10-Q 1 arec_10q.htm FORM 10-Q 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: September 30, 2024

 

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, Indiana 46038

 (Address and Zip Code of principal executive offices) 

 

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

 

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 ☒

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Class A Common

 

AREC

 

NASDAQ Capital Market

Warrant

 

ARECW

 

NASDAQ Capital Market

 

As of November 14, 2024, the registrant had 77,421,255 shares of Class A common stock issued and outstanding.

 

 

 

    

AMERICAN RESOURCES CORPORATION

 

TABLE OF CONTENTS

 

 

PAGE

 

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023

3

 

Condensed Consolidated Statements of Operation (Unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023

4

 

Condensed Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited) for the Three and Nine Months ended September 30, 2024 and 2023  

5

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months ended September 30, 2024 and 2023

7

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

 

Item 2.

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

23

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

34

 

Item 4.

Controls and Procedures

35

 

PART II. OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

36

 

Item 1A.

Risk Factors

36

 

Item 2.

Unregistered Sale of Equity Securities and Use of Proceeds

36

 

Item 3.

Defaults upon Senior Securities

36

 

Item 4.

Mine Safety Disclosures

36

 

Item 5.

Other Information

36

 

Item 6.

Exhibits

37

 

SIGNATURES

 

39

 

 
2

Table of Contents

   

PART I. FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

AMERICAN RESOURCES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

(Unaudited)

 

 

(As filed)

 

 

 

 

(Restated)

 

 

 

September 30,

 

 

December 31,

 

 

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

Adjustments

 

 

2023

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$840,330

 

 

$2,666,638

 

 

 

(1,066,385)

 

$1,600,253

 

Short-term investments held in trust account - restricted

 

 

-

 

 

 

30,297,204

 

 

 

(28,949,297)

 

 

1,347,907

 

Short-term investments

 

 

 151,326

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

Due from related party

 

 

 741,243

 

 

 

 -

 

 

 

 741,243

 

 

 

 741,243

 

Interest receivable

 

 

85,991

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

Inventories

 

 

2,029,812

 

 

 

54,000

 

 

 

-

 

 

 

54,000

 

Prepaid expenses and other current assets

 

 

1,866,001

 

 

 

1,867,651

 

 

 

-

 

 

 

1,867,651

 

Total current assets

 

 

5,714,703

 

 

 

34,885,493

 

 

 

(29,274,439)

 

 

5,611,054

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

160,811,402

 

 

 

6,798,029

 

 

 

22,476,356

 

 

 

29,274,385

 

Restricted investment

 

 

4,500,000

 

 

 

 -

 

 

 

4,500,000

 

 

 

4,500,000

 

Property and equipment, net

 

 

17,489,780

 

 

 

15,337,004

 

 

 

4,898,120

 

 

 

20,235,124

 

Operating - right-of-use assets, net

 

 

734,786

 

 

 

18,276,913

 

 

 

(17,479,711)

 

 

797,202

 

Operating - right-of-use assets, net - related party

 

 

1,817,073

 

 

 

-

 

 

 

-

 

 

 

89,419

 

Finance – right-of-use asset, net – related party

 

 

19,533,801

 

 

 

-

 

 

 

-

 

 

 

-

 

Investment in other entities - related parties

 

 

1,719,308

 

 

 

18,780,000

 

 

 

(15,302,700)

 

 

3,477,300

 

Notes receivable, net

 

 

280,000

 

 

 

99,022

 

 

 

280,000

 

 

 

379,022

 

Total assets

 

$211,600,853

 

 

$94,176,461

 

 

 

(29,812,955)

 

$64,363,506

 

Liabilities And Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade payables

 

$5,039,002

 

 

$6,709,224

 

 

 

(68,099)

 

$6,641,125

 

Non-trade payables

 

 

2,653,638

 

 

 

2,607,942

 

 

 

53,157

 

 

 

2,661,099

 

Accounts payable - related party

 

 

5,711,005

 

 

 

2,371,697

 

 

 

1,020,613

 

 

3,392,310

 

Accrued interest

 

 

514,844

 

 

 

512,558

 

 

 

(44,424)

 

 

468,134

 

Other current liabilities

 

 

147,055

 

 

 

200,000

 

 

 

(100,000)

 

 

100,000

 

Current portion of long-term debt

 

 

804,656

 

 

 

804,656

 

 

 

-

 

 

 

804,656

 

Operating lease liabilities, current

 

 

87,898

 

 

 

57,663

 

 

 

19,993

 

 

 

77,656

 

Operating lease liabilities, current - related party

 

 

590,047

 

 

 

-

 

 

 

-

 

 

 

11,138

 

Finance lease, current - related party

 

 

1,437,985

 

 

 

-

 

 

 

-

 

 

 

-

 

Other financing obligations, current

 

 

7,620,971

 

 

 

4,806,822

 

 

 

2,585,919

 

 

 

7,392,741

 

Total current liabilities

 

 

24,607,101

 

 

 

18,070,562

 

 

 

3,478,297

 

 

 

21,548,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remediation liability

 

 

22,033,677

 

 

 

21,288,799

 

 

 

-

 

 

 

21,288,799

 

Bond payable, net

 

 

193,337,587

 

 

 

44,152,500

 

 

 

(617,341)

 

 

43,535,159

 

Convertible promissory note - related party

 

 

894,172

 

 

 

-

 

 

 

-

 

 

 

-

 

Other financing obligations, net of current portion

 

 

4,405,239

 

 

 

7,514,848

 

 

 

2,584,947

 

 

 

10,099,795

 

Finance lease, non-current - related party

 

 

18,528,012

 

 

 

-

 

 

 

-

 

 

 

-

 

Operating lease liabilities, non-current

 

 

703,899

 

 

 

495,611

 

 

 

275,572

 

 

 

771,183

 

Operating lease liabilities, non-current - related party

 

 

1,476,182

 

 

 

-

 

 

 

-

 

 

 

78,280

 

Total liabilities

 

$265,985,869

 

 

$91,522,320

 

 

 

5,799,755

 

 

$97,322,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' deficit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock,  $0.0001 par value; 230,000,000 shares authorized, 77,400,289 and 76,247,370 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively

 

 

7,742

 

 

 

7,627

 

 

 

-

 

 

 

7,627

 

Additional paid-in capital

 

 

182,761,566

 

 

 

178,910,546

 

 

 

2,368,215

 

 

 

181,278,761

 

Accumulated deficit

 

 

(234,599,584)

 

 

(178,694,329)

 

 

(34,076,776)

 

 

(212,771,105)

Total stockholders' deficit

 

 

(51,830,276)

 

 

223,844

 

 

 

(31,708,561)

 

 

(31,484,717)

Non-controlling interest

 

 

(1,554,740)

 

 

-

 

 

 

(1,473,852)

 

 

(1,473,852)

Total equity

 

 

(53,385,016)

 

 

223,844

 

 

 

(33,182,413)

 

 

(32,958,569)

Total liabilities and stockholders' deficit

 

$212,600,853

 

 

 

91,746,164

 

 

 

(27,382,658)

 

$64,363,506

 

 

The accompanying footnotes are integral to the unaudited consolidated financial statements.

 

 
3

Table of Contents

 

AMERICAN RESOURCES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

 

 

(As filed)

 

 

 

 

(Restated)

 

 

 

 

(As filed)

 

 

 

 

 

 

 

2024

 

 

2023

 

 

Adjustments

 

 

2023

 

 

2024

 

 

2023

 

 

Adjustments

 

 

2023

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal sales

 

$-

 

 

$5,721,840

 

 

 

-

 

 

$5,721,840

 

 

$-

 

 

$16,120,841

 

 

 

-

 

 

$16,120,841

 

Metal recovery and sales

 

 

154,055

 

 

 

5,723

 

 

 

(1)

 

 

5,722

 

 

 

187,502

 

 

 

60,148

 

 

 

(1)

 

 

60,147

 

Royalty income

 

 

81,388

 

 

 

100,963

 

 

 

(20,000)

 

 

80,963

 

 

 

146,055

 

 

 

496,682

 

 

 

-

 

 

 

496,682

 

 Total revenue

 

 

235,443

 

 

 

5,828,526

 

 

 

(20,001)

 

 

5,808,525

 

 

 

333,557

 

 

 

16,677,671

 

 

 

(1)

 

 

16,677,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses (income)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coal production and holdings costs

 

 

1,784,863

 

 

 

286,330

 

 

 

1,797,730

 

 

 

2,084,060

 

 

 

2,982,638

 

 

 

6,562,425

 

 

 

2,079,214

 

 

 

8,641,639

 

Accretion

 

 

248,295

 

 

 

248,291

 

 

 

(2)

 

 

248,289

 

 

 

744,877

 

 

 

744,873

 

 

 

-

 

 

 

744,873

 

Depreciation

 

 

584,083

 

 

 

9,218

 

 

 

572,983

 

 

 

582,201

 

 

 

1,653,642

 

 

 

31,036

 

 

 

1,746,208

 

 

 

1,777,244

 

Amortization of mining rights

 

 

302,103

 

 

 

311,685

 

 

 

(0)

 

 

311,685

 

 

 

925,473

 

 

 

929,229

 

 

 

5,826

 

 

 

935,055

 

General and administrative

 

 

3,936,598

 

 

 

1,299,303

 

 

 

420,449

 

 

 

1,719,752

 

 

 

7,937,647

 

 

 

3,755,386

 

 

 

913,804

 

 

 

4,669,190

 

Professional fees

 

 

682,525

 

 

 

359,411

 

 

 

-

 

 

 

359,411

 

 

 

1,823,917

 

 

 

999,143

 

 

 

-

 

 

 

999,143

 

Production taxes and royalties

 

 

876,503

 

 

 

891,180

 

 

 

235,539

 

 

 

1,126,719

 

 

 

1,323,596

 

 

 

2,369,640

 

 

 

350,762

 

 

 

2,720,402

 

Development

 

 

78,809

 

 

 

1,331,118

 

 

 

470,494

 

 

 

1,801,612

 

 

 

2,996,853

 

 

 

9,859,609

 

 

 

722,541

 

 

 

10,582,150

 

Gain on sale of equipment

 

 

-

 

 

 

-

 

 

 

(575,000)

 

 

(575,000)

 

 

(400,000)

 

 

-

 

 

 

(1,625,000)

 

 

(1,625,000)

Total operating expenses

 

 

8,493,779

 

 

 

4,736,536

 

 

 

2,922,193

 

 

 

7,658,729

 

 

 

19,988,643

 

 

 

25,251,341

 

 

 

4,193,355

 

 

 

29,444,696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss from operations

 

 

(8,258,336)

 

 

1,091,990

 

 

 

(2,942,194)

 

 

(1,850,204)

 

 

(19,655,086)

 

 

(8,573,670)

 

 

(4,193,356)

 

 

(12,767,026)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings from equity method investees

 

 

(164,845)

 

 

-

 

 

 

(237,726)

 

 

(237,726)

 

 

(396,205)

 

 

-

 

 

 

39,640

 

 

 

39,640

 

Other income and (expense)

 

 

(32,101)

 

 

150,000

 

 

 

-

 

 

 

150,000

 

 

 

140,904

 

 

 

503,000

 

 

 

-

 

 

 

503,000

 

Gain on sales of assets

 

 

-

 

 

 

2,538,576

 

 

 

(2,538,576)

 

 

-

 

 

 

-

 

 

 

8,475,468

 

 

 

(8,475,468)

 

 

 

 

Interest income

 

 

7,527

 

 

 

2,831

 

 

 

-

 

 

 

2,831

 

 

 

110,916

 

 

 

21,595

 

 

 

-

 

 

 

21,595

 

Interest expense

 

 

(774,478)

 

 

(299,762)

 

 

(221,677)

 

 

(521,439)

 

 

(2,109,896)

 

 

(1,043,551)

 

 

(544,935)

 

 

(1,588,486)

Total other income (expenses)

 

 

(963,897)

 

 

2,391,645

 

 

 

(2,997,979)

 

 

(606,334)

 

 

(2,254,281)

 

 

7,956,512

 

 

 

(8,980,763)

 

 

(1,024,251)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(9,222,233)

 

 

3,483,635

 

 

 

(5,940,173)

 

 

(2,456,538)

 

 

(21,909,367)

 

 

(617,158)

 

 

(13,174,119)

 

 

(13,791,277)

Less: Non-controlling interest

 

 

15,465

 

 

 

-

 

 

 

95,710

 

 

 

95,710

 

 

 

80,888

 

 

 

-

 

 

 

(79,945)

 

 

(79,945)

Net loss attributable to AREC shareholders

 

$(9,206,768)

 

$3,483,635

 

 

 

(5,844,463)

 

$(2,360,828)

 

$(21,828,479)

 

$(617,158)

 

 

(13,254,064)

 

$(13,871,222)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$(0.12)

 

$0.05

 

 

$(0.09)

 

$(0.03)

 

$(0.28)

 

$(0.01)

 

$(0.18)

 

$(0.18)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

 

77,400,289

 

 

 

76,245,984

 

 

 

-

 

 

 

76,245,984

 

 

 

77,222,990

 

 

 

75,144,374

 

 

 

-

 

 

 

75,144,374

 

 

The accompanying footnotes are integral to the unaudited consolidated financial statements.

 

 
4

Table of Contents

  

AMERICAN RESOURCES CORPORATION 

CONDENSED CONSOLIDATED STATEMENTS of SHAREHOLDERS' DEFICIT 

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023 

(UNAUDITED) 

 

 

 

 

 

 

 

 

 

(As filed)

 

 

 

 

 

(Restated)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

Additional

 

 

(As filed)

 

 

 

 

 

(Restated)

 

 

 

 

 Non-

 

 

 

 

 

Par Value Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Adjustments

 

 

Paid-in Capital

 

 

Accumulated

Deficit

 

 

Adjustments

 

 

Accumulated

Deficit

 

 

Total

Deficit

 

 

controlling

interest

 

 

Total

Deficit

 

Balance as of December 31, 2022

 

 

66,777,620

 

 

$6,680

 

 

$167,517,259

 

 

 

582,378

 

 

$168,099,637

 

 

$(167,239,243)

 

 

(19,524,441)

 

$(186,763,684)

 

$(18,657,367)

 

 

(1,276,297)

 

 

(19,933,664)

Issuance of common shares for convertible debt conversion

 

 

9,420,730

 

 

 

942

 

 

 

9,786,481

 

 

 

-

 

 

 

9,786,481

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,787,423

 

 

 

-

 

 

 

9,787,423

 

Stock compensation – options

 

 

-

 

 

 

-

 

 

 

376,573

 

 

 

253,304

 

 

 

629,877

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

629,877

 

 

 

-

 

 

 

629,877

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,100,869)

 

 

(129,530)

 

 

(3,230,399)

 

 

(3,230,399)

 

 

367,575

 

 

 

(2,862,824)

Balance as of March 31, 2023

 

 

76,198,350

 

 

$7,622

 

 

$177,680,313

 

 

 

835,682

 

 

$178,515,995

 

 

$(170,340,112)

 

 

(19,653,971)

 

$(189,994,083)

 

$(11,470,466)

 

 

(908,722)

 

 

(12,379,188)

Stock compensation - options

 

 

-

 

 

 

-

 

 

 

376,573

 

 

 

364,238

 

 

 

740,811

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

740,811

 

 

 

-

 

 

 

740,811

 

Recapture expenses for bond issuance

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,011,025

 

 

 

(4,011,025)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(999,925)

 

 

(7,280,070)

 

 

(8,279,995)

 

 

(8,279,995)

 

 

(191,920)

 

 

(8,471,915)

Balance as of June 30, 2023

 

 

76,198,350

 

 

$7,622

 

 

$178,056,886

 

 

 

1,199,920

 

 

$179,256,806

 

 

$(167,329,012)

 

 

(30,945,066)

 

$(198,274,078)

 

$(19,009,650)

 

$(1,100,642)

 

$(20,110,292)

Stock compensation - options

 

 

-

 

 

 

-

 

 

 

376,573

 

 

 

469,506

 

 

 

846,079

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

846,079

 

 

 

-

 

 

 

846,079

 

Issuance of common shares for consulting services

 

 

49,020

 

 

 

5

 

 

 

99,995

 

 

 

-

 

 

 

99,995

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

100,000

 

 

 

-

 

 

 

100,000

 

Issuance of common shares for warrant conversion

 

 

-

 

 

 

-

 

 

 

519

 

 

 

(519)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,483,635

 

 

 

(5,844,463)

 

 

(2,360,828)

 

 

(2,360,828)

 

 

(95,710)

 

 

(2,456,538)

Balance as of September 30, 2023

 

 

76,247,370

 

 

$7,627

 

 

 

178,533,973

 

 

 

1,668,907

 

 

$180,202,880

 

 

$(163,845,377)

 

 

(36,789,529)

 

$(200,634,906)

 

$(20,424,399)

 

$(1,196,352)

 

$(21,620,751)

 

 
5

Table of Contents

   

 

 

 

 

 

 

(As filed)

 

 

 

 

(Restated)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

Additional

 

 

(As filed)

 

 

 

 

(Restated)

 

 

 

 

Non-

 

 

 

 

 

Par Value 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Adjustments

 

 

Paid-in Capital

 

 

Accumulated

Deficit

 

 

Adjustments

 

 

Accumulated

Deficit

 

 

Total

Deficit

 

 

controlling

interest

 

 

Total

Deficit

 

Balance as of December 31, 2023

 

 

76,247,370

 

 

$7,627

 

 

$178,910,546

 

 

 

2,368,215

 

 

$181,278,761

 

 

$(212,517,637)

 

 

(253,468

 

)

 

$(212,771,105)

 

$(31,484,717)

 

 

(1,473,852)

 

 

(32,958,569)

Exercise of cashless warrants

 

 

871,620

 

 

 

87

 

 

 

(87)

 

 

-

 

 

 

(87)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercise of stock options

 

 

148,000

 

 

 

15

 

 

 

156,885

 

 

 

-

 

 

 

156,885

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

156,900

 

 

 

-

 

 

 

156,900

 

Issuance of common shares for consulting services

 

 

30,000

 

 

 

3

 

 

 

43,797

 

 

 

-

 

 

 

43,797

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

43,800

 

 

 

-

 

 

 

43,800

 

Stock compensation - options

 

 

-

 

 

 

-

 

 

 

560,933

 

 

 

328,240

 

 

 

889,173

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

889,173

 

 

 

-

 

 

 

889,173

 

Dividend-in-kind of Novustera, Inc. common stock to shareholders

 

 

-

 

 

 

-

 

 

 

(14,560,000)

 

 

13,198,212

 

 

 

(1,361,788)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,361,788)

 

 

-

 

 

 

(1,361,788)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,225,932)

 

 

615,811

 

 

 

(5,610,121)

 

 

(5,610,121)

 

 

(79,760)

 

 

(5,689,881)

Balance as of March 31, 2024

 

 

77,296,990

 

 

$7,732

 

 

$165,112,074

 

 

 

15,894,667

 

 

$181,006,741

 

 

$(218,743,569)

 

 

362,343

 

 

$(218,381,226)

 

$(37,366,753)

 

$(1,553,612)

 

$(38,920,365)

Exercise of warrants

 

 

30,799

 

 

 

3

 

 

 

32,336

 

 

 

-

 

 

 

32,336

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32,339

 

 

 

-

 

 

 

32,339

 

Issuance of common shares for consulting services

 

 

72,500

 

 

 

7

 

 

 

99,768

 

 

 

-

 

 

 

99,768

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

99,775

 

 

 

-

 

 

 

99,775

 

Stock compensation – options

 

 

-

 

 

 

-

 

 

 

874,080

 

 

 

-

 

 

 

874,080

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

874,080

 

 

 

-

 

 

 

874,080

 

 Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,615,089)

 

 

(396,501)

 

 

(7,011,590)

 

 

(7,011,590)

 

 

14,337

 

 

 

(6,997,253)

Balance as of June 30, 2024

 

 

77,400,289

 

 

$7,742

 

 

$166,118,258

 

 

 

15,894,667

 

 

$182,012,925

 

 

$(225,358,658)

 

 

(34,158

 

) 

 

$(225,392,816)

 

$(43,372,149)

 

$(1,539,275)

 

$(44,911,424)

Stock compensation - options

 

 

-

 

 

 

-

 

 

 

748,641

 

 

 

-

 

 

 

748,641

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

748,641

 

 

 

 

 

 

 

748,641

 

Net loss

 

 

-

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

(9,206,768)

 

 

-

 

 

 

(9,206,768)

 

 

(9,206,768)

 

 

(15,465)

 

 

(9,222,233)

Balance as of September 30, 2024

 

 

77,400,289

 

 

$7,742

 

 

 

166,866,899

 

 

 

15,894,667

 

 

$182,761,566

 

 

$(234,565,426)

 

 

(34,158

 

)

 

$(234,559,584)

 

$(51,830,276)

 

$(1,554,740)

 

$(53,385,016)

  

 
6

Table of Contents

  

AMERICAN RESOURCES CORPORATION 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(UNAUDITED) 

                        

 

 

For the Nine Months Ended September 30,

 

 

 

 

 

 

(As filed)

 

 

 

 

 

(Restated)

 

 

 

2024

 

 

2023

 

 

Adjustments

 

 

2023

 

Cash Flows from Operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$(21,909,367)

 

$142,842

 

 

 

(13,934,119)

 

$(13,791,277)

Adjustments to reconcile net (loss) income to net cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

 

1,653,642

 

 

 

31,036

 

 

 

1,746,208

 

 

 

1,777,244

 

Amortization of mining rights

 

 

925,473

 

 

 

929,229

 

 

 

5,826

 

 

 

935,055

 

Accretion expense

 

 

744,877

 

 

 

744,873

 

 

 

-

 

 

744,873

 

Amortization of right-to-use asset - related party

 

 

252,592

 

 

 

-

 

 

 

-

 

 

 

-

 

Amortization of issuance costs and debt discount

 

 

83,225

 

 

 

-

 

 

 

33,870

 

 

 

33,870

 

Investment in other entities - related parties, net

 

 

396,204

 

 

 

-

 

 

 

(39,640)

 

 

(39,640)

Gain on sale of equipment

 

 

(400,000)

 

 

-

 

 

 

(1,625,000)

 

 

(1,625,000)

Warrant expense

 

 

-

 

 

 

519

 

 

 

(519)

 

 

-

 

Non-cash stock-based compensation expense

 

 

2,511,894

 

 

 

1,129,719

 

 

 

1,087,048

 

 

 

2,216,767

 

Issuance of common shares for services

 

 

143,575

 

 

 

99,995

 

 

 

5

 

 

 

100,000

 

Write-off of note receivables

 

 

99,022

 

 

 

-

 

 

 

-

 

 

 

-

 

Unrealized gain on short-term investments

 

 

4,973

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivables

 

 

-

 

 

 

(4,490,073)

 

 

760,003

 

 

 

(3,730,070)

Interest receivable

 

 

(85,991)

 

 

-

 

 

 

-

 

 

 

-

 

Inventories

 

 

(1,975,812)

 

 

1,719,836

 

 

 

(3,439,672)

 

 

(1,719,836)

Prepaid expenses and other current assets

 

 

1,650

 

 

 

(1,131,066)

 

 

1

 

 

 

(1,131,065)

Accounts payable

 

 

(1,609,584)

 

 

(332,837)

 

 

2,182,369

 

 

 

1,849,532

 

Accrued interest

 

 

46,710

 

 

 

(35,996)

 

 

55,926

 

 

 

19,930

 

Accounts payable - related party

 

 

2,318,696

 

 

 

(1,750,436)

 

 

647,614

 

 

 

(1,102,822)

Due from related party

 

 

 -

 

 

 

 -

 

 

 

 (647,614

) 

 

 

 (647,614

) 

Operating leases assets and liabilities, net

 

 

5,375

 

 

-

 

 

 

1,880

 

 

1,880

Operating leases assets and liabilities, net- related party

 

 

428,761

 

 

 

-

 

 

 

-

 

 

 

-

Other liabilities

 

 

47,055

 

 

 

-

 

 

 

200,000

 

 

 

200,000

 

Cash used in operating activities

 

 

(16,317,031)

 

 

(5,860,724)

 

 

(10,047,449)

 

 

(15,908,173)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property and equipment, net of capitalized interest income and (expense)

 

 

166,229

 

 

 

(3,534,698)

 

 

3,250,908

 

 

 

(283,790)

Proceeds from sale of equipment

 

 

400,000

 

 

 

-

 

 

 

1,625,000

 

 

 

1,625,000

 

Proceeds from short-term investments, net

 

 

1,191,608

 

 

 

-

 

 

 

(703,593)

 

 

(703,593)

Purchase of investments, net

 

 

-

 

 

 

-

 

 

 

(4,500,000

) 

 

 

(4,500,000

)

Cash used in investments

 

 

-

 

 

 

1,301,273

 

 

 

(1,301,273

) 

 

 

-

 

Cash provided by (used in) investing activities

 

 

1,757,837

 

 

 

(2,233,425)

 

 

(1,628,958

) 

 

 

(3,862,383

) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash received from warrant conversions

 

 

32,339

 

 

 

-

 

 

 

-

 

 

 

-

 

Proceeds from convertible promissory note – related party

 

 

894,172

 

 

 

-

 

 

 

-

 

 

 

-

 

Repayment on long term debt

 

 

-

 

 

 

(1,112,852)

 

 

2

 

 

 

(1,112,850)

Proceeds from the exercise of stock option

 

 

156,900

 

 

 

-

 

 

 

-

 

 

 

-

 

Proceeds from tax exempt bonds, net

 

 

149,719,203

 

 

 

43,202,858

 

 

 

273,029

 

 

 

43,475,887

 

Proceeds received from other financing obligation

 

 

95,592

 

 

 

4,011,025

 

 

 

3,626,614

 

 

 

7,637,639

 

Repayments of other financing obligation

 

 

(5,561,918)

 

 

(1,116,969)

 

 

(3,212,217)

 

 

(4,329,186)

Cash provided by financing activities

 

 

145,336,288

 

 

 

44,984,062

 

 

 

687,428

 

 

 

45,671,490

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase in cash

 

 

130,777,094

 

 

 

36,889,913

 

 

 

(10,988,979)

 

 

25,900,934

 

Cash and cash equivalents, including restricted cash, beginning of period

 

 

30,874,638

 

 

 

10,990,829

 

 

 

2,004,866

 

 

 

12,995,695

 

Cash and cash equivalents, including restricted cash, end of period

 

$161,651,732

 

 

$47,880,742

 

 

 

(8,984,113)

 

$38,896,629

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of assets through operating leases – related party

 

$1,897,736

 

 

$-

 

 

 

-

 

 

$-

 

Acquisition of assets through finance lease – related party

 

$19,786,394

 

 

$

 -

 

 

 

 -

 

 

$

 -

 

Dividend-in-kind of Novustera, Inc. common stock to shareholders

 

$1,361,788

 

 

$-

 

 

 

-

 

 

$-

 

 

The accompanying footnotes are integral to the unaudited consolidated financial statements

 

 
7

Table of Contents

    

AMERICAN RESOURCES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

American Resources Corporation (ARC or the Company) operates through subsidiaries that were formed or acquired in 2020, 2019, 2018, 2016 and 2015 for the purpose of acquiring, rehabilitating and operating various natural resource assets including coal used in the steel making and industrial markets, critical and rare earth elements used in the electrification economy and aggregated metal and steel products used in the recycling industries.

 

Basis of Presentation and Consolidation:

 

The consolidated financial statements include the accounts of the Company and its majority 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), reElement Technologies LLC (RLMT), ReElement Marion LLC (RLM), Kentucky Lithium LLC (KYL), American Metals LLC (AM) , American Opportunity Venture II, LLC (AOV II), Advanced Carbon Materials LLC (ACM), and T.R. Mining & Equipment Ltd. (TR Mining). All significant intercompany accounts and transactions have been eliminated.

 

Entities for which ownership is less than 100% require that a determination is made as to 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 be primary.

 

Effective February 5, 2024, the Company acquired a 51% interest in TR Properties & Equipment Ltd. (TR) for consideration consisting of a 6% interest in the Company’s subsidiary, American Carbon Corporation (ACC).  The Company’s investment in TR substantially consists of a single asset, mining rights.  Accordingly, the transaction does not meet the definition of a business under ASC Topic 805, Business Combinations, and therefore the Company will account for the transaction as an asset acquisition. In an asset acquisition, goodwill or a bargain purchase gain are not recognized, but rather, any difference between the consideration transferred and the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable assets acquired.  As of September 30, 2024, a preliminary allocation for this transaction has not been recorded as valuation procedures are pending with respect to the fair value of the assets acquired and consideration exchanged.

 

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”).

 

The accompanying unaudited consolidated balance sheet as of September 30, 2024, unaudited consolidated statements of operations, changes in stockholders’ deficit and cash flows for the quarters ended September 30, 2024 and 2023 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information with the instructions to Form 10-Q. The accompanying balance sheet as of December 31, 2023, has been derived from the audited balance sheet as of December 31, 2023, included in the Company’s Form 10-K referenced below. However, the amounts presented herein reflect adjustments identified during the preparation of these unaudited financial statements for the period ending September 30, 2024, which resulted in the restatement of the December 31, 2023, financial statements.

 

These restatements correct previously reported amounts and incorporates all normal and recurring adjustments considered necessary for a fair presentation of the Company’s financial position and operating results. The accompanying balance sheet does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the financial statements include all normal and recurring adjustments considered necessary for a fair presentation of the Company’s financial position and operating results. Operating results for the three months and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or any other period. These financial statements and notes should be read in conjunction with the financial statements for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, or the SEC, on April 15, 2024.

 

 
8

Table of Contents

  

Business Combination Agreement

 

On June 28, 2024, American Metals LLC, an Indiana limited liability company (the “Metals LLC”) and a wholly owned subsidiary of American Resources Corporation, and Electrified Materials Corporation, a Delaware corporation (“Pubco”), entered into a Business Combination Agreement (the “Business Combination Agreement”) with  AI Transportation Acquisition Corp., a Cayman Islands exempted company (together with its successors, “AITR”),  (iii) AITR Merger Sub 1 Corp, a Delaware corporation and a wholly-owned subsidiary of Pubco (“Merger Sub 1”), (iv) AITR Merger Sub 2 Corp, a Delaware corporation and a wholly-owned subsidiary of Pubco (“Merger Sub 2”), and (v) AITR, Pubco, Merger Sub 1, Merger Sub 2 and the Metals LLC are sometimes referred to herein individually as a “Party” and, collectively, as the “Parties.”

 

Pursuant to the Business Combination Agreement, subject to the terms and conditions set forth therein, at the closing of the transactions contemplated by the Business Combination Agreement (the “Closing Date”), on the Closing Date, prior to the time at which the First Effective Time occurs, AITR shall transfer by way of continuation from the Cayman Islands to Delaware and domesticate as a Delaware corporation (the “Domestication”) in accordance with Section 388 of the General Corporation Law of the State of Delaware (the “DGCL”) and Part XII of the Cayman Islands Companies Act (2020 Revision) (the “Cayman Islands Act”), on the terms and subject to the conditions set forth in the Business Combination Agreement.

 

Following the Domestication, the Parties will effect a business combination transaction whereby (a) AITR will merge with and into Merger Sub 1, with AITR continuing as the surviving entity (“Merger 1”), as a result of which, (i) AITR shall become a wholly-owned subsidiary of Pubco, and (ii) each issued and outstanding security of AITR immediately prior to the Closing Date shall no longer be outstanding and shall automatically be cancelled, in exchange for the right of the holder thereof to receive a substantially equivalent security of Pubco; (b) the Metals LLC will merge with and into Merger Sub 2, with the Metals LLC continuing as the surviving entity (“Merger 2”) as a result of which, (i) the Metals LLC shall become a wholly-owned subsidiary of Pubco; and (c) Pubco shall (i) acquire all of the issued and outstanding shares of common stock of the Metals LLC from its shareholders in exchange for shares of common stock of Pubco (the “Share Exchange”); and (d) Pubco will contribute its membership interest in the Metals LLC to AITR in exchange for shares of Pubco (the “Metals LLC Units Contribution” and, together with the Share Exchange, Merger 1, Merger 2, and the other transactions contemplated by the Business Combination Agreement, the “Transactions”), all upon the terms and subject to the conditions set forth in the Business Combination Agreement and in accordance with the applicable provisions of Delaware and Indiana law.

 

At the Closing Date, Pubco will issue and deliver to the shareholders of the Metals LLC an aggregate number of shares of common stock of Pubco (the “Pubco Common Stock”) with an aggregate value equal to One Hundred Million U.S. Dollars ($100,000,000) (the “Share Consideration”) plus the Closing Cash (defined as cash on the Metals LLC’s balance sheet as of immediately prior to Closing Date) minus Net Working Capital (as such term is defined in the  Business Combination Agreement) less the Closing Debt (defined as the indebtedness of the Metals LLC on the Closing Date, less: (i) indebtedness that, by its terms, converts automatically into equity and (ii) any Transaction expenses), with each share of Pubco Common Stock valued at $10.00. In addition to the Share Consideration, the Business Combination Agreement provides for the potential payment of up to $70,000,000 in earnout consideration (the “Earnout Consideration”) to be issued and delivered to the shareholders of the Metals LLC at the Closing Date as provided in the Business Combination Agreement provided certain revenue targets are satisfied. Each Metals LLC shareholder shall receive its pro rata share of the Share Consideration based on the number of equity units (the “Metals LLC Units”) of Metals LLC owned by it, divided by the total number of Metals LLC Units outstanding (such percentage being each such holder’s “Pro Rata Share”). Each holder of Metals LLC Units shall also be entitled to receive its Pro Rata Share of the Earnout Consideration.

 

As of the date of this filing, the business combination agreement has not effectively close and Metals LLC is included in the accompanying consolidated financial statement included herein for all periods disclosed.  

 

Going Concern

 

The Company has evaluated whether there are any conditions and events considered in the aggregate, which raise substantial doubt about its ability to continue as a going concern within one year beyond the issuance date of these financial statements. Based on such evaluation and the Company’s current plans, which are subject to change, and the Company’s existing liquidity, there is substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the date these financial statements were issued.

 

The accompanying financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.

 

The Company’s continuation as a going concern is contingent upon its ability to obtain additional financing and to generate revenue and cash flow to meet its obligations on a timely basis. The Company will continue to seek to raise additional funding through debt or equity financing during the next twelve months from the date of issuance of these financial statements. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern. There is no guarantee the Company will be successful in achieving these objectives.

 

 
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Restatement of December 31, 2023 and 2022 Financial Statements

 

As previously disclosed in the American Resources Corporation (the “Company”) Form 8-K filed with the Securities and Exchange Commission (“SEC”) on May 3, 2024, following the entry of a cease-and-desist order by the SEC against the Company’s former auditor, BF Borgers CPA PC (“BF Borgers”), the Company engaged a new independent registered public accounting firm, GBQ Partners LLC (“GBQ”), and commenced the re-audit of our consolidated financial statements for the years ended December 31, 2023 and 2022, which had previously been audited by BF Borgers. As a result of the re-audit and based on discussion between the audit committee of the board of directors of the Company, management and GBQ, the Company concluded that the Company’s previously issued financial statements and interim periods as of and within the years ended December 31, 2024, 2023 and 2022 (collectively the “Previously Issued Financial Statements”) require restatement and can no longer be relied upon. It is expected that the restatement of the consolidated financial statements for the annual period referred to above will result in a material increase in net loss, material decrease in total assets, material increase in total liabilities and material decrease in stockholders’ equity in 2022 and 2023.

 

The accounting errors impacting our Previously Issued Financial Statements currently include (i) the lease transactions whereby the Company sold heavy machinery and equipment to a third-party lessor and leased back the heavy machinery and equipment as finance leases. The company has determined these lease transactions would be classified as a failed sale-leaseback transaction and accounted for as financing obligations as the Company has the option to repurchase the assets at a fixed price at the end of the term; (ii) the Company added back the fixed assets associated with the lease transaction and continue to depreciate them over their useful lives; (iii) the investments in other companies were incorrectly held at cost and didn’t account for the subsequent earnings or losses in accordance with the equity method; (iv) correct the historical and subsequent accounting for debt obligations; (v) correcting historical fiscal 2023 stock compensation transactions; (vi) missing related party operating and finance leases for the interim periods ending March 31, 2024 and June 30, 2024; (vii) missing interest income related to notes receivable – related party; and (viii) missing capitalized assets previously expensed as incurred.

 

The Company anticipates filing the restatements of the Previously Issued Financial Statements as soon as reasonably practical in an amended annual report on Form 10-K/A for the period ended December 31, 2023.

 

Refer to the financial statements included herein which present the impact of the restatement of the Company’s previously reported consolidated balance sheet and consolidated stockholders’ deficit for the year ended December 31, 2023 and the statement of operations and statement of cashflow for the three and nine months ended June 30, 2023.

 

Cash, Cash Equivalents and Restricted cash: Cash and cash equivalents include bank demand deposits and money market funds that invest primarily in U.S. government securities.

 

Restricted cash and cash equivalents are held in trusts related to the Tax-Exempt Bonds and are restricted as to withdrawal as required by the agreement entered into by the Company. All investments are classified as trading securities as of September 30, 2024 and December 31, 2023. Trading securities are recorded initially at cost and are adjusted to fair value at each reporting period with unrealized gains and losses recorded in the current period earnings or loss.

 

The following table sets forth the total of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets.

 

 

 

September 30,

2024

 

 

December 31,

2023

 

Cash and cash equivalents

 

$840,330

 

 

$1,600,253

 

Restricted Cash

 

 

160,811,402

 

 

 

29,274,385

 

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

 

$161,651,732

 

 

$30,874,638

 

 

Restricted Investments: Consist of U.S. government securities, corporate fixed income, and U.S. government securities that are held in trusts related to the Tax-Exempt Bonds and are restricted as to withdrawal as required by the agreement entered into by the Company. All investments are classified as trading securities as of September 30, 2024 and December 31, 2023. Trading securities are recorded initially at cost and are adjusted to fair value at each reporting period with unrealized gains and losses recorded in the current period earnings or loss.

 

Related Party Policies: In accordance with FASB ASC 850 related parties are defined as either an executive, director or nominee, greater than 10% beneficial owner, and or immediate family member and affiliated businesses of any of the proceedings.

 

Property and Equipment: Property and Equipment are recorded at cost. For equipment, depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally ranging from five to twenty years.

 

Property and equipment and amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future net undiscounted cash flows expected to be generated by the related assets. If these assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the assets.

 

 
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There was no impairment loss recognized during the period ending September 30, 2024, and the twelve months ended December 31, 2023. Costs related to maintenance and repairs which do not prolong the asset’s useful life are expensed as incurred.

 

Mine Development: Costs of developing new coal mines, including asset retirement obligation assets, are capitalized and amortized using the units-of-production method over estimated coal deposits or proven reserves. Costs incurred for the development and expansion of existing reserves are expensed as incurred.

 

Coal Production and Holdings Costs: Coal production and holdings costs for coal mined and processed include direct labor, materials and utilities. Activities related to metal recovery are inherent in both direct coal labor and overhead labor and do not require additional variable costs.

 

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 based on expected reclamation outflows over estimated recoverable coal deposit lives. We are using discount rates ranging from 6.16% to 7.22%, risk free rates ranging from 1.76% to 2.92% and inflation rate of 2%. Revisions to estimates are a result of changes in the expected spending estimate or the timing of the spending estimate associated with planned reclamation. 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, changes in our estimated reclamation costs and changes in the estimated timing of such costs. Management is currently in the process of assessing the ARO for the fiscal year and will include revisions if any during the fourth quarter of 2024.

 

The table below reflects the changes to our ARO for the nine months ended September 30, 2024 and the twelve months ended December 31, 2023:

 

 

 

September 30,

2024

 

 

December 31,

2023

 

Beginning Balance

 

$21,288,799

 

 

$20,295,634

 

Accretion

 

 

744,877

 

 

 

993,165

 

Ending Balance

 

$22,033,677

 

 

$21,288,799

 

 

Accretion expense amounted to $248,295 and $248,289 for the three months ending September 30, 2024 and 2023.

 

Accretion expense amounted to $744,877 and $744,873 for the nine months ending September 30, 2024 and 2023, respectively.

 

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 the activity is undertaken in eastern Kentucky, Western West Virginia, 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 30-day payment terms following the transfer of control of the goods to the customer. We typically do not include extended payment terms in our contracts with customers. Our contracts with customers typically provide for minimum specifications or qualities of the coal we deliver. Variances from these specifications or quantities are settled by means of price adjustments. Generally, these price adjustments are settled within 30 days of delivery and are insignificant.

 

 
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Income Taxes: We file a consolidated federal income tax return with our subsidiaries. The provision for income taxes is computed by applying statutory rates to income before taxes.

 

Deferred income taxes are recognized for the tax consequences in future years of temporary differences between the financial reporting and tax bases of assets and liabilities as of each period-end based on enacted tax laws and statutory rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. A 100% valuation allowance has been established on deferred tax assets at September 30, 2024 and December 31, 2023, due to the uncertainty of our ability to realize future taxable income.

 

We account for uncertainty in income taxes in our financial statements as required under ASC 740, “Income Taxes.” The standard prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition accounting. Management determined there were no material uncertain positions taken by us in our tax returns.

 

Fair Value: The Company follows the provisions of Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), which defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

 

Note 4 presents the Company’s financial assets or liabilities measured at fair value as of September 30, 2024 and December 31, 2023. The carrying amounts of the Company’s cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their fair value at September 30, 2024 and December 31, 2023 due to their short-term nature.

 

Leases: The Company reviews all arrangements for potential leases, and at inception, determines whether a lease is an operating or finance lease. Lease assets and liabilities, which generally represent the present value of future minimum lease payments over the term of the lease, are recognized as of the commencement date. Leases with an initial lease term of twelve months or less are classified as short-term leases and are not recognized in the balance sheets unless the lease contains a purchase option that is reasonably certain to be exercised.

 

Lease terms, discount rate, variable lease costs and future minimum lease payment determinations require the use of judgment and are based on the facts and circumstances related to the specific lease. Lease terms are generally based on their initial non-cancelable terms, unless there is a renewal option that is reasonably certain to be exercised. Various factors, including economic incentives, intent, past history and business needs are considered to determine if a renewal option is reasonably certain to be exercised. The implicit rate in a lease agreement is used when it can be determined to value the lease obligation. Otherwise, the Company’s incremental borrowing rate, which is based on information available as of the lease commencement date, including applicable lease terms and the current economic environment, is used to determine the value of the lease obligation.

 

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 current expected credit loss model requires the recognition of lifetime expected credit losses at each reporting date, considering past events, current conditions, and reasonable forecasts. In assessing the credit quality of our portfolio, management utilizes a provision matrix that classifies trade receivables by customer type and age of receivable. Government and education sector receivables carry a low risk, while a higher risk is attributed to the remaining receivables as their aging progresses. For receivables with questionable collectability, a specific reserve is assigned. The estimated credit losses are a reflection of these factors, with the matrix applying percentages to the receivables based on their risk profile, adjusted for current and expected future conditions.

 

Allowance for trade receivables as of September 30, 2024 and December 31, 2023 was $0 and $253,764, respectively. The allowance for note receivables was $99,022 and $368,500 as of September 30, 2024 and December 31, 2023. The note receivables has collateral in certain mining permits which are strategic to our subsidiary, Knott County Coal (KCC). The timing of payment on the note is uncertain resulting in a full allowance for the note.

 

 
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Inventory: Inventory consists of mined coal is stated at the lower of cost (first in, first out method) or net realizable value.

 

Stock-based Compensation: Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense over the applicable vesting period of the stock award (generally 0 to 5 years) using the straight-line method.

 

Stock-based compensation to employees is accounted for under ASC 718, Compensation-Stock Compensation. Stock-based compensation expense related to stock awards granted to an employee is recognized based on the grant-date estimated fair values of the awards using the Black Scholes option pricing model (“Black Scholes”). The value is recognized as expense ratably over the requisite service period, which is generally the vesting term of the award. We adjust the expense for actual forfeitures as they occur. Stock-based compensation expense is classified in the accompanying consolidated statements of operations based on the function to which the related services are provided.

 

Black-Scholes requires a number of assumptions, of which the most significant are expected volatility, expected option term (the time from the grant date until the options are exercised or expire) and risk-free rate. Expected volatility is determined using the historical volatility for the Company. The risk-free interest rate is based on the yield of US treasury government bonds with a remaining term equal to the expected life of the option. Expected dividend yield is zero because we have never paid cash dividends on common shares, and we do not expect to pay any cash dividends in the foreseeable future.

 

Earnings Per Share: The Company’s basic earnings per share (EPS) amounts have been computed based on the average number of shares of common stock outstanding for the period and include the effect of any participating securities as appropriate. Diluted EPS includes the effect of the Company’s outstanding stock options, restricted stock awards, restricted stock units and performance-based stock awards if the inclusion of these items is dilutive.

 

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.

 

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which, among other updates, requires enhanced disclosures about significant segment expenses regularly provided to the chief operating decision maker, as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, and requires retrospective adoption. Early adoption is permitted. The Company is evaluating the impact of ASU 2023-07 on its consolidated financial statements and the related disclosures.

 

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which requires enhanced annual disclosures with respect to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis. Early adoption is permitted. The Company is evaluating the impact of ASU 2023-07 on its consolidated financial statements and the related disclosures.

 

NOTE 2 - PROPERTY AND EQUIPMENT

 

As of September 30, 2024 and December 31, 2023, property and equipment were comprised of the following:

 

 

 

September 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Surface

 

$2,583,400

 

 

$2,577,400

 

Underground

 

 

8,625,574

 

 

 

8,625,574

 

Processing/Loadout

 

 

12,081,045

 

 

 

12,081,045

 

Coal Refuse Storage

 

 

12,134,192

 

 

 

12,134,192

 

Building

 

 

54,202

 

 

 

54,202

 

Land

 

 

1,617,435

 

 

 

1,617,435

 

Acquired Mining Rights

 

 

484,907

 

 

 

484,907

 

Rare Earth Processing

 

 

304,962

 

 

 

96,107

 

Construction in Progress

 

 

3,661,126

 

 

 

4,043,787

 

 

 

 

41,546,843

 

 

 

41,714,649

 

Less accumulated depreciation and amortization

 

 

(24,057,063 )

 

 

(21,479,525 )

 Property and equipment, net

 

$17,489,780

 

 

$20,235,124

 

 

 
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Depreciation and amortization expense amounted to $886,186 and $2,579,115 for the three and nine months ended September 30, 2024. Depreciation and amortization expense amounted to $893,886 and $2,712,299 for the three and nine months ended September 30, 2023. 

 

The estimated useful lives are as follows:

 

Processing and Rail Facilities

 

 

7-20 years

 

Surface Equipment

 

 

7 years

 

Underground Equipment

 

 

5 years

 

Mine Development

 

 

5-10 years

 

Coal Refuse Storage

 

 

10 years

 

 

NOTE 3 – INVESTMENTS IN TRADING SECURITIES

 

Investments in trading securities consist of U.S. government and agency securities and fixed income funds that are by the Company or held in trusts related to the Company’s tax-exempt bonds. These investments held by a trust related to the Company’s tax-exempt bonds are classified as restricted cash and cash equivalents and as restricted investment on the accompanying balance sheets. All other securities are classified as short-term investments on the accompanying balance sheet. The short-term investment securities are classified as trading securities and, accordingly, the unrealized gains and losses are recorded in current period earnings or loss.

 

The Company’s investments in available-for-sale marketable securities are as follows:

 

September 30, 2024

 

 

 

 

 

Gross Unrealized

 

 

Allowance for

 

 

Fair

 

 

 

Cost Basis

 

 

Gains

 

 

Losses

 

 

Credit Losses

 

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed income funds

 

$4,650,138

 

 

$1,188

 

 

$-

 

 

$-

 

 

$4,651,326

 

 

December 31, 2023

 

 

 

 

 

Gross Unrealized

 

 

Allowance for

 

 

Fair

 

 

 

Cost Basis

 

 

Gains

 

 

Losses

 

 

Credit Losses

 

 

Value