Note 10 - Options and Warrants to Purchase Common Stock

9 Months Ended

Sep. 30, 2015

Options And Warrants To Purchase Common Stock [Text Block]

NOTE 10 - OPTIONS AND WARRANTS TO PURCHASE COMMON STOCK

Derivative Instruments - Warrants

The Company issued 5,000,000 warrants (“Samlyn warrants”) in connection with the December 22, 2011 private placement of 10,000,000 shares of common stock. The strike price of these warrants was $2.00 per share at the date of grant. These warrants 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 contained a down-round provision whereby the exercise 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 at a price less than the exercise price. Therefore, the fair value of these warrants (based on observable inputs using a Monte Carlo model) was recorded as a liability in the balance sheet until they are exercised or expire or are otherwise extinguished. During the first quarter of 2013, the Company issued 3,756,757 shares of its common stock for gross proceeds of $5,560,000, which triggered a down-round adjustment of $0.03 from $2.00 to $1.97 in the strike price of the Samlyn warrants at that time. As discussed in Note 7, during August 2013, the Company issued $10,500,000 of 10% mandatorily convertible Series 2023 PIK Notes in a private placement, which triggered a down-round adjustment of $0.04 from $1.97 to $1.93 in the strike price of the Samlyn warrants. On November 3, 2014, the Company cancelled the warrant arrangement, resulting in the fair value of the warrant at such date of $120,000 being credited to equity.

Outstanding Stock Warrants

A summary of the status of the warrants outstanding and exercisable at September 30, 2015 is presented below:

		Warrants Outstanding and Exercisable
Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
$	0.78		213,402		0.34	$	0.78
$	0.80		124,481		0.25	$	0.80
$	1.00		180,000		0.06	$	1.00
$	1.15		461,340		5.58	$	1.15
$	2.00		54,367		0.84	$	2.00
			1,033,590		2.33	$	1.04

No warrants were issued during the three and nine months ended September 30, 2015 and 2014. The intrinsic value of the outstanding warrants at September 30, 2015 and 2014 was $0.

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.

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 for the nine months ended September 30, 2015 and 2014 were as follows on a weighted average basis:

	2015		2014
Dividend Yield		0%		0%
Expected Life (years)		5.35	5	-	6
Expected Volatility		65.5%		55.70%
Risk Free Interest Rate		1.84%	1.71	-	1.90%

A summary of the status and changes of the options granted under stock option plans and other agreements for the nine months ended September 30, 2015 is as follows:

	Shares			Weighted Average Exercise Price

Outstanding at beginning of period		17,053,116		$	1.02
Issued		988,356			0.65
Exercised		-0-			-0-
Expired		(175,000	)		(0.69	)
Outstanding at end of period		17,866,472		$	1.00

During the nine months ended September 30, 2015, the company granted 988,356 options to purchase the Company's common stock with a weighted average exercise price of $0.65 and the following vesting schedule:

	Vesting Information
Options	Frequency	Begin Date	End Date
200,000	Quarterly	03/31/2015	12/31/2015
200,000	Annually	02/05/2016	02/05/2018
100,000	Monthly	04/30/2015	03/31/2016
38,356	Quarterly	07/15/2015	04/16/2016
100,000	Monthly	09/16/2015	9/16/2016
350,000	Annually	06/01/2016	06/01/2018

A summary of the status of the options outstanding at September 30, 2015 is presented below:

Options Outstanding						Options Exercisable
Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price

	100,000		4.97	$	0.22		0	$	0.22
	200,000		9.38	$	0.66		150,000	$	0.66
	150,000		9.36	$	0.68		- 0 -		- 0 -
	7,233,277		3.25	$	0.70		7,233,277	$	0.70
	488,356		9.64	$	0.73		59,589	$	0.73
	3,405,134		5.94	$	0.83		3,405,134	$	0.83
	975,000		8.70	$	0.84		641,667	$	0.84
	60,000		0.75	$	1.00		60,000	$	1.00
	300,000		7.90	$	1.10		200,000	$	1.10
	300,000		7.74	$	1.15		208,333	$	1.15
	100,000		2.34	$	1.24		100,000	$	1.24
	115,000		5.49	$	1.35		115,000	$	1.35
	125,000		2.34	$	1.45		125,000	$	1.45
	330,000		6.20	$	1.55		330,000	$	1.55
	7,645		2.34	$	1.58		7,645	$	1.58
	3,077,060		7.15	$	1.66		3,077,060	$	1.66
	900,000		5.89	$	1.90		900,000	$	1.90
	17,866,472		5.36	$	1.00		16,612,705	$	1.02

The weighted-average grant-date fair value of options granted during the first nine months of 2015 was $0.65.

Compensation expense of $93,750 and $301,597 has been recognized for vesting of options for the three and nine months ended September 30, 2015, respectively. The aggregate intrinsic value of the outstanding options as September 30, 2015 was $4,000.