UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

  For the quarterly period ended June 30, 2020  

 

¨ Transition report under section 13 or 15(d) of the Exchange Act

 

  For the transition period from   to    

 

  Commission File Number 000-31380  

  

APPLIED MINERALS, INC.
(Exact name of registrant as specified in its charter)

 

Delaware   82-0096527
(State or other jurisdiction of incorporation or
organization)
  (I. R. S. Employer Identification No.)
     
55 Washington Street - Suite 301, Brooklyn, NY   11201
(Address of principal executive offices)   (Zip Code)

 

  (212) 226-4265  
  (Issuer’s Telephone Number, Including
Area Code)
 

 

Former name, former address, and former fiscal year, if changed since last report

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ¨  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x     No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller-reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-accelerated Filer ¨ Smaller Reporting Company x
Emerging growth company ¨            

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to xSection 13(a) of the Exchange Act.

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

  YES ¨ NO x  

 

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of August 14, 2020 was 175,638,549.

 

DOCUMENTS INCORPORATED BY REFERENCE: None.

 

 

 

 

 

APPLIED MINERALS, INC.

(An Exploration Stage Company)

 

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2020

TABLE OF CONTENTS

 

    Page(s)
     
PART I. FINANCIAL INFORMATION
     
Item 1. Consolidated Financial Statements  
     
  Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019 3
     
  Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited) 4
     
  Consolidated Statements of Changes in Stockholders’ Deficit for the Six Months Ended June 30, 2020 and 2019 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (unaudited) 7
     
  Notes to the Consolidated Financial Statements (unaudited) 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 30
     
Item 4. Controls and Procedures 31
     
PART II. OTHER INFORMATION
     
Item 1. Legal Proceedings 32
     
Item 1A Risk Factors 32
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
     
Item 3. Defaults Upon Senior Securities 32
     
Item 4. Mine Safety Disclosures 32
     
Item 5. Other Information 32
     
Item 6. Exhibits 32
     
Signatures 34

 

  2  

 

 

PART I. FINANCIAL INFORMATION

 

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

CONSOLIDATED BALANCE SHEETS

 

    June 30, 2020     December 31, 2019  
    (unaudited)        
ASSETS                
Current Assets                
Cash   $ 229,337     $ 52,793  
Accounts receivable     86,125       78,308  
Deposits and prepaid expenses     113,314       284,208  
Total Current Assets     428,776       415,309  
                 
Operating lease right-of-use assets     187,991       238,151  
Land     500,000       500,000  
                 
Other Assets                
     Deposits     336,051       335,720  
Total Other Assets     336,051       335,720  
                 
TOTAL ASSETS   $ 1,452,818     $ 1,489,180  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current Liabilities                
Accounts payable and accrued liabilities   $ 2,224,921     $ 1,693,589  
Paycheck Protection Program Loan     223,075       -  
PIK Note interest accrual     362,483       176,903  
Current portion of notes payable ($0 and $250,000 to related party, respectively)     125,521       458,728  
Current portion of operating lease liabilities     106,276       101,487  
Total Current Liabilities     3,042,276       2,430,707  
                 
Long-Term Liabilities                
PIK Notes payable, net of $1,276,152 and $1,464,311 debt discount, respectively     44,373,252       43,702,301  
Operating lease liabilities     85,965       140,321  
Total Long-Term Liabilities     44,459,217       43,842,622  
                 
TOTAL LIABILITIES     47,501,493       46,273,329  
                 
Stockholders’ Deficit                
Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued and outstanding     -       -  
Common stock, $0.001 par value, 700,000,000 shares authorized, and 175,638,549 and 175,513,549 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively.     175,639       175,514  
Additional paid-in capital     73,786,404       73,774,766  
Accumulated deficit prior to the exploration stage     (20,009,496 )     (20,009,496 )
Accumulated deficit during the exploration stage     (100,001,222 )     (98,724,933 )
Total Stockholders’ Deficit     (46,048,675 )     (44,784,149 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 1,452,818     $ 1,489,180  

 

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

 

  3  

 

 

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    For the Three Months Ended June 30     For the Six Months Ended June 30  
    2020     2019     2020     2019  
                         
REVENUES   $ 143,593     $ 218,936     $ 296,069     $ 339,463  
                                 
OPERATING EXPENSES:                                
Production costs     230,488       219,453       450,038       445,158  
Exploration costs     42,045       43,829       87,679       77,596  
General and administrative     800,187       1,118,111       1,435,122       1,930,681  
                                 
Total Operating Expenses     1,072,720       1,381,393       1,972,839       2,453,435  
                                 
Operating Loss     (929,127 )     (1,162,457 )     (1,676,770 )     (2,113,972 )
                                 
OTHER INCOME (EXPENSES):                                
Interest expense, net (including amortization of deferred financing cost and debt discount)     (454,281 )     (531,371 )     (899,868 )     (923,851 )
Other income, net     94       953       1,300,349       2,367  
Total Other Income (Expenses)     (454,187 )     (530,418 )     400,481       (921,484 )
                                 
NET LOSS   $ (1,383,314 )   $ (1,692,875 )   $ (1,276,289 )   $ (3,035,456 )
                                 
Net Loss Per Common Share (Basic and Diluted)   $ (0.01 )   $ (0.01 )   $ (0.01 )   $ (0.02 )
                                 
Weighted Average Common Shares Outstanding (Basic and Diluted)     175,638,549       175,513,549       175,604,895       175,513,549  

 

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

 

  4  

 

 

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

(Unaudited)

 

    Three Months Ended  
    Common
Stock
Shares
    Common
Stock
Amount
    Additional
Paid-in
Capital
    Accumulated
Deficit Prior
to
Exploration
Stage
    Accumulated
Deficit During
Exploration
Stage
    Total
Stockholders’
Deficit
 
                                     
Balance, March 31, 2020     175,638,549     $ 175,639     $ 73,782,461     $ (20,009,496 )   $ (98,617,908 )   $ (44,669,304 )
                                                 
Stock option compensation expense     -       -       3,943       -       -       3,943  
                                                 
Net Loss     -       -       -       -       (1,383,314 )     (1,383,314 )
                                                 
Balance, June 30, 2020     175,638,549     $ 175,639     $ 73,786,404     $ (20,009,496 )   $ (100,001,222 )   $ (46,048,675 )
                                                 
Balance, March 31, 2019     175,513,549     $ 175,514     $ 73,590,973     $ (20,009,496 )   $ (94,094,382 )   $ (40,337,391 )
                                                 
Stock option compensation expense     -       -       139,215       -       -       139,215  
                                                 
Net Loss     -       -       -       -       (1,692,875 )     (1,692,875 )
                                                 
Balance, June 30, 2019     175,513,549     $ 175,514     $ 73,730,188     $ (20,009,496 )   $ (95,787,257 )   $ (41,891,051 )

 

  5  

 

 

    Six Months Ended  
    Common
Stock
Shares
    Common
Stock
Amount
    Additional
Paid-in
Capital
    Accumulated
Deficit Prior
to
Exploration
Stage
    Accumulated
Deficit During
Exploration
Stage
    Total
Stockholders’
Deficit
 
                                     
Balance, December 31, 2019     175,513,549     $ 175,514     $ 73,774,766     $ (20,009,496 )   $ (98,724,933 )   $ (44,784,149 )
                                                 
Shares issued to note holder     125,000       125       1,125       -       -       1,250  
                                                 
Stock option compensation expense     -       -       10,513       -       -       10,513  
                                                 
Net Income     -       -       -       -       (1,276,289 )     (1,276,289 )
                                                 
Balance, June 30, 2020     175,638,549     $ 175,639     $ 73,786,404     $ (20,009,496 )   $ (100,001,222 )   $ (46,048,675 )
                                                 
Balance, December 31, 2018     175,513,549     $ 175,514     $ 73,525,650     $ (20,009,496 )   $ (87,810,354 )   $ (34,118,686 )
                                                 
Adoption of new accounting standard     -       -       -       -       (4,941,447 )     (4,941,447 )
                                                 
Stock option compensation expense     -       -       204,538       -       -       204,538  
                                                 
Net Loss     -       -       -       -       (3,035,456 )     (3,035,456 )
                                                 
Balance, June 30, 2019     175,513,549     $ 175,514     $ 73,730,188     $ (20,009,496 )   $ (95,787,257 )   $ (41,891,051 )

 

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

 

  6  

 

 

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    For the Six Months Ended  
    June 30,  
    2020     2019  
             
Cash Flows from Operating Activities:                
Net loss   $ (1,276,289 )   $ (3,035,456 )
Adjustments to reconcile net loss to net cash used in operations:                
Amortization of discount – notes payable     2,013       -  
Amortization of discount - PIK Notes     188,159       178,531  
Amortization of deferred financing costs     23,960       45,503  
Accrued interest on PIK Notes     680,297       695,646  
Stock based compensation expense     10,513       204,538  
Non-cash lease expense     593       2,231  
Change in operating assets and liabilities:                
Accounts receivable     (7,817 )     20,526  
Deposits and prepaids     170,563       232,184  
Accounts payable and accrued liabilities     519,407       83,971  
Deferred revenue     -       1,320  
Net cash provided by (used in) operating activities     311,399       (1,571,006 )
                 
Cash Flows from Financing Activities:                
Proceeds from notes payable     113,750       -  
Proceeds from Paycheck Protection Program Loan     223,075       -  
Payments on notes payable     (315,625 )     (182,901 )
Payments on PIK notes     -       (341,640 )
Payments on insurance financing     (156,055 )     -  
Net cash (used in) financing activities     (134,855 )     (524,541 )
                 
Net change in cash     176,544       (2,095,547 )
                 
Cash at beginning of period     52,793       2,892,340  
                 
Cash at end of period   $ 229,337     $ 796,793  
                 
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ 3,358     $ 10,680  
Cash paid for income taxes   $ -     $ -  
                 
Supplemental disclosure of non-cash financing activity:                
Capitalization of right to use assets and liabilities   $ -     $ 289,102  
Accrued PIK interest paid through issuance of PIK Notes   $ 494,717     $ 737,116  
Effect of ASU 2017-11, Financial Instruments with Characteristics of Liabilities and Equity and ASU 2016-02, Leases   $ -     $ 4,950,396  
Common stock issued to note holders for financing cost   $ 1,250     $ -  

 

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

 

  7  

 

  

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

Notes to the Consolidated Financial Statements

(Unaudited)

 

NOTE 1– ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Applied Minerals, Inc. (the “Company” or “Applied Minerals” or “we” or “us”) (OTCQB: AMNL) is the owner of the Dragon Mine located in the Tintic Mining District of the State of Utah from where it produces halloysite clay and iron oxide. The Company is currently selling its DRAGONITE halloysite clay product regularly to four customers. Several prospective customers are conducting either commercial-scale trials or field trials for an array of products that are expected to use DRAGONITE as a functional additive. In October 2019, the Company entered into an agreement to supply a manufacturer of cement with up to 30,000 tons AMIRON iron oxide per year over a two-year period.

 

Applied Minerals is a publicly traded company incorporated in the state of Delaware. The common stock trades on the OTCQB under the symbol AMNL.  

 

Status of the Company for SEC Reporting Purposes

The Company is classified as an “exploration stage” company for purposes of Industry Guide 7 of the U.S. Securities and Exchange Commission (“SEC”).

 

Under Industry Guide 7, companies engaged in significant mining operations are classified into three categories, referred to as “stages” - exploration, development, and production.

 

Exploration stage includes all companies that do not have established reserves in accordance with Industry Guide 7. Such companies are deemed to be “in the search for mineral deposits.” Notwithstanding the nature and extent of development-type or production-type activities that have been undertaken or completed, a company cannot be classified as a development or production stage company unless it has established reserves in accordance with Industry Guide 7.

 

Exploration Agreement

On December 22, 2017, the Company and Continental Mineral Claims, Inc. (“CMC”) entered into an Exploration Agreement with Option to Purchase (“Agreement”). The Company granted to CMC the exclusive right and option to enter upon and conduct mineral exploration activities (the “Exploration License”) for Metallic Minerals on the Company’s Dragon Mine minesite in Utah (the “Mining Claims”).  Metallic Minerals are defined to include minerals with a high specific gravity and metallic luster, such as gold, silver, lead, copper, zinc, molybdenum, titanium, tungsten, uranium, tin, iron, etc., but shall exclude any such Metallic Minerals that are intermingled within any economically-recoverable, non-metallic mineral deposits located at or above an elevation of 5,590 feet above sea level. Non-metallic minerals include clay and iron oxide, the minerals mined by the Company.  The Company believes that all economic recoverable non-metallic mineral deposits are well above 5,590 feet above sea level. The Exploration License is for a period of ten years.

 

In consideration of the Exploration License CMC paid the Company $350,000 upon the execution of the agreement and paid it $150,000 on the first anniversary of the Exploration License in December 2018. CMC will pay the Company $250,000 on or before each subsequent anniversary during the Exploration License term following the first anniversary of the Effective Date of this Agreement unless the Exploration License is terminated earlier by CMC by exercising the option or failing to make the required payment for the Exploration License.

 

On March 25, 2020, the Company and Tintic Copper and Gold, Inc. (CMC’s successor) (“Tintic”) agreed to lower the exercise price of the Option to $1,050,000 and Tintic immediately exercised the Option. The Company also provided Tintic with a Right of First Offer which expired on December 21, 2027 and can be extended to December 21, 2032 for $250,000.

 

Upon the exercise of the option, the Company retained the all rights and title to (1) the surface interest (with exception of those rights associated with the Metallic Rights), and (2) all non-metallic minerals (expressly including all industrial minerals including clays and iron oxides).

 

Upon the exercise of the option the Company retained protections against unreasonable interference of its current and future mining operations by CMC. CMC may not do anything that may, at the Company’s determination, adversely impact the Company’s Mining Operations.  “Mining Operations” shall mean the activities incident to mineral extraction, permitting, and any operations by CMC or the Company relating to the removal of minerals, respectively, that are or may reasonably be conducted on the Mining Claims, including the exploration for, and development, active mining, removing, producing and selling of any minerals, including the Metallic Minerals.  The Agreement states that the parties understand that the Company is willing to enter into the Agreement only if it is assured that CMC will not have any right to unreasonably interfere with the Company’s current mining operations and possible future Mining Operations on the Mining Claims.

 

  8  

 

 

Impact of COVID–19 Pandemic on Financial Statements

 

In December 2019, a novel strain of COVID-19 was reported in China. Since then, COVID-19 has spread globally, to include Canada, the United States and several European countries. The spread of COVID-19 from China to other countries has resulted in the World Health Organization (WHO) declaring the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a new disease, on March 11, 2020. Many countries around the world have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus and have closed non-essential businesses.

 

As local jurisdictions continue to put restrictions in place, our ability to continue to operate our business may also be limited. Such events may result in a period of business, supply and product manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations. In response to COVID-19, the Company implemented remote working and thus far, has not experienced a significant disruption or delay in our operations

 

To date, COVID-19 has not had a significant financial impact on the Company. However, COVID-19 has caused severe disruptions in transportation and limited access to the Company’s facility, resulting in limited support from its staff and professional advisors. The small size of the Company’s accounting staff and the additional responsibilities emanating from COVID-19 may present difficulties to the Company’s ability to complete subsequent reports in a timely manner.

 

NOTE 2 – GOING CONCERN AND BASIS OF PRESENTATION

 

The Company has a history of recurring losses from operations and the use of cash in operating activities. For the six months ended June 30, 2020, the Company’s net loss was $1,276,289 and cash provided by operating activities was $311,399. As of June 30, 2020, the Company had current assets of $428,776 and current liabilities of $3,042,276 of which $362,483 was accrued PIK Note interest expected to be paid in additional PIK Notes. The Company’s current liabilities also include (i) $438,477 of accrued salaries deferred by certain members of management until the Company’s liquidity improves, (ii) $960,811 of accrued directors fee as determined by the Company’s Board, (iii) $119,269 of payables to a compounder for which it has agreed to satisfy in halloysite product, (iv) $132,635 of disputed or erroneously accrued expenses and (v) $223,075 of PPP Funding payable which the Company expects to be forgiven by the U.S. Treasury.

 

Management believes that in order for the Company to meet its obligations arising from normal business operations through August 14, 2021 that the Company may be required (i) to raise additional capital either in the form of a private placement of common stock or debt and/or (ii) generate additional sales of its products that will generate sufficient operating profit and cash flows to fund operations.  Without additional capital or additional sales of its products, the Company’s ability to continue to operate may be limited.

 

Based on the Company’s current cash usage expectations, management believes it may not have sufficient liquidity to fund its operations through August 14, 2021. Further, management cannot provide any assurance that it is probable that the Company will be successful in accomplishing any of its plans to raise debt or equity financing or generate additional product sales. Collectively these factors raise substantial doubt regarding the Company’s ability to continue as going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded assets amounts and classification of liabilities that might be necessary should the Company not be able to continue as a going concern.

 

  9  

 

 

NOTE 3 – BASIS OF REPORTING AND SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited consolidated financial statements of Applied Minerals, Inc. have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.

 

In the opinion of management, these interim unaudited consolidated financial statements contain all of the adjustments of a normal and recurring nature, which are considered necessary for a fair presentation of the financial position of the Company and the results of its operations and cash flows for the periods presented. The results of operations for the six months ended June 30, 2020 are not necessarily indicative of the operating results for the entire year. These financial statements should be read in conjunction with the financial statements and related disclosures for the year ended December 31, 2019, included in the Annual Report of Applied Minerals, Inc. on Form 10-K filed with the SEC on May 29, 2020.

 

The accompanying interim unaudited consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes. As of August 14, 2020, the Company’s significant accounting policies and estimates remain unchanged from those detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. 

 

  10  

 

 

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s Consolidated Condensed Financial Statements and accompanying notes. Actual results may differ materially from those estimates. As of June 30, 2020, the extent to which the COVID-19 pandemic will impact our business going forward depends on numerous dynamic factors which we cannot reliably predict. As a result, many of our estimates and assumptions required increased judgment and carry a higher degree of variability and volatility. As the events continue to evolve with respect to the pandemic, our estimates may materially change in future periods.

 

Concentration of Credit Risk

Cash balances, accounts receivable and derivative financial instruments are financial instruments potentially subject to credit risk. Cash and cash equivalents are maintained in bank deposit accounts, which, at times, may exceed the federally insured limits. Management periodically reviews and assesses the financial condition of the banks to mitigate the risk of loss.

 

For the six months ended June 30, 2020 and 2019, revenues from the Company’s largest customer accounted for 49.2% and 84.9% of total revenues, respectively. As of June 30, 2020 and 2019, amounts owed from these customers comprised 84.8% and 0% of accounts receivable, respectively.

 

Receivables

Trade receivables are reported at outstanding principal amounts, net of an allowance for doubtful accounts.

 

Management evaluates the collectability of receivable account balances to determine the allowance, if any. Management considers the other party’s credit risk and financial condition, as well as current and projected economic and market conditions, in determining the amount of the allowance. Receivable balances are written off when management determines that the balance is uncollectable. No allowance was required at June 30, 2020 and December 31, 2019.

 

Property and Equipment

Property and equipment are carried at cost net of accumulated depreciation and amortization. Depreciation and amortization is computed on the straight-line method over the estimated useful lives of the assets, or the life of the lease, whichever is shorter, as follows:

 

    Estimated  
    Useful Life (years)  
Building and Building Improvements   5 40  
Mining equipment   2 7  
Office and shop furniture and equipment   3 7  
Vehicles     5    

 

Impairment of Long-lived Assets

The Company periodically reviews the carrying amounts of long-lived assets to determine whether current events or circumstances warrant adjustment to such carrying amounts. Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. When such events occur, the Company compares the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset to its carrying amount. If this comparison indicates that there is an impairment, the amount of the impairment is typically calculated using discounted expected future cash flows where observable fair values are not readily determinable. Considerable management judgment is necessary to estimate the fair value of assets. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value, less cost to sell. The Company has determined that there was no impairment of its long-lived assets as of June 30, 2020 and 2019.

 

  11  

 

 

Stock Options and Warrants

The Company follows ASC 718 (Stock Compensation) and ASU 2018-07 (Compensation – Stock Compensation), which provide guidance in accounting for share-based awards exchanged for services rendered and requires companies to expense the estimated fair value of these awards over the requisite service period. The Company instituted a formal long-term and short-term incentive plan on November 20, 2012, which was approved by its shareholders. Prior to that date, we did not have a formal equity plan, but all equity grants, including stock options and warrants, were approved by our Board of Directors. We determine the fair value of the stock-based compensation awards granted to non-employees as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete. Beginning in the quarter ended June 30, 2013 the Company began using the simplified method to determine the expected term for any options granted because the Company did not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The Company previously utilized the contractual term as the expected term.

 

Environmental Matters

Expenditures for ongoing compliance with environmental regulations that relate to current operations are expensed or capitalized as appropriate. Expenditures resulting from the remediation of existing conditions caused by past operations that do not contribute to future revenue generations are expensed. Liabilities are recognized when environmental assessments indicate that remediation efforts are probable, and the costs can be reasonably estimated.

 

Estimates of such liabilities are based upon currently available facts, existing technology and presently enacted laws and regulations taking into consideration the likely effects of inflation and other societal and economic factors and include estimates of associated legal costs. These amounts also reflect prior experience in remediating contaminated sites, other companies’ clean-up experience and data released by The Environmental Protection Agency or other organizations. Such estimates are by their nature imprecise and can be expected to be revised over time because of changes in government regulations, operations, technology, and inflation. Recoveries are evaluated separately from the liability and, when recovery is assured, the Company records and reports an asset separately from the associated liability.

 

The Company has posted a cash bond in the amount of 297,000 required by the Utah Department of Oil, Gas and Minerals to cover estimated reclamation costs related the Company large mining permit for its Dragon Mine property. 

 

  12  

 

 

Recently Adopted Accounting Standards

 

ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework

Effective January 1, 2020 the Company adopted ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, modifies, and adds disclosure requirements for fair value measurements. The adoption of ASU 2018-13 had no material impact on the Company’s results.

 

ASU 2018-18. Collaborative Arrangements

Effective January 1, 2020 the Company adopted ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under Topic 606. The adoption of ASU 2018-18 had no material impact on the Company’s results.

 

Recently Issued Accounting Pronouncements

 

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments within ASU No. 2019-12 are effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, and early adoption is permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

  

  13  

 

 

NOTE 4 – LEASES

 

On March 16, 2017, the Company entered into a 5-year operating lease agreement for permanent office space, base rent payment is approximately $9,000 per month, subject to annual adjustments.

 

Supplemental cash flow information related to leases:   Three months
ended June 30,
2020
    Six months ended
June 30, 2020
 
             
Operating cash flows paid for operating leases   $ 28,521     $ 56,211  
Non-cash lease expense   $ (119 )   $ 593  

 

Supplemental balance sheet information related to leases:   As of June 30,
2020
 
       
Operating lease Right-of-use assets   $ 187,991  
         
Current portion of operating lease liabilities   $ 106,276  
Long-term operating lease liabilities     85,965  
Total operating lease liabilities   $ 192,241  
         
Weighted average remaining operating lease term     1.75 years  
Weighted average discount rate     6 %

 

The following table summarizes the maturity of lease liabilities under operating leases as of June 30, 2020:

 

2020 (remaining six months)   $ 57,042  
2021     116,649  
2022     29,376  
Total lease payments     203,067  
Less: imputed interest     (10,826 )
Total lease liabilities   $ 192,241  

 

NOTE 5 – DEPOSIT

 

The following is a summary of deposit:

 

    June 30, 2020     December 31, 2019  
Cash Bond (Mine Permit deposit)   $ 296,883     $ 296,552  
Office Lease Security Deposit     39,168       39,168  
Total   $ 336,051     $ 335,720  

 

  14  

 

 

NOTE 6 - NOTES PAYABLE

 

Notes payable at June 30, 2020 and December 31, 2019 consist of the following:

 

    June 30, 2020     December 31, 2019  
             
Note payable against exploration rights agreement, including interest (a)   $ -     $ 250,000  
Note payable, net of $4,237 debt discount and $47,917 deferred financing costs (b)     72,846       -  
Note payable to insurance companies, payable $1,732 – $24,808 monthly, (c) and (d)     52,675       208,728  
      125,521       458,728  
Less: Current Portion     (125,521 )     (458,728 )
                 
Notes Payable, Long-Term Portion   $ -     $ -  

 

(a) On November 13, 2019, the Company entered into an agreement with a related party. Per the terms of the agreement, the Company has borrowed $250,000 against an expected annual renewal payment for an exploration license it granted as part of an Exploration Agreement with Option to Purchase entered into with Continental Minerals Claims, Inc. in December 2017, in exchange for $200,000 in cash. The loan was unsecured and paid off in February 2020.  There was no interest rate specified.
   
(b) On February 13, 2020, the Company entered into a secured loan agreement and issued a note in the principal amount of $125,000 (including a 5% OID). The note also bears a 5% per annum interest. The maturity date of the note is 12 months from funding date. The note is convertible at any time into the Company’s Common Stock. The initial conversion price is $.02 per share. After one hundred eighty days after the date of the note, the conversion price will be the lower of (i) $.02 or (ii) 75% multiplied by the lowest traded price of the common stock during the 20 consecutive trading day period immediately preceding the date of the respective conversion.
   
(c) On October 2019, the Company signed a note payable with interest rate of 4.89% with an insurance company for liability insurance, payable in 10 monthly installment payments which started on November 17, 2019.
   
(d) On October 2019, the Company signed a note payable with interest rate of 7.04% with an insurance company for liability insurance, payable in 10 monthly installment which started on November 17, 2019.

 

During the three months ended June 30, 2020 and 2019, the Company's interest payments totaled $1,288 and $1,524, respectively. During the six months ended June 30, 2020 and 2019, the Company’s interest payments totaled $3,358 and $10,680, respectively.

 

  15  

 

 

NOTE 7 – PAYCHECK PROTECTION PROGRAM LOAN

 

On May 5, 2020 the Company entered into a promissory note (“PPP Loan”) in the amount of $223,075 from Bank of America, N.A. under the Paycheck Protection Program (“PPP”), which was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration. The term of the promissory note is two years and the annual interest rate is 1.0%, which shall be deferred for the first six months of the term of the loan. Pursuant to the terms of the CARES Act, the proceeds of each PPP Loan may be used for payroll costs, mortgage interest, rent or utility costs.

 

The promissory note evidencing each PPP Loan contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note. The occurrence of an event of default may result in a claim for the immediate repayment of all amounts outstanding under such PPP Loan, collection of all amounts owing from the respective Borrower, filing suit and obtaining judgment against the respective Borrower.

 

Under the terms of the CARES Act, each Borrower can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds in accordance with the terms of the CARES Act, as described above, during the 8-week period after loan origination and the maintenance or achievement of certain employee levels. No assurance is provided that any Borrower will obtain forgiveness under any relevant PPP Loan in whole or in part.

 

NOTE 8 – CONVERTIBLE DEBT (PIK NOTES)

 

The Company raised $23 million of financing through the issuance of two series of Paid-In-Kind (“PIK”)-Election Convertible Notes in 2013 (“Series 2023 Notes”) and 2014 (“Series A Notes”). The original terms of the Series A Notes included among other things: (i) a maturity of November 1, 2018 with an option to extend to November 1, 2019, (ii) a stated interest rate of 10% paid semi-annually and (iii) a conversion price of $0.90, adjusted downward based on an anti-dilution provision. The original terms of the Series 2023 Notes included among other things: (i) a maturity of August 1, 2023, (ii) a stated interest rate of 10% paid semi-annually and (iii) a conversion price of $1.40, adjusted downward based on an anti-dilution provision. On December 14, 2017 and April 4, 2019, amendment agreements entered into between the Company and the holders of the Series A Notes and Series 2023 Notes went into effect. The agreements resulted in changes to certain terms of the Series A and Series 2023 Notes. The key terms of the Series A and Series 2023 Notes, as amended, are highlighted in the table below: 

 

  16  

 

 

Key Terms   Series 2023 Notes   Series A Notes  
Inception Date   08/01/2013   11/03/2014  
Cash Received   $10,500,000   $12,500,000  
Principal (Initial Liability)   $10,500,000   $19,848,486  
Maturity (Term)   Matures on August 1, 2023, but convertible into shares of the Company’s common stock at the discretion of the holder or by the Company based on the market price of the Company’s stock;   Matures on May 1, 2023 but extends to August 1, 2023 if the Series 2023 Notes are still outstanding. Convertible into shares of the Company’s common stock at the discretion of the holder or by the Company based on the market price of the Company’s stock;  
Exercise Price   $0.59, adjusted downward based on anti-dilution provisions/downround protection   $0.40, adjusted downward based on anti-dilution provisions/down-round protection;  
Stated Interest   10% per annum through December 14, 2017, 3% per annum thereafter, due semiannually;   10% per annum through December 14, 2017, 3% per annum thereafter, due semiannually;  
Derivative Liability   $2,055,000 established at inception due to the existence of down-round protection; the derivative liability was revalued every quarter using Monte Carlo model through the year ended December 31, 2018. The Company is no longer required to value the derivative liability.   $9,212,285 established at inception due to existence of down-round protection; revalued every quarter using a Monte Carlo model through the year ended December 31, 2018. The Company is no longer required to value the derivative liability.  
Payments   Per the terms of the amendment agreement entered into on April 4, the holders of the Series A and Series 2023 Notes were to receive a pro-rata distribution of an Immediate Payment of $350,000 as well as (i) receive a pro-rata distribution of 5% of the net proceeds of any capital raise and (ii) on the 15th day after the filing of its quarterly report on Form 10-Q or annual report on Form 10-K, receive a pro-rata payment of (a) 3% of gross revenue if cash or cash equivalents on the Company’s balance sheet or otherwise is less than $3 million on the last day of the fiscal quarter or (b) 5% of gross revenue if cash or cash equivalents on the Company’s balance sheet or otherwise is greater than $3 million but less than $5 million on the last day of the fiscal quarter or (c) 12% of gross revenue if cash or cash equivalents on the Company’s balance sheet or otherwise is greater than $5 million on the last day of the fiscal quarter. If the amount payable under (ii)(a), (ii)(b) or (ii)(c) is in excess of the amount of cash at the end of the fiscal quarter, the payment of the excess amount will be deferred and will be payable in connection with the payment for a following fiscal quarter(s) when cash is available. All payment will be applied to the reduction of the principal amount outstanding of the Series A and Series 2023 Notes.   Per the terms of the amendment agreement entered into on April 4, 2019, the holders of the Series A and Series 2023 Notes were to receive a pro-rata distribution of an Immediate Payment of $350,000 as well as (i) receive a pro-rata distribution of 5% of the net proceeds of any capital raise and (ii) on the 15th day after the filing of its quarterly report on Form 10-Q or annual report on Form 10-K, receive a pro-rata payment of (a) 3% of gross revenue if cash or cash equivalents on the Company’s balance sheet or otherwise is less than $3 million on the last day of the fiscal quarter or (b) 5% of gross revenue if cash or cash equivalents on the Company’s balance sheet or otherwise is greater than $3 million but less than $5 million on the last day of the fiscal quarter or (c) 12% of gross revenue if cash or cash equivalents on the Company’s balance sheet or otherwise is greater than $5 million on the last day of the fiscal quarter. If the amount payable under (ii)(a), (ii)(b) or (ii)(c) is in excess of the amount of cash at the end of the fiscal quarter, the payment of the excess amount will be deferred and will be payable in connection with the payment for a following fiscal quarter(s) when cash is available. All payment will be applied to the reduction of the principal amount outstanding of the Series A and Series 2023 Notes.  

 

As of June 30, 2020, the liability components of the PIK Notes on the Company’s balance sheet are listed in the following table:

 

    Series 2023 Notes     Series A
Notes
    Total  
PIK Note Payable, Gross   $ 17,001,793     $ 28,647,611     $ 45,649,404  
Less: Discount     -       (1,276,152 )     (1,276,152 )
PIK Note Payable, Net   $ 17,001,793     $ 27,371,459     $ 44,373,252  

 

  17  

 

 

As of December 31, 2019, the liability components of the PIK Notes on the Company’s balance sheet are listed in the following table:

 

    Series 2023
Notes
    Series A
Notes
    Total  
PIK Note Payable, Gross   $ 16,901,447     $ 28,265,165     $ 45,166,612  
Less: Discount     -       (1,464,311 )     (1,464,311 )
PIK Note Payable, Net   $ 16,901,447     $ 26,800,854     $ 43,702,301  

 

Series A Notes (Amended)

On November 3, 2014 (“Issue Date”), the Company issued, in a private placement pursuant to investment agreements, $19,848,486 principal amount of 10% PIK-Election Convertible Notes due 2018 ("Series A Notes") in exchange for $12,500,000 in cash and the cancellation of previously-issued warrants held by one investor.

 

The original terms of the Series A Notes included among other things: (i) a maturity of November 1, 2018 with an option to extend to November 1, 2019, (ii) a stated interest rate of 10% paid semi-annually and (iii) a conversion price of $0.90, adjusted downward based on an anti-dilution provision. The original terms of both the Series A notes and Series 2023 Notes can be as exhibits to Forms 8-K filed on November 5, 2014.

 

During the six months ended June 30, 2020, the Company amortized $212,116 of debt discount and deferred financing cost relating to the Series A Notes Payable and issued additional PIK Notes of $387,675 in lieu of cash interest payments. The carrying value of the Series A Notes Payable as of June 30, 2020 was $27,371,459.

 

As of June 30, 2020, the Company was in compliance with the covenants of the Series A Notes.

 

As of June 30, 2020, Samlyn Offshore Master Fund, Ltd. and Samlyn Onshore Fund, LP owned $9,413,224 and $5,024,235, respectively, of principal of the Series A Notes. Samlyn Offshore Master Fund, Ltd. and Samlyn Onshore Fund, LP are managed by Samlyn Capital, LLC. As of June 30, 2020, Michael Barry, a director of the Company, was the General Counsel and Chief Compliance Officer of Samlyn Capital, LLC.

 

As of June 30, 2020, The IBS Turnaround Fund, LP, The IBS Turnaround (QP) (A Limited Partnership) and The IBS Opportunity Fund, Ltd. owned $1,365,808, $2,742,689 and $263,159, respectively, of principal of the Series A Notes. The IBS Turnaround Fund, LP, The IBS Turnaround (QP) (A Limited Partnership) and The IBS Opportunity Fund, Ltd. are managed by IBS Capital, LLC. At June 30, 2020, IBS Capital, LLC owned 13.6% of the shares of the common stock of the Company.

 

As of June 30, 2020, M. Kingdon Offshore Master Fund, LP, a fund managed by Kingdon Capital Management, LLC, owned $4,374,988 of principal of the Series A Notes.

 

Series 2023 Notes (Amended)

In August 2013, the Company received $10,500,000 of financing through the private placement of 10% mandatory convertible Notes due 2023 ("Series 2023 Notes"). The principal amount of the Notes is due on maturity. The Company can elect to pay semi-annual interest on the Series 2023 Notes with additional PIK Notes containing the same terms as the Series 2023 Notes, except interest will accrue from issuance of such notes. The Company can also elect to pay interest in cash. In February 2020, the Company issued $107,042 in additional Series 2023 Notes to the holders to pay the semi-annual interest.

 

During the six months ended June 30, 2020, the Company issued additional PIK Notes of $107,042 in lieu of cash interest payments. The carrying value of the Series 2023 Notes Payable was $17,001,793 as of June 30, 2020.

 

As of June 30, 2020, the Company was in compliance with the covenants of the Series 2023 Notes.

 

As of June 30, 2020, M. Kingdon Offshore Master Fund, LP, a fund managed​​​​​​​ by Kingdon Capital Management, LLC, owned $4,049,638 of principal of the Series 2023 Notes.

 

  18  

 

 

NOTE 9 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

The Company is authorized to issue 10,000,000 shares of noncumulative, non-voting, nonconvertible preferred stock, $0.001 par value per share.

 

At June 30, 2020 and December 31, 2019, no shares of preferred stock were outstanding.

 

  19  

 

 

Common Stock

The Company is authorized to issue 700,000,000 shares of common stock with a $0.001 par value per share. At June 30, 2020 and December 31, 2019, 175,638,549 and 175,513,549 shares were issued and outstanding, respectively.

 

2020

During the six months ended June 30, 2020, 125,000 shares were issued at a price of $0.01 per share to note holders as financing cost.

 

2019

During the six months ended June 30, 2019, there were no activities.

 

 

NOTE 10 – OPTIONS AND WARRANTS TO PURCHASE COMMON STOCK

 

Outstanding Stock Warrants

 

A summary of the status and changes of the warrants issued for the six months ended June 30, 2020:

 

    Shares Issuable        
    upon Exercise of     Weighted Average  
    Outstanding Warrants     Exercise Price  
             
Outstanding at January 1, 2020     26,688,373     $ 0.15  
Issued     -       -  
Exercised     -          
Forfeited     -       -  
Outstanding at June 30, 2020     26,688,373     $ 0.15  

 

At June 30, 2020, the intrinsic value of the outstanding warrants was $0.

 

A summary of the status of the warrants outstanding and exercisable at June 30, 2020 is presented below:

 

      Warrants Outstanding and Exercisable  
      Shares Issuable     Weighted Average        
      upon Exercise of     Remaining     Weighted Average  
Exercise Price     Outstanding Warrants     Contractual Life (years)     Exercise Price  
$ 1.15       461,340       0.83     $ 1.15  
$ 0.25       3,283,283       0.99     $ 0.25  
$ 0.04       2,068,750       2.18     $ 0.04  
$ 0.10       11,000,000       2.45     $ 0.10  
$ 0.15       9,875,000       0.98     $ 0.15  
          26,688,373       1.68     $ 0.15  

 

Outstanding Stock Options

On November 20, 2012, the shareholders of the Company approved the adoption of the Applied Minerals, Inc. 2012 Long-Term Incentive Plan (“LTIP”) and the Short-Term Incentive Plan (“STIP”) and the performance criteria used in setting performance goals for awards intended to be performance-based. Under the LTIP, 8,900,000 shares are authorized for issuance. The STIP does not refer to a particular number of shares under the LTIP, but would use the shares authorized in the LTIP for issuance under the STIP. The CEO, the CFO, and named executive officers, and directors, among others are eligible to participate in the LTIP and STIP. Prior to the adoption of the LTIP and STIP, stock options were granted under individual arrangements between the Company and the grantees, and approved by the Board of Directors.

 

In May, 2016, the Company adopted the 2016 Long-Term Incentive Plan (“2016 LTIP”). The number of shares of common stock for issuance or for reference purposes subject to the 2016 LTIP was 2,000,000. 

 

On December 7, 2016, the stockholders of the Company approved the 2016 Incentive Plan. The purpose of the 2016 Incentive Plan is to enhance the profitability and value of the Company for the benefit of its stockholders by enabling the Company to offer eligible employees, consultants, and non-employee directors incentive awards in order to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and the Company’s stockholders. The aggregate number of shares of Common Stock that may be issued or used for reference purposes under the 2016 Incentive Plan or with respect to which awards may be granted may not exceed 15,000,000 shares, which may be either (i) authorized and unissued Common Stock or (ii) Common Stock held in or acquired for the treasury of the Company. 

 

  20  

 

 

The Compensation Committee of the Company Board of Directors has full authority to administer and interpret the 2016 Incentive Plan, to grant awards under the 2016 Incentive Plan, to determine the persons to whom awards will be granted, to determine the types of awards to be granted, to determine the terms and conditions of each award, to determine the number of shares of Common Stock to be covered by each award and to make all other determinations in connection with the 2016 Incentive Plan and the awards thereunder as the Committee, in its sole discretion, deems necessary or desirable.

 

On December 14, 2017, the Board of Directors approved the 2017 Incentive Plan (“2017 IP”). Forty million (40,000,000) shares of Common Stock are subject to the 2017 IP.

 

The fair value of each of the Company's stock option awards is estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility is based on an average of historical volatility of the Company's common stock. The risk-free interest rate for periods within the contractual life of the stock option award is based on the yield curve of a zero-coupon U.S. Treasury Bond on the date the award is granted with a maturity equal to the expected term of the award. The Company did not grant any stock option awards during the six months ended June 30, 2020.

 

A summary of the status and changes of the options granted under stock option plans and other agreements during the six months ended June 30, 2020:

 

    Shares Issued     Weighted  
    Upon Exercise of     Average  
    Options     Exercise Price  
             
Outstanding at December 31, 2019     60,676,568     $ 0.26  
Granted     -       -  
Exercised     -       -  
Forfeited     -       -  
Outstanding at June 30, 2020     60,676,568     $ 0.26  

 

  21  

 

 

A summary of the status of the options outstanding at June 30, 2020 is presented below:

 

    Options Outstanding     Options Exercisable  
Range of per
share
exercise
price
  Shares     Weighted
average
remaining
contractual
life
    Per share
weighted
average
exercise
price
    Shares     Weighted
average
remaining
contractual
life
    Per share
weighted
average
exercise price
 
$0.04 - $0.08     42,403,623       7.18     $ 0.06       34,861,956       7.17     $ 0.06  
$0.10 - $0.84     13,330,885       2.43       0.42       13,330,885       2.43       0.42  
$1.10 - $1.90     4,942,060       2.22       1.63       4,942,060       2.22       1.63  
                                                 
      60,676,568       5.73     $ 0.26       53,134,901       5.52     $ 0.29  

 

Compensation expense of $3,943 and $10,513 was recognized for vested options for the three and six months ended June 30, 2020. The aggregate intrinsic value of the outstanding options at June 30, 2020 was $0. At June 30, 2020, (i) $23,523 of unamortized compensation expense for time-based unvested options will be recognized over the next 0.98 years on a weighted average basis; (ii) $223,105 of unamortized compensation expense for performance-based unvested options will be recognized if the performance targets are achieved.

 

On August 18, 2017, the Company’s management was granted performance-based options to purchase 27.5 million shares of the Company’s common stock at $0.06 per share. The options expire on August 18, 2027. On November 1, 2017, the first fifty percent (50%) of the performance-based options vested as management was able to (i) close the sale of an aggregate of $600,000 of units (consisting of a share of common stock of the Company and a warrant to buy 0.25 of a share of common stock of the Company) at $0.04 per unit and (ii) establish toll processing arrangements with two toll processors of halloysite that, in management’s good faith belief, can process halloysite to the Company’s specifications. An additional twenty-five percent (25%) of the performance-based options vested on January 18, 2018 when management generated $900,000 of additional cash proceeds through (i) the sale of common stock and (ii) the licensing of a right to explore the Dragon Mine property for certain precious metals. The vesting of the remaining 8.3%, 8.3% and 8.4% of the performance-based options occurs when (i) EBITDA is positive over a twelve-month period, (ii) EBITDA is at or greater than $2 million over a twelve-month period and (iii) EBITDA is at or greater than $4 million over a twelve-month period, respectively. At June 30, 2020, management, based on its financial expectations for 2020, did not consider the vesting of the remaining 25% of the option grant to be probable. 

 

  22  

 

 

NOTE 11 - PER SHARE DATA

 

The computation of basic earnings (loss) per share of common stock is based on the weighted average number of shares outstanding during the year. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the year plus the common stock equivalents that would arise from the exercise of stock options and warrants outstanding under the treasury method and the average market price per share during the year as well as the conversion of notes. At June 30, 2020, the weighted average shares outstanding excluded options to purchase 60,676,568 shares of common stock of the Company, warrants to purchase 26,688,373 shares of common stock of the Company and 99,475,033, shares of common stock of the Company issuable upon the conversion of notes because their effect would be anti-dilutive. At June 30, 2019, the weighted average shares outstanding excluded options to purchase 59,526,568 shares of common stock of the Company, warrants to purchase 26,688,373 shares of common stock of the Company and 98,237,813, shares of common stock of the Company issuable upon the conversion of notes because their effect would be anti-dilutive.

 

  23  

 

 

ITEM 2     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-looking Statements

 

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and our industry. Words such as "believe," "anticipate," "expect," "intend," "plan," "will," "may," and other similar expressions identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.

 

Overview

 

Applied Minerals, Inc. is focused primarily on (i) the development, marketing and sale of our halloysite clay-based DRAGONITE™ line of products for use in advanced applications such as, but not limited to, reinforcement additives for polymer composites, flame retardant additives for polymers, catalysts, controlled release carriers for paints and coatings, strength reinforcement additives for cement, concrete, mortars and grouts, advanced ceramics, rheology additives for drilling fluids, environmental remediation media, and carriers of agricultural agents and (ii) the development, marketing and sale of our AMIRON™ line of iron oxide products for pigmentary and technical applications. Halloysite is an aluminosilicate with a tubular structure that provides functionality for a number of applications. Iron oxides are inorganic compounds that are widely used as pigments in paints, coatings and colored concrete.

 

The Company owns the Dragon Mine, which has significant deposits of high-quality halloysite clay and iron oxide. The 267-acre property is located in southwestern Utah and its resource was mined for halloysite on a large-scale, commercial basis between 1949 and 1976 for use as a petroleum cracking catalyst. The mine was idle until 2001 when the Company leased it to initially develop its halloysite resource for advanced, high-value applications. We purchased 100% of the property in 2005. After further geological characterization of the mine, the Company identified a high-purity, natural iron oxide resource that it has commercialized to supply certain pigmentary and technical markets.

 

The Company has a mineral processing plant with a capacity of up to 45,000 tons per annum for certain applications. The Company has a smaller processing facility with a capacity of 5,000 – 10,000 tons per annum that is currently dedicated to its halloysite resource. The Company believes it can increase its halloysite production capacity to meet an increase in demand through (i) an expansion of our on-site production capacity through a relatively modest capital investment and (ii) the use of a manufacturing tolling agreement.

 

The Company currently sells its DRAGONITE product as functional additive for advanced molecular sieves, as a nucleating agent for injection molding applications and as a binder for ceramic applications. For a number of markets mentioned above, the Company is currently working with a number of customers, which are in the latter stages of commercializing new and existing products that will utilize DRAGONITE as a functional additive.

 

Applied Minerals is a publicly traded company incorporated in the state of Delaware. The common stock trades on the OTCQB under the symbol AMNL.

 

Critical Accounting Policies and Estimates

 

A complete discussion of our critical accounting policies and estimates is included in our Form 10-K for the year ended December 31, 2019. There have been no material changes in our critical accounting policies and estimates during the six-month period ended June 30, 2020 compared to the disclosures on Form 10-K for the year ended December 31, 2019. 

 

  24  

 

 

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

 

Results of Operations

 

The following sets forth, for the periods indicated, certain components of our operating earnings, including such data stated as percentage of revenues:

 

    Three Months Ended June 30,     Variance  
    2020     2019     $     %  
                         
REVENUES   $ 143,593     $ 218,936     $ (75,343 )     (34 )%
                                 
OPERATING EXPENSES:                                
Production costs     230,488       219,453       11,034       5 %
Exploration costs     42,045       43,829       (1,784 )     (4 )%
General and administrative     800,187       1,118,111       (317,924 )     (28 )%
                                 
Total Operating Expenses     1,072,720       1,381,393       (308,674 )     (22 )%
Operating Loss     (929,127 )     (1,162,457 )     (233,331 )     (20 )%
OTHER (EXPENSE) INCOME:                                
Interest expense, net, including amortization of deferred financing cost and debt discount     (454,281 )     (531,371 )     (77,090 )     (15 )%
Other income, net     94       953       (859 )     (90 )%
                                 
Total Other (Expense) Income     (454,187 )     (530,418 )     (76,231 )     (14 )%
                                 
NET LOSS   $ (1,383,314 )   $ (1,692,875 )   $ (309,562 )     (18 )%

 

Revenue for the three months ended June 30, 2020 totaled $143,593, a decrease of $75,343 or 34%, compared to the same period in 2019. The decline was driven primarily by the absence of sales of DRAGONITE halloysite clay totaling $192,000 to a manufacturer of specialty molecular sieves, partially offset by sales of AMIRON totaling $93,611 to a cement producer and sales of DRAGONITE halloysite clay totaling $19,000 to a manufacturer of oil field products.

 

Sales of DRAGONITE halloysite clay during the period totaled $49,982, a decline of 78%, when compared to the same period in 2019. The decline in sales of DRAGONITE halloysite clay was driven primarily by the absence of sales totaling $192,000 to a manufacturer of specialty molecular sieves, partially offset by sales totaling $19,000 to a manufacturer of oil field products. Sales of AMIRON during the period totaled $93,611, an increase of 100% when compared to the same period in 2019. The increase was due solely to the existence of a new customer for AMIRON.

 

Total operating expenses for the three months ended June 30, 2020 totaled $1,072,719, a decrease of $308,674, or 22%, compared to the same period in 2019. The decline was driven primarily by a $317,924, or 28%, decline in general and administrative costs, partially offset by a $11,034, or 5%, increase in production costs.

 

Production costs include those operating expenses which management believes are directly related to the mining and processing of the Company’s iron oxide and halloysite minerals, which result in the production of its AMIRON and DRAGONITE products for commercial sale. Production costs include, but are not limited to, wages and benefits of employees who mine material and who work in the Company’s milling operations, energy costs associated with the operation of the Company’s two mills, the cost of mining and milling supplies and the cost of the maintenance and repair of the Company’s mining and milling equipment. Wages and energy are the two largest components of the Company’s production costs.

 

  25  

 

 

Production costs incurred during the three months ended June 30, 2020 were $230,487, an increase of $11,034, or 5%, compared to the same period in 2019. The increase was driven primarily by an increase of $85,518 in payroll expense, an increase of $6,430 in worker’s compensation expense, an increase of $9,908 in hauling expense, an increase of $43,533 in utilities, and an increase of $7,589 in equipment rental, partially offset by a decrease of $16,042 in freight expense, and a decrease of $6,194 in health insurance.

 

Exploration costs include operating expenses incurred at the Dragon Mine that are not directly related to production activities. Exploration costs incurred during the three months ended June 30, 2020 were $42,045, an $1,784, or 4%, decline compared to the same period in 2019. The decline was due to a general reduction in non-production-related wage, healthcare, and tax expenses at the Dragon Mine.

 

General and administrative expenses incurred during the three months ended June 30, 2020 totaled $800,187, an $317,924, or 28%, decline when compared to the same period in 2019. The decrease was due primarily to a decline of $114,284 in payroll expense, a decline of $31,317 in travel and entertainment related to a decrease in customer visits, a decrease of $3,530 in D&O expense, a decrease of $135,272 in equity-based compensation related primarily to an annual grant of options to directors, a decrease of $29,189 in director expense and a decrease of $5,347 in healthcare insurance expense related primarily to a decline in headcount.

 

Operating loss incurred during the three months ended June 30, 2020 was $929,126, a $233,331, or 20%, decrease when compared to the same period in 2019. The decline was driven primarily by a $317,924 decrease in general and administrative expense, offset by a $75,343 decrease in revenue and a $11,034 increase in production costs when compared to the same period in 2019.

 

  26  

 

 

Total Other Expense was $454,187 for the three months ended June 30, 2020 compared to Total Other Expense of $530,418 in same period in 2019. The $76,231 decline in Total Other Expense was due primarily to a $79,994 decrease in PIK Note interest expense, partially offset by a $4,845 increase in PIK Note Discount amortization expense, when compare to the same period in 2019.

 

Net Loss for the three-month period ending June 30, 2020 was $1,383,313, a decline of $309,562, or 18%, when compared to the same period in 2019. The decrease was primarily driven by a $233,331 decline in operating loss and $76,231 decrease in Total Other Expense.

 

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

 

Results of Operations

 

The following sets forth, for the periods indicated, certain components of our operating earnings, including such data stated as percentage of revenues:

 

    Six Months Ended June 30,     Variance  
    2020     2019     $     %  
                         
REVENUES   $ 296,069     $ 339,463     $ (43,394 )     (13 )%
                                 
OPERATING EXPENSES:                                
Production costs     450,038       445,158       4,880       1 %
Exploration costs     87,679       77,596       10,083       13 %
General and administrative     1,435,122       1,930,681       (495,559 )     (26 )%
                                 
Total Operating Expenses     1,972,839       2,453,435       (480,596 )     (20 )%
Operating Loss     (1,676,770 )     (2,113,972 )     (437,202 )     (21 )%
                                 
OTHER INCOME(EXPENSE):                                
Interest expense, net, including amortization of deferred financing cost and debt discount     (899,868 )     (923,851 )     (23,983 )     (3 )%
Other income, net     1,300,349       2,367       1,297,982       54,837 %
                                 
Total Other Income (Expense)     400,481       (921,484 )     1,321,965       143 %
                                 
NET LOSS   $ (1,276,289 )   $ (3,035,456 )   $ (1,759,167 )     (173 )%

 

Revenue for the six months ended June 30, 2020 totaled $296,069, a decrease of $43,394, or 13%, compared to the same period in 2019. The decrease was driven primarily the absence of sales of DRAGONITE halloysite clay totaling $288,000 to a manufacturer of specialty molecular sieves, partially offset by sales of AMIRON totaling $145,727 to a cement company and DRAGONITE sales totaling $93,100 to an oilfield products manufacturer and a manufacturer of plastic lawn care products.

 

Sales of DRAGONITE during the period totaled $150,117, a decrease of 56.3% compared to the same period in 2019. The decrease was driven primarily by the absence of sales totaling $288,000 to a manufacturer of specialty molecular sieves, partially offset by sales totaling $53,200 to an oilfield products manufacturer and sales of $39,900 to a manufacturer of plastic lawn care products. Sale of AMIRON during the period totaled $145,727, a 100% increase compared to the same period in 2019. The increase was due solely to the existence of a new customer for AMIRON.

 

Total operating expenses for the six months ended June 30, 2020 totaled $1,972,839, a decrease of $480,596, or 20%, compared to the same period in 2019. The decline was driven primarily by a $495,559, or 26%, decline in general and administrative costs, partially offset by an increase of $10,083 or 13% in exploration costs.

 

  27  

 

 

Production costs include those operating expenses which management believes are directly related to the mining and processing of the Company’s iron oxide and halloysite minerals, which result in the production of its AMIRON and DRAGONITE products for commercial sale. Production costs include, but are not limited to, wages and benefits of employees who mine material and who work in the Company’s milling operations, energy costs associated with the operation of the Company’s two mills, the cost of mining and milling supplies and the cost of the maintenance and repair of the Company’s mining and milling equipment. Wages and energy are the two largest components of the Company’s production costs.

 

Production costs incurred during the six months ended June 30, 2020 were $450,038, an increase of $4,880, or 1%, compared to the same period in 2019. The increase was driven primarily by a $10,756 increase in hauling expense, a $7,750 increase in safety expense, a $17,384 increase in explosive expense and $14,958 increase in utilities, partially offset by a decrease of $22,678 in freight and shipping expense and a decrease of $21,497 in payroll expenses.

 

Exploration costs include operating expenses incurred at the Dragon Mine that are not directly related to production activities. Exploration costs incurred during the six months ended June 30, 2020 were $87,679, a $10,083, or 13%, increase compared to the same period in 2019. The increase was due to a general increase in payroll related expenses at the Dragon Mine.

  

  28  

 

 

General and administrative expenses incurred during the six months ended June 30, 2020 totaled $1,435,122, a decline of $495,559, or 26%, when compared to the same period in 2019. The decline was driven primarily by a decrease in payroll expenses totaling $157,065, a decline in option expense totaling $194,035, a decline in travel and related expense of $53,889, a decline in dues and subscription fees totaling $11,654, a decline in insurance expense totaling $23,106, a decline in consulting fees totaling $34,617 and a decline in director fees totaling $24,189.

 

Operating loss incurred during the six months ended June 30, 2020 was $1,676,770, a $437,202, or 21%, decrease when compared to the same period in 2019. The decline was driven by a $495,559 decline in general and administrative expense, a $43,394 decline in revenue and a $10,083 increase in exploration costs when compared to the same period in 2019.

 

Total Other Income for the six months ended June 30, 2020 was $400,481, an increase of $1,321,965, or 143%, when compared to the same period in 2019. The increase was driven primarily to the $1,300,000 income from an exploration agreement and a $23,983 decrease in interest expense when compared to the same period in 2019.

 

Net Loss for the six-month period ending June 30, 2020 was $1,276,289, a decline of $1,759,167, or 173%, when compared to the same period in 2019. The decline was driven by an $1,321,965 increase in Total Other Income and a $437,202 decline in operating loss.

 

LIQUIDITY AND CAPITAL RESOURCES 

 

The Company has a history of recurring losses from operations and the use of cash in operating activities. For the six months ended June 30, 2020, the Company’s net loss was $1,276,289 and cash provided by operating activities was $311,399. As of June 30, 2020, the Company had current assets of $428,776 and current liabilities of $3,042,276 of which $362,483 was accrued PIK Note interest expected to be paid in additional PIK Notes. The Company’s current liabilities also include (i) $438,477 of accrued salaries deferred by certain members of management until the Company’s liquidity improves, (ii) $960,811 of accrued directors fee as determined by the Company’s Board, (iii) $119,269 of payables to a compounder for which it has agreed to satisfy in halloysite product, (iv) $132,635 of disputed or erroneously accrued expenses and (v) $223,075 of PPP Funding payable which the Company expected to be forgiven by the U.S. government.

 

Management believes that in order for the Company to meet its obligations arising from normal business operations through August 14, 2021 that the Company may be required (i) to raise additional capital either in the form of a private placement of common stock or debt and/or (ii) generate additional sales of its products that will generate sufficient operating profit and cash flows to fund operations.  Without additional capital or additional sales of its products, the Company’s ability to continue to operate may be limited.

 

Based on the Company’s current cash usage expectations, management believes it may not have sufficient liquidity to fund its operations through August 14, 2021. Further, management cannot provide any assurance that it is probable that the Company will be successful in accomplishing any of its plans to raise debt or equity financing or generate additional product sales. Collectively these factors raise substantial doubt regarding the Company’s ability to continue as going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded assets amounts and classification of liabilities that might be necessary should the Company not be able to continue as a going concern.

 

Cash provided by operating activities during the six months ended June 30, 2020 was $311,399 compared to $1,571,006 used during the same period in 2019. The $1,882,405 increase in cash provided during the period was due primarily to a $1,300,000 increase in exploration agreement revenue and a $435,436 increase in accounts payable results from cash management. Cash used in operating activities during 2020 before adjusting for changes in operating assets and liabilities was $370,754, $1,538,253 less than the comparable period in 2019.

 

Cash used in financing activities during the six months ended June 30, 2020 was $134,855 compared to $524,541 provided during the same period in 2019. The $389,686 decrease in cash used during the period was due primarily to $113,750 of proceeds from notes issued and $223,075 of proceeds from the Paycheck Protection Program Loan.

 

  29  

 

 

Total assets at June 30, 2020 were $1,452,818 compared to $1,489,180 at December 31, 2019, a decrease of $36,362 due primarily to decrease in the Company operating lease right-of-use assets. Total liabilities were $47,501,493 compared to $46,273,329 at December 31, 2019. The increase of $1,228,164 in total liabilities was due primarily to the increase in Payroll Protection Program Loan, increase in accounts payable results from cash management, amortization of PIK Notes debt discount which increased the carrying value of PIK Notes payable, proceeds from issuance of notes payable and offset by repayment of notes payable to related party.

 

ISSUANCE OF CONVERTIBLE DEBT

 

For information with respect to issuance of convertible debt, see Note 8 of Notes to Unaudited Consolidated Financial Statements included elsewhere in this Quarterly Report.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

There are no off-balance sheet arrangements between the Company and any other entity that have, or are reasonable likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

 

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We have no exposure to fluctuations in interest rates, foreign currencies, or other factors. 

 

  30  

 

 

ITEM 4.     CONTROLS AND PROCEDURES

 

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were, as of the end of the fiscal quarter covered by this quarterly report, ineffective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

During the six months ended June 30, 2020, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Notwithstanding the existence of these material weaknesses in our internal control over financial reporting, the management believes that the consolidated financial statements included in this Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

 

  31  

 

 

PART II.     OTHER INFORMATION

 

ITEM 1.     LEGAL PROCEEDINGS

 

As of the date of this report, there is no pending or threatened litigation. We may become involved in or subject to, routine litigation, claims, disputes, proceedings and investigations in the ordinary course of business, could have a material adverse effect on our financial condition, cash flows or results of operations.

 

ITEM 1A.  RISK FACTORS.

 

Except for the below, there were no additions or material changes to the Company’s risk factors disclosed in Item 1A of Part I in the Company’s 2019 Annual Report on Form 10-K.

 

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

 

None

 

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4.     MINE SAFETY DISCLOSURES

 

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and this Item is included in Exhibit 95 to this Form 10-Q.

 

ITEM 5.     OTHER INFORMATION

 

None.

 

ITEM 6.     EXHIBITS

 

(a) Exhibits.

 

The following exhibits are included in this report:

 

Exhibit

Number

  Description of Exhibit
31.1   Certification pursuant to Rule 13a-14 of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Principal Executive Officer
     
31.2   Certification pursuant to Rule 13a-14 of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Principal Financial Officer
     
32.1   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Principal Executive Officer
     
32.2   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Principal Financial Officer
     
95   Mine Safety Disclosure
     
101.INS   XBRL Instance
     
101.SCH   XBRL Taxonomy Extension Schema
     
101.CAL   XBRL Taxonomy Extension Calculation

 

  32  

 

 

101.DEF   XBRL Taxonomy Extension Definition
     
101.LAB   XBRL Taxonomy Extension Labels
     
101.PRE   XBRL Taxonomy Extension Presentation
     
XBRL   Information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

  33  

 

  

SIGNATURES

 

In accordance with the requirements 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.

 

    APPLIED MINERALS, INC.
     
Dated: August 14, 2020   /s/ MARIO CONCHA
    By: Mario Concha
    Chief Executive Officer
     
Dated: August 14, 2020   /s/ CHRISTOPHER T. CARNEY
    By: Christopher T. Carney
    Chief Financial Officer

 

  34  

 

Applied Minerals (PK) (USOTC:AMNL)
Historical Stock Chart
From Sep 2021 to Oct 2021 Click Here for more Applied Minerals (PK) Charts.
Applied Minerals (PK) (USOTC:AMNL)
Historical Stock Chart
From Oct 2020 to Oct 2021 Click Here for more Applied Minerals (PK) Charts.