amnl20180331_10q.htm
 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

X

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

  

For the quarterly period ended

March 31, 2018

 

Transition report under section 13 or 15(d) of the Exchange Act

 

  

For the transition period from

  

to

  

  

 

  

Commission File Number

000-31380

  

 

 

APPLIED MINERALS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

  

82-0096527

(State or other jurisdiction of incorporation or organization)

  

(I. R. S. Employer Identification No.)

  

  

  

  

  

  

55 Washington Street - Suite 301, Brooklyn, NY

  

11201

(Address of principal executive offices)

  

(Zip Code)

 

  

(212) 226-4265

  

  

(Issuer’s Telephone Number, Including Area Code)

  

 

 

Former name, former address, and former fiscal year, if changed since last report

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

  

YES

X

NO

 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller-reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

X

Emerging growth company

  

  

  

  

  

  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to ☒Section 13(a) of the Exchange Act.

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

  

YES

NO

X

 

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of May 22, 2018 was 164,138,549.

 

DOCUMENTS INCORPORATED BY REFERENCE: None.

 

 

 

APPLIED MINERALS, INC.

(An Exploration Stage Company)

 

FIRST QUARTER 2018 REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

 

PART I. FINANCIAL INFORMATION

  

  

  

  

  

Page(s)

Item 1.

Condensed Consolidated Financial Statements

3

  

  

 

  

Condensed Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017

3

  

  

 

  

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017 (unaudited)

4

  

  

 

  

Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended March 31, 2018 (unaudited)

5

  

  

 

  

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (unaudited)

6

  

  

 

  

Notes to the Condensed Consolidated Financial Statements (unaudited)

7

  

  

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

  

  

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

  

  

 

Item 4.

Controls and Procedures

23

  

  

 

PART II. OTHER INFORMATION

  

  

  

Item 1.

Legal Proceedings

24

  

  

 

Item 1A

Risk Factors

24

  

  

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

  

  

 

Item 3.

Defaults Upon Senior Securities

24

  

  

 

Item 4.

Mine Safety Disclosures

24

  

  

 

Item 5.

Other Information

24

  

  

 

Item 6.

Exhibits

25

  

  

 

Signatures

26

 

 

PART I. FINANCIAL INFORMATION

 

 

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

CONSOLIDATED BALANCE SHEETS

 

 

   

March 31, 2018

         
   

(Unaudited)

   

December 31, 2017

 

ASSETS

               

Current Assets

               

Cash and cash equivalents

  $ 72,167     $ 47,652  

Accounts receivable

    17,870       27,265  

Deposits and prepaid expenses

    149,602       205,922  

Total Current Assets

    239,639       280,839  
                 

Property and Equipment, net

    2,479,247       2,802,391  
                 

Other Assets - Deposits

    216,863       240,934  
                 

TOTAL ASSETS

  $ 2,935,749     $ 3,324,164  
                 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)

               

Current Liabilities

               

Accounts payable and accrued liabilities

  $ 970,580     $ 963,609  

PIK Note interest accrual

    318,464       57,334  

Current portion of notes payable

    118,252       212,134  

Total Current Liabilities

    1,407,296       1,233,077  
                 

Long-Term Liabilities

               

PIK Notes payable, net of $7,542,091 and $9,755,832 debt discount, respectively

    35,520,026       33,244,605  

PIK Note derivative

    10,227,191       2,047,264  

Total Long-Term Liabilities

    45,747,217       35,291,869  
                 

TOTAL LIABILITIES

    47,154,513       36,524,946  
                 

Stockholders’ (Deficit)

               

Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued and outstanding

    - 0 -       -0 -  

Common stock, $0.001 par value, 400,000,000 shares authorized, 150,388,549 and 140,763,549 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively

    150,389       140,764  

Additional paid-in capital

    72,200,686       71,152,311  

Accumulated deficit prior to the exploration stage

    (20,009,496 )     (20,009,496 )

Accumulated deficit during the exploration stage

    (96,560,343 )     (84,484,361 )

Total Stockholders’ (Deficit)

    (44,218,764 )     (33,200,782 )
                 

TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)

  $ 2,935,749     $ 3,324,164  

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3

 

 

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

   

For the Three Months Ended

 
   

March 31, 2018

   

March 31, 2017

 
                 

REVENUES

  $ 45,647     $ 795,282  
                 

OPERATING EXPENSES:

               

Production costs

    171,596       787,121  

Exploration costs

    55,951       243,270  

General and administrative

    1,199,046       986,628  

Depreciation expense

    323,144       330,785  

Total Operating Expenses

    1,749,737       2,347,804  
                 

Operating Loss

    (1,704,090 )     (1,552,522 )
                 

OTHER (EXPENSE):

               

Interest expense, net, including amortization of deferred financing cost and debt discount

    (2,542,051 )     (2,073,194 )

(Loss) gain on revaluation of PIK Note derivative

    (8,179,927 )     895,724  

Other income, net

    350,086       1,552  

Total Other (Expense)

    (10,371,892 )     (1,175,918 )
                 

NET LOSS

  $ (12,075,982 )   $ (2,728,440 )
                 

Net Loss Per Share (Basic and Diluted)

  $ (0.08 )   $ (0.03 )
                 

Weighted Average Shares Outstanding (Basic and Diluted)

    145,620,493       108,613,549  

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4

 

 

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(Unaudited)

 

 

   

Common Stock

                         
   

Shares

   

Amount

   

Additional

Paid-In Capital

   

Accumulated Deficit Prior to

Exploration

Stage

   

Accumulated Deficit During

Exploration

Stage

   

Total

Stockholders’

Deficit

 
                                                 

Balance, December 31, 2017

    140,763,549     $ 140,764     $ 71,152,311     $ (20,009,496 )   $ (84,484,361 )   $ (33,200,782 )
                                                 

Shares issued for consulting services

    1,500,000       1,500       58,500       - 0 -       - 0 -       60,000  
                                                 

Shares issued in private placement

    7,625,000       7,625       387,375       - 0 -       - 0 -       395,000  
                                                 

Shares issued for warrant exercise

    500,000       500       19,500       - 0 -       - 0 -       20,000  
                                                 

Stock option compensation expense

    - 0 -       - 0 -       583,000       - 0 -       - 0 -       583,000  
                                                 

Net Loss

    - 0 -       - 0 -       - 0 -       - 0 -       (12,075,982 )     (12,075,982 )
                                                 

Balance, March 31, 2018

    150,388,549     $ 150,389     $ 72,200,686     $ (20,009,496 )   $ (96,560,343 )   $ (44,218,764 )

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5

 

 

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

   

For the Three Months Ended

 
   

March 31,

 
   

2018

   

2017

 
                 

Cash Flows from Operating Activities:

               

Net loss

  $ (12,075,982 )   $ (2,728,440 )

Adjustments to reconcile net loss to net cash used in operations:

               

Depreciation

    323,144       330,785  

Amortization of discount - PIK Notes

    2,190,989       1,044,238  

Amortization of deferred financing costs

    22,751       1,875  

Issuance of PIK Notes in payment of interest

    61,681       762,458  

Stock issued for director fees

    - 0 -       65,862  
Stock issued for consulting services     60,000       - 0 -  

Stock based compensation expense

    583,000       - 0 -  

(Gain) loss on revaluation of PIK Note derivative

    8,179,927       (895,724 )

Change in operating assets and liabilities:

               

Accounts receivable

    9,395       12,529  

Other current receivables

    - 0 -       16,339  

Deposits and prepaids

    80,391       142,251  

Accounts payable and accrued liabilities

    268,101       506,270  

Net cash used in operating activities

    (296,603 )     (741,557 )
                 

Cash Flows From Investing Activities

    - 0 -       - 0 -  
                 

Cash Flows From Financing Activities:

               

Payments on notes payable

    (93,882 )     (90,078 )

Proceeds from sale of common stock

    395,000       - 0 -  

Proceeds from exercise of options or warrants

    20,000       - 0 -  

Net cash provided by (used in) financing activities

    321,118       (90,078 )
                 

Net change in cash and cash equivalents

    24,515       (831,635 )
                 

Cash and cash equivalents at beginning of period

    47,652       1,049,880  
                 

Cash and cash equivalents at end of period

  $ 72,167     $ 218,245  
                 
                 

Supplemental disclosure of cash flow information:

               
                 

Cash paid for interest

  $ 5,501     $ 1,527  

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6

 

APPLIED MINERALS, INC.

(An Exploration Stage Mining Company)

Notes to the Consolidated Financial Statements

 

 

 

NOTE 1– ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Applied Minerals, Inc. (the “Company” or “we” or “us”) 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 the Dragon Mine, which has significant deposits of high-quality halloysite clay and iron oxide. The 267-acre property is located in southwestern Utah 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 that is currently dedicated to the processing of its AMIRON product. 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.

 

For the three months ended March 31, 2018, the largest customer during the period accounted for 47% of total revenue and amounts owed by the largest customer represented 0% of accounts receivable. For the three months ended March 31, 2017, the largest customer during the period accounted for 55% of total revenue and amounts owed by the largest customer represented 62% of accounts receivable.

 

Applied Minerals is a publicly traded company incorporated in the state of Delaware. The common stock trades on the OTCQB under the symbol AMNL.

 

Exploration Agreement

On December 22, 2017, the Company and Continental Mineral Claims, Inc. (“CMC”) entered into an Exploration Agreement with Option to Purchase (“Agreement”). The Company granted to CMC the exclusive right and option to enter upon and conduct mineral exploration activities (the “Exploration License”) for Metallic Minerals on the Company’s Dragon Mine minesite in Utah (the “Mining Claims”).  Metallic Minerals are defined to include minerals with a high specific gravity and metallic luster, such as gold, silver, lead, copper, zinc, molybdenum, titanium, tungsten, uranium, tin, iron, etc., but shall exclude any such Metallic Minerals that are intermingled within any economically-recoverable, non-metallic mineral deposits located at or above an elevation of 5,590 feet above sea level. Non-metallic minerals include clay and iron oxide, the minerals mined by the Company.  The Company believes that all economic recoverable non-metallic mineral deposits are well above 5,590 feet above sea level. The Exploration License is for a period of ten years.

 

In consideration of the Exploration License CMC has paid the Company $350,000 and will pay it $150,000 on or before the first anniversary of the Exploration License, $250,000 on or before each subsequent anniversary during the Exploration License term following the first anniversary of the Effective Date of this Agreement, unless the Exploration License is terminated earlier by CMC by exercising the option or failing to make the required payment for the Exploration License.

 

CMC may exercise the option at any time during the Exploration License term. Upon exercise of the Option and the completion of the closing, CMC shall acquire 100% of the Metallic Rights within the Mining Claims from the Company, subject to the terms and conditions of the Agreement.

 

The consideration to be paid by CMC to the Company after exercising the option for the acquisition of the Metallic Rights shall be payable as follows: $3,000,000; and, CMC shall grant to the Company a five percent (5%) Net Profits Interest (“NPI”) royalty over the Metallic Minerals produced from the Mining Claims.  The NPI royalty shall be initially capped at $20,000,000 (the “NPI Cap”). The NPI Cap shall be subject to reduction in the event the Company elects to take the Share Contribution, as set forth below.

 

Upon exercise of the option, the Company shall retain the all rights and title to (1) the surface interest (with exception of those rights associated with the Metallic Rights), and (2) all non-metallic minerals (expressly including all industrial minerals including clays and iron oxides). 

 

It is anticipated that CMC will acquire rights similar to the Metallic Rights with respect to contiguous and nearly properties and such rights will be contributed to a new company formed or designated by CMC to own and operate CMC’s Tintic District project, which would involve the Metallic rights and similar rights regarding adjacent or nearby properties (“PubCo”) that intends to go public.

 

 

The Company shall have the right, at its sole election, to convert a portion of its NPI royalty interest into $2,000,000 worth of shares in PubCo up to a maximum of Two Percent (2%) net value of PubCo (the “Share Contribution”), through a reduction of the NPI Cap. The Company shall make the determination whether to take the Share Contribution or not, and so notify CMC, within ninety (90) days, of the completion (and delivery to the Company) of a feasibility study by CMC for the Tintic District project.  If the Company elects not to take the Share Contribution, the Company’s NPI royalty shall remain unchanged, including the NPI Cap, which will remain at $20,000,000.

 

The Agreement contains protections in favor of the Company against unreasonable interference of its current and future mining operations by CMC. CMC may not do anything that may, at the Company’s determination, adversely impact the Company’s Mining Operations.  “Mining Operations” shall mean the activities incident to mineral extraction, permitting, and any operations by CMC or the Company relating to the removal of minerals, respectively, that are or may reasonably be conducted on the Mining Claims, including the exploration for, and development, active mining, removing, producing and selling of any minerals, including the Metallic Minerals.  The Agreement states that the parties understand that the Company is willing to enter into the Agreement only if it is assured that CMC will not have any right to unreasonably interfere with the Company’s current mining operations and possible future Mining Operations on the Mining Claims.

 

There are no assurances that CMC will exercise its option to purchase 100% of the Metallic Rights.

 

 

NOTE 2 - LIQUIDITY AND BASIS OF PRESENTATION

 

The Company has a history of recurring losses from operations and the use of cash in operating activities. For the three months ended March 31, 2018, the Company’s net loss was $12,075,982 and cash used in operating activities was $296,603. As of March 31, 2018, the Company had current assets of $239,639 and current liabilities of $1,407,296 of which $318,464 was accrued PIK Note interest expected to be paid in additional PIK Notes. The Company’s current liabilities also include (i) $183,149 of accrued management bonus payable as determined by the Company’s Audit Committee, (ii) $118,252 of a note payable related to the financing of the Company’s D&O and G/L policies, (iii) $158,700 of payables to a compounder for which it has agreed to satisfy in halloysite product and (iv) $156,200 of disputed accrued expenses for which the Company believes it has a statute of limitations defense.

 

Based on the Company’s current cash usage expectations, management believes it will not have sufficient liquidity to fund its operations through May 22, 2019. 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.

 

Management believes that in order for the Company to meet its obligations arising from normal business operations through May 22, 2019 that the Company requires (i) additional capital either in the form of a private placement of common stock or debt and/or (ii) 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 will be limited.

 

 

NOTE 3– BASIS OF REPORTING AND SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited condensed consolidated financial statements of Applied Minerals, Inc. have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

 

In the opinion of management, these interim unaudited condensed consolidated financial statements contain all of the adjustments of a normal and recurring nature which are considered necessary for a fair presentation of the financial position of the Company and the results of its operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the operating results for the entire year. These financial statements should be read in conjunction with the financial statements and related disclosures for the year ended December 31, 2017, included in the Annual Report of Applied Minerals, Inc. on Form 10-K filed with the SEC on April 17, 2018.

 

The accompanying interim unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes. As of May 22, 2018, the Company’s significant accounting policies and estimates remain unchanged from those detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

 

Exploration-Stage Company

Effective January 1, 2009, the Company was, and still is, classified as an exploration company because the existence of proven or probable reserves at the Company’s Dragon Mine property have not been demonstrated and no significant revenue has been earned from the mine. Under the SEC’s Industry Guide 7, a mining company is considered an exploration stage company until it has declared mineral reserves determined in accordance with the guide and staff interpretations thereof.

 

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Applied Minerals, Inc. and its inactive subsidiary, which holds 100 acres of timber and mineral property in northern Idaho.

 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. In these consolidated financial statements, the warrant and PIK note derivative liabilities, stock compensation, impairment of long-lived assets and valuation allowance on income taxes involve extensive reliance on management’s estimates. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with a maturity of three months or less. The Company minimizes its credit risk by investing its cash and cash equivalents, which sometimes exceeds FDIC limits, with major financial institutions located in the United States with a high credit rating.

 

Receivables

Trade receivables are reported at outstanding principal amounts, net of an allowance for doubtful accounts.

 

Management evaluates the collectability of receivable account balances to determine the allowance, if any. Management considers the other party’s credit risk and financial condition, as well as current and projected economic and market conditions, in determining the amount of the allowance. Receivable balances are written off when management determines that the balance is uncollectable. No allowance was required at March 31, 2018 and 2017.

 

Property and Equipment

Property and equipment are carried at cost net of accumulated depreciation and amortization. Depreciation and amortization is computed on the straight-line method over the estimated useful lives of the assets, or the life of the lease, whichever is shorter, as follows:

 

   

Estimated

 
   

Useful Life (years)

 

Building and Building Improvements

    5 40  

Mining equipment

    2 7  

Office and shop furniture and equipment

    3 7  

Vehicles

      5    

 

Depreciation expense for the three months ended March 31, 2018 and 2017 totaled $323,144, and $330,785, respectively.

 

Impairment of Long-lived Assets

The Company periodically reviews the carrying amounts of long-lived assets to determine whether current events or circumstances warrant adjustment to such carrying amounts. Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. When such events occur, the Company compares the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset to its carrying amount. If this comparison indicates that there is an impairment, the amount of the impairment is typically calculated using discounted expected future cash flows where observable fair values are not readily determinable. Considerable management judgment is necessary to estimate the fair value of assets. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value, less cost to sell. The Company has determined that there was no impairment of its long-lived assets as of March 31,2018 and 2017.

 

Revenue Recognition

Revenue includes sales of halloysite clay and iron oxide during 2017 and is recognized when title passes to the buyer and when collectability is reasonably assured. Title passes to the buyer based on terms of the sales contract. Product pricing is determined based on contractual arrangements with the Company’s customers.

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance on revenue recognition, which provides a single, comprehensive revenue recognition model for all contracts with customers and supersedes most existing revenue recognition guidance.  The main principle under this guidance is that an entity should recognize revenue at the amount it expects to be entitled to in exchange for the transfer of goods or services to customers.  The Company identified the predominant changes to its accounting policies resulting from the application of this guidance and quantified the impact on its consolidated financial statements.  The cumulative effect of the initial adoption of this guidance did not have any significant impact on the Company’s consolidated financial statements as the Company did not have any significant customer contracts in place at December 31, 2017.  The Company adopted this guidance on January 1, 2018. For 2018, revenue is recognized when product transfers to the customer.

 

Mining Exploration and Development Costs

Land and mining property are carried at cost. The Company expenses prospecting and mining exploration costs. At the point when a property is determined to have proven and probable reserves, subsequent development costs will be capitalized and will be charged to operations using the units-of-production method over proven and probable reserves. Upon abandonment or sale of a mineral property, all capitalized costs relating to the specific property are written off in the period abandoned or sold and a gain or loss is recognized.

 

 

Income taxes

The Company uses an asset and liability approach which results in the recognition of deferred tax liabilities and assets for the expected future tax consequences or benefits of temporary differences between the financial reporting basis and the tax basis of assets and liabilities, as well as operating loss and tax credit carry forwards, using enacted tax rates in effect in the years in which the differences are expected to reverse.

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. A full valuation allowance has been provided for the Company’s net deferred tax assets as it is more likely than not that they will not be realized.

 

Authoritative guidance provides that the tax effects from an uncertain tax position taken or expected to be taken in a tax return can be recognized in our financial statements only if the position is more likely than not of being sustained on audit based on the technical merits of the position. As of December 31, 2017no benefit from uncertain tax positions was recognized in our financial statements. The Company has elected to classify interest and/or penalties related to income tax matters in income tax expense.

 

Stock Options and Warrants

The Company follows ASC 718 (Stock Compensation) and 505-50 (Equity-Based Payments to Non-employees), which provide guidance in accounting for share-based awards exchanged for services rendered and requires companies to expense the estimated fair value of these awards over the requisite service period. The Company instituted a formal long-term and short-term incentive plan on November 20, 2012, which was approved by its shareholders. Prior to that date, we did not have a formal equity plan, but all equity grants, including stock options and warrants, were approved by our Board of Directors. We determine the fair value of the stock-based compensation awards granted to non-employees as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete. Beginning in the quarter ended June 30, 2013 the Company began using the simplified method to determine the expected term for any options granted because the Company did not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The Company previously utilized the contractual term as the expected term.

 

Environmental Matters

Expenditures for ongoing compliance with environmental regulations that relate to current operations are expensed or capitalized as appropriate. Expenditures resulting from the remediation of existing conditions caused by past operations that do not contribute to future revenue generations are expensed. Liabilities are recognized when environmental assessments indicate that remediation efforts are probable and the costs can be reasonably estimated.

 

Estimates of such liabilities are based upon currently available facts, existing technology and presently enacted laws and regulations taking into consideration the likely effects of inflation and other societal and economic factors, and include estimates of associated legal costs. These amounts also reflect prior experience in remediating contaminated sites, other companies’ clean-up experience and data released by The Environmental Protection Agency or other organizations. Such estimates are by their nature imprecise and can be expected to be revised over time because of changes in government regulations, operations, technology and inflation. Recoveries are evaluated separately from the liability and, when recovery is assured, the Company records and reports an asset separately from the associated liability.

 

Based upon management’s current assessment of its environmental responsibilities, it does not believe that any reclamation or remediation liability exists at March 31, 2018.

 

Recent Issued Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance on revenue recognition, which provides a single, comprehensive revenue recognition model for all contracts with customers and supersedes most existing revenue recognition guidance.  The main principle under this guidance is that an entity should recognize revenue at the amount it expects to be entitled to in exchange for the transfer of goods or services to customers.  The Company identified the predominant changes to its accounting policies resulting from the application of this guidance and quantified the impact on its consolidated financial statements.  The cumulative effect of the initial adoption of this guidance did not have any significant impact on the Company’s consolidated financial statements as the Company did not have any significant customer contracts in place at December 31, 2017.  The Company adopted this guidance on January 1, 2018.

 

In February 2016, the FASB issued ASU 2016-02 (“Topic 842”) new accounting guidance for leases, which supersedes previous lease guidance. Under this guidance, for all leases with terms in excess of one year, including operating leases, the Company will be required to recognize on its balance sheet a lease liability and a right-of-use asset representing its right to use the underlying asset for the lease term. The new guidance retains a distinction between finance leases and operating leases and the classification criteria is substantially similar to previous guidance. Additionally, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed. The Company is currently evaluating the impact is guidance on its consolidated balance sheets. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted.

 

 

 

NOTE 4– PROPERTY AND EQUIPMENT

 

The following is a summary of property, plant, and equipment – at cost, less accumulated depreciation:

 

   

March 31,

   

December 31,

 
   

2018

   

2017

 

Land

  $ 500,000     $ 500,000  

Land improvements

    171,122       171,122  

Buildings

    3,129,519       3,129,519  

Mining equipment

    1,784,115       1,784,115  

Milling equipment

    2,841,726       2,841,726  

Laboratory equipment

    607,716       607,716  

Office equipment

    70,529       70,529  

Vehicles

    150,810       150,810  
      9,255,537       9,255,537  

Less: Accumulated depreciation

    (6,776,290

)

    (6,453,146

)

Total

  $ 2,479,247     $ 2,802,391  

 

 

NOTE 5– FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

 

ASC Topic 820,Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

 

Level 1– Quoted prices in active markets for identical assets and liabilities;

 

Level 2– Inputs other than level one inputs that are either directly or indirectly observable; and

 

Level 3– Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

 

Liabilities measured at fair value on a recurring basis are summarized as follows at March 31, 2018:

  

   

Fair value measurement using inputs

 
                         
   

Level 1

   

Level 2

   

Level 3

 
                         

Financial instruments:

                       

Series 2023 Note Derivative

  $ -0-     $ -0-     $ 876,063  

Series A Note Derivative

  $ -0-     $ -0-     $ 9,351,128  

 

The following table summarizes the activity during the three months ended March 31, 2018 and 2017 for financial instruments at fair value using Level 3:

 

Balance at December 31, 2017

  $ 2,047,264  

Balance at December 31, 2016

  $ 2,176,552  

Issuance of additional Series 2023 Notes

    - 0 -  

Issuance of additional Series 2023 Notes

    2,647  

Issuance of additional Series A Notes

    - 0 -  

Issuance of additional Series A Notes

    - 0 -  

Net unrealized loss included in operations

    8,179,927  

Net unrealized loss included in operations

    (895,724 )
                   

Balance at March 31, 2018

  $ 10,227,191  

Balance at March 31, 2017

  $ 1,283,475  

 

 

The recorded value of certain financial assets and liabilities, which consist primarily of cash and cash equivalents, receivables, and accounts payable and accrued expenses approximate their fair value at March 31, 2018 and December 31, 2017 based upon the short-term nature of the assets and liabilities. Based on borrowing rates currently available to the Company for loans with similar terms, and the remaining short-term period outstanding, the carrying value of notes payable other than PIK notes approximate fair value. The estimated fair value of the PIK Notes Payable was $12,157,385 and $11,395,208 at March 31, 2018 and December 31, 2017 (Level 3), respectively.

 

For the Company's warrant and PIK note derivative liabilities, Level 3 fair value hierarchy was estimated using a Monte Carlo Model using the following assumptions:

  

Series 2023 Note derivative liability

 

Fair Value Measurements

 
   

Using Inputs

 
   

March 31,

   

December 31,

 
    2018     2017  
                 

Market price and estimated fair value of stock

  $ 0.20     $ 0.05  

Exercise price (1)

  $ 0.59     $ 0.59  

Term (years)

    5.33       5.58  

Dividend yield

    -0-       -0-  

Expected volatility

    126.3

%

    115.3

%

Risk-free interest rate

    2.58

%

    2.24

%

(1) Exercise price is reflective of amended Series 2023 Notes issued in December 2017 as discussed in Note 8.

 

Series A Note derivative liability

 

Fair Value Measurements

 
   

Using Inputs

 
   

March 31,

   

December 31,

 
   

2018

   

2017

 
                 

Market price and estimated fair value of stock

  $ 0.20     $ 0.05  

Exercise price (1)

  $ 0.40     $ 0.40  

Term (years)

    5.33       5.58  

Dividend yield

    -0-       -0-  

Expected volatility

    126.3

%

    115.3

%

Risk-free interest rate

    2.58

%

    2.24

%

 (1) Exercise price is reflective of amended Series A Notes issued in December 2017 as discussed in Note 7.

 

 

 

NOTE 6 - NOTES AND LEASES PAYABLE

 

Notes payable at March 31, 2018 and December 31, 2017:

 

   

March 31,

   

December 31,

 
   

2018

   

2017

 
                 

Note payable for equipment, payable $1,339 monthly, including interest (a)

  $ 9,210     $ 13,073  

Note payable to insurance companies, payable $5,045 - $17,959 monthly, (b) and (c)

    109,042       199,061  
      118,252       212,134  

Less: Current Portion

    (118,252

)

    (212,134

)

Notes Payable, Long-Term Portion

  $ - 0 -     $ - 0 -  

 

 

(a)

On October 31, 2014, the Company purchased mining equipment for $65,120 by paying deposit and issuing a note in the amount of $57,900 with an interest rate of 5.2%. The note is collateralized by the mining equipment with payments of $1,339 for 48 months, which started on November 30, 2014.

 

(b)

The Company signed a note payable with an insurance company dated October 17, 2016 for liability insurance, payable in monthly installments, including interest ranging from 2.6% - 4.15%

 

(c)

The Company signed a note payable with an insurance company dated October 17, 2017 for liability insurance, payable in monthly installments, including interest ranging from 3.1% - 5.78%

 

 During the three months ended March 31, 2018 and 2017, the Company's interest payments totaled $5,501 and $1,527, respectively.

 

 

 

NOTE 7– CONVERTIBLE DEBT (PIK NOTES)

 

The Company raised $23 million of financing through the issuance of two series of Paid-In-Kind (“PIK”)-Election Convertible Notes in 2013 (“Series 2023 Notes”) and 2014 (“Series A Notes”). The original terms of the Series A Notes included among other things: (i) a maturity of November 1, 2018 with an option to extend to November 1, 2019, (ii) a stated interest rate of 10% paid semi-annually and (iii) a conversion price of $0.90, adjusted downward based on an anti-dilution provision. The original terms of the Series 2023 Notes included among other things: (i) a maturity of August 1, 2023, (ii) a stated interest rate of 10% paid semi-annually and (iii) a conversion price of $1.40, adjusted downward based on an anti-dilution provision. On December 14, 2017, an amendment agreement, entered into between the Company and the holders of the Series A Notes and Series 2023 Notes, went into effect. The agreement resulted in changes to certain terms of the Series A and Series 2023 Notes. The key terms of the Series A and Series 2023 Notes, as amended, are highlighted in the table below: 

 

Key Terms

 

Series 2023 Notes

   

Series A Notes

 

Inception Date

 

   08/01/2013

   

   11/03/2014

 

Cash Received

    $10,500,000       $12,500,000  

Principal (Initial Liability)

    $10,500,000       $19,848,486  

Maturity (Term)

 

Matures on August 1, 2023, but convertible into shares of the Company’s common stock at the discretion of the holder or by the Company based on the market price of the Company’s stock;

   

Matures on May 1, 2023 but extends to August 1, 2023 if the Series 2023 Notes are still outstanding. Convertible into shares of the Company’s common stock at the discretion of the holder or by the Company based on the market price of the Company’s stock;

 

Exercise Price

 

$0.59, adjusted downward based on anti-dilution provisions/downround protection

   

$0.40, adjusted downward based on anti-dilution provisions/down-round protection;

 

Stated Interest

 

10% per annum through December 14, 2017, 3% per annum thereafter, due semiannually;

   

10% per annum through December 14, 2017, 3% per annum thereafter, due semiannually;

 

Derivative Liability

 

$2,055,000 established at inception due to the existence of down-round protection; revalued every quarter using Monte Carlo model

   

$9,212,285 established at inception due to existence of down-round protection; revalued every quarter using a Monte Carlo model

 

 

As of March 31, 2018, the liability components of the PIK Notes on the Company’s balance sheet are listed in the following table:

 

   

Series 2023 Notes

   

Series A Notes

   

Total

 

PIK Note Payable, Gross

  $ 16,152,402     $ 26,909,716     $ 43,062,118  

Less: Discount

    (1,493,895

)

    (5,555,254

)

    (7,049,149

)

Less: Deferred Financing Cost

    (211,518

)

    (281,425

)

    (492,943

)

PIK Note Payable, Net

  $ 14,446,989     $ 21,073,037     $ 35,520,026  
                         

PIK Note Derivative Liability

  $ 876,063     $ 9,351,128     $ 10,227,191  

 

 As of December 31, 2017, the liability components of the PIK Notes on the Company’s balance sheet are listed in the following table:

 

   

Series 2023 Notes

   

Series A Notes

   

Total

 

PIK Note Payable, Gross

  $ 16,090,721     $ 26,909,716     $ 43,000,437  

Less: Discount

    (1,538,299

)

    (7,701,839

)

    (9,240,138

)

Less: Deferred Financing Cost

    (221,280

)

    (294,414

)

    (515,694

)

PIK Note Payable, Net

  $ 14,331,142     $ 18,913,463     $ 33,244,605  
                         

PIK Note Derivative Liability

  $ 163,634     $ 1,883,630     $ 2,047,264  

 

Series A Notes (Amended)

On November 3, 2014 (“Issue Date”), the Company issued, in a private placement pursuant to investment agreements, $19,848,486 principal amount of 10% PIK-Election Convertible Notes due 2018 ("Series A Notes") in exchange for $12,500,000 in cash and the cancellation of previously-issued warrants held by one investor.

 

The original terms of the Series A Notes included among other things: (i) a maturity of November 1, 2018 with an option to extend to November 1, 2019, (ii) a stated interest rate of 10% paid semi-annually and (iii) a conversion price of $0.90, adjusted downward based on an anti-dilution provision. The original terms of both the Series A notes and Series 2023 Notes can be as exhibits to Forms 8-K filed on November 5, 2014.

 

 

At March 31, 2018, the fair value of the Series A Note Derivative was estimated to be $9,351,128. During the three months ended March 31, 2018, the Company amortized $2,159,514 of debt discount and deferred financing cost relating to the Series A Notes Payable. The carrying value of the Series A Notes Payable as of March 31, 2018 was $21,073,037.

 

At December 31, 2017, the fair value of the Series A Note Derivative was estimated to be $1,883,630, which includes the value of the derivative related to the additional PIK Notes issued in May and November 2017 for the semi-annual interest payments due and the additional notes issued in December, 2017. During the year ended December 31, 2017, the Company amortized $5,808,294 of debt discount and deferred financing cost relating to the Series A Notes Payable and issued additional PIK Notes in lieu of interest payments of $2,797,836, increasing the Series A Notes Payable carrying value to $26,909,721 as of December 31, 2017.

 

As of March 31, 2018, the Company was in compliance with the covenants of the Series A Notes.

 

Series 2023 Notes (Amended)

In August 2013, the Company received $10,500,000 of financing through the private placement of 10% mandatory convertible Notes due 2023 ("Series 2023 Notes"). The principal amount of the Notes is due on maturity. The Company can elect to pay semi-annual interest on the Series 2023 Notes with additional PIK Notes containing the same terms as the Series 2023 Notes, except interest will accrue from issuance of such notes. The Company can also elect to pay interest in cash. In February, 2017 and August, 2017, the Company issued $703,550 and $738,728, respectively, in additional Series 2023 Notes to the holders to pay the semi-annual interest. Additionally, on December 14, 2017, the Company issued $577,439 of additional 2023 Notes, which represented the accrued interest of the Series 2023 Notes on the day on which the terms of the Series 2023 Notes were effectively amended.

 

At March 31, 2018, the fair value of the Series 2023 Note Derivative was estimated to be $876,063, which includes the value of the derivative related to additional PIK Notes issued in February 2018. During the three months ended March 31, 2018, the Company amortized $54,166 of debt discount and deferred financing cost relating to the Series 2023 Notes Payable and issued additional PIK Notes of $61,681 in lieu of cash interest payments, increasing the Series 2023 Notes Payable carrying value to $14,446,989 as of March 31, 2018.

 

At December 31, 2017, the fair value of the Series 2023 Note Derivative was estimated to be $163,634, which includes the value of the derivative related to additional PIK Notes issued in February and August 2016 for the semi-annual interest payments due and the additional notes issued in December, 2017. During the year ended December 31, 2017, the Company amortized $200,360 of debt discount and deferred financing cost relating to the Series 2023 Notes Payable and issued additional PIK Notes of $2,019,717 in lieu of cash interest payments, increasing the Series 2023 Notes Payable carrying value to $16,090,721 as of December 31, 2017. As part of the amendment agreement, the holders of the Series 2023 Notes received warrants to purchase 3,720,000 million shares of common stock at $0.10 per share. The Black Scholes value of these warrants totaled $224,290.

 

As of March 31, 2018, the Company was in compliance with the covenants of the Series 2023 Notes.

 

 

NOTE 8– STOCKHOLDERS’ EQUITY

 

Preferred Stock

The Company is authorized to issue 10,000,000 shares of noncumulative, non-voting, nonconvertible preferred stock, $0.001 par value per share. At March 31, 2018 and December 31, 2017, no shares of preferred stock were outstanding.

 

Common Stock

On December 7,2017, stockholders of the Company approved to increase the authorized shares of common stock from 250,000,000 to 400,000,000 shares, $0.001 par value per share. At March 31, 2018 and December 31, 2017, 150,388,549 and 140,763,549 shares were issued and outstanding, respectively.

 

2018

During the three months ended March 31, 2018 the Company (i) issued 1,500,000 shares of common stock at a price of $0.04 per share to a consultant for investor relation services to be performed, (ii) sold 3,625,000 shares of common stock at a price of $0.04 per share, (iii) sold 3,000,000 shares of common stock at a price of $0.05 per share, (iv) sold 1,000,000 shares of common stock at a price of $0.10 per share and (iii) sold 500,000 shares of common stock at a price of $0.04 per share upon the exercise of a warrant to purchase shares of common stock.

 

2017

During 2017, the Company issued: (i) 250,000 shares of common stock, at a price of $0.36 per share, to directors; (ii) 26,500,000 units, (one unit consisting of one share of common stock and one warrant to purchase 0.25 shares of common stock at a price of $0.04 per unit; (iii) 2,275,000 units, at a price of $0.04 per unit, as payment for fees associated with a private placement of stock and (iv) 3,1250,000 shares of common stock, at a price of $0.04 per share, upon the exercise of warrants to purchase common stock.

 

 

 

NOTE 9– OPTIONS AND WARRANTS TO PURCHASE COMMON STOCK

 

Outstanding Stock Warrants

 

A summary of the status and changes of the warrants issued for the three months ended 2018:

 

   

Shares Issuable

upon exercise of

         
   

upon Exercise of

   

Weighted Average

 
   

Outstanding Warrants

   

Exercise Price

 
                 

Outstanding at January 1, 2018

    18,813,373     $ 0.14  

Issued

    ---       --  

Exercised

    (500,000

)

  $ 0.04  

Forfeited

    --       --  

Outstanding at March 31, 2018

    18,313,373     $ 0.14  

 

A summary of the status of the warrants outstanding and exercisable at March 31, 2018 is presented below:

 

       

Warrants Outstanding and Exercisable

 
       

Shares Issuable

   

Weighted Average

         
       

upon Exercise of

   

Remaining

   

Weighted Average

 

Exercise Price

   

Outstanding Warrants

   

Contractual Life (years)

   

Exercise Price

 
$ 1.15       461,340       3.1     $ 1.15  
$ 0.25       3,283,283       3.2     $ 0.25  
$ 0.04       3,568,750       4.5     $ 0.04  
$ 0.10       11,000,000       4.7     $ 0.10  
          18,313,373       4.4     $ 0.14  

 

Outstanding Stock Options

On November 20, 2012, the shareholders of the Company approved the adoption of the Applied Minerals, Inc. 2012 Long-Term Incentive Plan (“LTIP”) and the Short-Term Incentive Plan (“STIP”) and the performance criteria used in setting performance goals for awards intended to be performance-based. Under the LTIP, 8,900,000 shares are authorized for issuance. The STIP does not refer to a particular number of shares under the LTIP, but would use the shares authorized in the LTIP for issuance under the STIP. The CEO, the CFO, and named executive officers, and directors, among others are eligible to participate in the LTIP and STIP. Prior to the adoption of the LTIP and STIP, stock options were granted under individual arrangements between the Company and the grantees, and approved by the Board of Directors.

 

In May, 2016, the Company adopted the 2016 Long-Term Incentive Plan (“2016 LTIP”). The number of shares of common stock for issuance or for reference purposes subject to the 2016 LTIP was 2,000,000.

 

On December 7, 2016, the stockholders of the Company approved the 2016 Incentive Plan. The purpose of the 2016 Incentive Plan is to enhance the profitability and value of the Company for the benefit of its stockholders by enabling the Company to offer eligible employees, consultants, and non-employee directors incentive awards in order to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and the Company’s stockholders. The aggregate number of shares of Common Stock that may be issued or used for reference purposes under the 2016 Incentive Plan or with respect to which awards may be granted may not exceed 15,000,000 shares, which may be either (i) authorized and unissued Common Stock or (ii) Common Stock held in or acquired for the treasury of the Company.

 

 

The Compensation Committee of the Company Board of Directors has full authority to administer and interpret the 2016 Incentive Plan, to grant awards under the 2016 Incentive Plan, to determine the persons to whom awards will be granted, to determine the types of awards to be granted, to determine the terms and conditions of each award, to determine the number of shares of Common Stock to be covered by each award and to make all other determinations in connection with the 2016 Incentive Plan and the awards thereunder as the Committee, in its sole discretion, deems necessary or desirable.

 

On December 14, 2017, the Board of Directors approved the 2017 Incentive Plan (“2017 IP”). Forty million (40,000,000) shares of Common Stock are subject to the 2017 IP.

 

The fair value of each of the Company's stock option awards is estimated on the date of grant using the Black-Scholes option-pricing model that uses the assumptions noted in the table below. Expected volatility is based on an average of historical volatility of the Company's common stock. The risk-free interest rate for periods within the contractual life of the stock option award is based on the yield curve of a zero-coupon U.S. Treasury Bond on the date the award is granted with a maturity equal to the expected term of the award.

 

The significant assumptions relating to the valuation of the Company's options issued during the three months ended March 31, 2018 were as follows on a weighted average basis:

 

Dividend Yield

    0%  

Expected Life (in years)

  2.90 2.92

Expected Volatility

  163.19% 163.46%

Risk Free Interest Rate

    2.38%  

 

A summary of the status and changes of the options granted under stock option plans and other agreements during the three months ended March 31, 2018:

 

   

Shares Issued

   

Weighted

 
   

Upon Exercise of

   

Average

 
   

Options

   

Exercise Price

 
                 

Outstanding at December 31, 2017

    57,057,768     $ 0.36  

Granted

    3,000,000     $ 0.12  

Exercised

    --       --  

Forfeited

    (232,645

)

    1.36  

Outstanding at March 31, 2018

    59,825,123     $ 0.35  

 

During the three months ended March 31, 2018, the Company granted 3,000,000 options to purchase the Company’s common stock with a weighted average exercise price of $0.12. The options vest monthly through January, 2019.

 

 

A summary of the status of the options outstanding at March 31, 2018 is presented below:

 

Options Outstanding

   

Options Exercisable

 

Number Outstanding

   

 

Weighted

Average

Remaining

Contractual

Life (years)

   

Weighted

Average

Exercise

Price

   

Number

Exercisable

   

Weighted

Average

Exercise

Price

 
                                   
34,475,000       9.70     $ 0.06       22,808,336     $ 0.06  
545,289       9.73     $ 0.075       211,955     $ 0.075  
3,000,000       4.86     $ 0.12       249,999     $ 0.12  
500,000       3.38     $ 0.16       500,000     $ 0.16  
81,395       5.89     $ 0.21       81,395     $ 0.21  
100,000       2.47     $ 0.22       100,000     $ 0.22  
1,066,155       3.12     $ 0.24       1,066,155     $ 0.24  
2,087,500       4.54     $ 0.25       2,087,500     $ 0.25  
35,595       5.04     $ 0.27       35,595     $ 0.27  
474,815       6.11     $ 0.28       474,815     $ 0.28  
234,506       4.89     $ 0.285       234,506     $ 0.285  
81,522       2.81     $ 0.30       81,522     $ 0.30  
200,000       6.88     $ 0.66       200,000     $ 0.66  
150,000       6.86     $ 0.68       150,000     $ 0.68  
7,233,277       0.75     $ 0.70       7,233,277     $ 0.70  
488,356       7.13     $ 0.73       371,666     $ 0.73  
3,104,653       3.90     $ 0.83       3,104,653     $ 0.83  
975,000       6.20     $ 0.84       975,000     $ 0.84  
300,000       5.39     $ 1.10       300,000     $ 1.10  
300,000       5.24     $ 1.15       300,000     $ 1.15  
115,000       2.99     $ 1.35       115,000     $ 1.35  
300,000       4.15     $ 1.55       300,000     $ 1.55  
3,077,060       4.64     $ 1.66       3,077,060     $ 1.66  
900,000       3.39     $ 1.90       900,000     $ 1.90  
59,825,123       7.11     $ 0.35       44,958,434     $ 0.44  

 

On December 14, 2017, the Company’s management was granted performance-based options to purchase 27.5 million shares of the Company’s common stock at $0.06 per share. The options expire on December 13, 2027. At December 31, 2017, the first fifty percent (50%) of the performance-based options vested as management was able to (i) close the sale of an aggregate of $600,000 of units (consisting of a share of common stock of the Company and a warrant to buy 0.25 of a share of common stock of the Company) at $0.04 per unit and (ii) establish toll processing arrangements with two toll processors of halloysite that, in management’s good faith belief, can process halloysite to the Company’s specifications. An additional twenty-five percent (25%) of the performance-based options vested on February 1, 2018 when management generated $900,000 of additional cash proceeds through (i) the sale of common stock and (ii) the licensing of a right to explore the Dragon Mine property for certain precious metals. The vesting of the remaining 8.3%, 8.3% and 8.4% of the performance-based options occurs when (i) EBITDA is positive over a twelve-month period, (ii) EBITDA is at or greater than $2 million over a twelve-month period and (iii) EBITDA is at or greater than $4 million over a twelve-month period, respectively. At March 31, 2018, the achievement of the performance targets was not deemed probable.

 

Compensation expense of $583,000 has been recognized for the vested options for the three months ended March 31, 2018. The aggregate intrinsic value of the outstanding options at March 31, 2018 was $5,154,661. At March 31, 2018, (i) $600,173 of unamortized compensation expense for time-based unvested options will be recognized over the next 0.78 years on a weighted average basis; and (ii) $354,750 of unamortized compensation expense for performance-based unvested options will be recognized as the achievement of the performance targets becomes probable.

 

 

 

NOTE 10 - PER SHARE DATA

 

The computation of basic earnings (loss) per share of common stock is based on the weighted average number of shares outstanding during the year. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the year plus the common stock equivalents that would arise from the exercise of stock options and warrants outstanding under the treasury method and the average market price per share during the year as well as the conversion of notes. At March 31, 2018, the weighted average shares outstanding excluded options to purchase 59,825,123 shares of common stock of the Company, warrants to purchase 18,313,373 shares of common stock of the Company and 94,651,255, shares of common stock of the Company issuable upon the conversion of notes because their effect would be anti-dilutive. At March 31, 2017, the weighted average shares outstanding excluded options to purchase 20,540,769 shares of common stock of the Company, warrants to purchase 3,744,623 shares of common stock of the Company and 40,677,826 shares of common stock of the Company issuable upon the conversion of notes payable because their effect would be anti-dilutive.

 

 

NOTE 11– COMMITMENTS AND CONTINGENCIES

 

Office Lease

 

On January 1, 2017, the Company moved its headquarters to a temporary location. The Company paid a monthly rent of $6,000 through March 31, 2017 for the temporary office. On April 1, 2017, the Company entered into a 5-year lease agreement for permanent office space. At March 31, 2018, the Company’s total monthly office rental payments, due through March 31, 2022, was $449,880. As March 31, 2018, monthly office rental payments due through March 31, 2019 total $107,532, monthly office rental payments due for the period from April 1, 2019 through March 31, 2021 total $224,844 and monthly office rental payments due for the period from April 1, 2021 through March 31, 2022 total $117,504.

  

 

NOTE 12 – SUBSEQUENT EVENTS

 

On April 24, 2018 the Company sold 13,750,000 shares of common stock at $0.04 per share to seven investors in a private transactions.

 

 

 

ITEM 2     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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 the Dragon Mine, which has significant deposits of high-quality halloysite clay and iron oxide. The 267-acre property is located in southwestern Utah 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 that is currently dedicated to the processing of its AMIRON product. 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.

 

Applied Minerals is a publicly traded company incorporated in the state of Delaware. The common stock trades on the OTCQB under the symbol AMNL.

 

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 ended December 31, 2017. There have been no material changes in our critical accounting policies and estimates during the three-month period ended March 31, 2018 compared to the disclosures on Form 10-K for the year ended December 31, 2017. 

 

Recent Accounting Pronouncements

 

Recently Adopted

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance on revenue recognition, which provides a single, comprehensive revenue recognition model for all contracts with customers and supersedes most existing revenue recognition guidance.  The main principle under this guidance is that an entity should recognize revenue at the amount it expects to be entitled to in exchange for the transfer of goods or services to customers.  The Company identified the predominant changes to its accounting policies resulting from the application of this guidance and quantified the impact on its consolidated financial statements.  The cumulative effect of the initial adoption of this guidance did not have any significant impact on the Company’s consolidated financial statements as the Company did not have any significant customer contracts in place at December 31, 2017.  The Company adopted this guidance on January 1, 2018.

 

In August 2016, FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” amended guidance which clarifies how certain cash receipts and cash payments should be presented and classified in the statement of cash flows. The new guidance is intended to reduce the existing diversity in practice in how certain transactions are classified in the statement of cash flows. This guidance was adopted on January 1, 2018. Management does not expect to have the adoption of ASU 2016-15 to have an impact on its statement of cash flows.

 

19

 

In January 2017, the FASB issued ASU 2017-01, “Business Combinations: Clarifying the Definition of a Business,” which clarifies the definition of a business and assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Under this guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or group of similar assets), the assets acquired would not represent a business. In addition, in order to be considered a business, an acquisition would have to include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The amended guidance also narrows the definition of outputs by more closely aligning it with how outputs are described in FASB guidance for revenue recognition. This guidance was adopted on January 1, 2018. 

 

Not Yet Adopted

 

In February 2016, the FASB issued ASU 2016-02 (“Topic 842”) new accounting guidance for leases, which supersedes previous lease guidance. Under this guidance, for all leases with terms in excess of one year, including operating leases, the Company will be required to recognize on its balance sheet a lease liability and a right-of-use asset representing its right to use the underlying asset for the lease term. The new guidance retains a distinction between finance leases and operating leases and the classification criteria is substantially similar to previous guidance. Additionally, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed. The Company is currently evaluating the impact of this guidance on its consolidated financial statements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. 

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which (i) significantly changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model; and (ii) provides for recording credit losses on available-for-sale (AFS) debt securities through an allowance account. The update also requires certain incremental disclosures. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the effect this ASU will have on its consolidated financial statements and disclosures.

 

Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017

 

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,

   

 

 
   

2018

   

2017

   

Variance

   

 

 
                                 

REVENUES

  $ 45,647     $ 795,282       (749,635

)

    (94

%)

                                 

OPERATING EXPENSES:

                               

Production costs

    171,596       787,121       (615,525

)

    (78

%)

Exploration costs

    55,951       243,270       (187,319

)

    (77

%)

General and administrative

    1,199,046       986,628       212,418       22

%

Depreciation expense

    323,144       330,785       (7,641

)

    (2

%)

Total Operating Expenses

    1,749,737       2,347,804       (598,067

)

    (26

%)

                                 

Operating Loss

    (1,704,090

)

    (1,552,522

)

    (151,568 )     10

%

                                 

OTHER (EXPENSE):

                               

Interest expense, net, including amortization of deferred financing cost and debt discount

    (2,542,051

)

    (2,073,194

)

    (468,857

)

    23

%

(Loss) gain on revaluation of PIK Note derivative

    (8,179,927

)

    895,724       (9,075,651

)

    (1,013

%)

Other income, net

    350,086       1,552       348,534       22,457

%

                                 

Total Other Expense

    (10,371,892

)

    (1,175,918

)

    (9,195,974

)

    782

%

                                 

NET LOSS

  $ (12,075,982

)

  $ (2,728,440

)

  $ (9,347,542

)

    343

%

 

 

Revenue for the three months ended March 31, 2018 totaled $45,647, compared to $795,282 for the same period in 2017, a decrease of $749,635 or 94%. Sales of DRAGONITE during the three months ended March 31, 2018 totaled $45,647, a decline of $73,291 or 62% when compared to the same period in 2017. Sales of AMIRON during the three months ended March 31, 2018 totaled $0, a decline of $676,344 when compared to the same period in 2017.

 

The decrease in total sales was driven primarily by the absence of sales of AMIRON to one customer during the three months ended March 31, 2018. In December, 2015 the Company entered into an agreement to supply one customer its AMIRON iron oxide for use as a catalyst. The agreement required the Company to deliver $5 million of AMIRON to the customer through June, 2017. During the three months ended March 31, 2018, the Company sold no AMIRON to the above-referenced customer compared to $676,344 of AMIRON sold to the customer during the same period in 2017.

 

20

 

The $73,291 decrease in sales of DRAGONITE during the three months ended March 31, 2018 was driven primarily by a $57,200 decrease in the sale of DRAGONITE to a manufacturer of specialty molecular sieves and a $41,900 decrease in the sale of DRAGONITE to customer for use as a nucleating agent, all partially offset by the sale of $11,000 of DRAGONITE to a new customer for use in the development of a catalyst and the sale of $6,000 of DRAGONITE to a distributor of research materials, which did not occur during the same period in 2017.

 

Total operating expenses for the three months ended March 31, 2018 were $1,749,737 compared to $2,347,804 of operating expenses incurred during the same period in 2017, a decrease of $598,067 or 26%. The decrease in operating expense, when compared to the same period in 2017, was driven primarily by a decline in production costs of $615,525 or 78% and a decline in exploration costs of $186,756 or 77% partially offset by an increase in general and administrative expense of $212,418 or 22%.

 

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 ended March 31, 2018 totaled $171,956 compared to $787,121 of production costs incurred during the same period in 2018. The decrease of $615,525 was driven primarily by a general decline in production activity at the mine during the three months ended March 31, 2018 compared to the same period in 2017. The decline in production activity during the current period was driven primarily by the fulfillment, in June, 2017, of an agreement entered into by the Company to supply a customer with $5.0 million of AMIRON. The larger components of the decline in production costs included an 85% decline in wage expense of $307,393, a 98% decline in equipment repair and maintenance expense of $70,273, a 100% decline in mining materials costs of $61,838 and a 96% decline in propane costs of $56,288.

 

Exploration costs include operating expenses incurred at the Dragon Mine that are not directly related to production activities. Exploration costs incurred during the three months ended March 31, 2018 were $55,951 compared to $243,270 of incurred during the same period in 2017, a decrease of $187,319 or 77%. The decrease was driven primarily a reduction in general activity at the Dragon Mine property.

 

General and administrative expenses incurred during the three months ended March 31, 2018 totaled $1,199,046 compared to $986,628 of expense incurred during the same period in 2017, an increase of $212,418 or 22%. The Company’s selling and administrative expenses are associated primarily with its New York operations.

 

The largest component of the Company’s general and administrative expense is compensation expense of personnel at its New York location.  Wages and related taxes paid during the three months ended March 31, 2018 totaled $327,356, a decrease of $57,762 or 15% when compared to the same period in 2018. The decrease in wages and related expense was due primarily to a reduction in bonus paid to the Company’s CEO and the elimination of a position at the Company’s New York office.

 

Travel and related expense incurred during the three months ended March 31, 2018 totaled $16,080, a decline of $31,458 or 66% compared to the same period in 2017. The decline was due primarily to the Company’s decision to focus its travel and related spending more narrowly on those customers and prospective customers who are relatively far along the path to commercialization of products using its products.

 

Expenses incurred for due and subscriptions during the three months ended March 31, 2018 totaled $4,736, a decline of $19,501 or 81% compared to the same period in 2017. The decline was due primarily to the expiration of certain subscriptions.

 

Shareholder expenses totaled $13,095 during the three months ended March 31, 2018, a decline of $19,194 or 59% compared to the same period in 2017. The decline was due primarily to a reduction in costs related to the Company investor relation activities.

 

Utility expense incurred during the three months ended March 31, 2018 totaled $2,239, a decline of $16,582 or 88% compared to the same period in 2017. The decline was driven primarily by the reduction in certain telecom-related expenses. .

 

The above reductions in certain general and administrative expenses were more than offset by (i) a $310,263 increase or 114% increase in equity-based compensation expense for employees, directors and consultants incurred during the three months ended March 31, 2018 compared to the same period in 2017, (ii) a $20,553 increase on other general and administrative expense related primarily to the write-off of rent deposit paid in 2017 and (iii) a $16,854 or 89% increase in rent expense incurred during the three months ended March 31, 2018 when compared to the same period in 2017 due primarily to an increase in monthly rent expense.

 

Operating loss incurred during the three months ended March 31, 2018 was $1,704,090 a decrease of $151,658 or 10% when compared to the same period in 2017. The increase in operating loss during the quarter was due to a 94% decrease in revenue and a 22% increase in general and administrative expense, partially offset by a 78% decrease in production expense and a 77% decrease in exploration expense.

 

Net Loss for the three-month period ending March 31, 2018 was $12,075,982 an increase of $9,347,542 or 343% compared to the same period in 2017. The increase in net loss was due primarily to the $9,195,974 increase in total other expense. The decline in total other expense during the period was driven primarily by a $9,075,651 or 1,013% decline in gain on the revaluation of the PIK Note derivative liability and a $468,857 or 23% increase in PIK Note interest expense. The decline in the gain on the revaluation of the PIK Note derivative liability was due to the increase in the market price of the Company’s common stock during the three months ended March 31, 2018. The increase in interest expense was due to a higher PIK Note balance during the period when compared to the same period in 2016. These increases in other expense were partially offset by a $348,534 or 225% increase in other income due primarily to a $350,000 fee paid to the Company in exchange for leasing certain mineral exploration rights at its Dragon Mine property.

 

21

 

LIQUIDITY AND CAPITAL RESOURCES 

 

The Company has a history of recurring losses from operations and the use of cash in operating activities. For the three months ended March 31, 2018, the Company’s net loss was $12,075,982 and cash used in operating activities was $296,603. As of March 31, 2018, the Company had current assets of $239,639 and current liabilities of $1,407,295 of which $318,464 was accrued PIK Note interest expected to be paid in additional PIK Notes. The Company’s current liabilities also include (i) $183,149 of accrued management bonus payable as determined by the Company’s Audit Committee, (ii) $118,252 of a note payable related to the financing of the Company’s D&O and G/L policies, (iii) $158,700 of payables to a compounder for which it has agreed to satisfy in halloysite product and (iv) $156,200 of disputed accrued expenses for which the Company believes it has a statute of limitations defense.

 

Based on the Company’s current cash usage expectations, management believes it will not have sufficient liquidity to fund its operations through May 22, 2019. 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.

 

Management believes that in order for the Company to meet its obligations arising from normal business operations through May 22, 2019 that the Company requires (i) additional capital either in the form of a private placement of common stock or debt and/or (ii) 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 will be limited.

 

Cash used in operating activities during the three months ended March 31, 2018 was $296,603 compared to $741,557 during the same period in 2017, a decline of $444,954 or 60%. Cash used in operating activities during 2017 before adjusting for changes in operating assets and liabilities was $654,489, $764,457 less than the comparable period in 2017.

 

Cash provided by investing activities during the three months ended March 31, 2018 was $0 compared to $0 during the same period in 2017.

 

Cash provided by financing activities during the three months ended March 31, 2018 was $321,118 compared to $90,078 of cash used during the same period in 2017. The $411,196 increase in cash generated during the period was due primarily to $395,000 of proceeds generated from the sale of common stock of the Company and $20,000 of proceeds from the exercise of warrants to purchase shares of common stock of the Company.

 

Total assets at March 31, 2018 were $2,935,749 compared to $3,324,164 at December 31, 2017, a decrease of $388,415 due primarily to the depreciation of the book value of the Company’s property and equipment. Total liabilities were $47,154,543 at March 31, 2018, compared to $36,524,946 at December 31, 2017. The increase in total liabilities was due primarily to a $8,179,927 increase in the balance of the PIK Note derivative liability, a $2,275,421 increase in the PIK Note balance and a $261,130 increase in the PIK Note interest accrual.

 

ISSUANCE OF CONVERTIBLE DEBT

 

For information with respect to issuance of convertible debt, see Note 8 of Notes to Condensed 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.

 

The following table summarizes our contractual obligations as of March 31, 2018 that requires us to make future cash payments:

 

   

Payment due by period

 
   

Total

   

< 1 year

   

1 – 3 years

   

3 – 5 years

   

> 5 years

 

Contractual Obligations:

                                       

Rent obligations

  $ 449,880     $ 107,532     $ 224,844     $ 117,504     $ - 0 -  
                                         

Total

  $ 449,880     $ 107,532     $ 224,844     $ 117,504     $ - 0 -  

 

 

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We have no exposure to fluctuations in interest rates, foreign currencies, or other factors.

 

22

 

ITEM 4.     CONTROLS AND PROCEDURES

 

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were, as of the end of the fiscal quarter covered by this quarterly report, effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

 

As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal controls over financial reporting to determine whether any changes occurred during the quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.

 

We have identified material weaknesses in our internal control over financial reporting. If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which could harm our business and the trading price of our stock.

 

During the preparation of our consolidated financial statements for the year ended December 31, 2017, we and our independent registered public accounting firm, identified deficiencies in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board. Management determined the control deficiencies constitute material weaknesses in our internal control over financial reporting.

 

The existence of a material weakness could result in errors in our financial statements, cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information, leading to a decline in the trading price of our stock.

 

Management has identified the following material weaknesses, which have caused management to conclude that as of March 31, 2018, our internal controls over financial reporting were not effective at the reasonable assurance level:

 

*

Insufficient segregation of duties, oversight of work performed and lack of compensating controls in our finance and accounting functions due to limited personnel; and

*

We lack a sufficient process for periodic financial reporting and review of financial reports and statements.

  

Notwithstanding the existence of these material weaknesses in our internal control over financial reporting, the management believes that the consolidated financial statements included in this Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

 

23

 

PART II.     OTHER INFORMATION

 

ITEM 1.     LEGAL PROCEEDINGS

 

As of the date of this report, there is no pending or threatened litigation. We may become involved in or subject to, routine litigation, claims, disputes, proceedings and investigations in the ordinary course of business, could have a material adverse effect on our financial condition, cash flows or results of operations.

 

ITEM 1A.  RISK FACTORS.

 

Except for the below, there were no additions or material changes to the Company’s risk factors disclosed in Item 1A of Part I in the Company’s 2017 Annual Report on Form 10-K.

 

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During January, 2018 the Company issued 1,500,000 shares of common stock to a consultant at a price of $0.04 per share.

 

During February, 2018 the Company sold 3,625,000 shares of common stock at a price of $0.04 per share. The proceeds from the sale were used to fund working capital.

 

During March, 2018 the Company sold 3,000,000 shares of common stock at a price of $0.05 per share. The proceeds from the sale were used to fund working capital.

 

During March, 2018 the Company sold 1,0000,000 shares of common stock at a price of $0.10 per share. The proceeds from the sale were used to fund working capital.

 

During March a shareholder exercised warrants to purchase 500,000 shares of stock at $0.04 per share. The proceeds from the exercise of the warrants were used to fund working capital.

 

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4.     MINE SAFETY DISCLOSURES

 

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and this Item is included in Exhibit 95 to this Form 10-Q.

 

ITEM 5.     OTHER INFORMATION

 

None.

 

24

 

ITEM 6.     EXHIBITS

 

(a) Exhibits.

 

The following exhibits are included in this report:

 

Exhibit

Number

Description of Exhibit

31.1

Certification pursuant to Rule 13a-14 of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Principal Executive Officer

  

  

31.2

Certification pursuant to Rule 13a-14 of the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Principal Financial Officer

  

  

32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Principal Executive Officer

  

  

32.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Principal Financial Officer

  

  

95

Mine Safety Disclosure

 

101.INS

XBRL Instance

  

  

101.SCH

XBRL Taxonomy Extension Schema

  

  

101.CAL

XBRL Taxonomy Extension Calculation

  

  

101.DEF

XBRL Taxonomy Extension Definition

  

  

101.LAB

XBRL Taxonomy Extension Labels

  

  

101.PRE

XBRL Taxonomy Extension Presentation

  

  

XBRL

Information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

25

 

SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  

  

APPLIED MINERALS, INC.

  

  

  

Dated: May 22, 2018

  

/s/ ANDRE ZEITOUN

  

  

By: Andre Zeitoun

  

  

Chief Executive Officer

  

  

  

Dated: May 22, 2018

  

/s/ CHRISTOPHER T. CARNEY

  

  

By: Christopher T. Carney

  

  

Chief Financial Officer

 

26