APPLIED MINERALS, INC. 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 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 theDragon Mine , which has significant deposits of high-quality halloysite clay and iron oxide. The 267-acre property is located in southwesternUtah 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.
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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 endedDecember 31, 2021 . There have been no material changes in our critical accounting policies and estimates during the six-month period endedJune 30, 2022 compared to the disclosures on Form 10-K for the year endedDecember 31, 2021 .
Three Months Ended
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
2022 2021 $ %
REVENUES $ 106,105 $ 465,493 $ (359,388 ) (77 )%
OPERATING EXPENSES:
Production costs 177,959 418,959 (241,000 ) (58 )%
Exploration costs 6,543 76,259 (69,716 ) (91 )%General and administrative 335,728 411,949
(76,221 ) (19 )%
Total Operating Expenses 520,230 907,167 (386,937 ) (43 )% Operating Loss (414,125 ) (441,674 ) (27,549 ) (6 )% OTHER (EXPENSE) INCOME: Interest expense, net (including amortization of deferred financing cost and debt discount) (480,717 ) (463,402 ) 17,315 4 % Other income, net 121,046 69,883 51,163 73 % Total Other (Expense) (359,671 ) (393,519 ) (33,848 ) (9 )% NET LOSS$ (773,796 ) $ (835,193 ) $ (61,397 ) (7 )% Revenue for the three months endedJune 30, 2022 totaled$106,105 , a decrease of$359,388 or 77%, compared to the same period in 2021. The decrease was driven primarily by a$277,297 net decline in sales of AMIRON iron oxide and a net decline of$127,700 in sales of DRAGONITE halloysite clay sales. Sales of AMIRON iron oxide during the period totaled$17,230 , a decrease of 94% when compared to the same period in 2021. The decline was in large part due the expiration inDecember 2021 of a supply agreement with a producer of cement. Sales of DRAGONITE during the period totaled$88,920 , a decline of $53%. The decline was driven primarily by the absence of purchases for field trials by certain customers that occurred during the same period in 2021. A number of those field trials are still in process. Operating expenses for the three months endedJune 30, 2022 totaled$520,230 , a reduction of$386,937 , or 43%, compared to the same period in 2021. The reduction was driven by a$241,000 , or 58%, decrease in production costs, a 69,716, or 91%, decrease in exploration costs and a 76,221, or 19%, decrease in general and administrative expense. 24
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 three months endedJune 30, 2022 were$177,959 , a decrease of$241,000 , or 58%, compared to the same period in 2021. The decrease was driven primarily by a reduction in contract labor, wage and mining materials related expenses associated with the expiration inDecember 2021 of a contract to supply iron to a producer of cement. Production expense for the three months endedJune 30, 2022 include a charge totaling$39,556 , related to an adjustment of the stock component of a settlement entered into with a contract miner inMarch 2022 . Exploration costs include operating expenses incurred at theDragon Mine that are not directly related to production activities. Exploration costs incurred during the three months endedJune 30, 2022 were$6,543 , a decrease of$69,716 , or 91%, compared to the same period in 2021. The decrease was due primarily to a reduction of$27,683 in wages and workers' compensation expense, related to the elimination of non-mining related workers and the reclassification of certain workers' compensation costs, a decline of$14,957 in ground support expense, related to certain mine exploration activities, and the absence of$7,000 in consulting fees associated with works related to the Company's lithium-ion battery project. General and administrative expenses incurred during the three months endedJune 30, 2022 totaled$335,728 , a$76,221 , or 19%, decline when compared to the same period in 2021. The decline was driven primarily by a$72,945 decline in corporate wage and wage-related benefits expense. General and administrative expense incurred during the three months endedJune 30, 2022 included (i) compensation expense for an employee who resigned inApril 2022 and (ii)$127,500 of directors' fees, which the Company expects to be reduced significantly in subsequent quarters upon the expected resignations of three directors. Operating loss incurred during the three months endedJune 30, 2022 was$414,125 , a$27,549 , or 6%, decrease when compared to the same period in 2021. The decline was driven primarily by a$404,946 , or 45%, decline in operating expenses, partially offset by a decline of$359,388 , or 77%, in revenue when compared to the same period in 2021. Total other expense was$359,671 for the three months endedJune 30, 2022 compared to$393,513 in same period in 2021. The$33,848 decline was due primarily to a$51,017 increase in other income, related to the sale of obsolete equipment and the reimburse of expenses associated with the DOE STTR grants awarded to the Company inJune 2021 , partially offset by a$17,315 increase in PIK Note interest expense.. Net loss for the three-month period endingJune 30, 2022 was$773,796 , a decline of$61,397 , or 7%, when compared to the same period in 2021. The decrease was primarily driven by a$27,549 decline in operating loss and a$33,848 decrease in total other expense. 25
Six Months Ended
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
2022 2021 $ %
REVENUES $ 184,150 $ 739,165 $ (555,015 ) (75 )%
OPERATING EXPENSES:
Production costs 311,295 881,125 (569,830 ) (65 )%
Exploration costs 250,013 127,849 122,164 96 %
General and administrative 741,106 801,472 (60,366 ) (8 )%
Total Operating Expenses 1,302,414 1,810,446 (508,032 ) (28 )%
Operating Loss (1,118,264 ) (1,071,281 ) 46,983 4 %
OTHER INCOME (EXPENSE):
Interest expense, net (including
amortization of deferred financing
cost and debt discount) (952,615 ) (927,299 ) 25,316 3 %
Other income, net 181,418 317,429 (136,011 ) (43 )%
Total Other Income (Expense) (771,197 ) (609,870 ) 161,327 26 %
NET LOSS $ (1,889,461 ) $ (1,681,151 ) $ 208,310 12 %
Revenue for the six months ended June 30, 2022 totaled $184,150 , decrease of
$555,015 , or 75%, compared to the same period in 2021. The decrease was due to a
$413,629 decrease in the sale of AMIRON iron oxide due to the expiration in
December 2021 of a supply agreement with a cement producer and a $141,386
decrease in the sale of DRAGONITE halloysite clay.
Sales of AMIRON during the period totaled $17,230 , a decrease of 96% when
compared to the same period in 2021. The decrease was due in large part to the
expiration in December 2021 of a supply agreement with a cement producer. Sales
of DRAGONITE during the period totaled $166,921 , as decrease of 46% compared to
the same period in 2021.The decrease in sales of DRAGONITE was driven primarily
by (i) the absence of purchases of DRAGONITE for field trials by certain
customers that occurred during the same period in 2021 and (ii) the impact of
COVID on certain customers' decisions to delay the commercialization of new
products developed on DRAGONITE. A number of the field trials referenced above
are still in process. The Company believes the stalled commercialization of
certain customer products using DRAGONITE may resume during the latter half of
2022.
Operating expenses for the six months ended June 30, 2022 totaled $1,302,414 , a
decrease of $508,032 , or 28%, compared to the same period in 2021. The decline
was driven primarily by a $569,830 , or 64%, decline in production costs
partially, a $60,367 , or 8%, decline in general and administrative expense,
partially offset by a $122,264 , or 96%, increase in exploration costs.
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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 endedJune 30, 2022 were$311,295 , a decrease of$569,830 , or 65%, compared to the same period in 2021. Approximately$450,000 of the decrease was driven primarily by a reduction in contract labor, wage and mining materials related expenses associated with the expiration inDecember 2021 of a contract to supply iron to a producer of cement. The remaining reduction of$115,000 was due to the reduction in clay tolling expense. Production expense for the six months endedJune 30, 2022 include a charge totaling$39,556 , related to an adjustment of the stock component of a settlement entered into with a contract miner inMarch 2022 . Exploration costs include operating expenses incurred at theDragon Mine that are not directly related to production activities. Exploration costs incurred during the six months endedJune 30, 2022 totaled$250,013 , a$122,164 , or 96%, increase compared to the same period in 2021. The increase was due primarily to a $$200,000 expense related to a settlement with a contract miner used to mine iron for a supply agreement that expired inDecember 2021 , partially offset by a$43,239 reduction in wage and workers' compensation expense, a reclassification of$17,673 of health insurance expense and the absence of$14,956 of ground support expense incurred during the six months endedJune 30, 2021 . General and administrative expenses incurred during the six months endedJune 30, 2022 totaled$741,106 , a decline of$60,366 , or 8%, when compared to the same period in 2021. The decrease was driven primarily by a$104,861 decrease in wage and wage-related benefit expense and a$23,68 decrease in shareholder-related expenses, partially offset by an increase in professional services expenses of$63,823 . General and administrative expense incurred during the six months endedJune 30, 2022 included (i) compensation expense for an employee who resigned inApril 2022 , (ii)$192,500 of directors' fees, which the Company expects to be reduced significantly in subsequent quarters upon the expected resignations of three directors and (iii)$112,400 of equity-related compensation expense. Operating loss incurred during the six months endedJune 30, 2022 was$1,118,264 , a$46,983 , or 4%, increase compared to the same period in 2021. The increase was driven primarily by a$555,015 decrease in revenue and a$122,264 increase in exploration expense, partially offset by a$569,830 decrease in production costs when compared to the same period in 2021.
Total other expense for the six months ended
Net loss for the six-month period ending
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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 throughAugust 20, 2023 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 throughAugust 22, 2023 . 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 six months endedJune 30, 2022 was$205,800 compared to$848,263 used during the same period in 2021. The difference was due primarily an increase of$524,254 in cash generated from the change in operating assets and liabilities. Cash provided by financing activities during the six months endedJune 30, 2022 was$151,253 compared to$347,632 provided during the same period in 2021. The$196,379 decrease in cash provided during the period was due primarily to$264,472 of proceeds received from a Paycheck Protection Program loan and an increase of$110,000 in proceeds from private placements during 2021, partially offset by$200,000 in proceeds received from loans payable during 2022. Total assets atJune 30, 2022 were$945,890 compared to$1,177,821 atDecember 31, 2021 , a decrease of$231,931 due primarily to decrease in the Company cash, prepaid expenses, operating lease right-of-use assets and deposits. Total liabilities atJune 30, 2022 were$52,993,293 compared to$51,578,703 atDecember 31, 2021 . The increase of$1,414,590 in total liabilities was due primarily to$920,192 increase in the PIK Note balance and a$447,161 increase in accounts payable and accrued liabilities. As ofJune 30, 2022 , accrued liabilities included$1,630,811 of directors' fees. 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.
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