Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
AMNL > SEC Filings for AMNL > Form 10-K on 14-Mar-2014All Recent SEC Filings

Show all filings for APPLIED MINERALS, INC.

Form 10-K for APPLIED MINERALS, INC.


14-Mar-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Applied Minerals, Inc. (the "Company") is a leading global producer of Halloysite Clay. Vertically integrated from Mine to Market, our niche focus and in-depth application knowledge allow us to offer our customers commercially consistent product grades, specifically tailored to achieve enhanced performance objectives. Our key strategy is to further commercialize the halloysite, iron ore and other products on our minesite while investing in our mining facility resources, including personnel, plant and equipment. See Business section above for further details on strategy and recent developments.

CRITICAL ACCOUNTING POLICIES

The following accounting policies have been identified by management as policies critical to the Company's financial reporting:

Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. In these consolidated financial statements, the warrant derivative liability, 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 at the date of purchase. 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. The Company's management believes that no concentration of credit risk exists with respect to the investment of its cash and cash equivalents.

Property and Equipment
Property and equipment are carried at cost.  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
              Building and Building Improvements      20 - 40 years
              Mining equipment                         2 - 7 years
              Office and shop furniture and equipment  3 - 7 years
              Vehicles                                   5 years

Fair Value
Disclosures and measurements of fair value of the Company's financial instruments reflects the amounts that the Company estimates to receive in connection with the sale of an asset or paid in connection with the transfer of a liability, when applicable, in an orderly transaction between market participants at the measurement date (exit price). For financial assets and liabilities that are periodically re-measured to fair value, the Company discloses a fair value hierarchy that prioritizes the use of inputs used in the applicable valuation techniques into the following three levels:

Level 1 - quoted prices in active markets for identical assets and liabilities Level 2 - observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3 -significant unobservable inputs

The recorded value of certain financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value at December 31, 2013 and 2012 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 materially approximate fair value. For the Company's warrant and PIK note derivative liabilities fair value was estimated using a Binomial Lattice Model.

Revenue Recognition
Revenue includes sales for halloysite 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.

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 are capitalized. When these properties are developed and operations commence, capitalized development costs 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.

Through December 31, 2013 all costs associated with prospecting and exploration of the Company's mines have been deemed to have indeterminable recoverability and therefore have been expensed.


Table of Contents
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 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. During the quarter ended June 30, 2013 the Company employed 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.

RECENT ACCOUNTING PRONOUNCEMENTS

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02) requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. This ASU was effective for reporting periods beginning after December 15, 2012. The adoption of this standard did not have an impact on our financial position or results of operations.


Table of Contents
Results of Operations- 2013 compared to 2012

The following sets forth, for the periods indicated, certain components of our operating earnings, including such data stated as percentage of revenues:

                                         Twelve Months Ended December 31,                               Variance
                             2013           % of Rev.           2012           % of Rev.          Amount            %

REVENUES                 $      54,825             100 %    $     165,742             100 %    $   (110,917 )         (67 %)

OPERATING EXPENSES:
Production costs                17,244              31 %          103,238              62 %         (85,994 )         (83 %)
Exploration costs            4,551,666            8311 %        3,542,977            2138 %       1,008,689            28 %
General and
administrative *             8,569,413 *         15621 %        6,541,043 *          3946 %       2,028,370 *          31 %
Depreciation expense           317,570             579 %          280,991             170 %          36,579            13 %
Loss on impairment and
disposition of land
and equipment                    2,482               5 %            9,913               6 %          (7,431 )         (75 %)
Total Operating
Expenses                    13,458,375           24548 %       10,478,162            6322 %       2,980,213            28 %

Operating Loss             (13,403,550 )        (24448 %)     (10,312,420 )         (6222 %)     (3,091,130 )          30 %

OTHER INCOME
(EXPENSE):
Interest expense, net,
including amortization
of deferred financing
cost and debt discount        (497,187 )          (907 %)         (12,993 )            (8 %)       (484,194 )        3727 %
Gain on revaluation of
warrants derivative            995,000            1815 %          630,000             380 %         365,000            58 %
Gain (Loss) on
revaluation of stock
awards                          44,000              80 %          (27,000 )           (16 %)         71,000          (263 %)
Loss on revaluation of
PIK Notes                     (195,000 )          (356 %)              --               0 %        (195,000 )           0 %
Other income (expense)          (6,789 )           (12 %)          (9,986 )            (6 %)          3,197            32 %
Total Other Income
(Expense)                      340,024             620 %          580,021             350 %        (239,997 )         (41 %)

Net Loss                 $ (13,063,526 )        (23828 %)   $  (9,732,399 )         (5872 %)   $ (3,331,127 )          34 %

* Includes $4,707,381 and $2,314,154 of noncash stock compensation expense for 2013 and 2012, respectively, relating to employee and consultant stock options.

Revenue generated during 2013 was $54,825, compared to $165,742 of revenue generated during the same period in 2012. We believe that a number of potential customers are at various stages of the commercialization process and there are positive indications (but no assurances) that such potential customers may commercialize the use of our halloysite or iron ore.

Total operating expenses for 2013 were $13,458,375 compared to $10,478,162 of expenses incurred during the same period in 2012, an increase of $2,980,213 or 28%. The increase was due primarily to a $1,008,689, or 28%, increase in exploration expense and a $2,028,370, or 31%, increase in general and administrative expense, mainly due to noncash stock compensation expense.

Exploration costs incurred during 2013 were $4,551,666 compared to $3,542,977 of costs incurred during the same period in 2012, an increase of $1,008,689 or 28%. The majority of our exploration expenses were related to the continued exploration activities at our Dragon Mine property and the mineralogical analysis of the material mined from the property. The primary drivers of the increase in exploration costs included a $313,647, or 30%, increase in mine employee wages due to the hiring of a new Research & Development Manager; an increase in the number of miners in 2013, and a higher wage rate instituted during the second half of 2012; a $241,778 increase in contract labor as we engaged a third party drilling company related to the exploration of other minerals during the first quarter of 2013; a $184,044, or 35%, increase in geological consulting and expenditures relating to mineral characterization; and a $305,960, or 168%, in contract testing of clay and iron drill samples and testing in the proppant arena. These additional expenditures were slightly offset by reduced equipment rentals and repairs in 2013.

General and administrative expenses for 2013 totaled $8,569,413 compared to $6,541,043 of expense incurred during the same period in 2012, an increase of $2,028,370 or 31%. The largest component of the variance was an increase in noncash stock compensation expense of $2,393,227 mainly due to equity options granted by the Board to certain members of management in November 2012, followed by increases in Directors and Officers insurance expense of $61,932; $91,629 of increased travel expense for increased trips to the mine; and an increase in corporate rent of $26,861 as the Company moved its corporate office to accommodate additional employees. The increase in general and administrative expense was partially offset by a $585,558 decline in employee and consultant compensation expense resulting from a $750,000 bonus paid to management during the first quarter of 2012, partially offset by increases in compensation and benefits related to the hiring of a new CFO, CIO and Head of Iron Oxide.

Net Loss for 2013 was $13,063,526 compared to a loss of $9,732,399 incurred during 2012, an increase of $3,331,127 or 34%. The increase in the Net Loss was due to a $239,997 decrease in Other Income, primarily from interest expense relating to the newly-issued PIK Notes, a $110,917 decrease in revenue, and a $2,980,213 increase in operating expenses, as described above.


Table of Contents
Results of Operations- 2012 compared to 2011

The following sets forth, for the periods indicated, certain components of our operating earnings, including such data stated as percentage of revenues:

                                        Twelve Months Ended December 31,                               Variance
                             2012           % of Rev.           2011          % of Rev.          Amount            %

REVENUES                 $     165,742             100 %    $     92,952             100 %          72,790            78 %

OPERATING (INCOME)
EXPENSES:
Production costs               103,238              62 %          80,578              87 %          22,660            28 %
Exploration costs            3,542,977            2138 %       2,675,017            2878 %         867,960            32 %
General and
administrative               6,541,043            3946 %       4,256,859            4580 %       2,284,184            54 %
Depreciation expense           280,991             170 %         248,605             267 %          32,386            13 %
Loss (gain) on
impairment and
disposition of land
and equipment                    9,913               6 %          (1,000 )            (1 %)         10,913          1091 %
Total Operating
Expenses                    10,478,162            6322 %       7,260,059            7811 %       3,218,103            44 %

Operating Loss             (10,312,420 )         (6222 %)     (7,167,107 )         (7711 %)     (3,145,313 )          44 %

OTHER INCOME
(EXPENSE):
Interest expense, net,
including amortization
of deferred financing
cost and debt discount         (12,993 )            (8 %)       (533,447 )          (574 %)        520,454            98 %
Gain on revaluation of
warrants derivative            630,000             380 %         225,000             242 %         405,000           180 %
Loss on revaluation of
stock awards                   (27,000 )           (16 %)        (47,000 )           (51 %)         20,000            43 %
Other income (expense)          (9,986 )            (6 %)         98,010             105 %        (107,996 )        (110 %)
Total Other Income
(Expense)                      580,021             350 %        (257,437 )          (277 %)        837,458           325 %

Loss from continuing
operations                  (9,732,399 )         (5872 %)     (7,424,544 )         (7988 %)     (2,307,855 )         (31 %)

Loss from discontinued
operations                          --               0 %          (5,772 )            (6 %)          5,772           100 %

Net loss                    (9,732,399 )         (5872 %)     (7,430,316 )         (7994 %)     (2,302,083 )         (31 %)

Net income
attributable to the
non-controlling
interest                            --               0 %         (52,320 )           (56 %)         52,320           100 %

Net Loss attributable
to Applied Minerals      $  (9,732,399 )         (5872 %)   $ (7,482,636 )         (8050 %)     (2,249,763 )         (30 %)

Revenue for 2012 was $165,742, compared to $92,952 generated during the same period in 2011. The Company originated and increased sales of its Dragonite product to select customers for use as a reinforcing additive for certain plastic applications in the past year. We are in various stages of product development, ongoing trials and building our stockpile levels.

Total operating expenses for 2012 were $10,478,162 compared to $7,260,059 of expenses incurred during 2011, an increase of $3,218,103 or 44%. The increase was due primarily to a $867,960, or 32%, increase in exploration costs, and a $2,284,184, or 54%, increase in general and administrative expense.

Exploration costs incurred during 2012 were $3,542,977 compared to $2,675,017 of costs incurred during the same period in 2011, an increase of $867,960 or 32%. The majority of our exploration costs during the respective periods were related to the continued exploration activities at our Dragon Mine property and the mineralogical analysis of the material mined from the property. The increase in exploration costs was related, primarily, to management's decision to further expand its drilling and testing program, both for clay and iron ore, to additional areas of the Dragon Mine property, the testing of which has indicated the presence of clay mineral and an iron ore deposit. The additional mining activity was also performed to prepare for potential client visits and to break ground on a more innovative and efficient mining facility with more cutting-edge technology. The Company has invested in its minesite as it continues its commercialization and research efforts. See Property, Plant and Equipment schedule in the Liquidity and Capital Resources section below for further details. The primary drivers of the increase in exploration costs included a $332,712, or 46%, increase in employee wages primarily due to an increase in the number of miners from 15 to 20 and additional overtime required for the additional mining activity described above; the incurrence of $153,227 of employee health insurance expense not incurred during the same period in 2011 as the health insurance plan was not previously offered; a $146,097, or 41% increase in geologist consulting and sample testing activity; a $99,052, or 97%, increase in materials and supplies due to the increase in drilling and development activity at the mine; and a $159,660, or 270%, increase in equipment rentals utilized for the new facility.

General and administrative expenses incurred during 2012 totaled $6,541,043 compared to $4,256,859 of expense incurred during the same period in 2011, an increase of $2,284,184 or 54%. The increase was driven primarily by performance bonus payments to key management totaling $1,150,000; a $111,705, or 5% increase, in expense related to the issuance of options to certain employees; a $267,395, or 89%, increase in wage expense due to the addition of a Chief Technology Officer, General Counsel and Chief Financial Officer; a $112,853 increase in travel and related expense due primarily to a change in the terms of the Management Agreement with Material Advisors, LLC- prior to 2012, under the Management Agreement, Material Advisors was required to pay all travel, entertainment, office and marketing expenses and all other ordinary and necessary business expenses incurred by the Material Advisors and the Management Personnel in connection with the performance of the Management Agreement ("Expenses"); the incurrence of $132,533 of additional rent expense related to the lease of the corporate office; a $111,942 increase in legal, audit and accounting service fees; and a $322,828 increase in consulting partially relating to financial and investment banking services.

Other Income increased by 837,458, or 325%. About $500,000 of this variance was due to additional interest expense recorded in 2011 due to an increase in the average balance of our PIK Notes, which we converted into common stock in October 2011. In addition, the Company also recorded an additional $405,000 gain on the revaluation of our warrant derivative liability in 2012 when compared to 2011.

Loss from continuing operations for 2012 was $9,732,399 compared to a loss of $7,424,544 incurred during the same period in 2011, an increase of $2,307,855 or 31%. The increase in the Loss from Continuing Operations was due to a $3,218,103 increase in operating expenses, as described above, offset by a $837,458 increase in Other Income and a $72,790 increase in revenue, as described above.


Table of Contents
LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred material recurring losses from operations while in the process of developing and commercializing halloysite clay and iron oxide. The Company has incurred material recurring losses from operations. At December 31, 2013, we had a total accumulated deficit of $61,821,972. For the year ended December 31, 2013 and 2012, we sustained losses from continuing operations of $13,063,526 and $9,732,399, respectively. From December 2008 through December 2013, our activities have been financed primarily through the sale of convertible debt and equity securities. During the first quarter of 2013, the Company raised $5,560,000 of cash proceeds through the sale of common stock, and in August 2013, the Company raised $10,500,000 of financing through the private placement of 10% Mandatorily Convertible PIK Notes due 2023. We believe that we have sufficient resources to fund operations for the next 12 months and are continuing to evaluate our strategic direction aimed at achieving profitability and positive cash flow.

Cash used in operating activities in 2013 was $8,205,101 compared to $6,752,263 of cash used during the same period in 2012. The $1,452,838 increase in cash used during the period was due primarily to a higher net loss realized during 2013 as the Company added key corporate and mining personnel, conducted additional drilling operations and conducted various testing and research relating to the commercialization of its halloysite clay, as discussed in Results of Operations.

Cash used in investing activities during 2013 was $2,046,358 compared to a use of $1,372,977 during the same period in 2012. The key driver of this increase was the continued construction of the Company's new mill. All of this investment has been classified as Property and Equipment on the Company's consolidated balance sheet.

Cash provided by financing activities during 2013 was $15,580,908 compared to $1,310,807 of cash generated during the same period in 2012. The key variance in financing activities occurred primarily due to the additional sale of $16,060,000 of common stock and PIK notes to certain qualified investors during 2013 over $1,625,000 in 2012:

September 2012- Sale of 1,250,000 shares of common stock for $1,625,000 in cash.

January 2013- Sale of 3,756,757 shares of its common stock at $1.48 per share for gross proceeds of $5,560,000.

August 2013- the Company announced that it successfully raised an additional $10,500,000 of financing through the private placement of 10% Mandatorily Convertible PIK Notes due 2023 ("Notes"). The Notes have a strike price of $1.40 per share and convert into 7,500,000 shares of the common stock of Applied Minerals, Inc.

No broker was used and no commission was paid for any of the foregoing transactions.

Our total assets as of December 31, 2013 were $15,215,287 compared to $7,818,460 as of December 31, 2012, or an increase of $7,396,827. As described above, the Company raised over $16 million in financing in 2013 and utilized this cash in operational investments into the corporate infrastructure and its mining facility (see below). Total liabilities were $13,728,720 at December 31, 2013 compared to $3,852,223 at December 31, 2012. The increase is mainly due to the establishment of a PIK Note liability and related derivative resulting from the issuance of PIK Notes in August 2013 (See next section- Issuance of Convertible Debt). Total stockholders' equity declined from $3,966,237 at December 31, 2012 to $1,486,567 at December 31, 2013, mainly due to the losses incurred during 2013 as the Company is continuing to invest in its operations, offset by increased capital resulting from third party investments.

ISSUANCE OF CONVERTIBLE DEBT

In August 2013, the Company received $10,500,000 of financing through the private placement of 10% mandatory convertible Notes due 2023 ("Notes"). The principal amount of the Notes is due on maturity. The Company can elect to pay semi-annual interest on the Notes with additional PIK Notes containing the same terms as the Notes, except interest will accrue from issuance of such notes. The Company can also elect to pay interest in cash.

The Notes convert into the Company's common stock at a conversion price of $1.40 per share, which is subject to customary antidilution adjustments. As of issuance, the Notes are convertible into 7,500,000 shares of the common stock. The holders may convert the Notes at any time. The Notes are mandatorily convertible after one year when the weighted average trading price of a share of the common stock for the preceding ten trading days is in excess of the conversion price.

The Notes contain customary representations and warranties and several covenants. The proceeds will be used for general corporate purposes. No broker was used and no commission was paid in connection with the sale of the Notes.

These Notes were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. In addition to the customary antidilution provisions, the notes contain a down-round provision whereby the conversion price would be adjusted downward in the event that additional shares of the Company's common stock or securities exercisable, convertible or exchangeable for the Company's common stock were issued for cash consideration (e.g. a capital raise) at a price less than the conversion price. Therefore, the estimated fair value of the conversion feature of $2,055,000 (based on observable inputs) was bifurcated from the Notes and accounted for as a separate derivative liability, which resulted in a corresponding amount of debt discount on the Notes. The debt discount is being amortized using the effective interest method over the 10-year term of the Notes as Interest Expense, while the PIK Note Derivative is carried . . .

  Add AMNL to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for AMNL - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.