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 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 six-month period endedJune 30, 2021 compared to the disclosures on Form 10-K for the year endedDecember 31, 2020 .
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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
2021 2020 $ %
REVENUES $ 465,493 $ 143,593 $ 321,900 224 %
OPERATING EXPENSES:
Production costs 418,959 230,488 188,471 82 %
Exploration costs 76,259 42,045 34,214 81 %General and administrative 411,949 800,187
(388,238 ) (49 )%
Total Operating Expenses 907,167 1,072,720 (165,553 ) (15 )% Operating Loss (441,674 ) (929,127 ) (487,453 ) (52 )% OTHER (EXPENSE) INCOME: Interest expense, net (including amortization of deferred financing cost and debt discount) (463,402 ) (454,281 ) 9,121 2 % Other income, net 69,883 94 69,789 Total Other (Expense) (393,519 ) (454,187 ) (60,668 ) (13 )% NET LOSS$ (835,193 ) $ (1,383,314 ) $ (548,121 ) (40 )% Revenue for the three months endedJune 30, 2021 totalled$465,493 , an increase of$321,900 or 224%, compared to the same period in 2020. The increase was driven primarily by a$183,686 increase in the sale of AMIRON iron oxide and a$138,214 increase in the sale of DRAGONITE halloysite clay. Sales of AMIRON during the period totalled$277,297 , an increase of 196% 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$188,196 , an increase of 277% when compared to the same period in 2020. The increase in sales of DRAGONITE halloysite clay was driven primarily by a general increase in sales of DRAGONITE to a number of customers for use as a flame retardant additive, a binder for a catalyst and ceramic bodies and as a nucleating agent for polymers. Total operating expenses for the three months endedJune 30, 2021 totalled$907,167 , a reduction of$165,553 , or 15%, compared to the same period in 2020. The reduction was driven primarily by a$188,471 , or 82%, increase in production costs, partially offset by a$388,238 , or 49%, 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 endedJune 30, 2021 were$418,959 , an increase of$188,471 , or 82%, compared to the same period in 2020. The increase was driven primarily by$82,460 in contract labor costs needed to increase our iron production, a$46,272 increase in toll processing costs of certain grades of DRAGONITE, and a$39,320 increase in wages due to the increase in iron production. 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, 2021 were$76,259 , an increase of$34,214 , or 81%, compared to the same period in 2020. The increase was due to a$14,708 increase in certain mine maintenance expense and the reclassification of$11,403 of workers' compensation expense previously included in production expense. General and administrative expenses incurred during the three months endedJune 30, 2021 totalled$411,949 , a$388,238 , or 49%, decline when compared to the same period in 2020. The decrease was driven primarily by a$180,811 decrease in director expense due to a reduction in the number of directors from seven to five serving on the Company's board, a$157,535 reduction in wages due to a reduction in the number of corporate executives from five to two, and a$31,575 decrease in D&O insurance expense. Operating loss incurred during the three months endedJune 30, 2021 was$441,674 , a$487,453 , or 52%, decrease when compared to the same period in 2020. The decline was driven primarily by a$321,900 increase in revenue and a$388,238 decrease in general and administrative expense, offset by a$188,471 increase in production costs when compared to the same period in 2020.
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Total Other Expense was$393,519 for the three months endedJune 30, 2021 compared to Total Other Expense of$454,187 in same period in 2020. The$60,668 decline in Total Other Expense was due primarily to a$69,789 increase in other income, partially offset by a$9,121 increase in PIK Note Discount amortization expense, when compare to the same period in 2020. Net Loss for the three-month period endingJune 30, 2021 was$835,193 , a decline of$548,121 , or 40%, when compared to the same period in 2020. The decrease was primarily driven by a$487,453 decline in operating loss and$60,668 decrease in Total Other Expense.
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
2021 2020 $ %
REVENUES $ 739,165 $ 296,069 $ 443,096 150 %
OPERATING EXPENSES:
Production costs 881,125 450,038 431,087 96 %
Exploration costs 127,849 87,679 40,170 46 %General and administrative 801,472 1,435,122
(633,650 ) (44 )%
Total Operating Expenses 1,810,446 1,972,839 (162,393 ) (8 )% Operating Loss (1,071,281 ) (1,676,770 )
(605,489 ) (36 )%
OTHER INCOME(EXPENSE): Interest expense, net (including amortization of deferred financing cost and debt discount) (927,299 ) (899,868 ) 27,431 3 % Other income, net 317,429 1,300,349 (982,920 ) 76 % Total Other Income (Expense) (609,870 ) 400,481 (1,010,351 ) (252 )% NET LOSS$ (1,681,151 ) $ (1,276,289 ) $ 404,862 32 % Revenue for the six months endedJune 30, 2021 totalled$739,165 , an increase of$443,096 , or 150%, compared to the same period in 2020. The increase was driven primarily by a$285,132 increase in the sale of AMIRON iron oxide and a$158,001 increase in the sale of DRAGONITE halloysite clay. Sales of AMIRON during the period totalled$430,859 , an increase of 196% when compared to the same period in 2020. The increase was due to an increase in the production and sale of AMIRON to a producer of cement. Sales of DRAGONITE halloysite clay during the period totalled$308,343 , an increase of 105% when compared to the same period in 2020. The increase in sales of DRAGONITE halloysite clay was driven primarily by a general increase in sales of DRAGONITE to a number of customers for use as a flame retardant additive, a binder for a catalyst and ceramic bodies and as a nucleating agent for polymers. Total operating expenses for the six months endedJune 30, 2021 totalled$1,810,446 , a decrease of$162,393 , or 8%, compared to the same period in 2020. The decline was driven primarily by a$633,650 , or 44%, decline in general and administrative costs, partially offset by an increase of$431,087 or 96% in
production costs. 28
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, 2021 were$881,125 , an increase of$431,087 , or 96%, compared to the same period in 2020. The increase was due primarily to$179,330 of contract labor expense related to the increase in the Company's iron production, a$109,390 increase in clay toll processing costs related to sales of certain grades of DRAGONITE, a$108,285 increase in wages related primarily to the addition of an employee and an increase in iron production, and increase in vehicle and equipment maintenance expense of$48,290 and an increase in fuel expense of$19,020 primarily related to the increase in iron production, partially offset by a$38,884 decrease in utility expense due primarily to a refund. 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, 2021 were$127,849 , a$40,170 , or 46%, increase compared to the same period in 2020. The increase was driven primarily to a$22,363 in mine maintenance expense and$15,235 of workers' compensation and healthcare expense reclassified during the period as exploration expense. 29 General and administrative expenses incurred during the six months endedJune 30, 2021 totalled$801,472 , a decline of$633,650 , or 44%, when compared to the same period in 2020. The decrease was driven primarily by a$392,886 decrease in wages and related payroll taxes due to a reduction in corporate executives from five to two and a$220,811 decline in director expense related to a reduction in the number of directors from seven to five. Operating loss incurred during the six months endedJune 30, 2021 was$1,071,281 , a$605,489 , or 36%, decrease when compared to the same period in 2020. The decline was driven primarily by a$443,096 increase in revenue and a$633,650 decrease in general and administrative expense, offset by a$431,087 increase in production costs when compared to the same period in 2020. Total Other Expense for the six months endedJune 30, 2021 was$609,870 , an increase of$1,010,351 , or 252%, when compared to the same period in 2020. The$1,010,351 increase in Total Other Expense was due primarily to a$27,431 increase in PIK Note interest expense, offset by a$982,920 decline in other income when compared to the same period in 2020.
Net Loss for the six-month period ending
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, 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 throughAugust 20, 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 six months endedJune 30, 2021 was$848,263 compared to$311,399 provided during the same period in 2020. During the period the Company used$850,291 primarily due to a net loss of approximately$1,681,151 and a gain of approximately$223,000 from the forgiveness of a PPP loan, partially offset by non-cash items related to accrual of approximately$702,000 of interest expense with respect to the PIK Notes, stock-based compensation expense of approximately$66,000 and net changes in operating assets and liabilities and others of approximately$75,000 . Cash used in operating activities during 2021 before adjusting for changes in operating assets and liabilities was$874,664 ,$503,910 more than the comparable period in 2020. Cash provided by financing activities during the six months endedJune 30, 2021 was$347,632 compared to$134,855 used during the same period in 2020. The$482,487 increase in cash provided during the period was due primarily to$185,000 of proceeds from a private placement of Series B Preferred Stock during the current period and the elimination of$315,625 of payments of notes payable that occurred during the same period in 2020.
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Total assets atJune 30, 2021 were$1,351,956 compared to$1,900,307 atDecember 31, 2020 , a decrease of$548,351 due primarily to decrease in the Company cash, prepaid expenses and operating lease right-of-use assets. Total liabilities were$50,603,838 compared to$49,729,744 atDecember 31, 2020 . The increase of$874,094 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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