UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X]ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1998
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period ___ to ____
Commission file number 33-00215
UNITED STATES ANTIMONY CORPORATION
(Name of small business issuer in its charter)
Montana 81-0305822
State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
P.O. Box 643, Thompson Falls, Montana 59873
(Address of principal executive offices) (Zip code)
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Registrant's telephone number, including area code: (406) 827-3523
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]
No
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. []
The registrant's revenues for its most recent fiscal year were $3,142,776.
The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the average bid price of such stock, was $844,255 as of March 31, 1999.
At March 31, 1999, the registrant had outstanding 13,425,925 shares of par value $.01 common stock.
TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS 1
General 1
Summary 2
Antimony Division 2
Gold Division 3
Environmental Matters 4
Marketing 5
Antimony 5
Other 6
Employees 6
ITEM 2. DESCRIPTION OF PROPERTIES 6
Antimony Division 6
Gold Division 7
ITEM 3. LEGAL PROCEEDINGS 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 10
PART II
ITEM 5. MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS 10
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS 11
ITEM 7. FINANCIAL STATEMENTS F1-F29
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE 13
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS, COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGEACT 14
ITEM 10. EXECUTIVE COMPENSATION 15
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 15
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 16
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
FILED PURSUANT TO SECTION 15(D) OF THE EXCHANGE ACT BY
NON-REPORTING ISSUERS 20
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PART I
Item 1. Description of Business
General
Section 21E of the Securities Exchange Act of 1934 provides a "Safe Harbor" for forward-looking statements. Certain information included herein contains statements regarding management's expectations about future production and development activities as well as other capital spending, financing sources and effects of regulation. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made herein. These risks and uncertainties include, but are not limited to, those relating to the market price of metals, production rates, production costs, availability of continued financing, and the Company's ability to remain a going concern. The Company cautions readers not to place undue reliance on any forward-looking statements, and such statements speak only as of the date made.
Summary
AGAU Mines, Inc., predecessor of United States Antimony Corporation, was incorporated in June 1968 as a Delaware Corporation to explore, develop and mine gold and silver properties. United States Antimony Corporation ("USAC," "the Company" or "the Registrant") was incorporated in Montana in January 1970 to mine and produce antimony products. In June 1973, AGAU Mines, Inc. was merged with and into USAC, with USAC the surviving corporation in the merger. 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 of antimony products and the mining and milling of gold.
In October 1989 and in April 1990, the Company had judicial financial settlements against it totaling $1,243,316 plus interest and litigation costs. The judgments consumed all available cash, shut down the Company's gold mining operation and placed the Company in a near bankruptcy posture. In December 1990, a fire destroyed the Company's corporate headquarters and many of its financial and administrative records.
In years prior to the fire, the Company had been a reporting entity subject to the requirements of Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act"). The Company had timely filed all reports required by the Exchange Act through September 30, 1990, when it filed its Form 10-Q for that quarter. Subsequent to that time, due to the destruction of records in December 1990 and the poor financial condition of the Company, no other required filings were made until filing of the Company's Form 10-KSB for the year ended December 31, 1995 and the subsequent Form 10-QSBs for each of the quarters in the year ended December 31, 1996.
The Company has been able to sustain its operations through gross profit produced from its antimony operations, common stock sales, and financing from banks and other sources. There can be no assurance, however, that the Company will be able to continue to meet its obligations and continue in existence as a going concern (see Note 1 to the consolidated financial statements).
Antimony Division
The Company's antimony properties, mill and metallurgical plant are located in the Burns Mining District of Sanders County, Montana, approximately 15 miles west of Thompson Falls. The Company holds 12 patented lode claims, some of which are contiguous, and 2 patented mill sites.
Prior to 1984, the Company mined antimony ore underground by driving drifts and using slushers in room and pillar type stopes. Mining was suspended in December 1983, because antimony could be purchased more economically from foreign sources. The Company's underground antimony mining operations may be reopened in the future should raw material prices warrant doing so. The Company now purchases the majority of its raw antimony from China and, to a lesser degree, Canada.
The Company currently is pursuing the acquisition of a 50% interest in United States Antimony, Mexico S.A. de C.V. ("USAMSA") to produce antimony metal and other products from the Mexican states of Zacatecas, Coahuila, Sonora, Queretaro and Oaxaca. These products would then be sent to the Company's plant near Thompson Falls, Montana for processing. During 1998 and 1997, the Company invested capital and surplus equipment from its Thompson Falls Antimony Operation into the construction of an antimony processing plant in Mexico. To date, two antimony processing furnaces and a warehouse building are near completion. The Company anticipates finishing the processing facilities as financial resources are available.
From refined antimony metal, the Company produces four antimony oxide products of different particle size using proprietary furnace technology, and several grades of sodium antimonate using hydro metallurgical techniques. Antimony oxide is a fine, white powder that is used primarily in conjunction with a halogen to form a synergistic flame retardant system for plastics, rubber, fiberglass, textile goods, paints, coatings and paper. Sodium antimonate is primarily used as a fining agent for glass in cathode ray tubes used in computer monitors and television bulbs and as a flame retardant.
On September 1, 1991, the Company entered into an agreement with HoltraChem, Inc. ("HoltraChem") whereby the Company was to process raw material purchased by HoltraChem into finished antimony products. The Company then delivered the finished products to HoltraChem for sale, and shared in the profits or losses from sales with HoltraChem on a 50/50 basis.
On July 1, 1995, the Company and HoltraChem terminated the 1991 agreement and entered into an Inventory and Sales Agreement and a Processing Agreement ("The Agreements"). The Agreements gave rise to the creation of a wholly owned subsidiary, United States Antimony Corporation-Montana ("USAM"), that participates with HoltraChem and its subsidiary, HoltraChem-Montana, Inc. ("HCMI"), in the processing and sale of antimony products. While the Agreements still provide for the sharing of profits or losses from sales, after deduction of certain costs, on a 50/50 basis, they also require the Company to fund and own 50% of the antimony inventory up to $750,000. The Company funds the acquisition of 50% of the antimony inventory through the Company's contribution of 50% of its share of profits. USAM also receives a processing fee from HoltraChem for the finished antimony inventory, which is included in sales of antimony products. All intercompany profits in the inventory are eliminated in consolidation. In consideration of the Company's financial participation in carrying antimony inventory, HoltraChem agreed to provide additional marketing efforts to increase product sales to 10 million pounds of antimony products per year. In September of 1998, HoltraChem sold its interest in the antimony business to Basic Chemical Solutions ("BCS"). In connection with the sale, HoltraChem assigned the Agreements to BCS with the Company's consent. During the fourth quarter of 1998 the Company participated in the antimony business with BCS under substantially the same terms as it had with HoltraChem. In March of 1999, the Company notified BCS that it was exercising its privileges pursuant to the Agreements to cancel the Agreements and operate the antimony business independently.
Antimony Division, Continued:
For the year ended December 31, 1998, the Company, through its relationship with HCMI and BCS sold 2,834,186 pounds of antimony products generating approximately $3.1 million in revenues. During 1997, the Company, through its relationship with HCMI, sold 3,037,369 pounds of antimony products, which generated approximately $4.3 million in revenues. The Company reports 50% of total sales made through HCMI and BCS. The Company's products are sold to various customers throughout the United States. During 1998 and 1997, 19% and 14%, respectively, of the Company's antimony sales were made to one customer.
Gold Division
Yankee Fork Mining District
Until 1989, the Company mined, milled and leached gold and silver in the Yankee Fork Mining District in Custer County, Idaho. The metals were recovered by a 150-ton per day gravity and flotation mill, and the concentrates were leached with cyanide to produce a bullion product at the Preachers Cove mill, which is located six miles north of Sunbeam, Idaho on the Yankee Fork of the Salmon River. The Preachers Cove mill has been dismantled and the site is undergoing environmental remediation pursuant to an Idaho Department of Environmental Quality consent decree request. See "Environmental Matters."
The Company owns two patented lode mining claims on Estes Mountain in the Yankee Fork District, which are now idle.
Yellow Jacket Mining District
The Company holds a mining lease on the Yellow Jacket mine located in the Yellow Jacket Mining District of Lemhi County, Idaho, approximately 70 miles southwest of Salmon, Idaho. On July 8, 1987, the Company and Geosearch, Inc. ("Geosearch"), an Idaho corporation, entered into a mining lease agreement with Yellow Jacket Mines, Inc. of Palo Alto, California for the lease of the Yellow Jacket mine. Also on that date, the Company and Geosearch entered into an operating agreement for the exploration, development and mining of the Yellow Jacket property. Under the terms of the operating agreement, Geosearch and the Company would divide equally the net operating proceeds realized from the Yellow Jacket mine.
On February 19, 1988, the Company obtained an assignment from Geosearch of all of its rights, title and interest in and to the lease agreement dated July 8, 1987 by and between Yellow Jacket Mines, Inc., the Company and Geosearch. In consideration of the assignment of the lease, the Company agreed to conduct certain exploration activities and to provide a preliminary mining plan which, if justified, would result in applications for permitting and bonding for a mine and mill with the state of Idaho, the U.S. Forest Service and other agencies. The Company also agreed to pay Geosearch a 12.5% net operating profits interest until the Company recovered its full investment in the property, and thereafter, Geosearch would receive a 15% net operating profits interest. After the mill was built at the Yellow Jacket mine in 1990, the Company paid Geosearch $25,000 per year in staggered installments, with all payments accumulated and credited against the net operating profits due Geosearch. Net operating profits and guaranteed minimum payments paid to Geosearch apply to a $600,000 purchase price after which the Company will not be obligated to make any further payments to Geosearch.
Gold Division, Continued:
In March 1994, Geosearch filed an action in the Seventh Judicial District Court, Custer County, Idaho, alleging breach of the 1988 assignment of lease. The lawsuit requested recovery of $94,013 in past royalties and accrued interest thereon. On September 9, 1994, the Company settled the litigation by agreeing to an amendment to the assignment of lease. The amendment calls for the payment of past royalties and accrued interest through the assignment of 5% of gross receipts from gold production at the Yellow Jacket mine. The unpaid balance accrues interest at 10% per annum until paid in full. In addition, in 1995 the Company issued 50,000 shares of its unregistered common stock and 100,000 common stock purchase warrants exercisable at $0.35 per share to Geosearch. The Company also paid $4,000 in legal fees incurred by Geosearch. USAC currently pays Geosearch a minimum monthly payment of $1,000 during the months of January through April of each year, if operations are closed due to weather, and $2,000 per month for the months of May through December of each year.
The underlying lease with Yellow Jacket Mines, Inc. requires a minimum payment of a net smelter royalty of 5% with a minimum annual royalty of $27,500. On February 20, 1999, Yellow Jacket Mines, Inc., agreed to waive the minimum annual royalty payment, beginning March 1, 1999 and thereafter until the Company resumes production at the mine or announces it is not actively exploring the property any longer.
On July 7, 1990, the Company entered into a mining venture agreement with BumbleBee, Inc. ("BumbleBee"), a company controlled by Bobby C. Hamilton ("Hamilton"), a stockholder and creditor of the Company, to explore, develop and operate the Yellow Jacket property. Pursuant to the agreement, the Company became the venture manager and had a 60% net profits interest. The Company contributed the lease on the mining property and the use of its mine and mill equipment. BumbleBee made an initial contribution of $500,000 for its 40% net profits interest. The Company began the production of gold bullion by trucking the concentrate to the Preachers Cove cyanide leach plant. Later in 1993, gold concentrates were shipped to a smelter in British Columbia, Canada, operated by Cominco Metals, a division of Cominco, Ltd. ("Cominco"). The operation never reached operating capacity due to the problems of storing tailings and the lack of adequate operating capital. After several years of continuing losses, the Yellow Jacket property was put on a care and maintenance status in 1996.
Subsequent to the curtailment of production at Yellow Jacket, the Company began an underground exploration program and proceeded in reopening an abandoned tunnel on the property (the No. 3 Tunnel). During 1998 and 1997 the Company pursued exploration and core drilling activities at Yellow Jacket. To date, no mineralized material, in quantities significant enough for economic production, has been encountered.
Environmental Matters
The exploration, development and production programs conducted in the United States are subject to local, state and federal regulations regarding environmental protection. Certain of the Company's mining and production activities are conducted on public lands. The USDA Forest Service extensively regulates mining operations conducted in National Forests. Department of Interior regulations cover mining operations carried out on most other public lands. All operations by the Company involving the exploration for or the production of minerals are subject to existing laws and regulations relating to exploration procedures, safety precautions, employee health and safety, air quality standards, pollution of water sources, waste materials, odor, noise, dust and other environmental protection requirements adopted by federal, state and local governmental authorities. The Company may be required to prepare and present to such authorities data pertaining to the effect or impact that any proposed exploration for or production of minerals may have upon the environment. Any changes to the Company's reclamation and remediation plans which may be required due to changes in federal regulations could have an adverse effect on the Company's operations.
Environmental Matters, Continued:
In 1994, the U.S. Forest Service, under the provisions of the Comprehensive Environmental Response Liability Act of 1980 (CERCLA) designated the Company's cyanide leach plant at the Preachers Cove mill, which is located six miles north of Sunbeam, Idaho on the Yankee Fork of the Salmon River, as a contaminated site requiring cleanup of the cyanide solution. The Company has been reclaiming the property and, as of December 31, 1998, the cyanide solution discharge was complete, the mill removed, and the cyanide leach residue disposed of. The Company anticipates having the reclamation complete sometime in 2000. In 1996, the Company signed a consent decree related to completing the reclamation and remediation at the Preachers Cove mill in Idaho as required by the Idaho Department of Environmental Quality.
On November 15, 1996, the Bureau of Land Management (BLM) notified the Company that it may be a responsible party as defined under CERCLA for hazardous substances released from uncontained mining tailings at a mining site near the Pine Creek Mining District in Idaho. The Company was one of 13 companies that had received a similar notice. In response to the notification, the Company informed the BLM that it is neither a current or former owner of a site, has never been an operator, nor has it shipped hazardous substances or arranged for the disposal or treatment of hazardous substances in the Pine Creek area. Accordingly, the Company does not consider itself a potentially responsible party under CERCLA for the Pine Creek site. On August 21, 1997, the Company received correspondence from the United States Environmental Protection Agency, Region 10, informing the Company that it will not recommend that the Company be added to the litigation involving contamination at the Pine Creek site.
Marketing
During 1998 and prior years dating back to 1991, the Company marketed its antimony products with HoltraChem and its successor BCS, in a 50/50 profit sharing arrangement. In March 1999, the Company notified BCS, HoltraChem's assignee, that it was terminating the agreements that HoltraChem had assigned BCS, and that the Company was going to market and distribute antimony products independently. The Company has taken steps to begin marketing its products to existing and prospective customers, and anticipates it will be able to do so successfully.
Antimony
The operating results of the Company have been and will continue to be directly related to the market prices of antimony metal, which have fluctuated widely in recent years. The volatility of such prices is illustrated by the following table which sets forth the average prices of antimony metal per pound as reported by sources deemed reliable by the Company.
Year Average Price
1998 $ 0.63
Antimony 1997 0.93
1996 1.60
Metal 1995 2.28
1994 1.78
1993 0.77
1992 0.79
1991 0.83
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Antimony, Continued:
The range of sales prices for antimony oxide per pound was as follows for the periods indicated:
Year High Low Average
Price
1998 $5.57 $0.83 $1.13
1997 5.75 0.98 1.41
Antimony 1996 4.50 1.53 1.86
Oxide 1995 3.12 0.89 2.56
1994 2.75 0.98 1.83
1993 1.11 1.02 1.04
1992 1.20 2.09 1.09
1991 1.05 1.19 1.13
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Metal prices are determined by a number of variables over which the Company has no control. These include the availability and price of imported metals, the quantity of new metal supply, and industrial and commercial demand. If metal prices decline and continue to remain depressed, the Company's operations may be adversely affected.
Other
The Company holds no material patents, licenses, franchises or concessions, but it considers its antimony processing plant proprietary in nature. The Company uses the trade name "Montana Brand Antimony Oxide" for the marketing of its antimony products.
The Company is subject to the requirements of the Federal Mining Safety and Health Act of 1977, requirements of the state of Montana and the state of Idaho mining inspection, Federal and State Health and Safety statutes and Sanders County, Lemhi County and Custer County health ordinances.
Management of the Company believes that its current discharge of waste materials from its milling, mining and processing facilities is in material compliance with environmental regulations and health and safety standards. See "Environmental Matters."
Employees
As of March 31, 1999, the Company and its wholly-owned subsidiary employed 29 people, which number may adjust seasonally. None of the Company's employees are covered by collective bargaining agreements.
Item 2. Description of Properties
Antimony Division
The Registrant's principal plant and mine are located in the Burns Mining District, Sanders County, Montana, approximately 15 miles west of Thompson Falls, Montana. The Registrant holds 2 patented mill sites and 12 patented lode mining claims. The lode claims are contiguous within two groups.
Antimony Division, Continued:
Antimony mining and milling operations were curtailed during 1983 due to continued declines in the price of antimony. The Company is currently purchasing foreign raw antimony materials and continues to produce antimony metal, oxide and sodium antimonate from its antimony processing facility near Thompson Falls, Montana.
Gold Division
Yankee Fork Mining District
Estes Mountain
The Estes Mountain properties consist of 2 patented lode mining claims in the Yankee Fork Mining District of Custer County, Idaho. These claims are located approximately 12 miles from the Company's former Preachers Cove Mill.
Preachers Cove Millsite
The Company had a 150-ton per day gravity and flotation mill located approximately 50 miles west of Challis, Idaho and 19 miles northeast of Stanley, Idaho on the Yankee Fork of the Salmon River at Preachers Cove. The mill also had a cyanide leach plant for the processing of concentrates into doré bullion. The plant has been dismantled and the property is being reclaimed.
Yellow Jacket Mining District
The Yellow Jacket properties consist of 12 patented and 60 unpatented lode mining claims located in the Yellow Jacket Mining District of Lemhi County, Idaho, approximately 70 miles southwest of Salmon, Idaho. The gold mineralization is in quartz breccia zones that extend for more than 10,000 feet. The Company produced 13,420 ounces of gold up until the third quarter of 1996 when mining operations were suspended.
In 1996, Company personnel determined that the existing mineral resource was not economical to mine without additional operating capital and an increase in current metals prices. Accordingly, production operations at the Yellow Jacket property were suspended and the mine placed on a care-and-maintenance status.
Since the suspension of mining operations the Company has been engaged in exploration efforts at the property that include the reopening of an abandoned tunnel and core drilling. To date, mineralized material in quantities significant enough to warrant resuming production at the mine has not been encountered.
Item 3. Legal Proceedings
OSHA
On August 21, 1998, citations and a Notice of Failure to Correct Alleged Violations were issued by the U.S. Department of Labor's Occupational Safety and Health Administration ("OSHA") to the Company for violations occurring at the Company's antimony plant near Thompson Falls, Montana. The citations, with fines totaling $115,800, were contested by the Company on September 11, 1998. On November 18, 1998, the U.S. Department of Labor filed a complaint with the Occupational Safety and Health Review Commission (Docket No. 98-1595) requesting that the Commission not vacate the citations and Notice of Failure to Correct Alleged Violations. The case went to hearing in March, 1999. Walter L. Maguire 1935-1 Trust
On April 8, 1998, Ronald Michael Meneo, Trustee of the Walter L. Maguire 1935-1 Trust ("The Trust"), filed an action in the Twentieth Judicial District Court of Sanders County, Montana against the Company. The action seeks to recover principal amounts totaling $335,000 due on defaulted convertible and subordinated convertible debentures held by The Trust. The action also seeks to recover accrued interest on the principal amounts of the debentures at the rate of ten percent per annum that was due on the maturity dates of the debentures, interest at ten percent on all principal and interest due on the debentures accruing from the dates of maturity to the present, and all amounts relating to The Trust's legal fees incurred in bringing the action.
On June 26, 1998, the Company filed an Answer, Counterclaim, and request for Jury Trial in the Twentieth Judicial District Court of Sanders County, Montana, in response to the action filed on April 8, 1998. In the filing the Company denied the Trust's complaint and alleged a counterclaim against the Trust, citing breach of contract and breach of implied covenant of good faith and fair dealing.
On July 15, 1998, the Company filed an action in the Twentieth Judicial District Court of Sanders County, Montana, against Walter L. McGuire Sr., a director during 1998 and a stockholder. The complaint alleges damages suffered by the Company as a result of Mr. Maguire's actions described in three counts: 1) Breach of Director Duties,2) Conspiracy, and 3) Constructive Fraud. The allegations set forth in the complaint describe Mr. Maguire's alleged representations that he controlled the Walter L. Maguire 1935-1 Trust, and led the Company and other stockholders to detrimentally believe that certain defaulted debentures held by the Trust would be converted to Series C Preferred Stock in accordance with an Offer to Purchase dated November 21, 1997, that was submitted to the Trust and other debt holders. The complaint seeks damages of $1,500,000 and a further amount to be proven at trial.
Walter L. Maguire, Sr.
On October 13, 1998 Mr. Maguire responded to the action filed on July 15, 1998, by filing an Answer, Counterclaim and Third-Party Complaint in the Twentieth Judicial District Court of Sanders County, Montana, against the Company and (third party) John C. Lawrence, the Company's president and a director and shareholder. Mr. Maguire's counterclaim and third party complaint alleges damages described in separate counts of libel and slander suffered as a result of accusations made by the Company and Mr. Lawrence. Mr. Maguire's action requests an award for actual and punitive damages in amounts to be proven at trial.
Item 4. Submission of Matters to a Vote of Security Holders
The Company has not had a meeting of security holders since October 3, 1997, nor have any matters been submitted to a vote of security holders.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The following table sets forth the range of high and low bid prices as reported by the Over the Counter Bulletin Board ("OTCBB") for the periods indicated. The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. Currently, the stock is traded on the OTCBB under the symbol "UAMY." Prior to 1997, the Company's stock was traded over-the-counter on the pink sheets and has had minimal trading activity since 1990. Therefore, the following prices do not reflect an active market.
Item 5. Market for Common Equity and Related Stockholder Matters, Continued:
High Low
1998
First Quarter $0.200 $0.156
Second Quarter 0.281 0.156
Third Quarter 0.375 0.156
Fourth Quarter 0.281 0.125
1997
First Quarter $0.875 $0.25
Second Quarter 0.56 0.28
Third Quarter 0.50 0.18
Fourth Quarter 0.25 0.15
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The approximate number of record holders of the Registrant's common stock at December 31, 1998 is 2,724.
No dividends have been paid or declared by the Registrant during the last five years.
Item 6. Management's Discussion and Analysis or Plan of Operations
Certain matters discussed are forward-looking statements that involve risks and uncertainties, including the impact of antimony prices and production volatility, changing market conditions and the regulatory environment and other risks. Actual results may differ materially from those projected. These forward-looking statements represent the Company's judgment as of the date of this filing. The Company disclaims, however, any intent or obligation to update these forward-looking statements.
Results of Operations
The Company's operations resulted in a net loss of $468,427 in 1998 or $0.04 per basic share, compared to net income of $662,774 or $0.05 per basic share in 1997. The net loss in 1998 is the result of decreasing margins in antimony product sales, expenditures on exploration and care-and-maintenance at Yellow Jacket and increasing general and administrative costs relating to legal fees. The net income in 1997 was primarily due to an extraordinary gain recognized on the conversion of certain debts to Series C preferred stock.
Total revenues during 1998 were $3,142,776 compared to $4,309,101 in 1997. The decrease of $1,166,325 is primarily attributable to decreased sales in pounds and decreased sales prices of antimony products sold in 1998 compared to 1997. Sales of antimony products in 1998 were $3,130,332 consisting of 2,834,186 pounds at an average sales price of $1.10 per pound. Sales of antimony products in 1997 were $4,293,409, consisting of 3,037,369 pounds at an average sales price of $1.41 per pound. Gross profit from antimony product sales was $382,452 in 1998, or 12% of sales, compared to $792,999 in 1997, or 18% of sales. The Company reports 50% of total antimony sales made by HoltraChem/BCS and the Company. Accordingly, total sales of antimony products by both companies was $6,260,663 or 5,668,371 pounds in 1998 and $8,586,817 or 6,074,737 pounds in 1997. In both years, almost all of the antimony products sold were produced at the Company's plant near Thompson Falls, Montana.
Currently, the price of antimony metal has been relatively stable at approximately $0.56 to $0.67 per pound. The Company believes that the gross profit from anticipated sales of antimony products at current antimony metal prices will enable the Company to operate its antimony division profitably in 1999.
Results of Operations, Continued:
Sales of gold and silver were $15,692 in 1997, and resulted from processing gold bearing concentrates recovered from the Company's discontinued milling operation at Yellow Jacket.
In 1997, the Company accrued additional estimated costs of $202,234 with respect to its reclamation liabilities as a result of management's updated analysis of costs required to fully reclaim the Company's antimony processing site and Preacher's Cove millsite. In 1998, no accrual of additional reclamation costs was made.
General and administrative expenses increased from $244,553 in 1997 to $307,554 in 1998, an increase of $63,001 or approximately 26%. The increase in 1998 compared to 1997 was principally due to legal costs associated with the Maguire litigation (see "Legal Proceedings").
Interest expense of $216,318 in 1998 was comparable to interest expense of $203,635 in 1997 based on comparable balances of interest accruing obligations in 1998 and 1997. Interest and other income was $23,270 in 1998 and $14,427 in 1997. The increase in interest and other income during 1998 was primarily due to increases in the Company's restricted cash balances during the year.
Financial Condition and Liquidity
At December 31, 1998, Company assets totaled $1,059,997, and there was a stockholders' deficit of $2,709,093. The stockholders' deficit increased $383,451 from the prior year, primarily due to the net loss incurred in 1998. In order to continue as a going concern, the Company is dependent upon (1) profitable operations from the antimony division, (2) additional equity financing, and (3) continued availability of financing. Without financing and profitable operations, the Company may not be able to meet its obligations, fund operations and continue in existence. There can be no assurance that management will be successful in its plans to improve the financial condition of the Company.
Cash provided by operations during 1998 was $16,598 compared to cash provided by operations of $40,409 in 1997. The decrease in cash provided by operations in 1998 compared to cash provided by operations in 1997 was primarily due to the net loss incurred in 1998.
Investing activities used $31,182 of cash in 1998 compared with $137,036 in 1997. Cash used in investing activities during both years related exclusively to purchases of property, plant and equipment, primarily for the antimony division.
Financing activities provided $14,584 in 1998 and $96,627 in 1997. Cash from financing activities relates principally to cash received from common stock sales and bank financing. The decrease in cash provided from financing activities in 1998 compared to 1997 is principally due to a decrease in proceeds from common stock and warrant sales.
In 1997, the Company exchanged a convertible debenture for Series C preferred stock. In connection with the exchange, the Company was required to establish a "sinking fund" to pay a percentage of accrued interest due on the debenture. To date, the sinking fund has not been formally established, but payments of $7,500 have been made on the original balance due of $23,140. The Company believes that funding will continue to be available to fully retire the obligation in the months ahead.
Financial Condition and Liquidity, Continued:
Other significant financial commitments for future periods will include:
. Servicing notes payable to bank.
. Servicing the Hamilton note payable.
. Keeping current on property, payroll, and income tax liabilities and accounts payable.
. Fulfilling responsibilities with environmental, labor safety and securities regulatory agencies.
During the first quarter of 1999, the Company began to operate its antimony business independent of any affiliated sales company. Since 1991 the Company had shared its profits on a 50/50 basis with HoltraChem and later BCS. The Company anticipates an increase in its overall profitability in the antimony business as a result of the change. This increase in profitability will assist the Company in meeting its obligations. There can be no assurances, however, the Company will be successful in operating the antimony business independent of a sales company.
In 1996, the Yellow Jacket operation was put on a care-and-maintenance basis after a long history of operating losses. In 1998 and 1997, Yellow Jacket consumed a total of $362,722 and $420,789 in care-and-maintenance and exploration costs. To date, no mineralized material in quantities significant enough to warrant resuming production at the property has been encountered. If the Yellow Jacket property is abandoned, care-and-maintenance and exploration costs will cease and economic resources may be generated from the disposal of equipment.
In 1997, $210,000 was generated through sales of 420,000 shares of unregistered common stock and common stock purchase warrants to a director and others to help finance and fund operations. In 1998, 300,000 additional unregistered common stock shares and common stock purchase warrants were sold to a director and others for $75,000.
Year 2000
The Company has performed an evaluation of its computer hardware and determined that with only a few minor exceptions, it is Y2K compliant at this time. Minor upgrades will be completed on accounting software by mid-1999 to make it Y2K compliant at no material cost to the Company.
The Company's customers are predominantly large manufacturers. If any of these customers were not Y2K compliant by the end of 1999 and could not buy the Company's antimony products, it could have a material impact on the Company's operations. The Company's operations could also be impacted if the antimony metal vendors the Company acquires raw materials from were not Y2K compliant and could not provide antimony metal. However, Management anticipates that these companies will be ready and, therefore, the Company's operations will not be materially impacted when the year 2000 arrives. If any of the Company's other business associates are not Y2K compliant by the year 2000, Management does not believe it will have a material impact on the Company's operations.
Item 7. Financial Statements
The consolidated financial statements of the registrant are included herein on pages F-1 to F-29.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with
Section 16(a) of the Exchange Act
Identification of Directors and Executive Officers are as follows:
Affiliation
Name Age with Registrant Expiration of Term
John C. Lawrence 60 President, Director Annual meeting
Robert A. Rice 74 Director Annual meeting
Walter L. Maguire, Sr.(1) 77 Director Annual meeting
Leo Jackson (2) 57 Director Annual meeting
|
(1) Mr. Maguire was a Director up until December 31, 1998, when he tendered his resignation.
(2) Mr. Jackson was nominated to the Board of Directors on February 11, 1999.
The Company is not aware of involvement in any legal proceedings by its directors or executive officers during the past five years that are material to an evaluation of the ability or integrity of such director or executive officer.
Business Experience of Directors and Executive Officers:
John C. Lawrence. Mr. Lawrence has been the President and a Director of the Company since its inception. Mr. Lawrence was the President and a Director of AGAU Mines, Inc., the predecessor of the Company, since the inception of AGAU Mines, Inc., in 1968.
Robert A. Rice. Mr. Rice is a metallurgist, having been employed by the Bunker Hill Company, a wholly owned subsidiary of Gulf Resources and Chemical Corporation at Kellogg, Idaho, as Senior Metallurgist and Mill Superintendent until his retirement in 1965. Mr. Rice has been affiliated as a Director of the Registrant since 1975.
Walter L. Maguire, Sr. Mr. Maguire is a resident of Keller, Virginia. He is a 1943 graduate of Yale University and a 1948 graduate of Columbia School of Business with an MBA degree. His past business experience includes natural resource exploration and development, securities and underwriting, real estate development and plastics research. He is the president of The Maguire Foundation, a private passive foundation and had been a Director of the Company since February 1989.
Leo Jackson. Mr. Jackson is a resident of El Paso, Texas. He is currently the President of Production Minerals, Inc., and has been involved in the production and marketing of industrial minerals such as fluorspar and celestite in the United States and Mexico for 25 years. Mr Jackson speaks fluent Spanish and has a BBA degree from the Sul Ross State University in Texas.
The Registrant does not have standing audit, nominating or compensation committees of the Board of Directors or committees performing similar functions.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's officers and directors and persons who own more than 10% of a registered class of the Company's equity securities, file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and stockholders holding more than 10% of the Company's common stock are required by the regulation to furnish the Company with copies of all Section 16(a) forms they have filed.
Based on information received by the Company, Mr. Lawrence had timely filed a Form 4 upon receipt of annual stock compensation. Mr. Rice and Mr. Maguire had not timely filed a Form 4 upon receipt of annual stock compensation.
Item 10. Executive Compensation
Summary compensation for the Company's principal executive officer is as follows:
Annual Compensation Long-Term Compensation
--------------------------------- ------------------------------------------------
Awards Payouts
---------- -----------------------------------
Securities
Other Restricted Underlying
Name and Annual Stock Options/ LTIP All Other
Principal Position Year Salary Bonus Compensation(1) Awards SARs Payouts Compensation
------------------- ---- ------- ----- --------------- ---------- ---------- ------- ------------
John C. Lawrence, 1998 $72,000 $ 4,154 None None None None
President 1997 72,000 4,154
1996 72,000 4,154
|
(1) Represents earned but unused vacation.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners:
As of the close of business on March 31, 1999, based on information available to the Company, the following persons own beneficially more than 5% of the outstanding voting securities of the Company:
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner Beneficial Ownership Class(1)
Common stock The Maguire Family and related
entities as a group 2,034,898(2)(10) 14
c/o Walter L. Maguire, Sr.
P.O. Box 129
Keller, VA 23401
Common stock John C. Lawrence and related 1,226,271(3) 8
family members
P.O. Box 643
Thompson Falls, MT 59873
Common stock The Dugan Family 1,935,942(4) 12
c/o A. W. Dugan
1415 Louisiana Street,
Suite 3100
Houston, TX 77002
Preferred Series A A. Gordon Clark, Jr. 4,500(5) 100
stock 2 Musket Trail
Simsbury, CT 06070
Preferred Series C John C. Lawrence 1,448,567(5) 57
stock P.O. Box 643
Thompson Falls, MT 59873
(b) Security Ownership of Management:
Amount of Percent of
Title of Class Name of Beneficial Owner Beneficial Ownership Class (1)
Common stock Walter L. Maguire, Sr. 473,390(6) (10) 3
Common stock John C. Lawrence 1,151,271(7) 8
Common stock Robert A. Rice 125,351(8) 1
Common stock Leo Jackson 29,700 Nil
Series C preferred Walter L. Maguire, Sr. 49,091(9) 2
Series C preferred John C. Lawrence 1,448,567(9) 57
Series C preferred Robert A. Rice 62,643(9) 3
(1)Percent of ownership is based upon 14,520,281 shares of common stock
and exercisable warrants, 4,500 shares of Series A preferred stock, and
2,560,762 shares of Series C preferred stock outstanding at March 31, 1999.
(2)Includes 410,000 warrants to purchase common stock.
(3)Includes 155,810 warrants to purchase common stock.
(4)Includes 300,000 warrants to purchase common stock.
(5)The outstanding Series A and C preferred shares carry voting
rights for the election of directors.
(6)Does not include 1,561,500 shares and warrants owned by various
trusts, foundation, and relatives of Mr. Maguire.
(7)Does not include 75,000 shares owned by family members of John C.
Lawrence.
(8)Includes 3,101 warrants to purchase common stock
(9)Series C preferred shares are convertible into common shares on a
one-for-one basis.
10)Amounts are based on ownerships of record as provided by the
Company's securities transfer agent.
|
Item 12. Certain Relationships and Related Transactions
See Notes 7, 9, 10, 11, 12 and 15 to the consolidated financial statements included herein.
Item 13. Exhibits and Reports on Form 8-K
Documents filed with this report:
Exhibit No. Item Dated
----------- ----- -----
10.31 Warrant award-Al Dugan July 28, 1998
10.32 Amendment Agreement March 31, 1999
21 List of subsidiaries N/A
27 Financial Data Schedule N/A
|
Documents filed with the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995, and incorporated by reference to such:
Exhibit No. Item Dated
----------- ---- -----
3.1 Articles of Incorporation -
United States Antimony Corporation-Montana August 18, 1995
10.10 Yellow Jacket Venture Agreement July 7, 1990
10.11 Agreement Between Excel-Mineral
Company and Bobby C.Hamilton August 29, 1991
10.12 Letter Agreement September 1, 1991
10.13 Columbia-Continental
Lease Agreement Revision April 3, 1993
10.14 Settlement Agreement with
Excel Mineral Company July 1993
10.15 Memorandum Agreement July 1993
10.16 Termination Agreement September 12, 1993
10.17 Amendment to Assignment of Lease (Geosearch) September 9, 1994
10.18 Series B Stock Certificate to
Excel-Mineral Company, Inc. December 25, 1993
10.19 Division Order and Purchase
and Sale Agreement March 27, 1995
10.20 Inventory and Sales Agreement January 1, 1995
10.21 Processing Agreement July 1, 1995
10.22 Release and settlement agreement
between Bobby C. Hamilton
and United States Antimony Corporation November 15, 1995
10.23 Columbia-Continental Lease Agreement September 27, 1996
10.24 Release of Judgment February 28, 1996
10.25 Covenant Not to Execute July 30, 1990
99.1 CERCLA Letter from U.S. Forest Service February 11, 1994
|
Documents filed with the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996, and incorporated by reference to such:
Exhibit No. Item Dated
----------- ---- -----
10.26 Warrant Agreements Various
|
Item 13. Exhibits and Reports on Form 8-K, Continued:
Documents filed with the Company's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1997, and its Annual Report on Form 10-KSB for the
year ended December 31, 1997, respectively, and incorporated by reference to
such:
Exhibit No. Item Dated
----------- ---- -----
10.27 Letter from EPA, Region 10 August 21, 1997
10.28 Warrant Agreements Various
|
Documents filed with the Company's Quarterly Report on Forms 10-QSB for the quarters ended June 30, and September 30, 1998, respectively, and incorporated by reference to such:
Exhibit No. Item Dated
----------- ---- -----
10.29 Summons and Verified Complaint April 8, 1998
10.30 Answer, Counterclaim and Third-Party
Complaint October 13, 1998
|
There were no reports on Form 8-K filed during the quarter ended December 31, 1998.
Exhibit 21.1
Subsidiary of Registrant, as of December 31, 1998
United States Antimony Corporation, Montana
Box 643
Thompson Falls, MT 59873
SIGNATURES
Pursuant to the requirements of Section 13 or 15(b) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
UNITED STATES ANTIMONY CORPORATION
(Registrant)
By: /s/ John C. Lawrence
John C. Lawrence, President, Director
and Principal Executive Officer
|
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.
By: /s/ John C. Lawrence Date: April 14, 1999
John C. Lawrence, Director and President
(Principal Executive, Financial and Accounting
Officer)
By: /s/ Leo Jackson Date: April 14, 1999
Leo Jackson, Director
By: /s/ Robert A. Rice Date: April 14, 1999
Robert A. Rice, Director
|
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Exchange Act by Non-Reporting Issuers.
The Company has not sent either an annual report or proxy material to its security holders since 1997.
Report of Independent Accountants
The Board of Directors and Stockholders of United States Antimony Corporation
We have audited the accompanying consolidated balance sheets of United States Antimony Corporation and subsidiary as of December 31, 1998 and 1997, and the related consolidated statements of operations, changes in stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United States Antimony Corporation and subsidiary as of December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has negative working capital, an accumulated deficit and total stockholders' deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/S/DECORIA, MAICHEL & TEAGUE P.S. Spokane, Washington March 5, 1999 |
United States Antimony Corporation and Subsidiary
Consolidated Balance Sheets
December 31, 1998 and 1997
1998 1997
ASSETS
Current assets:
Restricted cash $ 221 $ 15,280
Inventories 365,398 463,282
Prepaid expenses 7,727
------- -------
Total current assets 365,619 486,289
Properties, plants and equipment, net 515,392 637,022
Restricted cash for reclamation bonds 178,986 178,986
Total assets $1,059,997 $1,302,297
========== ==========
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Checks issued and payable $31,089 $42,384
Accounts payable 256,373 125,082
Accrued payroll and property taxes 168,482 118,801
Accrued payroll and other 61,999 43,707
Judgments payable 164,084 142,937
Accrued interest payable 348,787 320,287
Due to related parties 37,635 31,707
Notes payable to bank, current 160,017 177,079
Note payable to Bobby C. Hamilton, current 83,157 27,626
Debentures payable 335,000 335,000
Accrued reclamation costs, current 222,453 216,700
--------- ---------
Total current liabilities 1,869,076 1,581,310
Notes payable to bank, noncurrent 106,793 90,269
Note payable to Bobby C. Hamilton,
noncurrent 1,512,402 1,616,516
Accrued reclamation costs,
noncurrent 280,819 339,844
--------- ---------
Total liabilities 3,769,090 3,627,939
--------- ---------
Commitments and contingencies (Notes 1 and 16)
Stockholders' deficit:
Preferred stock, $.01 par value,
10,000,000 shares authorized:
Series A: 4,500 shares issued and outstanding
(liquidation preference $101,250) 45 45
Series B: 750,000 shares issued and outstanding
liquidation preference $787,500) 7,500 7,500
Series C: 2,560,762 shares issued and outstanding
(liquidation preference $1,408,419) 25,608 25,608
Common stock, $.01 par value, 20,000,000
shares authorized; 13,425,925 and 13,065,434
shares issued and outstanding 134,259 130,654
Additional paid-in capital 14,079,260 13,997,889
Accumulated deficit (16,955,765) (16,487,338)
------------ ------------
Total stockholders' deficit (2,709,093) (2,325,642)
------------ ------------
Total liabilities and stockholders'deficit $1,059,997 $1,302,297
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
|
United States Antimony Corporation and Subsidiary
Consolidated Statements of Operations
for the years ended December 31, 1998 and 1997
1998 1997
Revenues:
Sales of antimony products and other $ 3,142,776 $ 4,293,409
Sales of gold and silver 15,692
--------- ---------
3,142,776 4,309,101
Cost of antimony production 2,747,880 3,500,410
Gross profit 394,896 808,691
Other operating expenses:
Provision for reclamation costs 202,234
Exploration and evaluations 164,871 188,361
Care and maintenance - Yellow Jacket property 197,851 232,428
General and administrative 307,554 244,553
--------- ---------
670,276 867,576
--------- ---------
Other (income) expense:
Interest expense 216,318 203,635
Interest income and other (23,270) (14,427)
--------- ---------
193,047 189,208
--------- ---------
Loss before extraordinary item (468,427) (248,093)
Extraordinary gain on conversion
of debts to Series C
preferred stock (net of tax) 910,867
--------- ---------
Net income (loss) $(468,427) $662,774
Basic net income (loss) per share of common stock
Before extraordinary item $(0.04) $(0.02)
Extraordinary item 0.07
--------- ---------
Net income (loss) $(0.04) $ 0.05
========= =========
Diluted net income (loss) per share of common stock
Before extraordinary item $(0.03) $(0.02)
Extraordinary item 0.07
--------- ---------
Net income (loss) $(0.03) $ 0.05
========= =========
Basic weighted average shares outstanding 13,309,379 12,969,923
========== ==========
Diluted weighted average shares outstanding 15,904,204 12,976,958
========== ==========
|
The accompanying notes are an integral part of the consolidated financial statements
United States Antimony Corporation and Subsidiary
Consolidated Statements of Cash Flows
for the years ended December 31, 1998 and 1997
1998 1997
Cash flows from operating activities:
Net income (loss) $(468,427) $662,774
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation 157,812 170,095
Provision for reclamation costs 202,234
Extraordinary gain on conversion
of debts to Series C preferred stock (910,867)
Issuance of common stock to directors
as compensation 1,687 2,565
Issuance of common stock to
satisfy accounts payable 3,289
Change in:
Restricted cash 15,059 (15,280)
Accounts receivable 33,837
Inventories 97,884 92,967
Prepaid expenses 7,727 13,358
Reclamation bonds (8,940)
Accounts payable 131,291 (174,805)
Accrued payroll and property taxes 49,681 25,347
Accrued payroll and other 18,292 3,884
Judgments payable 21,147 11,173
Accrued interest payable 28,500 33,500
Payable to related parties 5,928 (40,531)
Accrued reclamation costs (53,272) (60,902)
-------- --------
Net cash provided by operating activities 16,598 40,409
-------- --------
Cash flows from investing activities:
Purchase of properties, plants and equipment (31,182) (137,036)
Net cash used in investing activities -------- --------
(31,182) (137,036)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants 75,000 210,000
Proceeds from new borrowings 190,050 30,437
Payments on notes payable to bank (190,588) (74,094)
Change in checks issued and payable (11,295) 12,893
Payments on note payable to Bobby C. Hamilton (48,583) (82,609)
-------- --------
Net cash provided by financing activities 14,584 96,627
-------- --------
Net decrease in cash 0 0
Cash, beginning of year 0 0
-------- --------
Cash, end of year $ 0 $ 0
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
United States Antimony Corporation and Subsidiary
Consolidated Statements of Cash Flows, Continued:
for the years ended December 31, 1998 and 1997
1998 1997
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $187,818 $170,135
======= =======
Noncash financing activities:
Common stock issued in exchange for note receivable $5,000
Debt converted to Series C preferred stock $488,848
Accrued interest converted to Series C
preferred stock and warrants 511,141
Due to related parties converted to Series C
preferred stock 566,828
Debentures payable converted to Series C
preferred stock 315,000
Account payable converted to Series C preferred stock 15,450
Noncash investing activities:
Note receivable exchanged for equipment $5,000
The accompanying notes are an integral part of the consolidated financial
statements.
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United States Antimony Corporation and Subsidiary Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 1998 and 1997
Preferred Stock
--------------------------------------
Series A Series B Series C Common Stock Additional Accumu-
-------- ------ ------- -------------- Paid-In lated
Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Total
------ ------- --------- ------- ------ ------ ------ ---------- ----------- ---------
Balances,
December 31,
1996 4,500 $45 750,000 $7,500 12,627,434 $126,274 $13,326,464 $(17,150,112) $(3,689,829)
Issuance of stock
for cash 420,000 4,200 173,000 177,200
Value attributed to
issuance of
warrants 32,800 32,800
Issuance of stock in
connection with coversion
of debts 2,560,762 $25,608 463,240 488,848
Issuance of stock to
directors for
compensation 18,000 180 2,385 2,565
Net income 662,774 662,774
----- ----- --------- ----- ------ ------- -------- ------ ---------- ----------- ----------
Balances,
December 31,
1997 4,500 45 750,000 7,500 2,560,762 25,608 13,065,434 130,654 13,997,889 (16,487,338) (2,325,642)
----- ----- --------- ----- ------ ------ --------- ------ ---------- ----------- -----------
Issuance of stock
for cash 300,000 3,000 58,500 61,500
Value attributed to
issuance of
warrants 13,500 13,500
Issuance of stock in
exchange for services 23,491 235 3,054 3,289
Issuance of stock for
note receivable 25,000 250 4,750 5,000
Issuance of stock to
directors for
compensation 12,000 120 1,567 1,687
Net loss (468,427) (468,427)
----- ----- --------- ----- ------ ------- --------- ------ ---------- --------- ---------
Balances,
December 31,
1998 4,500 $45 750,000 $7,500 2,560,762 $25,608 13,425,925 $134,259 $14,079,260 $(16,955,765)$(2,709,093)
===== ==== ======== ===== ====== ====== ========= ======== ========== =========== ===========
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The accompanying notes are an integral part of the consolidated financial statements.
United States Antimony Corporation and Subsidiary
Notes to Consolidated Financial Statements
1. Background of Company and Basis of Presentation:
AGAU 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.
On September 1, 1991, the Company entered into an agreement with HoltraChem, Inc. ("HoltraChem") whereby the Company would process raw material purchased by HoltraChem into finished antimony products. The Company would then deliver the finished products to HoltraChem for sale, and share in the profits or losses from sales with HoltraChem on a 50/50 basis. On July 1, 1995, the Company and HoltraChem terminated the 1991 agreement and entered into an Inventory and Sales Agreement and a Processing Agreement ("The Agreements"). The Agreements gave rise to the creation of a wholly owned subsidiary, United States Antimony Corporation-Montana ("USAM"), that participates with HoltraChem and its subsidiary, HoltraChem-Montana, Inc. ("HCMI"), in the processing and sale of antimony products. While the Agreements still provide for the sharing of profits or losses from sales, after deduction of certain costs, on a 50/50 basis, they also require the Company to fund and own 50% of the antimony inventory up to $750,000. The Company funds the acquisition of 50% of the antimony inventory through the Company's contribution of 50% of its share of profits. USAM also receives a processing fee from HoltraChem for the finished antimony inventory. All intercompany profits in the inventory are eliminated in consolidation. In consideration of the Company's financial participation in carrying antimony inventory, HoltraChem agreed to provide additional marketing efforts to increase product sales to 10 million pounds of antimony products per year. In September of 1998, HoltraChem sold its interest in the antimony business to Basic Chemical Solutions ("BCS"). In connection with the sale, HoltraChem assigned the Agreements to BCS with the Company's consent. During the fourth quarter of 1998 the Company participated in the antimony business with BCS under substantially the same terms it had with HoltraChem. In March of 1999, the Company notified BCS that it was exercising its privileges pursuant to the Agreements to cancel the Agreements and operate the antimony business on its own.
The principal business of the Company has been the production of antimony products through USAM. The consolidated financial statements of the Company include the accounts of USAM, a wholly owned subsidiary, and its proportionate share of the joint activities of the Company and HoltraChem and BCS. All intercompany balances and transactions have been eliminated in consolidation.
The Company is pursuing the acquisition of a 50% interest in United States Antimony, Mexico S.A. de C.V. ("USAMSA") to mine, mill and produce antimony metal and other raw materials from certain states in Mexico. At December 31, 1998, the Company had invested $99,098 in plant and equipment in Mexico.
The financial statements have been prepared on a going concern basis which assumes realization of assets and liquidation of liabilities in the normal course of business. At December 31, 1998, the Company has negative working capital of approximately $1.45 million, an accumulated deficit of approximately $17 million and a total stockholders' deficit of approximately $2.7 million. These factors, among others, indicate that there is substantial doubt that the Company will be able to meet its obligations and continue in existence as a going concern. The financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern.
Notes to Consolidated Financial Statements, Continued:
1. Background of Company and Basis of Presentation, Continued:
To improve the Company's financial condition, the following actions have been initiated or taken by management:
. In March of 1999, the Company notified its sales affiliate, BCS, that it was canceling certain operating agreements with BCS relating to the sales of antimony products. In connection with the cancellation the Company is preparing to act independently in the production and sale of antimony products. Accordingly, a significant increase in gross profit is expected as the Company begins to sell antimony products on its own. There can be no assurance, however, the Company will be successful in operating the antimony business on its own.
. The Company is in the process of procuring additional financing sources from accounts receivable factoring institutions to supplement operating capital and fund its antimony product sales efforts.
. The Company submitted a proposal to the holders of defaulted debentures and certain other creditors to convert their principal and some or all of their accrued interest to Series C preferred stock. During 1997, the proposal was approved by the Company's shareholders and a substantial amount of debt and accrued interest was converted to series C preferred stock (see Note 9).
. In 1998, the Company generated $75,000 through sales of 300,000 shares of unregistered common stock and warrants to existing shareholders. The Company plans to raise additional equity funding through additional stock sales. However, there can be no assurance that the Company will be able to successfully raise additional capital through the sale of its stock.
. During 1997, the Company obtained listing on the over-the-counter electronic bulletin board with Empire Securities of Spokane, Washington as a registered trader of its stock, with expectations of enhancing shareholder liquidity and increasing the Company's ability to obtain additional equity financing.
The preparation of financial statements in conformity with generally accepted accounting principles 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. Actual results could differ from those estimates.
2. Concentration of Risk:
The Company procures the majority of its raw antimony used in the production of finished antimony products from Chinese producers through metal brokers. If the supply of antimony from China is reduced, it is possible that the Company's antimony product operations could be adversely affected. All antimony product sales made during 1998 were through an arrangement with Holtra-Chem or BCS (see Note 1). During the years ended December 31, 1998 and 1997, 19% and 14%, respectively, of the Company's revenues from antimony products were from sales to one customer.
Many of the Company's competitors in the antimony industry have substantially more capital resources and market share than the Company. Therefore, the Company's ability to maintain its market share can be significantly affected by factors outside of the Company's control.
2. Concentration of Risk, Continued:
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 accurately predict.
3. Summary of Significant Accounting Policies:
Restricted Cash
Restricted cash consists of cash held for investment in the Company's Mexican project and reclamation performance bonds.
Inventories
Inventories at December 31, 1998 and 1997 consist of an undivided tenant-in-common interest with BCS and HCMI, respectively, in antimony metal, metal in process and finished goods that are stated at the lower of first-in, first-out cost or estimated net realizable value. Since the Company's 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.
Properties, Plants and Equipment
Production facilities and equipment are stated at the lower of cost or estimated net realizable value and are depreciated using the straight-line method over their estimated useful lives (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 five years. Maintenance and repairs are charged to operations as incurred. Betterments of a major nature are capitalized. 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 properties on a property-by-property basis. These reviews consider the net realizable value of each property to determine whether a permanent impairment in value has occurred and the need for any asset write-down. The Company considers current metal prices, cost of production, proven and probable reserves and salvage value of the property and equipment in its valuation.
Management's estimates of metal prices, operating capital requirements and reclamation costs are subject to risks and uncertainties of change affecting the recoverability of the Company's investment in its properties, plants and equipment. Although management has made its best estimate of these factors based on current conditions, it is reasonably possible that changes could occur in the near term which could adversely affect management's estimate of net cash flows expected to be generated from its properties and the need for asset impairment write-downs.
3. Summary of Significant Accounting Policies, Continued:
Properties, Plants and Equipment, Continued:
The Company has adopted the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that an impairment loss be 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.
Reclamation and Remediation
All of the Company's operations are subject to reclamation and closure 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 and charged to expense over the expected economic life of the operation using the units-of-production method. The liability for reclamation is classified as current or noncurrent based on the expected timing of expenditures. Closure costs are not accrued for mines on a care-and-maintenance basis until, if and when, a decision to close the mine is made.
The Company accrues costs associated with environmental remediation obligations when it is probable that such costs will be incurred and they are reasonably estimatable. Costs of future expenditures for environmental remediation are not discounted to their present value. Such costs are based on management's current estimate of amounts that are expected to be incurred when the remediation work is performed within current laws and regulations. The Company has restricted cash balances that have been provided to ensure performance of its reclamation obligations.
In October 1996, the American Institute of Certified Public Accountants issued Statement of Position 96-1, "Environmental Remediation Liabilities" ("SOP 96-1"). SOP 96-1 provides authoritative guidance with respect to specific accounting issues that are present in the recognition, measurement, display and disclosure of environmental remediation liabilities. The provisions of SOP 96-1 are effective for fiscal years beginning after December 15, 1996. The Company adopted the provisions of the SOP 96-1 during 1996. The adoption of the provisions of SOP 96-1 had no material effect on the results of operations or financial condition of the Company.
It is reasonably possible that, due to 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.
3. Summary of Significant Accounting Policies, Continued:
Income Taxes
The Company records deferred income tax liabilities and assets for the expected future income tax consequences of events that have been recognized in its financial statements. Deferred income tax liabilities and assets are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse.
Revenue Recognition
Sales of antimony products are recorded upon shipment to the customer.
Income (Loss) Per Common Share
In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Nol 128 ("SFAS No. 128") "Earnings Per Share," which became effective for the Company for reporting periods ending after December 15, 1997. Under the provisions of SFAS No. 128, primary and fully diluted earnings per share were replaced with basic and diluted earnings per share. Basic earnings per share is arrived at by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding, and does not include the impact of any potentially dilutive common stock equivalents. The diluted earnings per share calculation is arrived at by dividing net income (loss) by the weighted average number of shares outstanding, adjusted for the dilutive effect of outstanding stock options, the conversion impact of convertible preferred stock, and shares issuable under other contracts.
During 1998 and 1997 the Company had outstanding common stock warrants that were exercisable at prices higher than the trading value of the Company's stock and, therefore, antidilutive. Accordingly, the warrants have no effect on the calculation of basic or diluted weighted average number of shares. At December 31, 1998 and 1997, the Company had 2,560,762 shares of Series C preferred stock that were outstanding. The Series C preferred stock is convertible into common stock of the Company and considered in the calculation of diluted weighted average number of shares outstanding during 1998 and 1997.
Recent Accounting Pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999, however, earlier application of all of the provisions of this statement is encouraged as of the beginning on any fiscal quarter. The Company believes the adoption of this standard will not have a material impact its financial position or results of operations.
3. Summary of Significant Accounting Policies, Continued:
Recent Accounting Pronouncements, Continued:
In April 1998, Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-up Activities" was issued. SOP 98-5 provides guidance on the financial reporting of start-up costs and organizational costs. It requires costs of start-up activities and organizational costs to be expensed as incurred, as well as the recognition of a cumulative effect of a change in accounting principle for retroactive application of the standard. SOP 98-5 is effective for fiscal years beginning after December 15, 1998. The Company is presently evaluating the effect that adopting SOP 98-5 will have on the Company's financial position and results of operations.
4. Properties, Plants and Equipment:
The major components of the Company's properties, plants and equipment at December 31, 1998 and 1997 were as follows:
1998 1997
Gold mill and equipment(1) $37,890 $37,890
Gold mining equipment(1) 1,265,392 1,265,392
Antimony mining buildings and equipment(2) 168,746 168,746
Antimony mill and equipment(2) 518,190 518,190
Chemical processing buildings 225,313 222,408
Chemical processing equipment 837,256 829,063
USAMSA(3) plant and equipment 99,098 89,014
Other 66,807 51,807
--------- ---------
3,218,692 3,182,510
Less accumulated depreciation
and depletion (2,703,300) (2,545,488)
--------- ---------
$515,392 $637,022
========= =========
(1)During 1996 the Company removed the mill at Yankee Fork and some
of the mining and milling equipment as part of the reclamation process.
Substantially all of the remaining assets are fully depreciated.
(2)At December 31, 1998 and 1997, substantially all of these assets
are fully depreciated and the antimony milling buildings and equipment are
idle.
(3)Amount represents the Company's expenditures for USAMSA plant and
equipment located in Mexico (see Note 1).
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5. Mineral Property Leases:
Yellow Jacket Mine
On February 19, 1988, the Company obtained an assignment from Geosearch, Inc. ("Geosearch") of all of its rights, title and interest in and to the lease agreement dated July 8, 1987 by and between Yellow Jacket Mines, Inc., the Company and Geosearch. In consideration of the assignment of the lease, the Company agreed to conduct certain exploration and to provide a preliminary mining plan which, if justified, would result in applications for permitting and bonding purposes with the state of Idaho, the U.S. Forest Service and other agencies to mine and mill gold. The Company also agreed to pay Geosearch a 12.5% net operating profits interest until the Company recovered its full investment in the property, and thereafter, Geosearch would receive a 15% net operating profits interest. The Company agreed to pay Geosearch a minimum monthly payment of $1,000 during the months of January through April, if operations are closed due to weather, and $2,000 per month for the months of May through December of each year until the mill was operational. After the mill was built at the Yellow Jacket mine in 1990 and placed in operation, the Company paid Geosearch $25,000 per year in staggered installments, with all payments accumulated and credited against the net operating profits due Geosearch. Net operating profits and guaranteed minimum payments paid to Geosearch apply towards a $600,000 maximum amount.
In March 1994, Geosearch filed an action in the Seventh Judicial District Court, Custer County, Idaho, alleging breach of the 1988 assignment of lease. The lawsuit requested recovery of $94,013 in past royalties and accrued interest thereon. On September 9, 1994, the Company settled the litigation by agreeing to an amendment to the assignment of lease. The amendment calls for the payment of past royalties and accrued interest through the assignment of 5% of gross receipts from gold production at the Yellow Jacket mine. The unpaid balance accrues interest at 10% per annum until paid in full and is included in judgments payable (see Note 6). In 1995, pursuant to the settlement agreement, the Company issued 50,000 shares of its unregistered common stock and 100,000 common stock purchase warrants exercisable at $.35 to Geosearch (see Note 12). The Company also paid $4,000 in legal fees incurred by Geosearch. During the years ended December 31, 1998 and 1997, the Company accrued $30,784 and $27,881, respectively in interest expense and royalties due Geosearch pursuant to the assignment of lease agreement.
The underlying lease with Yellow Jacket Mines, Inc. requires the payment of a net smelter royalty of 5% with a minimum annual royalty of $27,500. During the years ended December 31, 1998 and 1997, the Company incurred $29,792 and $27,500, respectively, in royalties and interest expense related to these agreements.
On February 20, 1999, Yellow Jacket Mines, Inc., agreed to waive the minimum annual royalty payment, beginning March 1, 1999 and thereafter until the Company resumes production at the mine or announces it is not actively exploring the property any longer.
6. Judgments Payable:
At December 31, 1998 and 1997, the Company owed the following judgments
payable:
1998 1997
Internal Revenue Service in
collection of former legal counsel's
Bankruptcy estate $37,986(1) $47,623
Geosearch, Inc. (see Note 5) 126,098(2) 95,314
------- ------
$164,084 $142,937
======= ======
(1)Includes interest at the Federal Judgment Rate, which approximated 6%
during 1998 and 1997. The amount is collateralized by certain equipment.
(2)Includes interest at 10% per annum.
7. Due to Related Parties:
Amounts due to related parties at December 31, 1998 and 1997 were as
follows (see Note 15).
1998 1997
Entity owned by John C. Lawrence,
president and director
$2,227 $573
John C. Lawrence, president and director 2,485 -0-
Walter L. Maguire, Jr., a former director(1) 32,923 31,134
------ ------
$37,635 $31,707
====== ======
(1)Interest accrues on the original principal balance advanced at 10% per
annum.
Transactions affecting the payable to Mr. Lawrence during 1998 and
1997 were as follows:
1998 1997
Balance, beginning of year $ -0- $553,954
Equipment rental charges 38,865 33,620
Other advances to Company 10,262
Payments (36,638) (86,776)
Balance converted to Series
C preferred stock (511,060)
------- --------
Balance, end of year $2,227 $ -0-
======= ========
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8. Notes Payable to Bank:
Notes payable to First State Bank of Thompson Falls, Montana ("First
State Bank") at December 31, 1998 were as follows:
Five-year term note bearing interest at 11%. The note is payable monthly
equal to 5% of receipts from all Company sales, up to $4,133 per month.
The note is collateralized by certain equipment and patented and
unpatented mining claims in Sanders County, Montana. The note is
personally guaranteed by John C. Lawrence, and is due April 20, 2003 $142,480
Note payable under a revolving line-of-credit agreement bearing interest
at 2.5% over the bank's daily adjustable rate, which was 7.75% at December 31,
1998. The note is collateralized by certain equipment and patented and
unpatented mining claims in Sanders County, Montana. The maximum
borrowing under the line of credit is $50,000. Principal and accrued
interest is due at maturity on August 1, 1999 and is personally guaranteed
by John C. Lawrence. 49,330
Note payable under a revolving line-of-credit agreement bearing
interest at 2.5% over the bank's daily or adjustable (as before) rate,
which was 7.75% at December 31, 1998. The note is collateralized by
certain equipment and patented and unpatented mining claims in Sanders
County,Montana. The maximum borrowing under the line of credit is
$75,000. Principal and accrued interest is due at maturity on
September 1, 1999 and is personally guaranteed by John C. Lawrence.
75,000
-------
266,810
Less current portion 160,017
-------
Noncurrent portion $106,793
=======
Based on the interest rates in effect at December 31, 1998, principal
payments on the notes payable to bank are due as follows:
Year Ending
December 31,
1999 $160,017
2000 39,817
2001 44,424
2002 22,552
--------
$266,810
========
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9. Debentures Payable:
On April 15, 1985 and May 2, 1988, the Company issued $300,000 of convertible debentures and $350,000 of subordinated convertible debentures, respectively. Both debenture issues were unsecured, convertible into common stock of the Company at any time prior to their maturity date and required semiannual interest payments of 10%. At December 31, 1996, the Company had amounts due the Walter L. Maguire 1935 Trust, an entity whose beneficiaries include Walter L. Maguire, Sr., and Walter L. Maguire, Jr., stockholders of the Company, totaling $335,000 in the form of $200,000 in convertible debentures and $135,000 in subordinated convertible debentures. Walter L. Maguire, Sr., is also a director of the Company. The Company also had $315,000 of convertible and subordinated convertible debentures outstanding to other stockholders and individuals at December 31, 1996.
The convertible and subordinated convertible debentures were scheduled to mature on April 14, 1991 and April 14, 1993, respectively. No interest or principal payments had been made on either debenture issue since 1989, and the debentures were in default.
On February 21, 1996, a proposal was submitted to the holders of defaulted convertible and subordinated convertible debentures and holders of related-party debt offering an opportunity to convert their debenture principal and accrued interest into common stock of the Company. On August 8, 1996, the proposal was revised to offer debenture and other debt holders conversion rights into a Series C preferred stock that would be convertible into common stock of the Company. The proposal, which was subject to shareholder ratification, offered to issue one share of convertible Series C preferred stock for each $.55 of defaulted principal and accrued interest to December 31, 1996 associated with both classes of debentures. On October 3, 1997, at the Company's annual meeting of shareholders, the August 8, 1996 proposal to debt holders was ratified.
On November 21, 1997, the Company submitted the final Offer to Purchase All of the Issued and Outstanding Ten Percent (10%) Subordinated Convertible Debentures and Ten Percent (10%) Convertible Debentures of United States Antimony Corporation (the "Offer") to debenture holders.
Acceptance of the Offer required conversion of 100% of the defaulted principal and at least 70% of the accrued interest on the debentures as of December 31, 1996.
Tendering debenture holders had the option of:
(i) receiving a pro rata portion of quarterly cash payments for up to 30% of accrued interest on tendered debentures from a $5,000 monthly "sinking fund" to be established by the Company, or
(ii) converting all or a portion of such accrued interest into Series C preferred shares and receiving warrants to purchase common stock of the Company for each $0.55 of accrued interest which was converted to Series C shares in excess of the 70% threshold. ( see Note 12).
Pursuant to the Offer, tenders of debentures could be withdrawn at any time prior to the December 31, 1997 expiration date.
9. Debentures Payable, Continued:
The terms of the Offer included that the Company would purchase, convert and pay for (by issuance of Series C preferred shares and warrants, as applicable) all debentures and debts validly tendered. Unless the Company failed to issue the Series C shares and/or warrants upon surrender of debentures, any debentures properly tendered pursuant to the Offer and accepted for conversion would cease to accrue interest after December 31, 1996. Any debentures not surrendered in the Offer (or surrendered or withdrawn prior to the expiration date) would remain defaulted obligations of the Company.
The offer was also extended to current and former directors who had loaned money to the Company, and to certain vendors who had past due accounts owed by the Company. The table below summarizes tenders received by the Company prior to the expiration of the Offer, and the Series C shares and warrants issued.
Shares of
Series C
Debt Debt Preferred stock Warrants
Description Amount Issued Issued
Subordinated Convertible Debenture Principal $215,000 390,909
Accrued interest as of December 31, 1996 (1) 165,816 301,484 90,445
Convertible Debenture Principal 100,000 181,818
Accrued interest as of December 31, 1996 (2) 53,987 98,158
Principal amount due John C. Lawrence, director 511,060 929,200
Accrued interest as of December 31, 1996 (1) 285,652 519,367 155,810
Principal amount due Robert A. Rice, director 28,768 52,305
Accrued interest as of December 31, 1996 (1) 5,686 10,338 3,101
Principal amount due Walter L. Maguire,
Sr.,director(3) 27,000 49,091
Account payable due a vendor (3) 15,450 28,092
--------- --------- -------
$1,408,419 2,560,762 249,356
========= ========= =======
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(1)100% of the accrued interest as of December 31, 1996 related to this debt was converted to Series C preferred stock and warrants.
(2)70% of the accrued interest as of December 31, 1996 related to this debt was converted to Series C preferred stock. The balance of accrued interest ($23,140) is to be paid in equal monthly installments from a monthly "sinking fund" to be established by the Company (see Note 12). At December 31, 1998, the Company had not established a "sinking fund," but had made payments directly totaling $5,000 on the balance.
(3)Non-interest bearing
9. Debentures Payable, Continued:
The Company recorded the issuance of the 2,560,762 shares of Series C preferred stock at the average of the bid/ask price of the Company's common stock at December 31, 1997, as quoted by Empire Securities of Spokane, Washington. The valuation was based on the average bid/ask price of the Company's common stock since no market exists for the Series C preferred stock and it is convertible into common stock on a share for share basis. In connection with the issuance of Series C preferred stock and warrants, the Company recorded an extraordinary gain of $910,867, net of income tax.
At December 31, 1998 and 1997, $200,000 of convertible debentures and $135,000 of subordinated convertible debentures due to the Walter L. Maguire 1935 Trust, plus accrued interest thereon, remained in default.
On April 8, 1998, the Walter L. Maguire 1935-1 Trust filed an action (See Note 16) in the Twentieth Judicial District Court of Sanders County, Montana against the Company seeking to recover principal and interest due on defaulted convertible and subordinated convertible debentures held by the Trust.
10. Note Payable to Bobby C. Hamilton:
On July 7, 1990, the Company entered into a mining venture agreement with BumbleBee Inc. ("BumbleBee"), a company controlled by Bobby C. Hamilton ("Hamilton"), a stockholder and creditor of the Company, to explore, develop and operate the Company's Yellow Jacket property. Pursuant to the agreement, the Company contributed its leasehold interest in the Yellow Jacket property and the use of certain mining and milling equipment to the venture. Hamilton contributed $500,000 cash, and in exchange received a 40% net profits interest in gold production from the mine when it was developed.
The venture developed a mine and mill at the property and began gold production in 1991. The mine did not operate profitably and Hamilton continued to advance cash to the Company to maintain operations. In December 1994, the Company attempted to quantify and clarify amounts due Hamilton for his advances to the Company and for previous debt and stock price guarantees without success.
On August 1, 1995, the Company filed a complaint in the United States District Court of Idaho against Hamilton and BumbleBee. The complaint sought declaratory and injunctive relief from a judicial determination by the court of the amounts due and owing Hamilton and BumbleBee and of the effect of various debt and repayment agreements between the Company and Hamilton.
On November 15, 1995, the action was settled and Hamilton's obligation was determined to be $1,800,000, which included $500,000 for the purchase of Hamilton's 40% net profits interest in the Yellow Jacket mine. The unsecured debt accrues interest at 7.5% per annum, and was originally payable from 10% of the Company's gross sales from all operations and requires a minimum payment of $150,000 annually, including interest. On March 31, 1999, the Note Payable was amended to be payable from 3% of the Company's gross sales and require minimum payments, including interest, of $200,000 annually.
The settlement agreement released all security interests Hamilton had in the Company's real and personal properties, recovered 916,667 shares of Series B preferred stock and two patented mining claims held by him as security and terminated the Yellow Jacket venture agreement with BumbleBee.
10. Note Payable to Bobby C. Hamilton, Continued:
The settlement agreement also extinguished all previous stock price guarantees to Hamilton and required his surrender of 150,000 shares of the Company's common stock to the Company. In connection with the settlement, the Company canceled warrants granted to Hamilton to purchase 500,000 shares of common stock at $.25 per share and issued Hamilton 500,000 shares of the Company's unregistered common stock in connection with the purchase of his 40% net profits interest in the Yellow Jacket property. Based on the minimum annual $200,000 payment requirement, principal payments on the Hamilton note payable are due as follows:
Year Ending
December 31,
1999 $83,157
2000 89,613
2001 96,576
2002 104,067
2003 112,145
Thereafter 1,110,001
---------
$1,595,559
=========
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Interest expense paid to Mr. Hamilton, a stockholder, during the years ended December 31, 1998 and 1997 was $127,957 and $121,492, respectively.
11. Accrued Interest Payable:
Accrued interest payable at December 31, 1998 and 1997 was comprised solely of accrued interest on debentures payable of $348,747 and $320,287, respectively.
The total includes accrued interest of $330,648 and $297,148 at December 31, 1998 and 1997, respectively, on debentures owed to the Walter L. Maguire 1935 Trust, of which Walter L. Maguire, Sr. (director until 1998 and a stockholder) and Walter L. Maguire, Jr., (former director and a stockholder) are beneficiaries.
Interest expense incurred on debentures owed to the Walter L. Maguire 1935 Trust was $33,500 for each of the years ended December 31, 1998 and 1997.
12. Stockholders' Deficit:
Stock Warrants
The Company's Board of Directors has the authority to issue incentive stock warrants for the purchase of common stock to directors and employees of the Company. The Company has also issued warrants in exchange for services rendered the Company and in settlement of certain litigation.
Transactions in stock warrants are as follows:
Number of Expiration
Warrants Option Prices Date
Balance, December 31, 1996 225,000 $0.50-$0.70
Warrants issued in connection with
debt converted to Series C
preferred stock 249,356 $0.70 (B)
Warrants issued in connection with
stock sales 420,000 $0.80 (A)
-------
Balance, December 31, 1997 894,356 $0.50-$0.80
Warrants issued in connection with
stock sale 100,000 $0.50 (C)
Warrants issued in connection with
stock sale 100,000 $0.25 (D)
--------
Balance, December 31, 1998 1,094,356 $0.25-$0.80
==========
(A)Warrants are exercisable on or before March 18, 2000.
(B)Warrants are exercisable on or before December 31, 2000.
(C)60,000 warrants are exercisable on or before February 17, 2001, and
40,000 are exercisable on or before January 12, 2001.
(D)Warrants are exercisable on or before July 28, 2001.
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During 1997, the Company issued 249,356 warrants in connection with the conversion of certain debts owed by the Company (see Note 9). The rights, preferences, privileges and limitations of the warrants issued upon conversion of debt are set forth below:
12. Stockholders' Deficit, Continued:
Exercise Price and Terms. Each warrant entitles the holder thereof to purchase, at any time after issuance for a period of three years, one share of common stock at a price of $0.70 per share, subject to adjustment in accordance with the anti-dilution and other provisions referred to below. The warrants expire three years after issuance unless extended at the sole option of the Board of Directors of the Company. The holder of any warrant may exercise such warrant by surrendering the certificate representing the warrant to the Company, with the subscription attached to such certificate properly completed and executed, together with payment of the exercise price. The warrants may be exercised in whole or in part at the applicable exercise price until the date of expiration of the warrants. No fractional shares will be issued upon the exercise of the warrants.
Limitations on Transfer. The warrants are non-transferable by the holders thereof during the three-year exercise period.
Antidilution Provisions. The exercise price and the number of shares of common stock issuable upon exercise of the warrants are subject to adjustment upon the occurrence of certain events, including stock dividends, stock splits, combinations or reclassification of common stock, or sale by the Company of shares of its common stock (or other securities convertible into or exercisable for common stock) at a price per share or share equivalent below the then-applicable exercise price of the warrants or the then-current market price of the common stock. Additionally, an adjustment would be made in the case of a reclassification or exchange of common stock, consolidation or merger of the Company with or into another corporation, or sale of all or substantially all of the assets of the Company, in order to enable warrant holders to acquire the kind and number of shares of stock or other securities or property by a holder of that number of shares of common stock that would have been issued upon exercise of the warrant immediately prior to such event.
No adjustment to the exercise price of the shares subject to the warrants will be made for dividends (other than stock dividends), if any, paid on the common stock or for securities issued to employees, consultants or directors pursuant to plans and arrangements approved by the Board of Directors and securities issued to lending or leasing institutions approved by the Board of Directors.
Issuance of Common Stock for Cash
During the years ended December 31, 1998 and 1997, the Company sold 300,000 and 420,000 shares of its unregistered common stock and warrants for $75,000 and $210,000, respectively.
As part of total stock sales made during the years ended December 31, 1998 and 1997, the Company sold 200,000 and 210,000 of its unregistered common stock and warrants to Walter L. Maguire Sr., and parties related to him, for $50,000 and $210,000, respectively. Mr. Maguire is a stockholder and was a director of the Company until December, 31, 1998.
12. Stockholders' Deficit, Continued:
Issuance of Common Stock in Exchange for Services
During the years ended December 31, 1998 and 1997, the Company issued 12,000 and 18,000 shares, respectively, of its unregistered common stock to directors of the Company as compensation for their duties as directors (see Note 15). These shares were valued at 75% of the approximate market value of the stock at the time they were issued.
During 1999, the Board of Directors issued 23,491 shares of its unregistered common stock to the grandson of Robert L. Rice, a director and stockholder, in exchange for services rendered to the Company. The shares were valued at 75% of the approximate market value of the stock at the time they were issued. The Company recognized the issuance during the year ended December 31, 1998 since the services were provided to the Company prior to year-end.
Issuance of Common Stock for Note Receivable
During 1998, the Company issued Robert L. Rice, a director and stockholder, 25,000 shares of its unregistered common stock in exchange for a $5,000 note receivable. The note was satisfied in 1998 when Mr. Rice transferred certain equipment to the company as payment (See Note 15).
Preferred Stock
The Company's Articles of Incorporation authorize 10,000,000 shares of $.01 par value preferred stock. Subject to amounts of outstanding preferred stock, additional shares of preferred stock can be issued with such rights and preferences, including voting rights, as the Board of Directors shall determine.
During 1986, Series A restricted preferred stock was established by the Board of Directors. These shares are nonconvertible, nonredeemable and are entitled to a $1.00 per share per year cumulative dividend. Series A preferred stockholders have voting rights for directors only and a total liquidation preference equal to $45,000 plus dividends in arrears. At December 31, 1998, cumulative dividends in arrears amounted to $56,250, or $12.50 per share.
During 1993, Series B restricted preferred stock was established by the Board of Directors and 1,666,667 shares were issued in connection with the final settlement of litigation related to the nonpayment of royalties under a sublease contract. The Series B preferred stock has preference over the Company's common stock and Series A preferred stock, has no voting rights and is entitled to cumulative dividends of $.01 per share per year when and if declared by the Board of Directors. In the event of dissolution or liquidation of the Company, the preferential amount payable to Series B restricted 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. In 1995, 916,667 shares of Series B preferred stock were surrendered to the Company in connection with the settlement of litigation against Bobby C. Hamilton (see Note 10). At December 31, 1998, cumulative dividends in arrears were $37,500, or $0.05 per share.
12. Stockholders' Deficit, Continued:
During 1997, the Company issued 2,560,762 shares of Series C preferred stock in connection with the conversion of certain debts owed by the Company (see Note 9). The rights, preferences, privileges and limitations of the Series C preferred shares issued upon conversion of debt are set forth below:
Designation. The class of Convertible Preferred Stock, Series C, $0.01 par value per share, shall consist of up to 3.8 million shares of the Company.
Optional Conversion. A holder of Series C preferred shares shall have the right to convert the Series C shares, at the option of the holder, at any time within 18 months following issuance, into shares of common stock at the ratio of 1:1, subject to adjustment as provided below.
Voting Rights. The holders of Series C preferred shares shall have the right to that number of votes equal to the number of shares of common stock issuable upon conversion of such Series C preferred shares.
Liquidation Preference. In the event of any liquidation or winding up of the Company, the holders of Series C preferred shares shall be entitled to receive as a preference over the holders of common stock an amount per share equal to $0.55, subject to the preferences of the holders of the Company's outstanding Series A and Series B preferred stock.
Registration Rights. Twenty percent (20%) of the underlying common stock issuable upon conversion of the Series C preferred shares shall be entitled to "piggyback" registration rights when, and if, the Company files a registration statement for its securities or the securities of any other stockholder.
Redemption. The Series C preferred shares are not redeemable by the Company.
Antidilution Provisions. The conversion price of the Series C shares shall be subject to adjustments to prevent dilution in the event that the Company issues additional shares at a purchase price less than the applicable conversion price (other than shares issued to employees, consultants and directors pursuant to plans and arrangements approved by the Board of Directors, and securities issued to lending or leasing institutions approved by the Board of Directors). In such event, the conversion price shall be adjusted according to a weighted-average formula, provided that a holder of Series C shares purchases his pro rata share of the securities being sold in the dilutive financing. The initial conversion price for the Series C shares shall be $0.55.
Protective Provisions. The consent of a majority interest of the holders of Series C preferred shares shall be required for any action which (i) alters or changes the rights, preferences or privileges of the Series C shares materially and adversely; or (ii) creates any new class of shares having preference over or being on a parity with the Series C shares.
13. Income Taxes:
The components of the deferred tax assets and liabilities at December 31, 1998 and 1997 are as follows:
1998 1997
Net operating losses $2,646,065 $2,487,396
Depreciation of properties,
plants and equipment 19,979 1,270
Accrued reclamation costs 171,112 109,225
--------- ---------
Total deferred tax assets 2,837,156 2,597,891
Less valuation allowance (2,837,156) (2,597,891)
--------- ---------
$ 0 $ 0
========= ==========
|
Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," requires that a valuation allowance be provided if it is more likely than not that some portion or all of a deferred tax asset will not be realized. Although the Company has significant deferred tax assets, principally in the form of net operating loss carryforwards, its ability to generate future taxable income to realize the benefit of these assets will depend primarily the attainment of a consistent level of overall profitability from operations. The market, capital and environmental factors associated with realizing this goal are considerable and uncertain. Therefore, management believes that a full valuation allowance of the net deferred tax assets is appropriate at December 31, 1998 and 1997. However, if estimates of future taxable income change, the valuation allowance could change in the future.
The change in the valuation allowance for the years ended December 31, 1998 and 1997 is as follows:
Balance, December 31, 1996 $2,711,795
Decrease due to utilization
of net operating loss
carryforwards (113,904)
---------
Balance, December 31, 1997 2,597,891
Increase due to non-
utilization of net operating
loss carryforwards 239,265
----------
Balance, December 31, 1998 $2,837,156
==========
|
During the year ended December 31, 1998, the Company generated a net operating loss of approximately $467,000 for federal income tax purposes. During the year ended December 31, 1997, the Company utilized approximately $284,000 of net operating loss carryforwards for federal income tax purposes.
13. Income Taxes, Continued:
At December 31, 1998, the Company had the following regular tax basis net operating loss carryforwards:
Expiring in
2000 $2,471,416
2001 916,998
2002 715,731
2003 866,362
2004 568,416
2005 715,049
2006 512,877
2007 154,235
2011 394,788
2018 466,672
-------
$7,782,544
=========
|
At December 31, 1998, the Company had net operating loss carryforwards for alternative minimum tax purposes of approximately $7.4 million.
14. Loss Per Common Share:
The following table presents a reconciliation of the numerators and denominators of the basic and diluted earnings per share ("EPS') computations for the years ended December 31, 1998 and 1997:
1998
Per Share
Loss Shares Amounts
Basic EPS:
Net Loss $(468,427) 13,309,379 $(0.04)
Effect of Dilutive
Securities
Common stock warrants (1)
Series C preferred stock (2) 2,594,825 0.01
Diluted EPS:
--------- ---------- ----
Net loss $(468,427) 15,904,204 $(0.03)
========= ========== ====
1997
Per Share
Loss Shares Amounts
Basic EPS:
Loss before extraordiary item $(248,093) 12,969,923 $(0.02)
Effect of Dilutive Securites
Common stock warrants (1)
Series C preferred stock (2) 7,035
--------- ---------- ------
|
(1) Common stock warrants totaling 1,094,356 and 894,356 outstanding during 1998 and 1997, respectively, were not included in the computation of diluted EPS at December 31, 1998 or 1997 because the various exercise prices of the warrants were greater than the average market price of the Company's common stock.
(2) Series C preferred stock is convertible into common stock of the company on a share-for-share basis. The effect on the computation of diluted weighted average shares outstanding is based upon the potential conversion of the shares into common stock for the period of time the preferred shares were outstanding and the effect of Series C preferred stock anti-dilution provisions.
15. Related-Party Transactions:
In addition to transactions described in Notes 7, 9, 10, 11, 12, and 16 during
1998 and 1997, the Company had the following transactions with related
parties:
. During 1998 and 1997, the Company issued 12,000 and 18,000
shares, respectively, of its unregisterd common stock to certain members of
the Board of Directors for their duties as directors. The issuance represented
an award of 6,000 shares per year per director eligible to receive the award.
The issuances have been recorded in the consolidated financial statements as
if they were issued in the year they were earned. The stock awards were
recorded as compensation expense based upon the estimated value of the stock
at the date of issuance.
. At December 31, 1998, the Company owed Walter L. Maguire, Jr., a stockholder and former director, $32,923 for amounts advanced to the Company by Mr. Maguire. Annual interest expense related to these notes was $1,790 for both 1998 and 1997. In 1996, a company controlled by Mr. Maguire sold the Company packaging materials at a cost of $32,066. At December 31, 1998, the Company owed Mr. Maguire's company $5,497, representing the unpaid balance on this purchase.
. During 1998, Robert L. Rice, a director and stockholder, exchanged certain equipment for a $5,000 note receivable due the Company.
. In February 1999, the Board of Directors nominated Leo Jackson to serve as a director in the place of Walter L. Maguire, Sr., who had resigned from the Board on December 31, 1998. Mr. Jackson is a stockholder of the Company and owns 31.4% of Production Minerals Inc., a company that has an indirect interest of 25% in the stock of USAMSA.
16. Commitments and Contingencies:
Until 1989, the Company mined, milled and leached gold and silver in the Yankee Fork Mining District in Custer County, Idaho. The metals were recovered by a 150-ton per day gravity and flotation mill, and the concentrates were leached with cyanide to produce a bullion product at the Preachers Cove mill, which was located six miles north of Sunbeam, Idaho on the Yankee Fork of the Salmon River. In 1994, the U.S. Forest Service, under the provisions of the Comprehensive Environmental Response Liability Act of 1980 (CERCLA), designated the cyanide leach plant as a contaminated site requiring cleanup of the cyanide solution. The Company has been reclaiming the property and as of December 31, 1998, the cyanide solution discharge was complete, the mill removed, and a majority of the cyanide leach residue disposed of. The Company anticipates having reclamation at the property completed in 2000.
In 1996, the Idaho Department of Environmental Quality requested that the Company sign a consent decree related to completing the reclamation and remediation at the Preachers Cove mill, which the Company signed in December 1996. Estimated costs to reclaim this property have been accrued at December 31, 1998 and 1997. At December 31, 1998, the liability for remaining estimated costs to complete remediation at the site was $116,028.
On August 21, 1998, citations and a Notice of Failure to Correct Alleged Violations were issued to the Company by the U.S. Department of Labor's Occupational Safety and Health Administration ("OSHA") for violations occurring at the Company's antimony plant near Thompson Falls, Montana. The citations, with fines totaling $115,800, were contested by the Company on September 11, 1998. On November 18, 1998, the U.S. Department of Labor filed a complaint with the Occupational Safety and Health Review Commission (Docket No. 98-1595) requesting that the Commission not vacate the citations and Notice of Failure to Correct Alleged Violations. The case went to a hearing in March, 1999. The fines in have been accrued for in the financial statements. Management believes, however, that the dollar amount of the citations will be substantially reduced.
On April 8, 1998, Ronald Michael Meneo, Trustee of the Walter L. Maguire 1935-1 Trust ("The Trust"), filed an action in the Twentieth Judicial District Court of Sanders County, Montana against the Company. The action seeks to recover principal amounts totaling $335,000 due on defaulted convertible and subordinated convertible debentures held by The Trust. The action also seeks to recover accrued interest on the principal amounts of the debentures at the rate of 10% per annum that was due on the maturity dates of the debentures, interest at 10% on all principal and interest due on the debentures accruing from the dates of maturity to the present, and all amounts relating to The Trust's legal fees incurred in bringing the action.
16. Commitments and Contingencies, Continued:
On June 26, 1998, the Company filed an Answer, Counterclaim, and request for Jury Trial in the Twentieth Judicial District Court of Sanders County, Montana, in response to the action filed on April 8, 1998. In the filing the Company denied The Trust's complaint and alleged a counterclaim against the Trust, citing breach of contract and breach of implied covenant of good faith and fair dealing.
On July 15, 1998, the Company filed an action in the Twentieth Judicial District Court of Sanders County, Montana, against Walter L. Maguire Sr., a director during 1998 and stockholder. The complaint alleges damages suffered by the Company as a result of Mr. Maguire's actions described in three counts: 1) Breach of Director Duties,2) Conspiracy, and 3) Constructive Fraud.
The allegations set forth in the complaint describe Mr. Maguire's alleged representations that he controlled the Walter L. Maguire 1935-1 Trust, and led the Company and other shareholders to detrimentally believe that certain defaulted debentures held by the Trust would be converted to Series C Preferred Stock in accordance with an Offer to Purchase dated November 21, 1997, that was submitted to the Trust and other debt holders. The complaint seeks damages of $1,500,000 and a further amount to be proven at trial. Discovery is proceeding against The Trust and the Company is vigorously defending against the original complaint, as well as prosecuting the counterclaim against The Trust.
On October 13, 1998, Mr. Maguire responded to the action filed on July 15, 1998, by filing an Answer, Counterclaim and Third-Party Complaint in the Twentieth Judicial District Court of Sanders County, Montana, against the Company and (third party) John C. Lawrence, the Company's president and a director and shareholder. Mr. Maguire's counterclaim and third party complaint alleges damages described in separate counts of libel and slander suffered as a result of accusations made by the Company and Mr. Lawrence. Mr. Maguire's action requests an award for actual and punitive damages in amounts to be proven at trial. The Company has filed a pending motion to dismiss Mr. Maguire's libel and slander claims, and is separately pursuing its action against Mr. Maguire.
17. Fair Value of Financial Instruments:
The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data and to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange.
The carrying amounts for cash, restricted cash, accounts receivable, accounts payable and accrued expenses are a reasonable estimate of their fair values. The fair value of amounts due to related parties and judgments payable approximate their carrying values of $37,635 and $164,084, respectively, at December 31, 1998, and $31,707 and $142,937, respectively, at December 31, 1997, based upon the contractual cash flow requirements.
It is not practicable to estimate the fair value of the $1.6 million note payable to Bobby C. Hamilton. The payments are based upon future revenues, which are uncertain. There are no similar financial instruments in the market to which the value can be compared. It is also not practicable to estimate the fair value of the $335,000 debentures which are in default. However, management believes that the fair value of these debentures is significantly lower than their carrying value.
| ARTICLE 5 |
| CIK: 0000101538 |
| NAME: UNITED STATES ANTIMONY CORP. |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD END | DEC 31 1998 |
| CASH | 221 |
| SECURITIES | 0 |
| RECEIVABLES | 0 |
| ALLOWANCES | 0 |
| INVENTORY | 365398 |
| CURRENT ASSETS | 365619 |
| PP&E | 3218692 |
| DEPRECIATION | 2703300 |
| TOTAL ASSETS | 1059997 |
| CURRENT LIABILITIES | 1869076 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 33153 |
| COMMON | 134259 |
| OTHER SE | (2876505) |
| TOTAL LIABILITY AND EQUITY | 1059997 |
| SALES | 3142776 |
| TOTAL REVENUES | 3142776 |
| CGS | 2747880 |
| TOTAL COSTS | 2747880 |
| OTHER EXPENSES | 670276 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 216318 |
| INCOME PRETAX | 0 |
| INCOME TAX | 0 |
| INCOME CONTINUING | 0 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (468427) |
| EPS PRIMARY | (0.04) |
| EPS DILUTED | (0.03) |
Warrant No. Series 98-2 Warrant to Purchase 100,000 Common Shares
STOCK PURCHASE WARRANT
(For the Purchase of Shares of a Par Value of $.01 Per Share)
UNITED STATES ANTIMONY CORPORATION
(Incorporated under the laws of the State of Montana)
VOID AFTER 9:00 A.M. ON 28 July 2001
This is to certify that, for the value received, Al W. Dugan, 1415 Louisana, Suite 3100, Houston, Texas, 77002, is entitled, subject to the terms and conditions hereinafter set forth, at or before 9:00 A.M., Mountain Daylight Time, on 31 December 2000, but not thereafter, to purchase the number of Unregistered Common Shares as set forth above, with a par value of $.01 per share, hereinafter called Unregistered Common Shares, of United States Antimony Corporation, hereinafter called the Company, at an exercise price of $.25 per share, and to receive a certificate or certificates for the Unregistered Common Shares so purchased, upon presentation and surrender to the Company, with the form of subscription duly executed, and accompanied by the payment of the purchase price of each share purchased either in cash or by certified or bank cashier's check payable to the order of the Company.
The Company covenants and agrees that all shares which may be delivered upon the exercise of this Warrant will, upon delivery, be free from all taxes, liens and charges, will be fully paid and non-assessable, and the Company further covenants and agrees that it will from time-to-time take all such action as may be requisite to assure that the par value per share of the Common Shares is at all time equal to or less than the current Warrant purchase price per share of the Unregistered Common Shares issuable pursuant to this Warrant.
The purchase rights represented by this Warrant are exercisable at the option of the registered owner hereof in whole at any time, or in part from time-to-time, within the period above stated, provided, however, that such purchase rights shall not be exercisable with respect to a fraction of a share of Common Shares.
In case of the purchase of less than all shares purchasable under this
warrant, the Company shall cancel this Warrant upon the surrender hereof and
shall execute and deliver a new Warrant of like tenor and date for the balance
of the shares purchasable hereunder.
The Company agrees at all times to reserve and hold available a
sufficient number of Unregistered Common Shares to cover the number of shares
issuable upon the exercise of this and all other similar Warrants then
outstanding.
This Warrant shall not entitle the holder hereof to any voting rights or other rights as a shareholder of the Corporation, or any other rights whatsoever, except the rights herein expressed and such as are set forth, and no dividends shall be payable or accrue in respect of the Warrant or the interest represented hereby or the shares purchasable hereunder until or unless, and except to the extent that, this Warrant shall be exercised.
This warrant and the rights represented hereby may not be transferred except by way of gift to family members and family entities, such as trusts or foundations.
In any of the following events, occurring hereafter and until the expiration of the Warrant by the passage of time or the full exercise hereof, appropriate adjustments shall be made in the number of shares deliverable upon the exercise of this Warrant or the price per share to be paid so as to maintain the proportion of interest of each Warrant holder. If the Company at any time prior to the expiration of the Warrants and prior to the exercise thereof declares a dividend on the Common Stock of the Company, payable in Common Stock or securities convertible into Common Stock, or divides, consolidates or reclassifies the Common Stock, whether upon a recapitalization or otherwise, or merges or consolidates with or into another Corporation (unless the Company is the continuing Corporation and there is no reclassification or change of outstanding shares of Common Stock) the number of Common Shares issuable upon exercise of this Warrant shall thereafter (until further adjusted), consist of the kind and amount of securities or property which would have been issuable had the Warrants been exercised immediately prior to the record date for the event in question. The Company shall not affect any such merger or consolidation unless, at or prior to the consumption thereof, the surviving Corporation shall assume by written agreement the obligation to deliver these securities which, and accordance with the foregoing, the Warrant holder is entitled to purchase. The above provisions relative to dilution shall not apply to any issuance or sale by the Company of any of its securities, or any securities convertible into Common Stock, which issuance and sale was for valid consideration as determined by the Board of Directors of the Company and the Company shall be free to offer and sell during the term of this Warrant such of its securities as it may deem advisable and appropriate.
Upon receipt by the Company of evidence satisfactory to it (in the exercise of its reasonable discretion) of the ownership of and the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft, or destruction) of indemnity satisfactory to it, and (in the case of mutilation) upon surrendering this Warrant for cancellation, the Company will execute and deliver, in lieu thereof, a new Warrant for like tenor.
The Warrants represented by this certificate and the shares underlying issuable upon exercise hereof, have not been registered under the Securities Act of 1933. The Warrants have been purchased for investment and not with a view to distribution or resale, they may not be made subject to security interest, pledged, hypothecated. The warrant may not be transferred except by way of gift to family members and family entities, such as trusts or foundations. Shares issuable upon exercise of this warrant will have been purchased by the holder thereof for investment and not with a view to distribution or resale, or otherwise transferred without an effective registration statement pursuant to the Securities Act of 1933, or an opinion of counsel acceptable to counsel for the Company that registration is not required under such Act. Any shares issued upon the exercise of this Warrant shall bear a restrictive legend in substantially the following form:
"No sale offer to sell or transfer of the shares represented by this certificate shall be made unless a registration statement under the Securities Act of 1933, as amends, with respect to such shares is then in effect or an exemption from the registration requirements of such Act is then in fact applicable to such shares."
All notices and other communications from the Company to the holder of this Warrant shall be mailed by first class mail, postage prepaid, to the address furnished to the Company in writing by the holder of this Warrant.
Dated: 28 July 1998
UNITED STATES ANTIMONY CORPORATION
By
John C. Lawrence, President
ATTEST:
Lee Martin
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT is made and entered into this 31st day of March 1999, by and between BOBBY C. HAMILTON and BUMBLEBEE, INC., an Idaho Corporation (hereinafter collectively referred to as "Hamilton"), and U.S. ANTIMONY CORPORATION, a Montana corporation (hereinafter referred to as "USAC").
RECITALS
The parties hereto acknowledge the following facts and circumstances which give rise to the execution of this Amendment Agreement.
1The parties entered into a Release and Settlement Agreement on 15 November 1995 in which USAC assigned to Hamilton 10% of the gross income received by the Company from the sale of the Company's product and services less loan proceeds and revenue from stock sales or stock or bond offerings (see schedule 1 attached herein and incorporated herein).
2At the time of the Release and Settlement Agreement, USAC was receiving a toll processing fee and 50% of the profits from the sale of its antimony products as a result of an Inventory and Sales Agreement (see schedule 2 attached herein and incorporated herein) and a Processing Agreement (see schedule 3 attached herein and incorporated herein). Under these agreements, USAC did not get the receivables from the sales and the partner essentially maintained the inventory.
3USAC entered a Termination Agreement (see schedule 4 attached herein and incorporated herein) on 31 March 1999 whereby USAC has terminated the agreements in schedules 2 and 3. After 1 April 1999, USAC will get all the receivables for the sale of antimony products. USAC will assign all its receivables to a lending or factoring institution to borrow against them. USAC will be unable to assign 10% of the receivable and maintain an inventory and enough money to continue in business.
4The parties hereto desire to amend the Release and Settlement Agreement (schedule 1) to allow USAC to maintain its cash flow and as a result of the Termination Agreement adjust the percentage of assignment payable to Hamilton provided under agreement (schedule 1) prior to the effective dat of the Termination Agreement.
5BumbleBee, Inc. has forfeited its corporate charter, and Bobby C. Hamilton is as the statutory trustee of BumbleBee, Inc.
TERMS AND CONDITIONS
In consideration of the mutual covenants and conditions contained herein, the parties hereto agree as follows:
1 Inventory Account - An "Inventory Account" will be maintained by USAC at the First State Bank of Thompson Falls, Montana. USAC will direct all receivables from the sale of the Company's product and services to this account. It is understood that USAC will use other lending or factoring institutions to be designated by USAC for the purpose of borrowing. The other institutions will initially receive the receivables, deduct their fees, charges, and payments and will then remit all the remaining funds including a statement of all funds received before deductions of any kind to the Inventory Account at the First State Bank. Hamilton will be authorized to receive bank statements and a statement from USAC showing the receipt of such funds at the First State Bank.
2 Amendment to paragraph 4, sub section (a), (i), (b), and (c), pages 8 and 9 of Schedule 1 - Both parties agree to amend the assignment of the gross income received by the Company from the sale of the Company's product and services, not including revenues from loan proceeds, stock or bond offerings, The gross income is based on total received including but not limited to direct receipts from customers, paid intermediaries, lending or factoring institutions, etc. The percentage of assignment to Hamilton will be changed from 10% to 3% of the gross sales.
3 Amendment to paragraph 4, sub section (c), (g), and (h), pages 8 and 9 of Schedule 1 - The minimum annual payment to Hamilton shall be increased from $150,000.00 to $200,000.00 by 30 January of each successive year until the settlement price is paid.
4 At the end of June and December (beginning June 30, 1999) and of each successive year, the percentage assignment will be reviewed and adjusted up but not down if necessary based on previous months income in order that Hamilton receives a minimum of $200,000.00 per year on an annualized basis.
5 All of the other terms and conditions of the Release and Settlement Agreement will remain in force except as otherwise amended in this agreement.
6 Entire Agreement; Amendments - This agreement constitutes the entire agreement between the parties. Any agreement hereafter shall be ineffective to change, modify or discharge the Agreement in whole or in part, unless such agreement is agreed to in writing and signed by all the parties hereto. There is no agreement or promise by or on behalf of the parties to do or admit to do any act or thing not herein expressly and specifically mentioned, and the parties acknowledge that the above consideration is in
full and final settlement of all matters mentioned herein.
7 Governing Law - This Agreement shall be interpreted, applied and enforced in accordance with the laws of the State of Idaho.
8 Headings and Titles - It is understood and agreed that all of the headings and titles, subheadings and subtitles herein are inserted as a matter of convenience and reference only. They in no way define, limit, extent or describe the scope or intent of this Agreement, and in no way affect this Agreement.
9 Severability - The provisions of this Agreement are severable, and if any part of it is found to be unenforceable, the other provisions shall remain fully valid and enforceable.
DATED this ________ day of March 1999.
DATED this ________ day of March 1999.
U. S. ANTIMONY CORPORATION
ACKNOWLEDGED this _______day of March 1999.
STATE OF IDAHO)
) ss.
County of _________)
On this _______ day of March 1999, before me ______________________________, a Notary Public in and for said State, personally appeared BOBBY C. HAMILTON, known or identified to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same.
IN WITNESS WHERE OF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written.
STATE OF MONTANA )
) ss.
County of ____________)
On this _______ day of March 1999, before me ______________________________, a Notary Public in and for said State, personally appeared JOHN C. LAWRENCE, known or identified to me to be the president of U. S. ANTIMONY CORPORATION., the corporation that executed the within instrument or the person who executed the instrument on behalf of said corporation, and acknowledged to me that such corporation executed the same.
IN WITNESS WHERE OF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written.