arec_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: June 30, 2022

☐	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 August 15, 2022, the registrant had 66,519,279 shares of Class A common stock issued and outstanding.

AMERICAN RESOURCES CORPORATION

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		PAGE
PART I. FINANCIAL INFORMATION

Item 1.	Interim Consolidated Financial Statements	3

	Consolidated Condensed Balance Sheets as of June 30, 2022 and December 31, 2021 (Unaudited)	4

	Consolidated Condensed Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	5

	Consolidated Condensed Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Six Months ended June 30, 2022 and 2021 (unaudited)	6-7

	Consolidated Condensed Statements of Cash Flows for the Six Months ended June 30, 2022 and 2021 (Unaudited)	8

	Notes to Unaudited Consolidated Condensed Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30

Item 4.	Controls and Procedures	30

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	31

Item 3.	Defaults upon Senior Securities	31

Item 4.	Mine Safety Disclosures	31

Item 5.	Other Information	31

Item 6.	Exhibits	32

SIGNATURES		34

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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

AMERICAN RESOURCES CORPORATION

CONSOLIDATED

FINANCIAL STATEMENTS

(UNAUDITED)

For the three months and six months ended

June 30, 2022

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AMERICAN RESOURCES CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

UNAUDITED

	June 30, 2022			December 31, 2021
ASSETS

CURRENT ASSETS
Cash	$	3,807,783		$	11,492,702
Accounts Receivable		5,354,770			3,175,636
Prepaid fees		816,053			624,605
Total Current Assets		9,978,606			15,292,943

LONG-TERM ASSETS
Cash - restricted		1,086,971			1,095,411
Property and Equipment, Net		22,883,868			22,903,154
Right of use assets, net		1,799,769			726,194
Investment in LLC – Related Party		3,242,398			2,500,000
Note Receivable		685,000			350,000
Total Long-Term Assets		27,698,006			27,574,759

TOTAL ASSETS	$	37,676,612		$	42,872,702

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts payable	$	2,982,208		$	3,245,566
Non-Trade payables		1,984,399			1,950,567
Accounts payable – related party		3,940,317			3,932,716
Accrued interest		38,194			1,325,286
Due to affiliate		69,000			69,000
Current portion of debt		410,417			5,283,647
Current portion of convertible debt, (net of unamortized discount of $0 and $40,655)		-			571,618
Current portion of operating lease liabilities, net		85,218			151,806
Current portion of finance lease liabilities, net		341,771			-
Total Current Liabilities		9,851,524			16,530,206

LONG-TERM LIABILITIES
Notes payable		2,500,000			548,477
Convertible note payables		9,192,731			8,620,412
Reclamation liability		19,583,029			18,951,587
Operating lease liabilities, net		591,127			562,428
Finance lease liabilities, net		655,468			-
Total Long-Term Liabilities		32,522,355			28,682,904

Total Liabilities		42,373,879			45,213,110

STOCKHOLDERS’ EQUITY (DEFICIT)
AREC - Class A Common stock: $0.0001 par value; 230,000,000 shares authorized, 66,613,085 and 65,084,992 shares issued and outstanding		6,661			6,508
Additional paid-in capital		166,286,379			163,441,655
Accumulated deficit		(170,969,757	)		(165,793,571	)
Total American Resources Corporation Stockholders’ Equity (Deficit)		(4,676,717	)		(2,345,408	)
Non controlling interest		(20,550	)		-
Total stockholders’ deficit		(4,697,267	)		(2,345,408	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	37,676,612		$	42,872,702

The accompanying footnotes are integral to the unaudited consolidated financial statements

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AMERICAN RESOURCES CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

UNAUDITED

	For the three months ended June 30, 2022			For the three months ended June 30, 2021			For the six months ended June 30, 2022			For the six months ended June 30, 2021

Coal Sales	$	15,969,787		$	339,314		$	25,001,047		$	342,588
Metal Aggregating, Processing and Sales		3,292			27,875			40,519			27,875
Royalty Income		226,125			26,021			238,262			33,394

Total Revenue		16,199,204			393,210			25,279,828			403,857

Cost of Coal Sales and Processing		(5,569,133	)		(944,327	)		(8,459,992	)		(1,744,842	)
Accretion Expense		(363,820	)		(305,636	)		(631,442	)		(611,273	)
Depreciation		(630,341	)		(475,014	)		(1,256,383	)		(868,544	)
Amortization of Mining Rights		(311,685	)		(311,685	)		(615,079	)		(623,370	)
General and Administrative		(903,046	)		(593,621	)		(1,923,861	)		(1,675,068	)
Professional Fees		(235,487	)		(193,951	)		(586,425	)		(903,984	)
Production Taxes and Royalties		(786,008	)		(99,475	)		(1,605,485	)		(667,658	)
Development Costs		(11,532,406	)		(3,055,603	)		(18,316,594	)		(4,867,554	)

Total Operating Expenses		(20,331,926	)		(5,979,312	)		(33,395,261	)		(11,962,293	)

Net Loss from Operations		(4,132,722	)		(5,586,102	)		(8,115,433	)		(11,558,436	)

Other Income (loss)		76,000			(446,884	)		158,156			(411,588	)
Unrealized loss on trading securities		(7,602	)		-			(7,602	)		-
Gain on cancelation of debt		1,891,848			-			3,413,152			-
Amortization of debt discount and issuance costs		-			(2,579	)		-			(5,458	)
Interest Income		3,282			60,220			13,327			101,392
Interest expense		(274,640	)		(674,829	)		(658,336	)		(1,165,942	)
Total Other income (expense)		1,688,888			(1,064,072	)		2,918,697			(1,481,596	)

Net Income (Loss)	$	(2,443,834	)	$	(6,650,174	)	$	(5,196,736	)	$	(13,040,032	)

Less: Non-Controlling interest		12,666			-			20,550			-

Net loss attributable to American Resources Corporation shareholders		(2,431,168	)		-			(5,176,186	)		-

Net loss per common share - basic and diluted	$	(0.04	)	$	(0.13	)	$	(0.08	)	$	(0.26	)

Weighted average common shares outstanding		66,377,788			52,133,268			65,846,220			49,539,996

The accompanying footnotes are integral to the unaudited consolidated financial statements

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AMERICAN RESOURCES CORPORATION

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

FOR THE PERIOD FROM JANUARY 1, 2021 THROUGH JUNE 30, 2021 AND JANUARY 1, 2022 THROUGH JUNE 30, 2022

UNAUDITED

Statement of Stockholders’ Deficit

June 30, 2021

	American Resources
	Common Stock
	Par value		0.0001					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

The accompanying footnotes are integral to the unaudited consolidated financial statements

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	Par value		0.0001					Accumulated			Non-controlling
	Shares		Amount		APIC			Deficit			interest			Total

Balance December 31, 2021		65,084,992	$	6,508	$	163,441,655		$	(165,793,571	)	$	-		$	(2,345,408	)

Issuance of common shares for Warrant Conversion		488,594		50		665,341			-			-			665,391

Issuance of common shares for Conversion of debt and interest		582,885		58		622,152			-			-			622,210

Amortization of debt discount		-		-		(40,655	)		-			-			(40,655	)

Stock compensation - options		-		-		199,843			-			-			199,843

Net Loss		-		-					(2,745,018	)		(7,884	)		(2,752,902	)

Balance March 31, 2022		66,156,471		6,616		164,888,336			(168,538,589	)		(7,884	)		(3,651,521	)

Issuance of common shares for Conversion of debt and interest		451,250		45		1,199,955			-			-			1,200,000

Issuance of common shares for Warrant Conversion		5,364		-		8,064			-			-			8,064

Stock compensation - options		-		-		190,024			-			-			190,024

Net loss		-		-		-			(2,431,168	)		(12,666	)		(2,443,834	)

Balance June 30, 2022		66,613,085	$	6,661	$	166,286,379		$	(170,969,757	)		(20,550	)	$	(4,697,267	)

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AMERICAN RESOURCES CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

UNAUDITED

	For the six months ended			For the six months ended
	June 30, 2022			June 30, 2021
Cash Flows from Operating activities:
Net loss	$	(5,196,736	)	$	(13,040,032	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on debt forgiveness		(3,413,152	)		-
Depreciation expense		1,256,383			868,544
Amortization of mining rights		615,079			623,370
Accretion expense		631,442			611,273
Amortization expense of right to use assets		(15,021	)		-
Amortization of issuance costs and debt discount		-			3,560,019
Options expense		389,867			230,050
Warrant expense		673,455			-
Issuance of common shares for service		-			10,000

Change in current assets and liabilities:
Accounts receivable		(2,179,134	)		(103,673	)
Inventory		-			(488,376	)
Prepaid expenses and other assets		(191,448	)		(93,333	)
Accounts payable		(229,526	)		(2,246,713	)
Accrued interest		(299,700	)		(711,104	)
Accounts payable - related party		7,601			334,167
Net cash (used in)/generated from operations		(7,950,890	)		(10,445,808	)

Cash Flows from Investing activities:
Cash used in investments in LLCs		(742,398	)		(2,250,000	)
Cash invested in note receivable		(335,000	)		-
Cash received (paid) for PPE, net		147,824			(676,601	)
Net cash (used in)/generated from investing activities		(929,574	)		(2,926,601	)

Cash Flows from Financing activities:
Principal payments on finance lease		(99,204	)		-
Principal payments on debt		(1,276,691	)		(787,849	)
Proceeds from convertible note		-			600,000
Proceeds from the sale of common stock, net		-			29,218,000
Proceeds from debt		2,563,000			-
Proceeds from warrant conversions		-			2,269,428
Net cash (used in)/generated from financing activities		1,187,105			31,299,579

Increase(decrease) in cash and restricted cash		(7,693,359	)		17,927,170

Cash and restricted cash, beginning of period		12,588,113			11,201,203

Cash and restricted cash, end of period	$	4,894,754		$	29,128,373

Supplemental Information
Cash paid for interest	$	64,094		$	42,426
Conversion of debt and interest to common shares	$	1,822,210		$	10,757,260
Acquisition of right of use assets for lease obligations	$	1,117,219		$	-

The accompanying footnotes are integral to the unaudited consolidated financial statements

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AMERICAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

American Resources Corporation (ARC or the Company) operates through subsidiaries that were acquired in 2019, 2018, 2016 and 2015 for the purpose of acquiring, rehabilitating and operating various natural resource assets including coal, oil and natural gas.

Basis of Presentation and Consolidation:

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries American Carbon Corp (ACC), Deane Mining, LLC (Deane), 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.

The company is the owner of 92.5% and is the primary beneficiary of American Rare Earth, LLC, which qualifies as a variable interest entity. Accordingly, the assets, liabilities, revenue and expenses of American Rare Earth, LLC have been included in the accompanying consolidated financial statements with a non-controlling interest not owned by the company excluded from operating results.

The accompanying Consolidated Financial Statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

Interim Financial Information:

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been omitted. In the opinion of management, these interim unaudited Consolidated Financial Statements reflect all normal and recurring adjustments necessary for a fair presentation of the results for the periods presented. Results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or any other period. These financial statements should be read in conjunction with the Company’s 2021 audited financial statements and notes thereto which were filed on Form 10-K on March 30, 2022.

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.

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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 re-measurements reported as a component of other income/expense in the accompanying Consolidated Statements of Operations.

Cash:

We maintain cash balances 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 2022. The balance as of June 30, 2022 and December 31, 2021 was $0 and $47,987, respectively.

During 2019 the Company established a reclamation bonding collateral fund for ERC Mining Indiana. The balance of the restricted cash being held totaled 250,000 and $250,000 as of June 30, 2022 and December 31, 2021.

During 2020, the Company established an escrow account for certain assumed liabilities in the PCR acquisition. The balance as of June 30, 2022 and December 31, 2021 was $0 and $347,070, respectively. The funds were used to pay for remaining assumed liabilities.

During 2020, the Company established an environmental escrow account with the Commonwealth of Kentucky. The balance as of June 30, 2022 and December 31, 2021 was $500,000 and $500,000, respectively.

During 2020, the Company established a reclamation bonding collateral fund for McCoy. The balance of the restricted cash being held totaled $105,770 and $105,770 as of June 2022 and December 31, 2021, respectively.

During 2021, the Company established a reclamation bonding collateral fund for WCC. The balance of the restricted cash being held totaled $231,201 and $231,201 as of June 30, 2022 and December 31, 2021.

The following table sets forth a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheet that agrees to the total of those amounts as presented in the consolidated statement of cash flows for the six months ended June 30, 2022 and June 30, 2021.

	June 30, 2022		June 30, 2021
Cash	$	3,807,783	$	28,109,470
Restricted Cash		1,086,971		1,018,903
Total cash and restricted cash presented in the consolidated statement of cash flows	$	4,894,754	$	29,128,373

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Asset Retirement Obligations (ARO) – Reclamation:

At the time they are incurred, legal obligations associated with the retirement of long-lived assets are reflected at their estimated fair value, with a corresponding charge to mine development. Obligations are typically incurred when we commence development of underground and surface mines, and include reclamation of support facilities, refuse areas and slurry ponds or through acquisitions.

Obligations are reflected at the present value of their future cash flows. We reflect accretion of the obligations for the period from the date they incurred through the date they are extinguished. The asset retirement obligation assets are amortized using the units-of-production method over estimated recoverable (proved and probable) reserves. We are using a discount rate of 10%. Federal and State laws require that mines be reclaimed in accordance with specific standards and approved reclamation plans, as outlined in mining permits. Activities include reclamation of pit and support acreage at surface mines, sealing portals at underground mines, and reclamation of refuse areas and slurry ponds.

We assess our ARO at least annually and reflect revisions for permit changes, change in our estimated reclamation costs and changes in the estimated timing of such costs. During the periods ending June 30, 2022 and 2021, $- and $- were incurred for loss on settlement on ARO, respectively.

The table below reflects the changes to our ARO:

Balance at December 31, 2021	$	18,951,587
Accretion – six months June 30, 2022		631,442
Reclamation work – six months June 30, 2022		-
Reduction of ARO due to dispositions		-
Balance at June 30, 2022	$	19,583,029

Balance at December 31, 2020	$	17,855,304
Accretion – six months Jun 30, 2021		611,273
Reclamation work – six months June 30, 2021		-
Reduction of ARO due to dispositions		-
Balance at June 30, 2021	$	18,466,577

Allowance For Doubtful Accounts:

The Company recognizes an allowance for losses on trade and other accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging and expected future write-offs, as well as an assessment of specific identifiable amounts considered at risk or uncollectible.

Allowance for trade receivables as of June 30, 2022 and December 31, 2021 amounted to $0, for both periods. Allowance for other accounts receivables, including note receivables as of June 30, 2022 and December 31, 2021 amounted to $

SEC Form 10-Q filed by American Resources Corporation