Attached files
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended: March 31,
2018
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
transition period from _______ to _______
Commission
File Number: 000-55456
American Resources Corporation
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(Exact
name of registrant as specified in its charter)
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Florida
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46-3914127
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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9002 Technology Lane
Fishers, IN 46038
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(Address
and Zip Code of principal executive offices)
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Registrant’s
telephone number, including area code: (606) 637-3740
Indicate
by check mark whether the Issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days. Yes
☐ No ☒
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes ☐ No
☒
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of the “large
accelerated filer,” “accelerated filer,” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer
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☐
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Accelerated
filer
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☐
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Non-accelerated
filer
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☐
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Smaller
Reporting Company
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☒
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Emerging
growth company
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☒
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
As of
May 15, 2018, the registrant had 892,044 shares of Class A common
stock issued and outstanding.
AMERICAN RESOURCES CORPORATION
TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
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3
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Consolidated Financial Statements
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3
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Consolidated Balance Sheets (Unaudited)
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4
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Consolidated Statements of Operation (Unaudited)
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5
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Consolidated Statements of Cash Flows (Unaudited)
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6
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Notes to Unaudited Consolidated Financial Statements
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7
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Item 2.
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Managements Discussion and Analysis of Financial Condition and
Results of Operations
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12
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Item 3.
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Quantitative and Qualitative Disclosures about Market
Risk
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18
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Item 4.
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Controls and Procedures
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18
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PART II. OTHER INFORMATION
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19
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Item 1.
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Legal Proceedings
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19
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Item 1A.
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Risk Factors
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19
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Item 2.
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Unregistered Sale of Equity Securities and Use of
Proceeds
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19
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Item 3.
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Defaults upon Senior Securities
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19
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Item 4.
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Mine Safety Disclosures
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19
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Item 5.
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Other Information
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19
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Item 6.
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Exhibits
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20
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SIGNATURES
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21
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2
PART I. FINANCIAL INFORMATION
AMERICAN RESOURCES CORPORATION
CONSOLIDATED
FINANCIAL
STATEMENTS
(UNAUDITED)
For the
three months ended
March
31, 2018
CONSOLIDATED
BALANCE SHEETS
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UNAUDITED
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March
31,
2018
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December
31,
2017
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ASSETS
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CURRENT
ASSETS
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Cash
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$9,006
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$186,722
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Accounts
Receivable
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2,269,609
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1,870,562
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Inventory
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317,122
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615,096
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Prepaid
fees
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443,482
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-
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Accounts Receivable
- Other
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29,259
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30,021
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Total Current
Assets
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3,068,478
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2,702,401
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OTHER
ASSETS
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Cash -
restricted
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85,786
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198,943
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Processing and rail
facility
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2,914,422
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2,914,422
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Underground
equipment
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8,887,045
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8,887,045
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Surface
equipment
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4,439,263
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3,957,603
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Less Accumulated
Depreciation
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(5,300,140)
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(4,820,569)
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Land
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178,683
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178,683
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Accounts Receivable
- Other
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111,003
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127,718
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Note
Receivable
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4,117,139
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4,117,139
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Total Other
Assets
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15,433,201
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15,560,984
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TOTAL
ASSETS
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$18,501,679
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$18,263,385
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3
LIABILITIES
AND STOCKHOLDERS' DEFICIT
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CURRENT
LIABILITIES
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Accounts
payable
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$6,407,660
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$5,360,537
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Accrued related
party management fee
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17,840,615
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17,840,615
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Accrued
interest
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461,333
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336,570
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Accrued dividend on
Series B
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70,157
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-
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Funds held for
others
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12,056
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82,828
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Due to
affiliate
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124,000
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124,000
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Current portion of
long term-debt
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10,164,219
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9,645,154
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Current portion of
reclamation liability
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2,379,352
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2,033,862
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Total Current
Liabilities
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37,459,392
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35,423,566
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OTHER
LIABILITIES
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Long-term portion
of note payable (net of issuance costs of $437,335 and
$440,333)
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5,782,253
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5,081,688
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Reclamation
liability
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17,964,267
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17,851,195
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Total Other
Liabilities
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23,746,520
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22,932,883
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Total
Liabilities
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61,205,912
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58,356,449
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STOCKHOLDERS'
DEFICIT
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AREC - Class A
Common stock: $.0001 par value; 230,000,000 shares
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authorized, 892,044
shares issued and outstanding
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89
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89
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AREC - Series A
Preferred stock: $.0001 par value; 4,817,792 shares
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482
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482
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authorized,
4,817,792 shares issued and outstanding
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AREC - Series B
Preferred stock: $.001 par value; 20,000,000 shares
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850
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850
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authorized, 850,000
shares issued and outstanding
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Additional paid-in
capital
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1,527,254
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1,527,254
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Accumulated
deficit
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(44,759,278)
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(42,019,595)
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Total American
Resources Corporation's Shareholders' Equity
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(43,230,603)
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(40,490,920)
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Non controlling
interest
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526,370
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397,856
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Total Stockholders'
Deficit
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(42,704,233)
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(40,093,064)
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TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
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$18,501,679
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$18,263,385
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The accompanying footnotes are integral to the unaudited
consolidated financial statements
4
CONSOLIDATED
STATEMENTS OF OPERATIONS
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UNAUDITED
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For the
three
months
ended
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For the
three
months
ended
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March 31,
2018
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March 31,
2017
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Coal
Sales
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$7,305,860
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$5,718,098
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Processing Services
Income
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19,516
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893,983
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Total
Revenue
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7,325,376
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6,612,081
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Cost of Coal Sales
and Processing
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(5,473,428)
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(4,563,561)
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Accretion
Expense
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(447,762)
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(328,061)
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Loss of ARO
Settlement
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-
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(155,922)
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Depreciation
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(479,571)
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(459,644)
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General and
Administrative
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(476,589)
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(419,196)
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Professional
Fees
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(274,603)
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(307,307)
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Production Taxes
and Royalties
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(949,793)
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(1,672,240)
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Development
Costs
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(1,687,173)
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(1,795,205)
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Total Operating
expenses
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(9,788,919)
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(9,701,136)
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Net Loss from
Operations
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(2,463,543)
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(3,089,055)
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Other Income and
(expense)
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Other
Income
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128,514
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176,978
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Interest
Income
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41,171
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-
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Interest
expense
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(247,154)
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(128,533)
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Total Other income
(expense)
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(77,469)
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48,445
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Net
Loss
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(2,541,012)
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(3,040,610)
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Less: Series B
dividend requirement
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(70,157)
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-
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Less: Net income
attributable to Non Controlling Interest
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(128,514)
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(176,978)
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Net loss
attributable to American Resources Corp. Shareholders
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$(2,739,683)
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$(3,217,588)
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Net loss per common
share - basic and diluted
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$(2.93)
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$(3.60)
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Weighted average
common shares outstanding- basic and diluted
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892,044
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845,427
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The accompanying footnotes are integral to the unaudited
consolidated financial statements
5
CONSOLIDATED
STATEMENTS OF CASH FLOWS
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UNAUDITED
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For the
three
months
ended
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For the
three
months
ended
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March
31,
2018
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March
31,
2017
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Cash
Flows from Operating activities:
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Net
loss
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$(2,541,012)
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$(3,040,610)
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Adjustments
to reconcile net loss to net cash used in operating
activities:
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Depreciation
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479,571
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459,644
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Accretion
expense
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447,762
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328,061
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Loss on reclamation
settlements
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-
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155,922
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Assumption of note
payable in reverse merger
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-
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50,000
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Amortization of
issuance costs and debt discount
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37,841
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52,841
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Recovery of
previously impaired receivable
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(50,806)
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-
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Change
in current assets and liabilities:
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Accounts
receivable
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(399,047)
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1,325,463
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Prepaid expenses
and other assets
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(443,482)
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40,000
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Inventory
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297,974
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-
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Accounts
payable
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1,057,923
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925,483
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Funds held for
others
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(70,772)
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-
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Accrued
interest
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124,763
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30,000
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Reclamation
liability settlements
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-
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(355,785)
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Cash used in
operating activities
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(1,059,285)
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(28,981)
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Cash
Flows from Investing activities:
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Advances made in
connection with management agreement
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(7,000)
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(40,000)
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Advance repayment
in connection with management agreement
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79,219
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75,000
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Cash paid for PPE,
net
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-
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(34,787)
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Cash provided by
investing activities
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72,219
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213
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Cash
Flows from Financing activities:
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Principal payments
on long term debt
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(191,517)
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(4,893)
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Proceeds from long
term debt
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1,000,000
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-
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Payments on
factoring agreement, net
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(112,290)
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(415,204)
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Proceeds from sale
of series B preferred equity
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-
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500,000
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Cash provided by
financing activities
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696,193
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79,903
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Increase (decrease)
in cash and restricted cash
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(290,873)
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51,135
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Cash and restricted
cash, beginning of period
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385,665
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925,627
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Cash
and restricted cash, end of period
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$94,792
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$976,762
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Supplemental
Information
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Non-cash investing
and financing activities
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Equipment for notes
payable
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$481,660
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$-
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Preferred Series B
Dividends
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$70,157
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$-
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Conversion of note
payable to common stock
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$-
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$50,000
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Beneficial
conversion feature on note payable
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$-
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$50,000
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Cash paid for
interest
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$66,672
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$45,692
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Cash paid for
income taxes
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$-
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$-
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The accompanying footnotes are integral to the unaudited
consolidated financial statements
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
American
Resources Corporation (ARC or the Company) was formed in June 2015
for the purpose of acquiring, rehabilitating and operating various
natural resource assets including coal, oil and natural
gas.
Basis of Presentation and Consolidation:
The
consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries Quest Energy Inc, (QEI),
Deane Mining, LLC (Deane), Quest Processing LLC (Quest Processing),
ERC Mining Indiana Corp (ERC), McCoy Elkhorn Coal LLC (McCoy) and
Knott County Coal LLC (KCC). All significant intercompany accounts
and transactions have been eliminated.
The
accompanying Consolidated Financial Statements are unaudited and
have been prepared in accordance with accounting principles
generally accepted in the United States (“U.S.
GAAP”).
Interim Financial Information
Certain
information and footnote disclosures normally included in annual
financial statements prepared in accordance with U.S. GAAP have
been omitted. In the opinion of management, these interim unaudited
Consolidated Financial Statements reflect all normal and recurring
adjustments necessary for a fair presentation of the results for
the periods presented. Results of operations for the three months
ended March 31, 2018 are not necessarily indicative of the results
to be expected for the year ending December 31, 2018 or any other
period. These financial statements should be read in conjunction
with the Company’s 2017 audited financial statements and
notes thereto which were filed on form 10K on April 23,
2018.
Going Concern: The Company has suffered recurring losses
from operations and currently a working capital deficit. These
conditions raise substantial doubt about the Company’s
ability to continue as a going concern. We plan to generate profits
by expanding current coal operations as well as developing new coal
operations. However, we will need to raise the funds required to do
so through sale of our securities or through loans from third
parties. We do not have any commitments or arrangements from any
person to provide us with any additional capital. If additional
financing is not available when needed, we may need to cease
operations. We may not be successful in raising the capital needed
to expand or develop operations. Management believes that actions
presently being taken to obtain additional funding provide the
opportunity for the Company to continue as a going concern. The
accompanying financial statements have been prepared assuming the
Company will continue as a going concern; no adjustments to the
financial statements have been made to account for this
uncertainty.
Convertible Preferred Securities: We account for hybrid
contracts that feature conversion options in accordance with
generally accepted accounting principles in the United States. ASC
815, Derivatives and Hedging
Activities (“ASC 815”) requires companies
to bifurcate conversion options from their host instruments and
account for them as free standing derivative financial instruments
according to certain criteria. The criteria includes circumstances
in which (a) the economic characteristics and risks of the embedded
derivative instrument are not clearly and closely related to the
economic characteristics and risks of the host contract,
(b) the hybrid instrument that embodies both the embedded
derivative instrument and the host contract is not re-measured at
fair value under otherwise applicable generally accepted accounting
principles with changes in fair value reported in earnings as they
occur and (c) a separate instrument with the same terms as the
embedded derivative instrument would be considered a derivative
instrument.
7
We also
follow ASC 480-10, Distinguishing Liabilities from
Equity (“ASC 480-10”) in its evaluation of
the accounting for a hybrid instrument. A financial instrument that
embodies an unconditional obligation, or a financial instrument
other than an outstanding share that embodies a conditional
obligation, that the issuer must or may settle by issuing a
variable number of its equity shares shall be classified as a
liability (or an asset in some circumstances) if, at inception, the
monetary value of the obligation is based solely or predominantly
on any one of the following: (a) a fixed monetary amount known at
inception (b) variations in something other than the fair value of
the issuer’s equity shares or (c) variations inversely
related to changes in the fair value of the issuer’s equity
shares. Hybrid instruments meeting these criteria are not further
evaluated for any embedded derivatives and are carried as a
liability at fair value at each balance sheet date with
remeasurements reported in interest expense in the accompanying
Consolidated Statements of Operations.
Cash is maintained in bank deposit accounts which, at times,
may exceed federally insured limits. To date, there have been no
losses in such accounts.
Restricted cash: As part of the Kentucky New
Markets Development Program (See Note 3) an asset management fee
reserve was set up in the amount of $116,115. The funds are held to
pay annual asset management fees to an unrelated party through
2021. The balance as of March 31, 2018 and December 31, 2017 was
$85,786 and $198,943, respectively. The total balance of restricted
cash also includes amounts held under the management agreement. See
note 6.
The
following table sets forth a reconciliation of cash, cash
equivalents, and restricted cash reported in the consolidated
balance sheet that agrees to the total of those amounts as
presented in the consolidated statement of cash flows for the three
months ended March 31, 2018 and March 31, 2017.
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March 31,
2018
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March 31,
2017
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Cash
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$9,006
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$756,160
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Restricted
Cash
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85,786
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220,602
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Total cash and
restricted cash presented
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in the consolidated
statement of cash flows
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$94,792
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$976,762
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Asset Retirement Obligations (ARO) – Reclamation: At
the time they are incurred, legal obligations associated with the
retirement of long-lived assets are reflected at their estimated
fair value, with a corresponding charge to mine development.
Obligations are typically incurred when we commence development of
underground and surface mines, and include reclamation of support
facilities, refuse areas and slurry ponds or through
acquisitions.
Obligations
are reflected at the present value of their future cash flows. We
reflect accretion of the obligations for the period from the date
they incurred through the date they are extinguished. The asset
retirement obligation assets are amortized using the
units-of-production method over estimated recoverable (proved and
probable) reserves. We are using a discount rate of 10%. Federal
and State laws require that mines be reclaimed in accordance with
specific standards and approved reclamation plans, as outlined in
mining permits. Activities include reclamation of pit and support
acreage at surface mines, sealing portals at underground mines, and
reclamation of refuse areas and slurry ponds.
We
assess our ARO at least annually and reflect revisions for permit
changes, change in our estimated reclamation costs and changes in
the estimated timing of such costs. During the period ending March
31, 2018 and 2017, $- and $155,922 were incurred for loss on
settlement on ARO, respectively.
The
table below reflects the changes to our ARO:
Balance at December
31, 2017
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$19,885,057
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Accretion – 3
months March 31, 2018
|
447,762
|
Reclamation work
– 3 months March 31, 2018
|
-
|
Balance at March
31, 2018
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$20,343,619
|
Allowance For Doubtful Accounts: The Company recognizes an
allowance for losses on trade and other accounts receivable in an
amount equal to the estimated probable losses net of recoveries.
The allowance is based on an analysis of historical bad debt
experience, current receivables aging and expected future
write-offs, as well as an assessment of specific identifiable
amounts considered at risk or uncollectible.
Allowance
for trade receivables as of March 31, 2018 and December 31, 2017
amounted to $0, for both periods. Allowance for other accounts
receivables as of March 31, 2018 and December 31, 2017 amounted to
$0 and $92,573, respectively.
Trade
and loan receivables are carried at amortized cost, net of
allowance for losses. Amortized cost approximated book value as of
March 31, 2018 and December 31, 2017.
Reclassifications: Reclassifications have been made to
conform with current year presentation.
8
New Accounting Pronouncements: Management has determined
that the impact of the following recent FASB pronouncements will
not have a material impact on the financial
statements.
|
-
|
Accounting
Standards Update (ASU) 2014-09, Revenue from Contracts with Customers,
effective for years beginning after December 15, 2017
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|
-
|
ASU
2015-11, Simplifying the
Measurement of Inventory, effective for years beginning
after December 15, 2016. Adoption of ASU 2015-11 did not have a
material effect on the consolidated financial
statements.
|
|
-
|
ASU
2015-17, Balance Sheet
Classification of Deferred Taxes, effective for years
beginning after December 15, 2016. Adoption of ASU 2015-17 did not
have a material effect on the consolidated financial statements or
related disclosures.
|
|
-
|
ASU
2016-01, Recognition and
Measurement of Financial Assets and Financial Liabilities,
effective for years beginning after December 15, 2017
|
|
-
|
ASU
2016-02, Leases, effective
for years beginning after December 15, 2019. We expect to adopt ASU
2016-02 beginning January 1, 2019 and are in the process of
assessing the impact that this new guidance is expected to have on
our consolidated financial statements and related
disclosures.
|
|
-
|
ASU
2016-18, Statement of Cash Flows:
Restricted Cash, effective beginning after December 15,
2017
|
|
-
|
ASU
2017-01, Business
Combinations, effective beginning after December 15,
2017
|
|
-
|
ASU
2017-09, Compensation –
Stock Compensation, effective beginning after December 31,
2017
|
|
-
|
ASU
2017-11, Earnings Per
Share, effective beginning after December 15,
2018
|
|
-
|
ASU
2018-05, Income Taxes,
effective beginning after December 15, 2017. We expect to adopt ASU
2018-05 beginning January 1, 2018 and are in the process of
assessing the impact that this new guidance is expected to have on
our consolidated financial statements and related
disclosures.
|
Management
has elected to early adopt ASU 2017-01, Business Combinations (Topic 805): Clarifying
the Definition of a Business effective at
inception.
ASU
2016-18, Statement of Cash Flows:
Restricted Cash (Topic 230). Topic 230 addressed how
restricted cash was presented in the statement of cash flows. We
adopted Topic 230 as of January 1, 2018 resulting modifications as
to the manner in which restricted cash transactions are presented
in the statement of cash flows.
ASU
2014-09, Revenue from Contracts
with Customers (Topic 606). Topic 606 supersedes the revenue
recognition requirements in Topic 605 and requires entities to
recognize revenues when control of the promised goods or services
is transferred to customers at an amount that reflects the
consideration to which the entity expects to be entitled to in
exchange for those goods or services. The Company’s primary
source of revenue is from the sale of coal through both short-term
and long-term contracts with utilities, industrial customers and
steel producers whereby revenue is currently recognized when risk
of loss has passed to the customer. During the fourth quarter of
2017, the Company finalized its assessment related to the new
standard by analyzing certain contracts representative of the
majority of the Company’s coal sales and determined that the
timing of revenue recognition related to the Company’s coal
sales will remain consistent between the new standard and the
previous standard. The Company also reviewed other sources of
revenue, and concluded the current basis of accounting for these
items is in accordance with the new standard. The Company adopted
ASU 2014-09 effective January 1, 2018 using the modified
retrospective method, and there was no cumulative adjustment to
retained earnings.
NOTE 2 - PROPERTY AND EQUIPMENT
At
March 31, 2018 and December 31, 2017, property and equipment were
comprised of the following:
|
March
31,
2018
|
December
31,
2017
|
Processing and rail
facility
|
$2,914,422
|
$2,914,422
|
Underground
equipment
|
8,887,045
|
8,887,045
|
Surface
equipment
|
4,439,263
|
3,957,603
|
Land
|
178,683
|
178,683
|
Less: Accumulated
depreciation
|
(5,300,140)
|
(4,820,569)
|
|
|
|
Total Property and
Equipment, Net
|
$11,119,273
|
$11,117,184
|
Depreciation
expense amounted to $479,571 and $459,644 for the periods March 31,
2018 and March 31, 2017, respectively.
The
estimated useful lives are as follows:
Processing
and Rail Facilities
|
20
years
|
Surface
Equipment
|
7
years
|
Underground
Equipment
|
5
years
|
9
NOTE 3 - NOTES PAYABLE
During
the three month period ended March 31, 2018 and 2017, principal
payments on long term debt totaled $191,517 and $4,893,
respectively. During the three-month period ended March 31, 2018
and 2017, increases to long term debt totaled $1,481,660 and $0,
respectively, primarily $1,000,000 from the ARC business loan and
$481,660 from equipment financings. The ARC business loan carries
annual interest at 7%, is due within two months of advancement and
is secure by all company assets. The equipment loan totaling
$346,660 carries annual interest at 9%, is due in 24 months and is
secured by the equipment. The equipment loan totaling $135,000
carries annual interest at 0%, was due one month after advancement,
has been paid in full on May 2, 2018 and was secured by the
equipment.
During
the three-month period ended March 31, 2018 and 2017, proceeds from
the factoring agreement totaled $6,714,836 and $2,039,226,
respectively and repayments according to the factoring agreement
totaled $6,827,126 and $2,454,430, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
On June
12, 2015, the Company executed a consulting agreement with an
entity with common ownership. During the three months ended March
31, 2018 and March 31, 2017, the Company incurred fees totaling $0
relating to services rendered under this agreement, respectively.
The amount outstanding and payable as of March 31, 2018 and
December 31, 2017, was $17,840,615 and $17,840,615, respectively.
The amount is due on demand and does not accrue
interest.
NOTE 5 – MANAGEMENT AGREEMENT
On
April 13, 2015, ERC entered into a mining and management agreement
with an unrelated entity, to operate a coal mining and processing
facility in Jasonville, Indiana. Under the management agreement
funds advanced for the three-month period ended March 31, 2018 and
2017are $7,000 and $40,000, respectively and the amounts repaid
totaled $79,219 and $75,000, respectively.
NOTE 6 – EQUITY TRANSACTIONS
There
were no common or other series A preferred transactions for the
three-month period ending 2018.
Total
preferred dividend requirement for the three month period ending
March 31, 2018 and 2017 amounted to $70,157 and $0,
respectively.
10
NOTE 7 - CONTINGENCIES
In the
course of normal operations, the Company is involved in various
claims and litigation that management intends to defend. The range
of loss, if any, from potential claims cannot be reasonably
estimated. However, management believes the ultimate resolution of
matters will not have a material adverse impact on the
Company’s business or financial position.
NOTE 8 - SUBSEQUENT EVENTS
Loans
During
April 2018, the company drew an additional $300,000 on the ARC
business loan.
During
May 2018, the company entered into a sale leaseback arrangement
with an unrelated party to acquire new equipment. The transaction
was accounted for as a financing transaction resulting in a note
payable of $1,000,000 being recorded with a maturity date of
September, 2018.
Acquisitions
On
April 21, 2018, McCoy acquired two permits and entered into a
surface lease and a mineral sub-lease from unrelated entities.
Consideration for the acquired permits was the assumption of
reclamation bonds totaling $1,036,200 and vendor payables totaling
$53,771. The transaction is accounted for as an asset purchase
under ASU 2017-01. Management is still gathering the information
needed to complete the allocation of the purchase price to the
assets acquired and liabilities assumed.
On May
10, 2018, Knott County acquired a mining permit from an unrelated
party. Consideration for the acquired permits was the assumption of
reclamation bonds totaling $75,000 and the payment of $1.50 per ton
royalty of coal sold. The transaction is accounted for as an asset
purchase under ASU 2017-01. Management is still gathering the
information needed to complete the allocation of the purchase price
to the assets acquired and liabilities assumed.
11
This Form 10-Q and other reports filed by Registrant from time to
time with the Securities and Exchange Commission (collectively the
“Filings”) contain or may contain forward looking
statements and information that are based upon beliefs of, and
information currently available to, Registrant’s management
as well as estimates and assumptions made by Registrant’s
management. When used in the filings the words
“anticipate”, “believe”,
“estimate”, “expect”, “future”,
“intend”, “plan” or the negative of these
terms and similar expressions as they relate to Registrant or
Registrant’s management identify forward looking statements.
Such statements reflect the current view of Registrant with respect
to future events and are subject to risks, uncertainties,
assumptions and other factors relating to Registrant’s
industry, Registrant’s operations and results of operations
and any businesses that may be acquired by Registrant. Should one
or more of these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may differ
significantly from those anticipated, believed, estimated,
expected, intended or planned.
Although Registrant believes that the expectations reflected in the
forward-looking statements are reasonable, Registrant cannot
guarantee future results, levels of activity, performance or
achievements. Except as required by applicable law, including the
securities laws of the United States, Registrant does not intend to
update any of the forward-looking statements to conform these
statements to actual results.
Overview
When we
formed our company, our focus was to (i) construct and/or purchase
and manage a chain of combined gasoline, diesel and natural gas
(NG) fueling and service stations (initially, in the Miami, FL
area); (ii) construct conversion factories to convert NG to
liquefied natural gas (LNG) and compressed natural gas (CNG); and
(iii) construct conversion factories to retrofit vehicles currently
using gasoline or diesel fuel to also run on NG in the United
States and also to build a convenience store to serve our customers
in each of our locations. These operations represent historical
operations of the company and do not represent the company’s
current operations and business plan.
On
January 5, 2017, American Resources Corporation (ARC or the
Company) executed a Share Exchange Agreement between the Company
and Quest Energy Inc. (Quest Energy), a private company
incorporated in the State of Indiana on May 2015 with offices at
9002 Technology Lane, Fishers, IN 46038, and due to the fulfillment
of various conditions precedent to closing of the transaction, the
control of the Company was transferred to the Quest Energy
shareholders on February 7, 2017. This transaction resulted in
Quest Energy becoming a wholly-owned subsidiary of ARC. Through
Quest Energy, ARC was able to acquire coal mining and coal
processing operations, substantially all located in eastern
Kentucky.
Quest
Energy currently has five coal mining and processing operating
subsidiaries: McCoy Elkhorn Coal LLC (doing business as McCoy
Elkhorn Coal Company) (McCoy Elkhorn), Knott County Coal LLC (Knott
County Coal), Deane Mining LLC (Deane Mining) and Quest Processing
LLC (Quest Processing) locatedin eastern Kentucky within the
Central Appalachian coal basin, and ERC Mining Indiana Corporation
(ERC) located in southwest Indiana within the Illinois coal basin.
The coal reserves under control by the Company are generally
comprise of metallurgical coal (used for steel making), pulverized
coal injections (used in the steel making process) and high-BTU,
low sulfur, low moisture bituminous coal used for a variety of uses
within several industries, including industrial customers,
specialty products and thermal coal used for electricity
generation. We have not classified, and as a result, do not have
any “proven” or “probable” reserves as
defined in United States Securities and Exchange Commission
Industry Guide 7, and as a result, our company and its business
activities are deemed to be in the exploration stage until mineral
reserves are defined on our properties.
McCoy Elkhorn Coal LLC
Located
primarily within Pike County, Kentucky, McCoy Elkhorn is currently
comprised of two active mines (Mine #15 and the Carnegie Mine), two
coal preparation facilities (Bevins #1 and Bevins #2), and other
mines in various stages of development or reclamation. McCoy
Elkhorn sells its coal to a variety of customers, both domestically
and internationally, primarily to the steel making industry as a
high-vol “B” coal or blended coal, and high-grade
thermal coal to utilities.
12
Mine
#15 is an underground mine in the Millard (also known as Glamorgan)
coal seam and located near Meta, Kentucky. Mine #15 is mined via
room-and-pillar mining methods using continuous miners, and the
coal is belted directly from the stockpile to McCoy Elkhorn’s
coal preparation facility. Mine #15 is currently a “company
run” mine, whereby the Company manages the workforce at the
mine. The coal from Mine #15 is stockpiled at the mine site and
belted directly to the Company’s nearby coal preparation
facilities. Production at Mine #15 re-commenced under Quest
Energy’s ownership in September 2016.
The
Carnegie Mine is an underground mine in the Alma and Upper Alma
coal seams and located near Kimper, Kentucky. In 2011, coal
production from the Carnegie Mine in the Alma coal seam commenced
and then subsequently the mine was idled. Production at the
Carnegie Mine was reinitiated in early 2017 under Quest
Energy’s ownership and is currently being mined via
room-and-pillar mining methods utilizing a continuous miner. The
coal is stockpiled on-site and trucked approximately 7 miles to
McCoy Elkhorn’s preparation facilities. The Carnegie Mine is
currently operated as a modified contractor mine, whereby McCoy
Elkhorn provides the mining infrastructure and equipment for the
operations and pays the contractor a fixed per-ton fee for managing
the workforce, procuring the supplies, and maintaining the
equipment and infrastructure in proper working order.
There
are two coal preparation facilities at McCoy Elkhorn: the Bevins #1
Preparation Plant, an 800 ton-per hour coal preparation facility,
and the Bevins #2 Preparation Plant, located on the same permit
site as Bevins #1, and a 500 ton-per-hour processing facility. Both
coal preparation plants have fine coal recovery and a stoker
circuits for enhanced coal recovery and coal sizing
options.
Both
Bevins #1 and Bevins #2 have a batch-weight loadout and rail spur
for loading coal into trains for rail shipments. The spur has
storage for 110 rail cars and is serviced by CSX Transportation and
is located on CSX’s Big Sandy, Coal Run Subdivision. Both
Bevins #1 and Bevins #2 have coarse refuse and slurry impoundments
called Big Groundhog and Lick Branch Impoundments.
Knott County Coal LLC
Located
primarily within Knott County, Kentucky (but with additional idled
permits in Leslie County, Perry County, and Breathitt County,
Kentucky), Knott County Coal is comprised of 17 idled mining
permits (or permits in reclamation) and permits for two preparation
facilities: the Supreme Energy Preparation Plant and the Raven
Preparation Plant, both of which are also idled. The idled mining
permits are either in various stages of reclamation or being
maintained as idled, pending any changes to the coal market that
may warrant reinitiating production. The idled mines at Knott
County Coal are primarily underground mines that utilize
room-and-pillar mining.
The
idled Supreme Energy Preparation Plant is a 450 ton-per-hour coal
preparation facility located in Kite, Kentucky. The Bates Branch
rail loadout associated with the Supreme Energy Preparation Plant
is a batch-weigh rail loadout with 110 rail car storage capacity
and serviced by CSX Transportation in their Big Sandy rate
district. The Supreme Energy Preparation Plant has a coarse refuse
and slurry impoundment called the King Branch
Impoundment.
Knott
County Coal is also owner of the permits to the idled Raven
Preparation Plant, an 800 ton-per-hour coal preparation facility
with a fine coal circuit, located in Raven, Kentucky. The Raven
rail loadout is a batch-weight rail loadout with 110 car storage
capacity and services by CSX Transportation in their Big Sandy rate
district. The Raven Preparation Plant has a coarse refuse and
slurry impoundment called the Big Branch Impoundment.
Deane Mining LLC
Located
within Letcher County and Knott County, Kentucky, Deane Mining is
comprised of one active underground coal mine (the Access Energy
Mine), one active surface mine (Razorblade Surface) and one active
coal preparation facility called Mill Creek Preparation Plant,
along with 12 additional idled mining permits (or permits in
reclamation). The idled mining permits are either in various stages
of development, reclamation or being maintained as idled, pending
any changes to the coal market that may warrant re-starting
production.
13
Access
Energy is an underground mine in the Elkhorn 3 coal seam and
located in Deane, Kentucky. Access Energy is mined via
room-and-pillar mining methods using continuous miners, and the
coal is belted directly from the mine to the raw coal stockpile at
the Mill Creek Preparation Plant across the road from Access
Energy. Access Energy is currently run as a modified contractor
mine, whereby Deane Mining provides the mining infrastructure and
equipment for the operations and pays the contractor a fixed
per-ton fee for managing the workforce, procuring the supplies, and
maintaining the equipment and infrastructure in proper working
order.
Razorblade
Surface is a surface mine targeting the Hazard 4 and Hazard 4 Rider
coal seams and located in Deane, Kentucky. Deane Mining is
currently preparing Razorblade Surface for coal extraction and
anticipates extracting coal in spring of 2018. Coal produced from
Razorblade Surface will be trucked approximately one mile to the
Mill Creek Preparation Plant.
Coal
from Access Energy is processed at Deane Mining’s Mill Creek
Preparation Plant, an 800 ton-per hour coal preparation facility
with a batch-weight loadout and rail spur for loading coal into
trains for rail shipments. The spur has storage for 110 rail cars
and is serviced by CSX Transportation and is located on both
CSX’s Big Sandy rate district and CSX’s Elkhorn rate
district. The Mill Creek Preparation Plant has a coarse refuse and
slurry impoundment called Razorblade Impoundment.
Quest Processing LLC
Quest
Energy’s wholly-owned subsidiary, Quest Processing, manages
the assets, operations, and personnel of the certain coal
processing and transportation facilities of Quest Energy’s
various other subsidiaries, namely the Supreme Energy Preparation
Facility (of Knott County Coal LLC), the Raven Preparation Facility
(of Knott County Coal LLC), and Mill Creek Preparation Facility (of
Deane Mining LLC). Quest Processing LLC was the recipient of a New
Markets Tax Credit loan that allowed for the payment of certain
expenses of these preparation facilities. As part of that financing
transaction, Quest Energy loaned ERC Mining LLC, an entity owned by
members of Quest Energy, Inc.’s management, $4,120,000 to
facilitate the New Markets Tax Credit loan, of which is all
outstanding as of December 31, 2017. ERC Mining LLC is considered a
variable interest entity and is consolidated into Quest
Energy’s financial statements.
ERC Mining Indiana Corporation (the Gold Star Mine)
Quest
Energy, through its wholly-owned subsidiary, ERC Mining Indiana
Corporation (ERC), has a management agreement with an unrelated
entity, LC Energy Operations LLC to manage an underground coal
mine, clean coal processing facility and rail loadout located in
Greene County, Indiana (referred to as the “Gold Star
Mine”) for a monthly cash and per-ton fee. As part of that
management agreement, ERC manages the operations of the Gold Star
Mine, is the holder of the mining permit, provides the reclamation
bonding, is the owner of some of the equipment located at the Gold
Star Mine, and provides the employment for the personnel located at
the Gold Star Mine. LC Energy Operations LLC owns the remaining
equipment and infrastructure, is the lessee of the mineral (and the
owner of some of the mineral and surface), and provides funding for
the operations. Currently the coal mining operations at the Gold
Star Mine are idled.
In
addition to the current owned permits and controlled reserves, ARC
may, from time to time, and frequently, acquire additional coal
mining permits or reserves, or dispose of coal mining permits or
reserves currently held by ARC, as management of the Company deems
appropriate.
Mineral and Surface Leases
Coal
mining and processing involves the extraction of coal (mineral) and
the use of surface property incidental to such extraction and
processing. All of the mineral and surface related to the
Company’s coal mining operations is leased from various
mineral and surface owners (the “Leases”). The
Company’s operating subsidiaries, collectively, are parties
to approximately 200 various Leases and other agreements required
for the Company’s coal mining and processing operations. The
Leases are with a variety of Lessors, from individuals to
professional land management firms such as the Elk Horn Coal
Company LLC and Alma Land Company. In some instances, the Company
has leases with Land Resources & Royalties LLC (LRR), a
professional leasing firm that is an entity wholly owned by Quest
MGMT LLC, an entity owned by members of Quest Energy Inc.’s
management. LRR is considered a variable interest entity and is
consolidated into Quest Energy’s financial
statements.
14
Coal Sales
ARC
sells its coal to domestic and international customers, some which
blend ARC’s coal at east coast ports with other qualities of
coal for export. Coal sales currently come from the Company’s
McCoy Elkhorn’s Mine #15, McCoy Elkhorn’s Carnegie
Mine, and Deane Mining’s Access Energy Mine. The Company may,
at times, purchase coal from other regional producers to sell on
its contracts.
Coal
sales at the Company is primarily outsource to third party
intermediaries who act on the Company’s behalf to source
potential coal sales and contracts. The third-party intermediaries
have no ability to bind the Company to any contracts, and all coal
sales are approved by management of the Company.
Competition
The
coal industry is intensely competitive. The most important factors
on which the Company competes are coal quality, delivered costs to
the customer and reliability of supply. Our principal domestic
competitors will include Alpha Natural Resources, Ramaco Resources,
Blackhawk Mining, Coronado Coal, Arch Coal, Contura Energy, Warrior
Met Coal, Alliance Resource Partners, and ERP Compliance Fuels.
Many of these coal producers may have greater financial resources
and larger reserve bases than we do. We also compete in
international markets directly with domestic companies and with
companies that produce coal from one or more foreign countries,
such as Australia, Colombia, Indonesia and South
Africa.
Legal Proceedings
From
time to time, we are subject to ordinary routine litigation
incidental to our normal business operations. We are not currently
a party to, and our property is not subject to, any material legal
proceedings.
Environmental, Governmental, and Other Regulatory
Matters
Our
operations are subject to federal, state, and local laws and
regulations, such as those relating to matters such as permitting
and licensing, employee health and safety, reclamation and
restoration of mining properties, water discharges, air emissions,
plant and wildlife protection, the storage, treatment and disposal
of wastes, remediation of contaminants, surface subsidence from
underground mining and the effects of mining on surface water and
groundwater conditions. In addition, we may become subject to
additional costs for benefits for current and retired coal miners.
These environmental laws and regulations include, but are not
limited to, the Surface Mining Control and Reclamation Act of 1977
(SMCRA) with respect to coal mining activities and ancillary
activities; the Clean Air Act (CAA) with respect to air emissions;
the Clean Water Act (CWA) with respect to water discharges and the
permitting of key operational infrastructure such as impoundments;
Resource Conservation and Recovery RCRA with respect to solid and
hazardous waste management and disposal, as well as the regulation
of underground storage tanks; the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA or Superfund) with
respect to releases, threatened releases and remediation of
hazardous substances; the Endangered Species Act of 1973 (ESA) with
respect to threatened and endangered species; and the National
Environmental Policy Act of 1969 (NEPA) with respect to the
evaluation of environmental impacts related to any federally issued
permit or license. Many of these federal laws have state and local
counterparts which also impose requirements and potential liability
on our operations.
Compliance
with these laws and regulations may be costly and time-consuming
and may delay commencement, continuation or expansion of
exploration or production at our facilities. They may also depress
demand for our products by imposing more stringent requirements and
limits on our customers’ operations. Moreover, these laws are
constantly evolving and are becoming increasingly complex and
stringent over time. These laws and regulations, particularly new
legislative or administrative proposals, or judicial
interpretations of existing laws and regulations related to the
protection of the environment could result in substantially
increased capital, operating and compliance costs. Individually and
collectively, these developments could have a material adverse
effect on our operations directly and/or indirectly, through our
customers’ inability to use our products.
15
Certain
implementing regulations for these environmental laws are
undergoing revision or have not yet been promulgated. As a result,
we cannot always determine the ultimate impact of complying with
existing laws and regulations.
Due in
part to these extensive and comprehensive regulatory requirements
and ever-changing interpretations of these requirements, violations
of these laws can occur from time to time in our industry and also
in our operations. Expenditures relating to environmental
compliance are a major cost consideration for our operations and
safety and compliance is a significant factor in mine design, both
to meet regulatory requirements and to minimize long-term
environmental liabilities. To the extent that these expenditures,
as with all costs, are not ultimately reflected in the prices of
our products and services, operating results will be
reduced.
In
addition, our customers are subject to extensive regulation
regarding the environmental impacts associated with the combustion
or other use of coal, which may affect demand for our coal. Changes
in applicable laws or the adoption of new laws relating to energy
production, greenhouse gas emissions and other emissions from use
of coal products may cause coal to become a less attractive source
of energy, which may adversely affect our mining operations, the
cost structure and, the demand for coal.
We
believe that our competitors with operations in the United States
are confronted by substantially similar conditions. However,
foreign producers and operators may not be subject to similar
requirements and may not be required to undertake equivalent costs
in or be subject to similar limitations on their operations. As a
result, the costs and operating restrictions necessary for
compliance with United States environmental laws and regulations
may have an adverse effect on our competitive position with regard
to those foreign competitors. The specific impact on each
competitor may vary depending on a number of factors, including the
age and location of its operating facilities, applicable
legislation and its production methods.
The
Mine Act and the MINER Act, and regulations issued under these
federal statutes, impose stringent health and safety standards on
mining operations. The regulations that have been adopted under the
Mine Act and the MINER Act are comprehensive and affect numerous
aspects of mining operations, including training of mine personnel,
mining procedures, roof control, ventilation, blasting, use and
maintenance of mining equipment, dust and noise control,
communications, emergency response procedures, and other matters.
The Mine Safety and Health Administration (MSHA) regularly inspects
mines to ensure compliance with regulations promulgated under the
Mine Act and MINER Act.
Due to
the large number of mining permits held by the Company that have
been previously mined and operated, there is a significant amount
of environmental reclamation and remediation required by the
Company to comply with local, state, and federal regulations for
coal mining companies.
Property
Our
principal offices are located at 9002 Technology Lane, Fishers,
Indiana 46038. We pay $2,500 per month in rent for the office space
and the rental lease expires in December 2018. We also rent office
space from an entity which we consolidate as a variable interest
entity (see note 5) at 11000 Highway 7 South, Kite, Kentucky 41828
and pay $500 per month rent and the rental lease expires October
30, 2021.
The
Company also utilizes various office spaces on-site at its coal
mining operations and coal preparation plant locations in eastern
Kentucky, with such rental payments covered under any surface lease
contracts with any of the surface land owners.
Employees
ARC,
through its operating subsidiaries, employs a combination of
company employees and contract labor to mine coal, process coal,
and related functions. The Company is continually evaluating the
use of company employees and contract labor to determine the
optimal mix of each, given the needs of the Company. Currently,
McCoy Elkhorn’s Mine #15 and Deane Mining’s Razorblade
Surface mine are primarily run by company employees, McCoy
Elkhorn’s Carnegie Mine and Deane Mining’s Access
Energy mine are primarily run by contract labor, and the
Company’s various coal preparation facilities are run by
company employees.
The
Company currently has approximately 210 employees, with a
substantial majority based in eastern Kentucky. The Company is
headquartered in Fishers, Indiana with six members of the
Company’s executive team based at this location.
16
Results of Operations
Our
consolidated operations had operating revenues of $7,325,376 for
the three-months ended March 31, 2018 and $6,612,081 operating
revenue for the three-months ended March 31, 2017. We have incurred
net loss attributable to American Resources shareholders in the
amount of $2,739,683 and a net loss of $3,217,588 respectively for
the same periods.
The
primary driver for increased revenue and decreased net loss was the
commencement of underground mining operations in September 2017 at
our Access Energy Mine. This was due to higher customer demand and
pricing for the coal type that is produced from the Access Energy
Mine.
From
our inception to-date our activities have been primarily financed
from the proceeds of our acquisitions, series B equity investments
and loans.
For the
three months ended March 31, 2018 and 2017, coal sales and
processing expenses were $5,473,428 and $4,563,561 respectively,
development costs, including loss on settlement of ARO were
$1,687,173 and $1,951,127, respectively, and production taxes and
royalties $949,793 and $1,672,240, respectively. Depreciation
expense for the three months ended March 31, 2018 and 2017 were
$479,571 and $459,644 respectively.
Liquidity and Capital Resources
As of
March 31, 2018, our available cash was $9,006. We expect to fund
our liquidity requirements with cash on hand, future borrowings and
cash flow from operations. If future cash flows are insufficient to
meet our liquidity needs or capital requirements, we may reduce our
mine development and/or fund a portion of our expenditures through
issuance of debt or equity securities, the entry into debt
arrangements for from other sources, such as asset sales. We do not
have any credit lines currently available to fund our liquidity
requirements, and currently there is uncertainty regarding our
ability to execute on the above strategy.
For the
three months ending March 31, 2018 our net cash flow used in
operating activities was $1,059,285 and for the period ending March
31, 2017 the net cash flow used in operating activities was
$29,981.
For the
three months ending March 31, 2018 and 2017 net cash provided by
investing activities were $72,219 and $213
respectively.
For the
three months ending March 31, 2018 and 2017 net cash proceeds from
financing activities were $696,193 and $79,903
respectively.
As a
public company, we will be subject to certain reporting and other
compliance requirements of a publicly reporting company. We will be
subject to certain costs for such compliance which private
companies may not choose to make. We have identified such costs as
being primarily for audits, legal services, filing expenses,
financial and reporting controls and shareholder communications and
estimate the cost to be approximately $10,000 monthly if the
activities of our Company remain somewhat the same for the next few
months. We have included such costs in our monthly cash flow needs
and expect to pay such costs from a combination of cash from
operations.
Off Balance Sheet Arrangements
We do
not have any off-balance sheet arrangements that we are required to
disclose pursuant to these regulations. In the ordinary course of
business, we enter into operating lease commitments, purchase
commitments and other contractual obligations. These transactions
are recognized in our financial statements in accordance with
generally accepted accounting principles in the United
States.
Critical Accounting Policies
The
preparation of financial statements requires management to utilize
estimates and make judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure
of contingent assets and liabilities. These estimates are based on
historical experience and on various other assumptions that
management believes to be reasonable under the circumstances. The
estimates are evaluated by management on an ongoing basis, and the
results of these evaluations form a basis for making decisions
about the carrying value of assets and liabilities that are not
readily apparent from other sources. Although actual results may
differ from these estimates under different assumptions or
conditions, management believes that the estimates used in the
preparation of our financial statements are reasonable. The
critical accounting policies affecting our financial reporting are
summarized in Note1 to the financial statements included elsewhere
in this report.
17
Recent Accounting Pronouncements
Management
has elected to early adopt ASU 2017-01, Business Combinations (Topic 805): Clarifying
the Definition of a Business effective at
inception.
ASU
2016-18, Statement of Cash Flows:
Restricted Cash (Topic 230). Topic 230 addressed how
restricted cash was presented in the statement of cash flows. We
adopted Topic 230 as of January 1, 2018 resulting modifications as
to the manner in which restricted cash transactions are presented
in the statement of cash flows.
ASU
2014-09, Revenue from Contracts
with Customers (Topic 606). Topic 606 supersedes the revenue
recognition requirements in Topic 605 and requires entities to
recognize revenues when control of the promised goods or services
is transferred to customers at an amount that reflects the
consideration to which the entity expects to be entitled to in
exchange for those goods or services. The Company’s primary
source of revenue is from the sale of coal through both short-term
and long-term contracts with utilities, industrial customers and
steel producers whereby revenue is currently recognized when risk
of loss has passed to the customer. During the fourth quarter of
2017, the Company finalized its assessment related to the new
standard by analyzing certain contracts representative of the
majority of the Company’s coal sales and determined that the
timing of revenue recognition related to the Company’s coal
sales will remain consistent between the new standard and the
previous standard. The Company also reviewed other sources of
revenue, and concluded the current basis of accounting for these
items is in accordance with the new standard. The Company adopted
ASU 2014-09 effective January 1, 2018 using the modified
retrospective method, and there was no cumulative adjustment to
retained earnings.
Because
we are a smaller reporting company we are not required to include
any disclosure under this item.
(a) Management’s Conclusions Regarding Effectiveness of
Disclosure Controls and Procedures.
The
management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting. The
Company’s internal control over financial reporting is a
process designed under the supervision of the Company’s Chief
Executive Officer and Chief Financial Officer to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of the Company’s financial statements for
external purposes in accordance with U.S. generally accepted
accounting principles.
With
respect to the period ending March 31, 2018, under the supervision
and with the participation of our management, we conducted an
evaluation of the effectiveness of the design and operations of our
disclosure controls and procedures, as defined in Rules 13a-15(e)
and 15d-15(e) promulgated under the Securities Exchange Act of
1934.
Based
upon our evaluation regarding the period ending March 31, 2018, the
Company’s management, including its Chief Executive Officer
and Chief Financial Officer, has concluded that its disclosure
controls and procedures were not effective due to the
Company’s insufficient number of staff performing accounting
and reporting functions and lack of timely reconciliations. Through
the use of external consultants and the review process, management
believes that the financial statements and other information
presented herewith are materially correct.
The
Company’s disclosure controls and procedures are designed to
provide reasonable assurance of achieving their objectives.
However, the Company’s management, including its Chief
Executive Officer and Chief Financial Officer, does not expect that
its disclosure controls and procedures will prevent all error and
all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that
the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource
constraints, and the benefit of controls must be considered
relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within the Company have been detected.
(b) Changes in Internal Controls.
There
have been no changes in the Company’s internal control over
financial reporting during the period ended March 31, 2018 that
have materially affected the Company’s internal controls over
financial reporting.
The
company has hired a Chief Financial Officer, President, Chief
Executive Officer and General Counsel, all of whom work in
conjunction on risk assessment and segregation of duties.
Management has identified material weaknesses as described above.
Management has hired outside consultants as described above to
mitigate the risk though we still deem the controls to be
ineffective.
18
PART II. OTHER INFORMATION
We are
currently not involved in any litigation that we believe could have
a material adverse effect on our financial condition or results of
operations. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the
knowledge of the executive officers of our company or any of our
subsidiaries, threatened against or affecting our company, our
common stock, any of our subsidiaries or of our companies or our
subsidiaries’ officers or directors in their capacities as
such, in which an adverse decision could have a material adverse
effect.
Not
applicable.
None.
None.
The
information concerning mine safety violations or other regulatory
matters required by Section 1503(a) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act and Item 104 of Regulation S-K
is included in Exhibit 95.1 to this Quarterly Report.
None.
19
The
following exhibits are filed herewith except as otherwise
noted:
Exhibit No.
|
|
Description
|
|
||
|
||
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||
|
||
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||
|
||
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||
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Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) under the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a) under the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
Mine
Safety Disclosure pursuant to Regulation S-K, Item 104 filed
herewith.
|
101.INS
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XBRL
Instance Document
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101.SCH
|
XBRL
Taxonomy Extension Schema Document
|
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase Document
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101.DEF
|
XBRL
Taxonomy Extension Definition Linkbase Document
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101.LAB
|
XBRL
Taxonomy Extension Label Linkbase Document
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101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
20
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
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AMERICAN
RESOURCES CORPORATION
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|
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Date:
October 22, 2018
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By:
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/s/ Mark C. Jensen
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Name:
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Mark C.
Jensen
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Title:
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CEO,
Chairman of the Board
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(Principal
Executive Officer)
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21