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 March 31, 2021  

 

¨ 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.)
     
1200 Silver City Road, PO Box432, Eureka, UT   84628
(Address of principal executive offices)   (Zip Code)

 

  (435) 433-2059  
  (Issuer’s Telephone Number, Including
Area Code)
 

 

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

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

YES  ¨                           NO  x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

 

YES  ¨                           NO  x

 

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 May 21, 2021 was 195,105,088.

 

DOCUMENTS INCORPORATED BY REFERENCE: None.

 

 

 

 

 

APPLIED MINERALS, INC.

(An Exploration Stage Company)

 

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2021

TABLE OF CONTENTS

 

    Page(s)
     
PART I. FINANCIAL INFORMATION
     
Item 1. Consolidated Financial Statements  
     
  Consolidated Balance Sheets as of  March 31, 2021 (unaudited) and December 31, 2020 3
     
  Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (unaudited) 4
     
  Consolidated Statements of Changes in Stockholders’ Deficit for the Three Months Ended March 31, 2021 and 2020 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited) 6
     
  Notes to the Consolidated Financial Statements (unaudited) 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
     
Item 4. Controls and Procedures 27
     
PART II. OTHER INFORMATION
     
Item 1. Legal Proceedings 28
     
Item 1A Risk Factors 28
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
     
Item 3. Defaults Upon Senior Securities 28
     
Item 4. Mine Safety Disclosures 28
     
Item 5. Other Information 28
     
Item 6. Exhibits 29
     
Signatures 29

 

  2  

 

 

PART I. FINANCIAL INFORMATION

 

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

CONSOLIDATED BALANCE SHEETS

 

    March 31, 2021     December 31, 2020  
    (unaudited)        
ASSETS                
Current Assets                
Cash   $ 543,872     $ 669,560  
Accounts receivable     34,870       67,557  
Deposits and prepaid expenses     133,514       190,698  
Total Current Assets     712,256       927,815  
                 
Operating lease right-of-use assets     109,878       136,308  
Land     500,000       500,000  
                 
Other Assets                
Deposits     336,225       336,184  
Total Other Assets     336,225       336,184  
                 
TOTAL ASSETS   $ 1,658,359     $ 1,900,307  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current Liabilities                
Accounts payable and accrued liabilities   $ 2,660,738     $ 2,632,156  
Paycheck Protection Program Loan     264,472       223,075  
PIK Note interest accrual     306,747       365,121  
Current portion of notes payable     83,175       133,081  
Current portion of operating lease liabilities     113,773       111,236  
Total Current Liabilities     3,428,905       3,464,669  
                 
Long-Term Liabilities                
PIK Notes payable, net of $984,487 and $1,082,988 debt discount, respectively     45,735,086       45,235,990  
Deferred revenue     1,000,000       1,000,000  
Operating lease liabilities     -       29,085  
Total Long-Term Liabilities     46,735,086       46,265,075  
                 
TOTAL LIABILITIES     50,163,991       49,729,744  
                 
Stockholders’ Deficit                
Preferred stock, $0.001 par value, 10,000,000 shares authorized, and 95,000 and 128,000 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively     95       128  
Common stock, $0.001 par value, 700,000,000 shares authorized, and 195,105,088 and 183,938,549 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively (91,785,167 reserved in Treasury)     195,105       183,939  
Additional paid-in capital     74,167,266       74,008,636  
Accumulated deficit prior to the exploration stage     (20,009,496 )     (20,009,496 )
Accumulated deficit during the exploration stage     (102,858,602 )     (102,012,644 )
Total Stockholders’ Deficit     (48,505,632 )     (47,829,437 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 1,658,359     $ 1,900,307  

 

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 March 31,  
    2021     2020  
             
REVENUES   $ 273,672     $ 152,476  
                 
OPERATING EXPENSES:                
Production costs     462,166       219,550  
Exploration costs     51,590       45,634  
General and administrative     389,523       634,935  
                 
Total Operating Expenses     903,279       900,119  
                 
Operating Loss     (629,607 )     (747,643 )
                 
OTHER INCOME (EXPENSE):                
Interest expense, net (including amortization of deferred financing cost and debt discount)     (463,897 )     (445,587 )
Other income, net     247,546       1,300,255  
Total Other (Expense) Income     (216,351 )     854,668  
                 
NET (LOSS) INCOME   $ (845,958 )   $ 107,025  
                 
Deemed dividend on Series B Convertible Preferred Stock    

(60,738

)     -  
                 

NET (LOSS) ATTIBUTABLE TO COMMON SHAREHOLDERS

  $

(906,696

)   $

107,025

 
                 
Net (Loss) Income Per Common Share – Basic and Diluted   $ (0.00 )   $ (0.00 )
                 
Weighted Average Common Shares Outstanding – Basic and Diluted     188,243,263       175,571,241  

 

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
    Preferred
Stock
Shares
    Preferred
Stock
Amount
    Additional
Paid-in
Capital
    Accumulated
Deficit Prior to
Exploration
Stage
    Accumulated
Deficit During
Exploration
Stage
    Total
Stockholders’
Deficit
 
                                                 
Balance, December 31, 2020     183,938,549     $ 183,939       128,000     $ 128     $ 74,008,636     $ (20,009,496 )   $ (102,012,644 )   $ (47,829,437 )
                                                                 
Shares issued for conversion of preferred stock     6,167,273       6,167       (128,000 )     (128 )     1,641       -       -       7,680  
                                                                 
Shares issued in private placement     -       -       95,000     $ 95       99,905       -       -       100,000  
                                                                 
Beneficial conversion feature on Convertible Series B Preferred Stock     -       -       -       -       60,738       -       -       60,738  
                                                                 
Deemed dividend from beneficial conversion feature on Convertible Series B Preferred Stock     -       -       -       -       (60,738 )     -       -       (60,738 )
                                                                 
Shares issued for cashless options exercise     3,836,475       3,836       -       -       (3,836 )     -       -       -  
                                                                 
Shares issued in lieu of bonus     1,162,791       1,163       -       -       56,977       -       -       58,140  
                                                                 
Stock option compensation expense     -       -       -       -       3,943       -       -       3,943  
                                                                 
Net Loss     -       -       -       -       -       -       (845,958 )     (845,958 )
                                                                 
Balance, March 31, 2021     195,105,088     $ 195,105       95,000     $ 95     $ 74,167,266     $ (20,009,496 )   $ (102,858,602 )   $ (48,505,632 )
                                                                 
                                                                 
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     -       -       -       -       6,570       -       -       6,570  
                                                                 
Net Income     -       -       -       -       -       -       107,025       107,025  
                                                                 
Balance, March 31, 2020     175,638,549     $ 175,639       -     $ -     $ 73,782,461     $ (20,009,496 )   $ (98,617,908 )   $ (44,669,304 )

 

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

 

  5  

 

 

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    For the Three Months Ended  
    March 31,  
    2021     2020  
             
Cash Flows from Operating Activities:                
Net (loss) income   $ (845,958 )   $ 107,025  
Adjustments to reconcile net loss to net cash used in operations:                
Amortization of discount – notes payable     -       497  
Amortization of discount - PIK Notes     98,501       93,462  
Amortization of deferred financing costs     -       5,990  
Accrued interest on PIK Notes     350,433       343,048  
Stock based compensation expense     62,083       6,570  
Non-cash lease expense     26,430       24,896  
Dividend     7,680      

-

 
Forgiveness of PPP Fund     (223,075 )     -  
Change in operating assets and liabilities:                
Accounts receivable     32,687       23,423  
Deposits and prepaids     57,143       80,778  
Operating lease liabilities     (26,548 )     (24,184 )
Accounts payable and accrued liabilities     20,370       65,499  
Net cash (used in) provided by operating activities     (440,254 )     727,004  
                 
Cash Flows from Financing Activities:                
Proceeds from notes payable     -       113,750  
Proceeds from Paycheck Protection Program Loan     264,472       -  
Proceeds from Private Placement     100,000       -  
Payments on notes payable     -       (315,625 )
Payments on insurance financing     (49,906 )     (75,879 )
Net cash provided by (used in) financing activities     314,566       (277,754 )
                 
Net change in cash     (125,688 )     449,250  
                 
Cash at beginning of period     669,560       52,793  
                 
Cash at end of period   $ 543,872     $ 502,043  
                 
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ 4,395     $ 2,069  
Cash paid for income taxes   $ -     $ -  
                 
Supplemental disclosure of non-cash financing activity:                
Accrued PIK interest paid through issuance of PIK Notes   $ 408,807     $ 107,042  
Deemed dividend on convertible Preferred Stock Series B due to BCF   $ 60,738     $ -  
Stock issued for cashless options exercised   $ 3,836     $ -  
Common stock issued to note holders for financing cost   $ -     $ 1,250  

 

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

 

  6  

 

 

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.

 

  7  

 

 

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 had a financial impact on the Company. In particular certain customers have delayed purchases of DRAGONITE due to the impact of COVID-19 on their business. COVID-19 has, to some extent, impacted the Company’s access to certain of its professional advisors. The small size of the Company’s accounting staff as well as the additional responsibilities assumed by management due to COVID-19 may continue to adversely affect the Company’s ability to complete subsequent reports in a timely manner.

 

NOTE 2 – GOING CONCERN AND BASIS OF PRESENTATION

 

The Company has suffered recurring losses from operations and currently a working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

Management believes that in order for the Company to meet its obligations arising from normal business operations through May 21, 2022 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 May 21, 2022. 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.

 

  8  

 

 

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 three months ended March 31, 2021 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, 2020, included in the Annual Report of Applied Minerals, Inc. on Form 10-K filed with the SEC on April 15, 2021.

 

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 May 21, 2021, 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, 2020. 

 

  9  

 

 

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 March 31, 2021, 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 three months ended March 31, 2021 and 2020, revenues from the Company’s largest customer accounted for 56% and 34% of total revenues, respectively. As of March 31, 2021 and 2020, amounts owed from these customers comprised 42% and 63% 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 March 31, 2021 and December 31, 2020.

 

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 March 31, 2021 and 2020.

 

  10  

 

 

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. 

 

Note Payable - Convertible

 

The Company follows ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) in its evaluation of the accounting for a hybrid instrument. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception; (b) variations in something other than the fair value of the issuer’s equity shares; or (c) variations inversely related to changes in the fair value of the issuer’s equity shares. Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives, and are carried as a liability at fair value at each balance sheet date with remeasurements reported in interest expense in the accompanying Consolidated Statements of Operations.

 

  11  

 

 

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 adoption of ASU 2019-12 had no material impact on the Company’s financial results.  

 

  12  

 

 

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
March 31, 2021
 
       
Operating leases liabilities   $ (26,548
Non-cash lease expense   $ 26,430
       
Supplemental balance sheet information related to leases:   As of
March 31, 2021
 
       
Operating lease Right-of-use assets   $ 109,878  
         
Current portion of operating lease liabilities   $ 113,773  
Long-term operating lease liabilities     -  
Total operating lease liabilities   $ 113,773  
         
Weighted average remaining operating lease term     1.00 years  
Weighted average discount rate     6 %

 

The following table summarizes the maturity of lease liabilities under operating leases as of March 31, 2021:

 

2021 (remaining nine months)   $ 88,128  
2022     29,376  
Total lease payments     117,504  
Less: imputed interest     (3,731 )
Total lease liabilities   $ 113,773  

 

In July 2020, the Company entered into a sublease agreement with respect to its N.Y. office. The sublease agreement expires in April 2022. The base rent of the sublease agreement is $7,048.50 per month and increases by 2.5% in July 2021.

 

The Company entered into an agreement to sublet a portion of its office space. The sublease is considered to be an operating lease and the Company has not been released from its obligations under the March 16, 2017, 5-year lease agreement. The Company recognizes income from sublease on a straight-line basis over the term of the sublease, as a reduction to lease expense. The sublease is not measured under ASC 842 since the Company remains the primary obligor under the original lease and the sublease is considered to be an operating lease.

 

NOTE 5 – DEPOSIT

 

The following is a summary of deposit:

 

    March 31, 2021     December 31, 2020  
Cash Bond (Mine Permit deposit)   $ 297,057     $ 297,016  
Office Lease Security Deposit     39,168       39,168  
Total   $ 336,225     $ 336,184  

 

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NOTE 6 - NOTES PAYABLE

 

Notes payable at March 31, 2021 and December 31, 2020 consist of the following:

 

    March 31, 2021     December 31, 2020  
             
Note payable to insurance companies, payable $1,839 – $15,124 monthly, (a)   $ 83,175     $ 133,081  
      83,175       133,081  
Less: Current Portion     (83,175 )     (133,081 )
                 
Notes Payable, Long-Term Portion   $ -     $ -  

 

(a) On October 2020, the Company signed two notes payable with interest rate of 4.04% and 6.89% with an insurance company for liability insurance, payable in 10 monthly installment payments which started on November 2020.

 

During the three months ended March 31, 2021 and 2020, the Company's interest payments totalled $985 and $2,069, respectively.

 

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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.

 

On February 25, 2021, the Company entered into a second promissory note (“Second PPP Loan”) in the amount of $264,472 from Bank of America, N.A. under the Paycheck Protection Program. The terms of the Second PPP Loan are similar to the PPP Loan the Company entered into on May 5, 2020.

 

On March 1, 2021, the Company applied for and was granted full forgiveness of the PPP Loan it entered into on May 5, 2020 in the amount of $223,075.

 

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, an amendment agreement, entered into between the Company and the holders of the Series A Notes and Series 2023 Notes, went into effect. The agreement 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: 

 

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   $0.57, adjusted downward based on anti-dilution provisions/down-round protection   $0.37, adjusted downward based on anti-dilution provisions/down-round protection;  
Stated Interest   10% per annum through December 14, 2017, 3% per annum thereafter, due semi-annually;   10% per annum through December 14, 2017, 3% per annum thereafter, due semi-annually;  
Derivative Liability   $2,055,000 established at inception due to the existence of down-round protection; revalued every quarter using Monte Carlo model.   $9,212,285 established at inception due to existence of down-round protection; revalued every quarter using a Monte Carlo model.  
           
In April 2019 the Company entered into a settlement agreement with the holders of the Series A Notes and Series 2023 Notes (the “PIK Notes”). Per the terms of the agreement the Company will pay to holders of PIK Notes on a pro rata basis the following percentages of revenue booked during a fiscal quarter: (a) three percent (3%) of gross revenues 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) five percent (5%) of gross revenues if cash or cash equivalents on the Company’s balance sheet or otherwise is greater than $3 million but less than $5 million the last day of the fiscal quarter; or (c) twelve percent (12%) of gross revenues if cash or cash equivalents on the Company’s balance sheet or otherwise is greater than $5 million.  

 

  15  

 

  

As of March 31, 2021, 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   $ 17,509,741     $ 29,209,832     $ 46,719,573  
Less: Discount     -       (984,487 )     (984,487 )
PIK Note Payable, Net   $ 17,509,741     $ 28,225,345     $ 45,735,086  

  

As of December 31, 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   $ 17,249,430     $ 29,069,548     $ 46,318978  
Less: Discount     -       (1,082,988 )     (1,082,988 )
PIK Note Payable, Net   $ 17,249,430     $ 27,986,560     $ 42,235,990  

 

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 three months ended March 31, 2021, the Company amortized $98,501 of debt discount relating to the Series A Notes Payable and issued additional PIK Notes of $263,386 in lieu of cash interest payments. The carrying value of the Series A Notes Payable as of March 31, 2021 was $28,225,345.

 

As of March 31, 2021, the Company was in compliance with the covenants of the Series A Notes.

 

As of March 31, 2021, The IBS Turnaround Fund, LP, The IBS Turnaround (QP) (A Limited Partnership) and The IBS Opportunity Fund, Ltd. owned $1,392,764, $2,796,820 and $271,748, 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 March 31, 2021, IBS Capital, LLC owned 13% of the shares of the common stock of the Company. 

 

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.

 

During the three months ended March 31, 2021, the Company issued additional PIK Notes of $145,509 in lieu of cash interest payments. The carrying value of the Series 2023 Notes Payable was $17,509,741 as of March 31, 2021.

 

As of March 31, 2021, the Company was in compliance with the covenants of the Series 2023 Notes. 

 

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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 March 31, 2021 and December 31, 2020, 95,000 and 128,000 shares of preferred stock were issued and outstanding, respectively.

 

2021

During the three months ended March 31, 2021, 95,000 shares of Series B Preferred Stock were issued at a stated price of $1.084 per share for cash proceeds of $100,000, net of $3,000 legal fees.

 

Each share of Series B Preferred Shares will carry an annual dividend in the amount of twelve percent (12%) of the Stated Value (the “Divided Rate”), which shall be cumulative and compounded daily, payable solely upon redemption, liquidation or conversion. The Company have the right to redeem all or any portion of the shares within 180 days following the issuance day.

 

The Holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the Issuance Date, to convert all or any part of the outstanding Series B Preferred Stock into fully paid and non-assessable shares of Common Stock. The conversion price (the “Conversion Price”) shall equal the 61% multiplied by the Market Price (representing a discount rate of 39%). “Market Price” means the lowest Trading Price for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.

 

At the time of issuance, the Company evaluated the nature of Series B Preferred Stock and concluded it more akin to equity and recorded it as permanent equity. The Company also recorded $60,738 beneficial conversion feature to additional paid in capital and amortized at the time of issuance. On March 31, 2021, the Company recorded Deemed dividend on Convertible Series B Preferred Stock of $14,172.

 

2020

During the year ended December 31, 2020, 128,000 shares of Series B Preferred Stock were issued at a stated price of $1.00 per share for cash proceeds of $125,000, net of $3,000 legal fees.

 

Each share of Series B Preferred Shares will carry an annual dividend in the amount of twelve percent (12%) of the Stated Value (the “Divided Rate”), which shall be cumulative and compounded daily, payable solely upon redemption, liquidation or conversion. The Company have the right to redeem all or any portion of the shares within 180 days following the issuance day.

 

The Holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the Issuance Date, to convert all or any part of the outstanding Series B Preferred Stock into fully paid and non-assessable shares of Common Stock. The conversion price (the “Conversion Price”) shall equal the 61% multiplied by the Market Price (representing a discount rate of 39%). “Market Price” means the lowest Trading Price for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.

 

At the time of issuance, the Company evaluated the nature of Series B Preferred and concluded it more akin to equity and recorded it as permanent equity. The Company also recorded $81,836 beneficial conversion feature to additional paid in capital and amortized at the time of issuance. For the year ended December 31, 2020, the Company recorded deemed dividend on Convertible Series B Preferred Stock of $81,836.

 

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Common Stock

The Company is authorized to issue 700,000,000 shares of common stock with a $0.001 par value per share.

 

At March 31, 2021 and December 31, 2020, 195,105,088 and 183,938,549 shares were issued and outstanding, respectively.

 

2021

During the three months ended March 31, 2021, (i) 6,167,273 shares were issued upon the conversion of 128,000 shares of Preferred Stock, (ii) 3,836,475 shares were issued upon cashless exercised of 9,528,689 options, and (iii) 1,162,791 shares were issued in lieu of a bonus payment of $58,140.

 

2020

During the year ended December 31, 2020, (i) 125,000 shares were issued at a price of $0.01 per share to note holders as financing cost and (ii) 8,300,000 shares were issued upon the conversion of $40,504 of principal and accrued interest related to the FirstFire Convertible Note.

  

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 nine months ended September 30, 2020:

 

 
 
 
 
 
 
Shares Issuable
upon Exercise of
Outstanding Warrants
 
 
 
 
 
 
 
Weighted Average
Exercise Price
 
 
 
             
Outstanding at January 1, 2021     24,619,623     $ 0.16  
Issued     -       -  
Exercised     -          
Forfeited     -       -  
Outstanding at March 31, 2021     24,619,623     $ 0.16  

 

At March 31, 2021, the intrinsic value of the outstanding warrants was $0.

 

A summary of the status of the warrants outstanding and exercisable at March 31, 2021 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       0.07     $ 1.15  
$ 0.25       3,283,283       0.23     $ 0.25  
$ 0.10       11,000,000       1.70     $ 0.10  
$ 0.15       9,875,000       0.22     $ 0.15  
          24,619,623       0.88     $ 0.16  

 

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.

 

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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.  

  

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.

 

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 three months ended March 31, 2021.

 

A summary of the status and changes of the options granted under stock option plans and other agreements during the three months ended March 31, 2021:

 

   

Shares Issued

Upon Exercise of
Options

   

Weighted Average
Exercise Price

 
             
Outstanding at December 31, 2020     56,661,515     $ 0.28  
Granted     -       -  
Exercised     (9,528,689 )     0.06  
Forfeited     (428,326 )     0.28  
Outstanding at March 31, 2021     46,704,500     $ 0.32  

 

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A summary of the status of the options outstanding at March 31, 2021 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       28,959,881       6.44     $ 0.06       27,681,410       6.44     $ 0.06  
$ 0.10 - $0.84       12,802,559       1.76       0.42       12,802,559       1.76       0.42  
$ 1.10 - $1.90       4,942,060       1.47       1.63       4,942,060       1.47       1.63  
                                                     
          46,704,500       4.63     $ 0.32       45,426,029       4.58     $ 0.33  

 

Compensation expense of $3,943 was recognized for vested options for the three months ended March 31, 2021. The aggregate intrinsic value of the outstanding options at March 31, 2021 was $0. At March 31, 2021, (i) $11,696 of unamortized compensation expense for time-based unvested options will be recognized over the next 0.76 years on a weighted average basis; (ii) $38,784 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. Of the 27.5 million performance options granted to management in August 2017, approximately 14.3 million were outstanding at March 31, 2021. The reduction was due to the forefeiture of options to purchase 0.4 million shares of common stock and the exercise of options to purchase approximately 9.5 million shares of common stock during the three months ended March 31, 2021. At March 31, 2021, management, based on its financial expectations for 2020, did not consider the vesting of the remaining 25% of the option grants owned by management to be probable. 

 

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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 March 31, 2021, the weighted average shares outstanding excluded options to purchase 46,704,500 shares of common stock of the Company, warrants to purchase 24,619,623 shares of common stock of the Company and 110,410,321 shares of common stock of the Company issuable upon the conversion of notes because their effect would be anti-dilutive.

 

At December 31, 2020, the weighted average shares outstanding excluded options to purchase 56,661,515 shares of common stock of the Company, warrants to purchase 24,619,623 shares of common stock of the Company and 107,025,597 shares of common stock of the Company issuable upon the conversion of notes payable because their effect would be anti-dilutive.

 

NOTE 12 – SUBSEQUENT EVENT

 

On April 20, 2021 the Company received a delinquent tax lien sale notice with respect to its Dragon Mine property from the Office of the Juab County (UT) Clerk/Auditor. The amounts owed, including interest and penalties, are $132,949. The amounts owed are due by May 27, 2021 otherwise the property will be offered for sale at a public auction. The Company paid the amounts owed to Juab County (UT) on May 21, 2021. 

 

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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 OTC market 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, 2020. There have been no material changes in our critical accounting policies and estimates during the three-month period ended March 31, 2021 compared to the disclosures on Form 10-K for the year ended December 31, 2020.  

 

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Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

 

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 March 31,     Variance  
    2021     2020     $     %  
                         
REVENUES   $ 273,672     $ 152,476     $ 121,196       79 %
                                 
OPERATING EXPENSES:                                
Production costs     462,166       219,550       242,616       111 %
Exploration costs     51,590       45,634       5,956       13 %
General and administrative     389,523       634,935       (245,412 )     (39 )%
                                 
Total Operating Expenses     903,279       900,119       3,160       0 %
Operating Loss     (629,607 )     (747,643 )     (118,036 )     (16 )%
OTHER INCOME (EXPENSE):                                
Interest expense, net, including amortization of deferred financing cost and debt discount     (463,897 )     (445,587 )     18,310       4 %
Other income, net     247,546       1,300,255       (1,052,709 )     (81 )%
                                 
Total Other (Expense) Income     (216,351 )     854,668       1,071,019     125 %
                                 
NET (LOSS) INCOME     (845,958 )     107,025       (952,983 )     890 %
                                 
Deemed dividend on Series B Convertible preferred stock     (14,172 )     -       14,172       100 %
                                 
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS   $ (860,130 )   $ 107,025     $ (967,155 )     (904 )%

 

 

Revenue for the three months ended March 31, 2021 totalled $273,672, an increase of $121,196 or 79%, compared to the same period in 2020. The increase was driven primarily by a $101,447 increase in the sale of AMIRON iron oxide and a $19,787 increase in the sale of DRAGONITE halloysite clay.

 

Sales of AMIRON during the period totaled $153,563, an increase of 195% when compared to the same period in 2020. The increase was due to an increase in sales of AMIRON to a producer of cement. Sales of DRAGONITE halloysite clay during the period totalled $120,147, an increase of 20% when compared to the same period in 2020. The increase in sales of DRAGONITE halloysite clay was driven primarily by an increase of sales of DRAGONITE-loaded polymer masterbatch to a number of customers.

 

Total operating expenses for the three months ended March 31, 2021 totalled $903,279, an increase of $3,160, or 0%, compared to the same period in 2020. The increase was driven primarily by a $242,616, or 111%, increase in production costs, partially offset by a $245,412, or 39%, decline in general and administrative expense.

 

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. 

 

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Production costs incurred during the three months ended March 31, 2021 were $462,166, an increase of $242,616, or 111%, compared to the same period in 2020. The increase was due primarily to the incurrence of $96,870 of contract labor expense related to iron mining, a $56,786 increase in clay toll processing costs due to the Company’s decision to purchase all remaining finished clay product at BASF upon the termination of the tolling agreement between the two companies, and a $49,867 increase in wages and related payroll taxes due to the addition of labor, partially offset by a $50,233 decline in utility expense related to a refund of payments previously paid for historical electricity costs.

 

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 March 31, 2021 were $51,590, an $5,956 or 13%, increase compared to the same period in 2020.

 

General and administrative expenses incurred during the three months ended March 31, 2021 totalled $389,523, a $245,412, or 39%, decline when compared to the same period in 2020. The decrease was due primarily by a $201,121 decrease in wages due to the elimination and consolidation of a number of executive positions, a $40,000 decrease in director expense due to a decrease in the number of directors, a $31,575 and a decrease in D&O expense, partially offset by a $23,729 increase in shareholder expense.

 

Operating loss incurred during the three months ended March 31, 2021 was $629,607, a $118,036, or 16%, decrease when compared to the same period in 2020. The decline was driven primarily by a $121,196 increase in revenue and a $245,412 decrease in general and administrative expense, offset by a $242,616 increase in production costs when compared to the same period in 2020.

 

Total Other Expense was $216,351 for the three months ended March 31, 2021 compared to Total Other Income of $854,668 in same period in 2020. The $1,071,019 increase in Total Other Expense was due primarily to a $18,310 increase in PIK Note interest expense, offset by a $1,052,709 decline in other income when compared to the same period in 2020.

 

Net Loss for the three-month period ending March 31, 2021 was $845,958, a decline of $967,155, or 904%, when compared to the same period in 2020. The decrease was primarily driven by a $118,036 decline in operating loss offset by a $1,052,709 decline in Total Other Income.

 

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LIQUIDITY AND CAPITAL RESOURCES 

 

The Company has suffered recurring losses from operations and currently a working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

Management believes that in order for the Company to meet its obligations arising from normal business operations through May 21, 2022 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 May 21, 2022. 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 used in operating activities during the three months ended March 31, 2021 was $440,254 compared to $727,004 provided during the same period in 2020. During the period the Company used $440,254 primarily due to a net loss of approximately $846,000 and a gain of $223,000 from the forgiveness of a PPP loan, partially offset by non-cash items related to accrual of approximatey $449,000 of interest expense with respect to the PIK Notes, stock-based compensation expense of  approximately $62,000 and net changes in operating assets and liabilities and others of approximately $118,000. Cash used in operating activities during 2021 before adjusting for changes in operating assets and liabilities was $550,454, $1,107,758 more than the comparable period in 2020.

 

Cash provided by financing activities during the three months ended March 31, 2021 was $314,566 compared to $277,754 used during the same period in 2020. The $592,320 increase in cash provided during the period was due primarily to $100,000 of proceeds from a private placement of Series B Preferred Stock, $264,472 of proceeds from a Paycheck Protection Program loan, partially offset by a $315,625 decrease of payments on notes payable.

 

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Total assets at March 31, 2021 were $1,658,359 compared to $1,900,307 at December 31, 2020, a decrease of $241,948 due primarily to decrease in the Company cash, prepaid expenses and operating lease right-of-use assets. Total liabilities were $50,163,991 compared to $49,729,744 at December 31, 2020. The increase of $434,247 in total liabilities was due primarily to the increase in Paycheck Protection Program Loan, increase in accounts payable resulting 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. 

 

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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 three months ended March 31, 2021, 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.

 

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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 2020 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
     
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.

 

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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: May 21, 2021   /s/ CHRISTOHER T. CARNEY
    By: Christopher T. Carney
    Chief Executive Officer
     
Dated: May 21, 2021   /s/ CHRISTOPHER T. CARNEY
    By: Christopher T. Carney
    Chief Financial Officer

 

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