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: September 30, 2021

 

or

 

☐

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

 

For the transition period from _______ to _______

 

Commission File Number: 000-55456

 

American Resources Corporation

(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, $0.0001 Par Value

AREC

NASDAQ Capital Market

Warrant

ARECW

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 November 15, 2021, the registrant had 61,731,391 shares of Class A common stock issued and outstanding.

 

 

 

 

AMERICAN RESOURCES CORPORATION

 

TABLE OF CONTENTS

 

 

 

 

PAGE

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Interim Consolidated Financial Statements

 

3

 

 

 

 

 

 

 

Consolidated Condensed Balance Sheets as of September 30, 2021 and December 31, 2020 (Unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)

 

5

 

 

 

 

 

 

 

Consolidated Condensed Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Nine Months ended September 30, 2021 and 2020 (unaudited)

 

6-7

 

 

 

 

 

 

 

Consolidated Condensed Statements of Cash Flows for the Nine Months ended September 30, 2021 and 2020 (Unaudited)

 

8

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Condensed Financial Statements

 

9

 

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

 

 

 

 

 

 

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

 

 

 
2

 

  

PART I. FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

AMERICAN RESOURCES CORPORATION

 

CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

 

For the three months and nine months ended

September 30, 2021

 

 
3

Table of Contents

  

AMERICAN RESOURCES CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

UNAUDITED

 

 

 

September 30,

2021

 

 

December 31,

2020

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash

 

$ 19,121,714

 

 

$ 10,617,495

 

Accounts Receivable

 

 

2,106,937

 

 

 

38,650

 

Inventory

 

 

1,664

 

 

 

150,504

 

Prepaid fees

 

 

268,332

 

 

 

175,000

 

Accounts Receivable - Other

 

 

-

 

 

 

234,240

 

Advances to related party

 

 

5,000

 

 

 

-

 

Total Current Assets

 

 

21,503,647

 

 

 

11,215,889

 

 

 

 

 

 

 

 

 

 

LONG-TERM ASSETS

 

 

 

 

 

 

 

 

Cash - restricted

 

 

1,008,583

 

 

 

583,708

 

Property and Equipment, Net

 

 

23,022,004

 

 

 

22,498,659

 

Investment in LLC – Related Party

 

 

2,250,000

 

 

 

-

 

Note Receivable

 

 

4,117,139

 

 

 

4,117,139

 

Total Long-Term Assets

 

 

30,397,726

 

 

 

27,199,506

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$ 51,901,373

 

 

$ 38,415,395

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$ 2,748,903

 

 

$ 4,288,794

 

Non-Trade payables

 

 

2,681,651

 

 

 

3,850,781

 

Accounts payable – related party

 

 

2,318,119

 

 

 

679,146

 

Accrued interest

 

 

427,818

 

 

 

1,043,519

 

Due to affiliate

 

 

74,000

 

 

 

74,000

 

Current portion of long term-debt

 

 

5,314,261

 

 

 

10,997,692

 

Current portion of convertible debt, (net of unamortized discount of $123,406 and $827,573)

 

 

12,050,769

 

 

 

-

 

Current portion of reclamation liability

 

 

2,327,169

 

 

 

2,327,169

 

Total Current Liabilities

 

 

27,942,690

 

 

 

23,261,101

 

 

 

 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

 

 

Long-term portion of note payable (net of issuance costs of $397,030 and $405,667)

 

 

4,746,156

 

 

 

5,330,752

 

Convertible note payables – long term

 

 

-

 

 

 

14,300,907

 

Reclamation liability

 

 

16,445,044

 

 

 

15,528,135

 

Total Long-Term Liabilities

 

 

21,191,200

 

 

 

35,159,794

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

49,133,890

 

 

 

58,420,895

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

AREC - Class A Common stock: $.0001 par value; 230,000,000 shares authorized, 60,829,718 and 42,972,762 shares issued and outstanding

 

 

6,083

 

 

 

4,256

 

Additional paid-in capital

 

 

158,119,222

 

 

 

113,279,448

 

Accumulated deficit

 

 

(155,357,822 )

 

 

(133,289,247 )

Total Stockholders’ Equity (Deficit)

 

 

2,767,483

 

 

 

(20,005,500 )

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

$ 51,901,373

 

 

$ 38,415,395

 

 

The accompanying footnotes are integral to the unaudited consolidated financial statements

 

 
4

Table of Contents

  

AMERICAN RESOURCES CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

UNAUDITED

   

 

 

For the three months ended

September 30,

2021

 

 

For the three

months ended

September 30,

2020

 

 

For the nine

months ended

September 30,

2021

 

 

For the nine

months ended

September 30,

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal Sales

 

$ 2,779,193

 

 

$ -

 

 

$ 3,121,782

 

 

$ 524,334

 

Metal Aggregating, Processing and Sales

 

 

20,510

 

 

 

294,646

 

 

 

48,385

 

 

 

521,482

 

Royalty Income

 

 

14,220

 

 

 

-

 

 

 

47,614

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenue

 

 

2,813,923

 

 

 

294,646

 

 

 

3,217,781

 

 

 

1,045,816

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Coal Sales and Processing

 

 

(3,068,847 )

 

 

(72,692 )

 

 

(4,813,688 )

 

 

(2,590,435 )

Accretion Expense

 

 

305,636 )

 

 

(240,685 )

 

 

(916,909 )

 

 

(981,859 )

Depreciation

 

 

(495,676 )

 

 

(646,438 )

 

 

(1,364,220 )

 

 

(1,855,236 )

Amortization of Mining Rights

 

 

(314,765 )

 

 

(313,224 )

 

 

(938,135 )

 

 

(939,672 )

General and Administrative

 

 

(826,480 )

 

 

(132,676 )

 

 

(2,501,548 )

 

 

(1,659,908 )

Professional Fees

 

 

(287,414 )

 

 

(175,832 )

 

 

(1,191,397 )

 

 

(686,158 )

Production Taxes and Royalties

 

 

(215,681 )

 

 

(154,604 )

 

 

(883,339 )

 

 

(404,660 )

Development Costs

 

 

(5,142,306 )

 

 

(792,926 )

 

 

(10,009,860 )

 

 

(1,228,333 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

 

(10,656,805 )

 

 

(2,529,078 )

 

 

(22,619,096 )

 

 

(10,346,261 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss from Operations

 

 

(7,842,882 )

 

 

(2,234,432 )

 

 

(19,401,315 )

 

 

(9,300,445 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income and (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (loss)

 

 

(58,340 )

 

 

160,635

 

 

 

(469,927 )

 

 

(153,544 )

Gain on interest forgiven

 

 

-

 

 

 

832,500

 

 

 

-

 

 

 

832,500

 

Gain on Depreciation Recapture

 

 

-

 

 

 

1,706,569

 

 

 

-

 

 

 

1,706,569

 

Gain on sale of stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,820,949

 

Amortization of debt discount and issuance costs

 

 

(3,179 )

 

 

(2,879 )

 

 

(8,637 )

 

 

(8,637 )

Interest Income

 

 

85,901

 

 

 

41,172

 

 

 

187,293

 

 

 

164,686

 

Interest expense

 

 

(1,095,021 )

 

 

(379,583 )

 

 

(2,260,965 )

 

 

(1,891,226 )

Total Other income (expense)

 

 

(1,070,639 )

 

 

2,358,413

 

 

 

(2,552,236 )

 

 

7,471,297

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$ (8,913,521 )

 

$ 123,982

 

 

$ (21,953,551 )

 

$ (1,829,148 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

 

$ (.15 )

 

$ .00

 

 

$ (.41 )

 

$ (.07 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

60,065,087

 

 

 

26,785,364

 

 

 

53,087,092

 

 

 

27,009,075

 

   

The accompanying footnotes are integral to the unaudited consolidated financial statements

 

 
5

Table of Contents

  

AMERICAN RESOURCES CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE PERIOD FROM JANUARY 1, 2020 THROUGH SEPTEMBER 30, 2020 AND JANUARY 1, 2021 THROUGH SEPTEMBER 30, 2021

UNAUDITED

 

Statement of Stockholders’ Deficit

September 30, 2021

 

 

 

Common Shares

 

 

 

 

 

Accumulated

 

 

 

 

 

 

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 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued in conjunction with warrant and option conversions

 

 

 

 

 

 

29

 

 

 

665,237

 

 

 

 

 

 

 

665,237

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued in connection with debt and payable conversions

 

 

 

 

 

 

207

 

 

 

19,886

 

 

 

 

 

 

 

20,093

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of Warrant and Stock Option Expense

 

 

 

 

 

 

 

 

 

 

101,615

 

 

 

 

 

 

 

101,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

123,982

 

 

 

123,982

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance September 30, 2020

 

 

26,040,512

 

 

$ 2,839

 

 

$ 91,397,889

 

 

$ (124,977,659 )

 

$ (33,576,931 )

 

The accompanying footnotes are integral to the unaudited consolidated financial statements

 

 
6

Table of Contents

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

APIC

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2020

 

 

42,972,762

 

 

$ 4,256

 

 

$ 113,279,448

 

 

$ (133,289,247 )

 

$ (20,005,543 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustment for Prior Year

 

 

-

 

 

 

40

 

 

 

114,991

 

 

 

(115,023 )

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Opening Balance

 

 

42,972,762

 

 

 

4,296

 

 

 

113,394,439

 

 

 

(133,404,270 )

 

 

(20,005,535 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued in conjunction with warrant and option conversions

 

 

1,705,508

 

 

 

171

 

 

 

2,257,541

 

 

 

-

 

 

 

2,257,712

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued in connection with debt and payable conversions

 

 

4,757,628

 

 

 

476

 

 

 

10,131,508

 

 

 

-

 

 

 

10,131,984

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued pursuant to restricted stock offering

 

 

425,000

 

 

 

43

 

 

 

1,274,957

 

 

 

-

 

 

 

1,275,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for services

 

 

10,000

 

 

 

1

 

 

 

9,999

 

 

 

-

 

 

 

10,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of Warrant and Stock Option Expense

 

 

-

 

 

 

-

 

 

 

115,025

 

 

 

-

 

 

 

115,025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,389,857 )

 

 

(6,389,857 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2021

 

 

49,870,898

 

 

 

4,987

 

 

 

127,183,469

 

 

 

(139,794,127 )

 

 

(12,605,671 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued in connection with warrant and option conversions

 

 

25,000

 

 

 

3

 

 

 

11,700

 

 

 

-

 

 

 

11,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued in connection with debt and payable conversions

 

 

380,289

 

 

 

38

 

 

 

625,237

 

 

 

-

 

 

 

625,276

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued in connection with registered offering

 

 

8,600,000

 

 

 

860

 

 

 

27,942,140

 

 

 

-

 

 

 

27,943,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of debt discount

 

 

-

 

 

 

-

 

 

 

(128,568 )

 

 

-

 

 

 

(128,568 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Compensation - Options

 

 

-

 

 

 

-

 

 

 

115,025

 

 

 

-

 

 

 

115,025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,650,174 )

 

 

(6,650,174 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2021

 

 

58,876,187

 

 

$ 5,888

 

 

$ 155,749,003

 

 

$ (146,444,301 )

 

$ 9,310,590

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued in connection with warrant and option conversions

 

 

2,000

 

 

 

-

 

 

 

2,100

 

 

 

-

 

 

 

2,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued in connection with debt and payable conversions

 

 

1,951,531

 

 

 

195

 

 

 

2,635,380

 

 

 

 

 

 

 

2,635,385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of debt discount

 

 

 

 

 

 

 

 

 

 

(368,876 )

 

 

 

 

 

 

(368,876 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Compensation - Options

 

 

-

 

 

 

-

 

 

 

101,615

 

 

 

-

 

 

 

101,615

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,913,521 )

 

 

(8,913,521 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance September 30, 2021

 

 

60,829,718

 

 

$ 6,083

 

 

$ 158,119,222

 

 

$ (155,357,822 )

 

$ 2,767,483

 

 

 
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AMERICAN RESOURCES CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

UNAUDITED

 

 

 

For the nine

months ended

 

 

For the nine

months ended

 

 

 

September 30,

2021

 

 

September 30,

2020

 

Cash Flows from Operating activities:

 

 

 

 

 

 

Net loss

 

$ (21,953,551 )

 

$ (1,829,148 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

1,364,220

 

 

 

1,855,236

 

Amortization of mining rights

 

 

938,136

 

 

 

939,672

 

Accretion expense

 

 

916,909

 

 

 

981,859

 

Liabilities reduced due to sale of assets

 

 

-

 

 

 

(3,271,973 )

Amortization of issuance costs and debt discount

 

 

4,095,688

 

 

 

-

 

Stock option expense

 

 

478,665

 

 

 

-

 

Issuance of shares for services

 

 

187,999

 

 

 

18,800

 

Issuance of shares for debt settlement

 

 

-

 

 

 

642,060

 

Warrant expense

 

 

-

 

 

 

230,050

 

Shares returned as part of asset sale

 

 

-

 

 

 

(1,840,200 )

 

 

 

 

 

 

 

 

 

Change in current assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,839,047 )

 

 

2,378,755

 

Inventory

 

 

148,840

 

 

 

365,126

 

Prepaid expenses and other assets

 

 

(93,332 )

 

 

(175,000 )

Accounts payable

 

 

(2,709,020 )

 

 

(303,567 )

Accrued interest

 

 

(615,701 )

 

 

(2,296,237 )

Accounts payable - related party

 

 

1,638,973

 

 

 

202,351

 

Cash used in operating activities

 

 

(17,441,221 )

 

 

(2,102,216 )

 

 

 

 

 

 

 

 

 

Cash Flows from Investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash used in investments in LLCs

 

 

(2,250,000 )

 

 

-

 

Cash received (paid) for PPE, net

 

 

(2,825,701 )

 

 

417,857

 

Cash provided by (used in) investing activities

 

 

(5,075,701 )

 

 

417,857

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal payments on long term debt

 

 

(641,409 )

 

 

(1,072,745 )

Proceeds from convertible debt

 

 

600,000

 

 

 

3,638,277

 

Proceeds from the sale of common stock, net

 

 

29,218,000

 

 

 

797,475

 

Proceeds from long term debt

 

 

-

 

 

 

28,000

 

Proceeds from warrant conversions

 

 

2,269,425

 

 

 

1,223,700

 

Net proceeds from (payments to) factoring agreement

 

 

-

 

 

 

(1,807,443 )

Cash provided by financing activities

 

 

31,446,016

 

 

 

2,807,264

 

 

 

 

 

 

 

 

 

 

Increase(decrease) in cash and restricted cash

 

 

8,929,094

 

 

 

1,122,905

 

 

 

 

 

 

 

 

 

 

Cash and restricted cash, beginning of period

 

 

11,201,203

 

 

 

268,811

 

 

 

 

 

 

 

 

 

 

Cash and restricted cash, end of period

 

$ 20,130,297

 

 

$ 1,391,716

 

 

 

 

 

 

 

 

 

 

Supplemental Information

 

 

 

 

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

Issuance of common shares for debt conversions

 

$ 8,485,384

 

 

$ -

 

Issuance of warrants in conjunction with convertible notes

 

$ -

 

 

$ 1,223,700

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ 42,426

 

 

$ 208,154

 

Cash paid for income taxes

 

$ -

 

 

$ -

 

   

The accompanying footnotes are integral to the unaudited consolidated financial statements

 

 
8

Table of Contents

  

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 American Carbon Corp (ACC), 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),Perry County Resources LLC (PCR), American Rare Earth LLC (ARE), American Metals LLC (AM) and American Opportunity Venture II, LLC (AOV II). All significant intercompany accounts and transactions have been eliminated.

 

Entities for which ownership is less than 100% a determination is made whether there is a requirement to apply the variable interest entity (VIE) model to the entity. Where the Company holds current or potential rights that give it the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, combined with a variable interest that gives the Company the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, the Company would be deemed to have a controlling interest.

 

During January 2021, the Company invested $2,250,000 for 50% ownership and become the managing member of American Opportunity Venture, LLC. (AOV) It has been determined that AOV is a variable interest entity and that the Company is not primary beneficiary. As such, the investment in AOV will be accounted for using the equity method of accounting. (Note 4)

 

During March 2021, the Company invested $25,000 for 100% ownership and become the managing member of American Opportunity Venture II, LLC. (AOVII). As such, the investment in AOVII has been eliminated in the accompanying financial statements. As of September 30, 2021, AOVII has had no operational activity. (Note 4)

 

During March 2021, the Company licensed certain technology to an unrelated entity, Novusterra, Inc. According to the commercial terms of the license, the Company is to receive 50% of future cash flows and 15,750,000 common shares of Novusterra, Inc. It has been determined that Novusterra is a variable interest entity and that the Company is not the primary beneficiary. As such, the investment in Novusterra will be accounted for using the equity method of accounting. (Note 4)

 

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 nine months ended September 30, 2021, are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or any other period. These financial statements should be read in conjunction with the Company’s 2020 audited financial statements and notes thereto which were filed on Form 10-K on March 12, 2021.

 

 
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Table of Contents

  

Variable Interest Entities: We must consolidate any VIE in which we have variable interests if we are deemed to be the primary beneficiary of the VIE; that is, if we have both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. Such a determination requires management to evaluate circumstances and relationships and to make a significant judgment, and to repeat the evaluation at each subsequent reporting date. For VIE’s that the Company is deemed not to be the primary beneficiary, the investment is accounted for under the equity method of accounting.

 

Convertible Preferred Securities: We account for hybrid contracts that feature conversion options in accordance with U.S. GAAP. 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 September 30, 2021 and December 31, 2020 was $8,818 and $19,138, respectively.

 

During 2019 the Company established a reclamation bonding collateral fund for ERC Mining Indiana. The balance of the restricted cash being held totaled $217,500 and $217,500 as of September 30, 2021 and December 31, 2020.

 

During 2020, the Company established an escrow account for certain assumed liabilities in the PCR acquisition. The balance as of September 30, 2021 and December 31, 2020 was $0 and $347,070, respectively. The funds were used to pay for remaining assumed liabilities.

 

During 2021, the Company established a reclamation bonding collateral fund for WCC. The balance of the restricted cash being held totaled $232,265 and $0 as of September 30, 2021 and December 31, 2020.

 

On March 25, 2021 ERC Mining Indiana Corp (“ERC”) entered into an Agreed Order and Civil Penalty Payment Agreement (“Agreement”) with the Indiana Department of Natural Resources (“INDNR”). This Agreement called for a negotiated settlement of all currently outstanding and or assessed and contested civil penalties related to ERC’s Permit S-363. This Agreement call for ERC pay INDNR the sum of One Hundred and Sixty Thousand Dollars $160,000. It was further agreed that Fifty Thousand Dollars ($50,000) of this payment would be held in escrow and ultimately released to ERC should they reach Phase 1 bond release on Permit S-363 before September 15, 2021.

 

On March 25, 2021 American Resources Corporation and its subsidiaries Knott County Coal LLC, McCoy Elkhorn Coal LLC and Deane Mining LLC (“AREC”) entered into an Agreed Order (“Agreement”) with the Kentucky Energy and Environment Cabinet (“KYE&E”). The Agreement called for both the payment of civil penalties as well as a negotiated settlement related to outstanding reclamation obligations to be completed by AREC. As part of the reclamation obligations AREC agreed to post a Five Hundred Thousand Dollar ($500,000) Agreed Order Bond. If was further Agreed that this bond would be released so long as certain enumerated reclamation obligations are met by AREC in the defined timeframes as set forth in the Agreement.

 

The balance as of September 30, 2021 and December 31, 2020 was $1,008,583 and $583,708, 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 nine months ended September 30, 2021 and September 30, 2020.

 

 

 

September 30,

2021

 

 

September 30,

2020

 

Cash

 

$ 19,121,714

 

 

$ 753,910

 

Restricted Cash

 

 

1,008,583

 

 

 

637,806

 

Total cash and restricted cash presented in the consolidated statement of cash flows

 

$ 20,130,297

 

 

$ 1,391,716

 

 

 
10

Table of Contents

 

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 September 30, 2021 and 2020, $- and $- were incurred for loss on settlement on ARO, respectively.

 

The table below reflects the changes to our ARO:

 

Balance at December 31, 2020

 

$ 17,855,304

 

Accretion – nine months September 30, 2021

 

 

916,909

 

Reclamation work – nine months September 30, 2021

 

 

-

 

Reduction of ARO due to dispositions

 

 

-

 

Balance at September 30, 2021

 

$ 18,772,213

 

 

 

 

 

 

Balance at December 31, 2019

 

$ 19,839,782

 

Accretion – nine months September 30, 2020

 

 

981,859

 

Reclamation work – nine months September 30, 2020

 

 

-

 

Reduction of ARO due to dispositions

 

 

(3,271,973 )

Balance at September 30, 2020

 

$ 17,549,668

 

 

Revenue Recognition:

 

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 and southern Indiana.

 

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 90-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.

 

 
11

Table of Contents

  

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 September 30, 2021 and December 31, 2020 amounted to $0, for both periods. Allowance for other accounts receivables, including note receivables as of September 30, 2021 and December 31, 2020 amounted to $0 and $0, respectively.

 

Trade and loan receivables are carried at amortized cost, net of allowance for losses. Amortized cost approximated book value as of September 30, 2021 and December 31, 2020.

 

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

 

NOTE 2 – PROPERTY AND EQUIPMENT

 

At September 30, 2021 and December 31, 2020, property and equipment were comprised of the following:

 

 

 

September 30,

2021

 

 

December 31,

2020

 

Processing and rail facility

 

$ 11,591,273

 

 

$ 11,591,273

 

Underground equipment

 

 

9,487,167

 

 

 

6,838,417

 

Surface equipment

 

 

2,639,146

 

 

 

2,527,576

 

Coal refuse storage

 

 

12,134,192

 

 

 

12,134,192

 

Rare earth processing

 

 

61,601

 

 

 

-

 

Mine Development

 

 

561,575

 

 

 

561,575

 

Construction in Progress

 

 

3,780

 

 

 

-

 

Land

 

 

1,572,435

 

 

 

1,572,435

 

Less: Accumulated depreciation

 

 

(15,029,165 )

 

 

(12,726,809 )

 

 

 

 

 

 

 

 

 

Total Property and Equipment, Net

 

$ 23,022,004

 

 

$ 22,498,659

 

 

Depreciation expense amounted to $495,676 and $646,438 for the three month periods September 30, 2021 and September 30, 2020, respectively. Depreciation expense amounted to $1,364,220 and $1,855,236 for the nine month periods September 30, 2021 and September 30, 2020, respectively.

 

 
12

Table of Contents

  

The estimated useful lives are as follows:

 

Processing and Rail Facilities

 

7-20 years

Surface Equipment

 

7 years

Underground Equipment

 

5 years

Rare Earth Processing Equipment

 

5 Years

Mining Rights

 

5-10 years

Coal Refuse Storage

 

10 years

 

NOTE 3 – NOTES PAYABLE

 

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. During the 9-month period ended September 30, 2021, $600,000 of notes were issued under this offering.

 

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.

 

Short-term and Long-term debt consisted of the following at September 30, 2021 and December 31, 2020:

 

 

 

September 30,

2021

 

 

December 31,

2020

 

 

 

 

 

 

 

 

Equipment Loans - QEI

 

 

 

 

 

 

 

 

 

 

 

 

 

Note payable to an unrelated company in monthly installments of $1,468, With interest at 6.95%, through maturity in March 2021, when the note is due in full. The note is secured by equipment and a personal guarantee by an officer of the Company.

 

 

10,508

 

 

 

22,720

 

 

 

 

 

 

 

 

 

 

On October 19, 2017, Quest entered into an equipment financing agreement with an unaffiliated entity, Inc. to purchase certain surface equipment for $90,400. The agreement calls for monthly payments until maturity of October 19, 2019 and interest of 9.95%. The note is secured by the equipment purchased and was paid off during 2021.

 

 

-

 

 

 

136

 

 

 

 

 

 

 

 

 

 

On October 20, 2017, Quest entered into an equipment financing agreement with an unaffiliated entity, Inc. to purchase certain surface equipment for $50,250. The agreement calls for monthly payments until maturity of October 20, 2019 and interest of 10.60%. The note is secured by the equipment purchased.

 

 

5,166

 

 

 

5,166

 

 

 

 

 

 

 

 

 

 

On December 7, 2017, Quest entered into an equipment financing agreement with an unaffiliated entity, to purchase certain surface equipment for $56,900. The agreement calls for an interest rate of 8.522%, monthly payments until maturity of January 7, 2021. The note is secured by the equipment purchased.

 

 

11,082

 

 

 

32,596

 

 

 

 

 

 

 

 

 

 

On January 25, 2018, QEI entered into an equipment loan agreement with an unrelated party in the amount of $346,660. The agreement calls for monthly payments of $11,360 until maturity date of December 24, 2020 and carries an interest rate of 9%. The loan is secured by the underlying surface equipment purchased by the loan. Loan proceeds were used directly to purchase equipment.

 

 

162,734

 

 

 

169,749

 

 

 

 

 

 

 

 

 

 

On May 9, 2018, QEI entered into a loan agreement with an unrelated party in the amount of $1,000,000 with a maturity date of September 24, 2018 with monthly payments of $250,000 due beginning June 15, 2018. The note is secured by the assets and equity of the company and carries an interest rate of 0%. Proceeds of the note were split between receipt of $575,000 cash and $425,000 payment for new equipment. No payments have been made on the note which is in default. The note is secured by the equipment purchased by the note and a personal guarantee of an officer.

 

 

1,000,000

 

 

 

1,000,000

 

 

 

 

 

 

 

 

 

 

On April 23, 2020, the Company received loan proceeds in the amount of approximately $2,649,800 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the period.

 

 

2,649,800

 

 

 

2,649,800

 

 

 

 

 

 

 

 

 

 

On September 11, 2020, the Company entered into a $1,493,233.65 settlement agreement with a non-related party. Starting April 1, 2021, the note requires monthly payments of $100,000 until the balance is paid in full.

 

 

1,293,234

 

 

1,493,234

 

  

 
13

Table of Contents

  

Customer Loan Agreement - ARC

 

 

 

 

 

 

 

 

 

 

 

 

 

On December 31, 2018, the Company entered into a loan agreement with an unrelated party. The loan is for an amount up to $6,500,000 of which $3,000,000 was advanced on December 31, 2018 and $3,500,000 was advanced During 2019. The promissory agreement carries interest at 5% annual interest rate and payments of principal and interest shall be repaid at a per-ton rate of coal sold to the lender. The outstanding amount of the note has a maturity of April 1, 2020. The note is secured by all assets of the Company. Loan issuance costs totaled $41,000 as of December 31, 2018. This loan was paid off during 2021.

 

$ -

 

 

$ 3,967,997

 

 

 

 

 

 

 

 

 

 

Sales Financing Arrangement ARC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During May 2018, the company entered into a financing arrangement with two unrelated parties. The notes totaled $2,859,500, carried an original issue discount of $752,535, interest rate of 0% and have a maturity date of January 2019 and are secured by future receivables as well as personal guarantees of two officers of the company. As of December 31, 2019 and 2018, unamortized original issue discount totaled $0 and $88,685 and unamortized loan issuance costs totaled $0 and $4,611, respectively. On April 1, 2020, $375,690.37 of this note was converted into a senior convertible note. (See Note 10)

 

 

-

 

 

 

454,417

 

 

Equipment Loans – ERC

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment lease payable to an unrelated company in 48 equal payments of $771 with an interest rate of 5.25% with a balloon payment at maturity of July 31, 2019. The note is secured by equipment and a corporate guarantee from Quest Energy Inc. The note was paid off during 2021.

 

 

-

 

 

 

9,902

 

 

 

 

 

 

 

 

 

 

Equipment lease payable to an unrelated company in 48 equal payments of $3,304 with an interest rate of 5.25% with a balloon payment at maturity of July 31, 2019. The note is secured by equipment and a corporate guarantee from Quest Energy Inc. The note was paid off during 2021.

 

 

-

 

 

 

62,722

 

 

Equipment Loans - McCoy

 

 

 

 

 

 

 

 

 

 

 

 

 

On May 2, 2017, Quest entered into an equipment purchase agreement with an unaffiliated entity, Inc. to purchase certain underground mining equipment for $250,000 which carries 0% interest. Full payment was due September 12, 2017, and the note is in default. The note is secured by the equipment purchased with the note. This note was paid off during 2021.

 

 

-

 

 

 

73,500

 

 

 

 

 

 

 

 

 

 

On September 25, 2017, Quest entered into an equipment purchase Agreement, which carries 0% interest with an unaffiliated entity, Inc. to purchase certain underground mining equipment for $350,000. The agreement provided for $20,000 monthly payments until the balance is paid in full. The note matures on September 25, 2019, and the note is in default. The note is secured by the equipment purchased with the note.

 

 

181,737

 

 

 

187,038

 

  

 
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Accounts Receivable Factoring Agreement Factoring Arrangements

 

 

 

 

 

 

 

 

 

 

 

 

 

On December 19, 2019, the Company entered into a factoring arrange with an unrelated party. The arrangement is separated into two components. The first component is a promissory note in the amount of $1,189,223 with interest equaling 1.61% and a due date of December 31, 2020. The principal will be repaid out of future sales and the note is secured by certain fixed assets of PCR. The second component is advance of customer invoices totaling 2,200,486. The advances bear interest at 7% plus a $1 per ton fee and were re-paid in January 2020, from customer receipts. During 2021, $1,274,034 of this note was converted into a senior convertible note. (See Note 10)

 

 

-

 

 

 

1,274,034

 

 

 

 

 

 

 

 

 

 

A customer of the Company advanced $550,000 for inventory. The advance is unsecured and bears no interest and will be recouped by future sales to the customer. The note is due on demand and has been repaid subsequent to year end. During 2021, $187,914 of this note was converted into a senior convertible note. (See Note 10)

 

 

-

 

 

 

187,914

 

 

Kentucky New Markets Development Program

 

 

 

 

 

 

 

 

 

 

 

 

 

Quest Processing - loan payable to Community Venture Investment XV, LLC, with interest only payments due quarterly until March 2023, at which time quarterly principal and interest payments are due. The note bears interest at 3.698554% and is due March 7, 2046. The loan is secured by all equipment and accounts of Quest Processing. See Note 5.

 

 

4,117,139

 

 

 

4,117,139

 

 

 

 

 

 

 

 

 

 

Quest Processing - loan payable to Community Venture Investment XV, LLC, with interest only payments due quarterly until March 2023, at which time quarterly principal and interest payments are due. The note bears interest at 3.698554% and is due March 7, 2046. The loan is secured by all equipment and accounts of Quest Processing. See Note 5.

 

 

1,026,047

 

 

 

1,026,047

 

 

 

 

 

 

 

 

 

 

Less: Debt Discounts and Loan Issuance Costs

 

 

(397,030 )

 

 

(405,667 )

 

 

 

 

 

 

 

 

 

Total note payables, net of discount

 

 

10,060,417

 

 

 

16,328,444

 

 

 

 

 

 

 

 

 

 

Less: Current maturities

 

 

5,314,261

 

 

 

10,997,692

 

 

 

 

 

 

 

 

 

 

Total Long-term note payables, net of discount

 

$ 4,746,156

 

 

$ 5,330,752

 

 

 
15

Table of Contents

  

Convertible notes payable consisted of the following at September 30, 2021 and December 31, 2020:

 

 

 

September 30,

2021

 

 

December 30,

2020

 

 

 

 

 

 

 

 

ARC Convertible Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

In 2020, the Company created a convertible debt offering. The debt matures in two years, with interest at 12.5% capitalizing monthly.

 

 

12,174,176

 

 

 

15,128,480

 

 

 

 

 

 

 

 

 

 

Less: Debt Discounts

 

 

(123,407 )

 

 

(827,573 )

 

 

 

 

 

 

 

 

 

Total convertible note payables, net of discount

 

 

12,050,769

 

 

 

14,300,907

 

 

Affiliate notes consisted of the following at September 30, 2021 and December 31, 2020:

 

 

 

September 30,

2021

 

 

December 30,

2020

 

 

 

 

 

 

 

 

Notes payable to affiliate, due on demand with no interest and is uncollateralized. Equipment purchasing was paid by an affiliate resulting in the note payable.

 

$ 74,000

 

 

$ 74,000

 

 

 

 

 

 

 

 

 

 

Total affiliate note payables

 

 

74,000

 

 

 

74,000

 

 

 
16

Table of Contents

  

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 September 30, 2021, royalty expense incurred with LRR amounted to $199,289 and amounts advanced from LRR amounted $0 and amounts repaid amounted to $0. As of September 30, 2021, total amounts owed LRR amounted to $41,317. For the three-month period ending September 30, 2020, royalty expense incurred with LRR amounted to $68,251 and amounts advanced from LRR amounted to $25,866 and amounts repaid to LRR amounted to $0. As of September 30, 2020, total amounts owed LRR amounted to $979,146.

 

Land Betterment Corp

 

On February 13, 2020, the Company entered into a Contract Services Agreement with Land Betterment Corporation, 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 September 30, 2021 amounts incurred under the agreement amounted to $1,618,627 and amounts paid totaled $319,202. For the three-months ended September 30, 2021, service charges covering members of the Company’s management amounted to $0.

 

For the nine-months ended September 30, 2021 amounts incurred under the agreement amounted to $3,555,587 and amounts paid totaled $2,273,749. For the nine-months ended September 30, 2021, service charges covering members of the Company’s management amounted to $0.

 

For the three-months ended September 30, 2020 amounts incurred under the agreement amounted to $864,184 and amounts paid totaled $715,563. For the three-months ended September 30, 2020, service charges covering members of the Company’s management amounted to $0.

 

For the nine-months ended September 30, 2020 amounts incurred under the agreement amounted to $1,263,766 and amounts paid totaled $864,184. For the nine-months ended September 30, 2020, service charges covering members of the Company’s management amounted to $0.

 

American Opportunity Venture, LLC

 

During January 2021, the Company invested $2,250,000 for 50% ownership and become the managing member of American Opportunity Venture, LLC. (AOV) It has been determined that AOV is a variable interest entity and that the Company is not primary beneficiary. As such, the investment in AOV will be accounted for using the equity method of accounting under ASC 323-10-50-3. As of September 30, 2021, AOV has had no operational activity other than in restricted common stock and warrant investment in American Acquisition Opportunity Inc. and as such there is no quoted market price for the underlying issuances, no contingent issuances and no differences between carrying value and value of underlying assets.

 

American Opportunity Venture II, LLC

 

During March 2021, the Company invested $25,000 for 100% ownership and become the managing member of American Opportunity Venture II, LLC. (AOVII). As such, the investment in AOVII has been eliminated in the accompanying financial statements. As of September 30, 2021, AOVII has had no operational activity.

 

Novusterra, Inc.

 

During March 2021, the Company licensed certain technology to an unrelated entity, Novusterra, Inc. According to the commercial terms of the license, the Company is to receive 50% of future cash flows and 15,750,000 common shares of Novusterra, Inc. It has been determined that Novusterra is a variable interest entity and that the Company is not the primary beneficiary. As such, the investment in Novusterra will be accounted for using the equity method of accounting. As of September 30, 2021, Novusterra has had no operational activity.

 

 
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NOTE 5 – EQUITY TRANSACTIONS

 

Common Share Transactions

 

Employee stock compensation expense for the three-month period ending September 30, 2021 and 2020 amounted to $101,615 and $115,025 respectively.

 

Employee stock compensation expense for the nine-month period ending September 30, 2021 and 2020 amounted to $478,666 and $331,665 respectively.

 

Stock Sales

 

On March 17, 2021, 425,000 of restricted common shares were sold. Gross proceeds to the Company amounted to $1,275,000.

 

On June 9, 2021, the Company issued 8,600,000 shares of Class A Common Stock. Net proceeds to the Company after offering expenses amounted to $27,943,000.

 

Investor Relations Contract

 

On January 26, 2021, the Company entered into a six-month investor relations agreement with RedChip Companies, Inc. As compensation for the agreement, the Company issued 20,000 Class A Common shares. The share price on January 26, 2021 was $2.75 resulting in an expense recorded in the amount of $55,000.

 

 
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Table of Contents

  

New Warrant Issuances

 

On January 26, 2021, the Company issued Common Stock Purchase Warrant “A-10” for rare earth capture advisory. The warrant provides the option to purchase 10,000 Class A Common Shares at a price of $2.05. The warrants expire on January 26, 2024.

 

On February 2, 2021, the Company issued Common Stock Purchase Warrant “C-37” in conjunction with the issuance of $600,000 convertible note. The warrant provides the option to purchase 60,000 Class A Common Shares at a price of $1.50. The warrants expire on February 2, 2023.

 

On February 7, 2021, the Company issued Common Stock Purchase Warrant “A-11” for rare earth processing advisory. The warrant provides the option to purchase 50,000 Class A Common Shares at a price of $4.25. The warrants expire on February 7, 2026.

 

On March 11, 2021, the Company issued Common Stock Purchase Warrant “C-38” in conjunction with a restricted stock purchase. The warrant provides the option to purchase 42,500 Class A Common Shares at a price of $5.00. The warrants expire on March 11, 2023.

 

On March 12, 2021, the Company issued Common Stock Purchase Warrant “C-39” in conjunction with a restricted stock purchase. The warrant provides the option to purchase 42,500 Class A Common Shares at a price of $5.00. The warrants expire on March 12, 2023.

 

On March 15, 2021, the Company issued Common Stock Purchase Warrant “C-39” in conjunction with consulting services. The warrant provides the option to purchase 75,000 Class A Common Shares at a price of $4.59. The warrants expire on March 15, 2026.

 

On March 16, 2021, the Company issued Common Stock Purchase Warrant “C-40” in conjunction with a restricted stock purchase. The warrant provides the option to purchase 21,250 Class A Common Shares at a price of $5.00. The warrants expire on March 16, 2023.

 

On June 9, 2021, the Company issued Common Stock Purchase Warrant “C-38” in conjunction with a common stock offering. The warrant provides the option to purchase 2,150,000 Class A Common Shares at a price of $3.50. The warrants expire on June 9, 2026.

 

On June 9, 2021, the Company issued Common Stock Purchase Warrant “C-39” in conjunction with a common stock offering. The warrant provides the option to purchase 2,150,000 Class A Common Shares at a price of $3.50. The warrants expire on June 9, 2026.

 

On July 20, 2021, the Company issued 150,000 Employee Stock options under the current plan. The options vest over their 7-year life.

 

On September 3, 2021, the Company issued 100,000 Employee Stock options under the current plan. The options vest over their 7-year life.

 

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

 

 

 

September 30,

2021

 

Expected Dividend Yield

 

 

0 %

Expected volatility

 

 

87.97 %

Risk-free rate

 

 

0.980 %

Expected life of warrants

 

.86-6.74 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, 2019

 

 

10,689,904

 

 

$ 1.856

 

 

 

2.310

 

 

$ 1,746,544

 

Granted

 

 

4,952,670

 

 

$ 1.217

 

 

 

2.013

 

 

$ 1,432,786

 

Forfeited or Expired

 

 

3,172,222

 

 

$ 4.443

 

 

 

1.19

 

 

$ 706,437

 

Exercised

 

 

2,359,822

 

 

$ 0.138

 

 

 

1.37

 

 

$ 3,217,338

 

Outstanding – September 30, 2020

 

 

10,110,530

 

 

$ 1.114

 

 

 

2.687

 

 

$ 5,152,399

 

Exercisable (Vested) – September 30, 2020

 

 

10,110,530

 

 

$ 1.114

 

 

 

2.687

 

 

$ 5,512,399

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable (Vested) – December 31, 2020

 

 

8,401,221

 

 

$ 1.13

 

 

 

2.15

 

 

$ 7,453,214

 

Granted

 

 

4,601,250

 

 

$ 3.53

 

 

 

4.56

 

 

$ 30,700

 

Forfeited or Expired

 

 

-

 

 

$ -

 

 

 

-

 

 

$ -

 

Exercised

 

 

1,732,508

 

 

$ 0.86

 

 

 

2.16

 

 

$ 7,038,153

 

Outstanding - September 30, 2021

 

 

11,269,963

 

 

$ 2.25

 

 

 

2.39

 

 

$ 4,221,721

 

Exercisable (Vested) - September 30, 2021

 

 

11,269,963

 

 

$ 2.25

 

 

 

2.69

 

 

$ 4,221,721

 

 

Company Options:

 

 

 

 

 

Weighted

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

Average

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

 

Options

 

 

Price

 

 

Life in Years

 

 

Value

 

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 – September 30, 2020

 

 

1,806,830

 

 

$ 1.615

 

 

 

5.856

 

 

$ 1,130,333

 

Exercisable (Vested) – September 30, 2020

 

 

536,220

 

 

$ 1.597

 

 

 

4.707

 

 

$ 399,489

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding – December 31, 2020

 

 

2,159,269

 

 

$ 1.61

 

 

 

5.66

 

 

$ 1,919,128.76

 

Exercisable (Vested) – December 31, 2020

 

 

888,659

 

 

$ 1.58

 

 

 

5.05

 

 

$ 749,470.14

 

Granted

 

 

325,000

 

 

$ 2.30

 

 

 

6.74

 

 

$ 105,000.00

 

Forfeited or Expired

 

 

275,000

 

 

$ 1.45

 

 

 

3.54

 

 

$ 199,500.00

 

Exercised

 

 

25,000

 

 

$ 1.64

 

 

 

6.56

 

 

$ 41,500.00

 

Outstanding - September 30, 2021

 

 

2,184,269

 

 

$ 1.67

 

 

 

5.39

 

 

$ 1,416,548.25

 

Exercisable (Vested) - September 30, 2021

 

 

1,134,268

 

 

$ 1.52

 

 

 

4.91

 

 

$ 774,380.89

 

 

 
20

Table of Contents

  

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 $1,446,320, the Company has accrued $1,707,621 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 $754,398 of which the Company has accrued $202,102 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 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).

 

The Company, through its investment in AOV is proportionally a sponsor of the special purpose acquisition Company, American Acquisition Opportunity Inc. (AMAO) As such it is proportionally obligated to fund operating and working capital deficits of AMAO up to $800,000.

 

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, 2021, 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 $1,702 per month rent and the rental lease expires January 1, 2030. .

  

NOTE 7 – SUBSEQUENT EVENTS

 

On November 9, 2021, Quest Processing concluded the end of the compliance period relating to the Kentucky New Markets Development Program loan with Community Venture Investment XV, LLC and was released from all obligations of principal and interest of $5,143,186 note.

 

 
21

Table of Contents

  

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.

 

On January 5, 2017, American Resources Corporation (ARC) 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. On November 25, 2020, Quest Energy changed its name to American Carbon Corp. (American Carbon)

 

American Carbon 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. Since mid-2019, we have not mined or sold coal which is sold into the thermal coal markets. All production and future investment will be for the mining of metallurgical coal used in the steel and specialty markets.

 

 
22

Table of Contents

  

Efforts to diversify revenue streams have led to the establishment of additional subsidiaries; American Metals LLC (AM) which is focused on the recovery and sale of recovered metal and steel and American Rare Earth LLC (ARE) which is focused on the aggregation and monetization of critical and rare earth element deposits.

 

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 mines (Mine #15 and the Carnegie 1 Mine) in “hot idle” status, and one mine in development (Carnegie 2 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. The coal controlled at McCoy Elkhorn (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:

 

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 1 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.

 

 
23

Table of Contents

  

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. On October 8, 2021, the Carnegie 1 mining operations recommenced.

 

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.

 

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.

 

 
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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 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. The coal controlled at Deane Mining (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:

 

Currently all permitted mines are idled, in development or in reclamation.

 

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 22 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 idled underground coal mine (the Access Energy Mine), one idled surface mine (Razorblade Surface) and one idled 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. The coal controlled at Deane Mining (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.

 

 
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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.

 

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.

 

 
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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 was paid in cash.

 

Permits:

 

Wyoming County Coal holds 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. As of the balance sheet date and report date, the West Virginia permit transfers have not yet been approved, 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.

 

 
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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.

 

Mining operations at the E4-2 mine re-commenced on March 29, 2021 under updated licensing after being idled beginning in January 2020 due to the adverse market effects Covid-19 global pandemic.

 

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.

 

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.

 

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 March 31, 2019. ERC Mining LLC is considered a variable interest entity and is consolidated into Quest Energy’s financial statements.

 

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 Wabash Enterprises, Inc, an entity owned by members of ARC’s management.

 

 
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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 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 Resources, Alpha Met, 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 are located at 12115 Visionary Way, Fishers, Indiana 46038. We pay $5,726 per month in rent for the office space and the rental lease expires December 2026.

 

We also rent office space from an affiliated entity, LRR, at 11000 Highway 7 South, Kite, Kentucky 41828 and pay $1,702 per month rent and the rental lease expires January 1, 2030.

 

On August 17, 2021, American Rare Earth entered into a Commercial Land Lease sublease agreement with Land Betterment for nearly 7 acres of land for the purpose of building a commercial grade critical element purification facility. The sublease is for the period of 5 years with a rate of $3,500 a month.

 

On October 8, 2021, American Rare Earth entered into a Commercial Lease for 6,700 square feet of warehouse space for the purpose of building a commercial grade critical element purification facility. The is for the period of 2 years with a rate of $4,745.83 a month.

 

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, PCR’s E-42 mine is run by contract labor, and the Company’s various coal preparation facilities are run by contract labor.

 

The Company currently has approximately 11 employees, with a substantial majority based in eastern Kentucky. The Company is headquartered in Fishers, Indiana with six members of the Company’s executive team based at this location.

 

Results of Operations

 

Our consolidated operations had operating revenues of $2,813,923 and $3,217,781 for the three-months and nine-months ended September 30, 2021 and $294,646 and $1,045,816 operating revenue for the three-months and nine-months ended September 30, 2020.

  

For the three-months and nine-months ended September 30, 2021 we have incurred net loss attributable to American Resources Corporation Shareholders in the amount of $8,913,521 and $21,953,551. For the three-months and nine-months ended September 30, 2020 we have incurred net income and (loss) attributable to American Resources Corporation Shareholders in the amount of $123,982 and $(1,829,148).

    

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

 

For the three months ended September 30, 2021 and 2020, coal sales and processing expenses were $3,068,847 and $72,692 respectively, development costs, including loss on settlement of ARO were $5,142,306 and $792,926, respectively, and production taxes and royalties $215,681 and $154,604, respectively. Depreciation expense for the same periods ended September 30, 2021 and 2020 were $495,676 and $646,438 respectively. Increase operating expenses were due to increased mining activities, increased development activity and increased asset purchases which led to increased depreciation.

 

For the nine months ended September 30, 2021 and 2020, coal sales and processing expenses were $4,813,688 and $2,590,435 respectively, development costs, including loss on settlement of ARO were $10,009,860 and $1,228,333, respectively, and production taxes and royalties $883,339 and $404,660, respectively. Depreciation expense for the same periods ended September 30, 2021 and 2020 were $1,364,220 and $1,855,236 respectively. Decrease in coal sales and processing expenses were due to increase in mine development and expansion. Increase operating expenses were due to increased mining activities, increased development activity and increased asset purchases which led to increased depreciation.

 

For the three months ended September 30, 2021 and 2020, Other Income (Expense) amounted to $(58,340) and $160,635, respectively. For the nine months ended September 30, 2021 and 2020, Other Income (Expense) amounted to $(469,927) and $(153,544), respectively. The primary driver of reduced Other Income (Expense) is less settlement expenses for the current period.

 

 
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Liquidity and Capital Resources

 

As of September 30, 2021, our available cash was $19,121,714. From our inception to-date our activities have been primarily financed from the proceeds of our acquisitions, common stock equity investments and loans.

 

We expect to fund our liquidity requirements with cash on hand, future borrowings and issuance of common stock 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 or from other sources, such as asset sales.

 

For the nine months ending September 30, 2021 our net cash flow used in operating activities was $10,445,808 and for the nine months ending September 30, 2020 the net cash flow used in operating activities was $878,516.

 

For the nine months ending September 30, 2021 and 2020 net cash proceeds from and (used in) investing activities were $(2,926,601) and $417,857 respectively.

 

For the nine months ending September 30, 2021 and 2020 net cash proceeds from financing activities were $31,299,579 and $1,583,564 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 March 29, 2021 at which point operations commenced. Due to ongoing world-wide supply chain effects from the COVID-19 outbreak, labor, supplies and logistics continue to be restricted or inflated in costs.

 

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 Note 1 to the financial statements included in the December 31, 2020 10-K filed on March 11, 2021.

 

Recent Accounting Pronouncements

 

New Accounting Pronouncements: Management has determined that the impact of the following recent FASB pronouncements will not have a material impact on the financial statements.

 

ASU 2020-01, Equity Method Investments, effective for years beginning after December 15, 2020.

 

ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) effective for years beginning after December 31, 2020.

 

 
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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 September 30, 2021, 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 September 30, 2021, 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 September 30, 2021 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

 

On March 17, 2021, 425,000 of restricted common shares were sold. Gross proceeds to the Company amounted to $1,275,000 which were used for general business purposes.

 

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:

 

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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Table of Contents

  

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.

21.1

 

Subsidiaries of the Registrant

 

Filed Herewith

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

 

 
36

Table of Contents

  

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: November 15, 2021

By:

/s/ Mark C. Jensen

 

 

Name:

Mark C. Jensen

 

 

Title:

CEO, Chairman of the Board

(Principal Executive Officer)

 

 

 
37

 

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