The accompanying footnotes are integral to the consolidated financial statements
The accompanying footnotes are integral to the consolidated financial statements
The accompanying footnotes are integral to the consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
American Resources Corporation (ARC or the Company) operates through subsidiaries that were acquired in 2018, 2016 and 2015 for the purpose of acquiring, rehabilitating and operating various natural resource assets including coal, oil and natural gas.
Basis of Presentation and Consolidation:
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Quest Energy Inc (QEI), Deane Mining, LLC (Deane), Quest Processing LLC (Quest Processing), ERC Mining Indiana Corp (ERC), McCoy Elkhorn Coal LLC (McCoy), Knott County Coal LLC (KCC) and Wyoming County Coal (WCC). All significant intercompany accounts and transactions have been eliminated.
On January 5, 2017, QEI entered into a share exchange agreement with NGFC Equities, Inc (NGFC). Under the agreement, the shareholders of QEI exchanged 100% of its common stock to NGFC for 4,817,792 newly created Series A Preferred shares that is convertible into approximately 95% of outstanding common stock of NGFC. The previous NGFC shareholders retained 845,377 common shares as part of the agreement. The conditions to the agreement were fully satisfied on February 7, 2017, at which time the Company took full control of NGFC. NGFC has been renamed to American Resources Corporation ARC. The transaction was accounted for as a recapitalization. QEI was the accounting acquirer and ARC will continue the business operations of QEI, therefore, the historical financial statements presented are those of QEI and its subsidiaries. The equity and share information reflect the results of the recapitalization. On May 15, 2017 ARC initiated a one-for-thirty reverse stock split. The financial statements have been retrospectively restated to give effect to this split.
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 primary beneficiary of ERC Mining, LLC, which qualifies as a variable interest entity. Accordingly, the assets, liabilities, revenue and expenses of ERC Mining, LLC have been included in the accompanying consolidated financial statements. The company has no ownership in ERC Mining, LLC. Determination of the company as the primary beneficiary is based on the power through its management functions to direct the activities that most significantly impact the economic performance of ERC Mining, LLC. On March 18, 2016, the company lent ERC Mining, LLC $4,117,139 to facilitate the transaction described in Note 5, which represent amounts that could be significant to ERC. No further support has been provided. The company has ongoing involvement in the management of ERC Mining, LLC to ensure their fulfillment of the transaction described in Note 5.
The company was the primary beneficiary of Land Resources & Royalties LLC (LRR) which qualifies as a variable interest entity. Accordingly, the assets, liabilities, revenue and expenses of Land Resources & Royalties have been included in the accompanying consolidated financial statements. The company has no ownership in LRR. Determination of the company as the primary beneficiary is based on the power through its management functions to direct the activities that most significantly impact the economic performance of LRR. On October 24, 2016, the company issued LRR a note in the amount of $178,683 to facilitate the transaction described in Note 5, which represent amounts that could be significant to LRR. No further support has been provided. The company has ongoing involvement in the management of LRR to ensure their fulfillment of the transaction. As of July 1, 2018, the accounts of Land Resources & Royalties, LLC have been deconsolidated from the financial statements based upon the ongoing review of its status as a variable interest entity.
Deane was formed in November 2007 for the purpose of operating underground coal mines and coal processing facilities. Deane was acquired on December 31, 2015 and as such no operations are presented prior to the acquisition date.
Quest Processing was formed in November 2014 for the purpose of operating coal processing facilities and had no operations before March 8, 2016.
ERC was formed in April 2015 for the purpose managing an underground coal mine and coal processing facility. Operations commenced in June 2015.
McCoy was formed in February 2016 for the purpose of operating underground coal mines and coal processing facilities. McCoy was acquired on February 17, 2016 and as such no operations are presented prior to the acquisition date.
KCC was formed in September 2004 for the purpose of operating underground coal mines and coal processing facilities. KCC was acquired on April 14, 2016 and as such no operations are presented prior to the acquisition date. On August 23, 2018, KCC disposed of certain non-operating assets totaling $111,567 and the corresponding asset retirement obligation totaling $919,158 which resulted in a gain of $807,591.
WCC was formed in October 2018 for the purpose of acquiring and operating underground and surface coal mine and a coal processing facility. No operations were undergoing at the time of formation or acquisition.
On April 21, 2018, McCoy acquired certain assets known as the PointRock Mine (PointRock) in exchange for assuming certain liabilities of the seller. The fair values of the liabilities assumed were $53,771 for prior vendors and $2,624,961 for asset retirement obligation totaling $2,678,732. The liabilities assumed do not require fair value readjustments. In addition, McCoy entered into a surface and mineral sub-lease in the amount of up to $4,000,000 to be paid only upon coal extraction at $2 per extracted ton of coal. McCoy will also pay a portion of the sales price as a royalty with an annual minimum payment of $60,000 starting in January 2019. The acquired assets have an anticipated life of 5 years. Capitalized mining rights will be amortized based on productive activities over the anticipated life of 5 years. Amortization expense for the year ended December 31, 2018 and 2017 amounted to $462,640 and $0, respectively. The assets will be measured for impairment when an event occurs that questions the realization of the recorded value.
The assets acquired of PointRock do not represent a business as defined in FASB AS 805-10-20 due to their classification as a single asset. Accordingly, the assets acquired are initially recognized at the consideration paid, which was the liabilities assumed, including direct acquisition costs, of which there were none. The cost is allocated to the group of assets acquired based on their relative fair value. The assets acquired and liabilities assumed of PointRock were as follows at the purchase date:
Assets
|
|
|
|
Mining Rights
|
|
$
|
2,678,732
|
|
Liabilities
|
|
|
|
|
Vendor Payables
|
|
$
|
53,771
|
|
Asset Retirement Obligation
|
|
$
|
2,624,961
|
|
On May 10, 2018, KCC acquired certain assets known as the Wayland Surface Mine (Wayland) in exchange for assuming certain liabilities of the seller. The fair values of the liabilities assumed were $66,129 for asset retirement obligation. The liabilities assumed do not require fair value readjustments. In addition, KCC entered into a royalty agreement with the seller to be paid only upon coal extraction in the amount of $1.50 per extracted ton of coal. The acquired assets have an anticipated life of 7 years. Capitalized mining rights will be amortized based on productive activities over the anticipated life of 7 years. Amortization expense for the year ended December 31, 2018 and 2017 amounted to $4,134 and $0, respectively. The assets will be measured for impairment when an event occurs that questions the realization of the recorded value.
The assets acquired of Wayland do not represent a business as defined in FASB AS 805-10-20 due to their classification as a single asset. Accordingly, the assets acquired are initially recognized at the consideration paid, which was the liabilities assumed, including direct acquisition costs, of which there were none. The cost is allocated to the group of assets acquired based on their relative fair value. The assets acquired and liabilities assumed of Wayland were as follows at the purchase date:
Assets
|
|
|
|
Mining Rights
|
|
$
|
66,129
|
|
Liabilities
|
|
|
|
|
Asset Retirement Obligation
|
|
$
|
66,129
|
|
On November 7, 2018, Wyoming County Coal LLC, acquired 5 permits, coal processing and loading facilities, surface ownership, mineral ownership, and coal refuse storage facilities from unrelated entities. Consideration for the acquired assets was the assumption of reclamation bonds totaling $234,240, 1,727,273 shares of common stock of the company, a seller note of $350,000 and a seller note of $250,000.
Assets
|
|
|
|
Note Receivable
|
|
$
|
234,240
|
|
Land
|
|
$
|
907,196
|
|
Coal Refuse Storage
|
|
$
|
11,993,827
|
|
Processing and Loading Facility
|
|
$
|
9,790,841
|
|
Liabilities
|
|
|
|
|
Notes Payable
|
|
$
|
600,000
|
|
Asset Retirement Obligation
|
|
$
|
234,240
|
|
Going Concern:
The Company has suffered recurring losses from operations and currently a working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. We plan to generate profits by expanding current coal operations as well as developing new coal operations. However, we will need to raise the funds required to do so through sale of our securities or through loans from third parties. We do not have any commitments or arrangements from any person to provide us with any additional capital. If additional financing is not available when needed, we may need to cease operations. We may not be successful in raising the capital needed to expand or develop operations. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern. The accompanying financial statements have been prepared assuming the Company will continue as a going concern; no adjustments to the financial statements have been made to account for this uncertainty.
Estimates:
Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual results could vary from those estimates.
Convertible Preferred Securities:
We account for hybrid contracts that feature conversion options in accordance with generally accepted accounting principles in the United States. ASC 815,
Derivatives and Hedging Activities
(“ASC 815”) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
We also follow ASC 480-10,
Distinguishing Liabilities from Equity
(“ASC 480-10”) in its evaluation of the accounting for a hybrid instrument. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception; (b) variations in something other than the fair value of the issuer’s equity shares; or (c) variations inversely related to changes in the fair value of the issuer’s equity shares. Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives, and are carried as a liability at fair value at each balance sheet date with remeasurements reported in interest expense in the accompanying Consolidated Statements of Operations.
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, or an immediate family member of any of the proceeding. Transactions with related parties are reviewed and approved by the directors of the Company, as per internal policies.
Advance Royalties:
Coal leases that require minimum annual or advance payments and are recoverable from future production are generally deferred and charged to expense as the coal is subsequently produced.
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 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 December 31, 2018 and December 31, 2017 was $58,246 and $116,115, respectively. A lender of the Company also required a reserve account to be established. The balance as of December 31, 2018 and December 31, 2017 was $273,783 and $0, respectively. The total balance of restricted cash also includes amounts held under the management agreement in the amount of $79,662 and $82,828, as of December 31, 2018 and 2017, respectively. See note 5 for terms of the management agreement.
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 year ended December 31, 2018 and December 31, 2017.
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Cash
|
|
$
|
2,293,107
|
|
|
$
|
186,722
|
|
Restricted Cash
|
|
|
411,692
|
|
|
|
198,943
|
|
Total cash and restricted cash presented in the consolidated statement of cash flows
|
|
$
|
2,704,799
|
|
|
$
|
385,665
|
|
Concentration:
As of December 31, 2018 and 2017 89% and 70% of revenue came from four and three customers, respectively. As of December 31, 2018 and 2017, 99% and 100% of outstanding accounts receivable came from two and three customers, respectively.
Coal 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 three to seven years. Amortization of the equipment under capital lease is included with depreciation expense.
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.
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 development and expansion of existing reserves are expensed as incurred.
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 a discount rates ranging from 6.16% to 7.22%, risk free rates ranging from 1.76%% to 2.92% and inflation rate of 2%. 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 2018 and 2017, $0 and $146,175 were incurred for gain loss on settlement on ARO.
The table below reflects the changes to our ARO:
|
|
2018
|
|
|
2017
|
|
Beginning Balance
|
|
$
|
14,987,135
|
|
|
$
|
13,895,167
|
|
Accretion
|
|
|
1,366,322
|
|
|
|
978,660
|
|
Reclamation work
|
|
|
-
|
|
|
|
(32,867
|
)
|
Gain on Reclamation Work
|
|
|
-
|
|
|
|
146,175
|
|
Dispositions
|
|
|
(919,158
|
)
|
|
|
-
|
|
Wayland Acquisition
|
|
|
66,129
|
|
|
|
-
|
|
PointRock Acquisition
|
|
|
2,624,961
|
|
|
|
|
|
Razorblade Mine Development
|
|
|
168,380
|
|
|
|
-
|
|
WCC Acquisition
|
|
|
234,240
|
|
|
|
-
|
|
Ending Balance
|
|
$
|
18,528,009
|
|
|
$
|
14,987,135
|
|
Current portion of reclamation liability
|
|
$
|
2,327,169
|
|
|
$
|
2,033,862
|
|
Long-term portion of reclamation liability
|
|
$
|
16,211,640
|
|
|
$
|
12,953,273
|
|
Income Taxes
include U.S. federal and state income taxes currently payable and deferred income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period of enactment. Deferred income tax expense represents the change during the year in the deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax asset will not be realized.
The Company filed an initial tax return in 2015. Management believes that the Company’s income tax filing positions will be sustained on audit and does not anticipate any adjustments that will result in a material change. Therefore, no reserve for uncertain income tax positions has been recorded. The Company’s policy for recording interest and penalties, if any, associated with income tax examinations will be to record such items as a component of income taxes.
Revenue Recognition:
Up until December 31, 2017, the Company recognizes revenue in accordance with ASC 605 when the terms of the contract have been satisfied; generally, this occurs when delivery has been rendered, the fee is fixed or determinable, and collectability is reasonably assured. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.
The Company adopted and recognizes revenue in accordance with ASC 606 as of January 1, 2018, using the modified retrospective approach. The Company concluded that the adoption did not change the timing at which the Company historically recognized revenue nor did it have a material impact on its consolidated financial statements.
For periods prior to January 1, 2018, revenue was recognized when the following criteria had been met: (i) persuasive evidence of an arrangement existed; (ii) the price to the buyer was fixed or determinable; (iii) delivery had occurred; and (iv) collectability was reasonably assured. Delivery is considered to have occurred at the time title and risk of loss transfers to the customer. For coal shipments to domestic and international customers via rail, delivery occurs when the railcar is loaded.
For periods subsequent to January 1, 2018, 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 and services for processing coal. All of the activity is undertaken in eastern Kentucky.
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.
Leases:
Leases are reviewed by management based on the provisions of ASC 840 and examined to see if they are required to be categorized as an operating lease, a capital lease or a financing transaction.
The Company leases certain equipment and other assets under noncancelable operating leases, typically with initial terms of 3 to 7 years. Minimum rent on operating leases is expensed on a straight-line basis over the term of the lease. In addition to minimum rental payments, certain leases require additional payments based on sales volume, as well as reimbursement of real estate taxes, which are expensed when incurred. Capital leases are recorded at the present value of the future minimum lease payments at the inception of the lease. The gross amount of assets recorded under capital lease amounted to $333,875, all of which is classified as surface equipment.
Loan Issuance Costs and Discounts
are amortized using the effective interest method. Amortization expense amounted to $670,601 and $477,056 as of December 31, 2018 and 2017, respectively. Amortization expense for the next five years is expected to be approximately $19,000, annually.
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 December 31, 2018 and 2017 amounted to $0 and $0, respectively. Allowance for other accounts receivables as of December 31, 2018 and 2017 amounted to $0 and $92,573, respectively.
Trade and loan receivables are carried at amortized cost, net of allowance for losses. Amortized cost approximated book value as of December 31, 2018 and 2017.
Inventory:
Inventory consisting 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 compensation to employees is accounted for under ASC 718 and stock compensation to non-employees is accounted for under 2018-07 which was adopted on July 1 2018 and ASC 505 for periods before July 1, 2018.
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.
For the years ended December 31, 2018 and 2017, the Company had 5,545,202 and 5,364,230 outstanding stock warrants, respectively. For the years ended December 31, 2018 and 2017, the Company had 681,830 and 0 outstanding stock options, respectively. For the years ended December 31, 2018 and 2017, the Company had 481,780 and 4,817,792 shares of Series A Preferred Stock, respectively, that has the ability to convert at any time into 1,605,934 and 16,059,307 shares of common stock, respectively. For the years ended December 31, 2018 and 2017, the Company had 0 and 903,157 shares of Series B Preferred Stock, respectively, that has the ability to convert at any time into 0 and 250,877 shares of common stock, respectively. For the years ended December 31, 2018 and 2017, the Company had 636,830 and 0 restrictive stock awards, restricted stock units, or performance-based awards.
Reclassifications:
Reclassifications have been made to conform with current year presentation.
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 2014-09,
Revenue from Contracts with Customers (Topic 606).
Topic 606 supersedes the revenue recognition requirements in Topic 605 and requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company’s primary source of revenue is from the sale of coal through both short-term and long-term contracts with utilities, industrial customers and steel producers whereby revenue is currently recognized when risk of loss has passed to the customer. During the fourth quarter of 2017, the Company finalized its assessment related to the new standard by analyzing certain contracts representative of the majority of the Company’s coal sales and determined that the timing of revenue recognition related to the Company’s coal sales will remain consistent between the new standard and the previous standard. The Company also reviewed other sources of revenue, and concluded the current basis of accounting for these items is in accordance with the new standard. The Company adopted ASU 2014-09 effective January 1, 2018 using the modified retrospective method, and there was no cumulative adjustment to retained earnings.
|
|
|
|
|
·
|
ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
, effective for years beginning after December 15, 2017
|
|
|
|
|
·
|
ASU 2016-02,
Leases
, effective for years beginning after December 15, 2018. The Company adopted this standard on January 1, 2019 using the modified retrospective approach. The Company has concluded that the adoption of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.
|
|
|
|
|
·
|
ASU 2016-18,
Statement of Cash Flows: Restricted Cash,
effective beginning after December 15, 2017. The Company adopted this standard on January 1, 2018, and has concluded that the adoption of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.
|
|
|
|
|
·
|
ASU 2017-01,
Business Combinations,
effective beginning after December 15, 2017. The Company adopted this standard on January 1, 2018 and has concluded that the adoption of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.
|
|
|
|
|
·
|
AUS 2017-09,
Compensation – Stock Compensation,
effective beginning after December 31, 2017
|
|
|
|
|
·
|
ASU 2017-11,
Earnings Per Share,
effective beginning after December 15, 2018
|
|
|
|
|
·
|
ASU 2018-05,
Income Taxes,
effective beginning after December 15, 2017. We expect to adopt ASU 2018-05 beginning January 1, 2018 and are in the process of assessing the impact that this new guidance is expected to have on our consolidated financial statements and related disclosures.
|
|
|
|
|
·
|
ASU 2018-07,
Compensation-Stock Compensation (Topic 718),
effective beginning after December 15, 2018 was adopted on July 1, 2018 and the standard did not have a material effect on the consolidated financial statements or related disclosures.
|
NOTE 2 - PROPERTY AND EQUIPMENT
At December 31, 2018 and 2017, property and equipment were comprised of the following:
|
|
2018
|
|
|
2017
|
|
Processing and rail facility
|
|
$
|
11,630,171
|
|
|
$
|
2,634,775
|
|
Underground equipment
|
|
|
8,717,229
|
|
|
|
7,253,148
|
|
Surface equipment
|
|
|
3,101,518
|
|
|
|
2,831,395
|
|
Mine development
|
|
|
14,907,068
|
|
|
|
-
|
|
Land
|
|
|
907,193
|
|
|
|
178,683
|
|
Less: Accumulated depreciation
|
|
|
(6,691,259
|
)
|
|
|
(3,750,901
|
)
|
|
|
|
|
|
|
|
|
|
Total Property and Equipment, Net
|
|
$
|
32,571,920
|
|
|
$
|
9,147,100
|
|
Depreciation expense amounted to $2,461,557 and $2,083,332 for the years of December 31, 2018 and 2017, respectively. Amortization of mining rights amounted to $478,801 and $0 for the years of December 31, 2018 and 2017, respectively.
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
|
NOTE 3 - NOTES PAYABLE
During the year ended December 31, 2018 and 2017, principal payments on long term debt totaled $2,309,571 and $392,002, respectively. During the year ended December 31, 2018 and 2017, new debt issuances totaled $8,431,965 and $5,909,650, respectively, primarily from $6,925,305 of development and working capital loans and $1,506,660 of equipment loans in 2018 and primarily from $4,490,000 of working capital loans and $1,419,650 of equipment loans in 2017. During the year ended December 31, 2018 and 2017, net (payments) and proceeds from our factoring agreement totaled $(495,576) and $(32,985), respectively.
During the year ended December 31, 2018 and 2017, discounts on debt issued amounted to $709,500 and $490,000, respectively related to the Sales financing arrangement discussed below and the note payable discussed further in note 3. During 2018 and 2017, $670,601 and $455,000 was amortized into expense with $88,685 and $35,000 remaining as unamortized discount., respectively.
Long-term debt consisted of the following at December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Equipment Loans - QEI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to an unrelated company in monthly installments of $2,064, with interest at 8.75%, through maturity in March 2019, when the note is due in full. The note is secured by equipment and a personal guarantee by an officer of the Company.
|
|
$
|
4,627
|
|
|
$
|
30,962
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
35,683
|
|
|
|
57,290
|
|
|
|
|
|
|
|
|
|
|
On September 8, 2017, Quest entered into an equipment purchase agreement with an unaffiliated entity, Inc. to purchase certain underground mining equipment for $600,000. The note carries 0% interest and is due April 1, 2019. The agreement provided for $80,000 paid upon execution, $30,000 monthly payments until the balance is paid in full. The note is secured by the equipment purchased.
|
|
|
280,000
|
|
|
|
460,000
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
66,324
|
|
|
|
88,297
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
31,105
|
|
|
|
51,320
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
39,838
|
|
|
|
56,900
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
235,983
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Business Loan - ARC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 4, 2017, ARC entered into a consolidated loan agreement with an unaffiliated entity. $7,165,000 has been advanced under the note. The agreement calls for interest of 7% and with all outstanding amounts due on demand. The note is secured by all assets of Quest and subsidiaries. In conjunction with the loan, warrants for up to 5,017,006 common shares were issued at an exercise price ranging from $.01 to $11.44 per share and with an expiration date of October 2, 2020. The loan consolidation was treated as a loan modification for accounting purposes giving rise to a discount of $140,000. The discount was amortized over the life of the loan with $105,000 included as interest expense and $35,000 included as a note discount as of December 31, 2017. And $35,000 included as interest expense and $0 included as a note discount as of December 31, 2018. The note is secured by all assets of the Company.
|
|
|
6,819,632
|
|
|
|
4,444,632
|
|
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 $2,000,000 was advanced on February 1, 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.
|
|
$
|
3,000,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
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 33% 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, 2018, unamortized original issue discount totaled $88,685 and unamortized loan issuance costs totaled $4,611.
|
|
|
1,646,151
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
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 equipment is being utilized as part of the management agreement referred to in Note 6. Therefore, the title of the assets are not held with ERC and there is a corresponding receivable due for the payment of this note.
|
|
|
23,352
|
|
|
|
27,288
|
|
|
|
|
|
|
|
|
|
|
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 equipment is being utilized as part of the management agreement referred to in Note 6. Therefore, the title of the assets are not held with ERC and there is a corresponding receivable due for the payment of this note.
|
|
|
89,419
|
|
|
|
128,254
|
|
|
|
|
|
|
|
|
|
|
Equipment lease payable to an unrelated company in 48 equal payments of $2,031 with an interest rate of 5.25% with a balloon payment at maturity of August 13, 2019. The note is secured by equipment and a corporate guarantee from Quest Energy Inc. The equipment is being utilized as part of the management agreement referred to in Note 6. Therefore, the title of the assets are not held with ERC and there is a corresponding receivable due for the payment of this note.
|
|
|
29,554
|
|
|
|
36,890
|
|
Equipment Loans - McCoy
|
|
|
|
|
|
|
|
|
|
Equipment note payable to an unrelated company, with monthly payments of $150,000 in September 2016, October 2016, November 2016 and a final payment of $315,000 due in December 2016. The note carried 0% interest. $315,000 of this note was forgiven during May 2018, which was recorded as gain on cancelation of debt. The remaining balance of $225,000 was converted to equity. See note 8. The note was secured by the equipment purchased with the note.
|
|
|
-
|
|
|
|
540,000
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
87,500
|
|
|
|
135,000
|
|
|
|
|
|
|
|
|
|
|
On June 12, 2017, Quest entered into an equipment purchase Agreement, which carried interest at 0% with an unaffiliated entity, Inc. to purchase certain underground mining equipment for $22,500. Full payment was due September 12, 2017, and the note is in default. The note is secured by the equipment purchased with the note.
|
|
|
22,500
|
|
|
|
22,500
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
308,000
|
|
|
|
330,000
|
|
Business Loans - McCoy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business loan agreement with Crestmark Bank in the amount of $200,000, with monthly payments of 23,000, with an interest rate of 12%, through maturity in January 1, 2018. The note was secured by a corporate guaranty by the Company and a personal guaranty.
|
|
|
-
|
|
|
|
66,667
|
|
|
|
|
|
|
|
|
|
|
Seller Note - Deane
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deane Mining - promissory note payable to an unrelated company, with monthly interest payments of $10,000, at an interest rate of 6%, beginning June 30, 2016. The note is due December 31, 2017 and is unsecured. No payments have been made on the note and no extensions have been entered into subsequent to December 31, 2017, resulting in the note being in default.
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
Seller Note – Wyoming County
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In conjunction with the asset acquisition, $600,000 promissory note payable to an unrelated company. See note 1. $350,000 is due on demand and the remaining $250,000 will be paid with monthly payments based on $1 per ton of coal to originate from the assets acquired, commencing November 1, 2019. $150,000 was paid in January 2019. The note is due on May 7, 2019, is unsecured and carries interest at 0%.
|
|
|
600,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable Factoring Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McCoy, Deane and Knott County secured accounts receivable note payable to a bank. The agreement calls for interest of .30% for each 10 days of outstanding balances. The advance is secured by the accounts receivable, corporate guaranty by the Company and personal guarantees by two officers of the Company. The agreement ends in October 2019
|
|
|
1,087,413
|
|
|
|
1,582,989
|
|
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
|
|
|
(428,699
|
)
|
|
|
(475,333
|
)
|
|
|
|
|
|
|
|
|
|
Affiliate Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
During July 2017, an officer of the Company advanced $50,000 to Quest. During October 2018, the same officer advanced $13,500 to American Resources. The advances are unsecured, non interest bearing and due on demand.
|
|
|
63,500
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
During December 2018, an officer of the Company advanced $5,000 to Quest. The advance is unsecured, non interest bearing and due on demand.
|
|
|
5,000
|
|
|
|
-
|
|
|
|
|
22,212,011
|
|
|
|
14,850,842
|
|
Less: Current maturities
|
|
|
14,293,139
|
|
|
|
9,769,154
|
|
|
|
|
|
|
|
|
|
|
Total Long-term Debt
|
|
$
|
7,918,872
|
|
|
$
|
5,081,688
|
|
Total interest expense was $1,288,990 in 2018 and $558,772 in 2017.
Future minimum principal payments, interest payments and payments on capital leases are as follows:
Payable In
|
|
Loan Principal
|
|
|
Lease Principal
|
|
|
Total Loan and Lease Principal
|
|
|
Lease Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
14,262,436
|
|
|
|
142,325
|
|
|
|
14,404,761
|
|
|
|
3,722
|
|
2020
|
|
|
3,137,219
|
|
|
|
-
|
|
|
|
3,137,219
|
|
|
|
-
|
|
2021
|
|
|
53,535
|
|
|
|
-
|
|
|
|
53,535
|
|
|
|
-
|
|
2022
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
2023
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Thereafter
|
|
|
5,093,074
|
|
|
|
-
|
|
|
|
5,093,074
|
|
|
|
-
|
|
NOTE 4 - RELATED PARTY TRANSACTIONS
On June 12, 2015, the Company executed a consulting agreement with an entity with common ownership. During prior years, the Company incurred fees totaling $17,840,615 relating to services rendered under this agreement. The amount outstanding and payable as of December 31, 2018 and 2017, was $0 and $17,840,615, respectively. The amount is due on demand and does not accrue interest. The amounts under the agreement were cancelled and forgiven on May 31, 2018. The forgiveness was accounted for as an increase in additional paid in capital.
During 2015, equipment purchasing was paid by an affiliate resulting in a note payable. The balance of the note was $74,000 as of December 31, 2018 and 2017, respectively.
On April 30, 2017, the Company purchased $250,000 of secured debt that had been owed to that party, by an operating subsidiary of a related party. As a result of the transaction, the Company is now the creditor on the notes. The first note in the amount of $150,000 is dated March 13, 2013, carries an interest rate of 12% and was due on September 13, 2015. The second note in the amount of $100,000 is dated July 17, 2013, carries an interest rate of 12% and was due January 17, 2016. Both notes are in default and have been fully impaired due to collectability uncertainty. (see Note 3)
During July 2017, an officer of the Company advanced $50,000 to Quest. The advance is unsecured, non interest bearing and due on demand. During October 2018, the same officer advanced $13,500 under the same terms. (see Note 3)
During December 2018, an officer of the Company advanced $5,000 to American Resources. The advance is unsecured, non interest bearing and due on demand. (see Note 3)
On October 24, 2016, the Company sold certain mineral and land interests to a subsidiary of an entity, LRR, owned by members of the Company’s management. LRR leases various parcels of land to QEI and engages in other activities creating miscellaneous income. The consideration for the transaction was a note in the amount of $178,683. The note bears no interest and is due in 2026. As of January 28, 2017, the note was paid in full. From October 24, 2016. this transaction was eliminated upon consolidation as a variable interest entity. As of July 1, 2018, the accounts of Land Resources & Royalties, LLC have been deconsolidated from the financial statements based upon the ongoing review of its status as a variable interest entity. As of December 31, 2018, amounts owed to LRR totaled $474,654.
NOTE 5 – KENTUCKY NEW MARKETS DEVELOPMENT PROGRAM
On March 18, 2016, Quest Processing entered into two loans under the Kentucky New Markets Development Program for a total of $5,143,186. Quest Processing paid $460,795 of debt issuance costs resulting in net proceeds of $4,682,391. See note 3. The Company retains the right to call $5,143,186 of the loans in March 2023. State of Kentucky income tax credits were generated for the lender which the Company has guaranteed over their statutory life of seven years in the event the credits are recaptured or reduced. At the time of the transaction, the income tax credits were valued at $2,005,843. The Company has not established a liability in connection with the guarantee because it believes the likelihood of recapture or reduction is remote.
On March 18, 2016, ERC Mining LLC, an entity consolidated as a VIE, lent $4,117,139 to an unaffiliated entity, as part of the Kentucky New Markets Development Program loans. The note bears interest at 4% and is due March 7, 2046. The balance as of December 31, 2018 and 2017 was $4,117,139 and $4,117,139, respectively. Payments of interest only are due quarterly until March 18, 2023 at which time quarterly principal and interest are due. The note is collateralized by the equity interests of the borrower.
The Company’s management also manages the operations of ERC Mining LLC. ERC Mining LLC has assets totaling $4,415,860 and liabilities totaling $4,117,139 as of December 31, 2018 and 2017, respectively, for which there are to be used in conjunction with the transaction described above. Assets totaling $3,654,772 and $3,818,418 and liabilities totaling $4,117,139 and $4,117,139, respectively, are eliminated upon consolidation as of December 31, 2018 and 2017. The Company’s risk associated with ERC Mining LLC is greater than its ownership percentage and its involvement does not affect the Company’s business beyond the relationship described above.
NOTE 6 – MANAGEMENT AGREEMENT
On April 13, 2015, ERC entered into a mining and management agreement with an unrelated entity, to operate a coal mining and processing facility in Jasonville, Indiana. The agreement called for a monthly base fee of $20,000 in addition to certain per ton fees based on performance to be paid to ERC. Fees earned totaled $440,000 and $240,000 for 2018 and 2017, respectively, which have been fully reserved. The agreement called for equipment payments to be made by the entity. As of December 31, 2018 and 2017 amounts owed from the entity to ERC for equipment payments amounted to $0 and $192,432, respectively.
During 2018, ERC had advances of $48,611 and repayments of $197,419 of amounts previously advanced. During 2017, ERC had advances of $77,800 and repayments of $625,227 of amounts previously advanced. The advances are unsecured, non-interest bearing and due upon demand. Of the amounts received in 2017, $387,427 was the collection of a previously impaired amount.
As part of the agreement, ERC retained the administrative rights to the underlying mining permit and reclamation liability. The entity has the right within the agreement to take the mining permits and reclamation liability at any time. In addition, all operational activity that takes place on the facility is the responsibility of the entity. ERC acts as a fiduciary and as such has recorded cash held for the entity’s benefit as both an asset and an offsetting liability amounting to $79,662 and $82,828 respectively as of December 31, 2018 and 2017.
NOTE 7 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The primary temporary differences that give rise to the deferred tax assets and liabilities are as follows: accrued expenses.
Deferred tax assets consisted of $2,027,765 and $2,227,849 at December 31, 2018 and 2017, respectively, which was fully reserved. Deferred tax assets consist of net operating loss carryforwards in the amount of $2,027,765 and $2,227,849 at December 31, 2018 and 2017, respectively, which was fully reserved. The net operating loss carryforwards for years 2015, 2016, 2017 and 2018 begin to expire in 2035. The application of net operating loss carryforwards are subject to certain limitations as provided for in the tax code. The Tax Cuts and Jobs Act was signed into law on December 22, 2017, and reduced the corporate income tax rate from 34% to 21%. The Company’s deferred tax assets, liabilities, and valuation allowance have been adjusted to reflect the impact of the new tax law.
The Company’s effective income tax rate is lower than what would be expected if the U.S. federal statutory rate (21%) were applied to income before income taxes primarily due to certain expenses being deductible for tax purposes but not for financial reporting purposes. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. All years are open to examination as of December 31, 2018.
NOTE 8 – EQUITY TRANSACTIONS
As of December 31, 2018, the following describes the various types of the Company’s securities:
Common Stock
Voting Rights
. Holders of shares of common stock are entitled to one vote per share held of record on all matters to be voted upon by the stockholders. The holders of common stock do not have cumulative voting rights in the election of directors.
Dividend Rights
. Holders of shares of our common stock are entitled to ratably receive dividends when and if declared by our board of directors out of funds legally available for that purpose, subject to any statutory or contractual restrictions on the payment of dividends and to any prior rights and preferences that may be applicable to any outstanding preferred stock. Please read “Dividend Policy.”
Liquidation Rights
. Upon our liquidation, dissolution, distribution of assets or other winding up, the holders of common stock are entitled to receive ratably the assets available for distribution to the stockholders after payment of liabilities and the liquidation preference of any of our outstanding shares of preferred stock.
Other Matters
. The shares of common stock have no preemptive or conversion rights and are not subject to further calls or assessment by us. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of our common stock, are fully paid and non-assessable.
Series A Preferred Stock
Our certificate of incorporation authorizes our board of directors, subject to any limitations prescribed by law, without further stockholder approval, to establish and to issue from time to time our Series A Preferred stock, par value $0.0001 per share, covering up to an aggregate of 5,000,000 shares of Series A Preferred stock. The Series A Preferred stock will cover the number of shares and will have the powers, preferences, rights, qualifications, limitations and restrictions determined by the board of directors, which may include, among others, dividend rights, liquidation preferences, voting rights, conversion rights, preemptive rights and redemption rights. Except as provided by law or in a preferred stock designation, the holders of preferred stock will not be entitled to vote at or receive notice of any meeting of stockholders. As of the date of this filing, no shares of Series A Preferred stock are outstanding. See “Security Ownership of Certain Beneficial Owners and Management” for more detail on the Series A Preferred stock holders.
Voting Rights
. Holders of Series A Preferred shares are entitled to three hundred and thirty three and one-third (333 (1/3)) votes, on an “as-converted” basis, per each Series A Preferred share held of record on all matters to be voted upon by the stockholders.
Dividend Rights
. The holders of the Series A Preferred stock are not entitled to receive dividends.
Conversion Rights
. The holders of the Series A Preferred stock are entitled to convert into common shares, at the holder’s discretion, at a rate of one Series A Preferred share for three and one-third Common shares. Any fractional common shares created by the conversion is rounded to the nearest whole common share.
Liquidation Rights
. Upon our liquidation, dissolution, distribution of assets or other winding up, the holders of the Series A Preferred shares shall be entitled to receive in preference to the holders of the Common Stock a per share amount equal to $1.65 per share.
Anti-Dilution Protections
. The Series A Preferred stock shall have full anti-dilution protection until March 1, 2020, such that, when the sum of the shares of the common stock plus the Series A Convertible stock that are held by the Series A Preferred stock holders as of the date of the Articles of Amendment are summed (the sum of which is defined as the “Series A Holdings”, and the group defined as the “Series A Holders”), the Series A Holdings held by the Series A Holders shall be convertible into, and/or equal to, no less than Seventy-Two Percent (72.0%) of the fully-diluted common stock outstanding of the company (inclusive of all outstanding “in-the-money” options and warrants). Any amount that is less than Seventy-Two Percent (72.0%) shall be adjusted to Seventy-Two Percent (72.0%) through the immediate issuance of additional common stock to the Series A Holders to cure the deficiency, which shall be issued proportionally to each respective Series A Holder’s share in the Series A Holdings at the time of the adjustment. This anti-dilution protection shall include the effect of any security, note, common stock equivalents, or any other derivative instruments or liability issued or outstanding during the anti-dilution period that could potential cause dilution during the anti-dilution period or in the future.
As of February 14, 2019, all Series A Preferred stock has been converted into Common shares of the company.
Series B Preferred Stock
Our certificate of incorporation authorizes our board of directors, subject to any limitations prescribed by law, without further stockholder approval, to establish and to issue from time to time our Series B Preferred stock, par value $0.001 per share, covering up to an aggregate of 20,000,000 shares of Series B Preferred stock. The Series B Preferred stock will cover the number of shares and will have the powers, preferences, rights, qualifications, limitations and restrictions determined by the board of directors, which may include, among others, dividend rights, liquidation preferences, voting rights, conversion rights, preemptive rights and redemption rights. Except as provided by law or in a preferred stock designation, the holders of preferred stock will not be entitled to vote at or receive notice of any meeting of stockholders. As of the date of this filing, no shares of Series B Preferred stock are outstanding. See “Security Ownership of Certain Beneficial Owners and Management” for more detail on the Series B Preferred stock holders.
Voting Rights
. The holders of Series B Preferred shares have no voting rights.
Dividend Rights
. The holders of the Series B Preferred shall accrue a dividend based on an 8.0% annual percentage rate, compounded quarterly in arrears, for any Series B Preferred stock that is outstanding at the end of such prior quarter.
Conversion Rights.
The holders of the Series B Preferred stock are entitled to convert into common shares, at the holder’s discretion, at a conversion price of Three Dollars and Sixty Cents ($3.60) per share of common stock, subject to certain price adjustments found in the Series B Preferred stock purchase agreements.
Liquidation Rights.
Upon our liquidation, dissolution, distribution of assets or other winding up, the holders of Series B Preferred shares shall have a liquidation preference to the Series A Preferred and Common shares at an amount equal to the holders’ investment in the Series B Preferred stock.
Series C Preferred Stock
Our certificate of incorporation authorizes our board of directors, subject to any limitations prescribed by law, without further stockholder approval, to establish and to issue from time to time our Series C Preferred stock, par value $0.0001 per share, covering up to an aggregate of 20,000,000 shares of Series C Preferred stock. The Series C Preferred stock will cover the number of shares and will have the powers, preferences, rights, qualifications, limitations and restrictions determined by the board of directors, which may include, among others, dividend rights, liquidation preferences, voting rights, conversion rights, preemptive rights and redemption rights. Except as provided by law or in a preferred stock designation, the holders of preferred stock will not be entitled to vote at or receive notice of any meeting of stockholders. As of the date of this filing, no shares of Series C Preferred stock are outstanding. See “Security Ownership of Certain Beneficial Owners and Management” for more detail on the Series C Preferred stock holders.
Voting Rights
. The holders of Series C Preferred shares are entitled to vote on an "as-converted" basis of one share of Series C Preferred Stock voting one vote of common stock.
Dividend Rights
. The holders of the Series C Preferred shall accrue a dividend based on an 10.0% annual percentage rate, compounded annually in arrears, for any Series C Preferred stock that is outstanding at the end of such prior year.
Conversion Rights
. The holders of the Series C Preferred stock are entitled to convert into common shares, at the holder’s discretion, at a conversion price of Six Dollars ($6.00) per share of common stock, subject to certain price adjustments found in the Series C Preferred stock purchase agreements. Should the company complete an equity offering (including any offering convertible into equity of the Company) of greater than Five Million Dollars ($5,000,000) (the “Underwritten Offering”), then the Series C Preferred stock shall be automatically and without notice convertible into Common Stock of the company concurrently with the subsequent Underwritten Offering at the same per share offering price of the Underwritten Offering. If the Underwritten Offering occurs within twelve months of the issuance of the Series C Preferred stock to the holder, the annual dividend of 10.0% shall become immediately accrued to the balance of the Series C Preferred stock and converted into the Underwritten Offering.
Liquidation Rights
. Upon our liquidation, dissolution, distribution of assets or other winding up, the holders of Series C Preferred shares shall have a liquidation preference to the Common shares at an amount equal to $1.00 per share.
As of February 21, 2019, all Series C Preferred stock has been converted into Common shares of the company.
A 2016 Stock Incentive Plan (2016 Plan) was approved by the Board during January 2016. The Company may grant up to 6,363,225 shares of Series A Preferred stock under the 2016 Plan. The 2016 Plan is administered by the Board of Directors, which has substantial discretion to determine persons, amounts, time, price, exercise terms, and restrictions of the grants, if any. The options issued under the 2016 Plan vest upon issuance.
A new 2018 Stock Option Plan (2018 Plan) was approved by the Board on July 1, 2018. The Company may grant up to 4,000,000 shares of common stock under the 2018 Plan. The 2018 Plan is administered by the Board of Directors, which has substantial discretion to determine persons, amounts, time, price, vesting schedules, exercise terms, and restrictions of the grants, if any. On September 12, 2018, the Board issued a total of 636,830 options to four employees of the Company under the 2018 Plan. The options have an expiration date of September 10, 2025 and have an exercise price of $1.00 per share. Of the total options issued, 25,000 vested immediately, with the balance of 611,830 options vesting equally over the course of three years, subject to restrictions regarding the employee’s continued employment by the Company.
On May 10, 2017, the Company issued warrants amounting to 8,334 common shares to a board member. The options expire May 9, 2020 and have an exercise price of $3.60 and vest immediately. An expense in the amount of $40,000 was recognized for this issuance.
The Company had a note payable in the amount of $50,000 which was assumed as part of the share exchange agreement and accounted for as an expense in the recapitalization transaction. On February 22, 2017, the Company modified the note to add a conversion option with a price of $1.50. The conversion option was beneficial, therefore, the Company recognized $50,000 as a discount to the assumed note payable. The note was immediately converted, resulting in the issuance of 33,334 shares and the full amortization of the discount.
On March 7, 2017, the Company closed a private placement whereby it issued an aggregate of 500,000 shares of ARC’s Series B Preferred Stock at a purchase price of $1.00 per Series B Preferred share, and warrants to purchase an aggregate of 208,334 shares of the ARC’s common stock (subject to certain adjustments), for proceeds to ARC of $500,000 (the “March 2017 Private Placement”). After deducting for fees and expenses, the aggregate net proceeds from the sale of the preferred series B shares and the warrants in the March 2017 Private Placement were approximately $500,000. The ‘A’ warrants totaling 138,889 shares expire March 6, 2020 and hold an exercise price of $7.20 per share. The ‘A-1’ warrants totaling 69,445 shares expire March 6, 2020 and hold an exercise price of $.03 per share.
On April 2, 2017, American Resources Corporation closed a private placement whereby it issued an aggregate of 100,000 shares of the ARC’s Series B Preferred Stock at a purchase price of $1.00 per Series B Preferred share, and warrants to purchase an aggregate of 27,778 shares of the ARC’s common stock (subject to certain adjustments), for proceeds to ARC of $100,000 (the “April 2017 Private Placement”). After deducting for fees and expenses, the aggregate net proceeds from the sale of the series B preferred shares and the warrants in the April 2017 Private Placement were approximately $100,000. The ‘A’ warrants totaling 27,778 shares expire April 2, 2019 and hold an exercise price of $7.20 per share.
On April 30, 2017, American Resources Corporation closed on a private placement agreement whereby it issued an aggregate of 250,000 shares of the ARC’s Series B Preferred Stock and A warrants amounting to 69,445 to an unrelated party for the purchase of $250,000 of secured debt that had been owed to that party, by an operating subsidiary of a related party. As a result of the transaction, the Company is now the creditor on the notes. The first note in the amount of $150,000 is dated March 13, 2013, carries an interest rate of 12% and was due on September 13, 2015. The second note in the amount of $100,000 is dated July 17, 2013, carries an interest rate of 12% and was due January 17, 2016. Both notes are in default and were impaired in 2017. The A warrants totaling 69,445 shares expire April 29, 2019 and hold an exercise price of $7.20 per share.
The Series B Preferred Stock converts into common stock of the Company at the holder’s discretion at a conversion price of $3.60 per common share (one share of Series B Preferred converts to common at a ratio of 0.27778). Furthermore, the Series B Preferred share purchase agreement provides for certain adjustments to the conversion value of the Series B Preferred to common shares of the Company that are based on the EBITDA (earning before interest, taxes, depreciation, and amortization) for the Company for the 12 months ended March 31, 2018 of $6,000,000. Those adjustments provide for a decrease in the conversion value based on the proportional miss of the Company’s EBITDA, up to a maximum of 30.0% decrease in the conversion value of the Series B Preferred to common shares.
The Series B Preferred share purchase agreement provides for a period of nine months post execution of the purchase agreement for an option for the investor to put the Series B Preferred investment to the Company at a premium to the Series B Preferred purchase price should the Company achieve certain hurdles, such as a secondary offering and an up-listing to a national stock exchange. Such put option expires after 20 days from notification of the Company to the Series B Preferred investor of the fulfillment of such qualifications.
On October 4, 2017, we entered into a financing transaction with Golden Properties Ltd., a British Columbia company based in Vancouver, Canada (“Golden Properties”) that involved a series of loans made by Golden Properties to the Company. As part of that financing, we issued to Golden Properties the following warrants:
|
·
|
Warrant B-4, for the purchase of 3,417,006 shares of common stock at $0.01 per share, as adjusted from time to time, expiring on October 4, 2020, and providing the Company with up to $34,170 in cash proceeds should all the warrants be exercised;
|
|
|
|
|
·
|
Warrant C-1, for the purchase of 400,000 shares of common stock at $3.55 per share, as adjusted from time to time, expiring on October 4, 2019, and providing the Company with up to $1,420,000 in cash proceeds should all the warrants be exercised;
|
|
|
|
|
·
|
Warrant C-2, for the purchase of 400,000 shares of common stock at $7.09 per share, as adjusted from time to time, expiring on October 4, 2019, and providing the Company with up to $2,836,000 in cash proceeds should all the warrants be exercised;
|
|
|
|
|
·
|
Warrant C-3, for the purchase of 400,000 shares of common stock at $8.58 per share, as adjusted from time to time, expiring October 2, 2020, and providing the Company with up to $3,432,000 in cash proceeds should all the warrants be exercised; and
|
|
|
|
|
·
|
Warrant C-4, for the purchase of 400,000 shares of common stock at $11.44 per share, as adjusted from time to time, expiring October 2, 2020, and providing the Company with up to $4,576,000 in cash proceeds should all the warrants be exercised.
|
As of the date of this annual report, 600,000 shares of Warrant B-4 have been exercised cashlessly and as a result the shareholder received 599,427 shares of common stock as a result of the exercise.
Total stock based compensation expense incurred for awards to employees and directors during 2018 and 2017 was $63,127 and $0, respectively. Fair value was determined using the Black-Sholes Option Pricing Model.
The preferred dividend requirement for 2018 and 2017 amounted to $114,850 and $53,157, respectively.
On July 5, 2017, the Company issued 13,333 common shares and warrants to purchase 33,333 shares to an unrelated consulting company. The aggregate value of the common shares upon issuance totaled $14,733. The warrants had an exercise price of $3.60 with a three-year term. The total compensation expense related to this warrant was $10,000 which was determined using the closing stock price at the date of the grant and the Black-Sholes Option Pricing Model.
On July 18, 2018, the Company issued 150,000 common shares valued at $165,000 to Sylva International LLC for an agreement to provide digital marketing services to the Company. The agreement was subsequently terminated by the Company for breach of contract.
On September 14, 2018, the Company issued 105,000 common shares valued at $152,250 and 175,000 warrants valued at $163,847 to Redstone Communications LLC as compensation for the first six months of an agreement to provide for public relations with existing shareholders, broker dealers, and other investment professionals for the Company. These warrants vest immediately, have an exercise price of $1 and a 5 year term.
On September 14, 2018, the Company issued 45,000 common shares valued at $65,250 and 75,000 warrants valued at $70,220 to Mr. Marlin Molinaro as compensation for the first six months of an agreement to provide for public relations with existing shareholders, broker dealers, and other investment professionals for the Company. These warrants vest immediately, have an exercise price of $1 and a 5 year term.
On October 24, 2018, warrants totaling 69,420 common shares of the company were exercised by a non-affiliated shareholder. The exercise was a cashless exercise.
On November 5, 2018, 4,336,012 Series A Preferred shares were converted into 14,453,373 common shares of the Company in a cashless conversion.
On November 7, 2018, the Company issued 1,727,276 shares, valued at $22,091,860,as part of the consideration for the acquisition of five permits, coal processing and loading facilities, surface ownership, mineral ownership, and coal refuse storage facilities from unrelated entities by the Company’s wholly-owned subsidiary, Wyoming County Coal LLC.
On November 7, 2018, 964,290 of Series B preferred shares and $0 of accrued dividends were converted into 267,859 common shares of the Company in a cashless conversion.
On November 7, 2018, $36,000 worth of trade payables were settled with 6,000 common shares of the Company, resulting in a loss of $40,740.
On November 8, 2018, the Company's Board of Directors elected to amend its Articles of Incorporation, canceled its Series B Preferred Stock, designated 20,000,000 shares of a newly created Series C Preferred Stock, and amended its Series A Preferred stock for the following key provisions: voting rights of 333(1/3) votes of common stock for each Series A Preferred stock, and anti-dilution protection through March 1, 2020 at no less than 72.0% of the fully-diluted common shares. The newly created Series C Preferred Stock carries the following key provisions: automated conversion to common shares upon the completion of a underwritten equity offering totaling $5,000,000 or more and a paid in kind annual dividend with a 10% annual percentage rate.
On November 14, 2018, $225,000 of debt to an unrelated entity, was converted into 37,500 shares of common stock, resulting in a loss of $206,250.
On November 15, 2018, three independent directors were appointed. As compensation for their services, each of the directors were issued a three-year warrant to purchase up to 15,000 common shares of the Company at an exercise price of $6.00 per share, subject to certain price adjustments and other provisions found within the respective warrants. The warrants have a 3 year term, vest immediately ratably over their term and will result in a current expense of $9,488 and a future expense totaling of $113,850 totaling $341,550.
On November 27, 2018, 50,000 shares of Series C preferred shares were sold at $1.00 per share resulting in proceeds of $50,000 for the Company.
Under an agreement dated November 1, the Company, on December 3, 2018, issued 10,000 shares of Class A Common stock and a warrant to purchase 417 shares, valued at $2,527, of the company were issued to an unrelated firm for consulting services under a contract executed on November 1, 2018. The warrant has a strike price of $6.00 per share, has a two-year term, and can be exercised via a cashless exercise by the holder at any time during its term. The agreement also carries the commitment that a cash fee of $10,000 will be payable under the agreement at the time the company closes a financing of greater than $1.0 million. An additional 15,000 shares will be issued on June 1, 2019 if the agreement is still in effect.
|
|
2018
|
|
|
2017
|
|
Expected Dividend Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
87.97 - 109
|
%
|
|
|
13.73
|
%
|
Risk-free rate
|
|
|
1.03-2.73
|
%
|
|
|
1.47-1.62
|
%
|
Expected life of warrants
|
|
2-5 years
|
|
|
2-3 years
|
|
Company Warrants:
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Life in Years
|
|
|
Value
|
|
Exercisable - December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
6,343,833
|
|
|
$
|
2.317
|
|
|
|
2.706
|
|
|
$
|
174,253
|
|
Forfeited or Expired
|
|
|
979,603
|
|
|
$
|
0.560
|
|
|
|
1.997
|
|
|
$
|
36,184
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding - December 31, 2017
|
|
|
5,364,230
|
|
|
$
|
2.638
|
|
|
|
2.835
|
|
|
$
|
138,069
|
|
Exercisable (Vested) - December 31, 2017
|
|
|
5,364,230
|
|
|
$
|
2.638
|
|
|
|
2.835
|
|
|
$
|
138,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
250,417
|
|
|
$
|
1.008
|
|
|
|
4.699
|
|
|
$
|
2,251,668
|
|
Forfeited or Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
69,420
|
|
|
$
|
0.003
|
|
|
|
1.367
|
|
|
$
|
194,513
|
|
Outstanding - December 31, 2018
|
|
|
5,545,227
|
|
|
$
|
2.745
|
|
|
|
1.704
|
|
|
$
|
42,063,228
|
|
Exercisable (Vested) - December 31, 2018
|
|
|
5,545,227
|
|
|
$
|
2.745
|
|
|
|
1.704
|
|
|
$
|
42,063,228
|
|
Company Options:
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life in Years
|
|
|
Value
|
|
Outstanding - December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercisable (Vested) - December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
681,830
|
|
|
$
|
1.330
|
|
|
|
6.447
|
|
|
$
|
405,000
|
|
Forfeited or Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding - December 31, 2018
|
|
|
681,830
|
|
|
$
|
1.413
|
|
|
|
6.447
|
|
|
$
|
405,000
|
|
Exercisable (Vested) - December 31, 2018
|
|
|
70,000
|
|
|
$
|
4.214
|
|
|
|
4.247
|
|
|
$
|
405,000
|
|
NOTE 9 - CORRECTION OF PRIOR YEAR INFORMATION
During the audit of the Company’s consolidated financial statements for the year ended December 31, 2018, the Company identified an error in the formula used to calculate the initial asset obligation of Deane, McCoy and KCC. The formulaic error initially resulted in the overstated long term assets and long term liabilities for the year ended December 31, 2015, 2016 and 2017. During the year ended December 31, 2016 and 2017, accretion and depreciation expenses were overstated causing an understatement of retained earnings.
This resulted in an adjustment to the previously reported amounts in the financial statements of the Company for the year ended December 31, 2017. In accordance with the SEC’s Staff Accounting Bulletin Nos. 99 and 108 (SAB 99 and SAB 108), the Company evaluated this error and, based on an analysis of quantitative and qualitative factors, determined that the error was immaterial to the prior reporting periods affected.
However, if the adjustments to correct the cumulative effect of the above error had been recorded in the year ended December 31, 2018, the Company believes the impact would have been significant and would impact comparisons to prior periods. Therefore, as permitted by SAB 108, the Company corrected, in the current filing, previously reported results of the Company as of December 31, 2017.
The following table presents the impact of the correction in the financial statements as of December, 31, 2017:
Balance Sheet
|
|
As of December 31, 2017
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
$
|
2,702,401
|
|
|
$
|
-
|
|
|
$
|
2,702,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash - restricted
|
|
|
198,943
|
|
|
|
-
|
|
|
|
198,943
|
|
Processing and Rail Facility
|
|
|
2,914,422
|
|
|
|
(279,647
|
)
|
|
|
2,634,775
|
|
Underground Equipment
|
|
|
8,887,045
|
|
|
|
(1,633,897
|
)
|
|
|
7,253,148
|
|
Surface Equipment
|
|
|
3,957,603
|
|
|
|
(1,126,208
|
)
|
|
|
2,831,395
|
|
Mining Rights
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Less Accumulated Depreciation
|
|
|
(4,820,569
|
)
|
|
|
1,069,668
|
|
|
|
(3,750,901
|
)
|
Land
|
|
|
178,683
|
|
|
|
-
|
|
|
|
178,683
|
|
Accounts Receivable - Other
|
|
|
127,718
|
|
|
|
-
|
|
|
|
127,718
|
|
Note Receivable
|
|
|
4,117,139
|
|
|
|
-
|
|
|
|
4,117,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
18,263,385
|
|
|
$
|
(1,970,084
|
)
|
|
$
|
16,293,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
$
|
35,423,566
|
|
|
$
|
-
|
|
|
$
|
35,423,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of note payables
|
|
|
5,081,688
|
|
|
|
-
|
|
|
|
5,081,688
|
|
Reclamation liability
|
|
$
|
17,851,195
|
|
|
|
(4,897,922
|
)
|
|
|
12,953,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
58,356,449
|
|
|
|
(4,897,922
|
)
|
|
$
|
53,458,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common stock
|
|
|
89
|
|
|
|
-
|
|
|
|
89
|
|
Series A Preferred stock
|
|
|
482
|
|
|
|
-
|
|
|
|
482
|
|
Series B Preferred stock
|
|
|
850
|
|
|
|
-
|
|
|
|
850
|
|
Series C Preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
APIC
|
|
|
1,527,254
|
|
|
|
-
|
|
|
|
1,527,254
|
|
Accumulated Deficit
|
|
|
(42,019,595
|
)
|
|
|
2,927,838
|
|
|
|
(39,091,757
|
)
|
Total Equity
|
|
|
(40,490,920
|
)
|
|
|
2,927,838
|
|
|
|
(37,563,082
|
)
|
Non Controlling Interest
|
|
|
397,856
|
|
|
|
-
|
|
|
|
397,856
|
|
Total Liabilities and Equity
|
|
|
18,263,385
|
|
|
$
|
(1,970,084
|
)
|
|
|
16,293,301
|
|
Income Statement
|
|
Year Ended December 31, 2017
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
20,820,998
|
|
|
$
|
-
|
|
|
$
|
20,820,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Coal Sales and Processing
|
|
|
(16,344,567
|
)
|
|
|
-
|
|
|
|
(16,344,567
|
)
|
Accretion Expense
|
|
|
(1,791,051
|
)
|
|
|
812,391
|
|
|
|
(978,660
|
)
|
Loss on reclamation settlement
|
|
|
-
|
|
|
|
146,175
|
|
|
|
146,175
|
|
Depreciation
|
|
|
(2,557,714
|
)
|
|
|
474,382
|
|
|
|
(2,083,332
|
)
|
Amortization of mining rights
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
General and Administrative
|
|
|
(1,378,111
|
)
|
|
|
-
|
|
|
|
(1,378,111
|
)
|
Professional Fees
|
|
|
(694,366
|
)
|
|
|
-
|
|
|
|
(694,366
|
)
|
Production Taxes and Royalties
|
|
|
(4,974,013
|
)
|
|
|
-
|
|
|
|
(4,974,013
|
)
|
Impairment Loss from notes receivable from related party
|
|
|
(250,000
|
)
|
|
|
-
|
|
|
|
(250,000
|
)
|
Development Costs
|
|
|
(6,850,062
|
)
|
|
|
-
|
|
|
|
(6,850,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss from Operations
|
|
$
|
(14,018,886
|
)
|
|
$
|
1,432,948
|
|
|
$
|
(12,585,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (loss)
|
|
|
(6,580
|
)
|
|
|
-
|
|
|
|
(6,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(14,025,466
|
)
|
|
$
|
1,432,948
|
|
|
$
|
(12,592,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Preferred dividend requirement
|
|
|
(53,157
|
)
|
|
|
-
|
|
|
|
(53,157
|
)
|
Less: Net income attributable to Non Controlling Interest
|
|
|
(343,099
|
)
|
|
|
-
|
|
|
|
(343,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to American Resources Corporation Shareholders
|
|
$
|
(14,421,722
|
)
|
|
$
|
1,432,948
|
|
|
$
|
(12,988,774
|
)
|
Statement of Cash Flow
|
|
Year Ended December 31, 2017
|
|
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Cash Flows from Operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(14,025,466
|
)
|
|
$
|
1,432,948
|
|
|
$
|
(12,592,518
|
)
|
Adjustments to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,557,714
|
|
|
|
(474,382
|
)
|
|
|
2,083,332
|
|
Amortization of mining rights
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accretion expense
|
|
|
1,791,051
|
|
|
|
(812,391
|
)
|
|
|
978,660
|
|
Gain on disposition
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forgiveness of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss on reclamation settlements
|
|
|
-
|
|
|
|
(146,175
|
)
|
|
|
(146,175
|
)
|
Assumption of note payable in reverse merger
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
Amortization of debt discount and issuance costs
|
|
|
477,056
|
|
|
|
-
|
|
|
|
477,056
|
|
Impairment (recovery) of advances receivable
|
|
|
(387,427
|
)
|
|
|
-
|
|
|
|
(387,427
|
)
|
Impairment of related party note receivable
|
|
|
250,000
|
|
|
|
-
|
|
|
|
250,000
|
|
Stock compensation expense
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
$
|
(9,237,072
|
)
|
|
$
|
-
|
|
|
$
|
(9,237,072
|
)
|
Change in current assets and liabilities
|
|
|
3,592,498
|
|
|
|
-
|
|
|
|
3,592,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
$
|
(5,644,574
|
)
|
|
|
-
|
|
|
$
|
(5,644,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by investing activities
|
|
|
439,599
|
|
|
|
-
|
|
|
|
439,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
4,665,013
|
|
|
|
-
|
|
|
|
4,665,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) in cash
|
|
|
(539,962
|
)
|
|
|
-
|
|
|
|
(539,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of year
|
|
|
925,627
|
|
|
|
-
|
|
|
|
925,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year
|
|
$
|
385,665
|
|
|
$
|
-
|
|
|
$
|
385,665
|
|
NOTE 10 – CONTINGENCIES AND COMMITMENTS
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.
Should the Company decide to renew the consulting agreement with Redstone Communication, LLC, as compensation for the following six months of engagement (note 8), we will issue to Redstone Communications another five-year warrant option to purchase up to 175,000 common shares of our Company at an exercise price of $1.50 per share, another 105,000 common shares, and a cash payment of $10,000 per month for the second six-month term (with the first two months payable in advance upon renewal of the second term). Furthermore, we will issue to Mr. Marlin Molinaro another five-year warrant option to purchase up to 75,000 common shares of our Company at an exercise price of $1.50 per share and another 45,000 common shares. Should Redstone Communications, LLC and Mr. Molinaro receive and exercise the warrants received under the second six months of engagement, the Company will receive up to $262,500 and $112,500, respectively.
On August 21, 2018, Deane and an unrelated vendor entered into a settlement agreement for past payables. Pursuant to the settlement agreement, Deane will pay the full outstanding unpaid balance in accordance with the agreed to schedule, with the full amount being due on January 3, 2019. Deane is currently in default of this agreement.
KCC is in settlement discussions relating to a reclamation issue while the property was under former ownership. The expected settlement amount is estimated to be $100,000.
The company leases various office space some from an entity which was consolidated as a variable interest entity until June 30, 2018. (see note 5) The rental lease for the Company’s principal office space expired in December 31, 2018 and is continuing on a month-to-month basis. The future annual rent is $6,000 through 2021. Rent expense for 2018 and 2017 amounted to $36,000 and $26,000 each year, respectively.
NOTE 11 - SUBSEQUENT EVENTS
On January 16, 2019, an affiliate of the Company converted its remaining 29,051 shares of Series A Preferred into 96,837 common shares
On January 17, 2019, a non-affiliated shareholder partially exercised 300,000 shares of a warrant they held in the Company. The exercise was cashless, and the shareholder received 299,697 shares of common stock as a result of the conversion.
On January 25, 2019, the Company extended its consulting agreement with Redstone Communications, LLC for an additional six-month term, and as a result, we issued 105,000 restricted common shares to Redstone Communications LLC and 45,000 restricted common shares to Mr. Marlin Molinaro, another five-year warrant to purchase up to 175,000 common shares of our Company at an exercise price of $1.50 per share and issued to Mr. Marlin Molinaro another five-year warrant option to purchase up to 75,000 common shares of our Company at an exercise price of $1.50 per share as compensation for the second six months of an agreement. Should Redstone Communications, LLC and Mr. Molinaro receive and exercise the warrants options received under the second six months of engagement, the Company will receive up to $262,500 and $112,500, respectively. These common shares have not been physically issued.
On January 27, 2019, the Company issued 1,000 shares of common shares to an unrelated party for the consideration of $5,000 cash to the Company.
On January 28, 2019, the Company issued a total of 400 shares of common shares to two unrelated parties for the total consideration of $2,000 cash to the Company.
On January 30, 2019, the Company entered into an Investor Relations Agreement with American Capital Ventures, Inc. (“American Capital”) whereby American Capital will provide, among other services, assistance to the Company in planning, reviewing and creating corporate communications, press releases, and presentations and consulting and liaison services to the Company relating to the conception and implementation of its corporate and business development plan. The term of the agreement is six months and American Capital was immediately issued 9,000 shares of common shares as compensation under the agreement.
On February 1, 2019, the Company issued a total of 1,000 shares of common shares to two unrelated parties for the total consideration of $5,000 cash to the Company.
On February 4, 2019, the ARC business loan was amended to allow conversion of outstanding amounts to common shares at a price per share of $5,25.
On February 6, 2019, a non-affiliated shareholder partially exercised 300,000 shares of a warrant they held in the Company. The exercise was cashless, and the shareholder received 299,730 shares of common stock as a result of the conversion.
On February 4 through February 8, 2019, the Company issued a total of 17,800 shares of common shares to sixteen unrelated parties for the total consideration of $89,000 cash to the Company.
On February 10, 2019, $3,000 worth of trade payables were settled with 500 common shares of the company.
On February 12, 2019, the Company executed a contract with an unrelated party for the acquisition of stock and assets of entities with non-operating assets consisting of surface and mineral ownership and other related agreements. Consideration is in the form of 2,000,000 common shares, priced at $12.79 per share of common share, as well as $500,000 cash and a promissory note totaling $2,000,000 with a maturity of less than 1 year. The note is secured by a land contract on the acquired property.
On February 14, 2019, 452,729 Series A preferred shares were converted into 1,509,097 common shares of the company in a cashless conversion under the terms of the agreement. This resulted in no more Series A Preferred stock being outstanding as of this date.
On February 20, 2019, the Company issued 1,000,000 shares of Class A Common Stock at a price of $4 per share in conjunction with its effective S-1/A Registration Statement. Net proceeds to the Company amounted to $3,695,000. On March 7, 2019, the Company issued an additional 150,000 shares of Class A Common Stock at a price of $4 per share as the over-allotment from the effective A-1/A Registration Statement. The net proceeds to the company amounted to $558,000.