowledge of Spanish and has negotiated supply and mining agreements in Mexico. Mr. Babbitt has a B.A. from the Albertson College of Idaho, and earned his J.D. from the University of Chicago.Russell C. Lawrence. Mr. Lawrence has experience in the lines of applied physics, mining, refining, excavation, electricity, electronics, and building contracting. He graduated from the University of Idaho in 1994 with a degree in physics, and worked for the Physics Department at the University of Idaho for a period of 10 years. He has also worked as a building contractor and for USAC at the smelter and laboratory at Thompson Falls, for USAMSA in the construction and operation of the USAMSA smelter in Mexico, and for Antimonio de Mexico, S. A. de C. V. at the San Miguel Mine and the Cadereyta mill site in Mexico.Hart W. Baitis. Mr. Baitis graduated from the University of Oregon in 1971 with a B.S. in Geology, and was awarded a Ph. D. in Geology in 1976. He has 35 years of experience as an exploration geologist in the United States, Canada, Central America, and Mexico. Mr. Baitis is experienced in numerous geologic environments and terrains, and has been involved in all phases of exploration, ranging from field geologist, consultant, management, and acquisition team director.Whitney Ferer. Mr. Ferer, who was nominated to the board in February 2012, has worked for 34 years for Aaron Ferer & Sons, or AF&S, headquartered in Omaha, Nebraska, where he is currently the Vice President of Trading and Operations and Vice Chairman of the Board of AF&S. He has been involved in the patenting of various processes for the breakdown of plastics and metal recovery, and was Vice President of the Lead & Zinc Division of AF&S. In addition, Mr. Ferer has been active in the trading of all metals, and facilitated the opening of eight offices in the Far East and China. He is one of the largest traders of antimony metal and oxide in the United States.Daniel L. Parks. Mr. Parks graduated from the University of Idaho in 1974 with a B.S. in Accounting, and was licensed as a certified public accountant in 1976. He worked as an auditor for Coopers & Lybrand for three years, as controller for a lumber manufacturing company for one year, and owned his own accounting practice for thirty years. Mr. Parks was extensively involved in auditing and financial statement preparation during this time.We are not aware of any involvement by our directors or executive officers during the past five years in legal proceedings that are material to an evaluation of the ability or integrity of any director or executive officer.Board Meetings and Committees Our Board of Directors held four (4) regular meetings during the 2014 calendar year. Each incumbent director attended all of the meetings held during the 2014 calendar year, in the aggregate, by the Board and each committee of the Board of which he was a member.Our Board of Directors established an Audit Committee on December 10, 2011. It consists of three members, Gary Babbitt (Chairman), Whitney Ferer, and Hart Baitis. None of the Audit Committee members are involved in our day-to-day financial management. Hart Baitis is considered a financial expert.During 2011, the Board also established a Compensation Committee and a Nominating Committee.Board Member Compensation Following is a summary of fees, cash payments, stock awards, and other reimbursements to Directors during the year ended December 31, 2014:Directors Compensation |
| Name | Age | Affiliation | Expiration of Term |
| --- | --- | --- | --- |
| | | | |
| John C. Lawrence | 76 | Chairman, President, Director | Annual meeting |
| | | | |
| John C. Gustavsen | 66 | First Vice-President | Annual meeting |
| | | | |
| Russell C. Lawrence | 46 | Second Vice-President | Annual meeting |
| | | | |
| Matthew Keane | 59 | Third Vice-President | Annual meeting |
| | | | |
| Daniel L. Parks | 66 | Chief Financial Officer | Annual meeting |
| | | | |
| Alicia Hill | 33 | Secretary, Controller and Treasurer | Annual meeting |
| | | | |
| Gary D. Babbitt | 69 | Director | Annual meeting |
| | | | |
| Whitney Ferer | 56 | Director | Annual meeting |
| | | | |
| Hart W. Baitis | 65 | Director | Annual meeting |
| UAMY/10-K/0001354488-15-001160 |
PART III | Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and the holders of 10% or more of our common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and stockholders holding more than 10% of our common stock are required by the regulation to furnish us with copies of all Section 16(a) forms they have filed. Based solely on our review of copies of Forms 3, 4 and 5 furnished to us, Mr. John Lawrence, Mr. Baitis, Mr. Babbitt, Mr. Ferer, and Mr. Russell Lawrence did not file timely Forms 3, 4 or Form 5 reports during 2014, 2013, or 2012.Code of EthicsThe Company has adopted a Code of Ethics that applies to the Company's executive officers and its directors. The Company will provide, without charge, a copy of the Code of Ethics on the written request of any person addressed to the Company at: United States Antimony Corporation, P.O. Box 643, Thompson Falls, MT 59873. |
| Name and Principal Position | | Fees Earned or paid in Cash | | | | Stock Awards | | | | Total Fees, Awards, and Other Compensation | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| John C. Lawrence, Chairman | | | | | | $ | 25,000 | | | $ | 25,000 | |
| Gary D. Babbitt, Director | | $ | 36,000 | | | $ | 25,000 | | | $ | 61,000 | |
| Russell Lawrence, Director | | | | | | $ | 25,000 | | | $ | 25,000 | |
| Hartmut Baitis, Director | | | | | | $ | 25,000 | | | $ | 25,000 | |
| Whitney Ferer, Director | | | | | | $ | 25,000 | | | $ | 25,000 | |
| Totals | | $ | 36,000 | | | $ | 125,000 | | | $ | 161,000 | |
| UAMY/10-K/0001354488-15-001160 |
PART III | (2)
These figures represent the fair values, as of the date of issuance, of the annual director's fee payable to Mr. Lawrence in the form of shares of USAC's common stock.
Compensation for all executive officers, except for the President/CEO position, is recommended to the compensation committee of the Board of Directors by the President/CEO. The compensation committee makes the recommendation for the compensation of the President/CEO. The compensation committee has identified a peer group of mining companies to aid in reviewing the President’s compensation recommendations for executives, and for reviewing the compensation of the President/CEO. The full Board approves the compensation amounts recommended by the compensation committee. Currently, the executive managements’ compensation only includes base salary and health insurance. The Company does not have annual performance based salary increases, long term performance based cash incentives, deferred compensation, retirement benefits, or disability benefits. For the year ended December 31,2014, The Chief Executive Officer (CEO) received an increase in base compensation of $15,000 annually. The Board of Directors determined that the CEO’s compensation for the prior years was substantially less than that of Chief Executive Officers for similar companies, and that a raise was appropriate to compensate the CEO for management of a Company with the complexities of United States Antimony Corporation.
Two executive officers, the President/CEO and the Vice-President for the Latin American operations, receive restricted stock awards for their services as Board members.
The following table sets forth information concerning the outstanding equity awards at December 31, 2014, held by our principal executive officer. There were not any other outstanding equity awards or plan based awards to officers or directors as of December 31, 2014. |
| Name and Principal Position | | Year | | | | Salary | | | | Bonus | | | | Stock Awards (2) | | | | Total | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| John C. Lawrence, President and Chief Executive Officer | | | 2014 | | | $ | 141,000 | | | | N/A | | | $ | 25,000 | | | $ | 171,538 | |
| | | | 2013 | | | | 126,000 | | | | | | | | 25,000 | | | | 156,538 | |
| | | | 2012 | | | | 126,000 | | | | | | | | 25,000 | | | | 156,538 | |
| | | | | | | | | | | | | | | | | | | | | |
| John C. Gustaven, Executive Vice President | | | 2014 | | | $ | 100,000 | | | | N/A | | | | | | | $ | 100,000 | |
| | | | 2013 | | | | 100,000 | | | | | | | | | | | | 100,000 | |
| | | | 2012 | | | | 100,000 | | | | | | | | | | | | 100,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Russell Lawrence, Vice President for Latin America | | | 2014 | | | $ | 105,000 | | | | N/A | | | $ | 25,000 | | | $ | 130,000 | |
| | | | 2013 | | | | 100,000 | | | | | | | | 25,000 | | | | 125,000 | |
| | | | 2012 | | | | 100,000 | | | | | | | | 25,000 | | | | 125,000 | |
| UAMY/10-K/0001354488-15-001160 |
PART III | Item 12 Security Ownership of Certain Beneficial Owners and Management |
| | | | | | | | | | | Outstanding Equity Awards at | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | Fiscal Year End | | | | | | | |
| | | Number of Securities Underlying Unexercised Options | | | | | | | | Number of Securities | | | | Average | | | Option |
| | | Exercisable | | | | Unexercisable | | | | Underlying Unexercised | | | | Exercise | | | Exercise |
| Name | | | # | | | | # | | | Unearned Options | | | | Price | | | Dates |
| John C. Lawrence | | | 250,000 | | | | 0 | | | | 0 | | | $ | 0.25 | | None |
| (Chairman of the Board Of | | | | | | | | | | | | | | | | | |
| Directors and Chief Executive | | | | | | | | | | | | | | | | | |
| Officer) | | | | | | | | | | | | | | | | | |
| UAMY/10-K/0001354488-15-001160 |
PART III | (1)Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of March 16, 2015, are deemed outstanding for computing the percentage of the person holding options or warrants but are not deemed outstanding for computing the percentage of any other person. Percentages are based on a total of 66,027,453 shares of common stock, 750,000 shares of Series B Preferred Stock, 177,904 shares of Series C Preferred Stock, and 1,751,005 shares of Series D Preferred Stock outstanding on March 16, 2015. Total voting stock of 67,956,632 shares is a total of all the common stock issued, and all of the Series C and Series D Preferred Stock.
(2)
Includes 3,892,235 shares of common stock and 250,000 stock purchase warrants. Excludes 183,324 shares owned by Mr. Lawrence's sister, as to which Mr. Lawrence disclaims beneficial ownership.
(3)
Includes shares owned by the estate of Al W. Dugan and shares owned by companies owned and controlled by the estate of Al W. Dugan. Excludes 183,333 shares owned by Lydia Dugan as to which the estate of Mr. Dugan disclaims beneficial ownership.
(4)
The outstanding Series C and Series D preferred shares carry voting rights equal to the same number of shares of common stock.
(5)
The outstanding Series B preferred shares carry voting rights only if the Company is in default in the payment of declared dividends. The Board of Directors has not declared any dividends as due and payable for the Series B preferred stock. |
| Title of Class | | Name and Address of Beneficial Owner (1) | | Amount and Nature of Beneficial Ownership | | Percent of Class (1) | | Percent of all Voting Stock |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Common Stock | | Cardinal capital Management LLC Four Greenwich Office Park Greenwich CT 06831 | | 4,008,694 | | 6.07% | | 5.91% |
| Common Stock | | Reed Family Limited Partnership 328 Adams Street Milton, MA 02186 | | 4,018,335 | | 6.09% | | 5.92% |
| Common Stock | | The Dugan Family c/o A.W.Dugan 1415 Louisana Street, Suite 3100 Houston, TX 77002 | | 6,362,927(3) | | 9.64% | | 9.38% |
| Series B Preferred | | Excel Mineral Company P.O. Box 3800 Santa Barbara, CA 93130 | | 750,000(5) | | 100.00% | | N/A |
| Series C Preferred | | Richard A. Woods 59 Penn Circle West Penn Plaza Apts. Pittsburgh, PA 15206 | | 48,305(4) | | 27.10% | | \* |
| Series C Preferred | | Dr. Warren A. Evans 69 Ponfret Landing Road Brooklyn, CT 06234 | | 32,203(4) | | 18.10% | | \* |
| Series C Preferred | | Edward Robinson 1007 Spruce Street, 1st floor Philadelphia, PA 19107 | | 32,203(4) | | 18.10% | | \* |
| Series C Preferred | | All Series C Preferred Shareholders as a Group | | 177,904(4) | | 100.00% | | \* |
| Common Stock | | John C. Lawrence Russell Lawrence Hart Baitis Garry Babbitt Whitney Ferer Mathew Keane Daniel Parks | | 4,142,235(2) 179,582 34,415 148,056 71,915 10,300 40,000 | | 89.53% 3.88% \* 3.20% 1.60% \* \* \* | | 6.11% \* \* \* \* \* \* |
| Common Stock | | All Directors and Executive Officers as a Group | | 4,626,503 | | 100.00% | | 6.82% |
| Series D Preferred | | John C. Lawrence Leo Jackson Garry Babbitt | | 1,590,672(4) 102,000 58,333 | | 90.80% 5.80% 3.40% | | 2.40% \* \* |
| Series D Preferred | | All Series D Preferred Shareholders as a Group | | 1,751,005(4) | | 100.00% | | 2.70% |
| Common Stock and Preferred Stock w/voting rights | | All Directors and Executive Officers as a Group All preferred Shareholders that are officers or directors | | 4,626,503(2) - 1,751,005(4) | | 72.55% - 27.45% | | 6.82% - 2.70% |
| Common and Preferred Voting Stock | | All Directors and Executive Officers as a Group | | 6,377,508 | | 100.00% | | 9.40% |
| UAMY/10-K/0001354488-15-001160 |
PART III | * Filed herewith.Reports on Form 8-K |
| 10.38 | Memorandum of Understanding with Geosearch Inc. |
| --- | --- |
| | |
| 10.39 | Factoring Agreement-Systran Financial Services Company |
| | |
| 10.40 | Mortgage to John C. Lawrence |
| | |
| 10.41 | Warrant Issue-Al W. Dugan filed as an exhibit to USAC's Quarterly Report on Form 10-QSB for the quarter ended March 31, 2000 (File No. 001-08675) is incorporated herein by this reference |
| | |
| 10.42 | Agreement between United States Antimony Corporation and Thomson Kernaghan & Co., Ltd. filed as an exhibit to USAC form 10-QSB for the quarter ended June 30, 2000 (File No. 001-08675) are incorporated herein by this reference |
| | |
| 10.43 | Settlement agreement and release of all claims between the Estate of Bobby C. Hamilton and United States Antimony Corporation filed as an exhibit to USAC form 10-QSB for the quarter ended June 30, 2000 (File No. 001-08675) are incorporated herein by this reference. |
| | |
| 10.44 | Supply Contracts with Fortune America Trading Ltd. filed as an exhibit to USAC form 10-QSB for the quarter ended June 30, 2000 (File No. 001-08675) are incorporated herein by this reference |
| | |
| 10.45 | Amended and Restated Agreements with Thomson Kernaghan & Co., Ltd, filed as an exhibit to amendment No. 3 to USAC's Form SB-2 Registration Statement (Reg. No. 333-45508), are incorporated herein by this reference |
| | |
| 10.46 | Purchase Order from Kohler Company, filed as an exhibit to amendment No. 4 to USAC's Form SB-2 Registration Statement (Reg. No. 333-45508) are incorporated herein by this reference |
| | |
| Documents filed as an exhibit to USAC's Form 10-QSB for the quarter ended June 30, 2002 (File No. 001-08675) are incorporated herein by this reference: | |
| | |
| 10.47 | Bear River Zeolite Company Royalty Agreement, dated May 29, 2002 |
| | |
| 10.48 | Grant of Production Royalty, dated June 1, 2002 |
| | |
| 10.49 | Assignment of Common Stock of Bear River Zeolite Company, dated May 29, 2002 |
| | |
| 10.50 | Agreement to Issue Warrants of USA, dated May 29, 2002 |
| | |
| 10.51 | Secured convertible note payable - Delaware Royalty Company dated December 22, 2003\* |
| | |
| 10.52 | Convertible note payable - John C. Lawrence dated December 22, 2003\* |
| | |
| 10.53 | Pledge, Assignment and Security Agreement dated December 22, 2003\* |
| | |
| 10.54 | Note Purchase Agreement dated December 22, 2003\* |
| | |
| 14.0 | Code of Ethics\* |
| | |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certifications |
| | Certification of John C. Lawrence\* |
| | |
| 32.1 | Section 1350 Certifications |
| | Certification of John C. Lawrence\* |
| | |
| 44.1 | CERCLA Letter from U.S. Forest Service filed as an exhibit to USAC form 10-QSB for the quarter ended June 30, 2000 (File No. 001-08675) are incorporated herein by this reference and filed as an exhibit to USAC's Form 10-KSB for the year ended December 31, 1995 (File No. 1-8675) is incorporated herein by this reference |
| UAMY/10-K/0001354488-15-001160 |
F-2 | The accompanying notes are an integral part of these consolidated financial statements.
F-3 |
| United States Antimony Corporation and Subsidiaries | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Consolidated Statements of Operations | | | | | | | | | | | | |
| For the years ended December 31, 2014, 2013 and 2012 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2014 | | | | 2013 | | | | 2012 | | |
| | | | | | | | | | | | | |
| REVENUES | | $ | 10,772,192 | | | $ | 11,020,829 | | | $ | 12,042,702 | |
| | | | | | | | | | | | | |
| COST OF REVENUES | | | 11,111,533 | | | | 11,061,799 | | | | 11,007,802 | |
| | | | | | | | | | | | | |
| GROSS PROFIT (LOSS) | | | (339,341 | ) | | | (40,970 | ) | | | 1,034,900 | |
| | | | | | | | | | | | | |
| OPERATING EXPENSES: | | | | | | | | | | | | |
| General and administrative | | | 623,569 | | | | 736,312 | | | | 810,369 | |
| Salaries and benefits | | | 418,083 | | | | 336,000 | | | | 284,483 | |
| Gain on sale of asset | | | (35,450 | ) | | | - | | | | - | |
| Professional fees | | | 207,346 | | | | 224,889 | | | | 258,735 | |
| TOTAL OPERATING EXPENSES | | | 1,213,548 | | | | 1,297,201 | | | | 1,353,587 | |
| | | | | | | | | | | | | |
| LOSS FROM OPERATIONS | | | (1,552,889 | ) | | | (1,338,171 | ) | | | (318,687 | ) |
| | | | | | | | | | | | | |
| OTHER INCOME (EXPENSE): | | | | | | | | | | | | |
| Interest income | | | 7,916 | | | | 3,923 | | | | 8,049 | |
| Interest expense | | | (1,118 | ) | | | (4,529 | ) | | | (2,691 | ) |
| Bad debts | | | - | | | | (1,170 | ) | | | - | |
| Factoring expense | | | (49,364 | ) | | | (71,772 | ) | | | (78,100 | ) |
| TOTAL OTHER INCOME (EXPENSE) | | | (42,566 | ) | | | (73,548 | ) | | | (72,742 | ) |
| | | | | | | | | | | | | |
| LOSS BEFORE INCOME TAXES | | | (1,595,455 | ) | | | (1,411,719 | ) | | | (391,429 | ) |
| | | | | | | | | | | | | |
| INCOME TAXES: | | | | | | | | | | | | |
| Income tax (expense) | | | - | | | | (229,451 | ) | | | (167,107 | ) |
| TOTAL INCOME TAXES | | | - | | | | (229,451 | ) | | | (167,107 | ) |
| | | | | | | | | | | | | |
| NET LOSS | | | (1,595,455 | ) | | | (1,641,170 | ) | | | (558,536 | ) |
| Preferred dividends | | | (48,649 | ) | | | (48,649 | ) | | | (48,649 | ) |
| Net loss available to | | | | | | | | | | | | |
| common stockholders | | $ | (1,644,104 | ) | | $ | (1,689,819 | ) | | $ | (607,185 | ) |
| | | | | | | | | | | | | |
| Net loss per share of | | | | | | | | | | | | |
| common stock basic and diluted: | | $ | (0.03 | ) | | $ | (0.03 | ) | | $ | (0.01 | ) |
| | | | | | | | | | | | | |
| Weighted average shares outstanding | | | | | | | | | | | | |
| basic and diluted: | | | 64,605,253 | | | | 62,281,449 | | | | 61,235,365 | |
| | | | | | | | | | | | | |
| UAMY/10-K/0001354488-15-001160 |
F-2 | For the years ended December 31, 2014, 2013, and 2012 |
| United States Antimony Corporation and Subsidiaries |
| --- |
| Consolidated Statements of Changes in Stockholders' Equity |
| UAMY/10-K/0001354488-15-001160 |
F-2 | The accompanying notes are an integral part of these consolidated financial statements.
F-4 |
| | | | | | | | | | | | | | | | | | | Additional | | | Notes | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | Total Preferred Stock | | | | | | | | Common Stock | | | | | | | | Paid-In | | | Receivable | | Accumulated | | | | | | |
| | | Shares | | | | Amount | | | | Shares | | | | Amount | | | | Capital | | | for Stock Sales | | Deficit | | | | Total | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances, December 31, 2011 | | | 2,678,909 | | | $ | 26,788 | | | | 59,349,300 | | | $ | 593,492 | | | $ | 25,635,129 | | | | $ | (19,487,038 | ) | | $ | 6,768,371 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of common stock and warrants for cash, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| net of offering costs | | | | | | | | | | | 2,156,334 | | | | 21,563 | | | | 4,603,200 | | | | | | | | | 4,624,763 | |
| Issuance of common stock to directors for services: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Accrued in prior year | | | | | | | | | | | 95,835 | | | | 958 | | | | 229,046 | | | | | | | | | 230,004 | |
| For current year | | | | | | | | | | | 69,992 | | | | 700 | | | | 220,528 | | | | | | | | | 221,228 | |
| Issuance of common stock for cash through exercise of warrants | | | | | | | | | | | 225,265 | | | | 2,253 | | | | 57,747 | | | | | | | | | 60,000 | |
| Net loss | | | | | | | | | | | | | | | | | | | | | | | | (558,536 | ) | | | (558,536 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances, December 31, 2012 | | | 2,678,909 | | | | 26,788 | | | | 61,896,726 | | | | 618,966 | | | | 30,745,650 | | | | | (20,045,574 | ) | | | 11,345,830 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of common stock and warrants for cash, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| net of offering costs | | | | | | | | | | | 1,139,480 | | | | 11,396 | | | | 1,135,799 | | | | | | | | | 1,147,195 | |
| Issuance of common stock and warrants for notes payable | | | | | | | | | | | 120,000 | | | | 1,200 | | | | 148,800 | | | | | | | | | 150,000 | |
| Net loss | | | | | | | | | | | | | | | | | | | | | | | | (1,641,170 | ) | | | (1,641,170 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances, December 31, 2013 | | | 2,678,909 | | | | 26,788 | | | | 63,156,206 | | | | 631,562 | | | | 32,030,249 | | | | | (21,686,744 | ) | | | 11,001,855 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of common stock and exercise of warrants for cash, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| net of offering costs | | | | | | | | | | | 2,400,071 | | | | 24,001 | | | | 3,046,133 | | | | | | | | | 3,070,134 | |
| Issuance of common stock for notes payable | | | | | | | | | | | 235,717 | | | | 2,357 | | | | 327,643 | | | | | | | | | 330,000 | |
| Issuance of common stock to directors for services | | | | | | | | | | | 83,334 | | | | 833 | | | | 149,167 | | | | | | | | | 150,000 | |
| Issuance of common stock to consultant for services | | | | | | | | | | | 24,000 | | | | 240 | | | | 38,760 | | | | | | | | | 39,000 | |
| Issuance of common stock for cashless exercise of warrants | | | | | | | | | | | 3,125 | | | | 31 | | | | (31 | ) | | | | | | | | - | |
| Stock issued for notes receivable | | | | | | | | | | | 125,000 | | | | 1,250 | | | | 148,750 | | (150,000) | | | | | | | - | |
| Net loss | | | | | | | | | | | | | | | | | | | | | | | | (1,595,455 | ) | | | (1,595,455 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances, December 31, 2014 | | | 2,678,909 | | | $ | 26,788 | | | | 66,027,453 | | | $ | 660,274 | | | $ | 35,740,671 | | $ (150,000) | | $ | (23,282,199 | ) | | $ | 12,995,534 | |
| UAMY/10-K/0001354488-15-001160 |
F-2 | The accompanying notes are an integral part of these consolidated financial statements.
F-5
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2014, 2013 and 2012
1.Background of Company and Basis of PresentationAGAU Mines, Inc., predecessor of United States Antimony Corporation ("USAC" or "the Company"), was incorporated in June 1968 as a Delaware corporation to mine gold and silver. USAC was incorporated in Montana in January 1970 to mine and produce antimony products. In June 1973, AGAU Mines, Inc. was merged into USAC. In December 1983, the Company suspended its antimony mining operations when it became possible to purchase antimony raw materials more economically from foreign sources. The principal business of the Company has been the production and sale of antimony products.During 2000, the Company formed a 75% owned subsidiary, Bear River Zeolite Company ("BRZ"), to mine and market zeolite and zeolite products from a mineral deposit in southeastern Idaho. In 2001, an operating plant was constructed at the zeolite site and zeolite production and sales commenced. During 2002, the Company acquired the remaining 25% of BRZ and continued to produce and sell zeolite products.During 2005, the Company formed a 100% owned subsidiary, Antimonio de Mexico S.A. de C.V. (“AM”), to explore and develop potential antimony properties in Mexico.During 2006, the Company acquired 100% ownership in United States Antimony, Mexico S.A. de C.V. (“USAMSA”), which became a wholly-owned subsidiary of the Company.2.Concentrations of Risk |
| United States Antimony Corporation and Subsidiaries | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Consolidated Statements of Cash Flows | | | | | | | | | | | | |
| For the years ended December 31, 2014, 2013, and 2012 | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Cash Flows From Operating Activities: | | 2014 | | | | 2013 | | | | 2012 | | |
| Net loss | | $ | (1,595,455 | ) | | $ | (1,641,170 | ) | | $ | (558,536 | ) |
| Adjustments to reconcile net loss to net cash | | | | | | | | | | | | |
| provided (used) by operating activities: | | | | | | | | | | | | |
| Depreciation and amortization | | | 780,782 | | | | 688,738 | | | | 472,990 | |
| Gain on sale of asset | | | (35,450 | ) | | | - | | | | - | |
| Accretion of asset retirement obligation | | | (2,390 | ) | | | 8,040 | | | | 8,040 | |
| Common stock issued for services | | | 39,000 | | | | - | | | | 221,228 | |
| Deferred income taxes | | | - | | | | 229,451 | | | | 167,107 | |
| Change in: | | | | | | | | | | | | |
| Accounts receivable, net | | | 121,347 | | | | (119,862 | ) | | | 982,405 | |
| Inventories | | | (398,769 | ) | | | 157,419 | | | | (125,376 | ) |
| Other current assets | | | (12,596 | ) | | | 137,664 | | | | (114,321 | ) |
| Other assets | | | (104,524 | ) | | | (13,984 | ) | | | (443,730 | ) |
| Accounts payable | | | 86,906 | | | | 474,438 | | | | 186,283 | |
| Accrued payroll, taxes and interest | | | 10,308 | | | | 35,396 | | | | (52,387 | ) |
| Other accrued liabilities | | | (11,934 | ) | | | 20,525 | | | | (89,072 | ) |
| Stock payable to directors for services | | | 125,000 | | | | 150,000 | | | | - | |
| Deferred revenue | | | (31,408 | ) | | | 110,138 | | | | (43,760 | ) |
| Payables to related parties | | | (7,192 | ) | | | (1,973 | ) | | | (84,452 | ) |
| Net cash provided (used) by operating activities | | | (1,036,375 | ) | | | 234,820 | | | | 526,419 | |
| | | | | | | | | | | | | |
| Cash Flows From Investing Activities: | | | | | | | | | | | | |
| Purchase of certificates of deposit | | | - | | | | - | | | | (244,090 | ) |
| Purchase of properties, plants and equipment | | | (1,826,553 | ) | | | (2,733,762 | ) | | | (3,269,811 | ) |
| Net cash used by investing activities | | | (1,826,553 | ) | | | (2,733,762 | ) | | | (3,513,901 | ) |
| | | | | | | | | | | | | |
| Cash Flows From Financing Activities: | | | | | | | | | | | | |
| Net proceeds from (payments to) factor | | | (164,387 | ) | | | 154,164 | | | | (123,053 | ) |
| Proceeds from Hillgrove advances | | | 198,571 | | | | - | | | | - | |
| Proceeds from sale of common stock | | | | | | | | | | | | |
| and exercise of warrants, net of offering costs | | | 3,070,134 | | | | 1,147,195 | | | | 4,624,763 | |
| Issuance of common stock pursuant to exercise of warrants | | | - | | | | - | | | | 60,000 | |
| Proceeds from notes payable to bank | | | - | | | | 138,520 | | | | - | |
| Payments on notes to bank | | | (138,520 | ) | | | - | | | | - | |
| Payments on long-term debt | | | (129,530 | ) | | | (273,405 | ) | | | (464,936 | ) |
| Proceeds from long term debt | | | 130,000 | | | | 352,000 | | | | - | |
| Proceeds from related party loans | | | 65,300 | | | | - | | | | - | |
| Payments on related party loans | | | (65,300 | ) | | | - | | | | - | |
| Change in checks issued and payable | | | - | | | | - | | | | (113,908 | ) |
| Net cash provided by financing activities | | | 2,966,268 | | | | 1,518,474 | | | | 3,982,866 | |
| NET INCREASE (DECREASE) IN CASH | | | | | | | | | | | | |
| AND CASH EQUIVALENTS | | | 103,340 | | | | (980,468 | ) | | | 995,384 | |
| Cash and cash equivalents at beginning of year | | | 20,343 | | | | 1,000,811 | | | | 5,427 | |
| Cash and cash equivalents at end of year | | $ | 123,683 | | | $ | 20,343 | | | $ | 1,000,811 | |
| | | | | | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | | | | | |
| Interest paid in cash (net of amount capitalized) | | $ | 1,118 | | | $ | 2,529 | | | $ | 2,691 | |
| Noncash investing and financing activities: | | | | | | | | | | | | |
| Properties, plants & equipment acquired with long-term debt | | $ | 29,185 | | | $ | 762,541 | | | $ | 665,150 | |
| Properties, plants & equipment acquired with accounts payable | | $ | - | | | $ | 79,105 | | | $ | - | |
| Imputed interest included in property, plant and equipment | | $ | 45,752 | | | $ | - | | | $ | - | |
| Common stock issued to directors | | $ | 150,000 | | | $ | - | | | $ | - | |
| Common stock issued for debt payment | | $ | 330,000 | | | $ | 150,000 | | | $ | - | |
| Common stock issued for note receivable | | $ | 150,000 | | | $ | - | | | $ | - | |
| Equipment sold for other asset advances | | $ | 40,000 | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | |
| UAMY/10-K/0001354488-15-001160 |
F-2 | The Company's revenues from antimony sales are strongly influenced by world prices for such commodities, which fluctuate and are affected by numerous factors beyond the Company's control, including inflation and worldwide forces of supply and demand. The aggregate effect of these factors is not possible to predict accurately. |
| Sales to Three | | | | | | For the Year Ended | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Largest Customers | | December 31, 2014 | | | | December 31, 2013 | | | | December 31, 2012 | | |
| Alpha Gary Corporation | | $ | 3,289,766 | | | $ | 3,700,945 | | | $ | 3,245,612 | |
| East Penn Manufacturing Inc | | | 720,966 | | | $ | - | | | $ | - | |
| General Electric | | | - | | | | 781,200 | | | | - | |
| Kohler Corporation | | | 2,091,565 | | | | 2,654,215 | | | | 2,286,938 | |
| Polymer Products Inc. | | | - | | | | - | | | | 1,119,055 | |
| | | $ | 6,102,297 | | | $ | 7,136,360 | | | $ | 6,651,605 | |
| % of Total Revenues | | | 56.65 | % | | | 64.75 | % | | | 55.23 | % |
| | | | | | | | | | | | | |
| Three Largest | | | | | | For the Year Ended | | | | | | |
| Accounts Receivable | | December 31, 2014 | | | | December 31, 2013 | | | | December 31, 2012 | | |
| Kohler Corporation | | | | | | $ | 202,019 | | | | | |
| Alpha Gary Corporation | | | | | | | 42,778 | | | $ | 194,005 | |
| Earth Innovations Inc | | $ | 62,019 | | | | - | | | | - | |
| Teck American Inc | | | 227,239 | | | | 88,329 | | | | - | |
| Milestone AV Technologies Inc. | | | 42,075 | | | | - | | | | - | |
| Quantum Remediation | | | - | | | | - | | | | 101,149 | |
| Scutter Enterprises | | | - | | | | - | | | | 41,512 | |
| | | $ | 331,333 | | | $ | 333,126 | | | $ | 336,666 | |
| % of Total Receivables | | | 72.87 | % | | | 57.83 | % | | | 73.80 | % |
| | | | | | | | | | | | | |
| UAMY/10-K/0001354488-15-001160 |
F-9 | The Company’s financial instruments include cash and cash equivalents, certificates of deposits, restricted cash, due to factor, and long-term debt. The carrying value of certificates of deposit, restricted cash, due to factor, and long-term debt approximates fair value based on the contractual terms of those instruments.Fair Value MeasurementsAccounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value.The Company discloses the following information for each class of assets and liabilities that are measured at fair value:
1.
the fair value measurement;
2.
the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3);
3.
for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following:
a.
total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earnings are reported in the statement of operations;
b.
the amount of these gains or losses attributable to the change in unrealized gains or losses relating to those assets or liabilities still held at the reporting period date and a description of where those unrealized gains or losses are reported;
c.
purchases, sales, issuances, and settlements (net); and
d.
transfers into and/or out of Level 3.
4.
the amount of the total gains or losses for the period included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of operations; and
5.
in annual periods only, the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period. |
| | | December 31, 2014 | | | | December 31, 2013 | | | | December 31, 2012 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Warrants | | | 726,917 | | | | 2,489,407 | | | | 1,934,667 | |
| Convertible preferred stock | | | 1,751,005 | | | | 1,751,005 | | | | 1,751,005 | |
| Total possible dilution | | | 2,477,922 | | | | 4,240,412 | | | | 3,685,672 | |
| | | | | | | | | | | | | |
| UAMY/10-K/0001354488-15-001160 |
F-10 | Recent Accounting PronouncementsIn July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 provides guidance on the presentation of unrecognized tax benefits related to any disallowed portion of net operating loss carryforwards, similar tax losses, or tax credit carryforwards, if they exist. ASU 2013-11 is effective for fiscal years beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to have a material impact on the Company’s consolidated financial statements.In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements—Going Concern.” The provisions of ASU No. 2014-15 require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently assessing the impact of ASU No. 2014-15 on the Company’s consolidated financial statements once adopted.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. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.4. Accounts Receivable and Due to FactorThe Company factors designated trade receivables pursuant to a factoring agreement with LSC Funding Group L.C., an unrelated factor (the “Factor”). The agreement specifies that eligible trade receivables are factored with recourse. The performance of all obligations and payments to the factoring company is personally guaranteed by John C. Lawrence, the Company’s President and Chairman of the Board of Directors. Selected trade receivables are submitted to the factor, and the Company receives 85% of the face value of the receivable by wire transfer. Upon payment by the customer, the remainder of the amount due is received from the Factor, less a one-time servicing fee of 2% for the receivables factored. This servicing fee is recorded on the consolidated statement of operations in the period of sale to the factor. |
| | | | | | | | | Input |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | Hierarchy |
| Assets: | | 2014 | | | 2013 | | | Level |
| Cash and cash equivalents | | $ | 123,683 | | $ | 20,343 | | Level 1 |
| Certificates of deposit | | | 249,147 | | | 246,565 | | Level 1 |
| Restricted cash | | | 75,754 | | | 75,501 | | Level 1 |
| Total | | $ | 448,584 | | $ | 342,409 | | |
| | | | | | | | | |
| UAMY/10-K/0001354488-15-001160 |
F-11 | Factoring fees paid by the Company during the years ended December 31, 2014, 2013 and 2012 were $49,364, $71,772, and $78,100, respectively. For the years ended December 31, 2014, 2013, and 2012, net accounts receivable of approximately $2.30 million, $3.28 million, and $3.80 million, respectively, were sold under the agreement.Proceeds from the sales were used to fund inventory purchases and operating expenses. The agreement is for a term of one year with automatic renewal for additional one-year terms.5.InventoriesThe major components of the Company's inventories at December 31, 2014 and 2013 were as follows: |
| Accounts Receivble | | December 31, 2014 | | | | December 31, 2013 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Accounts receivable - non factored | | $ | 445,391 | | | $ | 402,351 | |
| Accounts receivable - factored with recourse | | | 13,314 | | | | 177,701 | |
| less allowance for doubtful accounts | | | (4,031 | ) | | | (4,031 | ) |
| Accounts receivable - net | | $ | 454,674 | | | $ | 576,021 | |
| UAMY/10-K/0001354488-15-001160 |
F-11 | At December 31, 2014 and 2013, antimony metal consisted principally of recast metal from antimony-based compounds, and metal purchased from foreign suppliers. Antimony oxide inventory consisted of finished product oxide held at the Company's plant. Antimony concentrates and ore was held primarily at sites in Mexico and is essentially raw material, carried at cost. The Company's zeolite inventory consists of salable zeolite material held at BRZ's Idaho mining and production facility, and is carried at cost. |
| | | 2014 | | | | 2013 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Antimony Metal | | $ | 40,352 | | | $ | 33,850 | |
| Antimony Oxide | | | 718,982 | | | | 535,251 | |
| Antimony Concentrates | | | 33,545 | | | | 93,190 | |
| Antimony Ore | | | 447,262 | | | | 106,519 | |
| Total antimony | | | 1,240,141 | | | | 768,810 | |
| Zeolite | | | 193,398 | | | | 265,960 | |
| | | $ | 1,433,539 | | | $ | 1,034,770 | |
| | | | | | | | | |
| UAMY/10-K/0001354488-15-001160 |
F-12 | 7. Asset Retirement Obligation and Accrued Reclamation CostsDuring 2011, the Company assessed the obligation for removal and remediation costs relating to its plants and mine in Mexico. Management assigned a cost to the expected work involved in complying with the requirements of the Mexico operating permits. Management applied, based on a 20 year life, a cost inflation factor, and then discounted that cost to a current net present value based on a discount rate of 6% (management’s estimate of its credit-adjusted interest rate). During 2011, management determined a future cost in 2031 of approximately $430,000 with a net present value of $134,000. |
| 2014 | | USAC | | | | MEXICO | | | | BRZ | | | | TOTAL | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Plant & Equipment | | $ | 814,183 | | | $ | 6,159,064 | | | $ | 3,166,701 | | | $ | 10,139,948 | |
| Buildings | | | 243,248 | | | | 834,269 | | | | 349,946 | | | | 1,427,463 | |
| Mineral Rights | | | - | | | | 1,117,636 | | | | | | | | 1,117,636 | |
| Land & Other | | | 3,274,572 | | | | 3,367,708 | | | | | | | | 6,642,280 | |
| | | | 4,332,003 | | | | 11,478,677 | | | | 3,516,647 | | | | 19,327,327 | |
| Accumulated Depreciation | | | (2,395,109 | ) | | | (1,482,098 | ) | | | (1,938,317 | ) | | | (5,815,524 | ) |
| | | $ | 1,936,894 | | | $ | 9,996,579 | | | $ | 1,578,330 | | | $ | 13,511,803 | |
| | | | | | | | | | | | | | | | | |
| 2013 | | USAC | | | | MEXICO | | | | BRZ | | | | TOTAL | | |
| Plant & Equipment | | $ | 749,493 | | | $ | 4,952,524 | | | $ | 3,041,934 | | | $ | 8,743,951 | |
| Buildings | | | 242,186 | | | | 787,917 | | | | 349,946 | | | | 1,380,049 | |
| Mineral Rights | | | - | | | | 916,522 | | | | - | | | | 916,522 | |
| Land & Other | | | 3,270,248 | | | | 3,123,067 | | | | - | | | | 6,393,315 | |
| | | | 4,261,927 | | | | 9,780,030 | | | | 3,391,880 | | | | 17,433,837 | |
| Accumulated Depreciation | | | (2,333,484 | ) | | | (987,621 | ) | | | (1,717,087 | ) | | | (5,038,192 | ) |
| | | $ | 1,928,443 | | | $ | 8,792,409 | | | $ | 1,674,793 | | | $ | 12,395,645 | |
| UAMY/10-K/0001354488-15-001160 |
F-12 | The Company’s total asset retirement obligation and accrued reclamation costs of $255,190 and $257,580 at December 31, 2014 and 2013, respectively include reclamation obligations for Idaho and Montana operations of $107,500.(1) During 2014, an adjustment was made to correct immaterial excess accretion expense recognized in 2013 and 2012. |
| Asset Retirement Obligation | | | | |
| --- | --- | --- | --- | --- |
| | | | | |
| Balance December 31, 2011 | | $ | 134,000 | |
| Accretion | | | 8,040 | |
| Balance December 31, 2012 | | | 142,040 | |
| Accretion | | | 8,040 | |
| Balance December 31, 2013 | | | 150,080 | |
| Accretion | | | (2,390) | (1) |
| Balance December 31, 2014 | | $ | 147,690 | |
| UAMY/10-K/0001354488-15-001160 |
F-15 | 10. Notes Payable to BankAt December 31, 2013, the Company had the following notes payable to the bank: |
| Year Ending December 31, | | | | |
| --- | --- | --- | --- | --- |
| 2015 | | | 159,278 | |
| 2016 | | | 107,035 | |
| 2017 | | | 100,000 | |
| 2018 | | | 174,589 | |
| 2019 | | | 200,000 | |
| 2020 | | | 200,000 | |
| 2021 | | | 100,000 | |
| Less remaining discount (see Note 8) | | | (166,296 | ) |
| | | $ | 874,606 | |
| UAMY/10-K/0001354488-15-001160 |
F-15 | These notes are personally guaranteed by John C. Lawrence the Company’s President and Chairman of the Board of Directors. The Company paid the notes in full during 2014.
11. 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 New South Wales, Australia. The agreement requires that the Company will 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 contemplate 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 Company will also sell the final product for Hillgrove, and Hillgrove will 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. If a stop notice is issued by Hillgrove within one year of the date of the agreement, the Company is only obligated to repay 50% of the funds advanced at that point. If a stop notice is issued between one year and two years, there is a formula to prorate the repayment amount from 50% to 81.25%. If a stop order is issued after two years, the repayment obligation is 81.25% of the funds advanced at that point. The Company has recorded the Hillgrove advances payable net of the 18.75% discount on the obligation due if Hillgrove issues a stop order after two years. The discount of $37,232 is classified as deferred revenue and will be recognized ratably over a two year period. During the last quarter of 2014 Hillgrove advanced the Company $198,571, of which $161,339 has been recorded as a long-term liability at December 31, 2014. |
| Promissory note payable to First Security Bank of Missoula, bearing interest at 3.150%, maturing February 27, 2014, payable on demand, collateralized by a lien on Certificate of Deposit number 48614 | $ | 70,952 |
| --- | --- | --- |
| Promissory note payable to First Security Bank of Missoula, bearing interest at 3.150%, maturing February 27, 2014, payable on demand, collateralized by a lien on Certificate of Deposit number 48615 | | 67,568 |
| Total notes payable to bank | $ | 138,520 |
| UAMY/10-K/0001354488-15-001160 |
F-17 | Preferred StockThe Company's Articles of Incorporation authorize 10,000,000 shares of $0.01 par value preferred stock available for issuance with such rights and preferences, including liquidation, dividend, conversion, and voting rights, as the Board of Directors may determine.Series BDuring 1993, the Board established a Series B preferred stock, consisting of 750,000 shares. The Series B preferred stock has preference over the Company's common stock and Series A preferred stock; has no voting rights (absent default in payment of declared dividends); and is entitled to cumulative dividends of $0.01 per share per year, payable if and when declared by the Board of Directors. During the years ended December 31, 2014 and 2013 the Company recognized $7,500 in Series B preferred stock dividend. In the event of dissolution or liquidation of the Company, the preferential amount payable to Series B preferred stockholders is $1.00 per share plus dividends in arrears. No dividends have been declared or paid with respect to the Series B preferred stock. The Series B Preferred stock is no longer convertible to shares of the Company’s common stock. At December 31, 2014 and 2013, cumulative dividends in arrears on the outstanding Series B shares were $142,500 and $135,000, respectively. Series CDuring 2000, the Board established a Series C preferred stock, consisting of 205,996 shares. In 2002, 28,092 shares were converted to common stock and cancelled, leaving 177,904 Series C preferred shares authorized and outstanding. The Series C preferred stock has preference over the Company’s common stock and has voting rights equal to that number of shares outstanding, but no conversion or dividend rights. In the event of dissolution or liquidation of the Company, the preferential amount payable to Series C preferred stockholders is $0.55 per share. |
| Year ending December 31: | | | | |
| --- | --- | --- | --- | --- |
| 2015 | | | 476,917 | |
| Thereafter | | | 250,000 | |
| | | | 726,917 | |
| UAMY/10-K/0001354488-15-001160 |
F-19 | At December 31, 2014, 2013 and 2012, the Company had net deferred tax assets as follows: |
| | | 2014 | | | | 2013 | | | | 2012 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Domestic | | $ | (345,293 | ) | | $ | 163,632 | | | $ | 301,391 | |
| Foreign | | | (1,250,162 | ) | | | (1,575,351 | ) | | | (692,820 | ) |
| Total | | | (1,595,455 | ) | | | (1,411,719 | ) | | | (391,429 | ) |
| UAMY/10-K/0001354488-15-001160 |
F-19 | At December 31, 2014, the Company has United States net operating loss carry forwards of approximately $600,000 that expire at various dates between 2029 and 2034. In addition, the company has unexpired Montana state net operating loss carry forwards of approximately $2,016,000 which expire between 2016 and 2021, and unexpired Idaho state net operating loss carry forwards of approximately $1,140,000, which expire in 2032 and 2034. The company has approximately $6.4 million of Mexican net operating loss carry forwards which expire between 2021 and 2024.At December 31 2014 and 2013, the Company had deferred tax assets arising principally from net operating loss carry forwards for income tax purposes. As management cannot determine that it is more likely than not that we will realize the benefit of the net deferred tax asset, a valuation allowance equal to 100% of the net deferred tax asset has been recorded at December 31, 2014 and 2013. |
| | | 2014 | | | | 2013 | | | | 2012 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Deferred tax asset: | | | | | | | | | | | | |
| Other | | $ | - | | | $ | - | | | $ | 11,151 | |
| Foreign exploration costs | | | 127,936 | | | | 168,401 | | | | 208,855 | |
| Foreign net operating loss carry forward | | | 1,926,341 | | | | 232,723 | | | | 374,110 | |
| Foreign other | | | - | | | | 42,612 | | | | 217,887 | |
| Federal and state net operating | | | | | | | | | | | | |
| loss carry forward | | | 337,890 | | | | 35,424 | | | | 39,824 | |
| Deferred tax asset | | | 2,392,167 | | | | 479,160 | | | | 851,827 | |
| | | | | | | | | | | | | |
| Valuation allowance (foreign) | | | (1,926,341 | ) | | | (279,235 | ) | | | (605,496 | ) |
| Valuation allowance (federal) | | | (266,711 | ) | | | (71,786 | ) | | | - | |
| Total deferred tax asset | | | 199,115 | | | | 128,139 | | | | 246,331 | |
| | | | | | | | | | | | | |
| Deferred tax liability: | | | | | | | | | | | | |
| Property, plant, and equipment | | | (197,593 | ) | | | (128,139 | ) | | | (16,880 | ) |
| Other | | | (1,522 | ) | | | | | | | | |
| Total deferred tax liability | | | (199,115 | ) | | | (128,139 | ) | | | (16,880 | ) |
| | | | | | | | | | | | | |
| Net Deferred Tax Asset | | $ | - | | | $ | - | | | $ | 229,451 | |
| UAMY/10-K/0001354488-15-001160 |
F-20 | During the years ended December 31, 2014, 2013, and 2012, there were no material uncertain tax positions taken by the Company. The Company United States income tax filings are subject to examination for the years 2012 through 2014, and 2010 and 2014 in Mexico. In the event that the Company is assessed penalties and or interest, penalties will be charged to other operating expense and interest will be charged to interest expense.15.Related-Party TransactionsThe Company’s President and Chairman, John Lawrence, rents equipment and an aircraft to the Company and charges the Company for lodging and meals provided to consultants, customers and other parties by an entity that Mr. Lawrence owns.Transactions due to (due from) Mr. Lawrence during 2014, 2013, and 2012 were as follows: |
| Computed expected tax provision (benefit) | | $ | (558,409 | ) | | | -35.0 | % | | $ | (494,102 | ) | | | -35.0 | % | | $ | (137,000 | ) | | | -35.0 | % |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Foreign taxes | | | 62,508 | | | | 3.9 | % | | | 78,768 | | | | 5.6 | % | | | 34,641 | | | | 8.9 | % |
| Other (1) | | | (1,346,130 | ) | | | -84.4 | % | | | 899,260 | | | | 63.7 | % | | | 61,770 | | | | 15.8 | % |
| Change in valuation allowance U.S. | | | 194,925 | | | | 12.2 | % | | | 71,786 | | | | 5.1 | % | | | 207,696 | | | | 53.1 | % |
| Change in valuation allowance Foreign | | | 1,647,106 | | | | 103.2 | % | | | | | | | | | | | | | | | | |
| Release of valuation allowance Foreign | | | | | | | | | | | (326,261 | ) | | | -23.1 | % | | | - | | | | 0.0 | % |
| Total | | $ | - | | | | - | | | $ | 229,451 | | | | 16 | % | | $ | 167,107 | | | | 42.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) In 2014 and 2013 there were revisions to estimates of foreign net operating loss carry forwards. | | | | | | | | | | | | | | | | | | | | | | | | |
| UAMY/10-K/0001354488-15-001160 |
F-20 | In addition, during 2014, Mr. Lawrence loaned the Company $65,300 for short-term operating capital and was paid back without interest during 2014.The Chairman of the audit committee and compensation committee received $36,000 in cash during 2014 and 2013 for services performed. The Chairman of the audit committee and compensation committee and one other audit committee member received a total of $56,000 in cash during 2012 for services performed.In addition to the transactions described above, during 2014, 2013, and 2012, the Company had the following transactions with related parties:
●
During 2014, 2013, and 2012, the Company paid $82,505, $81,642, and $89,204, respectively, to a former director for development of Mexican mill sites and consulting fees. |
| | | 2014 | | | | 2013 | | | | 2012 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balance, beginning of year | | $ | 15,549 | | | $ | 17,522 | | | $ | 47,843 | |
| Aircraft and equipment rental charges, and other | | | 30,561 | | | | 65,502 | | | | 74,490 | |
| Payments, net | | | (37,753 | ) | | | (67,475 | ) | | | (104,811 | ) |
| Balance, end of year | | $ | 8,357 | | | $ | 15,549 | | | $ | 17,522 | |
| UAMY/10-K/0001354488-15-001160 |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS | Overview
●
Our cost of production was elevated for the year ending December 31, 2012, because we were starting a major mining and production facility in Mexico. The same workers responsible for production were also a significant part of building and testing the manufacturing plants and equipment at Puerto Blanco, and Madero, Mexico, which resulted in costs that won’t be incurred when construction and testing is complete. To a lesser degree, we incurred similar costs at our plant in Thompson Falls, Montana. There will still be some overlapping costs in the first quarter of 2013 because the plants are still in a shakedown mode, but it should be less for 2013 than 2012.
●
Although we are expanding our operations in Mexico, we still purchase significant raw materials from our suppliers. We will remain an antimony producer, although we anticipate greater revenue from precious metals and zeolite.
●
We are producing our own raw materials from our mine, mill, and smelter in Mexico, which will allow us to ensure a steady flow of products for sale. Our mine at Los Juarez, our Puerto Blanco mill, and our smelter at Madero, Mexico, will be producing a significant portion of our raw materials commencing in 2013. Our company-wide production for 2013 is expected to double that of 2012. We completed the installation of more crusher capacity, the flotation and ball mill, and more smelter furnaces in Mexico during 2012, and we therefore expect more sales in 2013 due to the availability of more raw materials.
●
We have also commenced installation of a natural gas pipeline to replace propane as the fuel used in our Mexico smelter, which we expect to be finished by May of 2013. We expect the pipeline to cost approximately $1.2 million dollars when completed, and that it will reduce our smelter fuel cost by approximately 75%. We have spent $584,000 on construction as of December 31, 2012.
●
We are initiating the installation of a 400 - 500 ton per day flotation mill to be completed by the end of 2013 that we expect to cost between $400,000 and $500,000 to install. This mill will be dedicated to processing ore from the Los Juarez mining property, and, in addition to the increase in antimony production, it will increase our precious metals revenue significantly. We have adequate crushing capacity in place to feed the 500 ton per day mill and the existing mill.
●
The increased production from Los Juarez will also create a significant increase in our precious metals revenue for 2013 and 2014.
●
If the world economy improves, we expect to benefit from an increase in antimony prices. If the world economy does not improve, or if it worsens, we expect to see stagnant or decreasing commodity prices for antimony.
Our principal smelter, precious metals recovery operation, and our Company headquarters remain in Montana. With increased production, we expect to widen our base of customers. |
| Results of Operations by Division | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Antimony - Combined USA and Mexico | | | | | | | | | | | | |
| | | 2012 | | | | 2011 | | | | 2010 | | |
| Lbs of Antimony Metal USA | | | 1,031,164 | | | | 1,179,973 | | | | 1,334,452 | |
| Lbs of Antimony Metal Mexico: | | | 372,046 | | | | 221,450 | | | | 59,152 | |
| Total Lbs of Antimony Metal Sold | | | 1,403,210 | | | | 1,401,423 | | | | 1,393,604 | |
| Sales Price/Lb Metal | | $ | 6.24 | | | $ | 7.43 | | | $ | 4.43 | |
| Net income (loss)/Lb Metal | | $ | (0.50 | ) | | $ | 0.45 | | | $ | (0.11 | ) |
| | | | | | | | | | | | | |
| Gross antimony revenue - net of discount | | $ | 8,753,449 | | | $ | 10,406,636 | | | $ | 6,174,062 | |
| Precious metals revenue | | | 647,554 | | | | 667,813 | | | | 483,307 | |
| Production costs - USA | | | (5,665,806 | ) | | | (7,294,421 | ) | | | (4,786,197 | ) |
| Product cost - Mexico | | | (1,677,927 | ) | | | (1,031,957 | ) | | | (275,648 | ) |
| Direct sales and freight | | | (279,694 | ) | | | (281,089 | ) | | | (282,070 | ) |
| General and administrative - operating | | | (353,656 | ) | | | (280,853 | ) | | | (80,267 | ) |
| Mexico non-production costs | | | (678,053 | ) | | | (430,601 | ) | | | (160,819 | ) |
| General and administrative - non-operating | | | (1,193,583 | ) | | | (936,873 | ) | | | (1,069,270 | ) |
| Net interest | | | 6,059 | | | | 5,205 | | | | 7,751 | |
| EBITDA | | | (441,657 | ) | | | 823,860 | | | | 10,849 | |
| Depreciation & amortization | | | (263,214 | ) | | | (199,515 | ) | | | (168,808 | ) |
| Net income (Loss) - antimony | | $ | (704,871 | ) | | $ | 624,345 | | | $ | (157,959 | ) |
| | | | | | | | | | | | | |
| Zeolite | | | | | | | | | | | | |
| Tons sold | | | 12,189 | | | | 12,105 | | | | 15,319 | |
| Sales Price/Ton | | $ | 216.73 | | | $ | 168.83 | | | $ | 157.71 | |
| Net income (Loss)/Ton | | $ | 25.72 | | | $ | 9.76 | | | $ | 30.69 | |
| | | | | | | | | | | | | |
| Gross zeolite revenue | | $ | 2,641,699 | | | $ | 2,043,641 | | | $ | 2,415,955 | |
| Production costs | | | (1,618,816 | ) | | | (1,221,101 | ) | | | (1,254,375 | ) |
| Direct sales and freight | | | (169,346 | ) | | | (183,333 | ) | | | (86,737 | ) |
| Royalties | | | (234,343 | ) | | | (197,371 | ) | | | (229,352 | ) |
| General and administrative - operating | | | (95,275 | ) | | | (117,420 | ) | | | (188,251 | ) |
| Net interest | | | (701 | ) | | | | | | | | |
| EBITDA | | | 523,218 | | | | 324,416 | | | | 657,240 | |
| Depreciation | | | (209,776 | ) | | | (206,231 | ) | | | (187,068 | ) |
| Net income (Loss) - zeolite | | $ | 313,442 | | | $ | 118,185 | | | $ | 470,172 | |
| | | | | | | | | | | | | |
| Company-wide | | | | | | | | | | | | |
| Gross revenue | | $ | 12,042,702 | | | $ | 13,118,090 | | | $ | 9,073,324 | |
| Production costs | | | (8,962,549 | ) | | | (9,547,479 | ) | | | (6,316,220 | ) |
| Other operating costs | | | (1,810,367 | ) | | | (1,490,667 | ) | | | (1,027,496 | ) |
| General and administrative - non-operating | | | (1,193,583 | ) | | | (936,873 | ) | | | (1,069,270 | ) |
| Net interest | | | 5,358 | | | | 5,205 | | | | 7,751 | |
| EBITDA | | | 81,561 | | | | 1,148,276 | | | | 668,089 | |
| Income tax benefit (expense) | | | (167,107 | ) | | | (105,610 | ) | | | 493,000 | |
| Depreciation & amortization | | | (472,990 | ) | | | (405,746 | ) | | | (355,876 | ) |
| Net income (Loss) | | $ | (558,536 | ) | | $ | 636,920 | | | $ | 805,213 | |
| UAMY/10-K/0001354488-13-001259 |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS | During the three year period ending December 31, 2012, the most significant event affecting our financial performance was the fluctuation in the price of antimony (see table page 6). During the year ending December 31, 2012, the most significant event was the commencement of production at our Mexico operations which caused our reported operating costs to be elevated when compared to years when we were not initiating the operation of a new production facility. During the year ending December 31, 2010, we recorded an impairment loss of $199,302. Going forward, the increased supply of raw material from Mexico and the metal prices for both antimony and precious metals, will be the most significant factors influencing our operations. The following are highlights of the significant changes during the three year period:
●
Revenues from antimony sales in 2012 were approximately $1,653,000 (16%) smaller than 2011 primarily due to a decrease in the price of antimony. Our revenues from antimony increased in 2011 by approximately $4,233,000 (68%) from 2010 primarily due to an increase in the price of antimony metal (approximately $4,135,000).
●
Our cost of goods sold for antimony for 2012 decreased by approximately $790,000 for 2012 due to a decrease in our raw materials cost, but was a greater per cent of sales than in prior years primarily due to costs associated with starting a major production facility in Mexico. Our cost of goods sold for antimony during 2011 and 2010 increased by approximately $3,765,000 (65%) and $3,539,000 (159%), respectively. The increase in cost of goods sold in 2011 was primarily due to the increase in the cost of our raw materials, and the increase in 2010 was due to the increase in the price of metal and increased production. For all three years, costs of goods sold include production costs from Mexico operations. The cost of goods sold during all years has been impacted by an increase in the cost of operating supplies, such as fuel, trucking, insurance, refractor costs, steel, and propane.
●
Our volume of zeolite sold was nearly the same in 2012 as 2011, but total revenue increased by approximately $598,000. In 2012, we sold more products with additives, which are higher priced, than we did in 2011, and we raised prices for most products due to our increased operating costs. Our cost of goods sold for 2012 increased by approximately $354,000 from 2011, primarily due to the cost of additives, drying, blending, and overall operating cost increases. Our revenues from zeolite were up both in price and tons sold (approximately $880,000) in 2010 from 2009. This was primarily due to a contract for nuclear remediation with the Department of Energy. That contract was not ongoing in 2011, which was the primary cause for a decrease of approximately 3,200 tons sold (approximately $500,000). Although tons sold for 2011 was less than 2010, there was an increase in the sales price per ton which accounted for an increase in revenue of approximately $130,000. The increase in the price for 2011 was mainly due to an additive, drying, and blending for a customer, which also caused a similar increase in our cost of production for 2011.
●
General and administrative costs, as reported in our statement of operations, include fees paid to directors through stock based compensation. In 2012, we incurred $88,000 in fees to the NYSE MKT that were included in general and administrative expenses. General and administrative costs for both 2012 and 2011 include general and administrative costs related to commencement of production at our facilities in Mexico. The combined general and administrative costs were 5.5% and 4.0% of sales for 2012 and 2011, respectively.
●
The increase in professional fees for 2012, 2011, and 2010 (approximately $39,600, $52,500 and $ 30,700, respectively) was primarily due to increased costs related to our audits and financial statement preparation.
●
Factoring costs decreased in 2012 by approximately $76,100 as we were able to reduce our collection time for accounts receivable. Our discount to customers for early payment increased by approximately $42,100 in 2012 from 2011. Factoring expense increased for each year in 2011and 2010 by approximately $35,100 and $30,700, respectively, because of increased revenue and greater amounts of accounts receivable available for factoring.
●
For the year ending December 31, 2010, we determined that it was likely that we would be profitable in the future, and that it was appropriate to record a tax benefit of $493,000 for the value of tax losses from prior years that could be used to reduce income tax in future periods. For the year ending December 31, 2011, this benefit was reduced by approximately $105,600 for tax expenses due to taxable income in that year. For the year ended December 31, 2012, certain assets recorded for tax purposes that are not recorded on our books were reduced, causing a further reduction in this benefit of approximately $167,100.
SubsidiariesThe Company has a 100% investment in two subsidiaries in Mexico, USAMSA and AM, whose carrying value was assessed at December 31, 2012, 2011, and 2010, for impairment. Management’s assessment of the subsidiaries’ fair value was based on their future benefit to us. During fiscal year 2010 USAMSA was forced to relocate to a new mill site, resulting in an impairment of approximately $200,000. |
| | | 2012 | | | | 2011 | | | | 2010 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Antimony Division - United States: | | | | | | | | | | | | |
| Revenues - Antimony (net of discount) | | $ | 8,753,449 | | | $ | 10,406,636 | | | $ | 6,174,062 | |
| Revenues - Precious metals | | | 647,554 | | | | 667,813 | | | | 483,307 | |
| | | | 9,401,003 | | | | 11,074,449 | | | | 6,657,369 | |
| Domestic cost of sales: | | | | | | | | | | | | |
| Production costs | | | 5,665,806 | | | | 7,294,421 | | | | 4,786,197 | |
| Depreciation | | | 40,979 | | | | 29,963 | | | | 27,387 | |
| Freight and delivery | | | 218,563 | | | | 216,668 | | | | 236,623 | |
| General and administrative | | | 370,838 | | | | 280,853 | | | | 80,267 | |
| Direct sales expense | | | 61,131 | | | | 64,421 | | | | 45,447 | |
| Total domestic antimony cost of sales | | | 6,357,317 | | | | 7,886,326 | | | | 5,175,921 | |
| | | | | | | | | | | | | |
| Cost of sales - Mexico | | | | | | | | | | | | |
| Production costs | | | 1,677,927 | | | | 1,031,957 | | | | 294,391 | |
| Depreciation and amortization | | | 222,235 | | | | 169,552 | | | | 141,421 | |
| Freight and delivery | | | 111,652 | | | | 121,432 | | | | 5,578 | |
| Reclamation accrual | | | 8,040 | | | | | | | | - | |
| Other non-production costs | | | 202,572 | | | | 150,773 | | | | | |
| General and administrative | | | 148,321 | | | | 158,396 | | | | 136,498 | |
| Total Mexico antimony cost of sales | | | 2,370,747 | | | | 1,632,110 | | | | 577,888 | |
| | | | | | | | | | | | | |
| Total revenues - antimony | | | 9,401,003 | | | | 11,074,449 | | | | 6,657,369 | |
| Total cost of sales - antimony | | | 8,728,064 | | | | 9,518,436 | | | | 5,753,809 | |
| Total gross profit - antimony | | | 672,939 | | | | 1,556,013 | | | | 903,560 | |
| | | | | | | | | | | | | |
| Zeolite Division: | | | | | | | | | | | | |
| Revenues | | | 2,641,699 | | | | 2,043,641 | | | | 2,415,955 | |
| Cost of sales: | | | | | | | | | | | | |
| Production costs | | | 1,618,816 | | | | 1,221,101 | | | | 1,254,375 | |
| Depreciation | | | 209,776 | | | | 206,231 | | | | 187,068 | |
| Freight and delivery | | | 93,260 | | | | 103,630 | | | | 16,637 | |
| General and administrative | | | 47,457 | | | | 117,420 | | | | 188,251 | |
| Royalties | | | 234,343 | | | | 197,371 | | | | 229,352 | |
| Direct sales expense | | | 76,086 | | | | 79,703 | | | | 70,100 | |
| Total cost of sales | | | 2,279,738 | | | | 1,925,456 | | | | 1,945,783 | |
| Gross profit - zeolite | | | 361,961 | | | | 118,185 | | | | 470,172 | |
| | | | | | | | | | | | | |
| Total revenues - combined | | | 12,042,702 | | | | 13,118,090 | | | | 9,073,324 | |
| Total cost of sales - combined | | | 11,007,802 | | | | 11,443,892 | | | | 7,699,592 | |
| Total gross profit - combined | | $ | 1,034,900 | | | $ | 1,674,198 | | | $ | 1,373,732 | |
| UAMY/10-K/0001354488-13-001259 |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS | Our financial condition and liquidity, i.e., our net working capital, has improved each year for the three years ended December 31, 2012. This was due to an increase in our cash provided by operations and the sale of stock each year. We used most of our resources from operating cash flows and the sale of stock to complete our mine, mill, and smelter production facility in Mexico. Over the three year period, we raised approximately $6,870,000 from issuing restricted stock, and we used approximately $9,183,000, including $1,998,000 of assets purchased with debt, for capital improvements in Mexico ($7,881,000), Montana ($482,000), and at the Bear River Zeolite plant ($820,000). In Mexico, we completed the final installation of the crusher, ball mill and flotation circuit, four additional furnaces at Madero, and paid for partial construction of a natural gas pipeline.During the next year ending December 31, 2013, we are planning on financing our improvements through operating cash flow, including final installation of a natural gas pipeline to the Madero smelter, and installation of a 400 - 500 ton per day flotation mill that will increase our production from the Los Juarez ore.In 2012, cash provided by operations was primarily due to the collection of approximately $978,000 of accounts receivable, which were approximately $1,438,000 at the beginning of the year, and approximately $460,000 as of December 31, 2012. During the year ended December 31, 2010, the cash provided by operations was increased by the addition of a deferred tax asset for $493,000. In 2011, an increase in inventories due to raw materials purchased per supply agreements reduced cash flows from operations by approximately $923,000, and in 2011 and 2010, increases in accounts receivable due to December sales reduced cash flows from operations by approximately $693,000 and $583,000, respectively. An increase in accounts payable, not paid because of the increase in the amount of accounts receivable due at year end, increased our cash flow from operations by approximately $585,000 for 2011. The current portion of our long term debt is serviceable from the cash generated by operations.Our stockholders’ equity section makes note that we have a liquidation preference of $5,689,780 as concerns our preferred stock. This consists of a liquidation payment of $5,225,360 due if we liquidate our company or sell substantially all our assets, and $464,420 of undeclared dividends. The Board of Directors’ does not intend to declare dividends on preferred stock as due and payable at any time in the near future. We do not feel that the liquidation preference and undeclared dividends related to our preferred stock will be an impediment to raising capital in the future by issuing additional shares of common stock, and are not going to affect our liquidity. |
| Financial Condition and Liquidity | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | 2012 | | | | 2011 | | | | 2010 | | |
| | | | | | | | | | | | | |
| Current Assets | | $ | 3,103,128 | | | $ | 2,963,570 | | | $ | 1,848,825 | |
| Current liabilities | | | (1,803,396 | ) | | | (1,742,022 | ) | | | (784,322 | ) |
| Net Working Capital | | $ | 1,299,732 | | | $ | 1,221,548 | | | $ | 1,064,503 | |
| | | | | | | | | | | | | |
| Cash provided (used) by operations | | $ | 526,419 | | | $ | 564,041 | | | $ | 307,350 | |
| Cash (used) by investing | | | (3,513,901 | ) | | | (2,239,441 | ) | | | (965,919 | ) |
| Cash provided (used) by financing: | | | | | | | | | | | | |
| Principal paid on long-term debt | | | (464,936 | ) | | | (124,722 | ) | | | (59,270 | ) |
| Sale of Stock | | | 4,624,763 | | | | 1,242,780 | | | | 1,003,229 | |
| Other | | | (176,961 | ) | | | 113,908 | | | | (17,142 | ) |
| Net change in cash | | $ | 995,384 | | | $ | (443,434 | ) | | $ | 268,248 | |
| UAMY/10-K/0001354488-13-001259 |
SECTION 16(A) OF THE EXCHANGE ACT | Business Experience of Directors and Executive OfficersJohn C. Lawrence. Mr. Lawrence has been the president and a director since our inception. Mr. Lawrence was the president and a director of AGAU Mines, Inc., our corporate predecessor, since the inception of AGAU Mines, Inc. in 1968. He is a member of the Society of Mining Engineers and a recipient of the Uuno Sahinen Silver Medallion Award presented by Butte Tech, University of Montana. He has a vast background in mining, milling, smelting, chemical processing and oil and gas.Gary D. Babbitt. Mr. Babbitt has experience in mining industry with approximately 30 years dealing with joint ventures, purchases, royalty leases and contracts. He has a working knowledge of Spanish and has negotiated supply and mining agreements in Mexico. Mr. Babbitt has a B.A. from the Albertson College of Idaho, and earned his J.D. from the University of Chicago.Bernard J. Guarnera. Mr. Guarnera, who was nominated to the Board in May 2012, has more than 40 years of experience in the global mining industry. Most recently he served as Chairman and CEO of Behre Dolbear & Company, an internationally recognized mining consulting firm which was founded in 1991. He previously served with Texaco’s Minerals Group, Daymes & Moore, and Boise Cascade, firms where he worked in the coal and uranium, precious and base metals and industrial minerals sectors. Mr. Guarnera has degrees from the Michigan College of Mining & Technology (B.Sc. Geological Engineering (mining emphasis) and M.Sc. Economic Geology).Russell C. Lawrence. Mr. Lawrence has experience in the lines of applied physics, mining, refining, excavation, electricity, electronics, and building contracting. He graduated from the University of Idaho in 1994 with a degree in physics, and worked for the Physics Department at the University of Idaho for a period of 10 years. He has also worked as a building contractor and for USAC at the smelter and laboratory at Thompson Falls, for USAMSA in the construction and operation of the USAMSA smelter in Mexico, and for Antimonio de Mexico, S. A. de C. V. at the San Miguel Mine and the Cadereyta mill site in Mexico.Hart W. Baitis. Mr. Baitis graduated from the University of Oregon in 1971 with a B.S. in Geology, and was awarded a Ph. D. in Geology in 1976. He has 35 years of experience as an exploration geologist in the United States, Canada, Central America, and Mexico. Mr. Baitis is experienced in numerous geologic environments and terrains, and has been involved in all phases of exploration, ranging from field geologist, consultant, management, and acquisition team director.Whitney Ferer. Mr. Ferer, who was nominated to the board in February 2012, has worked for 34 years for Aaron Ferer & Sons, or AF&S, headquartered in Omaha, Nebraska, where he is currently the Vice President of Trading and Operations and Vice Chairman of the Board of AF&S. He has been involved in the patenting of various processes for the breakdown of plastics and metal recovery, and was Vice President of the Lead & Zinc Division of AF&S. In addition, Mr. Ferer has been active in the trading of all metals, and facilitated the opening of eight offices in the Far East and China. He is one of the largest traders of antimony metal and oxide in the United States.Daniel L. Parks. Mr. Parks graduated from the University of Idaho in 1974 with a B.S. in Accounting, and was licensed as a certified public accountant in 1976. He worked as an auditor for Coopers & Lybrand for three years, as controller for a lumber manufacturing company for one year, and owned his own accounting practice for thirty years. Mr. Parks was extensively involved in auditing and financial statement preparation during this time.We are not aware of any involvement by our directors or executive officers during the past five years in legal proceedings that are material to an evaluation of the ability or integrity of any director or executive officer.Board Meetings and Committees. Our Board of Directors held four (4) regular meetings during the 2012 calendar year. Each incumbent director attended all of the meetings held during the 2012 calendar year, in the aggregate, by the Board and each committee of the Board of which he was a member.Our Board of Directors established an Audit Committee on December 10, 2011. It consists of three members, Gary Babbitt (Chairman), Whitney Ferer, and Hart Baitis. None of the Audit Committee members are involved in our day-to-day financial management. Hart Baitis is considered a financial expert.During 2011, the Board also established a Compensation Committee and a Nominating Committee.Board Member Compensation. We paid directors' fees in the form of 26,000 shares of our common stock per director during 2010. In January of 2012, we issued the directors 149,500 shares, of which 95,835 shares were for services during 2011. The remaining shares will be part of the directors’ compensation for 2012. Following is a summary of fees, cash payments, stock awards, and other reimbursements to Directors during the year ended December 31, 2012: |
| Name | | Age | | Affiliation | | Expiration of Term |
| --- | --- | --- | --- | --- | --- | --- |
| | | | | | | |
| John C. Lawrence | | 74 | | Chairman, President, | | Annual meeting |
| | | | | Treasurer; Director | | |
| | | | | | | |
| John C. Gustavsen | | 64 | | First Vice-President | | Annual meeting |
| | | | | | | |
| Russell C. Lawrence | | 44 | | Second Vice-President | | Annual meeting |
| | | | | And Director | | |
| | | | | | | |
| Matthew Keane | | 58 | | Third Vice-President | | Annual meeting |
| | | | | | | |
| Daniel L. Parks | | 64 | | Chief Financial Officer | | Annual meeting |
| | | | | | | |
| Alicia Hill | | 31 | | Secretary and Controller | | Annual meeting |
| | | | | | | |
| Bernard Guarnera | | 69 | | Director | | Annual meeting |
| | | | | | | |
| Gary D. Babbitt | | 67 | | Director | | Annual meeting |
| | | | | | | |
| Whitney Ferer | | 54 | | Director | | Annual meeting |
| | | | | | | |
| Hart W. Baitis | | 63 | | Director | | Annual meeting |
| UAMY/10-K/0001354488-13-001259 |
SECTION 16(A) OF THE EXCHANGE ACT | Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and the holders of 10% or more of our common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and stockholders holding more than 10% of our common stock are required by the regulation to furnish us with copies of all Section 16(a) forms they have filed. Based solely on our review of copies of Forms 3, 4 and 5 furnished to us, Mr.John Lawrence, Mr. Baitis, Mr. Babbitt, Mr. Ferer, Mr. Guarnera, and Mr.Russell Lawrence did not file timely Forms 3, 4 or Form 5 reports during 2012, 2011, or 2010.Code of EthicsThe Company has adopted a Code of Ethics that applies to the Company's executive officers and its directors. The Company will provide, without charge, a copy of the Code of Ethics on the written request of any person addressed to the Company at: United States Antimony Corporation, P.O. Box 643, Thompson Falls, MT 59873. |
| Directors Compensation | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Name and Principal Position | | Fees Earned or paid in Cash | | | | Stock Awards | | | | Total Fees, Awards, and Other Compensation | | |
| | | | | | | | | | | | | |
| John C. Lawrence, Chairman | | | | | | $ | 25,000 | | | $ | 25,000 | |
| Bernard Guarnera, Director | | | | | | $ | 15,625 | | | $ | 15,625 | |
| Gary D. Babbitt, Director | | $ | 36,000 | | | $ | 25,000 | | | $ | 61,000 | |
| Leo Jackson, Director | | $ | 60,000 | | | $ | 36,755 | | | $ | 96,755 | |
| Russell Lawrence, Director | | | | | | $ | 25,000 | | | $ | 25,000 | |
| Hartmut Baitis, Director | | | | | | $ | 25,000 | | | $ | 25,000 | |
| Whitney Ferer, Director | | | | | | $ | 25,000 | | | $ | 25,000 | |
| Patrick Dugan, Director | | | | | | $ | 34,438 | | | $ | 34,438 | |
| UAMY/10-K/0001354488-13-001259 |
ITEM 11. EXECUTIVE COMPENSATION | (1)
Represents earned but unused vacation.
(2)
These figures represent the fair values, as of the date of issuance, of the annual director's fee payable to Mr. Lawrence in the form of shares of USAC's common stock.
Compensation for all executive officers, except for the President/CEO position, is recommended to the compensation committee of the Board of Directors by the President/CEO. The compensation committee makes the recommendation for the compensation of the President/CEO. The compensation committee has identified a peer group of mining companies to aid in reviewing the President’s compensation recommendations for executives, and for reviewing the compensation of the President/CEO. The full Board approves the compensation amounts recommended by the compensation committee. Currently, the executive managements’ compensation only includes base salary and health insurance. The Company does not have annual performance based salary increases, long term performance based cash incentives, deferred compensation, retirement benefits, or disability benefits. For the year ended December 31, 2011, The Chief Executive Officer (CEO) received an increase in base compensation of $24,000 annually. The Board of Directors determined that the CEO’s compensation for the prior year ended December 31, 2010, was substantially less than that of Chief Executive Officers for similar companies, and that a raise was appropriate to compensate the CEO for management of a Company with the complexities of United States Antimony Corporation.
Two executive officers, the President/CEO and the Vice-President for the Latin American operations, receive restricted stock awards for their services as Board members.
The following table sets forth information concerning the outstanding equity awards at December 31, 2012, held by our principal executive officer. There were not any other outstanding equity awards or plan based awards to officers or directors as of December 31, 2012. |
| Name and Principal Position | | Year | | Salary | | | | Bonus | | | | Other Annual Compensation (1) | | | | Restricted Options/Awards (2) | | | All Other Compensation | | Total | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | | | | | | | | | | | | | | |
| John C. Lawrence, | | 2012 | | $ | 126,000 | | | | N/A | | | $ | 5,538 | | | $ | 25,000 | | None | | $ | 156,538 | |
| President and Chief | | 2011 | | $ | 126,000 | | | | | | | $ | 5,538 | | | $ | 40,001 | | | | $ | 171,539 | |
| Executive Officer | | 2010 | | $ | 102,500 | | | | | | | $ | 5,538 | | | $ | 13,520 | | | | $ | 121,558 | |
| John C. Gustaven, | | 2012 | | $ | 100,000 | | | | N/A | | | | | | | | | | None | | $ | 100,000 | |
| Executive Vice President | | 2011 | | $ | 85,000 | | | | | | | | | | | | | | | | $ | 85,000 | |
| | | 2010 | | | | | | | | | | | | | | | | | | | | | |
| Russell Lawrence, | | 2012 | | $ | 100,000 | | | | N/A | | | | | | | $ | 25,000 | | None | | $ | 125,000 | |
| Vice President for Latin | | 2011 | | $ | 85,000 | | | | | | | | | | | $ | 40,001 | | | | $ | 125,001 | |
| America | | 2010 | | $ | 85,000 | | | | | | | | | | | $ | 13,520 | | | | $ | 98,520 | |
| UAMY/10-K/0001354488-13-001259 |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | (1)
Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of March 18, 2013, are deemed outstanding for computing the percentage of the person holding options or warrants but are not deemed outstanding for computing the percentage of any other person. Percentages are based on a total of 61,896,726 shares of common stock, 750,000 shares of Series B Preferred Stock, 177,904 shares of Series C Preferred Stock, and 1,751,005 shares of Series D Preferred Stock outstanding on March 18, 2013. Total voting stock of 63,825,635 shares is a total of all the common stock issued, and all of the Series C and Series D Preferred Stock.
(2)
Includes 3,801,653 shares of common stock and 250,000 stock purchase warrants. Excludes 183,324 shares owned by Mr. Lawrence's sister, as to which Mr. Lawrence disclaims beneficial ownership.
(3)
Includes shares owned by the estate of Al W. Dugan and shares owned by companies owned and controlled by the estate of Al W. Dugan. Excludes 183,333 shares owned by Lydia Dugan as to which the estate of Mr. Dugan disclaims beneficial ownership.
(4)
The outstanding Series C and Series D preferred shares carry voting rights equal to the same number of shares of common stock.
(5)
The outstanding Series B preferred shares carry voting rights only if the Company is in default in the payment of declared dividends. The Board of Directors has not declared any dividends as due and payable for the Series B preferred stock. |
| | | Name and Address of | | Amount and Nature of | | Percent of | | Percent of |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Title of Class | | Beneficial Owner(1) | | Beneficial Ownership | | Class(1) | | all Voting Stock |
| | | | | | | | | |
| Common stock | | Reed Family Limited Partnership | | 3,918,335 | | 7 | | 7 |
| | | 328 Adams Street | | | | | | |
| | | Milton, MA 02186 | | | | | | |
| | | | | | | | | |
| Common stock | | The Dugan Family | | 6,362,927(3) | | 10 | | 10 |
| | | c/o A. W. Dugan | | | | | | |
| | | 1415 Louisiana Street, Suite 3100 | | | | | | |
| | | Houston, TX 77002 | | | | | | |
| | | | | | | | | |
| Series B Preferred | | Excel Mineral Company | | 750,000(5) | | 100 | | N/A |
| | | PO Box 3800 | | | | | | |
| | | Santa Barbara, CA 93130 | | | | | | |
| | | | | | | | | |
| Series C Preferred | | Richard A. Woods | | 48,305(4) | | 27 | | Nil |
| | | 59 Penn Circle West | | | | | | |
| | | Penn Plaza Apts. | | | | | | |
| | | Pittsburgh, PA 15206 | | | | | | |
| | | | | | | | | |
| Series C Preferred | | Dr. Warren A. Evans | | 48,305(4) | | 27 | | Nil |
| | | 69 Ponfret Landing Road | | | | | | |
| | | Brooklyn, CT 06234 | | | | | | |
| | | | | | | | | |
| Series C Preferred | | Edward Robinson | | 32,203(4) | | 18 | | Nil |
| | | 1007 Spruce Street 1st Floor | | | | | | |
| | | Philadelphia, PA 19107 | | | | | | |
| | | | | | | | | |
| Series C Preferred | | All Series C Preferred Shareholders | | | | | | |
| | | as a group | | 177,904(4) | | 100 | | Nil |
| | | | | | | | | |
| Common stock | | John C. Lawrence | | 4,128,346(2) | | 7 | | 7 |
| Common stock | | Hart Baitis | | 20,526 | | Nil | | Nil |
| Common stock | | Russ Lawrence | | 165,693 | | Nil | | Nil |
| Common stock | | Bernard Guarnera | | 12,275 | | Nil | | Nil |
| Common stock | | Gary Babbitt | | 134,167 | | Nil | | Nil |
| Common stock | | Whitney Ferer | | 58,026 | | Nil | | Nil |
| Common stock | | Matthew Keane | | 10,300 | | Nil | | Nil |
| Common stock | | Daniel Parks | | 35,400 | | Nil | | Nil |
| Common Stock | | All directors and executive | | | | | | |
| | | officers as a group | | 4,564,733 | | 7 | | 7 |
| | | | | | | | | |
| Series D Preferred | | John C. Lawrence | | 1,590,672(4) | | 91 | | 3 |
| Series D Preferred | | Leo Jackson | | 102,000 | | 5 | | Nil |
| Series D Preferred | | Gary Babbit | | 58,333 | | Nil | | Nil |
| Series D Preferred | | All Series D Preferred Shareholders | | | | | | |
| | | as a group | | 1,751,005(4) | | 100 | | 3 |
| UAMY/10-K/0001354488-13-001259 |
ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K | * Filed herewith.Reports on Form 8-K |
| 10.43 | | Settlement agreement and release of all claims between the Estate of Bobby C. Hamilton and United States Antimony Corporation filed as an exhibit to USAC form 10-QSB for the quarter ended June 30, 2000 (File No. 001-08675) are incorporated herein by this reference. |
| --- | --- | --- |
| | | |
| 10.44 | | Supply Contracts with Fortune America Trading Ltd. filed as an exhibit to USAC form 10-QSB for the quarter ended June 30, 2000 (File No. 001-08675) are incorporated herein by this reference |
| | | |
| 10.45 | | Amended and Restated Agreements with Thomson Kernaghan & Co., Ltd, filed as an exhibit to amendment No. 3 to USAC's Form SB-2 Registration Statement (Reg. No. 333-45508), are incorporated herein by this reference |
| | | |
| 10.46 | | Purchase Order from Kohler Company, filed as an exhibit to amendment No. 4 to USAC's Form SB-2 Registration Statement (Reg. No. 333-45508) are incorporated herein by this reference |
| | | |
| Documents filed as an exhibit to USAC's Form 10-QSB for the quarter ended June 30, 2002 (File No. 001-08675) are incorporated herein by this reference: | | |
| | | |
| 10.47 | | Bear River Zeolite Company Royalty Agreement, dated May 29, 2002 |
| | | |
| 10.48 | | Grant of Production Royalty, dated June 1, 2002 |
| | | |
| 10.49 | | Assignment of Common Stock of Bear River Zeolite Company, dated May 29, 2002 |
| | | |
| 10.50 | | Agreement to Issue Warrants of USA, dated May 29, 2002 |
| | | |
| 10.51 | | Secured convertible note payable - Delaware Royalty Company dated December 22, 2003\* |
| | | |
| 10.52 | | Convertible note payable - John C. Lawrence dated December 22, 2003\* |
| | | |
| 10.53 | | Pledge, Assignment and Security Agreement dated December 22, 2003\* |
| | | |
| 10.54 | | Note Purchase Agreement dated December 22, 2003\* |
| | | |
| 14.0 | | Code of Ethics\* |
| | | |
| 31.1 | | Rule 13a-14(a)/15d-14(a) Certifications |
| | | Certification of John C. Lawrence\* |
| | | |
| 32.1 | | Section 1350 Certifications |
| | | Certification of John C. Lawrence\* |
| | | |
| 44.1 | | CERCLA Letter from U.S. Forest Service filed as an exhibit to USAC form 10-QSB for the quarter ended June 30, 2000 (File No. 001-08675) are incorporated herein by this reference and filed as an exhibit to USAC's Form 10-KSB for the year ended December 31, 1995 (File No. 1-8675) is incorporated herein by this reference |
| UAMY/10-K/0001354488-13-001259 |
SIGNATURES | Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. |
| | UNITED STATES ANTIMONY CORPORATION | | |
| --- | --- | --- | --- |
| | (Registrant) | | |
| | | | |
| Date: March 18, 2013 | By: | | |
| | | John C. Lawrence, President, Director, | |
| | | and Principal Executive Officer | |
| | | | |
| Date: March 18, 2013 | By: | | |
| | | Daniel L. Parks, Chief Financial Officer | |
| | | | |
| Date: March 18, 2013 | By: | | |
| | | Alicia Hill, Controller | |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | The accompanying notes are an integral part of these consolidated financial statements.
F-3
Table of Contents |
| | | 2012 | | | | 2011 | | | | 2010 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | | | |
| REVENUES | | $ | 12,042,702 | | | $ | 13,118,090 | | | $ | 9,073,324 | |
| | | | | | | | | | | | | |
| COST OF REVENUES | | | 11,007,802 | | | | 11,443,892 | | | | 7,699,592 | |
| | | | | | | | | | | | | |
| GROSS PROFIT | | | 1,034,900 | | | | 1,674,198 | | | | 1,373,732 | |
| | | | | | | | | | | | | |
| OPERATING EXPENSES: | | | | | | | | | | | | |
| General and administrative | | | 810,369 | | | | 428,092 | | | | 438,889 | |
| Salaries and benefits | | | 284,483 | | | | 149,671 | | | | 153,819 | |
| Professional fees | | | 258,735 | | | | 204,904 | | | | 152,357 | |
| Impairment of properties, plants and equipment | | | - | | | | - | | | | 199,302 | |
| TOTAL OPERATING EXPENSES | | | 1,353,587 | | | | 782,667 | | | | 944,367 | |
| | | | | | | | | | | | | |
| INCOME (LOSS) FROM OPERATIONS | | | (318,687 | ) | | | 891,531 | | | | 429,365 | |
| | | | | | | | | | | | | |
| OTHER INCOME (EXPENSE): | | | | | | | | | | | | |
| Interest income | | | 8,049 | | | | 5,205 | | | | 7,751 | |
| Interest expense | | | (2,691 | ) | | | - | | | | (5,796 | ) |
| Factoring expense | | | (78,100 | ) | | | (154,206 | ) | | | (119,107 | ) |
| TOTAL OTHER INCOME (EXPENSE) | | | (72,742 | ) | | | (149,001 | ) | | | (117,152 | ) |
| | | | | | | | | | | | | |
| INCOME (LOSS) BEFORE INCOME TAXES | | | (391,429 | ) | | | 742,530 | | | | 312,213 | |
| | | | | | | | | | | | | |
| INCOME TAXES: | | | | | | | | | | | | |
| Income tax (expense) - current | | | - | | | | (9,168 | ) | | | - | |
| Income tax (expense) benefit - deferred | | | (167,107 | ) | | | (96,442 | ) | | | 493,000 | |
| TOTAL INCOME TAXES | | | (167,107 | ) | | | (105,610 | ) | | | 493,000 | |
| | | | | | | | | | | | | |
| NET INCOME (LOSS) | | | (558,536 | ) | | | 636,920 | | | | 805,213 | |
| Preferred dividends | | | (48,649 | ) | | | (48,649 | ) | | | (48,648 | ) |
| Net income (loss) available to | | | | | | | | | | | | |
| common shareholders | | $ | (607,185 | ) | | $ | 588,271 | | | $ | 756,565 | |
| | | | | | | | | | | | | |
| Net income (loss) per share of | | | | | | | | | | | | |
| common stock: | | | | | | | | | | | | |
| Basic | | $ | (0.01 | ) | | $ | 0.01 | | | $ | 0.01 | |
| Diluted | | $ | (0.01 | ) | | $ | 0.01 | | | $ | 0.01 | |
| | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | |
| Basic | | | 61,896,726 | | | | 58,855,348 | | | | 54,356,693 | |
| Diluted | | | 61,896,726 | | | | 59,381,175 | | | | 54,578,054 | |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | The Company's revenues from antimony sales are strongly influenced by world prices for such commodities, which fluctuate and are affected by numerous factors beyond the Company's control, including inflation and worldwide forces of supply and demand. The aggregate effect of these factors is not possible to predict accurately.
F-6
Table of Contents
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
3. Summary of Significant Accounting PoliciesPrinciples of ConsolidationThe Company's consolidated financial statements include the accounts of BRZ, USAMSA and AM, all wholly-owned subsidiaries. Intercompany balances and transactions are eliminated in consolidation.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant and critical estimates include property, plant and equipment impairment, accounts receivable allowance, deferred income taxes, environmental remediation liabilities and asset retirement obligations. Actual results could differ from those estimates.ReclassificationsCertain reclassifications have been made to the 2011 and 2010 financial statements in order to conform to the 2012 presentation. These reclassifications have no effect on net income (loss), total assets or stockholders' equity as previously reported.Cash and Cash EquivalentsThe Company considers cash in banks and investments with original maturities of three months or less when purchased to be cash equivalents.Restricted CashRestricted cash at December 31, 2012 and 2011 consists of cash held for reclamation performance bonds, and is held as certificates of deposit with financial institutions.Accounts ReceivableAccounts receivable are stated at the amount that management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through an allowance for doubtful accounts. Changes to the allowance for doubtful accounts are based on management’s judgment, considering historical write-offs, collections and current credit conditions. Balances which remain outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to the applicable accounts receivable. Payments received on receivables subsequent to being written off are considered a bad debt recovery.InventoriesInventories at December 31, 2012 and 2011, 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 allocated based on production quantity. Since the Company's antimony inventory is a commodity with a sales value that is subject to world prices for antimony that are beyond the Company's control, a significant change in the world market price of antimony could have a significant effect on the net realizable value of inventories. The Company periodically reviews its inventories to identify excess and obsolete inventories and to estimate reserves for obsolete inventories as necessary to reflect inventories at net realizable value.
F-7
Table of Contents
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
3. Summary of Significant Accounting Policies, continued
Properties, Plants and EquipmentProperties, plants and equipment are stated at historical cost and are depreciated using the straight-line method over estimated useful lives of five to fifteen years. Vehicles and office equipment are stated at cost and are depreciated using the straight-line method over estimated useful lives of three to seven years. Maintenance and repairs are charged to operations as incurred. Betterments of a major nature are capitalized. Expenditures for new propertyplant, equipment, and improvements that extend the useful life or functionality of the asset are capitalized. The Company capitalized $5,002,392 and $2,473,750 in plant construction and other capital costs for the years ended December 31, 2012 and 2011, respectively. These amounts include capitalized interest of $14,313 and $10,888, respectively. When assets are retired or sold, the costs and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in operations.Management of the Company periodically reviews the net carrying value of all of its long-lived assets. These reviews consider the net realizable value of each asset or group to determine whether a permanent impairment in value has occurred and the need for any asset write-down. An impairment loss is recognized when the estimated future cash flows (undiscounted and without interest) expected to result from the use of an asset are less than the carrying amount of the asset. Measurement of an impairment loss is based on the estimated fair value of the asset if the asset is expected to be held and used.Translations of Foreign CurrenciesAll amounts are presented in United States (US) Dollars, and the US Dollar is the functional currency of the Company and its foreign subsidiaries. All transactions are carried out in US Dollars, or translated at the time of the transaction. There are no accounts carried in foreign currencies that would require translation at year end.Mineral RightsThe cost to obtain the legal right to explore, extract and retain at least a portion of the benefits from mineral deposits are capitalized as mineral rights in the year of acquisition. These capitalized costs will be amortized to the statement of operations using the unit of production method when placed into production. Mineral rights are assessed for impairment when facts and circumstances indicate that the potential for impairment exists. No impairment has been indicated for the years ended December 31, 2012 or 2011 as a result of this assessment. Mineral rights are subject to write down in the period the property is abandoned.Exploration and DevelopmentThe Company records exploration costs as operating expenses in the period they occur, and capitalizes development costs on discrete mineralized bodies that have proven reserves in compliance with SEC Industry Guide 7, and are in development or production.Reclamation and RemediationAll of the Company's mining operations are subject to reclamation and remediation requirements. Minimum standards for mine reclamation have been established by various governmental agencies. Costs are estimated based primarily upon environmental and regulatory requirements and are accrued. The liability for reclamation is classified as current or noncurrent based on the expected timing of expenditures. Reclamation differs from an asset retirement obligation in that no associated asset is recorded in the case of reclamation liabilities.
F-8
Table of Contents
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
3. Summary of Significant Accounting Policies, continuedIt is reasonably possible that because of uncertainties associated with defining the nature and extent of environmental contamination, application of laws and regulations by regulatory authorities, and changes in remediation technology, the ultimate cost of remediation and reclamation could change in the future. The Company continually reviews its accrued liabilities for such remediation and reclamation costs as evidence becomes available indicating that its remediation and reclamation liability has changed.The Company records the fair value of an asset retirement obligation as a liability in the period in which the Company incurs a legal obligation for the retirement of long-lived assets, it is probable that such costs will be incurred and they are reasonably estimable. A corresponding asset is also recorded and depreciated over the life of the assets on a units-of-production basis. After the initial measurement of the asset retirement obligation, the liability will be adjusted at the end of each reporting period to reflect changes in the estimated future cash flows underlying the obligation. Determination of any amounts recognized upon adoption is based upon numerous estimates and assumptions, including future retirement costs, future inflation rates, and the credit-adjusted risk-free interest rates.Revenue RecognitionSales of antimony and zeolite products are recorded upon shipment and when title passes to the customer. Prepayments received from customers prior to the time that products are shipped are recorded as deferred revenue. When the related products are shipped, the amount recorded as deferred revenue is recognized as revenue. The Company's sales agreements provide for no product returns or allowances.Sales of precious metals are recognized when pervasive evidence of an arrangement exists, the price is fixed and determinable, the product has been delivered, title has transferred, and collection is reasonably assured.Common Stock Issued for Consideration Other than CashAll transactions in which goods or services are received for the issuance of shares of the Company’s common stock are accounted for based on the fair value of the consideration received or the fair value of the common stock issued, whichever is more readily determinable.Income TaxesIncome taxes are accounted for under the liability method. Under this method, deferred income tax liabilities or assets are determined at the end of each period using the tax rate expected to be in effect when the taxes are actually paid or recovered. A valuation allowance is recognized on deferred tax assets when it is more likely than not that some or all of these deferred tax assets will not be realized.The Company applies generally accepted accounting principles for recognition of uncertainty in income taxes and prescribing a recognition threshold and measurement attribute for the recognition and measurement of a tax position taken or expected to be taken in a tax return.Allowance for Doubtful AccountsThe 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.
F-9
Table of Contents
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
3. Summary of Significant Accounting Policies, continuedIncome (Loss) Per Common ShareBasic 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 years ended December 31, 2012, 2011 and 2010, adds none, 525,827 and 221,361 shares, respectively, to basic weighted average shares, related to common stock purchase warrants. Shares related to warrants and convertible preferred stock was not added to the weighted average of common stock for 2012 because the results would have been anti-dilutive. As of December 31, 2012, 2011 and 2010, the remaining potentially dilutive common stock equivalents not included in the calculation of diluted earnings per share are as follows: |
| Sales to Three | | For the Year Ended | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Largest Customers | | December 31, 2012 | | | | December 31, 2011 | | | | December 31, 2010 | | |
| Alpha Gary Corporation | | $ | 3,245,612 | | | $ | 1,771,173 | | | | | |
| Ampacet Corporation | | | | | | | | | | $ | 602,980 | |
| Kohler Corporation | | | 2,286,938 | | | | 2,941,143 | | | | 2,435,978 | |
| Polymer Products Inc. | | | 1,119,055 | | | | 2,887,862 | | | | 666,600 | |
| | | $ | 6,651,605 | | | $ | 7,600,178 | | | $ | 3,705,558 | |
| % of Total Revenues | | | 58.14 | % | | | 57.90 | % | | | 40.80 | % |
| | | | | | | | | | | | | |
| Three Largest | | | Year End | | | | | | | | | |
| Accounts Receivable | | December 31, 2012 | | | | December 31, 2011 | | | | December 31, 2010 | | |
| Kohler Corporation | | | | | | $ | 299,273 | | | $ | 62,454 | |
| Alpha Gary Corporation | | $ | 194,005 | | | | 254,940 | | | | | |
| GE Lighting (LPC) | | | | | | | 252,000 | | | | | |
| H.B. Chemical Co. | | | | | | | | | | | 226,600 | |
| BASF Catalysts LLC | | | | | | | | | | | 196,810 | |
| Quantum Remediation | | | 101,149 | | | | | | | | | |
| Scutter Enterprises | | | 41,512 | | | | | | | | | |
| | | $ | 336,666 | | | $ | 806,213 | | | $ | 485,864 | |
| % of Total Receivables | | | 73.80 | % | | | 64.20 | % | | | 61.20 | % |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | Fair Value of Financial InstrumentsThe Company’s financial instruments include cash and cash equivalents, restricted cash and long-term debt. The carrying value of certificates of deposit, restricted cash, and long-term debt approximates fair value based on the contractual terms of those instruments.Fair Value MeasuresASC 820, “Fair Value Measurements and Disclosures”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
●
Level 1: Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
●
Level 2: Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
●
Level 3: Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
F-10
Table of Contents
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
3. Summary of Significant Accounting Policies, continuedThe table below sets forth our financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2012 and 2011, respectively, and the fair value calculation input hierarchy level that we have determined applies to each asset and liability category. |
| | | December 31, 2012 | | | | December 31, 2011 | | | | December 31, 2010 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Warrants | | | 1,934,667 | | | | 74,173 | | | | 503,639 | |
| Convertible preferred stock | | | 1,751,005 | | | | 1,751,005 | | | | 1,751,005 | |
| Total possible dilution | | | 3,685,672 | | | | 1,825,178 | | | | 2,254,644 | |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 4. Accounts Receivable and Due to Factor |
| | | | | | | | | | | Input | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | Hierarchy | |
| Assets: | | 2012 | | | | 2011 | | | | Level | |
| Cash and cash equivalents | | $ | 1,000,811 | | | $ | 5,247 | | | Level I | |
| Certificates of deposit | | $ | 243,616 | | | $ | - | | | Level I | |
| Restricted cash | | $ | 75,251 | | | $ | 74,777 | | | Level I | |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | The factoring agreement requires the Company to pay a financing fee equal to 2% of the face amount of receivables sold. Factoring fees paid by the Company during the years ended December 31, 2012, 2011 and 2010 were $78,100, $154,206, and $119,107, respectively. For the years ended December 31, 2012, 2011, and 2010, net accounts receivable of approximately $ 3.80 million, $7.39 million, and $5.96 million, respectively, were sold under the agreement.Proceeds from the sales were used to fund inventory purchases and operating expenses. The agreement is for a term of one year with automatic renewal for additional one-year terms.
F-11
Table of Contents
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
5. InventoriesThe major components of the Company's inventories at December 31, 2012 and 2011 were as follows: |
| Accounts Receivble | | December 31, 2012 | | | | December 31, 2011 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Accounts receivable - non factored | | $ | 432,500 | | | $ | 1,299,575 | |
| Accounts receivable - factored with recourse | | | 27,690 | | | | 146,589 | |
| less allowance for doubtful accounts | | | (4,031 | ) | | | (7,600 | ) |
| Accounts receivable - net | | $ | 456,159 | | | $ | 1,438,564 | |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | At December 31, 2012 and 2011, antimony metal consisted principally of recast metal from antimony-based compounds, and metal purchased from foreign suppliers. Antimony oxide inventory consisted of finished product oxide held at the Company's plant. Antimony concentrates and ore was held primarily at sites in Mexico and is essentially raw material, carried at cost. The Company's zeolite inventory consists of salable zeolite material held at BRZ's Idaho mining and production facility, and is carried at cost.As we processed purchased ore from our inventory n Mexico, we became aware that, due to analytical problems, we were over paying for direct shipping ore. We received credits from some of our Mexican ore suppliers for previously purchased ore. As part of the negotiations, we exercised our option to purchase the Soyatal mine properties for approximately $1.3MM. We are obligated to make payments of $200,000 annually through 2018, and a final payment of $100,000 is due in 2019. This obligation is recorded in long-term debt as Soyatal Mine. We have credits of approximately $342,000 recorded in other assets for advances to the previous Soyatal operator which can be used as a payment on our debt at a rate of $100,000 per year, or offset from future ore purchase payments which may become due to the suppliers.6. Properties, Plants and EquipmentThe major components of the Company's properties, plants and equipment at December 31, 2012 and 2011 are shown below. Approximately $1.4 million and $1.6 million of capitalized costs at December 31, 2012 and 2011, respectively, related primarily to the construction of an antimony mill in Mexico, have not yet been placed in service and, therefore, have not been subject to depreciation for those years.During 2010 the Company incurred an impairment charge of $199,302 on certain constructed assets at its Cal Los Arcos Mexican mill site because it was determined that the mill site was no longer viable. Assets such as installation costs and concrete work that were unable to be transported to the new mill site at Corral Blanco were deemed to be impaired and therefore written off.
F-12
Table of Contents
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
6. Properties, Plants and Equipment, continued |
| | | 2012 | | | | 2011 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Antimony Metal | | $ | 152,821 | | | $ | 152,026 | |
| Antimony Oxide | | | 295,613 | | | | 180,404 | |
| Antimony Concentrates | | | 46,008 | | | | | |
| Antimony Ore | | | 500,192 | | | | 644,113 | |
| Total antimony | | | 994,634 | | | | 976,543 | |
| Zeolite | | | 197,555 | | | | 90,270 | |
| | | $ | 1,192,189 | | | $ | 1,066,813 | |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | During 2011, the Company assessed the obligation for removal and remediation costs relating to its plants and mine in Mexico. Management assigned a cost to the expected work involved in complying with the requirements of the Mexico operating permits. Management applied, based on a 20 year life, a cost inflation factor, and then discounted that cost to a current net present value based on a discount rate of 6% (management’s estimate of its credit-adjusted interest rate). Management determined a future cost in 2031 of approximately $430,000 with a net present value of $142,040. |
| | | 2012 | | | | 2011 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Antimony | | | | | | | | |
| Equipment | | $ | 3,762,238 | | | $ | 1,936,038 | |
| Buildings | | | 1,219,025 | | | | 1,054,311 | |
| Mineral rights | | | 786,087 | | | | 635,011 | |
| Land and Other | | | 5,942,853 | | | | 3,394,174 | |
| | | | 11,710,203 | | | | 7,019,534 | |
| Accumulated depreciation | | | (2,850,722 | ) | | | (2,597,878 | ) |
| Total Antimony, net | | | 8,859,481 | | | | 4,421,656 | |
| | | | | | | | | |
| Zeolite | | | | | | | | |
| Equipment | | | 2,397,119 | | | | 2,125,748 | |
| Buildings | | | 818,538 | | | | 788,913 | |
| | | | 3,215,657 | | | | 2,914,661 | |
| Accumulated depreciation | | | (1,498,732 | ) | | | (1,289,313 | ) |
| Total Zeolite, net | | | 1,716,925 | | | | 1,625,348 | |
| | | | | | | | | |
| Properties, plants and equipment, net | | $ | 10,576,406 | | | $ | 6,047,004 | |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | The asset retirement obligation liability is combined with reclamation obligations for Idaho and Montana operations of $107,500 at December 31, 2012.
F-13
Table of Contents
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
7. Long-Term Debt: |
| Asset Retirement Obligation | | | | |
| --- | --- | --- | --- | --- |
| Balance December 31, 2010 | | $ | - | |
| Incurred during 2011 | | | 134,000 | |
| Balance December 31, 2011 | | | 134,000 | |
| Accretion during 2012 | | | 8,040 | |
| Balance December 31, 2012 | | $ | 142,040 | |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-14
Table of Contents
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010
7. Long-Term Debt, continued
At December 31, 2102, principal payments on debt are due as follows: |
| Long-Term debt at December 31, 2012 and 2011, is as follows: | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | 2012 | | | | 2011 | | |
| Note payable to Thermo Fisher Financial Co., bearing interest | | | | | | | | |
| at 5.67%; payable in monthly installments of $3,522; maturing | | | | | | | | |
| September 2013; collateralized by equipment. | | $ | 34,310 | | | $ | - | |
| Note payable to Thermo Fisher Financial Co., bearing interest | | | | | | | | |
| at 8.54%; payable in monthly installments of $2,792; maturing | | | | | | | | |
| December 2013; collateralized by equipment. | | | 30,708 | | | | - | |
| Note payable to Stearns Bank, bearing interest | | | | | | | | |
| at 6.9%; payable in monthly installments of $3,555; maturing | | | | | | | | |
| December 2014; collateralized by equipment. | | | 79,500 | | | | - | |
| Note payable to Western States Equipment Co., bearing interest | | | | | | | | |
| at 6.15%; payable in monthly installments of $2,032; maturing | | | | | | | | |
| June 2015; collateralized by equipment. | | | 56,390 | | | | 77,040 | |
| Note payable to CNH Capital America, LLC, bearing interest | | | | | | | | |
| at 4.5%; payable in monthly installments of $505; maturing | | | | | | | | |
| June 2013; collateralized by equipment. | | | 3,478 | | | | 8,648 | |
| Note payable to Catepillar Financial, bearing interest at 5.95%; | | | | | | | | |
| payable in monthly installments of $827; maturing September 2015; | | | | | | | | |
| collateralized by equipment. | | | 25,823 | | | | - | |
| Note payable to GE Capital, bearing interest at 2.25%; payable in | | | | | | | | |
| monthly installments of $359; maturing July 2013; collateralized by | | | | | | | | |
| equipment. | | | 2,847 | | | | 6,531 | |
| Note payable toDe Lage Landen Financial Services | | | | | | | | |
| bearing interest at 5.30%; payable in monthly installments of $549; | | | | | | | | |
| maturing March 2016; collateralized by equipment. | | | 19,629 | | | | - | |
| Note payable to Phyllis Rice, bearing interest | | | | | | | | |
| at 1%; payable in monthly installments of $2,000; maturing | | | | | | | | |
| March 2015; collateralized by equipment. | | | 55,365 | | | | 80,882 | |
| Note payable to De Lage Landen Financial Services, | | | | | | | | |
| bearing interest at 5.12%; payable in monthly installments of $697; | | | | | | | | |
| maturing December 2014; collateralized by equipment. | | | 16,496 | | | | 19,229 | |
| Note payable to Catepillar Financial, bearing interest | | | | | | | | |
| at 6.15%; payable in monthly installments of $766; maturing | | | | | | | | |
| August 2014; collateralized by equipment. | | | 14,535 | | | | 21,990 | |
| Note payable to De Lage Landen Financial Services, | | | | | | | | |
| bearing interest at 5.28%; payable in monthly installments of $709; | | | | | | | | |
| maturing June 2014; collateralized by equipment. | | | 12,235 | | | | 23,529 | |
| Note payable for Corral Blanco Land, bearing interest at 6.0%, | | | | | | | | |
| due May 1, 2013; collateralized by land | | | 86,747 | | | | - | |
| Note payable for Soyatal Mine, 7.0 % interest, | | | | | | | - | |
| annual payments of $200,000 through 2019; | | | 1,067,431 | | | | | |
| | | | 1,505,494 | | | | 237,849 | |
| Less Current portion | | | (461,354 | ) | | | (79,631 | ) |
| Non-Current portion | | $ | 1,044,140 | | | $ | 158,218 | |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 8. Stockholders' Equity |
| Year Ending December 31, | | | | |
| --- | --- | --- | --- | --- |
| 2013 | | $ | 461,354 | |
| 2014 | | | 259,360 | |
| 2015 | | | 181,995 | |
| 2016 | | | 159,551 | |
| 2017 | | | 168,974 | |
| 2018 | | | 180,802 | |
| 2019 | | | 93,458 | |
| | | $ | 1,505,494 | |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | Preferred StockThe Company's Articles of Incorporation authorize 10,000,000 shares of $0.01 par value preferred stock available for issuance with such rights and preferences, including liquidation, dividend, conversion, and voting rights, as the Board of Directors may determine.Series BDuring 1993, the Board established a Series B preferred stock, consisting of 750,000 shares. The Series B preferred stock has preference over the Company's common stock and Series A preferred stock; has no voting rights (absent default in payment of declared dividends); and is entitled to cumulative dividends of $0.01 per share per year, payable if and when declared by the Board of Directors. In the event of dissolution or liquidation of the Company, the preferential amount payable to Series B preferred stockholders is $1.00 per share plus dividends in arrears. No dividends have been declared or paid with respect to the Series B preferred stock. The Series B Preferred stock is no longer convertible to shares of the Company’s common stock. At December 31, 2012 and 2011, cumulative dividends in arrears on the outstanding Series B shares were $135,000 and $127,500, respectively.Series CDuring 2000, the Board established a Series C preferred stock, consisting of 205,996 shares. In 2002, 28,092 shares were converted to common stock and cancelled, leaving 177,904 Series C preferred shares authorized and outstanding. The Series C preferred stock has preference over the Company’s common stock and has voting rights equal to that number of shares outstanding, but no conversion or dividend rights. In the event of dissolution or liquidation of the Company, the preferential amount payable to Series C preferred stockholders is $0.55 per share.
F-16
Table of Contents
United States Antimony Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012, 2011 and 20108. Stockholders' Equity, continuedSeries DDuring 2002, the Board established a Series D preferred stock, authorizing the issuance of up to 2,500,000 shares. The Series D preferred stock has preference over the Company’s common stock but is subordinate to the liquidation preferences of the holders of the Company’s outstanding Series A, Series B and Series C preferred stock. Series D preferred stock carries voting rights and is entitled to annual dividends of $0.0235 per share. The dividends are cumulative and payable after payment and satisfaction of the Series A, B and C preferred stock dividends. No dividends have been declared or paid with respect to the Series D preferred stock. At December 31, 2012 and 2011, cumulative dividends in arrears on the 1,751,005 outstanding Series D shares were $ 378,069 and $336,920, respectively, payable if and when declared by the Board of Directors. In the event of dissolution or liquidation of the Company, the preferential amount payable to Series D preferred stockholders is $2.50 per share. At December 31, 2012 and 2011, the liquidation preference for Series D preferred stock was $4,755,069 and $4,377,513, respectively. Holders of the Series D preferred stock have the right, subject to the availability of authorized but unissued common stock, to convert their shares into shares of the Company's common stock on a one-to-one basis without payment of additional consideration and are not redeemable unless by mutual consent. The majority of Series D preferred shares are held by John Lawrence, president of the Company.9. 2000 Stock PlanIn January 2000, the Company's Board of Directors resolved to create the United States Antimony Corporation 2000 Stock Plan ("the Plan"). The purpose of the Plan is to attract and retain the best available personnel for positions of substantial responsibility and to provide additional incentive to employees, directors and consultants of the Company to promote the success of the Company's business. The maximum number of shares of common stock or options to purchase common stock that may be issued pursuant to the Plan is 500,000. At December 31, 2012 and 2011, 300,000 shares of the Company's common stock had been issued under the Plan. There were no issuances under the Plan during 2012 and 2011.10. Income TaxesThe Company’s income tax provision (benefit) for the years ending December 31, 2012, 2011, and 2010, are as follows: |
| | | Number of Warrants | | | | Exercise Prices | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balance, December 31, 2010 | | | 725,000 | | | $ | .20 - $.75 | |
| Warrants exercised | | | (125,000 | ) | | $ | .30 - $.40 | |
| Balance, December 31, 2011 | | | 600,000 | | | $ | .30 - $.60 | |
| Warrants issued | | | 1,734,667 | | | $ | 2.50 - $4.50 | |
| Warrants exercised | | | (250,000 | ) | | $ | .30 - $2.50 | |
| Warrants expired | | | (150,000 | ) | | $ | .30 - $.40 | |
| Balance, December 31, 2012 | | | 1,934,667 | | | $ | .25 - $4.50 | |
| | | | | | | | | |
| The above common stock warrants | | | | | | | | |
| expire as follows: | | | | | | | | |
| | | | | | | | | |
| Year ended December 31: | | | | | | | | |
| 2013 | | | 50,000 | | | | | |
| 2014 | | | 1,157,750 | | | | | |
| 2015 | | | 476,917 | | | | | |
| Thereafter | | | 250,000 | | | | | |
| | | | 1,934,667 | | | | | |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-17
Table of Contents
United States Antimony Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012, 2011 and 2010 |
| | | 2012 | | | | 2011 | | | | 2010 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Federal | | | | | | | | | | | | |
| Current | | $ | - | | | $ | - | | | $ | - | |
| Deferred | | | 151,915 | | | | 87,675 | | | | (448,182 | ) |
| Total | | $ | 151,915 | | | $ | 87,675 | | | $ | (448,182 | ) |
| | | | | | | | | | | | | |
| State | | | | | | | | | | | | |
| Current | | $ | - | | | $ | 9,168 | | | $ | - | |
| Deferred | | | 15,192 | | | | 8,767 | | | | (44,818 | ) |
| Total | | $ | 15,192 | | | $ | 17,935 | | | $ | (44,818 | ) |
| | | | | | | | | | | | | |
| Foreign | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | |
| Total provision (benefit) | | $ | 167,107 | | | $ | 105,610 | | | $ | (493,000 | ) |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | At December 31, 2012 and 2011, the Company had net deferred tax assets as follows: |
| | | 2012 | | | | 2011 | | | | 2010 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Domestic | | $ | 301,391 | | | $ | 1,342,530 | | | $ | 890,101 | |
| Foreign | | | (692,820 | ) | | | (600,000 | ) | | | (577,888 | ) |
| Total | | $ | (391,429 | ) | | $ | 742,530 | | | $ | 312,213 | |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | Existing and forecasted pretax earnings for financial reporting purposes are sufficient to generate the estimated required future taxable income required to realize the recognized federal net deferred tax asset as of December 31, 2012. |
| | | 2012 | | | | 2011 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Deferred tax asset: | | | | | | | | |
| Property, plant, and equipment | | $ | - | | | $ | 79,164 | |
| Other | | | 11,151 | | | | 2,926 | |
| Foreign exploration costs | | | 208,855 | | | | 249,309 | |
| Foreign net operating loss carryforward | | | 374,110 | | | | 390,000 | |
| Foreign property, plant, and equipment | | | 217,887 | | | | | |
| Federal and state net net operating | | | | | | | | |
| loss carry forward | | | 39,824 | | | | 65,159 | |
| Deferred tax asset | | | 851,827 | | | | 786,558 | |
| | | | | | | | | |
| Valuation allowance (foreign) | | | (605,496 | ) | | | (390,000 | ) |
| Valuation allowance (federal) | | | - | | | | - | |
| Total deferred tax asset | | | 246,331 | | | | 396,558 | |
| | | | | | | | | |
| Deferred tax liability: | | | | | | | | |
| Property, plant, and equipment | | | (16,880 | ) | | | - | |
| Total deferred tax liability | | | (16,880 | ) | | | - | |
| | | | | | | | | |
| Net Deferred Tax Asset | | $ | 229,451 | | | $ | 396,558 | |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | (1) Meals and entertainment, effect of state taxes, change of prior year estimate, and rate differential, as management has refined their estimate to 38.5% in 2011.
During the years ended December 31, 2012, 2011, and 2010, there were no material uncertain tax positions taken by the Company. The Company United States income tax filings are subject to examination for the years 2010 through 2012, and 2011 and 2012 in Mexico. In the event that the Company is assessed penalties and or interest, penalties will be charged to other operating expense and interest will be charged to interest expense.11. Related-Party TransactionsAmounts due to (due from) related parties at December 31, 2012 and 2011 were as follows: |
| | | 2012 | | | | | | | | 2011 | | | | | | | | 2010 | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Computed expected tax provision (benefit) | | $ | (137,000 | ) | | | -35.0 | % | | $ | 259,886 | | | | 35.0 | % | | $ | 106,000 | | | | 34.0 | % |
| Effect of permanent differences | | | - | | | | 0.0 | % | | | 4,662 | | | | 0.6 | % | | | 30,000 | | | | 9.6 | % |
| Foreign taxes | | | 34,641 | | | | 8.9 | % | | | 24,000 | | | | 3.2 | % | | | - | | | | - | |
| Other(1) | | | 61,770 | | | | 15.8 | % | | | 126,062 | | | | 17.0 | % | | | - | | | | - | |
| Increase in valuation allowance | | | 207,696 | | | | 53.1 | % | | | - | | | | - | | | | - | | | | - | |
| Release of valuation allowance | | | - | | | | 0.0 | % | | | (309,000 | ) | | | -41.6 | % | | | (629,000 | ) | | | -202.0 | % |
| Total | | $ | 167,107 | | | | 42.7 | % | | $ | 105,610 | | | | 14.2 | % | | $ | (493,000 | ) | | | -158.4 | % |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | (1)Transactions affecting the payable to Mr. Lawrence during 2012, 2011 and 2010 were as follows: |
| | | 2012 | | | | 2011 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Payable to officer for antimony ore | | $ | - | | | $ | 54,131 | |
| | | | | | | | | |
| John C. Lawrence, president and director(1) | | | 17,522 | | | | 47,843 | |
| Net related party liabilities | | $ | 17,522 | | | $ | 101,974 | |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | In addition to transactions described above, during 2012, 2011, and 2010, the Company had the following transactions with related parties:Members of the audit committee received $24,000 in cash for 2011.During 2012, 2011, and 2010, the Company paid $89,204, $107,359, and $55,469, respectively, to a director for development of Mexican mill sites and consulting fees.A director of the Company acted on behalf of the Company as laison to Mexican officials through the year ended 2011. During the years ended December 31, 2011 and 2010, fees and expenses to this director were $37,083 and $32,000, respectively.
F-19
Table of Contents |
| | | 2012 | | | | 2011 | | | | 2010 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balance, beginning of year | | $ | 47,843 | | | $ | 18,060 | | | $ | 8,394 | |
| Aircraft rental charges | | | 74,490 | | | | 86,058 | | | | 129,177 | |
| Payments and advances, net | | | (104,811 | ) | | | (56,275 | ) | | | (119,511 | ) |
| Balance, end of year | | $ | 17,522 | | | $ | 47,843 | | | $ | 18,060 | |
| UAMY/10-K/0001354488-13-001259 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F-20
Table of Contents
United States Antimony Corporation and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 2012, 2011 and 201013. Business Segments, continued |
| | | For the year ended | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | December 31, 2012 | | | | December 31, 2011 | | | | December 31, 2010 | | |
| Capital expenditures: | | | | | | | | | | | | |
| Antimony | | | | | | | | | | | | |
| United States | | $ | 288,364 | | | $ | 160,536 | | | $ | 31,300 | |
| Mexico | | | 4,385,983 | | | | 1,988,345 | | | | 927,131 | |
| Subtotal Antimony | | | 4,674,347 | | | | 2,148,881 | | | | 958,431 | |
| Zeolite | | | 328,045 | | | | 324,869 | | | | 36,300 | |
| Total | | $ | 5,002,392 | | | $ | 2,473,750 | | | $ | 994,731 | |
| | | | | | | | | | | | | |
| | | For the year ended | | | | | | | | | | |
| | | December 31, 2012 | | | | December 31, 2011 | | | | December 31, 2010 | | |
| Revenues: | | | | | | | | | | | | |
| Antimony | | $ | 9,401,003 | | | $ | 11,074,449 | | | $ | 6,657,369 | |
| Zeolite | | | 2,641,699 | | | | 2,043,641 | | | | 2,415,955 | |
| Total | | $ | 12,042,702 | | | $ | 13,118,090 | | | $ | 9,073,324 | |
| UAMY/10-K/0001354488-13-001259 |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS | The following tables show changes in interest income, interest expense and net interest resulting from changes in
volume and rate variances for major categories of earnings assets and interest bearing liabilities. |
| | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | **2013** | | | | | | | | | | |
| | | (In Thousands) | | | | | | | | | | |
| | | AverageBalance | | | | Interest/Dividends | | | | Yield/Rate | | |
| **ASSETS** | | | | | | | | | | | | |
| **Interest Earning Assets:** | | | | | | | | | | | | |
| Loans | | $ | 507,126 | | | $ | 24,978 | | | | 4.93 | % |
| Taxable investment securities | | | 287,736 | | | | 4,597 | | | | 1.60 | % |
| Tax-exempt investment securities | | | 64,355 | | | | 1,819 | | | | 4.28 | % |
| Federal funds sold & interest bearing deposits | | | 22,243 | | | | 34 | | | | 0.15 | % |
| | | | | | | | | | | | | |
| **Total Interest Earning Assets** | | | 881,460 | | | $ | 31,428 | | | | 3.68 | % |
| | | | | | | | | | | | | |
| **Non-Interest Earning Assets:** | | | | | | | | | | | | |
| Cash and cash equivalents | | | 17,691 | | | | | | | | | |
| Other assets | | | 39,107 | | | | | | | | | |
| | | | | | | | | | | | | |
| **Total Assets** | | $ | 938,258 | | | | | | | | | |
| | | | | | | | | | | | | |
| **LIABILITIES AND SHAREHOLDERS EQUITY** | | | | | | | | | | | | |
| **Interest Bearing Liabilities:** | | | | | | | | | | | | |
| Savings deposits | | $ | 400,071 | | | $ | 1,475 | | | | 0.37 | % |
| Other time deposits | | | 250,737 | | | | 2,718 | | | | 1.08 | % |
| Other borrowed money | | | 6,690 | | | | 163 | | | | 2.44 | % |
| Federal funds purchased and securties sold under agreement to repurchase | | | 54,312 | | | | 248 | | | | 0.46 | % |
| | | | | | | | | | | | | |
| **Total Interest Bearing Liabilities** | | | 711,810 | | | $ | 4,604 | | | | 0.65 | % |
| | | | | | | | | | | | | |
| **Non-Interest Bearing Liabilities:** | | | | | | | | | | | | |
| Non-interest bearing demand deposits | | | 109,804 | | | | | | | | | |
| Other | | | 7,895 | | | | | | | | | |
| | | | | | | | | | | | | |
| **Total Liabilities** | | | 829,509 | | | | | | | | | |
| | | | | | | | | | | | | |
| **Shareholders Equity** | | | 108,749 | | | | | | | | | |
| | | | | | | | | | | | | |
| **Total Liabilities and** | | | | | | | | | | | | |
| **Shareholders Equity** | | $ | 938,258 | | | | | | | | | |
| | | | | | | | | | | | | |
| Interest/Dividend income/yield | | | | | | $ | 31,428 | | | | 3.68 | % |
| Interest Expense / yield | | | | | | | 4,604 | | | | 0.65 | % |
| | | | | | | | | | | | | |
| Net Interest Spread | | | | | | $ | 26,824 | | | | 3.03 | % |
| | | | | | | | | | | | | |
| Net Interest Margin | | | | | | | | | | | 3.15 | % |
| | | | | | | | | | | | | |
| FMAO/10-K/0001193125-16-474789 |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS | As mentioned in the discussion earlier, in reviewing years 2014 to 2013, the change in volume is the main driver for the
improved ratio which is opposite of the change between 2013 to 2012 the largest impact was due to rate. The strategy since 2010 has been to extend the maturities of time deposit specials to over 24 months to prepare for a rising rate
environment. The other strategy employed since 2011 was to increase core deposits by offering innovative products focused on customer needs, such as higher interest rates and fraud notification. In exchange for these accounts, customers were asked to utilize services that benefited both the Bank and themselves. Smaller time
deposit rate shoppers had an option to perhaps change their behavior of banking or allow those deposits to run off. The new core deposit products were indeed embraced by our customers and have helped to attain the deposit portfolio mix sought by the
Bank. Non-Interest Income The discussion now turns
to the noninterest activity of 2015 operations, beginning with the revenue portion. In comparing line items of the consolidated statements of income for years ended 2013 through 2015, it can be seen where the Company has been spending its time and
the impact of the recession and slow recovery. This section will focus on the significant noninterest items that impacted the operations of the Company. The Company has concerns with the increased costs associated with regulatory compliance such as the possible loss of revenue from new regulations stemming
from the Dodd-Frank Act. History has proven the concern is justified. One area of revenue impacted was overdraft fees. Updated Regulation E guidelines were implemented on August 15, 2010 and the Bank has ended each year since with a lower
revenue stream from overdraft fees. This has occurred in spite of the addition of the new offices since 2010. Each year, the number of checking accounts increased along with the balances; however average collected overdraft fees per account
decreased. Overdraft fees in 2015 accounted for $2.4 million in noninterest income, compared to $2.5 million in 2014 and $2.7 million for 2013. The Bank had made this an area of focus for 2015 as this revenue stream remains under intense regulator
review. In 2015, the Bank adjusted its overdraft program and renamed it Courtesy Pay. Courtesy Pay establishes dynamic limits based on a customers behavior and likelihood of repayment. The Bank has sought to better service the
customers needs while decreasing the need for collections and improving profitability. At the current time, profitability has not been impacted. Service charges on checking accounts, excluding Health Savings Accounts, were up $120 thousand for
2015 and $208.7 thousand for 2014. This improvement is credited to the new checking accounts mentioned previously. The Bank has long promoted the use of
debit cards by its customers and continued that philosophy with the introduction of additional new products. 2015 revenue improved $142.9 thousand and 2014 revenue improved $250.5 from ATM/debit card usage as compared to 2014 and 2013, respectively.
The Bank receives interchange revenue from each use by a customer of the card. In 2011, this revenue stream was at risk of being reduced by the Federal Reserve regulation of the interchange fee. The establishment by the Federal Reserve of a tiered
pricing for banks under $10 billion has helped to protect the profitability from such fees, although the concern remains as to how long this tiered pricing will remain in effect. While this revenue stream continues to improve with more depositors
using electronic methods for purchasing, the expense of fraud has offset a portion of the revenue gain. Further discussion can be found in the non-interest expense section regarding the net effect of debit card activity. Noninterest income from net gain on sales of loans decreased for both 2015 and 2014 as compared to 2013. Unfortunately, this has become a trend mainly due to
the duration of the flat rate interest environment. The net gain on sale of loans is derived from sales of real estate loans into the secondary market. Of these loan types, the Bank sells 100% of the residential loans and 90% of the agricultural
loans into the secondary market. 2014 or 2015 activity did not reach the same high levels as 2013. Gains of $559.6 and $140.8 thousand were recorded for residential and agricultural real estate respectively for 2015 along with gains of $452.7 and
$194.3 thousand were recorded for residential and agricultural real estate respectively for 2014. In conjunction with these sales, the Bank maintains servicing rights and those income amounts during all three years are included in the customer
service fees line item and account for over $300 thousand in revenue each year. The last line item in the noninterest income section as was discussed
previously is the net gain on sale of investments. The Bank has taken advantage of this opportunity the last three years and expects to continue as long as the rates remain low and the yield curve is favorable to the transaction. The Bank will not
increase short-term gains at the sacrifice of long-term profitability. All of the sales of securities in 2015 and 2014 of $47.0 and $57.9 million respectively were used to fund loan growth while only some of the $91 million in proceeds realized on
the sale of securities in 2013 were used to fund loan growth. This is a source of funds that will continue to be analyzed for use in the coming year. Gains of $451 thousand were recorded for 2015, $494 thousand for 2014 as compared to $775 thousand
for 2013. Customer service fees show a nice improvement of $623 thousand collected in 2015 as compared to 2014. Almost $200 thousand can be attributed to
classifying foreign ATM fees out of service charges into miscellaneous fees in 2015. An additional $104.7 thousand comes from servicing those sold secondary loans mentioned in gain on sale of loans, as the volume increased in 2015 as compared to
2014. Total loan service fees collected in 2015 was $1.2 million compared to $1.1 million in 2014. Overall, noninterest income increased $604 thousand in 2015 following a year where it had decreased $654
thousand. Some of the revenue may not be easily duplicated as it is dependent on economic and market conditions to provide the opportunity. However, the increased revenue amounts from deposit and loan services should continue to provide improved
profitability in the future. Gains on sales should also continue in the near term though when it will change is unknown at this time. Non-Interest
Expense Noninterest expense increased 3.4% in 2015 as compared to 2014 and was preceded by a 4.2% increase in 2014 as compared to 2013. Represented in
dollars, 2015 was $854 thousand higher than 2014 and 2014 was $1 million higher than 2013. The largest factor behind both years increase was the expense of employee salaries and wages. During 2015, an additional $721 thousand was spent over 2014
which correlates to a 7.1% increase. When making the same analysis for 2014 as compared to 2013, 2014s costs increased $633 thousand or 6.6%. Three main components flow into salaries and wages: base salary, deferred costs, and incentives
composed of the expense of restricted stock awards and performance incentives. Base pay has increased with the addition of the three offices of Waterville, Custar and Sylvania, the Captive and through normal yearly increases to the remainder of the
employees. Base pay was up $559.3 thousand for 2015 over the previous year and 2014 was up $474.1 thousand over 2013. The full time equivalent number of employees at each yearend increased to 265 for 2015, to 260 for 2014 compared to 2013s
251. Incentive pay as it related to performance was up $209.5 thousand in 2014 over 2013. Both measurements used to award incentive pay had improved in
2015 and 2014 and employees benefited accordingly. These followed 2013, a year in which the incentive performance pay was down $110.1 thousand from 2012. The expense for the restricted stock awards has also increased each of the last three years as
more shares have been granted to a larger number of employees. 2015s cost for this program was $82 thousand higher than 2014 and 2014 was $20.9 thousand higher than 2013. The awards incorporate a three year vesting period so the increase of
any one year carries forward through the next two years. This expense should continue to increase as the Company continues its expansion strategy. (For further discussion in incentive pay and restricted stock awards, see note 11 of the consolidated
financial statements.) Employee benefits increased by similar percentages as the salaries and wages for 2015 increased by 6.9% over 2014 and 2014
increased by 3.3% over 2013. The cost of the 401-K retirement plan increased each year as the profit share component increased along with the number of employees participating. The Company has been able to hold steady the expense of the
employees group insurance while paying higher premiums. Being partially self-insured has helped with lower claim experience though it is an unknown each year what that experience will be. For 2014 and 2015, a switch in the medical provider and
comparison pricing also assisted to control the cost. Employees do participate in any premium increases. Net occupancy expense typically increases as the
Company expands, with 2014 being an exception due to an increase in building rent. Building rent is netted out to offset occupancy expense. The greatest contributor to building rent comes from the division of FM Investments within the Bank. This
division experienced a strong 2014; however the department was short staffed most of 2015. This has been remedied in 2016 and performance is expected to improve. While net loss on sale of other assets owned, mainly ORE property, does not represent income for the years presented, the decrease in the amount of the loss
for 2015 as compared to 2014, does contribute to improved profitability. Loss on sale of assets included any write downs in the carrying values of ORE property on the Banks balance sheet. In 2015 and 2014, the number of properties and the
corresponding carrying values decreased as compared to 2013. The Bank also sold its St. Joe, Indiana property during 2015. While taking a loss for the sale, the Bank eliminated the continued maintenance expense of an unoccupied building. An easement
was agreed upon to enable the ATM located on the property to remain operational. The mortgage refinancing activity has been lower over the last three
years. A correlating expense to that activity is the amortization of mortgage servicing rights. The amortization is the expense that offsets the income recognized when the loan is first made. Income is recorded when the mortgage loan is first sold
with servicing retained and is therefore recognized within one year. The amortization, however, is calculated over the life of the loan and accelerated as loans are paid off early. An increase in this expense can be driven by two activities: an
increase in the number of sold loans and/or by the acceleration of the expense from payoff and refinance activity. The best picture of the bottom line impact is achieved by netting the income with the expense each year. 2015 had net income of $33
thousand, a switch from 2014 which had net expense of $42.7 thousand and 2013 had a net income of $2 thousand. Of course, the value (or
income) of the mortgage servicing right when sold also impacts the net position. 2015 had higher additions and lower amortization expense from refinanced loans. 2013 had new loan activity and lower refinance activity making the additions and
amortization almost equal. The number of loans and balances also indicates this as the levels have remained fairly constant. 2014 was a year with limited sales and the amortization expense was therefore higher than the capitalized additions. As of
December 2015, 3,598 loans are being serviced with balances of $275.7 million. As of December 31, 2014, there were 3,638 loans serviced with balances of $275.4 million and as of December 2013, there were 3,684 loans serviced with balances of
$282.1 million. The impact of mortgage servicing rights to both noninterest income and expense is shown in the following table: |
| | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | 2015 vs 2014 | | | | | | | | | | |
| | | (In Thousands) | | | | | | | | | | |
| | | NetChange | | | | Due to change inVolume | | | | Rate | | |
| **Interest Earning Assets:** | | | | | | | | | | | | |
| Loans | | $ | 1,223 | | | $ | 2,210 | | | $ | (987 | ) |
| Taxable investment securities | | | (762 | ) | | | (211 | ) | | | (551 | ) |
| Tax-exempt investment securities | | | (281 | ) | | | 26 | | | | (307 | ) |
| Federal funds sold & interest bearing deposits | | | 17 | | | | 11 | | | | 6 | |
| | | | | | | | | | | | | |
| **Total Interest Earning Assets** | | $ | 197 | | | $ | 2,036 | | | $ | (1,839 | ) |
| | | | | | | | | | | | | |
| **Interest Bearing Liabilities:** | | | | | | | | | | | | |
| Savings deposits | | $ | 108 | | | $ | 65 | | | $ | 43 | |
| Other time deposits | | | (297 | ) | | | (233 | ) | | | (64 | ) |
| Other borrowed money | | | (3 | ) | | | (1 | ) | | | (2 | ) |
| Federal funds purchased and securities sold under agreement to repurchase | | | 63 | | | | (13 | ) | | | 76 | |
| | | | | | | | | | | | | |
| **Total Interest Bearing Liabilities** | | $ | (129 | ) | | $ | (182 | ) | | $ | 53 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2014 vs 2013 | | | | | | | | | | |
| | | (In Thousands) | | | | | | | | | | |
| | | NetChange | | | | Due to change inVolume | | | | Rate | | |
| **Interest Earning Assets:** | | | | | | | | | | | | |
| Loans | | $ | 3,092 | | | $ | 3,667 | | | $ | (575 | ) |
| Taxable investment securities | | | (1,027 | ) | | | (1,577 | ) | | | 550 | |
| Tax-exempt investment securities | | | (25 | ) | | | 50 | | | | (75 | ) |
| Federal funds sold & interest bearing deposits | | | (15 | ) | | | (20 | ) | | | 5 | |
| | | | | | | | | | | | | |
| **Total Interest Earning Assets** | | $ | 2,025 | | | $ | 2,120 | | | $ | (95 | ) |
| | | | | | | | | | | | | |
| **Interest Bearing Liabilities:** | | | | | | | | | | | | |
| Savings deposits | | $ | (26 | ) | | $ | (20 | ) | | $ | (6 | ) |
| Other time deposits | | | (709 | ) | | | (391 | ) | | | (318 | ) |
| Other borrowed money | | | (159 | ) | | | (159 | ) | | | | |
| Federal funds purchased and securities sold under agreement to repurchase | | | 6 | | | | 30 | | | | (24 | ) |
| | | | | | | | | | | | | |
| **Total Interest Bearing Liabilities** | | $ | (888 | ) | | $ | (540 | ) | | $ | (348 | ) |
| | | | | | | | | | | | | |
| FMAO/10-K/0001193125-16-474789 |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS | Furniture and equipment steadily increases as we continue to add facilities and invest in technology. Annual maintenance costs
continue to grow and become a greater piece of the overall cost. As new services are provided to our customers, the backroom cost to supply them continues to rise. The Company accepts it is an expected cost of doing business and keeping our services
relevant to the industry. Data processing expense increased $50 thousand during 2015 and by $38 thousand in 2014. The Company continues to investigate
ways to reduce this expense. The pricing on many services, however, is based on number of accounts and the Bank fully expects those to increase with the growth from the newer offices and overall Bank growth. The last line item with significant variation in noninterest expense to discuss is other general and administrative. The decrease of $348 thousand
for 2015 as compared to 2014 can be mainly attributed to a $195.7 thousand reduction in marketing and consulting costs. A renegotiation of one service provider contract along with the maturity of another during 2015 lead to the decrease. Another
contributor to the reduction was lower losses due to NSF and fraud. The Bank applauds the work of our front-line staff to recognize possible fraud and scams attempted on our customers and stopping them before they can occur. An investment in
additional fraud detection software has also helped our back office personnel to detect possible digital fraud. This was down $60.2 thousand in 2015 compared to an increase in 2014 of $40.9 thousand. Other general and administrative was higher by $461 thousand in 2014. The fluctuation was not isolated to a single source. The primary factors impacting this
fluctuation in 2014 are increases in both ATM expense and core deposit intangible expenses. The increased expense of $52.7 thousand relating to ATM and debit cards in 2015 and 2014 over the previous year is caused by many factors. Increased usage
during both years corresponds to increases in both revenue and cost. Finally, fraud increases cost as new cards have to be issued to limit the risk exposure. The fraud losses themselves are not recognized in this breakout, however the cost of
replacement cards is. The Bank is currently deploying chip technology within its cards; the Bank is aware the adoption of embedded chips will increase this expense in the coming years. 2014 experienced additional expense over 2013 in consulting
($161.7 thousand), audit and accounting fees ($166.5 thousand) and advertising ($101.3 thousand). Allowance for Credit Losses Provision expense decreased by $566 thousand for 2015, following an increase of $333 thousand for 2014. The decrease for 2015 was due to the consistent strong
asset quality of the Banks loan portfolio as evidenced by low levels of both net charge-offs and delinquencies. The increase for 2014 was needed to account for the loan growth and the net charge-off activity of 2014. Sustained strong asset
quality kept the provision expense lower than the growth alone would have warranted. Net charge-offs were $473, $480 and $888 thousand for 2015, 2014 and 2013, respectively. Commercial and Industrial loans had the largest charge-off activity in 2015
and 2013, while 2014 was impacted with higher levels in the consumer portfolios. The Company segregates its Allowance for Credit Losses (ACL) into two reserves: The ACL and the Allowance for
Unfunded Loan Commitments and Letters of Credit (AULC). When combined, these reserves constitute the total ACL. The AUCL is included in other liabilities on the consolidated balance sheets. The Banks ALLL methodology captures trends in leading, current, and lagging indicators which will directly affect the Banks allocation amount. The
Bank monitors trends in such leading indicators as delinquency, unemployment changes in the Banks service area, experience and ability of staff, regulatory trends, and credit concentrations. A current indicator such as the total watch list
loan amount to Capital, and a lagging indicator such as the charge off amount are referenced as well. A matrix formed by loan type from these indicators is used in making ALLL adjustments. Watch list loan balances are comprised of loans graded 5-8. These loan balances decreased 53.6% or $7.2 million from December 31, 2014 to
December 31, 2015. The balances decreased mainly due to successful results from collection efforts. Given the size of the decrease, it is no surprise it is attributed mainly to the commercial real estate portfolio decreasing by $5.9 million.
Three customers made up the bulk of the balances with one of three finding funding elsewhere. Commercial loans (non-real estate) on the Banks watch list also had a nice decrease during 2015, though just not as high at $1.9 million. Of the aggregate watch list loan balances, as of December 31, 2015, special mention accounted for 36.6% with substandard comprising 49.1% and doubtful
accounting for the final 14.3%. In comparison to 2014, special mention was down $7.2 million, substandard up slightly by $161 thousand and doubtful down almost exactly the same amount at $162 thousand. Special mention loan balances increased 21.2% or $1.7 million overall as of yearend 2014 compared to same date 2013. The increase was in the commercial and
commercial real estate portfolios. The largest increase of $2.1 million was in the commercial real estate, which was caused mainly by one large relationship being downgraded. Agricultural real estate decreased $618 thousand, thereby offsetting the
above-referenced increase. For 2014, the increase in special mention is offset by significant decreases in the substandard classifications of those same
commercial related portfolios. Overall, substandard and doubtful loans decreased 42.5% or $2.9 million as compared to yearend 2013. In response to these fluctuations and loan growth during 2014 and 2015, the Bank changed ALLL to outstanding loan
coverage percentage changed to 0.88% as of December 31, 2015, 0.95% as of December 31, 2014 from and 0.90% as of December 31, 2013. The
above indicators are reviewed quarterly. Some of the indicators are quantifiable and, as such, will automatically adjust the ALLL once calculated. These indicators include the ratio of past due loans to total loans, loans past due greater than 30
days, and the ration of watch list loans to capital, with the watch list made up of loans graded 5, 6 or 7 on a scale of 1 (best) to 7 (worst). Other indicators use more subjective data to the extent possible to evaluate the potential for inherent
losses in the Banks loan portfolio. For example, the economic indicator uses the unemployment statistics from the communities in our market area to help determine whether the ALLL should be adjusted. At the end of each of 2013, 2014 and 2015,
a slight improvement was noted in unemployment figures. All aggregate commercial and agricultural credits including real estate loans of $250,000 and
over are reviewed annually by both credit committees and internal loan review to look for early signs of deterioration. To establish the specific reserve
allocation for real estate, a discount to the market value is established to account for liquidation expenses. The discounting percentage used for real estate mirrors the discounting of real estate as provided for in the Banks Loan Policy.
However, unique or unusual circumstances may be present which will affect the real estate value and, when appropriately identified, can adjust the discounting percentage at the discretion of management. The ACL increased $153 and $755 thousand during 2015 and 2014 respectively, which was preceded by a $29 thousand decrease during 2013. The large increase in
2014 directly correlates to the large increase in loan balances. With the improved asset quality, the metrics upon which the ACL is calculated did not support a larger increase in 2015 even though loan growth occurred. The percentage of ACL to the
total loan portfolio was 0.93% as of December 31, 2013, 0.98% as of December 31, 2014 and 0.91% as of December 31, 2015. December 31, 2013 had the lowest loans past due 30+ day percentage at 0.25% in the Banks known
history, December 31, 2014 and 2015 were still at respectable lows of 0.37% and 0.32%. Please see Note 4 in the consolidated financial statement for additional tables regarding the composition of the
ACL. Federal Income Taxes Effective tax rates were
26.97%, 28.64% and 28.53% for 2015, 2014 and 2013 respectively. The effect of tax-exempt interest from holding tax-exempt securities and Industrial Development Bonds (IDBs) was $554, $634, and $640 thousand for 2015, 2014, and 2013, respectively.
All years included an increase into a higher tax bracket for income over $10 million. Behind the decrease in 2015 is one of the benefits from the establishment of the Captive subsidiary. Material Changes in Financial Condition The shifts in
the balance sheet during 2015 and 2014 have positioned the Company for continued improvement in profitability. On the asset side, the Company experiences an increase in interest income due to loan growth with funding provided by a decrease in the
investment portfolio, core deposit growth and 2015 also utilized other borrowings. The cost of funds was impacted by the shift of interest bearing liabilities to noninterest and the decrease in time deposits and other borrowed money as borrowings
didnt increase until December 2015. Both contributed to improved profitability in 2015 and 2014 and leads to expected liabilities improvement in future years. Average earning assets increased throughout 2015 and 2014. Loan growth in both years was the main factor. 2014 was also aided by the Custar acquisition which
took place in December 2013 and brought in $29 million in deposits. 2015 also had the addition of the Sylvania office for a full year along with the growth in the other newer offices. Securities The investment portfolio is primarily used to
provide overall liquidity for the Bank. It is also used to provide required collateral for pledging to the Banks Ohio public depositors for amounts on deposit in excess of the FDIC coverage limits. It may also be used to pledge for additional
borrowings from third parties. Investments are made with the above criteria in mind while still seeking a fair market rate of return, and looking for maturities that fall within the projected overall strategy of the Bank. The possible need to fund
growth is also a consideration. All of the Banks security portfolio is categorized as available for sale and as such is recorded at market value.
Security balances as of December 31 are summarized below: |
| | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | (In Thousands) | | | | | | | | | | |
| | | 2015 | | | | 2014 | | | | 2013 | | |
| Beginning Year | | $ | 2,023 | | | $ | 2,066 | | | $ | 2,063 | |
| Capitalized Additions | | | 407 | | | | 301 | | | | 429 | |
| Amortization | | | (374 | ) | | | (344 | ) | | | (426 | ) |
| Valuation Allowance | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| End of Year | | $ | 2,056 | | | $ | 2,023 | | | $ | 2,066 | |
| | | | | | | | | | | | | |
| FMAO/10-K/0001193125-16-474789 |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS | The following table sets forth the maturities of investment securities as of December 31, 2015 and the weighted average
yields of such securities calculated on the basis of cost and effective yields weighted for the scheduled maturity of each security. Tax-equivalent adjustments, using a thirty-four percent rate, have been made in yields on obligations of state and
political subdivisions. Stocks of domestic corporations have not been included. |
| | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | (In Thousands) | | | | | | | | | | |
| | | 2015 | | | | 2014 | | | | 2013 | | |
| U.S. Treasury | | $ | 38,505 | | | $ | 25,393 | | | $ | 25,272 | |
| U.S. Government agencies | | | 98,220 | | | | 119,234 | | | | 172,972 | |
| Mortgage-backed securities | | | 26,324 | | | | 29,562 | | | | 44,792 | |
| State and local governments | | | 72,066 | | | | 74,303 | | | | 81,473 | |
| | | | | | | | | | | | | |
| | | $ | 235,115 | | | $ | 248,492 | | | $ | 324,509 | |
| | | | | | | | | | | | | |
| FMAO/10-K/0001193125-16-474789 |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS | As of December 31, 2015 the Bank did not hold a large block of any one investment security in excess of 10% of
stockholders equity. The largest segment of holdings is in US Governments. The Bank also holds stock in the Federal Home Loan Bank of Cincinnati at a cost of $3.7 million. This is required in order to obtain Federal Home Loan Bank loans. The
Bank also owns stock of Farmer Mac with a carrying value of $37.4 thousand which is required to participate loans in the program. Loan Portfolio
The Banks various loan portfolios are subject to varying levels of credit risk. Management mitigates these risks through portfolio
diversification and through standardization of lending policies and procedures. Risks are mitigated through an adherence to the Banks loan
policies, with any exception being recorded and approved by senior management or committees comprised of senior management. The Banks loan policies define parameters to essential underwriting guidelines such as loan-to-value ratio, cash flow
and debt-to-income ratio, loan requirements and covenants, financial information tracking, collection practice and others. The maximum loan amount to any one borrower is limited by the Banks legal lending limits and is stated in policy. On a
broader basis, the Bank restricts total aggregate funding in comparison to Bank capital to any one business or agricultural sector by an approved sector percentage to capital limitation. The following table shows the Banks loan portfolio by category of loan as of December 31st of each year, including loans held for sale: |
| | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | Maturities(Amounts in Thousands) | | | | | | | | | | | | | | |
| | | Within One Year | | | | | | | | After One YearWithin Five Years | | | | | | |
| | | Amount | | | | Yield | | | | Amount | | | | Yield | | |
| U.S. Treasury | | $ | 5,091 | | | | 0.56 | % | | $ | 28,345 | | | | 1.09 | % |
| U.S. Government agencies | | | | | | | 0.00 | % | | | 87,994 | | | | 1.31 | % |
| Mortgage-backed securities | | | | | | | 0.00 | % | | | 254 | | | | 4.39 | % |
| State and local governments | | | 7,630 | | | | 1.91 | % | | | 29,479 | | | | 2.10 | % |
| Taxable state and local governments | | | 1,141 | | | | 2.21 | % | | | 6,076 | | | | 1.79 | % |
| | | | | | | | | | | | | | | | | |
| | | After Five YearsWithin Ten Years | | | | | | | | After Ten Years | | | | | | |
| | | Amount | | | | Yield | | | | Amount | | | | Yield | | |
| U.S. Treasury | | $ | 5,069 | | | | 2.00 | % | | $ | | | | | 0.00 | % |
| U.S. Government agencies | | | 10,226 | | | | 2.02 | % | | | | | | | 0.00 | % |
| Mortgage-backed securities | | | 8,394 | | | | 2.94 | % | | | 17,676 | | | | 2.20 | % |
| State and local governments | | | 19,659 | | | | 2.55 | % | | | 5,634 | | | | 2.27 | % |
| Taxable state and local governments | | | 999 | | | | 2.60 | % | | | 1,448 | | | | 5.57 | % |
| FMAO/10-K/0001193125-16-474789 |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS | The following table shows the maturity of loans as of December 31, 2015: |
| | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | (In Thousands) | | | | | | | | | | | | | | | | | | |
| Loans: | | 2015 | | | | 2014 | | | | 2013 | | | | 2012 | | | | 2011 | | |
| Consumer Real Estate | | $ | 88,189 | | | $ | 97,550 | | | $ | 92,438 | | | $ | 80,287 | | | $ | 84,477 | |
| Agricultural Real estate | | | 58,525 | | | | 50,895 | | | | 44,301 | | | | 40,143 | | | | 31,993 | |
| Agricultural | | | 82,654 | | | | 74,611 | | | | 65,449 | | | | 57,770 | | | | 52,598 | |
| Commercial Real Estate | | | 322,762 | | | | 270,188 | | | | 248,893 | | | | 199,999 | | | | 198,266 | |
| Commercial and Industrial | | | 100,125 | | | | 100,126 | | | | 99,498 | | | | 101,624 | | | | 114,497 | |
| Consumer | | | 27,770 | | | | 24,277 | | | | 21,406 | | | | 20,413 | | | | 23,375 | |
| Industrial Development Bonds | | | 6,491 | | | | 4,698 | | | | 4,358 | | | | 1,299 | | | | 1,196 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 686,516 | | | $ | 622,345 | | | $ | 576,343 | | | $ | 501,535 | | | $ | 506,402 | |
| | | | | | | | | | | | | | | | | | | | | |
| FMAO/10-K/0001193125-16-474789 |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS | The following table presents the total of loans due after one year which has either 1) predetermined interest rates (fixed) or
2) floating or adjustable interest rates (variable): |
| | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | (In Thousands) | | | | | | | | | | | | | | |
| | | WithinOne Year | | | | After OneYear WithinFive Years | | | | AfterFive Years | | | | Total | | |
| Consumer Real Estate | | $ | 1,270 | | | $ | 11,486 | | | $ | 75,433 | | | $ | 88,189 | |
| Agricultural Real Estate | | | 1,073 | | | | 3,300 | | | | 54,152 | | | | 58,525 | |
| Agricultrual | | | 52,939 | | | | 24,239 | | | | 5,476 | | | | 82,654 | |
| Commercial Real Estate | | | 13,030 | | | | 70,699 | | | | 239,033 | | | | 322,762 | |
| Commercial and Industrial | | | 45,971 | | | | 34,791 | | | | 19,363 | | | | 100,125 | |
| Consumer | | | 5,480 | | | | 17,228 | | | | 5,062 | | | | 27,770 | |
| Industrial Development Bonds | | | 1,300 | | | | 185 | | | | 5,006 | | | | 6,491 | |
| | | | | | | | | | | | | | | | | |
| | | $ | 121,063 | | | $ | 161,928 | | | $ | 403,525 | | | $ | 686,516 | |
| | | | | | | | | | | | | | | | | |
| FMAO/10-K/0001193125-16-474789 |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS | The following table summarizes the Companys nonaccrual, past due 90 days or more and still accruing loans,
and accruing troubled debt restructurings as of December 31 for each of the last five years: |
| | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | (In Thousands) | | | | | | | | | | |
| | | FixedRate | | | | VariableRate | | | | Total | | |
| Consumer Real Estate | | $ | 81,987 | | | $ | 4,932 | | | $ | 86,919 | |
| Agricultural Real Estate | | | 47,252 | | | | 10,200 | | | | 57,452 | |
| Agricultural | | | 29,108 | | | | 607 | | | | 29,715 | |
| Commercial Real Estate | | | 236,384 | | | | 73,348 | | | | 309,732 | |
| Commercial and Industrial | | | 53,292 | | | | 862 | | | | 54,154 | |
| Consumer | | | 22,290 | | | | | | | | 22,290 | |
| Industrial Development Bonds | | | 5,050 | | | | 141 | | | | 5,191 | |
| FMAO/10-K/0001193125-16-474789 |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS | Although loans may be classified as non-performing, some pay on a regular basis, and many continue to pay interest irregularly
or at less than original contractual rates. Interest income that would have been recorded under the original terms of these loans would have aggregated $117.1 thousand for 2015, $52.3 thousand for 2014 and $139.1 thousand for 2013. Any collections
of interest on nonaccrual loans are included in interest income when collected unless it is on an impaired loan with a specific allocation. A collection of interest on an impaired loan with a specific allocation is applied to the loan balance to
decrease the allocation. Total interest collections, whether on an accrued or cash basis, amounted to $76 thousand for 2015, $87 thousand for 2014 and $60 thousand for 2013. $20.6 thousand of interest collected in 2015 was applied to reduce the
specific allocation and was applied for the same reason in 2014. Loans are placed on nonaccrual status in the event that the loan is in past due status
for more than 90 days or payment in full of principal and interest is not expected. The Bank had nonaccrual loan balances of $2.1 million at December 31, 2015 compared to balances of $3.3 and $1.7 million as of year-end 2013 and 2014,
respectively. All of the balances of nonaccrual loans for the past three years were collaterally secured. As of December 31, 2015 the Bank had $7.0
million of loans which it considers to be potential problem loans in that the borrowers are experiencing financial difficulties. At December 31, 2014, the Bank had $13.5 million of these loans. These loans are subject to constant
management attention and are reviewed at least monthly. The amount of the potential problem loans was considered in managements review of the loan loss reserve at December 31, 2015 and 2014. In extending credit to families, businesses and governments, banks accept a measure of risk against which an allowance for possible loan loss is established
by way of expense charges to earnings. This expense is determined by management based on a detailed monthly review of the risk factors affecting the loan portfolio, including general economic conditions, changes in the portfolio mix, past due
loan-loss experience and the financial condition of the banks borrowers. As of December 31, 2015, the Bank had loans outstanding to
individuals and firms engaged in the various fields of agriculture in the amount of $82.8 million with an additional $58.5 million in agricultural real estate loans these compared to $74.6 and $50.9 million respectively as of December 31, 2014.
The ratio of this segment of loans to the total loan portfolio is not considered unusual for a bank engaged in and servicing rural communities. Interest
rate modification to reflect a decrease in market interest rates or maintain a relationship with the debtor, where the debtor is not experiencing financial difficulty and can obtain funding from other sources, is not considered a troubled debt
restructuring. As of December 31, 2015, the Bank had $1.1 million of its loans that were classified as troubled debt restructurings, of which $182.4 thousand are included in non-accrual loans. This compares to $797.2 thousand as of same date
2014 and the Bank had almost $911.2 thousand classified as such as of December 31, 2013. Updated appraisals are required on all collateral dependent
loans once they are deemed impaired. The Bank may also require an updated appraisal of a watch list loan which the Bank monitors under their loan policy. On a quarterly basis, Bank management reviews properties supporting asset dependent loans to
consider market events that may indicate a change in value has occurred. To determine observable market price, collateral asset values securing an
impaired loan are periodically evaluated. Maximum time of re-evaluation is every 12 months for chattels and titled vehicles and every two years for real estate. In this process, third party evaluations are obtained and heavily relied upon. Until
such time that updated appraisals are received, the Bank may discount the existing collateral value used. Performing non-watch list loans secured in whole or in part by real estate, do not require an updated
appraisal unless the loan is rewritten and additional funds advanced. Watch List loans secured in whole or in part by real estate require updated appraisals every two years. All loans are subject to loan to values as found in the Banks loan
policies irrespective of their grade. The Banks watch list is reviewed on a quarterly basis by management and any questions to value are addressed at that time. The majority of the Banks loans are made in the market by lenders who live and work in the market. Thus, their evaluation of the independent valuation
is also valuable and serves as a double check. On extremely rare occasions, the Bank will make adjustments to the recorded values of collateral securing
commercial real estate loans without acquiring an updated appraisal for the subject property. The Bank has no formalized policy for determining when collateral value adjustments between regularly scheduled appraisals are necessary, nor does it use
any specific methodology for applying such adjustments. However, on a quarterly basis as part of its normal operations, the Banks senior management and the Loan Review Committee will meet to review all commercial credits either deemed to be
impaired or on the Banks watch list. In addition to analyzing the recent performance of these loans, management and the Enterprise Risk Management Committee will also consider any general market conditions that might warrant adjustments to the
value of particular real estate collateralizing commercial loans. In addition, management conducts annual reviews of all commercial loans exceeding certain outstanding balance thresholds. In each of these situations, any information available to
management regarding market conditions impacting a specific property or other relevant factors are considered, and lenders familiar with a particular commercial real estate loan and the underlying collateral may be present to provide their opinion
on such factors. If the available information leads management to conclude a valuation adjustment is warranted, such an adjustment may be applied on the basis of the information available. If management concludes that an adjustment is warranted but
lacks the specific information needed to reasonably quantify the adjustment, management will order a new appraisal on the subject property even though one may not be required under the Banks general policies for updating appraisal. Note 4 of the Consolidated Financial Statements may also be reviewed for additional tables dealing with the Banks loans and ALLL. ALLL is evaluated based on an assessment of the losses inherent in the loan portfolio. This assessment results in an allowance consisting of two components,
allocated and unallocated. Management considers several different risk assessments in determining ALLL. The allocated component of ALLL reflects expected
losses resulting from an analysis of individual loans, developed through specific credit allocations for individual loans and historical loss experience for each loan category. For those loans where the internal credit rating is at or below a
predetermined classification and management can reasonably estimate the loss that will be sustained based upon collateral, the borrowers operating activity and economic conditions in which the borrower operates, a specific allocation is made. For
those borrowers that are not currently behind in their payment, but for which management believes, based on economic conditions and operating activities of the borrower, the possibility exists for future collection problems, a reserve is
established. The amount of reserve allocated to each loan portfolio is based on past loss experiences and the different levels of risk within each loan portfolio. The historical loan loss portion is determined using a historical loss analysis by
loan category. The unallocated portion of the reserve for loan losses is determined based on managements assessment of general economic conditions
as well as specific economic factors in the Banks marketing area. This assessment inherently involves a higher degree of uncertainty. It represents estimated inherent but undetected losses within the portfolio that are probable due to
uncertainties in economic conditions, delays in obtaining information, including unfavorable information about a borrowers financial condition and other current risk factors that may not have yet manifested themselves in the Banks
historical loss factors used to determine the allocated component of the allowance. Actual charge-off of loan balances is based upon periodic evaluations
of the loan portfolio by management. These evaluations consider several factors, including, but not limited to, general economic conditions, financial condition of the borrower, and collateral. As presented below, charge-offs increased to $1.0 million for 2015, preceded by a decrease to $778 thousand for
2014, an increase to $1.3 million for 2013, decreased to $891 thousand for 2012 and 2011 recorded $2.7 million. The provision expense also decreased in 2012 and 2011 and increased for 2013 and 2014. 2015 had the lowest provision expense of all years
presented at $625 thousand. 2014 and 2013 had provision expense of $1.2 million and $858 thousand respectively. 2012 had provision expense of $738 thousand with 2011 having provision expense of $1.7 million. The Commercial and Industrial portfolio
had the largest net charge-off position in 2011 through 2015. The improvement in asset quality during the periods shown is reflected in the increased percentage of the allowance for loan loss to nonperforming loans. In reviewing the bigger picture of the allowance for credit loss, the years with the higher percentage of ACL to total nonperforming loans ratio account for
the lower level of nonaccrual and watch list loans. This demonstrates the extended time period with which it has taken to achieve resolution and/or collection of these loans. In 2012, the provision expense was to offset the higher year-end watch
list values. A smaller portion of the allowance was needed to fund the impaired loans as collateral remained sufficient to cover the outstanding amounts in most cases. 2014s significant and continued loan growth since fourth quarter 2013 was
the reason behind 2014s higher balances as asset quality remained strong. The ratio of ACL to nonperforming loans increased significantly in 2014 which is why provision loan expense was lower in 2015 in comparison. The ACL to nonperforming
loans for 2015 remained more than adequate and emphasizes the existing strong level of credit quality. The following table presents a reconciliation of the allowance for credit losses for the years ended
December 31, 2015, 2014, 2013, 2012 and 2011: |
| | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | (In Thousands) | | | | | | | | | | | | | | | | | | |
| | | 2015 | | | | 2014 | | | | 2013 | | | | 2012 | | | | 2011 | | |
| Non-accrual loans | | $ | 2,041 | | | $ | 1,705 | | | $ | 3,329 | | | $ | 4,828 | | | $ | 2,131 | |
| Accruing loans past due 90 days or more | | | | | | | | | | | | | | | 1 | | | | | |
| Troubled debt restructurings, not included above | | | 878 | | | | 471 | | | | 485 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 2,919 | | | $ | 2,176 | | | $ | 3,814 | | | $ | 4,829 | | | $ | 2,131 | |
| | | | | | | | | | | | | | | | | | | | | |
| FMAO/10-K/0001193125-16-474789 |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS | *
Nonperforming loans are defined as all loans on nonaccrual, plus any loans past due 90 days not on nonaccrual. Allocation of ALLL per Loan Category in terms of dollars and percentage of loans in each category to total loans
is as follows: |
| | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | (In Thousands) | | | | | | | | | | | | | | | | | | |
| | | 2015 | | | | 2014 | | | | 2013 | | | | 2012 | | | | 2011 | | |
| Loans | | $ | 685,878 | | | $ | 621,926 | | | $ | 576,113 | | | $ | 501,402 | | | $ | 506,215 | |
| | | | | | | | | | | | | | | | | | | | | |
| Daily average of outstanding loans | | $ | 627,194 | | | $ | 581,483 | | | $ | 507,126 | | | $ | 492,697 | | | $ | 504,058 | |
| | | | | | | | | | | | | | | | | | | | | |
| Allowance for Loan Losses-Jan 1 | | $ | 5,905 | | | $ | 5,194 | | | $ | 5,224 | | | $ | 5,091 | | | $ | 5,706 | |
| Loans Charged off: | | | | | | | | | | | | | | | | | | | | |
| Consumer Real Estate | | | 38 | | | | 168 | | | | 147 | | | | 246 | | | | 423 | |
| Agricultural Real Estate | | | | | | | | | | | | | | | | | | | | |
| Agricultural | | | | | | | | | | | | | | | 6 | | | | 24 | |
| Commercial Real Estate | | | 143 | | | | 229 | | | | 164 | | | | 98 | | | | 360 | |
| Commercial and Industrial | | | 536 | | | | | | | | 513 | | | | 47 | | | | 1,500 | |
| Consumer | | | 313 | | | | 381 | | | | 438 | | | | 494 | | | | 374 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 1,030 | | | $ | 778 | | | $ | 1,262 | | | $ | 891 | | | $ | 2,681 | |
| | | | | | | | | | | | | | | | | | | | | |
| Loan Recoveries: | | | | | | | | | | | | | | | | | | | | |
| Consumer Real Estate | | $ | 41 | | | $ | 34 | | | $ | 20 | | | $ | 60 | | | $ | 61 | |
| Agricultural Real Estate | | | | | | | | | | | | | | | | | | | | |
| Agricultural | | | 64 | | | | 44 | | | | 5 | | | | 12 | | | | 67 | |
| Commercial Real Estate | | | 204 | | | | 4 | | | | 23 | | | | 7 | | | | 32 | |
| Commercial and Industrial | | | 91 | | | | 20 | | | | 141 | | | | 30 | | | | 19 | |
| Consumer | | | 157 | | | | 196 | | | | 185 | | | | 177 | | | | 172 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 557 | | | $ | 298 | | | $ | 374 | | | $ | 286 | | | $ | 351 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net Charge Offs | | $ | 473 | | | $ | 480 | | | $ | 888 | | | $ | 605 | | | $ | 2,330 | |
| Provision for loan loss | | | 625 | | | | 1,191 | | | | 858 | | | | 738 | | | | 1,715 | |
| Acquisition provision for loan loss | | | | | | | | | | | | | | | | | | | | |
| Allowance for Loan & Lease Losses - Dec 31 | | $ | 6,057 | | | $ | 5,905 | | | $ | 5,194 | | | $ | 5,224 | | | $ | 5,090 | |
| Allowance for Unfunded Loan Commitments & Letters of Credit Dec 31 | | | 208 | | | | 207 | | | | 163 | | | | 162 | | | | 130 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total Allowance for Credit Losses - Dec 31 | | $ | 6,265 | | | $ | 6,112 | | | $ | 5,357 | | | $ | 5,386 | | | $ | 5,221 | |
| | | | | | | | | | | | | | | | | | | | | |
| Ratio of net charge-offs to average | | | | | | | | | | | | | | | | | | | | |
| Loans outstanding | | | 0.08 | % | | | 0.08 | % | | | 0.18 | % | | | 0.12 | % | | | 0.46 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Ratio of the Allowance for Loan Loss to | | | | | | | | | | | | | | | | | | | | |
| Nonperforming Loans | | | 293.75 | % | | | 346.30 | % | | | 156.03 | % | | | 108.20 | % | | | 238.89 | % |
| | | | | | | | | | | | | | | | | | | | | |
| FMAO/10-K/0001193125-16-474789 |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS | Deposits The amount of
outstanding time certificates of deposits and other time deposits in amounts of $100,000 or more by maturity as of December 31, 2015 are as follows:
(In Thousands)
UnderThree Months
Over ThreeMonthsLess thanSix Months
Over SixMonths LessThan OneYear
OverOneYear
Time Deposits
$
8,904
$
13,404
$
20,513
$
38,040
The following table presents the average amount of and average rate paid on each deposit category: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | 2015 | | | | | | | | 2014 | | | | | | | | 2013 | | | | | | | | 2012 | | | | | | | | 2011 | | | | | | |
| | | Amount(000s) | | | | % | | | | Amount(000s) | | | | % | | | | Amount(000s) | | | | % | | | | Amount(000s) | | | | % | | | | Amount(000s) | | | | % | | |
| Balance at End of Period Applicable To: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consumer Real Estate | | $ | 338 | | | | 12.82 | | | $ | 537 | | | | 15.69 | | | $ | 257 | | | | 16.05 | | | $ | 368 | | | | 16.01 | | | $ | 260 | | | | 16.12 | |
| Agricultural Real Estate | | | 211 | | | | 8.52 | | | | 184 | | | | 8.18 | | | | 131 | | | | 7.69 | | | | 113 | | | | 8.01 | | | | 140 | | | | 6.32 | |
| Agricultural | | | 582 | | | | 12.07 | | | | 547 | | | | 12.00 | | | | 326 | | | | 11.36 | | | | 290 | | | | 11.52 | | | | 267 | | | | 10.39 | |
| Commercial Real Estate | | | 2,516 | | | | 46.98 | | | | 2,367 | | | | 43.43 | | | | 2,107 | | | | 43.19 | | | | 1,749 | | | | 39.89 | | | | 2,087 | | | | 39.74 | |
| Commercial and Industrial | | | 1,229 | | | | 15.56 | | | | 1,421 | | | | 16.86 | | | | 1,359 | | | | 18.03 | | | | 2,183 | | | | 20.53 | | | | 1,948 | | | | 22.85 | |
| Consumer | | | 337 | | | | 4.05 | | | | 323 | | | | 3.84 | | | | 292 | | | | 3.68 | | | | 268 | | | | 4.04 | | | | 315 | | | | 4.58 | |
| Unallocated | | | 844 | | | | 0.00 | | | | 526 | | | | 0.00 | | | | 722 | | | | 0.00 | | | | 253 | | | | 0.00 | | | | 74 | | | | 0.00 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for Loan & Lease Losses | | $ | 6,057 | | | | 100.00 | | | $ | 5,905 | | | | 100.00 | | | $ | 5,194 | | | | 100.00 | | | $ | 5,224 | | | | 100.00 | | | $ | 5,091 | | | | 100.00 | |
| Off Balance Sheet Commitments | | | 208 | | | | | | | | 207 | | | | | | | | 163 | | | | | | | | 162 | | | | | | | $ | 130 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Allowance for Credit Losses | | $ | 6,265 | | | | | | | $ | 6,112 | | | | | | | $ | 5,357 | | | | | | | $ | 5,386 | | | | | | | $ | 5,221 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FMAO/10-K/0001193125-16-474789 |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS | Liquidity Liquidity remains adequate though down from prior years as the Bank has decreased the investment portfolio to fund loans. The Bank has access to $58 million of
unsecured borrowings through correspondent banks and $29.4 million of unpledged securities which may be sold or used as collateral. An additional $4.1 million is also available from the Federal Home Loan Bank based on current collateral pledging
with up to $118.5 million available provided adequate collateral is pledged. Maintaining sufficient funds to meet depositor and borrower needs on a daily
basis continues to be among managements top priorities. This is accomplished not only by immediate liquid resources of cash, due from banks and federal funds sold, but also by the Banks available for sale securities portfolio. The
average aggregate balance of these assets was $262.1 for 2015 and $296.5 million for 2014, and $387.7 million for 2013. This represented 28.0%, 31.8% and 42.5% of total average assets, respectively. Of the almost $218.7 million of debt securities in
the banks portfolio as of December 31, 2015, $12.7 million, or 5.8% of the portfolio, is expected to receive payments or mature in 2016. The availability of the funds may be reduced by the need to utilize securities for pledging purposes
on public deposits. This liquidity provides the opportunity to fund loan growth by analysis of the lowest cost and source of funds whether by increasing deposits, sales or runoff of investments or utilizing debt. In addition to the Banks investment portfolio, the Company has $16.4 million held in the holding companys investment portfolio. $1.5 million of
those investments will mature or receive payments in the next twelve months. These funds provide liquidity to the Company. The Bank has been declaring additional dividends each quarter to provide this liquidity to the Company. In future years, the
Captive will also upstream dividends to the Company once reserve levels are adequately provided for. This will also provide additional liquidity for Company activities. Historically, the primary source of liquidity has been core deposits that include noninterest bearing and interest bearing demand deposits, savings, money
market accounts and time deposits of individuals. Core deposit balances as of year-end 2015 increased in all categories with the exception of time deposits. Overall deposits increased an average of $2.6 million in 2015, $913 thousand in 2014 and
$4.7 million during 2013. The Bank also utilized Federal Funds purchased at times during 2013 through 2015. The average balance for 2015 and 2014 was $1.2 million and $1.4 million respectively. The Bank began using this temporary funding source
heavier in December 2015 while it secured more permanent funding. Historically, the primary use of new funds is placing the funds back into the community
through loans for the acquisition of new homes, consumer products and for business development. The use of new funds for loans is measured by the loan to deposit ratio. The Banks average loan to deposit ratio was 80.7% for 2015, 76.4% for 2014
and 66.2% for 2013. The lower ratio in 2013 was due to the success of the deposit gathering function, the residential mortgage loans being sold in the secondary market and the lack of loan demand. The Banks goal is for this ratio to be higher
in the 80-90 percent range with loan growth being the driver. The Bank ended the year 2015 at an 88.1% loan to deposit ratio. Short-term debt such as
federal funds purchased and securities sold under agreement to repurchase also provides the Company with liquidity. Short-term debt for both federal funds purchased and securities sold under agreement to repurchase amounted to $78.8 million at the
end of 2015 compared to $56.0 million at the end of 2014 and $69.8 million at the end of 2013. These accounts are used to provide a sweep product to the Banks commercial customers. Other borrowings are also a source of funds. Other borrowings consist of loans from the Federal Home Loan Bank of Cincinnati. These funds are then
used to provide loans in our community. The Bank utilized this funding source in December 2015 by borrowing $10 million. Prior borrowings from this source had decreased by $4.5 million to none at December 31, 2014. This compares to decreased
borrowings during 2013 of $7.1 million. The decreased borrowings were payoffs of matured notes in 2013 and 2014. Asset/Liability Management The primary functions of asset/liability management are to assure adequate liquidity and maintain an appropriate balance between interest earning assets and
interest bearing liabilities. It involves the management of the balance sheet mix, maturities, re-pricing characteristics and pricing components to provide an adequate and stable net interest margin with an acceptable level of risk. Interest rate
sensitivity management seeks to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates. Changes in net income, other than those related to volume arise when interest rates on assets re-price in a time
frame or interest rate environment that is different from that of the re-pricing period for liabilities. Changes in net interest income also arise from changes in the mix of interest-earning assets and interest-bearing liabilities. Historically, the Bank has maintained liquidity through cash flows generated in the normal course of business, loan repayments, maturing earning assets, the
acquisition of new deposits, and borrowings. The Banks asset and liability management program is designed to maximize net interest income over the long term while taking into consideration both credit and interest rate risk. Interest rate
sensitivity varies with different types of interest-earning assets and interest-bearing liabilities. Overnight federal funds on which rates change daily and loans that are tied to the market rate differ considerably from long-term investment
securities and fixed rate loans. Similarly, time deposits over $100,000 and money market certificates are much more interest rate sensitive than passbook savings accounts. The Bank utilizes shock analysis to examine the amount of exposure an instant
rate change of 100, 200, 300 and 400 basis points in both increasing and decreasing directions would have on the financials. Acceptable ranges of earnings and equity at risk are established and decisions are made to maintain those levels based on
the shock results. Impact of Inflation and Changing Prices The consolidated financial statements and notes thereto presented herein have been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the
increased cost of the Companys operations. Unlike most industrial companies, nearly all the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Companys performance than
do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and service. Contractual Obligations Contractual Obligations of the
Company totaled $252.1 million as of December 31, 2015. Time deposits represent contractual agreements for certificates of deposits held by its customers. Long term debt represents the borrowings with the Federal Home Loan Bank and is further
defined in Note 4 and 9 of the Consolidated Financial Statements. |
| | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | (In Thousands) | | | | | | | | | | | | | | |
| | | Non-InterestDDAs | | | | InterestDDAs | | | | SavingsAccounts | | | | TimeAccounts | | |
| December 31, 2015: | | | | | | | | | | | | | | | | |
| Average balance | | $ | 162,028 | | | $ | 184,941 | | | $ | 227,328 | | | $ | 189,822 | |
| Average rate | | | 0.00 | % | | | 0.62 | % | | | 0.18 | % | | | 0.90 | % |
| | | | | | | | | | | | | | | | | |
| December 31, 2014: | | | | | | | | | | | | | | | | |
| Average balance | | $ | 152,155 | | | $ | 178,285 | | | $ | 216,405 | | | $ | 214.680 | |
| Average rate | | | 0.00 | % | | | 0.51 | % | | | | | | | 0.92 | % |
| | | | | | | | | | | | | | | | | |
| December 31, 2013: | | | | | | | | | | | | | | | | |
| Average balance | | $ | 109,804 | | | $ | 202,914 | | | $ | 197,157 | | | $ | 250,737 | |
| Average rate | | | | | | | 0.53 | % | | | 0.19 | % | | | 1.06 | % |
| FMAO/10-K/0001193125-16-474789 |
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS | Capital Resources Stockholders equity was $120.1 million as of December 31, 2015 compared to $114.5 million at December 31, 2014. Dividends declared during 2015
were $0.87 per share totaling $3.99 million and during 2014 were $0.84 per share totaling $3.86 million. During 2015, the Company purchased 30,685 shares and awarded 16,000 shares of restricted stock to 67 employees. During 2014, the Company
purchased 23,570 shares and awarded 13,250 restricted shared to 61 employees. For a summary of activity as it relates to the Companys restricted stock awards, please refer to Note 11: Employee Benefit Plans in the consolidated financial
statements. At yearend 2015, the Company held 587,466 shares in Treasury stock and 38,995 unvested shares of restricted stock. At yearend 2014, the Company held 572,662 shares in Treasury stock and 33,390 unvested shares of restricted stock. On
January 15, 2016 the Company announced the authorization by its Board of Directors for the Companys repurchase, either on the open market, or in privately negotiated transactions, of up to 200,000 shares of its outstanding common stock
commencing January 15, 2016 and ending December 31, 2016. The Company has a history of approving a similar resolution to be in effect each year for at least the last five years. The Company continues to have a strong capital base and maintains regulatory capital ratios that are above the
defined regulatory capital ratios. At December 31, 2015, the Bank and the Company had total risk-based capital ratios of 12.64% and 14.95%, respectively. Core capital to risk-based asset ratios of 11.87% and 14.18% for the Bank and the Company,
respectively, are well in excess of regulatory guidelines. The Banks leverage ratio of 10.12% is also substantially in excess of regulatory guidelines, as is the Companys at 11.91%. Under Basel III, the common equity Tier 1 Capital to
risk-weighted assets ratios are also well above the required 4.50% and the 6.50% well capitalized levels with the Company at 14.18% and the Bank at 11.87%. For further discussion and analysis of regulatory capital requirements, refer to Note 15 of
the Audited Financial Statements. The Companys subsidiaries are restricted by regulations from making dividend distributions in excess of certain
prescribed amounts. Upon prior regulatory approval, the Bank may be allowed to pay above the prescribed amount. |
| | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | Payment Due by Period (In Thousands) | | | | | | | | | | | | | | | | | | |
| Contractual Obligations | | Total | | | | Less than1 year | | | | 1-3Years | | | | 3-5Years | | | | More than5 years | | |
| Securities sold under agreement to repurchase | | $ | 56,815 | | | $ | 39,691 | | | $ | | | | $ | 17,124 | | | $ | | |
| Time Deposits | | | 184,285 | | | | 89,862 | | | | 60,381 | | | | 33,198 | | | | 844 | |
| Dividends Payable | | | 1,007 | | | | 1,007 | | | | | | | | | | | | | |
| Long Term Debt | | | 10,000 | | | | | | | | 10,000 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 252,107 | | | $ | 130,560 | | | $ | 70,381 | | | $ | 50,322 | | | $ | 844 | |
| | | | | | | | | | | | | | | | | | | | | |
| FMAO/10-K/0001193125-16-474789 |
Net Interest Income | The following tables show changes in interest income, interest expense and net interest resulting from changes in volume and rate variances for major categories of earnings assets and interest bearing liabilities. |
| | | 2017 | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | (In Thousands) | | | | | | | | | | |
| | | Average | | | | Interest/ | | | | | | |
| | | Balance | | | | Dividends | | | | Yield/Rate | | |
| ASSETS | | | | | | | | | | | | |
| Interest Earning Assets: | | | | | | | | | | | | |
| Loans | | $ | 783,140 | | | $ | 37,195 | | | | 4.76 | % |
| Taxable investment securities | | | 154,081 | | | | 2,815 | | | | 1.83 | % |
| Tax-exempt investment securities | | | 52,192 | | | | 1,045 | | | | 3.03 | % |
| Federal funds sold & interest bearing deposits | | | 16,597 | | | | 193 | | | | 1.16 | % |
| Total Interest Earning Assets | | | 1,006,010 | | | $ | 41,248 | | | | 4.16 | % |
| Non-Interest Earning Assets: | | | | | | | | | | | | |
| Cash and cash equivalents | | | 33,411 | | | | | | | | | |
| Other assets | | | 36,913 | | | | | | | | | |
| Total Assets | | $ | 1,076,334 | | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | |
| Interest Bearing Liabilities: | | | | | | | | | | | | |
| Savings deposits | | $ | 519,580 | | | $ | 2,302 | | | | 0.44 | % |
| Other time deposits | | | 188,443 | | | | 2,181 | | | | 1.16 | % |
| Other borrowed money | | | 9,960 | | | | 147 | | | | 1.48 | % |
| Federal funds purchased and securities sold under agreement to repurchase | | | 32,173 | | | | 497 | | | | 1.54 | % |
| Total Interest Bearing Liabilities | | | 750,156 | | | $ | 5,127 | | | | 0.68 | % |
| Non-Interest Bearing Liabilities: | | | | | | | | | | | | |
| Non-interest bearing demand deposits | | | 180,129 | | | | | | | | | |
| Other | | | 15,624 | | | | | | | | | |
| Total Liabilities | | | 945,909 | | | | | | | | | |
| Shareholders' Equity | | | 130,425 | | | | | | | | | |
| Total Liabilities and Shareholders' Equity | | $ | 1,076,334 | | | | | | | | | |
| Interest/Dividend income/yield | | | | | | $ | 41,248 | | | | 4.16 | % |
| Interest Expense/cost | | | | | | | 5,127 | | | | 0.68 | % |
| Net Interest Spread | | | | | | $ | 36,121 | | | | 3.48 | % |
| Net Interest Margin | | | | | | | | | | | 3.65 | % |
| FMAO/10-K/0001564590-20-006695 |
Non-Interest Expense | Furniture and equipment steadily increase as we continue to add facilities and invest in technology. Annual maintenance costs continue to grow and become a greater piece of the overall cost. As new services are provided to our customers, the backroom cost to supply them continues to rise. The Company accepts it is an expected cost of doing business and keeping our services relevant to the industry. Data processing costs were higher in 2019 as compared to 2018 by $1.3 million of which $867.6 thousand was acquisition related for termination fees. Overall, data processing expense for 2019 was expected to be higher with the addition of the six acquired Indiana offices. Data processing expense increased $104.4 thousand during 2018 as compared to 2017. As the pricing on many services is based on number of accounts and the Bank fully expects those to increase with the growth from the newer offices and overall Bank growth, this line item is expected to also increase.The FDIC assessment has a decreasing cost trend over the years shown. This line item speaks to the health of the Bank and the financial industry. The assessment for 2019 was down $143.5 thousand compared to 2018 as a result of the Small Bank Assessment Credits applied to 3rd and 4th quarter’s invoices. The assessment for 2018 was down $4 thousand from 2017.The last line items with significant variation in noninterest expense to discuss is “consulting fees” and “other general and administrative.” Two main events are behind the increase of $865 thousand in 2018 as compared to 2017 in this line item. Both events incurred one-time costs which required the use of outside consultants. First related to the use of an executive recruiter firm to conduct a search for a CEO due to an upcoming retirement. The second related to the costs of researching, analyzing and negotiating possible mergers and acquisition opportunities. The consulting fees were beneficial in both instances as a new CEO was hired and a merger was closed on January 1, 2019. Consulting fees increased by $551.2 thousand in 2018 over 2017 while decreasing $259.9 thousand in 2019 compared to 2018. During 2019, consultants were used to complete a pay study review, assist with developing a three year strategic plan and to identify profit enhancement initiatives. Acquisition costs incurred in 2019 and 2018 total $1.28 million and $742.1 thousand respectively with expenses being recorded in multiple line items. Core deposit intangible expense which is included in the other general and administrative line decreased in 2018 as compared to 2017 by $77.7 thousand; however, increased in 2019 compared to 2018 by $560 thousand with the acquisition. Advertising and public relations increased also in 2019 by $682 thousand following an increase of $129.9 thousand in 2018. With the addition of new offices in both years behind the increases, 2019 was expected to increase due to additional offices being added. The Bank also celebrates the anniversary of office openings with a special event in each community. |
| | | (In Thousands) | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | 2019 | | | | 2018 | | | | 2017 | | |
| Beginning Year | | $ | 2,385 | | | $ | 2,299 | | | $ | 2,192 | |
| Capitalized Additions | | | 731 | | | | 450 | | | | 460 | |
| Amortization | | | (487 | ) | | | (364 | ) | | | (353 | ) |
| Valuation Allowance | | | - | | | | - | | | | - | |
| End of Year | | $ | 2,629 | | | $ | 2,385 | | | $ | 2,299 | |
| FMAO/10-K/0001564590-20-006695 |
Securities | The following table sets forth the maturities of investment securities as of December 31, 2019 and the weighted average yields of such securities calculated on the basis of cost and effective yields weighted for the scheduled maturity of each security. Tax-equivalent adjustments, using a twenty-one percent rate, have been made in yields on obligations of state and political subdivisions. Stocks of domestic corporations have not been included. Maturities of mortgage-backed securities are based on the stated maturity date of the security. Due to prepayments, actual maturities may be different. |
| | | (In Thousands) | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | 2019 | | | | 2018 | | | | 2017 | | |
| U.S. Treasury | | $ | 10,021 | | | $ | 22,830 | | | $ | 20,978 | |
| U.S. Government agencies | | | 62,445 | | | | 69,327 | | | | 80,466 | |
| Mortgage-backed securities | | | 95,197 | | | | 36,262 | | | | 39,510 | |
| State and local governments | | | 54,630 | | | | 40,028 | | | | 55,444 | |
| | | $ | 222,293 | | | $ | 168,447 | | | $ | 196,398 | |
| FMAO/10-K/0001564590-20-006695 |
Securities | As of December 31, 2019, the Bank did not hold a large block of any one investment security in excess of 10% of stockholders’ equity. The largest segment of holdings is in U.S. Government agencies. The Bank also holds stock in the Federal Home Loan Bank of Cincinnati and Indianapolis at a cost of $5.8 million. This is required in order to obtain Federal Home Loan Bank loans. |
| | | After Five Years | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | Within Ten Years | | | | | | | | After Ten Years | | | | | | |
| | | Amount | | | | Yield | | | | Amount | | | | Yield | | |
| U.S. Treasury | | $ | - | | | | 0.00 | % | | $ | - | | | | 0.00 | % |
| U.S. Government agencies | | | 27,057 | | | | 2.43 | % | | | - | | | | 0.00 | % |
| Mortgage-backed securities | | | 10,648 | | | | 2.26 | % | | | 83,881 | | | | 2.37 | % |
| State and local governments | | | 14,169 | | | | 1.83 | % | | | 969 | | | | 2.55 | % |
| Taxable state and local governments | | | 16,923 | | | | 2.70 | % | | | 2,837 | | | | 1.79 | % |
| FMAO/10-K/0001564590-20-006695 |
Loan Portfolio | The following table shows the maturity of loans excluding fair value adjustments as of December 31, 2019: |
| | | (In Thousands) | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Loans: | | 2019 | | | | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | |
| Consumer Real Estate | | $ | 165,349 | | | $ | 80,766 | | | $ | 83,620 | | | $ | 86,234 | | | $ | 88,189 | |
| Agricultural Real Estate | | | 199,105 | | | | 68,609 | | | | 64,073 | | | | 62,375 | | | | 57,277 | |
| Agricultural | | | 111,820 | | | | 108,495 | | | | 95,111 | | | | 84,563 | | | | 82,654 | |
| Commercial Real Estate | | | 551,309 | | | | 419,784 | | | | 410,520 | | | | 377,481 | | | | 322,762 | |
| Commercial and Industrial | | | 135,631 | | | | 121,793 | | | | 126,275 | | | | 109,256 | | | | 100,125 | |
| Consumer | | | 49,237 | | | | 41,953 | | | | 37,757 | | | | 33,179 | | | | 27,770 | |
| Other | | | 8,314 | | | | 5,889 | | | | 6,415 | | | | 5,732 | | | | 6,491 | |
| | | $ | 1,220,765 | | | $ | 847,289 | | | $ | 823,771 | | | $ | 758,820 | | | $ | 685,268 | |
| FMAO/10-K/0001564590-20-006695 |
Loan Portfolio | The following table presents the total of loans excluding fair value adjustments due after one year which has either 1) predetermined interest rates (fixed) or 2) floating or adjustable interest rates (variable): |
| | | (In Thousands) | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | After One | | | | | | |
| | | Within | | | | Year Within | | | | After | | |
| | | One Year | | | | Five Years | | | | Five Years | | |
| Consumer Real Estate | | $ | 5,163 | | | $ | 19,025 | | | $ | 141,231 | |
| Agricultural Real Estate | | | 272 | | | | 4,668 | | | | 195,162 | |
| Agricultural | | | 66,851 | | | | 29,954 | | | | 15,006 | |
| Commercial Real Estate | | | 49,976 | | | | 230,817 | | | | 270,698 | |
| Commercial and Industrial | | | 68,257 | | | | 54,718 | | | | 12,708 | |
| Consumer | | | 6,215 | | | | 32,711 | | | | 10,227 | |
| Other | | | 340 | | | | 804 | | | | 7,163 | |
| | | $ | 197,074 | | | $ | 372,697 | | | $ | 652,195 | |
| FMAO/10-K/0001564590-20-006695 |
Loan Portfolio | The following table summarizes the Company’s nonaccrual, past due 90 days or more and still accruing loans, and accruing troubled debt restructurings as of December 31 for each of the last five years: |
| | | (In Thousands) | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | Fixed | | | | Variable | | | | | | |
| | | Rate | | | | Rate | | | | Total | | |
| Consumer Real Estate | | | 147,925 | | | | 12,331 | | | | 160,256 | |
| Agricultural Real Estate | | | 177,049 | | | | 22,781 | | | | 199,830 | |
| Agricultural | | | 43,248 | | | | 1,712 | | | | 44,960 | |
| Commercial Real Estate | | | 383,122 | | | | 118,393 | | | | 501,515 | |
| Commercial and Industrial | | | 62,156 | | | | 5,270 | | | | 67,426 | |
| Consumer | | | 42,924 | | | | 14 | | | | 42,938 | |
| Other | | | 7,967 | | | | - | | | | 7,967 | |
| | | | 864,391 | | | | 160,501 | | | | 1,024,892 | |
| FMAO/10-K/0001564590-20-006695 |
Loan Portfolio | Although loans may be classified as non-performing, some pay on a regular basis, and many continue to pay interest irregularly or at less than original contractual rates. Interest income that would have been recorded under the original terms of these loans would have aggregated $193 thousand for 2019, $99 for 2018 and $205.4 thousand for 2017. Any collections of interest on nonaccrual loans are included in interest income when collected unless it is on an impaired loan with a specific allocation. A collection of interest on an impaired loan with a specific allocation is applied to the loan balance to decrease the allocation. Total interest collections, whether on an accrued or cash basis, amounted to $117 thousand for 2019, $69 thousand for 2018 and $57 thousand for 2017. Loans are placed on nonaccrual status in the event that the loan is in past due status for more than 90 days or payment in full of principal and interest is not expected. The Bank had nonaccrual loan balances of $3.4 million at December 31, 2019 compared to balances of $542 thousand and $1.0 million as of year-end 2018 and 2017. All of the balances of nonaccrual loans for the past three years were collaterally secured. As of December 31, 2019, the Bank had $60.2 million of loans which it considers to be “potential problem loans” in that the borrowers are experiencing financial difficulties which are not reflected in the table above. At December 31, 2018, the Bank had $7.9 million of these loans. At December 31, 2017, the Bank had $21.2 million of these loans. These loans are subject to constant management attention and are reviewed at least monthly. The amount of the potential problem loans was considered in management’s review of the loan loss reserve at December 31, 2019 and 2018.In extending credit to families, businesses and governments, banks accept a measure of risk against which an allowance for possible loan loss is established by way of expense charges to earnings. This expense is determined by management based on a detailed monthly review of the risk factors affecting the loan portfolio, including general economic conditions, changes in the portfolio mix, past due loan-loss experience and the financial condition of the bank’s borrowers.As of December 31, 2019, the Bank had loans outstanding to individuals and firms engaged in the various fields of agriculture in the amount of $111.8 million with an additional $199.1 million in agricultural real estate loans these compared to $108.5 and $68.6 million respectively as of December 31, 2018. The ratio of this segment of loans to the total loan portfolio is not considered unusual for a bank engaged in and servicing rural communities.Interest rate modification to reflect a decrease in market interest rates or maintain a relationship with the debtor, where the debtor is not experiencing financial difficulty and can obtain funding from other sources, is not considered a troubled debt restructuring. As of December 31, 2019, the Bank had $1.03 million of its loans that were classified as troubled debt restructurings, of which $50.3 thousand are included in non-accrual loans. This compares to $178.1 thousand of troubled debt restructurings, of which $74.4 thousand are included in non-accrual loans for 2018 and $712.0 thousand of troubled debt restructuring, of which $124.8 thousand are included in non-accrual loans for 2017. Updated appraisals are required on all collateral dependent loans once they are deemed impaired. The Bank may also require an updated appraisal of a watch list loan which the Bank monitors under their loan policy. On a quarterly basis, Bank management reviews properties supporting asset dependent loans to consider market events that may indicate a change in value has occurred.To determine observable market value, collateral asset values securing an impaired loan are periodically evaluated. Maximum time of re-evaluation is every 12 months for chattels and titled vehicles and every two years for real estate. In this process, third party evaluations are obtained and heavily relied upon. Until such time that updated appraisals are received, the Bank may discount the existing collateral value used.Performing “non-watch list” loans secured in whole or in part by real estate, do not require an updated appraisal unless the loan is rewritten and additional funds advanced. Watch List loans secured in whole or in part by real estate require updated appraisals every two years. All loans are subject to loan to values as found in the Bank’s loan policies irrespective of their grade. The Bank’s watch list is reviewed on a quarterly basis by management and any questions to value are addressed at that time. The majority of the Bank’s loans are made in the market by lenders who live and work in the market. Thus, their evaluation of the independent valuation is also valuable and serves as a double check. On extremely rare occasions, the Bank will make adjustments to the recorded values of collateral securing commercial real estate loans without acquiring an updated appraisal for the subject property. The Bank has no formalized policy for determining when collateral value adjustments between regularly scheduled appraisals are necessary, nor does it use any specific methodology for applying such adjustments. However, on a quarterly basis as part of its normal operations, the Bank’s senior management and the Loan Review Committee will meet to review all commercial credits either deemed to be impaired or on the Bank’s watch list. In addition to analyzing the recent performance of these loans, management and the Enterprise Risk Management Committee will also consider any general market conditions that might warrant adjustments to the value of particular real estate collateralizing commercial loans. In addition, management conducts annual reviews of all commercial loans exceeding certain outstanding balance thresholds. In each of these situations, any information available to management regarding market conditions impacting a specific property or other relevant factors are considered, and lenders familiar with a particular commercial real estate loan and the underlying collateral may be present to provide their opinion on such factors. If the available information leads management to conclude a valuation adjustment is warranted, such an adjustment may be applied on the basis of the information available. If management concludes that an adjustment is warranted but lacks the specific information needed to reasonably quantify the adjustment, management will order a new appraisal on the subject property even though one may not be required under the Bank’s general policies for updating appraisal. Note 4 of the Consolidated Financial Statements may also be reviewed for additional tables dealing with the Bank’s loans and ALLL. ALLL is evaluated based on an assessment of the losses inherent in the loan portfolio. This assessment results in an allowance consisting of two components, allocated and unallocated. Management considers several different risk assessments in determining ALLL. The allocated component of ALLL reflects expected losses resulting from an analysis of individual loans, developed through specific credit allocations for individual loans and historical loss experience for each loan category. For those loans where the internal credit rating is at or below a predetermined classification and management can reasonably estimate the loss that will be sustained based upon collateral, the borrowers operating activity and economic conditions in which the borrower operates, a specific allocation is made. For those borrowers that are not currently behind in their payment, but for which management believes, based on economic conditions and operating activities of the borrower, the possibility exists for future collection problems, a reserve is established. The amount of reserve allocated to each loan portfolio is based on past loss experiences and the different levels of risk within each loan portfolio. The historical loan loss portion is determined using a historical loss analysis by loan category.The unallocated portion of the reserve for loan losses is determined based on management’s assessment of general economic conditions as well as specific economic factors in the Bank’s marketing area. This assessment inherently involves a higher degree of uncertainty. It represents estimated inherent but undetected losses within the portfolio that are probable due to uncertainties in economic conditions, delays in obtaining information, including unfavorable information about a borrower’s financial condition and other current risk factors that may not have yet manifested themselves in the Bank’s historical loss factors used to determine the allocated component of the allowance.Actual charge-off of loan balances is based upon periodic evaluations of the loan portfolio by management. These evaluations consider several factors, including, but not limited to, general economic conditions, financial condition of the borrower, and collateral.As presented in the table on the next page, charge-offs increased to $841 thousand for 2019. 70.1% of the charge-offs stemmed from the consumer related portfolios. Charge-offs were $580 thousand for 2018, $288 thousand for 2017, preceded by $550 thousand for 2016 and $1.0 million for 2015. Recoveries were $156 thousand in 2019 compared to $163, $150, $156, and $557 thousand for 2018, 2017, 2016 and 2015, respectively. The net charge-offs for the last five years were all under $1 million. 2017 was the lowest at $138 thousand. Higher provision expense was used to fund the ALLL for loan growth in 2016. For 2015 and 2017, the provision was used to replenish the balance decreased by the net charge-off activity. Overall, the ALLL increased from $6.3 million at yearend 2015 to $7.2 million at yearend 2019. After adding the allowance for unfunded loan commitments, the ACL ended 2019 $7.7 million. As the ratios on the bottom of the following table show, the trends for each have continually improved over the five years shown. Asset quality and the ACL are both strong and emphasize the level of credit quality. In reviewing the bigger picture of the allowance for credit loss, the years with the higher percentage of ACL to total nonperforming loans ratio account for the lower level of nonaccrual and watch list loans. This demonstrates the extended time period with which it has taken to achieve resolution and/or collection of these loans. The ratio of ACL to nonperforming loans increased beginning in 2015 with a significant drop in 2019. 2019’s provision expense was the highest of the five years shown largely due to an increase in watch list loans. Loan growth occurred in 2019 reaching a double-digit percentage increase like 2016. The ACL to nonperforming loans for all years remained more than adequate and emphasizes the existing strong level of credit quality. The following table presents a reconciliation of the allowance for credit losses for the years ended December 31, 2019, 2018, 2017, 2016 and 2015: |
| | | (In Thousands) | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | 2019 | | | | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | |
| Non-accrual loans | | $ | 3,400 | | | $ | 542 | | | $ | 1,003 | | | $ | 1,384 | | | $ | 2,041 | |
| Accruing loans past due 90 days or more | | | - | | | | - | | | | - | | | | - | | | | - | |
| Troubled Debt Restructurings, not included above | | | 980 | | | | 104 | | | | 587 | | | | 559 | | | | 878 | |
| Total | | $ | 4,380 | | | $ | 646 | | | $ | 1,590 | | | $ | 1,943 | | | $ | 2,919 | |
| FMAO/10-K/0001564590-20-006695 |
Loan Portfolio | *Nonperforming loans are defined as all loans on nonaccrual, plus any loans past due 90 days not on nonaccrual.Allocation of ALLL per Loan Category in terms of dollars and percentage of loans in each category to total loans is as follows: |
| | | (In Thousands) | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | 2019 | | | | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | |
| Loans | | $ | 1,218,999 | | | $ | 846,374 | | | $ | 823,024 | | | $ | 758,094 | | | $ | 684,630 | |
| Daily average of outstanding loans | | $ | 1,129,231 | | | $ | 831,614 | | | $ | 783,140 | | | $ | 724,076 | | | $ | 627,194 | |
| Allowance for Loan Losses - Jan 1 | | $ | 6,775 | | | $ | 6,868 | | | $ | 6,784 | | | $ | 6,057 | | | $ | 5,905 | |
| Loans Charged off: | | | | | | | | | | | | | | | | | | | | |
| Consumer Real Estate | | | 98 | | | | 63 | | | | 4 | | | | 106 | | | | 38 | |
| Agricultural Real Estate | | | - | | | | - | | | | - | | | | - | | | | - | |
| Agricultural | | | 37 | | | | - | | | | - | | | | 21 | | | | - | |
| Commercial Real Estate | | | - | | | | 16 | | | | 21 | | | | 93 | | | | 143 | |
| Commercial and Industrial | | | 215 | | | | 142 | | | | - | | | | 20 | | | | 536 | |
| Consumer | | | 491 | | | | 359 | | | | 263 | | | | 310 | | | | 313 | |
| | | | 841 | | | | 580 | | | | 288 | | | | 550 | | | | 1,030 | |
| Loan Recoveries: | | | | | | | | | | | | | | | | | | | | |
| Consumer Real Estate | | | - | | | | 18 | | | | 13 | | | | 28 | | | | 41 | |
| Agricultural Real Estate | | | - | | | | - | | | | - | | | | - | | | | - | |
| Agricultural | | | 3 | | | | 8 | | | | 8 | | | | 10 | | | | 64 | |
| Commercial Real Estate | | | 11 | | | | 10 | | | | 15 | | | | 20 | | | | 204 | |
| Commercial and Industrial | | | 22 | | | | 13 | | | | 12 | | | | 11 | | | | 91 | |
| Consumer | | | 120 | | | | 114 | | | | 102 | | | | 87 | | | | 157 | |
| | | | 156 | | | | 163 | | | | 150 | | | | 156 | | | | 557 | |
| Net Charge Offs | | | 685 | | | | 417 | | | | 138 | | | | 394 | | | | 473 | |
| Provision for loan loss | | | 1,138 | | | | 324 | | | | 222 | | | | 1,121 | | | | 625 | |
| Acquisition provision for loan loss | | | - | | | | - | | | | - | | | | - | | | | - | |
| Allowance for Loan & Lease Losses - Dec 31 | | | 7,228 | | | | 6,775 | | | | 6,868 | | | | 6,784 | | | | 6,057 | |
| Allowance for Unfunded Loan Commitments & Letters of Credit - Dec 31 | | | 479 | | | | 274 | | | | 227 | | | | 217 | | | | 208 | |
| Total Allowance for Credit Losses - Dec 31 | | $ | 7,707 | | | $ | 7,049 | | | $ | 7,095 | | | $ | 7,001 | | | $ | 6,265 | |
| Ratio of net charge-offs to average Loans outstanding | | | 0.06 | % | | | 0.05 | % | | | 0.02 | % | | | 0.05 | % | | | 0.08 | % |
| Ratio of the Allowance for Loan Loss to Nonperforming Loans | | | 209.70 | % | | | 1249.57 | % | | | 684.83 | % | | | 490.39 | % | | | 293.75 | % |
| FMAO/10-K/0001564590-20-006695 |
Net Interest Income | The following tables show changes in interest income, interest expense and net interest resulting from changes in volume and rate variances for major categories of earnings assets and interest bearing liabilities. |
| | | 2016 | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | (In Thousands) | | | | | | | | | | |
| | | Average | | | | Interest/ | | | | | | |
| | | Balance | | | | Dividends | | | | Yield/Rate | | |
| ASSETS | | | | | | | | | | | | |
| Interest Earning Assets: | | | | | | | | | | | | |
| Loans | | $ | 724,076 | | | $ | 33,703 | | | | 4.67 | % |
| Taxable investment securities | | | 172,647 | | | | 2,730 | | | | 1.58 | % |
| Tax-exempt investment securities | | | 55,395 | | | | 1,229 | | | | 3.36 | % |
| Federal funds sold & interest bearing deposits | | | 13,004 | | | | 65 | | | | 0.50 | % |
| Total Interest Earning Assets | | | 965,122 | | | $ | 37,727 | | | | 3.98 | % |
| Non-Interest Earning Assets: | | | | | | | | | | | | |
| Cash and cash equivalents | | | 27,348 | | | | | | | | | |
| Other assets | | | 31,848 | | | | | | | | | |
| Total Assets | | $ | 1,024,318 | | | | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | |
| Interest Bearing Liabilities: | | | | | | | | | | | | |
| Savings deposits | | $ | 446,996 | | | $ | 1,690 | | | | 0.38 | % |
| Other time deposits | | | 194,753 | | | | 1,927 | | | | 0.99 | % |
| Other borrowed money | | | 10,000 | | | | 148 | | | | 1.48 | % |
| Federal funds purchased and securities sold under agreement to repurchase | | | 64,825 | | | | 458 | | | | 0.71 | % |
| Total Interest Bearing Liabilities | | | 716,574 | | | $ | 4,223 | | | | 0.59 | % |
| Non-Interest Bearing Liabilities: | | | | | | | | | | | | |
| Non-interest bearing demand deposits | | | 169,510 | | | | | | | | | |
| Other | | | 13,896 | | | | | | | | | |
| Total Liabilities | | | 899,980 | | | | | | | | | |
| Shareholders' Equity | | | 124,338 | | | | | | | | | |
| Total Liabilities and Shareholders' Equity | | $ | 1,024,318 | | | | | | | | | |
| Interest/Dividend income/yield | | | | | | $ | 37,727 | | | | 3.98 | % |
| Interest Expense/cost | | | | | | | 4,223 | | | | 0.59 | % |
| Net Interest Spread | | | | | | $ | 33,504 | | | | 3.39 | % |
| Net Interest Margin | | | | | | | | | | | 3.55 | % |
| FMAO/10-K/0001564590-19-004731 |