American Resources Corp - FORM 10-Q

Attached files

file	filename
EX-95.1 - MINE SAFETY DISCLOSURE - American Resources Corp	arec_ex951.htm
EX-32.2 - CERTIFICATION - American Resources Corp	arec_ex322.htm
EX-32.1 - CERTIFICATION - American Resources Corp	arec_ex321.htm
EX-31.2 - CERTIFICATION - American Resources Corp	arec_ex312.htm
EX-31.1 - CERTIFICATION - American Resources Corp	arec_ex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2020

☐	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

(Exact name of registrant as specified in its charter)

Florida

46-3914127

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

12115 Visionary Way Fishers, IN 46038

(Address and Zip Code of principal executive offices)

Registrant’s telephone number, including area code: (317) 855-9926

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common	AREC	NASDAQ Capital Market

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	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller Reporting Company	☒
Emerging growth company	☒

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 July 22, 2020, the registrant had 26,250,512 shares of Class A common stock issued and outstanding.

AMERICAN RESOURCES CORPORATION

TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	3

	Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 (Unaudited)	4

	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)	5

	Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Six Months ended June 30, 2020 and 2019 (unaudited)	6

	Consolidated Statements of Cash Flows for the Six Months ended June 30, 2020 and 2019 (Unaudited)	8

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33

Item 4.	Controls and Procedures	33

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	34

Item 3.	Defaults upon Senior Securities	34

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	35

SIGNATURES		37

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

AMERICAN RESOURCES CORPORATION

CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

For the three months and six months ended

June 30, 2020

Table of Contents

AMERICAN RESOURCES CORPORATION

CONSOLIDATED BALANCE SHEETS

UNAUDITED

	June 30, 2020			December 31, 2019
ASSETS

CURRENT ASSETS
Cash	$	1,618,582		$	3,324
Accounts Receivable		37,400			2,424,905
Inventory		150,504			515,630
Prepaid fees		175,000			-
Accounts Receivable - Other		234,240			234,240
Total Current Assets		2,215,726			3,178,099

OTHER ASSETS
Cash - restricted		535,641			265,487
Processing and rail facility		12,554,715			12,723,163
Underground equipment		7,850,626			8,294,188
Surface equipment		3,136,906			3,224,896
Acquired mining rights		669,860			669,860
Coal refuse storage		12,171,271			12,171,271
Less Accumulated Depreciation		(12,715,725	)		(11,162,622	)
Land		1,748,169			1,748,169
Note Receivable		4,117,139			4,117,139
Total Other Assets		30,068,602			32,051,551

TOTAL ASSETS	$	32,284,328		$	35,229,650

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	11,456,102		$	11,044,479
Accounts payable – related party		885,029			718,156
Accrued interest		1,197,050			2,869,763
Due to affiliate		74,000			132,000
Current portion of long term-debt (net of unamortized discount of $- and $134,296)		16,601,920			20,494,589
Current portion of convertible debt, (net of unamortized discount of $- and $-)		-			7,419,612
Current portion of reclamation liability		2,327,169			2,327,169
Total Current Liabilities		32,541,270			45,006,407

OTHER LIABILITIES
Long-term portion of note payable (net of issuance costs of $422,941 and $428,699)		4,731,760			5,415,271
Convertible note payables – long term		14,517,371			-
Reclamation liability		14,981,814			17,512,613
Total Other Liabilities		34,230,945			22,927,884

Total Liabilities		66,772,215			67,934,291

STOCKHOLDERS’ EQUITY (DEFICIT)
AREC - Class A Common stock: $.0001 par value; 230,000,000 shares authorized, 26,040,512 and 27,410,512 shares issued and outstanding		2,603			2,740
AREC - Series A Preferred stock: $.0001 par value; 5,000,000 shares authorized, 0 and 0 shares issued and outstanding		-			-
AREC - Series C Preferred stock: $.0001 par value; 20,000,000 shares authorized, 0 and 0 shares issued and outstanding		-			-
Additional paid-in capital		90,611,151			90,326,104
Accumulated deficit		(125,101,641	)		(123,033,485	)
Total Stockholders’ Equity (Deficit)		(34,487,887	)		(32,704,641	)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	32,284,328		$	35,229,650

The accompanying footnotes are integral to the unaudited consolidated financial statements

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AMERICAN RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

	For the three months ended June 30, 2020			For the three months ended June 30, 2019			For the six months ended June 30, 2020			For the six months ended June 30, 2019

Coal Sales	$	-		$	9,321,250		$	524,334		$	16,315,526
Metal Aggregating, Processing and Sales		226,836			-			226,836			-
Processing Services Income		-			20,876			-			20,876

Total Revenue		226,836			9,342,126			751,170			16,336,402

Cost of Coal Sales and Processing		(662,556	)		(5,654,568	)		(2,517,743	)		(12,298,655	)
Accretion Expense		(370,587	)		(320,098	)		(741,174	)		(641,799	)
Depreciation		(293,746	)		(804,889	)		(1,208,798	)		(1,621,805	)
Amortization of Mining Rights		(313,224	)		(802,590	)		(626,448	)		(1,339,381	)
General and Administrative		(684,307	)		(990,918	)		(1,527,231	)		(2,363,506	)
Professional Fees		(316,280	)		(631,934	)		(510,326	)		(4,965,830	)
Production Taxes and Royalties		(89,827	)		(603,957	)		(250,057	)		(1,863,543	)
Development Costs		(307,247	)		(2,887,448	)		(435,406	)		(4,487,565	)

Total Operating Expenses		(3,037,774	)		(12,696,402	)		(7,817,183	)		(29,582,084	)

Net Loss from Operations		(2,810,938	)		(3,354,276	)		(7,066,013	)		(13,245,182	)

Other Income and (expense)
Other Income		(1,726,184	)		214,529			(314,179	)		480,954
Gain on Sale of Assets		6,820,949			-			6,820,949			-
Loss on settlement of payable		-			-			-			(22,660	)
Amortization of debt discount and issuance costs		(5,758	)		(2,869,118	)		(5,758	)		(7,502,979	)
Interest Income		41,171			41,172			123,514			82,343
Warrant Modification Expense		-			(2,545,360	)		-			(2,545,360	)
Interest expense		(1,011,003	)		(447,989	)		(1,511,643	)		(772,843	)
Total Other income (expense)		4,119,175			(5,606,766	)		5,112,883			(10,280,545	)

Net Income (Loss)	$	1,308,237		$	(8,961,042	)	$	(1,953,130	)	$	(23,526,227	)

Net loss per common share - basic and diluted	$	.05		$	(0.38	)	$	(.07	)	$	(1.07	)

Weighted average common shares outstanding		26,833,809			23,345,857			27,122,160			22,078,999

The accompanying footnotes are integral to the unaudited consolidated financial statements

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AMERICAN RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE PERIOD FROM JANAURY 1, 2019 THROUGH JUNE 30, 2019 AND JANAURY 1, 2020 THROUGH JUNE 30, 2020

UNAUDITED

Statement of Stockholders’ Deficit

June 30, 2020

	Common Shares						Preferred Series A				Preferred Series C							Accumulated
	Shares			Amount			Shares		Amount		Shares		Amount		APIC			Deficit			Total
Balance December 31, 2019		27,410,512		$	2,740			-	$	-		-	$	-	$	90,326,104		$	(123,033,485	)	$	(32,704,641	)

Issuance of Warrants in conjunction with Convertible Notes		-			-			-		-		-		-		552,562			-			552,562

Amortization of Warrant and Option Expense		-			-			-		-		-		-		115,025			115,025			-

Net loss		-			-			-		-		-		-		-			(3,261,368	)		(3,261,368	)

Balance March 31, 2020		27,410,512			2,740			-		-		-		-		90,993,691			(126,409,878	)		(35,413,447	)

Issuance of Warrants in conjunction with Convertible Notes		-			-			-		-		-		-		671,138			-			671,138

Return of common shares in conjunction with asset sale		(2,000,000	)		(200	)		-		-		-		-		(1,840,000	)		-			(1,840,200	)

Issuance of common shares in conjunction with debt settlement		600,000			60			-		-		-		-		642,000			-			642,060

Issuance of common shares pursuant to investor relations contract		20,000			2			-		-		-		-		18,798			-			18,800

Issuance of common shares in conjunction of warrant exercise for cash		10,000			1			-		-		-		-		10,499			-			10,500

Amortization of Warrant and Option Expense		-			-			-		-		-		-		115,025			-			115,025

Net income (loss)		-			-			-		-		-		-		-			1,308,237			1,308,237

Balance June 30, 2020		26,040,512		$	2,603			-	$	-		-	$	-	$	90,611,151		$	(125,101,641	)	$	(34,487,887	)

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	Common Shares						Preferred Series A						Preferred Series C									Accumulated
	Shares			Amount			Shares			Amount			Shares			Amount			APIC			Deficit			Total
Balance December 31, 2018		17,763,469		$	1,776			481,780		$	48			50,000		$	5		$	42,913,532		$	(52,115,183	)	$	(9,199,822	)

Issuance of common shares for cash, net		1,170,200			117			-			-			-			-			4,253,883			-			4,254,000

Issuance of common shares for services		159,000			16			-			-			-			-			1,672,184			-			1,672,200

Issuance of common shares for asset acquisition		2,000,000			200			-			-			-			-			24,399,800			-			24,400,000

Issuance of common shares for conversion of debt and accounts payable		4,417			-			-			-			-			-			49,161			-			49,161
																										-
Issuance of warrants to consultants		-			-			-			-			-			-			2,385,000			-			2,385,000

Stock option expense		-			-			-			-			-			-			68,693			-			68,693

Issuance of common shares for warrant exercise		599,427			60			-			-			-			-			(60	)		-			-

Conversion of Series A Preferred into common stock		1,605,934			161			(481,780	)		(48	)		-			-			(113	)		-			-

Conversion of Series C into common stock		13,750			1			-			-			(50,000	)		(5	)		4			-			-

Beneficial conversion on note payable		-			-			-			-			-			-			7,362,925			-			7,362,925

Net loss		-			-			-			-			-			-			-			(14,565,185	)		(14,565,185	)

Balance March 31, 2019		23,316,197			2,331			-			-			-			-			83,105,009			(66,680,368	)		16,426,972

Issuance of common shares for cash, net		25,000			3			-			-			-			-			99,997			-			100,000

Issuance of common shares for services		58,000			6			-			-			-			-			133,834			-			133,840

Issuance of warrants to consultants		-			-			-			-			-			-			139,500			-			139,500

Issuance of common shares for conversion of accounts payable		50,000			5			-			-			-			-			182,495			-			182,500

Common shares issued on note payable		25,000			3			-			-			-			-			87,247			-			87,250

Stock option expense		-			-			-			-			-			-			73,603			-			73,603

Cancellation of common shares		(107,000	)		(11	)		-			-			-			-			11			-			-

Warrant modification Expense		-			-			-			-			-			-			2,545,360			-			2,545,360

Net loss		-			-			-			-			-			-			-			(8,961,042	)		(8,961,042	)

Balance June 30, 2019		23,367,197		$	2,337			-		$	-			-		$	-		$	86,367,056		$	(75,641,410	)	$	10,727,983

The accompanying footnotes are integral to the unaudited consolidated financial statements

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AMERICAN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED

	For the six months ended			For the six months ended
	June 30, 2020			June 30, 2019
Cash Flows from Operating activities:
Net loss	$	(1,953,130	)	$	(23,526,227	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		1,208,798			1,621,805
Amortization of mining rights		626,448			1,339,381
Accretion expense		741,174			641,799
Liabilities reduced due to sale of assets		(3,271,973	)		-
Recovery of previously impaired accounts receivable		-			(50,806	)
Amortization of issuance costs and debt discount		-			7,502,979
Warrant modification expense		-			2,545,360
Stock option expense		142,296			142,296
Issuance of warrants in connection with convertible notes		1,223,700			-
Issuance of shares for services		18,800			-
Issuance of shares for debt settlement		642,060			-
Warrant expense		87,754			2,524,500
Shares returned as part of asset sale		(1,840,200	)		-
Share compensation expense		-			1,806,040
Change in current assets and liabilities:

Accounts receivable		2,387,505			(597,015	)
Inventory		365,126			42,774
Prepaid expenses and other assets		(175,000	)		(335,174	)
Accounts payable		296,597			(1,679,980	)
Funds held for others		-			(59,707	)
Accrued interest		(1,672,713	)		579,486
Accounts payable - related party		108,234			123,002
Cash used in operating activities		(1,064,524	)		(7,379,486	)

Cash Flows from Investing activities:

Cash received (paid) for PPE, net		417,857			(735,495	)
Cash provided by (used in) investing activities		417,857			(735,495	)

Cash Flows from Financing activities:

Principal payments on long term debt		(72,255	)		(2,314,680	)
Proceeds from convertible debt		1,751,477			-
Proceeds from the sale of common stock, net		10,500			4,354,000
Proceeds from long term debt		2,649,800			4,299,980
Net proceeds from (payments to) factoring agreement		(1,807,443	)		565,657
Cash provided by financing activities		2,532,079			6,904,957

Increase(decrease) in cash and restricted cash		1,885,412			(1,210,024	)

Cash and restricted cash, beginning of period		268,811			2,704,799

Cash and restricted cash, end of period	$	2,154,223		$	1,494,775

Supplemental Information
Non-cash investing and financing activities
Assumption of net assets and liabilities for asset acquisitions	$	-		$	2,500,000
Common shares issued in asset acquisition	$	-		$	24,400,000
Conversion of accounts payable to common stock	$	-		$	231,661
Issuance of common shares with note payable	$	-		$	87,250
Conversion of Series A Preferred into common stock	$	-		$	161
Conversion of Series B Preferred into common stock	$	-		$	1
Warrant exercise for common shares	$	-		$	60
Discount on note due to beneficial conversion feature	$	-		$	7,362,925
Cancellation of common shares	$	-		$	11

Cash paid for interest	$	208,154		$	281,832
Cash paid for income taxes	$	-		$	-

The accompanying footnotes are integral to the unaudited consolidated financial statements

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AMERICAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

American Resources Corporation (ARC or the Company) operates through subsidiaries that were acquired in 2019, 2018, 2016 and 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), Knott County Coal LLC (KCC), Wyoming County Coal (WCC), Empire Kentucky Land, Inc, Colonial Coal Company, Inc. (Empire), Perry County Resources LLC (PCR), American Rare Earth LLC (ARE) and American Metals LLC (AM). All significant intercompany accounts and transactions have been eliminated.

On June 8, 2020, American Rare Earth LLC was created as a wholly owned subsidiary of American Resources Corp for the purpose of exploring and monetizing rare earth mineral deposits.

On June 28, 2020, American Metals LLC was created as a wholly owned subsidiary of American Resources Corp for the purpose of aggregating, processing and selling recovered steel and metals.

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 and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or any other period. These financial statements should be read in conjunction with the Company’s 2018 audited financial statements and notes thereto which were filed on Form 10-K on May 29, 2020.

Going Concern: The Company has suffered recurring losses from operations and currently has 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.

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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.

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 as a component of other income/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 June 30, 2020 and December 31, 2019 was $19,138 and $47,987, respectively.

The total balance of restricted cash also includes amounts held under the management agreement in the amount of $0 and $79,662, respectively. The management agreement was terminated in 2019 upon the Gold Star acquisition.

During 2019 the Company established a reclamation bonding collateral fund. The balance of the restricted cash being held totaled $250,000 and $250,000 as of June 30, 2020 and December 31, 2019.

During 2020, the Company established an escrow account for certain assumed liabilities in the PCR acquisition. The balance as of June 30, 2020 and December 31, 2019 was $149,000 and $0, respectively.

The balance as of June 30, 2020 and December 31, 2019 was $535,641 and $411,692, respectively.

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 six months ended June 30, 2020 and June 30, 2019.

	June 30, 2020		June 30, 2019
Cash	$	1,618,582	$	1,129,790
Restricted Cash		535,641		364,985
Total cash and restricted cash presented in the consolidated statement of cash flows	$	2,154,223	$	1,494,775

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Asset Acquisition:

On September 23, 2019, American Resources Corporation, (“Buyer”) entered into a binding agreement with Bear Branch Coal LLC, a Kentucky limited liability company, Perry County Coal LLC, a Kentucky limited liability company, Ray Coal LLC, a Kentucky limited liability company, and Whitaker Coal LLC, a Kentucky limited liability company (each a “Seller” and collectively, “Sellers”). The agreement was entered into as part of the bankruptcy proceedings of Cambrian Holding Company LLC, (“Cambrian), and is subject to approval by the United States Bankruptcy Court for the Eastern District of Kentucky (the “Bankruptcy Court”) in the chapter 11 bankruptcy cases of the Sellers, Case No. 19-51200(GRS), by entry of an order in form and substance acceptable to Sellers and Buyer (the “Sale Order). Under the agreement of the Sale Order, each Seller will sell, transfer, assign, convey and deliver to American Resources Corporation, effective as of the Closing, all assets, rights, titles, permits, leases, contracts and interests of such Seller free and clear of all liens, claims, interests and encumbrances, to the fullest extent permitted by the Bankruptcy Court. In consideration for the purchased assets, the Buyer will assume certain liabilities. Additionally, the Buyer will assume all liabilities relating to the transferred permits and the associated reclamation and post-mining liabilities of the purchased assets. On September 26, 2019, the Company received notice that a certain lease assumption as part of the PCR acquisition was being disputed by the lessor. As of the report date, the Company is in the process of transferring the permits.

On September 27, 2019, PCR closed and acquired certain assets in exchange for assuming certain liabilities of Perry County Coal, LLC and a cash payment of $1. The preliminary fair values of the asset retirement obligation liabilities assumed were determined to be $2,009,181. Additional assumed liabilities total $3,036,987, of which $1,067,000 of the assumed liabilities are in negotiation as of the report date. The liabilities assumed do not require fair value readjustments.

The assets acquired do not represent a business as defined in FASB AS 805-10-20 due to their classification as a single asset. Accordingly, the assets acquired are initially recognized at the consideration paid, which was the liabilities assumed and a cash payment of $1, including direct acquisition costs, of which there were none. The cost is allocated to the group of assets acquired based on their relative fair value. Because the transaction closed near the end of the reporting quarter the values assigned are provisional as of March 31, 2020 while the company continues to gather information, including evaluations of mining permits, discovery of assumed unsecured payables and timing and extent of end of mine life cost. The assets acquired and liabilities assumed of Perry County Coal, LLC were as follows at the purchase date:

Assets
Coal Inventory	$	659,331
Mine Development		524,268
Coal Refuse		179,522
Land		850,826
Equipment - Underground		873,161
Equipment - Surface		4,743
Processing and Loading Facility		1,954,317
Liabilities
Reclamation liability	$	2,009,181
Accrued liabilities		3,036,987

On March 4, 2020, PCR entered into a sales agreement with an unrelated entity for three non-core permits which were acquired during the initial purchase on September 27, 2019. At the time of the purchase, PCR did not assign any value to the permits as they were not within the company’s plans to operate. The sale of the permits resulted in the release of $2,386,439 of reclamation bonds and $336,995 of asset retirement obligation liability. Consideration received was $700,000 in cash and $300,000 in equipment. The equipment has not been received as of the report date. The transaction resulted in a gain on sale of $1,061,225.

On May 8, 2020, the Company entered into a Settlement, Rescission and Mutual Release Agreement with the parties of the Empire acquisition. The agreement provides for the property of Empire to transfer back to the former parties for the return of 2,000,000 common shares of the Company and extinguishment $2,000,000 seller financing note. Additionally, permits and bonding liability associated with the Point Rock Mine were also transferred back to the original permit holders for the consideration of them assuming the reclamation liability. The transaction resulted in a gain on sale of $6,820,949 for the 6 month period ending June 30, 2020.

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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 periods ending June 30, 2020 and 2019, $- and $- were incurred for loss on settlement on ARO, respectively.

The table below reflects the changes to our ARO:

Balance at December 31, 2019	$	19,839,782
Accretion – six months June 30, 2020		741,174
Reclamation work – six months June 30, 2020		-
Reduction of ARO due to dispositions		(3,271,973	)
Balance at June 30, 2020	$	17,308,983

Balance at December 31, 2018	$	18,538,806
Accretion – six months June 30, 2019		641,799
Reclamation work – six months June 30, 2019		-
Balance at June 30, 2019	$	19,180,605

Revenue Recognition: The Company adopted and recognizes revenue in accordance with ASC 606 as of January 1, 2018, using the modified retrospective approach. The Company concluded that the adoption did not change the timing at which the Company historically recognized revenue nor did it have a material impact on its consolidated financial statements.

Revenue is recognized when performance obligations under the terms of a contract with our customers are satisfied; for all contracts this occurs when control of the promised goods have been transferred to our customers. For coal shipments to domestic and international customers via rail, control is transferred when the railcar is loaded.

Our revenue is comprised of sales of mined coal, sales of recovered metals and services for processing coal. All of the activity is undertaken in eastern Kentucky.

Revenue from metal recovery and sales are recognized when conditions within the contract or sales agreement are met including transfer of title.

Revenue from coal processing and loading are recognized when services have been performed according to the contract in place.

Our coal sales generally include 10 to 30-day payment terms following the transfer of control of the goods to the customer. We typically do not include extended payment terms in our contracts with customers. As such, spot sales prices and forward contract pricing has declined.

During late 2019 management anticipated adverse market conditions globally, and in response began to selectively reduce or idle coal production operations and furlough or terminate employees. During Q1 2020, the worldwide COVID-19 outbreak sharply reduced worldwide demand for infrastructure and steel products and their necessary inputs including Metallurgical coal. Company management fully idled the Company’s operations accordingly, and the operations have remained idled through the report date. These recent, global market disruptions and developments are expected to result in lower sales and gross margins for the coal industry and the Company in 2020 and possibly beyond.

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 June 30, 2020 and December 31, 2019 amounted to $0, for both periods. Allowance for other accounts receivables, including note receivables as of June 30, 2020 and December 31, 2019 amounted to $1,494,570 and $0, respectively. The allowance related to the purchase of a note receivable from a third party. The note receivable has collateral in certain mining permits which are strategic to KCC. Timing of payment on the note is uncertain resulting a full allowance for the note.

Trade and loan receivables are carried at amortized cost, net of allowance for losses. Amortized cost approximated book value as of June 30, 2020 and December 31, 2019.

Reclassifications: Reclassifications of prior periods have been made to conform with current year presentation.

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NOTE 2 - PROPERTY AND EQUIPMENT

At June 30, 2020 and December 31, 2019, property and equipment were comprised of the following:

	June 30, 2020			December 31, 2019
Processing and rail facility	$	12,554,715		$	12,723,163
Underground equipment		7,850,626			8,294,188
Surface equipment		3,136,906			3,224,896
Coal refuse storage		12,171,271			12,171,271
Mine Development		669,860			669,860
Land		1,748,169			1,748,169
Less: Accumulated depreciation		(12,715,725	)		(11,162,662	)

Total Property and Equipment, Net	$	25,415,822		$	27,668,885

Depreciation expense amounted to $293,746 and $804,889 for the three month periods June 30, 2020 and June 30, 2019, respectively. Depreciation expense amounted to $1,208,798 and $1,621,805 for the six month periods June 30, 2020 and June 30, 2019, respectively.

The estimated useful lives are as follows:

Processing and Rail Facilities	7-20 years
Surface Equipment	7 years
Underground Equipment	5 years
Mining Rights	5-10 years
Coal Refuse Storage	10 years

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NOTE 3 - NOTES PAYABLE

During the six-month period ended June 30, 2020, principal payments on long term debt totaled $72,255. During the six-month period ended June 30, 2020, increases to long term debt totaled $4,401,277, primarily from cash received from the senior convertible debt offering and cash received from the SBA’s Paycheck Protection Program.

The senior convertible note has a minimum offering amount of $12,500,000 and maximum of $25,000,000 and minimum investment of $500,000. The notes carry a 24-month term, 12.5% interest 10% warrant coverage and a conversion price of $1.05. The warrants have an exercise price of $1.50.

On April 21, 2020, the Company entered into a promissory note with Merchants Bank of Indiana for the amount of $2,649,800. The note accrues interest at 1% and is due April 1, 2022. Commencing October 21, 2020, payments of principal and interest are due on a repayment schedule of eighteen months. The promissory note was issued pursuant to the CARES Act and SBA’s Paycheck Protection Program.

During the six-month period ended June 30, 2019, principal payments on long term debt totaled $2,314,680. During the six-month period ended June 30, 2019, increases to long term debt totaled $6,799,980, primarily from cash received in the form of $3,500,000 from the ARC development loan, $2,500,000 from seller financing for the acquisition of Empire and $500,000 from an inventory line of credit.

During the six-month period ended June 30, 2020, proceeds from the factoring agreement totaled $0 and repayments totaled $1,807,443.

During the six-month period ended June 30, 2019, proceeds from the factoring agreement totaled $16,710,921 and repayments totaled $16,145,264.

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NOTE 4 - RELATED PARTY TRANSACTIONS

Land Resources & Royalties

The Company leases property from Land Resources & Royalties (LRR), an entity controlled by certain members of the Company’s management who are also directors and shareholders. Until July 1, 2018, LRR was consolidated as a VIE resulting in transaction between the two companies to be eliminated upon consolidation. Upon deconsolidation, amounts paid and owed to LRR have been disclosed discreetly in the consolidated financial statements. For the three-month period ending June 30, 2020, royalty expense incurred with LRR amounted to $81,165 and amounts advanced from LRR amounted $971 and amounts repaid amounted to $709. For the three-month period ending June 30, 2019, royalty expense incurred with LRR amounted to $34,173 and amounts advanced from LRR amounted to $26,568 and amounts repaid to LRR amounted to $42,208.

For the six-month period ending June 30, 2020, royalty expense incurred with LRR amounted to $81,165 and amounts advanced from LRR amounted $1,903 and amounts repaid amounted to $1,615. For the six-month period ending June 30, 2019, royalty expense incurred with LRR amounted to $69,564 and amounts advanced from LRR amounted to $26,568 and amounts repaid to LRR amounted to $42,208.

As of June 30, 2020, total amounts owed LRR amounted to $885,029.

Land Betterment Corp

On February 13, 2020, the Company entered into a Contract Services Agreement with Land Betterment Corporation (LBET), an entity controlled by certain members of the Company’s management who are also directors and shareholders. The contract terms state that service costs are passed through to the Company with a 10% mark-up and a 50% share of cost savings which includes payroll covering aforementioned members of the Company’s management. The services agreement covers all of the Company’s properties.

For the three-months ended June 30, 2020 amounts incurred under the agreement amounted to $450,367 and amounts paid totaled $50,785. For the three-months ended June 30, 2020, service charges covering members of the Company’s management amounted to $0.

For the six-months ended June 30, 2020 amounts incurred under the agreement amounted to $548,203 and amounts paid totaled $148,621. For the six-months ended June 30, 2020, service charges covering members of the Company’s management amounted to $0.

As of June 30, 2020, total amounts owned to LBET amounted to $399,582.

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NOTE 5 – EQUITY TRANSACTIONS

Employee stock compensation expense for the three-month period ending June 30, 2020 and 2019 amounted to $115,025 and $73,603 respectively.

Employee stock compensation expense for the six-month period ending June 30, 2020 and 2019 amounted to $230,050 and $142,296 respectively.

Common Share Transactions

On April 1, 2020, 600,000 common shares of the company were issued as part of the settlement with ENCECo, Inc. See below. The closing common stock price on this date was $1.07.

On May 8, 2020, 2,000,000 common shares of the company were returned as part of the Empire Coal and Point Rock Settlement. See above. The closing common stock price on this date was $0.92

On May 26, 2020, 20,000 common shares of the company were issued as part of an investor relations contract. The contract, dated March 1, 2020 has a three month term, with $7,500 in cash due monthly and the issuance of 20,000 shares that fully vest over the three month term. The contract expired on June 1, 2020 and both parties are working together on renewal terms. The closing common stock price on this date was $0.94

On June 11, 2020, the company received notice of exercise of 10,000 warrant shares of the Company pursuant to the August 27, 2019 Class A Common Stock and Warrant offering. The warrants converted at $1.05 per share and the company received $10,500 in cash consideration.

Warrant Modification

On February 3 2020, we entered into a warrant adjustment agreement with Golden Properties Ltd., a British Columbia company based in Vancouver, Canada (“Golden Properties”) to amend warrants “C-1”, “C-2” “C-3”, and “C-4” that were originally part of a October 4, 2017 agreement with Golden Properties that involved a series of loans made by Golden Properties to the Company. As a result, the following warrants modified for Golden Properties:

	•	Warrant C-1, for the purchase of 750,000 shares of common stock at $1.05 per share, as adjusted from time to time, expiring on January 31, 2023, and providing the Company with up to $787,500 in cash proceeds should all the warrants be exercised;

	•	Warrant C-2, for the purchase of 750,000 shares of common stock at $1.05 per share, as adjusted from time to time, expiring on January 31, 2023, and providing the Company with up to $787,500 in cash proceeds should all the warrants be exercised;

	•	Warrant C-3, for the purchase of 750,000 shares of common stock at $1.05 per share, as adjusted from time to time, expiring January 31, 2023, and providing the Company with up to $787,500 in cash proceeds should all the warrants be exercised; and

	•	Warrant C-4, for the purchase of 750,000 shares of common stock at $1.05 per share, as adjusted from time to time, expiring January 31, 2023, and providing the Company with up to $787,500 in cash proceeds should all the warrants be exercised.

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New Warrant Issuances

On February 3, 2020 Warrant C-5 was issued in connection to the conversion of $9,494,073 of outstanding debt into the senior convertible note. Warrant C-5 is for 949,407 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of February 3, 2023.

On February 20, 2020 Warrant C-6 was issued in connection to the purchase of $200,000 of the senior convertible notes. Warrant C-6 is for 20,000 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of February 20, 2022.

On April 1, 2020 Warrant C-7 was issued in connection to the conversion of $375,690 of outstanding debt into the senior convertible notes. Warrant C-7 is for 37,569 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of April 1, 2022.

On April 1, 2020 Warrant C-8 was issued in connection to the conversion of $225,000 of outstanding debt into the senior convertible notes. Warrant C-8 is for 22,500 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of April 1, 2022.

On April 1, 2020 Warrant C-9 was issued in connection to the conversion of $900,000 of outstanding debt into the senior convertible notes. Warrant C-9 is for 90,000 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of April 1, 2022.

On April 1, 2020 Warrant C-10 was issued in connection to the conversion of $1,888,444 of outstanding debt into the senior convertible notes. Warrant C-10 is for 188,844 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of April 1, 2022.

On April 1, 2020 Warrant C-11 was issued in connection to the conversion of $200,000 of outstanding debt into the senior convertible notes. Warrant C-11 is for 20,000 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of April 1, 2022.

On April 1, 2020 Warrant C-12 was issued in connection to the conversion of $110,000 of outstanding debt into the senior convertible notes. Warrant C-12 is for 11,000 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of April 1, 2022.

On April 1, 2020 Warrant C-13 was issued in connection to the purchase of $22,500 of the senior convertible notes. Warrant C-13 is for 2,250 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of April 1, 2022.

On April 14, 2020 Warrant C-15 was issued in connection to the purchase of $53,639 of the senior convertible notes. Warrant C-15 is for 5,364 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of April 14, 2022.

On April 14, 2020 Warrant C-16 was issued in connection to the purchase of $5,000 of the senior convertible notes. Warrant C-16 is for 500 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of April 14, 2022.

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On June 1, 2020 Warrant C-18 was issued in connection to the issuance of $2,000 of the senior convertible notes. Warrant C-18 is for 200 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of June 1, 2022.

On June 5, 2020 Warrant C-22 was issued in connection to the issuance of $2,000 of the senior convertible notes. Warrant C-22 is for 200 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of June 5, 2022.

On June 11, 2020 Warrant C-19 was issued in connection to the issuance of $1,019,573 of the senior convertible notes. Warrant C-19 is for 101,957 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of June 11, 2022.

On June 11, 2020 Warrant C-20 was issued in connection to the issuance of $474,996 of the senior convertible notes. Warrant C-20 is for 47,500 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of June 11, 2022.

On June 15, 2020 Warrant C-23 was issued in connection to the issuance of $2,000 of the senior convertible notes. Warrant C-23 is for 200 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of June 15, 2022.

On June 16, 2020 Warrant C-24 was issued in connection to the issuance of $12,154 of the senior convertible notes. Warrant C-24 is for 1,215 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of June 16, 2022.

On June 22, 2020 Warrant C-21 was issued in connection to the purchase of $180,000 of the senior convertible notes. Warrant C-21 is for 18,000 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of June 30, 2022.

On June 23, 2020 Warrant C-25 was issued in connection to the issuance of $2,000 of the senior convertible notes. Warrant C-25 is for 200 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of June 23, 2022.

On June 30, 2020 Warrant C-26 was issued in connection to the issuance of $2,000 of the senior convertible notes. Warrant C-26 is for 200 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of June 30, 2022.

On June 30, 2020 Warrant C-21 was issued in connection to the purchase of $570,000 of the senior convertible notes. Warrant C-26 is for 57,000 warrant shares. The warrants carry an exercise price of $1.50 and an expiration date of June 30, 2022.

The company uses the black Scholes option pricing model to value its warrants and options. The significant inputs are as follows:

	June 30, 2020			June 30, 2019
Expected Dividend Yield		0	%		0	%
Expected volatility	123-617		%	94.35-97.29		%
Risk-free rate	1.40-1.62		%	1.4-1.62		%
Expected life of warrants	1.596-6.151 years			.68-6.93 years

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Company Warrants:

			Weighted		Weighted
			Average		Average		Aggregate
	Number of		Exercise		Contractual		Intrinsic
	Warrants		Price		Life in Years		Value
Exercisable (Vested) – December 31, 2018		5,545,227	$	2.745		1.704	$	42,063,228
Granted		3,405,500	$	4.115		-	$	-
Forfeited or Expired		1,697,223	$	7.638		-	$	-
Exercised		600,000	$	0.010		1.688	$	4,869,250
Outstanding – June 30, 2019		6,653,504	$	2.301		1.835	$	9,274,358
Exercisable (Vested) – June 30, 2019		6,653,504	$	2.301		1.835	$	9,274,358

Exercisable (Vested) – December 31, 2019		10,689,904	$	1.856		2.310	$	1,746,544
Granted		4,574,106	$	1.205		2.279	$	420,000
Forfeited or Expired		3,172,222	$	4.443		.96	$	2,390,944
Exercised		10,000	$	1.050		4.16	$	1,400
Outstanding - June 30, 2020		12,090,788	$	0.915		2,474	$	5,079,782
Exercisable (Vested) - June 30, 2020		12,090,788	$	0.915		2,474	$	5,079,782

Company Options:

			Weighted		Weighted
			Average		Average		Aggregate
	Number of		Exercise		Contractual		Intrinsic
	Options		Price		Life in Years		Value
Outstanding – December 31, 2018		681,830	$	1.413		6.447	$	405,000
Exercisable (Vested) – December 31, 2018		70,000	$	4.214		4.247	$	405,000
Granted		175,000	$	2.630		-	$	-
Forfeited or Expired		-	$	-		-	$	-
Exercised		-	$	-		-	$	-
Outstanding – June 30, 2019		856,830	$	1.596		6.151	$	48,750
Exercisable (Vested) – June 30, 2019		70,000	$	4.214		3.751	$	48,750

Outstanding – December 31, 2019		1,056,830	$	1.960		5.998	$	-
Exercisable (Vested) – December 31, 2019		273,943	$	1.821		5.072	$	-
Granted		750,000	$	1.130		-	$	52,500
Forfeited or Expired		-	$	-		-	$	-
Exercised		-	$	-		-	$	-
Outstanding - June 30, 2020		1,806,830	$	1.615		6.108	$	686,548
Exercisable (Vested) - June 30, 2020		332,276	$	1.963		4.811	$	222,216

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NOTE 6 - 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. These claims include amounts assessed by the Kentucky Energy Cabinet totaling $1,365,990, the Company has accrued $2,120,540 as a payable to the Commonwealth of Kentucky including amounts owed to the Kentucky Energy Cabinet. Claims assessed by the Mine Health Safety Administration totaling $903,461 of which the Company has accrued $569,038 as a payable. During 2019, McCoy and Deane, received notice of intent to place liens for amounts owed on federal excise taxes. The amounts associated with the notices are included in the company’s trade payables.

On November 7, 2018, Wyoming County Coal LLC, acquired 5 permits, coal processing and loading facilities, surface ownership, mineral ownership, and coal refuse storage facilities from unrelated entities. Consideration for the acquired assets was the assumption of reclamation bonds totaling $234,240, 1,727,273 shares of common stock of the company, a seller note of $350,000 and a seller note of $250,000. On September 20, 2019 Wyoming County received a Notice of Breach of the asset purchase agreement between WCC and Synergy Coal, LLC due to consideration of $225,000 not being paid, failure to file for permit transfers and pay delinquent transfer fees of $10,500 and other contract breaches, including failure to transfer reclamation surety bonds. WCC has paid the delinquent transfer fees and has filed for permit transfer. As a result of these steps, the seller notified us on May 17, 2020 that all breaches were cured. As of the balance sheet date and report date, the West Virginia permit transfers have not yet been approved, the seller has not been paid cash amounts due, and WCC has not substituted its reclamation surety bonds for the seller’s bond collateral.

The Empire acquisition loan in conjunction with the Empire Kentucky Land merger totaling $2,500,000 is due with $500,000 upfront and $2,000,000 due through a $1 per ton royalty off the coal sold from the acquired property and is secured by the underlying property. As of the balance sheet date the agreement was in default and the company received a breach of contract notice in September 2019. On May 8, 2020, the Company entered into a Settlement, Rescission and Mutual Release Agreement with the parties of the Empire acquisition. The agreement provides for the property of Empire to transfer back to the former parties for the return of 2,000,000 common shares of the Company and extinguishment $2,000,000 seller financing note. Additionally, permits and bonding liability associated with the Point Rock Mine were also transferred back to the original permit holders for the consideration of them assuming the reclamation liability. The default was cured on May 8, 2020 through the Settlement, Recission and Mutual Release Agreement.

On September 26, 2019, the Company received notice that a certain lease assumption as part of the PCR acquisition was being disputed by the lessor (see note 1).

During January 2020, the Company and Sylva International LLC agreed to the termination of a digital marketing consulting services agreement that the Company had entered upon mutually acceptable terms.

On March 1, 2020 the Company entered into an investor relations consulting contract with a non-related entity. The contract has a three month term, with $7,500 in cash due monthly and the issuance of 20,000 shares that fully vest over the three month term.

The company leases various office space some from an entity which was consolidated as a variable interest entity until June 30, 2018 (see note 4). The rental lease for the Company’s former principal office space expired in December 31, 2018 and continued on a month-to-month basis until February 15, 2020. On February 14, the Company moved its principal offices to 12115 Visionary Way Fishers, IN 46038. A lease through December 2026 was executed. We also rent office space from an affiliated entity, LRR, at 11000 Highway 7 South, Kite, Kentucky 41828 and pay $500 per month rent and the rental lease expires October 30, 2021.

NOTE 7 - SUBSEQUENT EVENTS

On July 6, 2020, the company received notice of exercise of 210,000 warrant shares of the Company pursuant to the August 27, 2019 Class A Common Stock and Warrant offering. The warrants converted at $1.05 per share and the company received $220,500 in cash consideration.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 12115 Visionary Way, 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 and western West Virginia.

Quest Energy currently has seven 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 Wyoming County Coal LLC (Wyoming County), Quest Processing LLC (Quest Processing), Perry County Resources (Perry County) located in eastern Kentucky and western West Virginia within the Central Appalachian coal basin, and ERC Mining Indiana Corporation (ERC) located in southwest Indiana within the Illinois coal basin. The coal deposits 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 and specialty products.

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 deposits are defined on our properties.

McCoy Elkhorn Coal LLC

General:

Located primarily within Pike County, Kentucky, McCoy Elkhorn is currently comprised of two active mines (Mine #15 and the Carnegie Mine), one mine in “hot idle” status (the PointRock 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.

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Mines:

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.

The PointRock Mine is a surface mine in a variety of coal seams, primarily in the Pond Creek, the Lower Alma, the Upper Alma, and Cedar Grove coal seams and located near Phelps, Kentucky. Coal has been produced from the PointRock Mine in the past under different operators. Quest Energy acquired the PointRock Mine in April 2018 and primarily performed reclamation work during 2019. PointRock is anticipated to be mined via contour, auger, and highwall mining techniques. The coal will be stockpiled on-site and trucked approximately 23 miles to McCoy Elkhorn’s preparation facilities. The PointRock Mine is anticipated to be operated as a modified contractor mine, whereby McCoy Elkhorn provides certain mining infrastructure and equipment for the operations and pays a contractor a fixed per-ton fee for managing the workforce, procuring other equipment and supplies, and maintaining the equipment and infrastructure in proper working order. The PointRock Mine has the estimated capacity to produce up to approximately 15,000 tons per month of coal and has not yet started coal production under McCoy Elkhorn’s ownership.

Quest Energy acquired the PointRock Mine in April 2018. On May 8, 2020, the PointRock Mine permits were released from the Company’s control upon the settlement agreement with Empire.

Beginning in January 2020 through the report date, Mine #15 and Carnegie 1 mines were idled due to the adverse market effects Covid-19 global pandemic.

Processing & Transportation:

The Bevins #1 Preparation Plant is an 800 ton-per hour coal preparation facility located near Meta, Kentucky, across the road from Mine #15. Bevins #1 has raw coal stockpile storage of approximately 25,000 tons and clean coal stockpile storage of 100,000 tons of coal. The Bevins #1 facility has a fine coal circuit and a stoker circuit that allows for enhance coal recovery and various coal sizing options depending on the needs of the customer. The Company acquired the Bevins Preparation Plants as idled facilities, and since acquisition, the primary work completed at the Bevins Preparation Plants by the Company includes rehabilitating the plants’ warehouse and replacing belt lines.

The Bevins #2 Preparation Plant is on the same permit site as Bevins #1 and is a 500 ton-per-hour processing facility with fine coal recovery and a stoker circuit for coal sizing options. Bevins #2 has raw coal stockpile storage of 25,000 tons of coal and a clean coal stockpile storage of 45,000 tons of coal. We are currently utilizing less than 10% of the available processing capacity of Bevins #1 and Bevins #2.

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. While the Big Groundhog impoundment is nearing the end of its useful life, the Lick Branch impoundment has significant operating life and will be able to provide for coarse refuse and slurry storage for the foreseeable future at Bevins #1 and Bevins #2. Coarse refuse from Bevins #1 and Bevins #2 is belted to the impoundments. Both Bevins #1 and Bevins #2 are facilities owned by McCoy Elkhorn, subject to certain restrictions present in the agreement between McCoy Elkhorn and the surface land owner.

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Both Bevins #1 and Bevins #2, as well as the rail loadout, are operational and any work required on any of the plants or loadouts would be routine maintenance. The allocated cost of for this property at McCoy Elkhorn Coal paid by the company is $95,210.

Due to additional coal processing storage capacity at Bevins #1 and Bevins #2 Preparation Plants, McCoy Elkhorn has the ability to process, store, and load coal for other regional coal producers for an agreed-to fee.

Additional Permits:

In addition to the above mines, McCoy Elkhorn holds 11 additional coal mining permits that are idled operations or in various stages of reclamation. For the idled coal mining operations, McCoy Elkhorn will determine which coal mines to bring back into production, if any, as the coal market changes, and there are currently no other idled mines within McCoy Elkhorn that are slated to go into production in the foreseeable future. Any idled mines that are brought into production would require significant upfront capital investment, and there is no assurance of the feasibility of any such new operations.

Knott County Coal LLC

General:

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 1 active mine (the Wayland Surface Mine) and 22 idled mining permits (or permits in reclamation) and permits for one preparation facility: the idled Supreme Energy Preparation Plant. 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.

Mines:

The Wayland Surface Mine is a surface waste-rock reprocessing mine in a variety of coal seams (primarily the Upper Elkhorn 1 coal seam) located near Wayland, Kentucky. The Wayland Surface Mine is mined via area mining through the reprocessing of previously processed coal, and the coal is trucked approximately 22 miles to the Mill Creek Preparation Plant at Deane Mining, where it is processed and sold. The Wayland Surface Mine is currently a “company run” mine, whereby the Company manages the workforce at the mine and pays all expenses of the mine. During June 2018, production at the Wayland Surface Mine commenced under Quest Energy’s ownership which occurred during May 2018 and was idled during June 2019 due to the company’s continued focus on the metallurgical and industrial markets.

Other potential customers of Knott County Coal include industrial customers and specialty customers.

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Processing & Transportation:

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.

The Supreme Energy Preparation Plant is owned by Knott County Coal, subject to certain restrictions present in the agreement between Knott County Coal and the surface land owner, Land Resources & Royalties LLC.

The Company acquired the Supreme Energy Preparation Plants as an idled facility, and since acquisition, no work has been performed at the facility other than minor maintenance. Both the Supreme Energy Preparation Plant and the rail loadout are idled and would require an undetermined amount of work and capital to bring them into operation. The allocated cost of for the property at Knott County Coal paid by the Company is $286,046.

Additional Permits:

In addition to the above mines, Knott County Coal holds 20 additional coal mining permits that are in development, idled or in various stages of reclamation. Any idled mines that are brought into production would require significant upfront capital investment and there is no assurance of the feasibility of any such new operations.

Deane Mining LLC

General:

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.

Mines:

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 a “company run” mine, whereby the Company manages the workforce at the mine and pays all expenses of the mine. During 2019, the permit related to the Access Energy mine was idled and is not expected to produce again under the Company’s control due to the continued focused on the metallurgical and industrial markets.

Razorblade Surface is a surface mine targeting the Hazard 4 and Hazard 4 Rider coal seams and located in Deane, Kentucky. Deane Mining commenced mining activity at Razorblade Surface during the spring of 2018. Coal produced from Razorblade Surface is trucked approximately one mile to the Mill Creek Preparation Plant. Razorblade Surface is currently run as a contractor model for which the contractor is paid a fixed per-ton fee for the coal produced. During 2019, the permit related to the Access Energy mine was idled and is not expected to produce again under the Company’s control due to the continued focused on the metallurgical and industrial markets.

Processing & Transportation:

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.

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Both the Mill Creek Preparation Plant and the rail loadout are operational, and any work required on any of the plant or loadouts would be routine maintenance. The allocated cost of for the property at Deane Mining paid by the Company is $1,569,641.

Additional Permits:

In addition to the above mines and preparation facility, Deane Mining holds 12 additional coal mining permits that are in development, idled or in various stages of reclamation. Any idled mines that are brought into production would require significant upfront capital investment and there is no assurance of the feasibility of any such new operations.

Wyoming County Coal LLC

General:

Located within Wyoming County, West Virginia, Wyoming County Coal is comprised of two idled underground mining permits and the three permits associated with the idled Pioneer Preparation Plant, the Hatcher rail loadout, and Simmons Fork Refuse Impoundment. The two idled mining permits are undisturbed underground mines that are anticipated to utilize room-and-pillar mining. The coal controlled at Wyoming County Coal (along with our other subsidiaries) has not been classified as either “proven” or “probable” as defined in the United States Securities and Exchange Commission Industry Guide 7, and as a result, do not have any “proven” or “probable” deposits under such definition and are classified as an “Exploration Stage” pursuant to Industry Guide 7.

Mines:

The mining permits held by Wyoming County Coal are in various stages of planning with no mines currently in production.

Potential customers of Wyoming County Coal would include steel mills in the United States or international marketplace although no definitive sales have been identified yet.

Processing & Transportation:

The idled Pioneer Preparation Plant is a 350 ton-per-hour coal preparation facility located near Oceana, West Virginia. The Hatcher rail loadout associated with the Pioneer Preparation Plant is a rail loadout serviced by Norfolk Southern Corporation. The refuse from the preparation facility is trucked to the Simmons Fork Refuse Impoundment, which is approximately 1.0 mile from the Pioneer Preparation facility. The preparation plant utilizes a belt press technology which eliminates the need for pumping slurry into a slurry pond for storage within an impoundment.

The Company is in the initial planning phase of getting estimates on the cost to upgrade the preparation facility to a modern 350 ton per hour preparation facility, although no cost estimates have yet been received. The Company is also in the initial planning phase of getting estimates on the cost and timing of upgrading the rail load out facility to a modern batch weight load out system, although no cost estimates have yet been received.

The Company acquired the Pioneer Preparation Plants as an idled facility, and since acquisition, no work has been performed at the facility. Both the Pioneer Preparation Plant and the rail loadout are idled and would require an undetermined amount of work and capital to bring them into operation, which is currently in the initial phases of planning and no cost estimates have been received. The allocated cost for the property at Wyoming County Coal will pay by the Company is $22,326,101 of which $22,091,688 has been paid using shares of the Company’s Class A Common stock. The remaining portion is to be paid from cash.

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Permits:

Wyoming County Coal controls two coal mining permits that are in the initial planning phase and three permits associated with the idled Pioneer Preparation Plant, the Hatcher rail loadout, and Simmons Fork Refuse Impoundment. Any mine that is brought into production would require significant upfront capital investment and there is no assurance of the feasibility of any such new operations. As of the report date, the permits have not been fully transferred as they await final regulatory approval. On September 20, 2019 Wyoming County received a Notice of Breach of the asset purchase agreement between WCC and Synergy Coal, LLC due to consideration of $225,000 not being paid, failure to file for permit transfers and pay delinquent transfer fees of $10,500 and other contract breaches, including failure to transfer reclamation surety bonds. Subsequent to the balance sheet date, WCC has paid the delinquent transfer fees and has filed for permit transfer. As a result of these steps, the seller notified us on May 17, 2020 that all breaches were cured. As of the balance sheet date and report date, the West Virginia permit transfers have not yet been approved, the seller has not been paid cash amounts due, and WCC has not substituted its reclamation surety bonds for the seller’s bond collateral. The transfer of any new permits to the Company is subject to regulatory approval. This approval is subject to the review of both unabated or uncorrected violations that are listed on the Applicator Violator List. The Company, to include several of its subsidiaries, does have unabated and/or uncorrected violations that are listed on the Applicator Violator List. Should the state regulators believe that the Company is not in the process of abating or correcting the currently outstanding issues associated with their currently held permits they may choose not to issue the Company any new permits until such issues are properly rectified.

Perry County Resources LLC

General:

Located primarily within Perry County, Kentucky, Perry County Resources LLC is comprised of one active underground mine (the E4-2 mine) and one active coal processing facility called the Davidson Branch Preparation Plant, along with two additional idled underground mining permits. The two idled mining permits are for underground mines and have been actively mined in the past and being maintained as idled, pending any changes to the coal market that may warrant re-starting production. The coal controlled at Perry County Resources (along with our other subsidiaries) has not been classified as either “proven” or “probable” as defined in the United States Securities and Exchange Commission Industry Guide 7, and as a result, do not have any “proven” or “probable” reserves under such definition and are classified as an “Exploration Stage” pursuant to Industry Guide 7.

Mines:

The E4-2 mine is an underground mine in the Elkhorn 4 (aka the Amburgy) coal seam located near the town of Hazard, Kentucky. The E4-2 mine is mined via room-and-pillar mining methods using both continuous miners and continuous haulage systems, and the coal is belted directly from the mine to the raw coal stockpile at the Davidson Branch Preparation Plant less than a mile away. The E4-2 mine is currently a “company-run” mine, whereby the Company manages the workforce at the mine and pays all expenses of the mine. The Company acquired the E4-2 mine as an active mine, and since acquisition in September 2019, the primary work at the E4-2 mine has been rehabilitation of existing infrastructure to increase the operational efficiencies of the mine, including replacing belt structure, repairing equipment, replacing underground mining infrastructure, and installing new mining infrastructure as the mine advances due to coal extraction. The E4-2 mine has the estimated capacity to produce up to approximately 80,000 tons per month of coal.

Beginning in January 2020 through the report date, the E4-2 mine was idled due to the adverse market effects Covid-19 global pandemic.

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Processing and Transportation:

The Davidson Branch Preparation Plant is a 1,300 ton-per-hour coal preparation facility located near Hazard, Kentucky. The associated “Bluegrass 4” rail loadout is a batch-weight rail loadout with 135 car storage capacity and services by CSX Transportation in their Hazard/Elkhorn rate district. The Davidson Branch Preparation Plant is owned by Perry County Resources. We are currently utilizing less than 10% of the available processing capacity of the Davidson Branch Preparation Plant.

Both the Davidson Branch Preparation Plant and the rail loadout are operational, and any work required on any of the plant or loadouts would be routine maintenance. The allocated cost of for the property at Perry County Resources paid by the Company is $1,954,317.

Additional Permits:

In addition to the above mine, preparation facility, and related permits, Perry County Resources holds four additional coal mining permits that are idled or in development. Any idled mines that are brought into production would require significant upfront capital investment and there is no assurance of the feasibility of any such new operations. Three of the idled permits were sold to an unrelated entity on March 4, 2020 for $700,000 cash and $300,000 of value for equipment. As of the report date, the permits have not been fully transferred as they await final regulatory approval.

The transfer of any new permits to the Company is subject to regulatory approval. This approval is subject to the review of both unabated or uncorrected violations that are listed on the Applicator Violator List. The Company, to include several of its subsidiaries, does have unabated and/or uncorrected violations that are listed on the Applicator Violator List. Should the state regulators believe that the Company is not in the process of abating or correcting the currently outstanding issues associated with their currently held permits they may choose not to issue the Company any new permits until such issues are properly rectified.

Empire Kentucky Land, Inc

General:

Empire Kentucky Land, Inc., and its wholly-owned subsidiary, Colonial Coal Company, Inc., own approximately 3,000 acres of mineral and another approximately 3,000 acres of surface real estate, primarily located near Phelps, Pike County, Kentucky. There are currently no coal mining or coal processing permits owned by Empire. The coal owned at Empire (along with our other subsidiaries) has not been classified as either “proven” or “probable” as defined in the United States Securities and Exchange Commission Industry Guide 7, and as a result, do not have any “proven” or “probable” reserves under such definition and are classified as an “Exploration Stage” pursuant to Industry Guide 7. American Resources Corporation has received a Breach of Promissory Notes from Empire Kentucky Land, Inc. The amount being sought is $2,000,000 as well as additional fees and charges. The acquired assets have an anticipated life of 25 years. Capitalized mining rights will be amortized based on productive activities over the anticipated life of 25 years. Amortization expense for this asset for the year ended December 31, 2019 and 2018 amounted to $931,333 and $0, respectively. The assets will be measured for impairment when an event occurs that questions the realization of the recorded value. On May 2020, the Company reached a Settlement, Recission and Mutual Release Agreement with the sellers where the Company sold back the property for the forgiveness of $2,000,000 seller note and the return of 2,000,000 shares of Company common stock.

Mines:

There are no permitted coal mines at Empire.

Processing and Transportation:

There is no permitted coal processing or loading infrastructure at Empire.

Permits:

Empire holds no permits and is not expected to hold any permits in the future.

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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 June 30, 2020. 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)

General:

Located primarily within Greene and Sullivan Counties, Indiana, ERC Mining Indiana Corporation (“ERC”) is currently comprised of one idled underground mine (the Gold Star Mine), one idled coal preparation plant and rail loadout. ERC sold its coal in the past as thermal coal to utilities. The Company does not plan to mine the property and purchased it for monetization of infrastructure assets and to reclaim the property.

Mines:

The Gold Star Mine is an underground mine in the Indiana IV (aka the Survant) coal seam located near the town of Jasonville, Indiana. Currently idled, the Gold Star Mine has been mined in the past 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 preparation plant less than a mile away.

Processing and Transportation:

The idled preparation plant is a 165 ton-per-hour coal preparation facility located near the underground mine portal. The rail loadout associated with the preparation plant is a rail loadout serviced by the Indiana Rail Road. The preparation plant has a coarse refuse and slurry impoundment. The allocated cost of for the property at Gold Star paid by the Company is $77,831.

Permits:

ERC holds one permit that covers the Gold Star Mine, processing plant, rail loadout, and related infrastructure.

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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.

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 and Carnegie 1 mines, and Perry’s E4-2 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.

Due to the Covid-19 global pandemic, traditional sales channels have been disrupted. As a supplier of the raw materials into the steel and industrial industries, our customers are sensitive to global fluctuations in steel demand.

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 Corsa Coal Corporation, Ramaco Resources, Blackhawk Mining, Coronado Coal, Arch Coal, Contura Energy, and Warrior Met Coal. Many of these coal producers may have greater financial resources and larger coal deposit 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 China, 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.

Please see financial statement note 9 for detail on cases.

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, SMCRA with respect to coal mining activities and ancillary activities; the CAA with respect to air emissions; the CWA with respect to water discharges and the permitting of key operational infrastructure such as impoundments; 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.

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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.

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.

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Property

Our principal offices were located at 9002 Technology Lane, Fishers, Indiana 46038. We pay $2,500 per month in rent for the office space and the rental lease expired in December 2018 and is continuing on a month-to-month basis through January 2020. On February 14, 2020 the Company moved its principal offices to 12115 Visionary Way Fishers, IN 46038. A lease through December 2026 was executed. We also rent office space from an affiliated entity, LRR, at 11000 Highway 7 South, Kite, Kentucky 41828 and at 1845 South KY Highway 15, Hazard, Kentucky 41701 and pay $1,702 per month rent and $476 per month rent, respectively, and the rental leases expire January 1, 2030 at both locations.

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, Wayland Surface Mine and Deane Mining’s Access Energy mine are primarily run by company employees, McCoy Elkhorn’s Carnegie Mine and Deane Mining’s Razorblade Surface 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 11 employees, with a substantial majority based in eastern Kentucky. The Company is headquartered in Fishers, Indiana with five members of the Company’s executive team based at this location.

Results of Operations

Our consolidated operations had operating revenues of $226,836 and $751,170 for the three-months and six-months ended June 30, 2020 and $9,342,126 and $16,336,402 operating revenue for the three-months and six-months ended June 30, 2019.

For the three-months and six-months ended June 30, 2020 we have incurred net income and (loss) attributable to American Resources Corporation Shareholders in the amount of $1,308,237 and $(1,953,130). For the three-months and six-months ended June 30, 2019 we have incurred net loss attributable to American Resources Corporation Shareholders in the amount of $8,961,042 and $23,526,227.

The primary driver for decrease in revenue was a decrease in coal production during the Covid-19 global pandemic.

From our inception to-date our activities have been primarily financed from the proceeds of our acquisitions, common stock equity investments and loans.

For the three months ended June 30, 2020 and 2019, coal sales and processing expenses were $662,556 and $5,654,568 respectively, development costs, including loss on settlement of ARO were $307,247 and $2,887,448, respectively, and production taxes and royalties $89,827 and $603,957, respectively. Depreciation expense for the same periods ended June 30, 2020 and 2019 were $293,746 and $804,889 respectively.

For the six months ended June, 2020 and 2019, coal sales and processing expenses were $2,517,743 and $12,298,655 respectively, development costs, including loss on settlement of ARO were $435,406 and $4,487,565, respectively, and production taxes and royalties $250,057 and $1,863,543, respectively. Depreciation expense for the same periods ended June 30, 2020 and 2019 were $1,208,798 and $1,621,805 respectively.

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Liquidity and Capital Resources

As of June 30, 2020, our available cash was $2,154,223. 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.

For the six months ending June 30, 2020 our net cash flow used in operating activities was $1,064,524 and for the six months ending June 30, 2019 the net cash flow used in operating activities was $7,379,486.

For the six months ending June 30, 2020 and 2019 net cash proceeds from and (used in) investing activities were $417,857 and $(735,495) respectively.

For the six months ending June 30, 2020 and 2018 net cash proceeds from financing activities were $2,532,079 and $6,904,957 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 $35,000 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 and debt offerings.

Business Effect of Covid-19

During 2020, the worldwide COVID-19 outbreak has resulted in muted demand for infrastructure and steel products and their necessary inputs including Metallurgical coal. These recent developments are expected to result in lower sales and gross margins. Because of the adverse market conditions caused by the global pandemic the Company’s operations were idled in January 2020 and remained idled through the report date.

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.

Recent Accounting Pronouncements

None.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Because we are a smaller reporting company we are not required to include any disclosure under this item.

Item 4. Controls and Procedures

(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.

As of June 30, 2020, 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, as of June 30, 2020, 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 June 30, 2020 that have materially affected the Company’s internal controls over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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.

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the 6-month period ending June 30, 2019, sales of unregistered equity securities totaled 45,200. Proceeds of these sales amounted to $201,000 which were primarily used for working capital and development costs.

During the 6-month period ending June 30, 2020 sales of unregistered equity securities totaled 620,000 which were for 600,000 of debt settlement and 20,000 for investor relations contract.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

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.

Item 5. Other Information

None.

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Item 6. Exhibits

The following exhibits are filed herewith except as otherwise noted. Exhibits referenced in previous filings by the Company with the SEC are incorporated by reference herein.

Exhibit Number	Description	Location Reference

3.1	Articles of Incorporation of Natural Gas Fueling and Conversion Inc.	Incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, filed with the SEC on November 27, 2013.
3.2	Amended and Restated Articles of Incorporation of NGFC Equities Inc.	Incorporated herein by reference to Exhibit 3.1 to the Company’s 8k filed on February 25, 2015.
3.3	Articles of Amendment to Articles of Incorporation of NGFC Equities, Inc.	Incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K on February 21, 2017.
3.4	Articles of Amendment to Articles of Incorporation of American Resources Corporation dated March 21, 2017.	Incorporated herein by reference to Exhibit 3.4 to the Company’s Form 10-Q, filed with the SEC on February 20, 2018.
3.5	Bylaws of Natural Gas Fueling and Conversion Inc.	Incorporated herein by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, filed with the SEC on November 27, 2013.
3.6	Bylaws, of NGFC Equities Inc., as amended and restated.	Incorporated herein by reference to Exhibit 3.2 to the Company’s 8k filed on February 25, 2015.
3.7	Articles of Amendment to Articles of Incorporation of American Resources Corporation dated November 8, 2018.	Filed as Exhibit 99.1 to the Company’s 8k filed on November 13, 2018, incorporated herein by reference.
3.8	Bylaws of American Resources Corporation, as amended and restated	Incorporated herein by reference to Exhibit 99.2 to the Company’s 8k filed on November 13, 2018.
4.1	Common Stock Purchase Warrant “B-4” dated October 4, 2017	Incorporated herein by reference to Exhibit 4.1 to the Company’s 8k filed on October 11, 2017.
4.2	Common Stock Purchase Warrant “C-1” dated October 4, 2017	Incorporated herein by reference to Exhibit 4.2 to the Company’s 8k filed on October 11, 2017.
4.3	Common Stock Purchase Warrant “C-2” dated October 4, 2017	Incorporated herein by reference to Exhibit 4.3 to the Company’s 8k filed on October 11, 2017.
4.4	Common Stock Purchase Warrant “C-3” dated October 4, 2017	Incorporated herein by reference to Exhibit 4.4 to the Company’s 8k filed on October 11, 2017.
4.5	Common Stock Purchase Warrant “C-4” dated October 4, 2017	Incorporated herein by reference to Exhibit 4.5 to the Company’s 8k filed on October 11, 2017.
4.6	Promissory Note for $600,000.00 dated October 4, 2017	Incorporated herein by reference to Exhibit 4.6 to the Company’s 8k filed on October 11, 2017.
4.7	Promissory Note for $1,674,632.14 dated October 4, 2017	Incorporated herein by reference to Exhibit 4.7 to the Company’s 8k filed on October 11, 2017.
4.8	Loan Agreement for up to $6,500,000 dated December 31, 2018	Incorporated herein by reference to Exhibit 99.1 to the Company’s 8k filed on January 3, 2019.
4.9	Promissory Note for up to $6,500,000 dated December 31, 2018	Incorporated herein by reference to Exhibit 99.2 to the Company’s 8k filed on January 3, 2019.
10.1	Secured Promissory Note	Incorporated herein by reference to Exhibit 99.1 to the Company’s 8k filed on May 15, 2018.
10.2	Security Agreement	Incorporated herein by reference to Exhibit 99.2 to the Company’s 8k filed on May 15, 2018.
10.3	Pledge Agreement	Incorporated herein by reference to Exhibit 99.3 to the Company’s 8k filed on May 15, 2018.
10.4	Guaranty Agreement	Incorporated herein by reference to Exhibit 99.4 to the Company’s 8k filed on May 15, 2018.
10.5	Bill of Sale	Incorporated herein by reference to Exhibit 99.5 to the Company’s 8k filed on May 15, 2018.
10.6	Sublease Agreement Between Colonial Coal Company, Inc. and McCoy Elkhorn Coal LLC	Incorporated herein by reference to Exhibit 99.1 to the Company’s 8k filed on May 1, 2018
10.7	Interim Operating Agreement	Incorporated herein by reference to Exhibit 99.2 to the Company’s 8k filed on May 1, 2018
10.8	Consolidated and Restated Loan and Security Agreement dated October 4, 2017	Incorporated herein by reference to Exhibit 10.1 to the Company’s 8k filed on October 11, 2017
10.9	Asset Purchase Agreement between Wyoming County Coal LLC and Thomas Shelton dated November 7, 2018	Incorporated herein by reference to Exhibit 10.9 to the Company’s registration statement filed on December 11, 2018.

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10.10	Asset Purchase Agreement between Wyoming County Coal LLC and Synergy Coal, LLC dated November 7, 2018	Incorporated herein by reference to Exhibit 10.10 to the Company’s registration statement filed on December 11, 2018.
10.11	Security Agreement	Incorporated herein by reference to Exhibit 99.3 to the Company’s 8k filed on January 3, 2019.
10.12	Purchase Order	Incorporated herein by reference to Exhibit 99.4 to the Company’s 8k filed on January 3, 2019.
10.13	Employment Agreement with Mark C. Jensen	Incorporated herein by reference to Exhibit 10.13 to the Company’s registration statement filed on February 6, 2019.
10.14	Employment Agreement with Thomas M. Sauve	Incorporated herein by reference to Exhibit 10.14 to the Company’s registration statement filed on February 6, 2019.
10.15	Employment Agreement with Kirk P. Taylor	Incorporated herein by reference to Exhibit 10.15 to the Company’s registration statement filed on February 6, 2019.
10.16	Employee Stock Option Plan	Incorporated herein by reference to Exhibit 10.16 to the Company’s registration statement filed on February 6, 2019.
10.17	Letter of Intent	Incorporated herein by reference to Exhibit 10.17 to the Company’s registration statement filed on February 6, 2019.
10.18	Merger Agreement with Colonial Coal	Incorporated herein by reference to Exhibit 10.18 to the Company’s registration statement filed on February 14, 2019.
10.19	Share Exchange Agreement to replace Merger Agreement with Colonial Coal	Incorporated herein by reference to Exhibit 10.19 to the Company’s registration statement filed on February 14, 2019.
14.1	Code of Conduct	Incorporated herein by reference to Exhibit 99.2 to the Company’s 8k filed on November 13, 2018.
14.2	Financial Code of Ethics	Incorporated herein by reference to Exhibit 99.3 to the Company’s 8k filed on November 13, 2018.
31.1	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	Filed Herewith
31.2	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	Filed Herewith
32.1	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.	Filed Herewith
32.2	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.	Filed Herewith
95.1	Mine Safety Disclosure pursuant to Regulation S-K, Item 104	Filed Herewith

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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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.

	AMERICAN RESOURCES CORPORATION

Date: July 22, 2020	By:	/s/ Mark C. Jensen
	Name:	Mark C. Jensen
	Title:	CEO, Chairman of the Board (Principal Executive Officer)

American Resources Corp - FORM 10-Q - July 23, 2020

Attached files

American Resources Corp Reports