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 three months endedMarch 31, 2022 compared to the disclosures on Form 10-K for the year endedDecember 31, 2021 . 27
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
2022 2021 $ %
REVENUES $ 78,045 $ 273,672 $ (195,627 ) (71 )%
OPERATING EXPENSES:
Production costs 133,336 462,166 (328,830 ) (71 )%
Exploration costs 243,470 51,590 191,880 372 %General and administrative 405,378 389,523 15,855 4 % Total Operating Expenses 782,184 903,279 (121,095 ) (13 )% Operating Loss (704,139 ) (629,607 ) 74,532 12 % OTHER INCOME (EXPENSE): Interest expense, net, including amortization of deferred financing cost and debt discount (471,898 ) (463,897 ) 8,001 2 % Other income, net 60,372 247,546 (187,174 ) (76 )%
Total Other Expense, net (411,526 ) (216,351 )
195,175 90 %
NET (LOSS) (1,115,665 ) (845,958 ) 269,707 32 %
Revenue for the three months ended March 31, 2022 totaled $78,045 , a decrease of
$195,627 or 71%, compared to the same period in 2021. The decrease was driven
primarily by a $153,562 decrease in the sale of AMIRON iron oxide and a $42,065
decrease in the sale of DRAGONITE halloysite clay.
Sales of AMIRON during the period totaled $900 , a decrease of 99% when compared
to the same period in 2021. The decrease was due to the end of a supply
agreement with a cement producer in December 2021 . Sales of DRAGONITE halloysite
clay during the period totaled $77,145 , a decrease of 36% when compared to the
same period in 2021. The decrease in sales of DRAGONITE halloysite clay was
driven primarily but the decision of certain customers to delay repeat purchases
of DRAGONITE until later in 2022. Despite the decline in sales of DRAGONITE
during the period, the Company expects total sales of DRAGONITE for the full
year of 2022 to exceed those in 2021.
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 endedMarch 31, 2022 were$133,336 , a decrease of$328,830 , or 71%, compared to the same period in 2021. The decrease was driven primarily by the elimination of costs associated with mining iron for the supply agreement, which terminated inDecember 2021 . Wages and benefits expense was approximately 50% of production costs during the period and are, to an extent, fixed up to a certain level of production volume. The Company does not expect its wages and benefits expense to increase materially if DRAGONITE volumes increase during 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 endedMarch 31, 2022 were$243,470 , a$191,880 or 372%, increase compared to the same period in 2021. The increase was primarily driven by one-time accrual of$200,000 related to the settlement of a dispute with a provider of contract mining services the Company used to mine iron during 2021. Excluding the settlement, exploration costs would have totaled$43,470 during the period, a decline of$8,120 compared to 2021. General and administrative expenses incurred during the three months endedMarch 31, 2022 totaled$405,378 , a$15,855 , or 4%, increase when compared to the same period in 2021. During the period the Company recognized$92,211 of equity-based compensation expenses related to the vesting of equity options issued to directors and management, an increase of$29,129 compared to 2021. During the period the Company also incurred$37,525 of legal and consulting expenses it does not expect to incur in the future. Furthermore, the wages expense incurred during the period was$75,000 . The Company expects wages expense to be reduced to$37,500 with the departure of an executive inApril 2022 .
Total operating expenses was
Operating loss incurred during the three months endedMarch 31, 2022 was$704,139 , a$74,532 , or 12%, increase when compared to the same period in 2021. The increase was driven primarily by a$195,627 decline in revenue and a$191,880 increase in exploration costs, partially offset by a$328,830 decrease in production expense when compared to the same period in 2021. Total other expense was$411,526 for the three months endedMarch 31, 2022 compared to total other expense of$216,351 in same period in 2021. The$195,175 increase in total other expense was due primarily to the elimination of the gain associated with the forgiveness of a PPP Loan compared to the same period in 2021.
Net Loss for the three-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 throughMay 21, 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 throughMay 21, 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 three months endedMarch 31, 2022 was$170,778 compared to$440,254 during the same period in 2021. The difference was driven primarily by a$314,573 increase in accounts payable and accrued liabilities.
Cash provided by financing activities during the three months ended
30 Total assets atMarch 31, 2022 were$1,061,063 compared to$1,177,821 atDecember 31, 2021 , a decrease of$116,758 due to decreases in the Company's cash, accounts receivable, prepaid expenses and operating lease right-of-use assets. Total liabilities were$52,430,881 compared to$51,578,703 atDecember 31, 2021 . The increase of$852,178 in total liabilities was due primarily to the increase in accounts payable and accrued liabilities and the assumption of$200,000 of loans payable during the period.
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.
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