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. OverviewApplied 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 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.
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, 2020 . There have been no material changes in our critical accounting policies and estimates during the three-month period endedMarch 31, 2021 compared to the disclosures on Form 10-K for the year endedDecember 31, 2020 . 22
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 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 endedMarch 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. 23
Production costs incurred during the three months endedMarch 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 theDragon Mine that are not directly related to production activities. Exploration costs incurred during the three months endedMarch 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 endedMarch 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 endedMarch 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
Net Loss for the three-month period ending
24
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 throughMay 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 throughMay 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 endedMarch 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 endedMarch 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. 25 Total assets atMarch 31, 2021 were$1,658,359 compared to$1,900,307 atDecember 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 atDecember 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.
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