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, strength reinforcement additives for cement, concrete, mortars and grouts, advanced ceramics, rheology additives for drilling fluids, environmental remediation media, and carriers of agricultural agents. Halloysite is an aluminosilicate with a tubular structure that provides functionality for a number of applications. 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. InAugust 2022 the Company sold the rights to its iron oxide resource as well as title to itsHosokawa Alpine table roller mill and related building. The Company owns a mineral processing facility with a capacity of 5,000 - 10,000 tons tons per annum depending on the grade of clay mineral its produces. Furthermore, the Company has use of any unused capacity available on the Alpine Hosokawa table roller mill sold to a third-party inAugust 2022 . The Company currently sells its DRAGONITE product as a binder molecular sieve applications, as a nucleating agent for resin applications and as a binder for ceramic applications. The Company is working with current and prospective customers, which are in the latter stages of commercializing new products that will utilize DRAGONITE as a functional additive. InAugust 2022 , the Company received a$1,150,000 U.S. DOE STTR Phase II award to develop a process that produces halloysite-derived porous silicon for use as anode material
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 nine-month period endedSeptember 30, 2022 compared to the disclosures on Form 10-K for the year endedDecember 31, 2021 . 23
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 September 30, Variance
2022 2021 $ %
REVENUES $ 111,688 $ 360,815 $ (249,127 ) (69 )%
OPERATING EXPENSES:
Production costs 140,123 434,225 (294,102 ) (68 )%
Exploration costs 16,098 47,866 (31,768 ) (66 )%
General and administrative 341,847 443,503 (101,656 ) (23 )%
Total Operating Expenses 498,068 925,594 (427,526 ) (46 )%
Operating Loss (386,380 ) (564,779 ) (178,399 ) (32 )%
OTHER INCOME (EXPENSE):
Interest expense, net (including
amortization of deferred financing
cost and debt discount) (643,933 ) (474,579 ) (169,354 ) 36 %
Gain on sale of iron oxide assets 1,938,000 - 1,938,000 100 % Other income (expense) , net (716,800 ) 20,308 (737,108 ) (3,630 )% Total Other Income (Expense) 577,267 (454,271 ) (1,031,538 ) (227 )% NET INCOME (LOSS)$ 190,887 $ (1,019,050 ) $ (1,209,937 ) (119 )%
Revenue for the three months ended
Sales of AMIRON iron oxide during the period totaled$1,200 , a decrease of 100% when compared to the same period in 2021. The decrease was due to t he expiration inDecember 2021 of a supply agreement with a producer of cement. Sales of DRAGONITE halloysite clay totaled$110,488 during the period, an increase of 91% when compared to the same period in 2021. During the period the Company increased its sales of DRAGONITE to current customers and a number of new customers. Total operating expenses for the three months endedSeptember 30, 2022 totaled$498,068 , a reduction of 46% when compared to the same period in 2021. The reduction was driven primarily by a$294,102 decline in production costs and a 101,656 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 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 endedSeptember 30, 2022 were$140,123 , a decrease of 68% when 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. 24 Exploration costs include operating expenses incurred at theDragon Mine that are not directly related to production activities. Exploration costs incurred during the three months endedSeptember 30, 2022 were$16,098 , a decrease of 66% when compared to the same period in 2021. General and administrative expenses incurred during the three months endedSeptember 30, 2022 totaled$341,847 , a 23% decrease when compared to the same period in 2021. The decrease was driven primarily by a decrease in wages and related employee expense due to a reduction in the number of employees, decline in director expense due to a decline in the number of directors and a decline in equity-linked compensation expense. Approximately$66,700 of general and administrative expense was related to the Company's STTR DOE Phase I award and was reimbursed by theDOE during the period and recorded as other income. Approximately$96,000 of general and administrative expense was paid to a financial advisor for capital raising and related services. The Company does not expect to incur a similar expense in the future. Operating loss incurred during the three months endedSeptember 30, 2022 was$386,378 , a 32% decrease when compared to the same period in 2021. The decrease was driven by a$427,526 decline in total operating expenses, partially offset by a$249,127 decline in revenue. Total other income was$577,267 for the three months endedSeptember 30, 2022 compared to total other expense of$454,271 in same period in 2021. The$1,031,538 decrease in total other expense was due primarily to a$1,938,000 gain on the sale of the Company's rights to its iron oxide resource as well as title to itsHosokawa Alpine table roller mill and related building ("iron oxide assets"), partially offset by a (i) decrease in other income of$737,108 of which$750,000 was the payment of a PIK Note waiver fee related to the sale of the iron oxide assets and (ii) a$169,354 increase in interest expense due to an increase in the outstanding principal balance of the Company's PIK Notes when compared to the same period in 2021. Net income for the three-month period endingSeptember 30, 2022 was$190,887 , compared to a net loss of$1,019,050 during the same period in 2021. The decrease in net loss was due primarily to the$1,938,000 gain realized on the sale of the iron oxide assets, partially offset by the$737,108 decline in
other income. 25
Nine 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:
Nine Months Ended September 30, Variance
2022 2021 $ %
(804
REVENUES $ 295,838 $ 1,099,980 $ ,142 ) (73 )%
OPERATING EXPENSES:
Production costs 451,418 1,315,350 (863,932 ) (66 )%
Exploration costs 266,111 175,715 90,396 51 %
General and administrative 1,082,953 1,244,975 (162,022 ) (13 )%
Total Operating Expenses 1,800,482 2,736,040 (935,558 ) (34 )%
Operating Loss (1,504,644 ) (1,636,060 ) (131,416) (8 )%
OTHER INCOME (EXPENSE):
Interest expense, net (including
amortization of deferred financing
cost and debt discount) (1,596,548 ) (1,401,878 ) 194,670 14 %
Gain on forgiveness of PPP loan - 223,075 (223,075 ) (100 )%
Gain on sale of iron oxide assets 1,938,000 - 1,938,000 (100 )%
Other income (expense)
, net (535,382 ) 114,662 (650,044 ) (570 )%
Total Other Income Expense (193,930 ) (1,064,141 ) (870,211 ) (82 )%
(
NET LOSS $ (1,698,574 ) $ (2,700,201 ) $ 1,001,627 ) (37 )%
Revenue for the nine months ended
Sales of AMIRON iron oxide during the period totaled$19,330 , a decrease of 97% when compared to the same period in 2021. The decrease in sales of AMIRON was due to t he expiration inDecember 2021 of a supply agreement with a producer of cement. Sales of DRAGONITE halloysite clay totaled$276,508 during the period, a decrease of 25% when compared to the same period in 2021. The decline in sales of DRAGONITE was due, large part, to the absence of purchases for field trials by certain customers that occurred during the same period in 2021.
Total operating expenses for the nine months ended
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. 26 Production costs incurred during the nine months endedSeptember 30, 2022 were$415,418 , a decrease of 66%, 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 during the period included$39,500 related to a settlement with a contract miner entered into inMarch 2022 . Exploration costs include operating expenses incurred at theDragon Mine that are not directly related to production activities. Exploration costs incurred during the nine months endedSeptember 30, 2022 were$266,111 , a 51%, increase compared to the same period in 2021. The increase was driven primarily by a$200,000 charge related to a settlement agreement with a contract miner entered into inMarch 2022 . General and administrative expenses incurred during the nine months endedSeptember 30, 2022 totaled$1,082,953 , a decline of 13%, when compared to the same period in 2021. The decrease was driven primarily by a decline in wages and related employee expense due to a reduction in the number of employees, decline in director expense due to a decline in the number of directors and a decline in equity-linked compensation expense. Approximately$80,000 of general and administrative expense during the period was related to the Company's STTR DOE Phase I award and was reimbursed by theDOE during the period and recorded as other income. Approximately$96,000 of general and administrative expense was paid to a financial advisor for capital raising and related services. The Company does not expect to incur a similar expense in the future. Operating loss incurred during the nine months endedSeptember 30, 2022 was$1,504,644 , an 8% decrease when compared to the same period in 2021. The decline was driven primarily by a$863,932 decrease in production costs and a$162,022 decrease in general and administrative expense, offset by a$90,396 increase in exploration costs when compared to the same period in 2021. Total other expense for the nine months endedSeptember 30, 2022 was$193,930 , compared to total other expense of$1,064,141 during the same period in 2021. The$870,211 decrease in total other expense was due primarily to a$1,938,000 gain on the sale of the Company's iron oxide assets inAugust 2022 , partially offset by (i) a$650,044 decrease in other income$750,000 of which is a PIK Note waiver paid in conjunction with the sale of the Company's iron oxide assets, (ii) the absence of a$223,000 gain related to the forgiveness of a Payroll Protection Program loan and (iii) a$194,670 increase in interest expense due to an increase in the outstanding principal balance of the Company's PIK Notes when compared to the same period in 2021 Net loss for the nine months endingSeptember 30, 2022 was$1,698,574 a decline of$1,001,627 when compared to the same period in 2021. The decrease in net loss was due primarily to a decrease in total other expense of$870,211 and a decrease in operating loss of$131,416 . 27
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 throughNovember 29, 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 throughNovember 29, 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 nine months endedSeptember 30, 2022 was$1,439,791 compared to$973,832 of cash used during the same period in 2021. Cash used by operations during the nine months endedSeptember 30, 2022 , before accounting for the changes in operating assets and liabilities, was$1,795,510 compared to$1,280,194 during the same period in 2021. The primary reason for the increase was the$750,000 paid as a waiver fee to the majority holders of the Company's Series A and Series 2023 PIK Notes related to the sale of the Company's iron oxide assets. Cash generated from the change in operating assets and liabilities during the nine months endedSeptember 30, 2022 was$355,720 compared to$306,362 during the same period in 2021. Cash used by investing activities during the nine months endedSeptember 30, 2022 was$1,988,000 compared to$0 during the same period in 2021. The$1,988,000 increase was due to$1,938,000 of net proceeds generated from the sale of the Company's iron oxide assets and$50,000 of proceeds generated from the sale of obsolete equipment. Cash provided by financing activities during the nine months endedSeptember 30, 2022 was$107,366 compared to$510,362 used during the same period in 2021. The$402,966 decrease in cash provided during the period was due primarily to a$310,000 reduction in proceeds from a private placement of Series B Preferred Stock during the current period, the absence of$264,472 of proceeds from a Paycheck Protection Program loan and principal payments of approximately$91,000 which did not occur during the same period in 2021, partially offset by$200,000 in proceeds from the issuance of notes payable,$42,000 of net proceeds from the issuance of shares of common stock and a reduction of approximately$20,000 of insurance financing payments. Total assets atSeptember 30, 2022 were$1,674,068 compared to$1,177,821 atDecember 31, 2021 , an increase of$396,247 due primarily to an increase in the Company's cash and accounts receivable, partially offset by a reduction in prepaid expenses. Total liabilities were$51,373,272 compared to$51,578,703 atDecember 31, 2021 , a decrease of$205,431 due to a reduction in accrued liabilities, partially offset by an increase in the balance of the Company's PIK Notes. 28
ISSUANCE OF CONVERTIBLE DEBT
For information with respect to issuance of convertible debt, see Note 7 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.
© Edgar Online, source
