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

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
AMNL > SEC Filings for AMNL > Form 10-Q on 12-May-2014All Recent SEC Filings

Show all filings for APPLIED MINERALS, INC.



Quarterly Report


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.

Applied Minerals, Inc. (the "Company" or "we" or "us") is focused primarily on
(i) the development and marketing of our halloysite clay-based Dragonite™ line of products for use to improve the performance of end-products in application markets such as flame retardant additives for plastics, nucleation, thermosets and adhesives, reinforcement of plastic composities, molecular sieves and catalysts, ceramics, binders, cosmetics, controlled release carriers and environmental remediation and (ii) the development and marketing of our Amiron™ line of iron oxide products for pigmentary and technical applications.

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 develop its halloysite resource for advanced, high-value applications. We purchased 100% of the property in 2005.

Halloysite is an aluminosilicate clay that possesses a tubular morphology with a hollow lumen (pore). Traditionally, halloysite has been used to manufacture porcelain, bone china and catalysts used in the petroleum cracking process. A significant amount of academic research has been performed on the commercial uses of halloysite clay beyond porcelain products and ceramic catalysts. This research has identified a wide array of application areas in which the unique morphology of halloysite can be utilized to either enhance the performance of existing applications or create new high performance ones. Since 2009, management has been primarily focused on developing halloysite-based products for advanced applications, such as, but not limited to, additives for polymer composites. The clays used in these advanced applications sell for significantly higher than those of the more traditional applications. Nanoclays have been used as additives to develop high performance plastic composites that cannot be developed using traditional fillers. Nanoclays, such as treated montmorillonite, sell for up to $5,000 per ton due, in large part, to the cost associated with exfoliating the clay so it may be properly dispersed within a polymer matrix. Halloysite has been shown to be as effective a polymer additive as nanoclay without requiring a costly exfoliation to disperse it within a polymer matrix. The Company has and continues to utilize a number of PhD-level consultants to research and develop the use of halloysite in advanced applications.

In addition to the development of its halloysite resource, management has also developed a line of iron oxide-based products for the pigmentary and technical markets. The Dragon Mine's 3.3 million tons of natural iron oxide mineralized material are comprised primarily of goethite and hematite. Initially, the resource was considered to be utilizable as only an input to the steel-manufacturing process. Upon additional analysis the iron resource was found to be an advanced iron oxide due to its high Fe2O3 content, exceptional chemical purity, fine grains and good dispersability, good tinting strength and color saturation, low color variation and a low content of heavy metals. Advanced iron oxides have commercial uses in a number of higher value applications such as the aforementioned pigmentary and technical markets. The Company's Amiron product line includes semi-transparent and FDA-compliant pigments for the construction, concrete, paints and coatings, and plastics and rubber industries. Amiron Technical Oxides, due to their particularly high surface area of 25 m2/g - 125 m2/g and reactivity, can be used as the media for the removal of toxins from waste and drinking water and as a catalyst for desulfurization. The Company has made its first sale of Amiron to a customer for use as a pigment.

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

Recent Business Developments

· During the first quarter of 2014, the Company commissioned a 45,000 tpa mineral processing plant at its Dragon Mine property. This facility utilizes Hosokawa-Alpine technology that enhances the Company's ability to control the processing of its mineral resource for qualities such as particle size, moisture and purity. The plant was originally commissioned for halloysite clay, but the Company plans to initially utilize it for iron oxide and utilize its KDS machine for halloysite clay, while using a third party to surface treat the clay if required.

· During the first quarter of 2014, the Company listed 600 acres of its Atlas Mine property for sale in Mullan, Idaho for $3.9 million (see listing The property is located near Historic Mullan and Wallace, Idaho, the Hiawatha Bicycle Trail and Lookout Ski Resort, with various potential uses, including development, legacy landholdings, recreational, timber and mineral rights. The property includes the Historic Atlas Mine with patented and unpatented mining claims. Additional noncontiguous property is available in the region and will be listed separately in the future.

· Between September 2013 and January 2014, the Company appointed three new Board members: Mario Concha, former president of the Chemical Division of Georgia Pacific, Inc.; Robert Betz, formerly of Cognis Corp., the North American division of Cognis GmbH, a $4 billion worldwide supplier of specialty chemicals and nutritional ingredients, and Henkel AG & Company; and Ali Zamani, a former Principal at SLZ Capital Management, a New York-based asset management firm, and former senior investment professional at Goldman Sachs Investment Partners and Goldman Sachs Principal Strategies. Evan Stone resigned as a director on December 31, 2013; Mr. Stone, an attorney, resigned because he joined a new law firm as of January 1, 2014 and it is the policy of the new firm that its lawyers may not serve as directors of public companies. Mr. Stone had no disagreements with the Company or the Board of Directors. The foregoing changes expanded the Board to six directors and the number of independent directors to four.

· In December 2013, the Company launched its Amiron line of iron oxide products focused particularly on the pigmentary and technical markets.

· In December 2013, the Company entered into a distribution agreement with Mitsui Plastics, Inc. to market, sell, and distribute its Dragonite halloysite clay and Amiron iron oxide outside of North America.

Table of Contents
· The Company announced that it entered into an agreement with OPF Enterprises, LLC ("OPF"), a leading ceramic consulting firm that focuses on ceramic materials and process development, to introduce Dragonite and Amiron to certain ceramic and iron oxide application markets for which it has particular expertise and customer relationships.

· In October 2013, the Company issued an updated JORC - compliant report regarding the mineralization at the Dragon Mine property with respect to its clay and iron oxide resources.

· In August 2013, the Company announced that it successfully raised $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. The purchasers of the Notes included one current shareholder and two new investors of the Company.

· In June 2013, the Company sold its first 10 tons of iron oxide to a leading specialty chemicals company for use in the absorption and catalyst market.

· In April 2013, the Company announced the signing of an agreement with Sigma-Aldrich Corporation (NASDAQ: SIAL), a leading Life Science and High Technology company, to market and distribute Dragonite to researchers worldwide through the Aldrich Materials Science initiative.

· During the second and third quarters of 2013, the Company made some key personnel changes, including the appointment of an individual from a leading global specialty chemicals company to lead its Iron Oxide Business Unit and the hiring of a new Chief Technology Officer.

· In January 2013, the Company sold, in a privately negotiated transaction, 3,756,757 shares of its common stock at $1.48 per share for gross proceeds of $5,560,000. No broker was used and no commission was paid as part of this transaction.

Critical Accounting Policies and Estimates

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

Use of Estimates
The preparation of 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, disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. In these financial statements, assets and liabilities involve extensive reliance on management's estimates. Actual results could differ from those estimates.

Fair Value
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 - observable inputs other than quoted prices in active markets for identical assets and liabilities

Level 3 - significant unobservable inputs

Liabilities measured at fair value on a recurring basis are summarized as follows:

                                         Fair value measurement using inputs                        Carrying amount
                                    Level 1              Level 2         Level 3         March 31, 2014       December 31, 2013

Financial instruments:
Warrant derivative                                     $   225,000                      $        225,000     $           950,000
PIK Note derivative                                    $   480,375                      $        480,375     $         2,250,000

The recorded value of certain financial assets and liabilities, which consist primarily of cash and cash equivalents, receivables, other current assets, and accounts payable and accrued expenses approximate their fair value of the respective assets and liabilities at March 31, 2014 and December 31, 2013 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, the carrying value of notes payable approximate fair value. Estimated fair value of the PIK Notes payable approximates $15.2 million at March 31, 2014. For the Company's warrant and PIK note derivative liabilities, fair value was estimated using a Monte Carlo Model using the following assumptions:

  Table of Contents
Warrant derivative liability                               Fair Value Measurements
                                                                Using Inputs
                                                  March 31, 2014         December 31, 2013

Market price and estimated fair value of stock   $           0.72       $               1.10
Exercise price                                   $           1.93       $               1.93
Term (years)                                                 2.73                          3
Dividend yield                                   $             --       $                 --
Expected volatility *                                       56.00 %                    76.90 %
Risk-free interest rate                                      0.50 %                     0.78 %

PIK Note derivative liability                              Fair Value Measurements
                                                                Using Inputs
                                                  March 31, 2014         December 31, 2013

Market price and estimated fair value of stock   $           0.72       $               1.10
Exercise price                                   $           1.40       $               1.40
Term (years)                                                 9.33                       9.58
Dividend yield                                   $             --                         --
Expected volatility *                                       56.00 %                    76.90 %
Risk-free interest rate                                      2.63 %                     2.96 %

* During the first quarter of 2014, the Company revised its assumption for expected volatility by switching from a peer-group average volatility to the Company's three-year historical volatility in measuring the value of the derivative liabilities mentioned above. Prior to 2011, the Company had various events that would not have made the historical volatility calculations meaningful or accurate if included. This reduction in volatility led to a reduced valuation for both the Warrant and PIK Note derivative liabilities of approximately $118,500 and $126,000, respectively. The remaining decrease in the valuation is attributable to the decline in the Company's stock price.

Impairment of Long-Lived Assets
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 impairment, the amount of the impairment is typically calculated using discounted expected future cash flows where observable fair values are not readily determinable.

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 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. For all periods through March 31, 2014, all costs associated with the Company's mines, excluding original acquisition cost, have been expensed as the Company remains an exploration stage company.

Table of Contents
Provision for Income Taxes
We use the asset and liability method of accounting for income taxes. Deferred income taxes are provided for the temporary difference between the financial reporting basis and tax basis of our assets and liabilities. Deferred tax benefits result principally from certain tax carryover benefits and from recording certain expenses in the financial statements that are not currently deductible for tax purposes and from differences between the tax and book basis of assets and deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax liabilities result principally from deductions recorded for tax purposes in excess of that recorded in the financial statements or income for financial statement purposes in excess of the amount for tax purposes. The effect of changes in tax rates is recognized in the period the rate change is enacted.

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. With respect to equity based payments to non-employees, 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. The Company utilized the contractual term as the expected term.

Table of Contents
Results of Operations for the Three Months Ended March 31, 2014 as Compared to the Three Months Ended March 31, 2013

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

                                      Three Months Ended March 31,                 Variance
                                         2014                2013            Amount            %

REVENUES                            $        11,014      $     25,086     $    (14,072 )         (56 %)

Production costs                              3,749            15,767          (12,018 )         (76 %)
Exploration costs                         1,197,156         1,367,612         (170,456 )         (12 %)
General and administrative                1,254,016         2,145,423         (891,407 )         (42 %)
Depreciation expense                        108,386            78,798           29,588            38 %
Total Operating Expenses                  2,563,307         3,607,600       (1,044,293 )         (29 %)

Operating Loss                           (2,552,293 )      (3,582,514 )      1,030,221           (29 %)

Interest expense, net, including
amortization of deferred
financing cost and debt discount           (300,167 )          (4,933 )       (295,234 )        5985 %
(Loss) gain on revaluation of                                                                     46 %
warrant derivative                          725,000           495,000          230,000
Gain (loss) on revaluation of                                                                    171 %
stock award                                  38,000            14,000           24,000
Gain(loss) on revaluation of PIK
note derivative                           1,792,500               -0-        1,792,500           100 %
Other income (expense)                      (60,265 )            (444 )        (59,821 )       13473 %
Total Other Income (Expense)              2,195,068           503,623        1,691,445           336 %

Net Loss                            $      (357,225 )    $ (3,078,891 )   $  2,721,666           (88 %)

Revenue for the three months ended March 31, 2014 was $11,014, compared to $25,086 generated during the same period in 2013. After selling its first iron oxide shipment last year to a leading specialty chemicals company for use in the absorption and catalyst market, the Company sold another 17,000 pounds during the first quarter of 2014 to another company specializing in paints, coatings, inks and specialty chemicals. Quarterly revenue may be unpredictable as we are in various stages of product development, ongoing trials and the building of stockpile levels. While the iron oxide market is more defined and developed than the halloysite market, we continue to explore various commercial opportunities in both areas.

Total operating expenses for the three months ending March 31, 2014 were $2,563,307 compared to $3,607,600 incurred during the same period in 2013, a decrease of $1,044,293 or 29%. The decrease was due primarily to a $190,107, or 14%, decrease in exploration costs and a $891,407, or 42%, decrease in general and administrative costs.

Exploration costs incurred during the three months ended March 31, 2014 were $1,197,156 compared to $1,367,612 of costs incurred during the same period in 2013, a decrease of approximately $170,456, or 12%. During the first quarter of 2013, the Company engaged in a drilling program totaling over $235,000 that it completed during that quarter. This reduction in drilling expenses from the first quarter of 2013 to the first quarter of 2014 was slightly offset by additional payroll costs of miners and other workers hired during the second half of 2013 to help in the development of the mine and the new mill.

General and administrative expenses incurred during the three months ended March 31, 2014 totaled $1,254,016 compared to $2,145,423 of expense incurred during the same period in 2013, a decrease of $891,407 or 42%. Stock compensation expense reduced by $1,063,699 to $214,850 because certain options issued to the CEO and other executives culminated vesting as of January 1, 2014 without any further option grants. This reduction was mainly offset by the following: a $40,829 increase in travel relating to increased trips to the mine pursuant to the commissioning of our new plant; a $26,438 increase in investor relations' expense relating to additional investor meetings during the first quarter of 2014; a $39,434 increase in Board fees as the Company added three new Board members, while losing one because the Board member's new employer did not allow the Board member to serve on a public Board.

Net Loss for the three months ended March 31, 2014 was $357,225, compared to $3,078,891 incurred during the same period in 2013, a decrease of approximately $2,721,666 or 88%. The decrease in the loss from exploration stage before discontinued operations was due primarily to a $891,407 decrease in operating expenses (as previously described), and a $1,691,445 increase in Other Income, mainly from the revaluation of derivatives.

Table of Contents

As the Company continues its commercialization efforts of halloysite clay and iron oxide, it may also require additional financing later in 2014 to fund its current operations as it has done in the past. The Company has a history of recurring losses from operations and use of cash in operating activities as it is still a development stage company. For the three months ended March 31, 2014, the Company's net loss was $357,225 and cash used in operating activities was $2,375,850. As of March 31, 2014, the Company has working capital of $3,926,999 which may not be sufficient to support its current operations for the next twelve months based on its business plan without obtaining additional financing. Collectively, these factors raise substantial doubt about the Company's ability to continue as a going concern.

Besides continuing its strategic business plan on generating revenue, the Company intends to explore various strategic alternatives, including the sale of equity, debt or the disposal of certain non-core assets to raise additional capital. During 2013, the Company raised gross proceeds of $16,060,000 pursuant to the sale of common stock and issuance of convertible PIK Notes. Management can also take steps to reduce the Company's future operating expenses as needed. However, the Company cannot provide any assurance that it will be able to raise additional capital as needed. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Cash used in operating activities during the three months ended March 31, 2014 was $2,375,850 compared to $2,646,730 of cash used during the same period in 2013. The $270,880 decrease in cash used during the period was due primarily to additional drilling operations conducted during the first quarter of 2013 which did not recur during the first quarter of 2014, as discussed in Results of Operations.

Cash used in investing activities during the three months ended March 31, 2014 was $315,708 compared to a use of $402,986 during the same period in 2013. The Company incurred costs relating to the new mill, which was commissioned during the first quarter of 2014. As the new mill was commissioned, $4,359,452 of costs were reclassified from Construction-in-Progress to either Buildings, Milling Equipment or Lab Equipment. The Company expects to finish the lab portion of the construction during the second quarter of 2014.

Cash used by financing activities during the three months ended March 31, 2014 was $122,898 compared to $5,423,115 of cash provided during the same period in 2013. In January 2013, the Company sold, in a privately negotiated transaction, 3,756,757 shares of its common stock at $1.48 per share for gross proceeds of $5,560,000.

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, 2014
that require 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           $   103,438     $   103,438                --                --              --
Capital Purchase
Obligations (1)              1,140,968       1,140,968                --                --              --
Total                      $ 1,244,406     $ 1,244,406                --                --              --

(1) Capital purchase obligations represent commitments for the construction or purchase of property, plant and equipment. They were not recorded as liabilities . . .

  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 © 2015 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.