NOTE

– OPTIONS AND WARRANTS TO PURCHASE COMMON STOCK

Outstanding Stock Warran

A summary of the status and changes of the warrants issued for

2017

and

2016

is as follows:

	December 31, 2017					December 31, 2016
	Shares issuable upon exercise of			Weighted		Shares issuable upon exercise of		Weighted
	Outstanding Warrants			Average Exercise Price		Outstanding Warrants		Average Exercise Price

Outstanding at beginning of year		3,744,623		$	0.36		461,340	$	1.15
Issued		18,193,750			0.07		3,283,283		0.25
Exercised		(3,125,000	)		0.04		--		--
Forfeited		--					--		--
Outstanding at end of year		18,813,373			0.14		3,744,623		0.36

A summary of the status of the warrants outstanding and exercisable at

December 31,

2017

is presented below:

		Warrants Outstanding and Exercisable
Exercise Price		Shares issuable upon exercise of Outstanding Warrants		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price
$	1.15		461,340		3.3	$	1.15
$	0.25		3,283,283		3.5	$	0.25
$	0.04		4,068,750		4.7	$	0.04
$	0.10		11,000,000		5.0	$	0.10
			18,813,373		4.6	$	0.14

During

June

2016,

the Company issued

10,933,333

units in exchange for

$1,640,000

in cash proceeds (

“June 2016

Offering”). Each unit consisted of

one

share of the Company’s common stock and

one

warrant to purchase

0.3

shares of the Company’s common stock for an equivalent price of

$0.25

per share.

During

August

and

October

2017,

the Company issued

26,500,000

units in exchange for

$1,060,000

in cash proceeds (

“August 2017

Offering”). The Company also issued

2,275,000

units to a broker as a fee related to the

August 2017

Offering. Each unit included

one

share of the Company’s common stock and

one

warrant to purchase

0.25

shares of the Company’s common stock for an equivalent price of

$0.04

per share. The purchase of

one

share of common stock requires the exercise of

four

warrants.

During

2017

investors exercised

12,500,000

warrants for

3,125,000

shares of the Company’s common stock. The exercise of the warrants generated

$125,000

of proceeds for the Company.

December 14, 2017,

upon the effectiveness of an amendment agreement the Company entered into by with the holders of the Series A Notes and Series

2023

Notes, the Company issued to the holders of the Series A Notes and Series

2023

Notes warrants to purchase

11,000,000

shares of the Company’s common stock. Each warrant enables a holder to purchase

one

share of the Company ‘s common stock for

$0.10.

The warrants expire on

December 13, 2022.

The Black Scholes value of the warrants totaled

$522,710

and was accounted for as a deferred cost of financing and presented as a discount to the Series A Notes and Series

2023

Notes.

Outstanding Stock Options

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.

December 7, 2016,

the stockholders of the Company approved the

2016

Incentive Plan. The purpose of the

2016

Incentive Plan is to enhance the profitability and value of the Company for the benefit of its stockholders by enabling the Company to offer eligible employees, consultants, and non-employee directors incentive awards in order to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and the Company

’s stockholders. The aggregate number of shares of Common Stock that

may

be issued or used for reference purposes under the

2016

Incentive Plan or with respect to which awards

may

be granted

may

not

exceed

15,000,000

shares, which

may

be either (i) authorized and unissued Common Stock or (ii) Common Stock held in or acquired for the treasury of the Company.

The

Compensation Committee of the Company Board of Directors has full authority to administer and interpret the

2016

Incentive Plan, to grant awards under the

2016

Incentive Plan, to determine the persons to whom awards will be granted, to determine the types of awards to be granted, to determine the terms and conditions of each award, to determine the number of shares of Common Stock to be covered by each award and to make all other determinations in connection with the

2016

Incentive Plan and the awards thereunder as the Committee, in its sole discretion, deems necessary or desirable.

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

2017

and

2016

were as follows on a weighted average basis:

	201 7			201 6
Dividend Yield	0%			0%
Expected Life (in years)	2.50	–	6.27	2.00	–	9.02
Expected Volatility	114.98	–	167.28%	65.49	–	65.49%
Risk Free Interest Rate	1.38	–	2.26%	0.76	–	1.78%

A summary of the status and changes of the options granted under stock option plans and other agreements for

2017

and

2016

is as follows:

	December 31, 2017					December 31, 2016
				Weighted					Weighted
				Average					Average
	Shares			Exercise Price		Shares			Exercise Price

Outstanding at beginning of year		21,277,479		$	0.87		17,806,472		$	1.00
Granted		35,810,289		$	0.06		3,771,488			0.24
Exercised		--			--		--			--
Forfeited		(30,000	)				(300,481	)		0.83
Outstanding at end of year		57,057,768		$	0.36		21,277,479		$	0.87

During the year ended

December 31, 2017,

the Company granted

35,810,289

options to purchase the Company’s common stock with a weighted average exercise price of

$0.06.

Of the

35,810,289

options granted, the options vest as follows:

	Vesting Information
Shares	Frequency	Begin Date	End Date
350,000	Immediately	05/23/2017	05/23/2017
300,000	Immediately	05/24/2017	05/24/2017
100,000	Immediately	10/01/2017	10/01/2017
140,000	Immediately	12/07/2017	12/07/2017
6,875,000	Quarterly	10/01/2017	07/01/2018
545,289	Quarterly	10/01/2017	07/01/2018
27,500,000	Performance*	12/14/2017	12/14/2027

December 14, 2017,

the Company’s management was granted performance-based options to purchase

27.5

million shares of the Company’s common stock at

$0.06

per share. The options expire on

December 13, 2027.

December 31, 2017,

the

first

fifty

percent (

50%

) of the performance-based options vested as management was able to (i) close the sale of an aggregate of

$600,000

of units (consisting of a share of common stock of the Company and a warrant to buy

0.25

of a share of common stock of the Company) at

$0.04

per unit and (ii) establish toll processing arrangements with

two

toll processors of halloysite that, in management’s good faith belief, can process halloysite to the Company’s specifications. An additional

twenty-five

percent (

25%

) of the performance-based options vested on

February 1, 2018

when management generated

$900,000

of additional cash proceeds through (i) the sale of common stock and (ii) the licensing of a right to explore the Dragon Mine property for certain precious metals. The vesting of the remaining

8.3%,

8.3%

and

8.4%

of the performance-based options occurs when (i) EBITDA is positive over a

twelve

-month period, (ii) EBITDA is at or greater than

million over a

twelve

-month period and (iii) EBITDA is at or greater than

million over a

twelve

-month period, respectively.

A summary of the status of the options outstanding at

December 31,

2017

is presented below:

Options Outstanding					Options Exercisable


	Weighted
	Average		Weighted				Weighted
	Remaining		Average				Average
	Contractual		Exercise		Number		Exercise
Number Outstanding	Life (years)		Price		Exercisable		Price

34,475,000		9.95	$	0.06		15,568,718	$	0.06
545,289		9.98	$	0.075		45,289	$	0.075
500,000		3.62	$	0.16		500,000	$	0.16
81,395		6.14	$	0.21		40,698	$	0.21
100,000		2.71	$	0.22		100,000	$	0.22
1,066,155		3.36	$	0.24		1,066,155	$	0.24
2,087,500		4.79	$	0.25		2,087,500	$	0.25
35,595		5.29	$	0.27		17,798	$	0.27
474,815		6.36	$	0.28		362,408	$	0.28
234,506		5.13	$	0.285		234,506	$	0.285
81,522		3.05	$	0.30		40,716	$	0.30
200,000		7.12	$	0.66		200,000	$	0.66
150,000		7.10	$	0.68		99,990	$	0.68
7,233,277		0.99	$	0.70		7,233,277	$	0.70
488,356		7.38	$	0.73		371,666	$	0.73
3,104,653		4.15	$	0.83		3,104,653	$	0.83
975,000		6.45	$	0.84		975,000	$	0.84
300,000		5.64	$	1.10		300,000	$	1.10
300,000		5.48	$	1.15		300,000	$	1.15
100,000		0.08	$	1.24		100,000	$	1.24
115,000		3.24	$	1.35		115,000	$	1.35
125,000		0.08	$	1.45		125,000	$	1.45
300,000		4.40	$	1.55		300,000	$	1.55
7,645		0.09	$	1.58		7,645	$	1.58
3,077,060		4.89	$	1.66		3,077,060	$	1.66
900,000		3.63	$	1.90		900,000	$	1.90
57,057,768		7.45	$	0.36		37,273,079	$	0.52

Compensation expense of

$961,221,

and

$698,350,

has been recognized for the vested options for the years ended

December 31, 2017 and

2016

, respectively. The aggregate intrinsic value of the outstanding options at

December 31, 2017

was

$0.

December 31, 2017, (

$303,522

of unamortized compensation expense for time-based unvested options will be recognized over the next

0.40

years on a weighted average basis; and (ii)

$709,500

of unamortized compensation expense for performance-based unvested options will be recognized as the performance targets are achieved.

December 14, 2017,

the Company’s management was granted performance-based options to purchase

27.5

million shares of the Company’s common stock at

$0.06

per share. The options expire on

December 13, 2027.

December 31, 2017,

the

first

fifty

percent (

50%

) of the performance-based options vested as management was able to (i) close the sale of an aggregate of

$600,000

of units (consisting of a share of common stock of the Company and a warrant to buy

0.25

of a share of common stock of the Company) at

$0.04

per unit and (ii) establish toll processing arrangements with

two

toll processors of halloysite that, in management’s good faith belief, can process halloysite to the Company’s specifications. An additional

twenty-five

percent (

25%

) of the performance-based options vested on

February 1, 2018

when management generated

$900,000

of additional cash proceeds through (i) the sale of common stock and (ii) the licensing of a right to explore the Dragon Mine property for certain precious metals. The vesting of the remaining

8.3%,

8.3%

and

8.4%

of the performance-based options occurs when (i) EBITDA is positive over a

twelve

-month period, (ii) EBITDA is at or greater than

million over a

twelve

-month period and (iii) EBITDA is at or greater than

million over a

twelve

-month period, respectively.