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. (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.
In late 2015, the Company entered into a $5 million take-or-pay supply agreement for its AMIRON product. The $5 million portion of the take-or-pay agreement is expected to be completed by June, 2017. In late 2015 the Company began selling DRAGONITE to a manufacturer of molecular sieves. In July, 2016 the Company received an order for 5 tons of DRAGONITE from another leading molecular sieve manufacturer, which is carrying out a commercial-scale trial of a halloysite-based molecular sieve product. The Company is involved in a number of advanced-stage product development projects with customers that operate within industries that include, but are not limited to, catalysts and oilfield services. The Company has engaged leading special material distribution organizations, HORN, Brandt Technologies and KODA Distribution Group for the U.S. and Fimatec LTD for Korea. In May, 2016, the Company’s Board of Directors established an Operations Committee to which it appointed Mario Concha, Robert Betz and Andre Zeitoun. The purpose of the Operations Committee is to advise the Company’s management team on how best to execute its operations, marketing and sales strategies.
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, 2015. There have been no material changes in our critical accounting policies and estimates during the nine-month period ended September 30, 2016 compared to the disclosures on Form 10-K for the year ended December 31, 2015.
Recent Accounting Pronouncements
For information with respect to recent accounting pronouncements, if any, and the impact of these pronouncements on our Condensed Consolidated Financial Statements, if any, see Note 4 of Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.
Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015
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 September
30,
|
|
|
Variance
|
|
|
|
2016
|
|
|
2015
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
975,328
|
|
|
$
|
43,293
|
|
|
$
|
932,035
|
|
|
|
2,152.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs
|
|
|
539,951
|
|
|
|
0
|
|
|
|
539,951
|
|
|
|
-
|
|
Exploration costs
|
|
|
270,700
|
|
|
|
977,164
|
|
|
|
(706,464
|
)
|
|
|
(72.3
|
)%
|
General and administrative
|
|
|
977,716
|
|
|
|
1,155,016
|
|
|
|
(177,300
|
)
|
|
|
(15.4
|
)%
|
Depreciation expense
|
|
|
340,165
|
|
|
|
326,931
|
|
|
|
13,234
|
|
|
|
4.1
|
%
|
Total Operating Expenses
|
|
|
2,128,532
|
|
|
|
2,459,111
|
|
|
|
(330,579
|
)
|
|
|
(13.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(1,153,204
|
)
|
|
|
(2,415,818
|
)
|
|
|
1,262,614
|
|
|
|
(52.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net, including amortization of deferred financing cost and debt discount
|
|
|
(1,792,412
|
)
|
|
|
(1,169,425
|
)
|
|
|
(622,987
|
)
|
|
|
53.3
|
%
|
(Loss) gain on revaluation of PIK Note derivative
|
|
|
1,134,149
|
|
|
|
5,378,339
|
|
|
|
(4,244,190
|
)
|
|
|
(78.9
|
)%
|
Other income (expense)
|
|
|
1,042
|
|
|
|
(140
|
)
|
|
|
1,182
|
|
|
|
(844.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expense)
|
|
|
(657,221
|
)
|
|
|
4,208,774
|
|
|
|
(4,865,995
|
)
|
|
|
(115.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(1,810,425
|
)
|
|
$
|
1,792,956
|
|
|
$
|
(3,603,381
|
)
|
|
|
(201.0
|
)%
|
Revenue generated during the three months ended September 30, 2016 was $975,328, an increase of $932,035, or 2,152.9%, when compared to the same period in 2015. This increase was due, in large part, to the sale of AMIRON iron oxide through a take-or-pay supply agreement entered into by the Company on November 2, 2015. During the three months ended September 30, 2016, the Company, through the take-or-pay supply agreement, generated $857,056 of revenue. This agreement did not exist during the same period in 2015. Also contributing to the revenue increase during the quarter was $73,700 of sales of DRAGONITE halloysite clay to two customers for use by one in a specialty zeolite and the other in a molecular sieve application. Sales to these two customers were not realized during the same period in 2015.
Total operating expenses for the three months ended September 30, 2016 were $2,128,532 compared to $2,415,818 of operating expenses incurred during the same period in 2015, a decrease of $330,579 or 13.4%. The decline in operating costs was driven by primarily by a $706,464 decline in exploration costs and a $177,300 decline in general and administrative expense, partially offset primarily by a $539,951 increase in production costs.
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.
During the fourth calendar quarter of 2015, the Company began supplying its DRAGONITE halloysite product to a leading global specialty chemicals company for use in a specialty zeolite application. Also during the fourth calendar quarter of 2015, the Company entered into a 5-year take-or-pay supply agreement for its AMIRON technical grade iron oxide. The expenses directly associated with the fulfillment of these supply arrangements are reflected in production costs accrued during the three and nine months ended September 30, 2016. Production costs were minimal during the three and nine months of 2015 as the Company was focused primarily on exploration activities at the Dragon Mine in preparation of entering into commercial supply agreements.
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 September 30, 2016 were $270,700 compared to $977,164 of costs incurred during the same period in 2015, a decrease of $706,464 or 72.3%. The decline in exploration costs during the period was driven, in large part, by a shift in the allocation of employees from exploration to production activities. The level of the Company’s exploration activities was curtailed during the second calendar quarter of 2015, which resulted in a reduction in headcount at the Dragon Mine. During the three months ended September 2015, the Company continued operating at a reduced level of exploration activity and then shifted most of its employees to production related activities during the fourth calendar quarter of 2015 to commence the fulfillment of the two commercial supply agreements into which it had entered. The reduction in exploration costs realized during the period was also the result of a shift in the allocation of certain energy and maintenance expense to production costs during the period.
General and administrative expenses incurred during the three months ended September 30, 2016 totaled $977,716 compared to $1,155,016 of expense incurred during the same period in 2015, a decrease of $177,300, or 15.4%. The Company’s general and administrative expenses are associated with its New York operations.
The largest component of the Company’s general and administrative expense includes wages, wage-related expense and expense related to the issuance of stock options to employees and consultants. Wage expense for the three months ended September 30, 2016 totaled $388,769, a decline of $81,273 compared to the same period in 2015. The decline was driven by a decline of $39,743 in wages related to staff reductions and a decline of $41,530 related to a reduction in wages of certain officers. Compensation expense related to the issuance of options to employees and consultants was $68,452 during the three months ended September 30, 2016, a decrease of $6,389 when compared to the same period in 2015. The decrease was due to a reduction in the value of options granted to employees and consultants during the period.
Director expense for the three months ended September 30, 2016 totaled $82,696, a decrease of $5,230. Director expense includes cash, stock grants and grants of options to purchase shares of common stock paid to the Company’s directors for services provided. For the three months ended September 30, 2016, director expense includes $26,341 of expense related to a stock grant that ought to have been expensed during the three months ended March 31, 2016. Excluding this adjustment director expense would have declined by $31,571 during the current quarter. This decline in expense was due primarily to the directors’ decision to set the exercise price of the options granted to them at the higher of $.25 or the market price at the date of grant and calculated the number of options by dividing the dollar amount of the fee payable to the directors by the higher of $.25 or the Black Scholes value.
Expenses associated with professional services totaled $51,875 during the three months ended September 30, 2016, a decline of $93,080 when compared to the same period in 2015. The decline was driven primarily by a $51,025 decline in fees to outside legal firms and the elimination of the use of certain business development consultants, which cost $46,500 during the same period in 2015. These decreases were partially offset by a small increase in the cost of the use of outside tax services.
For the three months ended September 30, 2016, the Company’s travel, lodging and related expenses totaled $41,032, a decline of $44,565 compared to the same period in 2015. This reduction was driven by management’s decision to focus its marketing-related travel on those opportunities that are most likely to be sources of revenue for the Company. Management will continue to spending on travel and lodging in a strategic manner.
The Company’s spending on shareholder services for the three months ended September 30, 2016 totaled $25,452, a decline of $40,603 when compared to the same period in 2015. The decline was driven primarily by a reduction in spending on services for investor relations. The Company also realized savings of approximately $20,000 during the quarter related to miscellaneous spending.
The above reduction in expenses, realized during the three months ended September 30, 2016, were partially offset by $122,906 of commissions paid to an employee for AMIRON iron oxide sales realized between September 1, 2015 and August 31, 2016. This commission arrangement will no longer be in effect beginning the fourth calendar quarter of 2016.
Operating loss incurred during the three months ended September 30, 2016 was $1,153,204 compared to a loss of $2,415,818 incurred during the same period in 2015, a decrease of $1,262,614 or 52.3%. The decrease in operating loss during the quarter was due to a 2,152.9% increase in revenue and a 13.4% decrease in operating expense. The Company’s execution of a take-or-pay supply agreement during the quarter and its focus on the reduction of non-revenue related operating expense were the primary drivers of the decline in operating loss.
Net Loss for the three-month period ending September 30, 2016 was $1,810,425 compared to net income of $1,792,956 incurred during the same period in 2015, a decrease of $3,603,381. The decrease in net income was due primarily to the $4,865,995 decline in total other income. The decline in total other income was driven by a $4,244,190 decline in the gain on revaluation of PIK Note derivative due to a smaller decline in the Company’s stock price and its impact on the calculation of revaluation during the period and a $622,987 increase in interest expense due to an increase in the principal amount of the Company Series 2023 and Series A PIK Notes, which has resulted from the payment of interest in additional PIK Notes.
Nine
Months Ended
September
30, 2016 Compared to
Nine
Months Ended
September
30
,
2015
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:
|
|
Nine Months Ended September 30,
|
|
|
Variance
|
|
|
|
2016
|
|
|
2015
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
3,089,422
|
|
|
$
|
271,888
|
|
|
$
|
2,817,534
|
|
|
|
1,036.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs
|
|
|
1,572,795
|
|
|
|
0
|
|
|
|
1,572,795
|
|
|
|
n/a
|
|
Exploration costs
|
|
|
821,814
|
|
|
|
3,598,672
|
|
|
|
(2,776,858
|
)
|
|
|
(77.2
|
)%
|
General and administrative
|
|
|
3,227,852
|
|
|
|
3,587,931
|
|
|
|
(360,079
|
)
|
|
|
(10.0
|
)%
|
Depreciation expense
|
|
|
1,014,585
|
|
|
|
979,836
|
|
|
|
34,749
|
|
|
|
3.6
|
%
|
Total Operating Expenses
|
|
|
6,637,046
|
|
|
|
8,166,439
|
|
|
|
(1,529,393
|
)
|
|
|
(18.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(3,547,624
|
)
|
|
|
(7,894,551
|
)
|
|
|
4,346,927
|
|
|
|
(55.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net, including amortization of deferred financing cost and debt discount
|
|
|
(4,521,672
|
)
|
|
|
(3,290,647
|
)
|
|
|
(1,231,025
|
)
|
|
|
37.4
|
%
|
(Loss) gain on revaluation of PIK Note derivative
|
|
|
2,425,555
|
|
|
|
6,598,708
|
|
|
|
(4,173,153
|
)
|
|
|
(63.2
|
)%
|
Other income (expense)
|
|
|
106,021
|
|
|
|
(543,895
|
)
|
|
|
649,916
|
|
|
|
(119.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expense)
|
|
|
(1,990,096
|
)
|
|
|
2,764,166
|
|
|
|
(4,754,262
|
)
|
|
|
(172.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(5,537,720
|
)
|
|
$
|
(5,130,385
|
)
|
|
$
|
(407,335
|
)
|
|
|
7.9
|
%
|
Revenue generated during the nine months ended September 30, 2016 was $3,089,422, compared to $271,888 of revenue generated during the same period in 2015, an increase of 1,036.3%. This increase was due, in large part, to the sale of AMIRON iron oxide through a take-or-pay supply agreement entered into by the Company on November 2, 2015. During the nine months ended September 30, 2016, the Company, through the take-or-pay supply agreement, generated $2,721,828 of revenue. This agreement did not exist during the same period in 2015. Also contributing to the revenue increase during the period was $245,300 of sales of DRAGONITE halloysite clay to two customers for use by one in a specialty zeolite and the other in a molecular sieve application. Sales to these two customers were not realized during the same period in 2015. These increases in revenue realized during the nine months ended September 30, 2016 were partially offset by the absence of $79,000 in sales of AMIRON for use in pigment applications, the elimination of $38,673 of sales of DRAGONITE for use as nucleating agent for a company which provides contract injection molding services, and the elimination of $28,050 of sales of DRAGONITE to a distributor in Asia.
Total operating expenses for the nine months ended September 30, 2016 were $6,637,046 compared to $8,166,439 of operating expenses incurred during the same period in 2015, a decrease of $1,529,393 or 18.7%. The decline in operating costs was driven by primarily by a $2,776,858 decline in exploration costs and a $363,079 decline in general and administrative expense, partially offset primarily by a $1,572,795 increase in production costs.
Production costs include those operating expenses which management believes are directly related to the mining and manufacturing of the Company’s iron oxide and halloysite resources, 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.
During the fourth calendar quarter of 2015, the Company began supplying its DRAGONITE halloysite product to a leading global specialty chemicals company for use in a specialty zeolite application. Also during the fourth calendar quarter of 2015, the Company entered into a 5-year take-or-pay supply agreement for its AMIRON technical grade iron oxide. The expenses directly associated with the fulfillment of these supply arrangements are reflected in production costs accrued during the three and nine months ended September 30, 2016. Production costs were minimal during the three and nine months of 2015 as the Company was focused primarily on exploration activities at the Dragon Mine in preparation of entering into commercial supply agreements.
Exploration costs include operating expenses incurred at the Dragon Mine that are not directly related to production activities. Exploration costs incurred during the nine months ended September 30, 2016 were $821,814 compared to $3,598,672 of costs incurred during the same period in 2015, a decrease of $2,776,858 or 77.2%. The decline in exploration costs during the period was driven, in large part, by a shift in the allocation of employees from exploration to production activities. The level of the Company’s exploration activities was curtailed during the second calendar quarter of 2015, which resulted in a reduction in headcount at the Dragon Mine. During the third calendar quarter of 2015, the Company continued operating at a reduced level of exploration activity and then shifted most of its employees to production related activities during the fourth calendar quarter of 2015 to commence the fulfillment of the two commercial supply agreements into which it had entered. The reduction in exploration costs realized during the period was also the result of a shift in the allocation of certain energy and maintenance expense to production costs during the period.
General and administrative expenses incurred during the nine months ended September 30, 2016 totaled $3,227,852 compared to $3,587,931of expense incurred during the same period in 2015, a decrease of $360,079, or 10.0%. 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 includes wage, wage-related and equity-based compensation to employees and consultants. Wages for the nine months ended September 30, 2016 totaled $1,464,949, an increase of $81,390 when compared to the same period in 2015. The increase was due primarily to $112,500 in performance bonus payments paid to the Company’s CFO, General Counsel and a third employee for performance goals achieved during 2015 that were not paid during 2015, $145,500 in wages paid to two new employees who were not employees during the same period in 2015, a $75,000 bonus payment paid to the Company’s CEO during the period that was paid in the fourth quarter of 2014, and $25,000 of wages paid to the Company’s General Counsel during the period that were paid in the fourth quarter of 2014, partially offset by $178,300 of wages not paid to employees during the period who left the Company during 2015 and $98,300 in reductions in wage expense for certain existing employees.
Compensation expense related to the issuance of options to employees and consultants was $305,346 for the nine months ended September 30, 2016, an increase of $55,057 when compared to the same period in 2015. The increase was due to certain employees taking a larger portion of their compensation in options to purchase common stock and the payment of bonuses to certain employees in the form of options to purchase common stock rather than in the form of cash.
Director expense for the nine months ended September 30, 2016 totaled $347,746 a decrease of $2,693. Director expense includes cash, stock grants and grants of options to purchase shares of common stock paid to the Company’s directors for services provided. The decline is related primarily to the directors’ decisions to set the exercise price of the options granted to them at the higher of $.25 or the market price at the date of grant and calculated the number of options by dividing the dollar amount of the fee payable to the directors by the higher of $.25 or the Black Scholes value.
Expenses associated with professional services totaled $147,113 during the nine months ended September 30, 2016, a decline of $304,569 when compared to the same period in 2015. The decline was driven primarily by a $130,848 decline in fees to outside legal firms, a $117,391 reduction in payments to certain business and product development consultants, and a $31,845 decline in fees paid for outside accounting services.
For the nine months ended September 30, 2016, the Company’s travel, lodging and related expenses totaled $188,610, a decline of $52,238 compared to the same period in 2015. This reduction was driven by management’s decision to focus its travel on those potential customers who are most likely to be sources of revenue for the Company. Management will continue to spending on travel and lodging in a strategic manner.
The Company’s spending on shareholder services for the nine months ended September 30, 2016 totaled $65,435, a decline of $186,565 when compared to the same period in 2015. The decline was driven primarily by a reduction in spending on services for investor relations. The Company also realized savings of approximately $58,800 during the quarter related to taxes and licenses.
The above reduction in expenses, realized during the nine months ended September 30, 2016, were partially offset by $122,906 of commissions paid to an employee for sales AMIRON iron oxide achieved between September 1, 2015 and August 31, 2016. This commission arrangement will no longer be in effect beginning the fourth calendar quarter of 2016.
Operating loss incurred during the nine months ended September 30, 2016 was $3,547,624compared to a loss of $7,894,551 incurred during the same period in 2015, a decrease of $4,346,927or 55.1%. The decrease in operating loss during the nine months ended September 30, 2016 was due to a 1,036.3% increase in revenue and a 18.7% decrease in operating expense. The Company’s execution of its take-or-pay supply agreement during the quarter and its focus on the reduction of certain operating expenses, both at Utah and New York, were the primary drivers of the decline in operating loss.
Net Loss for the nine months ended September 30, 2016 was $5,537,720 compared to a loss of $5,130,385 incurred during the same period in 2015, an increase of $407,335, or 7.9%. The increase in net loss was due primarily to the 55.1% decline in operating loss, partially offset by a $4,754,262 increase in Total Other Income. The $4,754,262 decrease in total other income was driven by a $1,231,025 increase in interest expense due to an increase in the principal amount of the Company Series 2023 and Series A PIK Notes, a $4,173,153 decrease in the gain on revaluation of PIK Note derivative due to a smaller decrease in the price of the Company’s common stock during the period, partially offset by a $649,916 reduction in other expense related primarily to the absence of $541,011 of penalties associated with the late registration of the Company’s Series A PIK Notes.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a history of recurring losses from operations and use of cash in operating activities. For the nine months ended September 30, 2016, the Company's net loss was $5,537,720 and cash used in operating activities was $1,950,495. At September 30, 2016, the Company had working capital of $394,179 after taking into account $1,164,849 of accrued PIK Note interest, which the Company expects to pay in-kind and $167,841 of payables for which the Company believes it has a statute of limitations defense.
Based on the Company's current cash balance at September 30, 2016, its expected revenue and its cash usage expectations, it believes it will have sufficient liquidity to fund its operations for at least the next 12 months. Revenue for the three and nine months ended September 30, 2016 included $857,056 and $2,721,828, representing approximately 88% of revenue during each period, from the sale of AMIRON iron oxide under a take-or-pay supply agreement with one customer entered into on November 2, 2015 which the Company expects to complete by June 2017.
Cash used in operating activities during the first nine months of 2016 was $1,950,495 compared to $6,735,378 of cash used during the same period in 2015. The primary drivers behind the $4,784,883 reduction in cash used by operating activities during the period was a $4,431,331 reduction in net loss, after adjusted for non-cash items, and a $353,552 increase in cash generated from changes in operating assets and liabilities.
Cash provided by investing activities during 2016 was $362,925 compared to $17,995 used during the same period in 2015. The increase in cash generated by investing activities during the period primarily resulted from $552,944 of proceeds generated from the sale of non-core land owned by the Company in Idaho, partially offset by the purchase of certain capital equipment during the period.
Cash provided by financing activities during 2016 was $1,435,076 compared to $238,248 of cash used during the same period in 2015. On June 27, 2016 the Company raised $1.64 million through the sale of 10,933,333 units at $0.15 per unit. Each unit sold consisted of one share of common stock and three-tenths of a warrant to purchase the Company’s common stock. As a result of the sale, the Company issued 10,933,333 shares of common stock and warrants to purchase 3,280,000 shares of common stock at $0.25 per share. The warrants have a term of five years and do not contain a provision that allows for a cashless exercise.
Total assets at September 30, 2016 were $6,772,846 compared to $8,318,112 at December 31, 2015, a decrease of $1,545,266 due primarily to the sale of assets held for sale, the depreciation of property, plant and equipment and a reduction in prepaid assets, partially offset by an increase in accounts receivable resulting from the Company’s execution of its take-or-pay supply contract. Total liabilities were $25,740,499 at September 30, 2016, compared to $24,057,762 at December 31, 2015. The increase in liabilities was driven primarily by the increase in the outstanding balances of the Series 2023 and Series A PIK Notes, which resulted from the payment of interest expense through the issuance of additional Series 2023 and Series A PIK Notes.
ISSUANCE OF CONVERTIBLE DEBT
For information with respect to issuance of convertible debt, see Note 7 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 September 30, 2016 that require us to make future cash payments:
|
|
Payment due by period
|
|
|
|
Total
|
|
|
< 1 year
|
|
|
1 - 3 years
|
|
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent obligations
|
|
$
|
39,392
|
|
|
$
|
39,392
|
|
|
$
|
- 0 -
|
|
Total
|
|
$
|
39,392
|
|
|
$
|
39,392
|
|
|
$
|
- 0 -
|
|