SECURITIES & EXCHANGE COMMISSION EDGAR FILING
American Resources Corp
Form: 10-K
Date Filed: 2018-04-23
Corporate Issuer CIK: 1590715
© Copyright 2018, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the terms of use.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
❑ TRANSITION REPORT UNDER 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
(State or jurisdiction of
Incorporation or organization
9002 Technology Lane
Fishers, Indiana
(Address of principal executive offices)
46-3914127
(I.R.S Employer
Identification No.)
46038
(Zip Code)
Registrant’s telephone number, including area code: 606-637-3740
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None N/A
Securities registered under Section 12(g) of the Exchange Act
Common Stock, $0.001 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ❑ Yes ☑ No
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Exchange Act. ❑ Yes ☑ No
Indicate by check mark whether the registrant (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 Web site, 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation s-K (§ 229.405 of this chapter is not contained herein
and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ❑
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 “large accelerated filer”, “accelerated filer” “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller company)
❑
❑
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 Act). ❑ Yes ☑ No
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State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which
the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most
recently completed second fiscal quarter. $892,044
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
The number of shares outstanding of the issuer’s Common Stock, $.001 par value, as of April 20, 2018 was 892,044 shares.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the
documents is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant
to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1980).
NONE
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AMERICAN RESOURCES CORPORATION
ANNUAL REPORT ON FORM 10-K
Fiscal Year Ended December 31, 2017
TABLE OF CONTENTS
Special Note Regarding Forward Looking Statements
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
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PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosure About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 15.
Exhibits, Financial Statement Schedules
Signatures
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Table of Contents
Special Note Regarding Forward Looking Statements.
This annual report on Form 10-K of American Resources Corporation for the year ended December 31, 2017 contains certain forward-
looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended, which are intended to be covered by the safe harbors created thereby. To the extent that such statements are not
recitations of historical fact, such statements constitute forward looking statements which, by definition involve risks and uncertainties. In
particular, statements under the Sections; Description of Business, Management’s Discussion and Analysis of Financial Condition and Results of
Operations contain forward looking statements. Where in any forward-looking statements, the Company expresses an expectation or belief as to
future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no
assurance that the statement of expectation or belief will result or be achieved or accomplished.
The following are factors that could cause actual results or events to differ materially from those anticipated and include but are not limited
to: general economic, financial and business conditions; changes in and compliance with governmental regulations; changes in tax laws; and the
cost and effects of legal proceedings.
You should not rely on forward looking statements in this annual report. This annual report contains forward looking statements that involve
risks and uncertainties. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” and similar expressions to identify
these forward-looking statements. Prospective investors should not place undue reliance on these forward-looking statements, which apply only
as of the date of this annual report. Our actual results could differ materially from those anticipated in these forward-looking statements.
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Table of Contents
PART I
Item 1. Business.
Overview
When we formed our company, our focus was to (i) construct and/or purchase and manage a chain of combined gasoline, diesel and natural gas
(NG) fueling and service stations (initially, in the Miami, FL area); (ii) construct conversion factories to convert NG to liquefied natural gas (LNG)
and compressed natural gas (CNG); and (iii) construct conversion factories to retrofit vehicles currently using gasoline or diesel fuel to also run on
NG in the United States and also to build a convenience store to serve our customers in each of our locations.
On January 5, 2017, American Resources Corporation (ARC or the Company) executed a Share Exchange Agreement between the Company
and Quest Energy Inc. (Quest Energy), a private company incorporated in the State of Indiana on May 2015 with offices at 9002 Technology
Lane, Fishers, IN 46038, and due to the fulfillment of various conditions precedent to closing of the transaction, the control of the Company was
transferred to the Quest Energy shareholders on February 7, 2017. This transaction resulted in Quest Energy becoming a wholly-owned
subsidiary of ARC. Through Quest Energy, ARC was able to acquire coal mining and coal processing operations, substantially all located in
eastern Kentucky.
Quest Energy currently has five coal mining and processing operating subsidiaries: McCoy Elkhorn Coal LLC (doing business as McCoy Elkhorn
Coal Company) (McCoy Elkhorn), Knott County Coal LLC (Knott County Coal), Deane Mining LLC (Deane Mining) and Quest Processing LLC
(Quest Processing) located in eastern Kentucky within the Central Appalachian coal basin, and ERC Mining Indiana Corporation (ERC) located in
southwest Indiana within the Illinois coal basin. The coal reserves under control by the Company are generally comprise of metallurgical coal
(used for steel making), pulverized coal injections (used in the steel making process) and high-BTU, low sulfur, low moisture bituminous coal used
for a variety of uses within several industries, including industrial customers, specialty products and thermal coal used for electricity generation.
McCoy Elkhorn Coal LLC
Located primarily within Pike County, Kentucky, McCoy Elkhorn is currently comprised of two active mines (Mine #15 and the Carnegie Mine), two
coal preparation facilities (Bevins #1 and Bevins #2), and other mines in various stages of development or reclamation. McCoy Elkhorn sells its
coal to a variety of customers, both domestically and internationally, primarily to the steel making industry as a high-vol “B” coal or blended coal,
and high-grade thermal coal to utilities.
Mine #15 is an underground mine in the Millard (also known as Glamorgan) coal seam and located near Meta, Kentucky. Mine #15 is mined via
room-and-pillar mining methods using continuous miners, and the coal is belted directly from the stockpile to McCoy Elkhorn’s coal preparation
facility. Mine #15 is currently a “company run” mine, whereby the Company manages the workforce at the mine. The coal from Mine #15 is
stockpiled at the mine site and belted directly to the Company’s nearby coal preparation facilities. Production at Mine #15 re-commenced under
Quest Energy’s ownership in September 2016.
The Carnegie Mine is an underground mine in the Alma and Upper Alma coal seams and located near Kimper, Kentucky. In 2011, coal production
from the Carnegie Mine in the Alma coal seam commenced and then subsequently the mine was idled. Production at the Carnegie Mine was
reinitiated in early 2017 under Quest Energy’s ownership and is currently being mined via room-and-pillar mining methods utilizing a continuous
miner. The coal is stockpiled on-site and trucked approximately 7 miles to McCoy Elkhorn’s preparation facilities. The Carnegie Mine is currently
operated as a modified contractor mine, whereby McCoy Elkhorn provides the mining infrastructure and equipment for the operations and pays the
contractor a fixed per-ton fee for managing the workforce, procuring the supplies, and maintaining the equipment and infrastructure in proper
working order.
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There are two coal preparation facilities at McCoy Elkhorn: the Bevins #1 Preparation Plant, an 800 ton-per hour coal preparation facility, and the
Bevins #2 Preparation Plant, located on the same permit site as Bevins #1, and a 500 ton-per-hour processing facility. Both coal preparation
plants have fine coal recovery and a stoker circuits for enhanced coal recovery and coal sizing options.
Both Bevins #1 and Bevins #2 have a batch-weight loadout and rail spur for loading coal into trains for rail shipments. The spur has storage for
110 rail cars and is serviced by CSX Transportation and is located on CSX’s Big Sandy, Coal Run Subdivision. Both Bevins #1 and Bevins #2
have coarse refuse and slurry impoundments called Big Groundhog and Lick Branch Impoundments.
Knott County Coal LLC
Located primarily within Knott County, Kentucky (but with additional idled permits in Leslie County, Perry County, and Breathitt County, Kentucky),
Knott County Coal is comprised of 17 idled mining permits (or permits in reclamation) and permits for two preparation facilities: the Supreme
Energy Preparation Plant and the Raven Preparation Plant, both of which are also idled. The idled mining permits are either in various stages of
reclamation or being maintained as idled, pending any changes to the coal market that may warrant reinitiating production. The idled mines at
Knott County Coal are primarily underground mines that utilize room-and-pillar mining.
The idled Supreme Energy Preparation Plant is a 450 ton-per-hour coal preparation facility located in Kite, Kentucky. The Bates Branch rail
loadout associated with the Supreme Energy Preparation Plant is a batch-weigh rail loadout with 110 rail car storage capacity and serviced by
CSX Transportation in their Big Sandy rate district. The Supreme Energy Preparation Plant has a coarse refuse and slurry impoundment called
the King Branch Impoundment.
Knott County Coal is also owner of the permits to the idled Raven Preparation Plant, an 800 ton-per-hour coal preparation facility with a fine coal
circuit, located in Raven, Kentucky. The Raven rail loadout is a batch-weight rail loadout with 110 car storage capacity and services by CSX
Transportation in their Big Sandy rate district. The Raven Preparation Plant has a coarse refuse and slurry impoundment called the Big Branch
Impoundment.
Deane Mining LLC
Located within Letcher County and Knott County, Kentucky, Deane Mining is comprised of one active underground coal mine (the Access Energy
Mine), one active surface mine (Razorblade Surface) and one active coal preparation facility called Mill Creek Preparation Plant, along with 12
additional idled mining permits (or permits in reclamation). The idled mining permits are either in various stages of development, reclamation or
being maintained as idled, pending any changes to the coal market that may warrant re-starting production.
Access Energy is an underground mine in the Elkhorn 3 coal seam and located in Deane, Kentucky. Access Energy is mined via room-and-pillar
mining methods using continuous miners, and the coal is belted directly from the mine to the raw coal stockpile at the Mill Creek Preparation Plant
across the road from Access Energy. Access Energy is currently run as a modified contractor mine, whereby Deane Mining provides the mining
infrastructure and equipment for the operations and pays the contractor a fixed per-ton fee for managing the workforce, procuring the supplies, and
maintaining the equipment and infrastructure in proper working order.
Razorblade Surface is a surface mine targeting the Hazard 4 and Hazard 4 Rider coal seams and located in Deane, Kentucky. Deane Mining is
currently preparing Razorblade Surface for coal extraction and anticipates extracting coal in spring of 2018. Coal produced from Razorblade
Surface will be trucked approximately one mile to the Mill Creek Preparation Plant.
Coal from Access Energy is processed at Deane Mining’s Mill Creek Preparation Plant, an 800 ton-per hour coal preparation facility with a batch-
weight loadout and rail spur for loading coal into trains for rail shipments. The spur has storage for 110 rail cars and is serviced by CSX
Transportation and is located on both CSX’s Big Sandy rate district and CSX’s Elkhorn rate district. The Mill Creek Preparation Plant has a coarse
refuse and slurry impoundment called Razorblade Impoundment.
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Table of Contents
Quest Processing LLC
Quest Energy’s wholly-owned subsidiary, Quest Processing, manages the assets, operations, and personnel of the certain coal processing and
transportation facilities of Quest Energy’s various other subsidiaries, namely the Supreme Energy Preparation Facility (of Knott County Coal LLC),
the Raven Preparation Facility (of Knott County Coal LLC), and Mill Creek Preparation Facility (of Deane Mining LLC). Quest Processing LLC was
the recipient of a New Markets Tax Credit loan that allowed for the payment of certain expenses of these preparation facilities. As part of that
financing transaction, Quest Energy loaned ERC Mining LLC, an entity owned by members of Quest Energy, Inc.’s management, $4,120,000 to
facilitate the New Markets Tax Credit loan, of which is all outstanding as of December 31, 2017. ERC Mining LLC is considered a variable interest
entity and is consolidated into Quest Energy’s financial statements.
ERC Mining Indiana Corporation (the Gold Star Mine)
Quest Energy, through its wholly-owned subsidiary, ERC Mining Indiana Corporation (ERC), has a management agreement with an unrelated
entity, LC Energy Operations LLC to manage an underground coal mine, clean coal processing facility and rail loadout located in Greene County,
Indiana (referred to as the “Gold Star Mine”) for a monthly cash and per-ton fee. As part of that management agreement, ERC manages the
operations of the Gold Star Mine, is the holder of the mining permit, provides the reclamation bonding, is the owner of some of the equipment
located at the Gold Star Mine, and provides the employment for the personnel located at the Gold Star Mine. LC Energy Operations LLC owns the
remaining equipment and infrastructure, is the lessee of the mineral (and the owner of some of the mineral and surface), and provides funding for
the operations. Currently the coal mining operations at the Gold Star Mine are idled.
In addition to the current owned permits and controlled reserves, ARC may, from time to time, and frequently, acquire additional coal mining
permits or reserves, or dispose of coal mining permits or reserves currently held by ARC, as management of the Company deems appropriate.
Mineral and Surface Leases
Coal mining and processing involves the extraction of coal (mineral) and the use of surface property incidental to such extraction and processing.
All of the mineral and surface related to the Company’s coal mining operations is leased from various mineral and surface owners (the “Leases”).
The Company’s operating subsidiaries, collectively, are parties to approximately 200 various Leases and other agreements required for the
Company’s coal mining and processing operations. The Leases are with a variety of Lessors, from individuals to professional land management
firms such as the Elk Horn Coal Company LLC and Alma Land Company. In some instances, the Company has leases with Land Resources &
Royalties LLC (LRR), a professional leasing firm that is an entity wholly owned by Quest MGMT LLC, an entity owned by members of Quest
Energy Inc.’s management. LRR is considered a variable interest entity and is consolidated into Quest Energy’s financial statements.
Coal Sales
ARC sells its coal to domestic and international customers, some which blend ARC’s coal at east coast ports with other qualities of coal for export.
Coal sales currently come from the Company’s McCoy Elkhorn’s Mine #15, McCoy Elkhorn’s Carnegie Mine, and Deane Mining’s Access Energy
Mine. The Company may, at times, purchase coal from other regional producers to sell on its contracts.
Coal sales at the Company is primarily outsource to third party intermediaries who act on the Company’s behalf to source potential coal sales and
contracts. The third-party intermediaries have no ability to bind the Company to any contracts, and all coal sales are approved by management of
the Company.
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Table of Contents
Competition
The coal industry is intensely competitive. The most important factors on which the Company competes are coal quality, delivered costs to the
customer and reliability of supply. Our principal domestic competitors will include Alpha Natural Resources, Ramaco Resources, Blackhawk
Mining, Coronado Coal, Arch Coal, Contura Energy, Warrior Met Coal, Alliance Resource Partners, and ERP Compliance Fuels. Many of these
coal producers may have greater financial resources and larger reserve bases than we do. We also compete in international markets directly with
domestic companies and with companies that produce coal from one or more foreign countries, such as Australia, Colombia, Indonesia and South
Africa.
Legal Proceedings
From time to time, we are subject to ordinary routine litigation incidental to our normal business operations. We are not currently a party to, and
our property is not subject to, any material legal proceedings.
Environmental, Governmental, and Other Regulatory Matters
Our operations are subject to federal, state, and local laws and regulations, such as those relating to matters such as permitting and licensing,
employee health and safety, reclamation and restoration of mining properties, water discharges, air emissions, plant and wildlife protection, the
storage, treatment and disposal of wastes, remediation of contaminants, surface subsidence from underground mining and the effects of mining on
surface water and groundwater conditions. In addition, we may become subject to additional costs for benefits for current and retired coal miners.
These environmental laws and regulations include, but are not limited to, the Surface Mining Control and Reclamation Act of 1977 (SMCRA) with
respect to coal mining activities and ancillary activities; the Clean Air Act (CAA) with respect to air emissions; the Clean Water Act (CWA) with
respect to water discharges and the permitting of key operational infrastructure such as impoundments; Resource Conservation and Recovery
RCRA with respect to solid and hazardous waste management and disposal, as well as the regulation of underground storage tanks; the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) with respect to releases, threatened releases
and remediation of hazardous substances; the Endangered Species Act of 1973 (ESA) with respect to threatened and endangered species; and
the National Environmental Policy Act of 1969 (NEPA) with respect to the evaluation of environmental impacts related to any federally issued
permit or license. Many of these federal laws have state and local counterparts which also impose requirements and potential liability on our
operations.
Compliance with these laws and regulations may be costly and time-consuming and may delay commencement, continuation or expansion of
exploration or production at our facilities. They may also depress demand for our products by imposing more stringent requirements and limits on
our customers’ operations. Moreover, these laws are constantly evolving and are becoming increasingly complex and stringent over time. These
laws and regulations, particularly new legislative or administrative proposals, or judicial interpretations of existing laws and regulations related to
the protection of the environment could result in substantially increased capital, operating and compliance costs. Individually and collectively, these
developments could have a material adverse effect on our operations directly and/or indirectly, through our customers’ inability to use our
products.
Certain implementing regulations for these environmental laws are undergoing revision or have not yet been promulgated. As a result, we cannot
always determine the ultimate impact of complying with existing laws and regulations.
Due in part to these extensive and comprehensive regulatory requirements and ever-changing interpretations of these requirements, violations of
these laws can occur from time to time in our industry and also in our operations. Expenditures relating to environmental compliance are a major
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cost consideration for our operations and safety and compliance is a significant factor in mine design, both to meet regulatory requirements and to
minimize long-term environmental liabilities. To the extent that these expenditures, as with all costs, are not ultimately reflected in the prices of our
products and services, operating results will be reduced.
In addition, our customers are subject to extensive regulation regarding the environmental impacts associated with the combustion or other use of
coal, which may affect demand for our coal. Changes in applicable laws or the adoption of new laws relating to energy production, greenhouse
gas emissions and other emissions from use of coal products may cause coal to become a less attractive source of energy, which may adversely
affect our mining operations, the cost structure and, the demand for coal.
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We believe that our competitors with operations in the United States are confronted by substantially similar conditions. However, foreign
producers and operators may not be subject to similar requirements and may not be required to undertake equivalent costs in or be subject to
similar limitations on their operations. As a result, the costs and operating restrictions necessary for compliance with United States environmental
laws and regulations may have an adverse effect on our competitive position with regard to those foreign competitors. The specific impact on
each competitor may vary depending on a number of factors, including the age and location of its operating facilities, applicable legislation and its
production methods.
The Mine Act and the MINER Act, and regulations issued under these federal statutes, impose stringent health and safety standards on mining
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operations. The regulations that have been adopted under the Mine Act and the MINER Act are comprehensive and affect numerous aspects of
mining operations, including training of mine personnel, mining procedures, roof control, ventilation, blasting, use and maintenance of mining
equipment, dust and noise control, communications, emergency response procedures, and other matters. The Mine Safety and Health
Administration (MSHA) regularly inspects mines to ensure compliance with regulations promulgated under the Mine Act and MINER Act.
Due to the large number of mining permits held by the Company that have been previously mined and operated, there is a significant amount of
environmental reclamation and remediation required by the Company to comply with local, state, and federal regulations for coal mining
companies.
Property
Our principal offices are located at 9002 Technology Lane, Fishers, Indiana 46038. We pay $2,500 per month in rent for the office space and the
rental lease expires in December 2018. We also rent office space from an entity which we consolidate as a variable interest entity (see note 5) at
11000 Highway 7 South, Kite, Kentucky 41828 and pay $500 per month rent and the rental lease expires October 30, 2021.
The Company also utilizes various office spaces on-site at its coal mining operations and coal preparation plant locations in eastern Kentucky, with
such rental payments covered under any surface lease contracts with any of the surface land owners.
Employees
ARC, through its operating subsidiaries, employs a combination of company employees and contract labor to mine coal, process coal, and related
functions. The Company is continually evaluating the use of company employees and contract labor to determine the optimal mix of each, given
the needs of the Company. Currently, McCoy Elkhorn’s Mine #15 and Deane Mining’s Razorblade Surface mine are primarily run by company
employees, McCoy Elkhorn’s Carnegie Mine and Deane Mining’s Access Energy mine are primarily run by contract labor, and the Company’s
various coal preparation facilities are run by company employees.
The Company currently has approximately 204 employees, with a substantial majority based in eastern Kentucky. The Company is headquartered
in Fishers, Indiana with six members of the Company’s executive team based at this location.
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Implications of Being an Emerging Growth Company
We qualify as an emerging growth company as that term is used in the JOBS Act. An emerging growth company may take advantage of
specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
·
·
·
·
A requirement to have only two years of audited financial statements and only two years of related MD&A;
Exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal control over financial reporting
under Section 404 of the Sarbanes-Oxley Act of 2002;
Reduced disclosure about the emerging growth company’s executive compensation arrangements; and
No non-binding advisory votes on executive compensation or golden parachute arrangements.
We have already taken advantage of these reduced reporting burdens in this Form 10-K, which are also available to us as a smaller
reporting company as defined under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting
standards. We are choosing to utilize the extended transition period for complying with new or revised accounting standards under Section 102(b)
(2) of the JOBS Act. This election allows our Company to delay the adoption of new or revised accounting standards that have different effective
dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may
not be comparable to companies that comply with public company effective dates.
We could remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our
annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act,
which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our
most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the
preceding three year period.
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We are a reporting company and file all reports required under sections 13 and 15d of the Exchange Act.
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Table of Contents
Item 1A. Risk Factors.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Because we are a Smaller Reporting Company, we are not required to provide the information required by this item.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our principal offices are located at 9002 Technology Lane, Fishers, Indiana 46038. We pay $2,500 per month in rent for the office space
and the rental lease expires in December 2018. We also rent office space at 11000 Highway 7 South, Kite, Kentucky 41828 and pay $500 per
month rent from an entity which we consolidated as a variable interest entity (see note 5) and the rental lease expires October 30, 2021. The
future annual rent is $6,000 through 2021. Rent expense for 2017 and 2016 amounted to $26,000 each year, respectively.
Item 3. Legal Proceedings.
We are not currently a party to any legal proceedings nor are any contemplated by us at this time.
Item 4. Mine Safety Disclosures.
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this Annual Report.
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PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information.
Our Class A Common Stock (also referred to as common stock or shares) is presently traded on the OTC Pink Market under the ticker symbol
AREC. Our common stock has been thinly traded since our Company’s inception. Moreover, we do not believe that any institutional or other large-
scale trading of our stock has occurred or will in fact occur in the near future. The following table sets forth information as reported by the OTC
Markets Group for the high and low bid and ask prices for each of the eight quarters ending December 31, 2017 for our common stock. The
following prices reflect inter-dealer prices without retail markup, markdown or commissions and may not reflect actual transactions.
Quarters ending in 2016
March 31
June 30
September 30
December 31
Quarters ending in 2017
March 31
June 30
September 30
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High
Low
$
$
12.00 $
12.00
12.00
12.00
18.00 $
6.60
1.00
12.00
12.00
12.00
12.00
1.53
1.00
0.05
December 31
(b) Holders
$
0.05 $
0.05
As of April 20, 2018, the Company had 128 common stock shareholders of record holding 892,044 shares of our common stock issued and
outstanding. This number includes one position at Cede & Co., of which Company principals are not aware how many shareholders hold the
shares in street name. The number of both shareholders of record and beneficial shareholders may change on a daily basis and without the
Company’s immediate knowledge.
(c) Dividends
Holders of common stock are entitled to receive dividends as may be declared by our Board of Directors and, in the event of liquidation, to share
pro rata in any distribution of assets after payment of liabilities and preferred shareholders. Our Board of Directors has sole discretion to
determine: (i) whether to declare a dividend; (ii) the dividend rate, if any, on the shares of any class of series of our capital stock, and if so, from
which date or dates; and (iii) the relative rights of priority of payment of dividends, if any, between the various classes and series of our capital
stock. We have not paid any dividends and do not have any current plans to pay any dividends.
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No established public market for common stock
Although there have been a few trades of our stock on the OTC Markets Pink, the quotations have been limited and sporadic and thus,
there is presently no established public market for our common stock. There is no assurance that a trading market will develop, or, if developed,
that it will be sustained. A purchaser of our securities may, therefore, find it difficult to resell our securities should he or she desire to do so.
Recent Sales of Unregistered Securities.
COMMON STOCK
During the periods ending December 31, 2015, December 31, 2016 and December 31, 2017, the Company engaged in the sale of its unregistered
securities as described below. The shares of our common stock were issued pursuant to an exemption from registration in Section 4(a)(2) of the
Securities Act of 1933. These shares of our common stock qualified for exemption under Section 4(a)(2) of the Securities Act of 1933 since the
issuance of shares by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(a)(2) due to the
insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not
undertake an offering in which we sold a high number of shares to a high number of investors. In addition, these shareholders had necessary
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investment intent as required by Section 4(a)(2) since they agreed to receive share certificates bearing a legend stating that such shares are
restricted pursuant to Rule 144 of the 1933 Act. This restriction ensures that these shares would not be immediately redistributed into the market
and therefore not be part of a “public offering.” All shareholders are “sophisticated investors” and are family members, friends or business
acquaintances of our officers and directors. Based on an analysis of the above factors, we believe we have met the requirements to qualify for
exemption under section 4(a)(2) of the Securities Act of 1933 for this transaction.
On February 22, 2017, Tarpon Bay Partners LLC converted its $50,000 promissory note and accrued interest held in the Company into 33,334
common shares, representing the full value of the promissory note held by Tarpon Bay Partners LLC.
During the twelve months ended December 31, 2017 the Company issued shares to a non-related party for services, recorded at the fair market
value of the share price, in the amount of 13,333 common shares. Additional shares of our common stock were issued at fair market value of the
share price as set forth in the table below.
Date
7/5/2017
Name
Shares
Fair Market
Value
Dollar
Amount
Oscaleta Partners LLC
13,333 $
.75/share $
10,000
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During the twelve months ended December 31, 2016 the Company issued shares to a non-related party for services, recorded at the fair market
value of the share price, in the amount of 3,805 common shares. Additional shares of our common stock were issued at fair market value of the
share price as set forth in the table below. These items were transacted before the merger with the predecessor company (NGFC).
Date
8/15/2016
9/30/2016
9/30/2016
SERIES A PREFERRED STOCK
Name
Shares
Fair Market
Value
Dollar
Amount
Stockvest
Clifford Hunt
Lynx Management
3,334 $
221 $
250 $
12.00/share $
12.00/share $
12.00/share $
40,000
2,650
3,000
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
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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 April 20, 2018,
4,817,792 shares of Series A Preferred stock are outstanding.
Pursuant to the Series A Preferred Stock Designation, the holders of the Series A Preferred stock are entitled to thirty-three and one-third 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. The holders of the
Series A Preferred stock are not entitled to receive dividends.
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.
Upon our liquidation, dissolution, distribution of assets or other winding up, the holders of the Series A Preferred stock shall be entitled to receive
in preference to the holders of the Common Stock a per share amount equal to $1.65 per share.
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 April 20, 2018,
921,221 shares of Series B Preferred stock are outstanding, which includes 850,000 shares of Series B Preferred stock issued to investors and
71,221 shares of Series B Preferred stock issued as part of the 8.0% annual dividend that is accrued and paid in-kind, as described below.
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The holders of Series B Preferred shares are entitled to no voting rights until the holder converts any or all of their Series B Preferred shares to
common shares. The holders of the Series B Preferred shall accrue and pay-in-kind with additional Series B Preferred stock 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.
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 Sixty Cents ($3.60) per share of common stock, subject to certain price adjustments found in the Series B Preferred stock purchase
agreements.
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 common shares and Series A Preferred shares outstanding in the amount equal to the amount initially invested by the Series B
Preferred holder in the Series B Preferred stock at the time of such investment minus the pro rata amount that has been converted into common
stock or redeemed.
“BLANK CHECK” 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 up to an aggregate of 70,000,000 shares of preferred stock that is considered “blank check”. The blank
check preferred stock shall be designed by the Board of Directors at the time of classification
OPTIONS AND WARRANTS
Pursuant to our Series B Preferred stock offering, investors in the Series B Preferred stock received warrants to purchase additional common
shares at exercise prices stated within such warrant. The warrants have an expiration date of two or three years post the date of the investment in
the Series B Preferred stock by the investor.
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Should all Series B Preferred stock warrant holders fully exercise their right to purchase shares, for cash, the Company will receive $1,702,090
proceeds from such exercises and will increase the common shares outstanding by 305,557 shares.
On June 27, 2017 we entered into a settlement agreement with Oscaleta Partners LLC, a company we engaged on February 20, 2017 to perform
consulting services to the Company, and as part of that settlement, we issued to Oscaleta Partners LLC the amount of 13,333 restricted shares, of
the Company’s common stock, and a three-year warrant to purchase up to 33,333 common shares of stock of the Company at an exercise price of
$3.60 per share. Should Oscaleta Partners LLC exercise all of its shares under the warrant, the company will receive $119,999 cash proceeds.
As compensation to Bill Bishop for his service on the Board of Directors of the Company, we issued Mr. Bishop a three-year warrant to purchase
up to 8,334 common shares of our company at an exercise price of $3.60 per share, subject to certain price adjustments and other provisions
found within the warrant issued to Mr. Bishop. Should Mr. Bishop exercise the option through a cash payment to the Company, the Company will
receive up to $30,002 from Mr. Bishop and he will receive up to 8,334 restricted common shares of the Company. There are no registration rights
associated with this warrant that require the Company to register the shares.
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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;
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·
·
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.
None of the warrants resulting from the agreement with Golden Properties have been exercised as of the date of this annual report.
During the period the options are outstanding, we will reserve from our authorized and unissued common stock a sufficient number of shares to
provide for the issuance of shares of common stock underlying the options upon the exercise of the options. No fractional shares will be issued
upon the exercise of the options. The options are not listed on any securities exchange. Except as otherwise provided within the option, the option
holders have no rights or privileges as members of the Company until they exercise their options.
Item 6. Selected Financial Data.
The registrant qualifies as a smaller reporting company, as defined by Rule 229.10(f)(1) and is not required to provide the information required by
this Item.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of
various factors, including those set forth under “Risk Factors” and elsewhere in this report. The management’s discussion, analysis of financial
condition, and results of operations should be read in conjunction with our financial statements and notes thereto contained elsewhere in this
annual report.
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Table of Contents
Our Business Overview.
When we formed our company, our focus was to (i) construct and/or purchase and manage a chain of combined gasoline, diesel and natural gas
(NG) fueling and service stations (initially, in the Miami, FL area); (ii) construct conversion factories to convert NG to liquefied natural gas (LNG)
and compressed natural gas (CNG); and (iii) construct conversion factories to retrofit vehicles currently using gasoline or diesel fuel to also run on
NG in the United States and also to build a convenience store to serve our customers in each of our locations.
On January 5, 2017, American Resources Corporation (ARC or the Company) executed a Share Exchange Agreement between the Company
and Quest Energy Inc. (Quest Energy), a private company incorporated in the State of Indiana on May 2015 with offices at 9002 Technology
Lane, Fishers, IN 46038, and due to the fulfillment of various conditions precedent to closing of the transaction, the control of the Company was
transferred to the Quest Energy shareholders on February 7, 2017. This transaction resulted in Quest Energy becoming a wholly-owned
subsidiary of ARC. Through Quest Energy, ARC was able to acquire coal mining and coal processing operations, substantially all located in
eastern Kentucky.
Quest Energy currently has five coal mining and processing operating subsidiaries: McCoy Elkhorn Coal LLC (doing business as McCoy Elkhorn
Coal Company) (McCoy Elkhorn), Knott County Coal LLC (Knott County Coal), Deane Mining LLC (Deane Mining) and Quest Processing LLC
(Quest Processing) located in eastern Kentucky within the Central Appalachian coal basin, and ERC Mining Indiana Corporation (ERC) located in
southwest Indiana within the Illinois coal basin. The coal reserves under control by the Company are generally comprise of metallurgical coal
(used for steel making), pulverized coal injections (used in the steel making process) and high-BTU, low sulfur, low moisture bituminous coal used
for a variety of uses within several industries, including industrial customers, specialty products and thermal coal used for electricity generation.
McCoy Elkhorn Coal LLC
Located primarily within Pike County, Kentucky, McCoy Elkhorn is currently comprised of two active mines (Mine #15 and the Carnegie Mine), two
coal preparation facilities (Bevins #1 and Bevins #2), and other mines in various stages of development or reclamation. McCoy Elkhorn sells its
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coal to a variety of customers, both domestically and internationally, primarily to the steel making industry as a high-vol “B” coal or blended coal,
and high-grade thermal coal to utilities.
Mine #15 is an underground mine in the Millard (also known as Glamorgan) coal seam and located near Meta, Kentucky. Mine #15 is mined via
room-and-pillar mining methods using continuous miners, and the coal is belted directly from the stockpile to McCoy Elkhorn’s coal preparation
facility. Mine #15 is currently a “company run” mine, whereby the Company manages the workforce at the mine. The coal from Mine #15 is
stockpiled at the mine site and belted directly to the Company’s nearby coal preparation facilities. Production at Mine #15 re-commenced under
Quest Energy’s ownership in September 2016.
The Carnegie Mine is an underground mine in the Alma and Upper Alma coal seams and located near Kimper, Kentucky. In 2011, coal production
from the Carnegie Mine in the Alma coal seam commenced and then subsequently the mine was idled. Production at the Carnegie Mine was
reinitiated in early 2017 under Quest Energy’s ownership and is currently being mined via room-and-pillar mining methods utilizing a continuous
miner. The coal is stockpiled on-site and trucked approximately 7 miles to McCoy Elkhorn’s preparation facilities. The Carnegie Mine is currently
operated as a modified contractor mine, whereby McCoy Elkhorn provides the mining infrastructure and equipment for the operations and pays the
contractor a fixed per-ton fee for managing the workforce, procuring the supplies, and maintaining the equipment and infrastructure in proper
working order.
There are two coal preparation facilities at McCoy Elkhorn: the Bevins #1 Preparation Plant, an 800 ton-per hour coal preparation facility, and the
Bevins #2 Preparation Plant, located on the same permit site as Bevins #1, and a 500 ton-per-hour processing facility. Both coal preparation
plants have fine coal recovery and a stoker circuits for enhanced coal recovery and coal sizing options.
Both Bevins #1 and Bevins #2 have a batch-weight loadout and rail spur for loading coal into trains for rail shipments. The spur has storage for
110 rail cars and is serviced by CSX Transportation and is located on CSX’s Big Sandy, Coal Run Subdivision. Both Bevins #1 and Bevins #2
have coarse refuse and slurry impoundments called Big Groundhog and Lick Branch Impoundments.
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Knott County Coal LLC
Located primarily within Knott County, Kentucky (but with additional idled permits in Leslie County, Perry County, and Breathitt County, Kentucky),
Knott County Coal is comprised of 17 idled mining permits (or permits in reclamation) and permits for two preparation facilities: the Supreme
Energy Preparation Plant and the Raven Preparation Plant, both of which are also idled. The idled mining permits are either in various stages of
reclamation or being maintained as idled, pending any changes to the coal market that may warrant reinitiating production. The idled mines at
Knott County Coal are primarily underground mines that utilize room-and-pillar mining.
The idled Supreme Energy Preparation Plant is a 450 ton-per-hour coal preparation facility located in Kite, Kentucky. The Bates Branch rail
loadout associated with the Supreme Energy Preparation Plant is a batch-weigh rail loadout with 110 rail car storage capacity and serviced by
CSX Transportation in their Big Sandy rate district. The Supreme Energy Preparation Plant has a coarse refuse and slurry impoundment called
the King Branch Impoundment.
Knott County Coal is also owner of the permits to the idled Raven Preparation Plant, an 800 ton-per-hour coal preparation facility with a fine coal
circuit, located in Raven, Kentucky. The Raven rail loadout is a batch-weight rail loadout with 110 car storage capacity and services by CSX
Transportation in their Big Sandy rate district. The Raven Preparation Plant has a coarse refuse and slurry impoundment called the Big Branch
Impoundment.
Deane Mining LLC
Located within Letcher County and Knott County, Kentucky, Deane Miningis comprised of one active underground coal mine (the Access Energy
Mine), one active surface mine (Razorblade Surface) and one active coal preparation facility called Mill Creek Preparation Plant, along with 12
additional idled mining permits (or permits in reclamation). The idled mining permits are either in various stages of development, reclamation or
being maintained as idled, pending any changes to the coal market that may warrant re-starting production.
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Access Energy is an underground mine in the Elkhorn 3 coal seam and located in Deane, Kentucky. Access Energy is mined via room-and-pillar
mining methods using continuous miners, and the coal is belted directly from the mine to the raw coal stockpile at the Mill Creek Preparation Plant
across the road from Access Energy. Access Energy is currently run as a modified contractor mine, whereby Deane Mining provides the mining
infrastructure and equipment for the operations and pays the contractor a fixed per-ton fee for managing the workforce, procuring the supplies, and
maintaining the equipment and infrastructure in proper working order.
Razorblade Surface is a surface mine targeting the Hazard 4 and Hazard 4 Rider coal seams and located in Deane, Kentucky. Deane Mining is
currently preparing Razorblade Surface for coal extraction and anticipates extracting coal in spring of 2018. Coal produced from Razorblade
Surface will be trucked approximately one mile to the Mill Creek Preparation Plant.
Coal from Access Energy is processed at Deane Mining’s Mill Creek Preparation Plant, an 800 ton-per hour coal preparation facility with a batch-
weight loadout and rail spur for loading coal into trains for rail shipments. The spur has storage for 110 rail cars and is serviced by CSX
Transportation and is located on both CSX’s Big Sandy rate district and CSX’s Elkhorn rate district. The Mill Creek Preparation Plant has a coarse
refuse and slurry impoundment called Razorblade Impoundment.
Quest Processing LLC
Quest Energy’s wholly-owned subsidiary, Quest Processing, manages the assets, operations, and personnel of the certain coal processing and
transportation facilities of Quest Energy’s various other subsidiaries, namely the Supreme Energy Preparation Facility (of Knott County Coal LLC),
the Raven Preparation Facility (of Knott County Coal LLC), and Mill Creek Preparation Facility (of Deane Mining LLC). Quest Processing LLC was
the recipient of a New Markets Tax Credit loan that allowed for the payment of certain expenses of these preparation facilities. As part of that
financing transaction, Quest Energy loaned Quest MGMT LLC, an entity owned by members of Quest Energy, Inc.’s management, $4,120,000 to
facilitate the New Markets Tax Credit loan, of which is all outstanding as of December31, 2017. ERC Mining LLC is considered a variable interest
entity and is consolidated into Quest Energy’s financial statements.
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ERC Mining Indiana Corporation (the Gold Star Mine)
Quest Energy, through its wholly-owned subsidiary, ERC Mining Indiana Corporation (ERC), has a management agreement with an unrelated
entity, LC Energy Operations LLC to manage an underground coal mine, clean coal processing facility and rail loadout located in Greene County,
Indiana (referred to as the “Gold Star Mine”) for a monthly cash and per-ton fee. As part of that management agreement, ERC manages the
operations of the Gold Star Mine, is the holder of the mining permit, provides the reclamation bonding, is the owner of some of the equipment
located at the Gold Star Mine, and provides the employment for the personnel located at the Gold Star Mine. LC Energy Operations LLC owns the
remaining equipment and infrastructure, is the lessee of the mineral (and the owner of some of the mineral and surface) and provides funding for
the operations. Currently the coal mining operations at the Gold Star Mine are idled.
In addition to the current owned permits and controlled reserves, ARC may, from time to time, and frequently, acquire additional coal mining
permits or reserves, or dispose of coal mining permits or reserves currently held by ARC, as management of the Company deems appropriate.
Mineral and Surface Leases
Coal mining and processing involves the extraction of coal (mineral) and the use of surface property incidental to such extraction and processing.
All of the mineral and surface related to the Company’s coal mining operations is leased from various mineral and surface owners (the “Leases”).
The Company’s operating subsidiaries, collectively, are parties to approximately 200 various Leases and other agreements required for the
Company’s coal mining and processing operations. The Leases are with a variety of Lessors, from individuals to professional land management
firms such as the Elk Horn Coal Company LLC and Alma Land Company. In some instances, the Company has leases with Land Resources &
Royalties LLC (LRR), a professional leasing firm that is an entity wholly owned by Quest MGMT LLC, an entity owned by members of Quest
Energy Inc.’s management. LRR is considered a variable interest entity and is consolidated into Quest Energy’s financial statements.
Coal Sales
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ARC sells its coal to domestic and international customers, some which blend ARC’s coal at east coast ports with other qualities of coal for export.
Coal sales currently come from the Company’s McCoy Elkhorn’s Mine #15, McCoy Elkhorn’s Carnegie Mine, and Deane Mining’s Access Energy
Mine. The Company may, at times, purchase coal from other regional producers to sell on its contracts.
Coal sales at the Company is primarily outsource to third party intermediaries who act on the Company’s behalf to source potential coal sales and
contracts. The third-party intermediaries have no ability to bind the Company to any contracts, and all coal sales are approved by management of
the Company.
Competition
The coal industry is intensely competitive. The most important factors on which the Company competes are coal quality, delivered costs to the
customer and reliability of supply. Our principal domestic competitors will include Alpha Natural Resources, Ramaco Resources, Blackhawk
Mining, Coronado Coal, Arch Coal, Contura Energy, Warrior Met Coal, Alliance Resource Partners, and ERP Compliance Fuels. Many of these
coal producers may have greater financial resources and larger reserve bases than we do. We also compete in international markets directly with
domestic companies and with companies that produce coal from one or more foreign countries, such as Australia, Colombia, Indonesia and South
Africa.
Legal Proceedings
From time to time, we are subject to ordinary routine litigation incidental to our normal business operations. We are not currently a party to, and
our property is not subject to, any material legal proceedings.
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Environmental, Governmental, and Other Regulatory Matters
Our operations are subject to federal, state, and local laws and regulations, such as those relating to matters such as permitting and licensing,
employee health and safety, reclamation and restoration of mining properties, water discharges, air emissions, plant and wildlife protection, the
storage, treatment and disposal of wastes, remediation of contaminants, surface subsidence from underground mining and the effects of mining on
surface water and groundwater conditions. In addition, we may become subject to additional costs for benefits for current and retired coal miners.
These environmental laws and regulations include, but are not limited to, the Surface Mining Control and Reclamation Act of 1977 (SMCRA) with
respect to coal mining activities and ancillary activities; the Clean Air Act (CAA) with respect to air emissions; the Clean Water Act (CWA) with
respect to water discharges and the permitting of key operational infrastructure such as impoundments; Resource Conservation and Recovery
RCRA with respect to solid and hazardous waste management and disposal, as well as the regulation of underground storage tanks; the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) with respect to releases, threatened releases
and remediation of hazardous substances; the Endangered Species Act of 1973 (ESA) with respect to threatened and endangered species; and
the National Environmental Policy Act of 1969 (NEPA) with respect to the evaluation of environmental impacts related to any federally issued
permit or license. Many of these federal laws have state and local counterparts which also impose requirements and potential liability on our
operations.
Compliance with these laws and regulations may be costly and time-consuming and may delay commencement, continuation or expansion of
exploration or production at our facilities. They may also depress demand for our products by imposing more stringent requirements and limits on
our customers’ operations. Moreover, these laws are constantly evolving and are becoming increasingly complex and stringent over time. These
laws and regulations, particularly new legislative or administrative proposals, or judicial interpretations of existing laws and regulations related to
the protection of the environment could result in substantially increased capital, operating and compliance costs. Individually and collectively, these
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developments could have a material adverse effect on our operations directly and/or indirectly, through our customers’ inability to use our
products.
Certain implementing regulations for these environmental laws are undergoing revision or have not yet been promulgated. As a result, we cannot
always determine the ultimate impact of complying with existing laws and regulations.
Due in part to these extensive and comprehensive regulatory requirements and ever- changing interpretations of these requirements, violations of
these laws can occur from time to time in our industry and also in our operations. Expenditures relating to environmental compliance are a major
cost consideration for our operations and safety and compliance is a significant factor in mine design, both to meet regulatory requirements and to
minimize long-term environmental liabilities. To the extent that these expenditures, as with all costs, are not ultimately reflected in the prices of our
products and services, operating results will be reduced.
In addition, our customers are subject to extensive regulation regarding the environmental impacts associated with the combustion or other use of
coal, which may affect demand for our coal. Changes in applicable laws or the adoption of new laws relating to energy production, greenhouse
gas emissions and other emissions from use of coal products may cause coal to become a less attractive source of energy, which may adversely
affect our mining operations, the cost structure and, the demand for coal.
We believe that our competitors with operations in the United States are confronted by substantially similar conditions. However, foreign
producers and operators may not be subject to similar requirements and may not be required to undertake equivalent costs in or be subject to
similar limitations on their operations. As a result, the costs and operating restrictions necessary for compliance with United States environmental
laws and regulations may have an adverse effect on our competitive position with regard to those foreign competitors. The specific impact on
each competitor may vary depending on a number of factors, including the age and location of its operating facilities, applicable legislation and its
production methods.
The Mine Act and the MINER Act, and regulations issued under these federal statutes, impose stringent health and safety standards on mining
operations. The regulations that have been adopted under the Mine Act and the MINER Act are comprehensive and affect numerous aspects of
mining operations, including training of mine personnel, mining procedures, roof control, ventilation, blasting, use and maintenance of mining
equipment, dust and noise control, communications, emergency response procedures, and other matters. The Mine Safety and Health
Administration (MSHA) regularly inspects mines to ensure compliance with regulations promulgated under the Mine Act and MINER Act.
Due to the large number of mining permits held by the Company that have been previously mined and operated, there is a significant amount of
environmental reclamation and remediation required by the Company to comply with local, state, and federal regulations for coal mining
companies.
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Table of Contents
Property
Our principal offices are located at 9002 Technology Lane, Fishers, Indiana 46038. We pay $2,500 per month in rent for the office space and the
rental lease expires in December 2018. We also rent office space from an entity which we consolidate as a variable interest entity (see note 5) at
11000 Highway 7 South, Kite, Kentucky 41828 and pay $500 per month rent and the rental lease expires October 30, 2021.
The Company also utilizes various office spaces on-site at its coal mining operations and coal preparation plant locations in eastern Kentucky, with
such rental payments covered under any surface lease contracts with any of the surface land owners.
Employees
ARC, through its operating subsidiaries, employs a combination of company employees and contract labor to mine coal, process coal, and related
functions. The Company is continually evaluating the use of company employees and contract labor to determine the optimal mix of each, given
the needs of the Company. Currently, McCoy Elkhorn’s Mine #15 and Deane Mining’s Razorblade Surface mine are primarily run by company
employees, McCoy Elkhorn’s Carnegie Mine and Deane Mining’s Access energy mine are primarily run by contract labor, and the Company’s
various coal preparation facilities are run by company employees.
The Company currently has approximately 204 employees, with a substantial majority based in eastern Kentucky. The Company is headquartered
in Fishers, Indiana with six members of the Company’s executive team based at this location.
Results of Operations and Critical Accounting Policies and Estimates.
The results of operations are based on preparation of financial statements in conformity with accounting principles generally accepted in
the United States. The preparation of financial statements requires management to select accounting policies for critical accounting areas as well
as estimates and assumptions that affect the amounts reported in the financial statements. The Company’s accounting policies are more fully
described in Note 1 to the Notes of Financial Statements.
Results of Operations for the years ended December 31, 2017 and December 31, 2016.
Revenues.
Revenues for the period ended December 31, 2017 was $20,820,998 and 2016 was $7,601,194, respectively. The primary drivers for
revenue growth was a full year of production from the Mine #15 of McCoy Elkhorn and the beginning of production at the Access Energy mine of
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Deane Mining in September 2017.
Expenses.
Total Operating Expenses for the period ended December 31, 2017 was $34,839,884 and 2016 was $29,452,263, respectively. The
primary drivers for increase in operating expenses was a full year of production from the Mine #15 of McCoy Elkhorn and the beginning of
production at the Access Energy mine of Deane Mining in September 2017.
Total Other Expenses for the period ended December 31, 2017 was $6,580 and 2016 was $238,213, respectively. The primary driver for
decrease in other expenses was an increase in royalty and interest income from consolidated subsidiaries.
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Table of Contents
Financial Condition.
Total Assets as of December 31, 2017 amounted to $18,263,385 and 2016 amounted to $20,273,829, respectively. The primary drivers for
lower asset balance is current year depreciation and lower accounts receivable balance.
Total Liabilities as of December 31, 2017 amounted to $58,356,449 and 2016 amounted to $47,781,427, respectively. The primary drivers
for the increase in liability balance is an increase in accounts payable and equipment and term debt.
Liquidity and Capital Resources.
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The accompanying financial statements have been prepared assuming that the Company will continue as a going concern which
contemplates, among other things, the realization of assets and satisfaction of liabilities in the ordinary course of business.
We are not aware of any trends or known demands, commitments, events or uncertainties that will result in or that are reasonably likely to
result in material increases or decreases in liquidity.
Capital Resources.
We had no material commitments for capital expenditures as of December 31, 2017.
Off-Balance Sheet Arrangements
We have made no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is
material to investors.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
The registrant qualifies as a smaller reporting company, as defined by SEC Rule 229.10(f)(1) and is not required to provide the information
required by this Item.
Item 8. Financial Statements and Supplementary Data.
The report of the independent registered public accounting firm and the financial statements listed on the accompanying index at page F-1
of this report are filed as part of this report and incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
We did not have any disagreements on accounting and financial disclosure with our accounting firm during the reporting period.
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Table of Contents
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
The management, with participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures pursuant to Rule 12a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of
the period covered by this Annual Report. In designing and evaluating the disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that
management is required to apply is judgement in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2017, due
to the weakness in internal control over financial reporting described below, our disclosure controls and procedures are not designed at a
reasonable assurance level or effective to provide reasonable assurance that information we are required to disclose in reports that we file or
submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and
that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. As discussed below, we plan on increasing the size of our accounting staff at
the appropriate time for our business and its size to ameliorate our auditor’s concern that the Company does not effectively segregate certain
accounting duties, which we believe would resolve the material weakness in internal control over financial reporting and similarly improve
disclosure controls and procedures, but there can be no assurances as to the timing of any such action or that the Company will be able to do so.
(b) Management’s Annual Report on Internal Control over Financial Reporting.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed under the supervision of
the Company’s Principal Executive Officer and Principal Financial Officer to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the Company’s financial statements for external purposes in accordance with the U.S. generally accepted
accounting principles.
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As of December 31, 2017, under the supervision and with the participation of our management, we conducted an evaluation of the
effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) promulgated
under the Securities Exchange Act of 1934. Based on this evaluation, management concluded that our internal controls over financial reporting
were not effective for the purposes for which it is intended. Specifically, managements determination was based on the following material
weakness which existed as of December 31, 2017:
Due to the Company’s insufficient number of staff performing accounting and reporting functions and lack of timely reconciliations.
A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on
a timely basis. Notwithstanding the determination that our internal control over financial reporting was not effective, as of December 31, 2017, and
that there was a material weakness as identified in this Annual Report, we believe that our consolidated financial statements contained in this
Annual Report fairly present our financial position, results of operations and cash flows for the years covered hereby in all material respects.
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Table of Contents
As of December 31, 2017, under the supervision and with the participation of our management, we conducted an evaluation of the
effectiveness of the design and operations of our internal control over financial reporting, as defined in Rules 13a-15(f) or 15d-15(f) promulgated
under the Securities Exchange Act of 1934 and based on the criteria for effective internal control described Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management
concluded that our internal control over financial reporting was not effective so as to timely identify, correct and disclose information required to be
included on our Securities and Exchange Commission (“SEC”) reports due to the Company’s limited internal resources and lack of ability to have
multiple levels of transaction review. Through the use of external consultants and the review process, management believes that the financial
statements and other information presented herewith are materially correct.
The management, including its Principal Executive Officer and Principal Financial Officer, does not expect that its disclosure controls and
procedures, or its internal controls over financial reporting will prevent all error and all fraud. A control system no matter how well conceived and
operated, can provide only reasonable not absolute assurance that the objectives of the control system are met. Further, the design of control
system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs. Because of
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the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of
fraud, if any within the Company have been detected.
This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public
accounting firm pursuant to the temporary rules of the SEC that permit the Company to provide only management’s report in this Annual Report.
This report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the
liabilities of this section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof,
regardless of any general incorporation language in such filing.
(c) Changes in Internal Control Over Financial Reporting
There have been changes in the Company’s internal control over financial reporting during the period ended December 31, 2017 that have
materially affected the Company’s internal controls over financial reporting.
The Company has hired a Chief Financial Officer, President, Chief Executive Officer and General Counsel, all of whom work in conjunction
on risk assessment and segregation of duties. Management has identified material weaknesses as described above. Management has hired
outside consultants as described above to mitigate the risk though we still deem the controls to be ineffective.
Item 9B. Other Information.
None.
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Table of Contents
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Directors and Executive Officers.
The following individuals serve as our executive officers and members of our board of directors as of December 31, 2017:
Name
Mark C. Jensen
Thomas M. Sauve
Kirk P. Taylor
Age
Positions
38
39
38
Chief Executive Officer, Chairman of the Board of Directors
President, Director
Chief Financial Officer
Mark C. Jensen (age 38) – Chief Executive Officer
Mark C. Jensen has been the Chief Executive Officer of American Resources Corporation since 2015. In this role, he is responsible for all facets of
operational and strategic initiatives of the organizations. Mark is also the co-founder and co-managing partner in a micro-cap investment fund, T
Squared Capital, LLC. Prior to forming T Squared Capital, LLC and Quest Energy, Inc., Mark worked on Wall Street since 2002 with firms
specialized in company turn-arounds.
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Thomas M. Sauve (age 39) – President
Thomas M. Sauve has been the President of American Resources Corporation since 2015. In this role, he is responsible for all facets of
operational and strategic initiatives of the organizations. Tom is also the co-founder and co-managing partner in a micro-cap investment fund, T
Squared Capital, LLC. Prior to forming T Squared Capital, LLC and Quest Energy, Inc., Tom worked on Wall Street since 2001 with firms
specialized in company turn-arounds.
Kirk Taylor, CPA (age 38) – Chief Financial Officer
Kirk P. Taylor, CPA, has been the Chief Financial Officer of American Resources Corporation since 2016. In his role, he is responsible for all
financial reporting tax compliance and treasury management. Prior to joining Quest Energy, Inc., Kirk was an auditor with K.B Parrish & Co, LLP
through beginning in 2013, Katz Sapper & Miller, LLP beginning in 2011 and CohenReznick beginning in 2002. While with those firms he focused
on audit, financial reporting and tax compliance with operating entities and investment partnership utilizing various types of tax efficient
investments.
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Table of Contents
Directors:
Mark C. Jensen – Chairman of Board & Director
Mark C. Jensen has been the Chief Executive Officer of American Resources Corporation since 2015. In this role, he is responsible for all facets of
operational and strategic initiatives of the organizations. Mark is also the co-founder and co-managing partner in a micro-cap investment fund, T
Squared Capital, LLC. Prior to forming T Squared Capital, LLC and Quest Energy, Inc., Mark worked on Wall Street since 2002 with firms
specialized in company turn-arounds.
Thomas M. Sauve – Director
Thomas M. Sauve has been the President of American Resources Corporation since 2015. In this role, he is responsible for all facets of
operational and strategic initiatives of the organizations. Tom is also the co-founder and co-managing partner in a micro-cap investment fund, T
Squared Capital, LLC. Prior to forming T Squared Capital, LLC and Quest Energy, Inc., Tom worked on Wall Street since 2001 with firms
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specialized in company turn-arounds.
During the past ten years, none of our directors or executive officers has been:
•
•
•
•
•
•
the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that time;
convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or
state securities or commodities law, that has not been reversed, suspended, or vacated;
subject of, or a party to, any order, judgment, decree or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of
a federal or state securities or commodities law or regulation, law or regulation respecting financial institutions or insurance companies, law or
regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered
entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a
member.
None of our directors, executive officers or affiliates, or any beneficial owner of 5% or more of our common stock, or any associate of such
persons, is an adverse party in any material proceeding to, or has a material interest adverse to, us.
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Table of Contents
Separation of Duties of the Chairman of the Board, the Chief Executive Officer and the President
Due to the inherent limitations of nonexecutive chairs, the duties of the Chairman of the Board and the Chief Executive Officer have not been
separated. In order to increase objectivity and fiduciary responsibilities to the shareholders both in appearance and operation, the duties of the
Chief Executive Officer and the President have been separated.
Director Independence
None of our directors are considered to be independent.
Limitation of Director Liability; Indemnification
Indemnity
To the fullest extent permitted by the Florida Business Corporation Act, the Company shall indemnify, or advance expenses to, any person made,
or threatened to be made, a party to any action, suit or proceeding by reason of the fact that such person (i) is or was a director of the Company;
(ii) is or was serving at the request of the Company as a director of another Company, provided that such person is or was at the time a director of
the Company; or (iv)is or was serving at the request of the Company as an officer of another Company, provided that such person is or was at the
time a director of the Company or a director of such other Company, serving at the request of the Company. Unless otherwise expressly prohibited
by the Florida Business Corporation Act, and except as otherwise provided in the previous sentence, the Board of Directors of the Company shall
have the sole and exclusive discretion, on such terms and conditions as it shall determine, to indemnify, or advance expenses to, any person
made, or threatened to be made, a party to any action, suit, or proceeding by reason of the fact such person is or was an officer, employee or
agent of the Company as an officer, employee or agent of another Company, partnership, joint venture, trust or other enterprise. No person falling
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within the purview of this paragraph may apply for indemnification or advancement of expenses to any court of competent jurisdiction.
Section 16(a) Beneficial Ownership Reporting Compliance
Our shares of common stock are registered under the Exchange Act, and therefore our officers, directors and holders of more than 10% of
our outstanding shares are subject to the provisions of Section 16(a) which requires them to file with the SEC initial reports of ownership and
reports of changes in ownership of common stock and our other equity securities. Officers, directors and greater than 10% beneficial owners are
required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. During the fiscal year ended December 31, 2017, none
of our officers, directors or 10% shareholders failed to file any Section 16 report on a timely basis.
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Table of Contents
Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors. In addition to the Code
of Business Conduct and Ethics, our principal executive officer, principal financial officer and principal accounting officer are also subject to written
policies and standards that are reasonably designed to deter wrongdoing and to promote: honest and ethical conduct, including the ethical
handling of actual or apparent conflicts of interest between personal and professional relationships; full, fair, accurate, timely and understandable
disclosure in reports and documents that are filed with, or submitted to the SEC and in other public communications made by us; compliance with
applicable government laws, rules and regulations; the prompt internal reporting of violations of the code to an appropriate person or persons
identified in the code; and accountability for adherence to the code. We have posted the text of our Code of Business Conduct and Ethics on our
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internal website. We intend to disclose future amendments to, or waivers from, certain provisions of our Code of Business Conduct and Ethics as
applicable.
Legal Proceedings.
To the best of our knowledge, except as set forth herein, none of the directors or director designees to our knowledge has been convicted
in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding
during the past five years that resulted in a judgment decree or final order enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or finding of any violation of federal or state securities laws, except for matters that were dismissed
without sanction or settlement.
Meetings and Committees of the Board of Directors.
We do not have a nominating committee of the Board of Directors, or any committee performing similar functions. Nominees for election as
a director are selected by the Board of Directors.
We do not yet have an audit committee or an audit committee financial expert. We expect to form such a committee composed of non-
employee directors when such individuals are added to the board of directors. We may in the future attempt to add a qualified board member to
serve as an audit committee financial expert in the future, subject to our ability to locate and compensate such a person. Despite the lack of an
audit committee, those members of the board of directors that would otherwise be on our audit committee will continue to analyze and investigate
our actual and potential businesses prospects as members of our board of directors. Furthermore, our entire board of directors is aware of the
importance of the financial and accounting due diligence that must be undertaken in furtherance of our business and they intend to conduct a
comprehensive accounting financial analysis of the Company’s business.
Item 11. Executive Compensation.
The following table sets forth information concerning the annual and long-term compensation of our executive officers for services rendered
in all capacities to us during the last two completed fiscal years. The listed individuals shall hereinafter be referred to as the “Named Executive
Officers.” We also have included below a table regarding compensation paid to our directors who served during the last completed fiscal year. The
address for all individuals identified in the following tables is 9002 Technology Lane, Fishers, IN 46038.
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Table of Contents
Summary Compensation Table - Officers
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
Non-equity
Incentive plan
Compensation
($)
Nonqualified
deferred
compensation
earnings
($)
All other
Compensation
($)
Total
($)
5,000
-0-
-0-
-0-
22,800
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
5,000
-0-
22,800
Year
2017
2016
2017
156,000
-0-
-0-
-0-
-0-
-0-
-0-
156,000
2017
156,000
-0-
-0-
-0-
-0-
-0-
-0-
156,000
Name and
principal
position
I. Andrew
Weeraratne,
(1)
CEO,
CFO
Mark C.
Jensen, (2)
CEO
Thomas M.
Sauve, (3)
President
Kirk P.
Taylor, (4)
CFO
2017
_______________
(1) The amount of value for the services of Mr. Weeraratne was determined by agreement for shares in which he received as a founder for (1) control, (2)
willingness to serve on the Board of Directors and (3) participation in the foundational days of the corporation. Mr. Weeraratne submitted his resignation to
the Company on February 7, 2017 in connection with a change of control of the Company.
156,000
156,000
-0-
-0-
-0-
-0-
-0-
-0-
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(2) Of the salary amount listed in this table, $32,000 was accrued and unpaid in 2017. The employment agreement for fiscal year 2017 also allows for payment
of a bonus that has not yet been calculated. On January 2, 2018, the Company entered into an employment agreement with Mr. Jensen, at an annual salary
rate of $156,000. The Company also has provided for a discretionary quarterly performance bonus of up to $.64 per clean ton of coal mined. The payment
of such bonus shall be in the sole discretion of the Company’s management and/or applicable Board of Directors.
(3) Of the salary amount listed in this table, $32,000 was accrued and unpaid in 2017. The employment agreement for fiscal year 2017 also allows for payment
of a bonus that has not yet been calculated. On January 2, 2018, the Company entered into an employment agreement with Mr. Sauve, at an annual salary
rate of $156,000. The Company also has provided for a discretionary quarterly performance bonus of up to $.54 per clean ton of coal mined. The payment
of such bonus shall be in the sole discretion of the Company’s management and/or applicable Board of Directors.
(4) Of the salary amount listed in this table, $26,293 was accrued and unpaid in 2017. The employment agreement for fiscal year 2017 also allows for payment
of a bonus that has not yet been calculated. On January 2, 2018, the Company entered into an employment agreement with Mr. Taylor, at an annual rate of
$156,000. The Company also has provided for a discretionary quarterly performance bonus of up to $.20 per clean ton of coal mined. The payment of such
bonus shall be in the sole discretion of the Company’s management and/or applicable Board of Directors.
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Table of Contents
(a)
Name and principal position
James C. New (1)
I. Andrew Weeraratne (2)
Eugene Nichols (3)
Bo G. Engberg (4)
William D. Bishop (5)
Director Compensation
(c)
(d)
(e)
Stock
Awards
Option
Awards
($)
($)
Non-Equity
Incentive Plan
Compensation
($)
(b)
Fees
Earned or
Paid in
Cash
($)
(f)
Nonqualified
deferred
compensation
earnings
($)
(g)
(h)
All Other
Compensation
($)
Total
($)
-0-
-0-
-0-
-0-
-0-
1,500
-0-
15,000
1,500
-0-
-0-
-0-
-0-
-0-
50,000
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
1,500
-0-
15,000
1,500
50,000
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Mark C. Jensen (6)
Thomas M. Sauve (7)
____________
(1) Mr. New submitted his resignation to the Company on February 7, 2017 in connection with a change of control of the Company.
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
(2) Mr. Weeraratne submitted his resignation to the Company on February 7, 2017 in connection with a change of control of the Company.
(3) Mr. Nichols submitted his resignation to the Company on February 7, 2017 in connection with a change of control of the Company.
(4) Mr. Engberg submitted his resignation to the Company on February 7, 2017 in connection with a change of control of the Company.
(5) Mr. Bishop was appointed as director on May 10, 2017 and as compensation to Bill Bishop for his service on the Board of Directors, the Company issued
Mr. Bishop a three-year option to purchase up to 8,334 common shares of our company at an exercise price of $3.60 per share, subject to certain price
adjustments and other provisions found within the option issued to Mr. Bishop. Effective November 8, 2017, Mr. Bishop resigned as a director of the
Company and Mr. Bishop’s resignation from the Board of Directors did not result from any disagreement with the Company.
(6) Mr. Jensen was appointed as a director on February 7, 2017. On January 2, 2018, the Company entered into an employment agreement with Mr. Jensen,
at an annual salary rate of $156,000. The Company also has provided for a discretionary quarterly performance bonus of up to $.64 per clean ton of coal
mined. The payment of such bonus shall be in the sole discretion of the Company’s management and/or applicable Board of Directors. Mr. Jensen is not
paid separately for his services as a director for the Company.
(7) Mr. Sauve was appointed as a director on February 7, 2017. On January 2, 2018, the Company entered into an employment agreement with Mr. Sauve, at
an annual salary rate of $156,000. The Company also has provided for a discretionary quarterly performance bonus of up to $.54 per clean ton of coal
mined. The payment of such bonus shall be in the sole discretion of the Company’s management and/or applicable Board of Directors. Mr. Sauve is not
paid separately for his services as a director for the Company.
No retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by the Company for the
benefit of its employees.
There are no understandings or agreements regarding compensation our management will receive after a business combination that is required to
be included in this table, or otherwise.
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Table of Contents
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table lists, as of April 20, 2018, the number of shares of our Common Stock and Series A Convertible Preferred Stock that are
beneficially owned by (i) each person or entity known to us to be the beneficial owner of more than 5% of our common stock; (ii) each executive
officer and director of our company; and (iii) all executive officers and directors as a group. Information relating to beneficial ownership of Common
Stock and our Convertible Preferred Stock by our principal shareholders and management is based upon information furnished by each person
using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a
beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or
investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any
security of which that person has a right to acquire beneficial ownership within 60 days under any contract, option or warrant. Under the Securities
and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be
deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each
person has sole voting and investment power. Unless otherwise specified, the address of each beneficial owner listed in the tables is c/o American
Resources Corporation, 9002 Technology Lane, Fishers, IN 46038.
Name and Address
of Shareholder
Number of
Shares of
Common
Stock
Beneficially
Owned (1)
Percent of
Common Stock
Owned (2)
Golden Properties, Ltd. (3)
________________
(1) A person is deemed to be the beneficial owner of securities that can be acquired by such a person within 60 days upon exercise of options, warrants or
convertible securities. Each beneficial owner’s percentage ownership is determined by assuming that options, warrants and convertible securities that are
held by such a person (but not those held by any other person) and are exercisable within 60 days from that date have been exercised;
1,688,350
9.99%
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(2) Based on 18,875,811 shares of Common Stock deemed to be outstanding as if one or more warrants were exercised up to the maximum amount of 9.99%
(or 1,688,350 shares) of the issued and outstanding number of shares at December 31, 2017, including the common shares issuable from the conversion of
the Series A Preferred to common and the conversion of the Series B Preferred to common (exclusive of any shares due to Series B Preferred holders from
accrued interest). This percentage has been rounded for convenience;
(3) Golden Properties, Ltd. is the owner of several Company common stock warrants for the purchase of shares of our Common Stock, which warrants are
exercisable at such company’s discretion, subject to the following limitation on amount. The warrant agreements provide that at no time may Golden
Properties, Ltd. or its affiliates exercise any warrant that would result in their ownership of more than 9.99% of the issued and outstanding shares of our
Common Stock on the date of exercise. Additionally, a principal of Golden Properties and a beneficial owner through Golden Properties, is a holder of
59,133 Series A Preferred shares. Accordingly, Golden Properties, Ltd. is presently deemed the beneficial owner of 1,885,460 shares of our Common Stock
pursuant to Securities and Exchange Commission Rule 13d-3, promulgated under the Securities Exchange Act of 1934.
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Table of Contents
Name
Officers and Directors
Number of
Shares of
Series A Preferred
Stock Beneficially
Owned (4)
Percent of
Series A
Preferred Stock
Owned (5)
Mark C. Jensen (6) Chief Executive Officer, Director
1,541,693
32.00%
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Thomas M. Sauve (7) President, Director
Kirk P. Taylor Chief Financial Officer
All Directors and Officers as a Group (3 persons) (8)
5% Holders
Gregory Q. Jensen
Adam B. Jensen
1,300,803
486,115
27.00%
10.09%
3,328,611
69.09%
486,115
10.09%
486,115
10.09%
All Directors, Officers and 5% Holders as a Group (5 persons)
___________
(4) A person is deemed to be the beneficial owner of securities that can be acquired by such a person within 60 days from December 31, 2017, upon exercise
of options, warrants or convertible securities. Each beneficial owner’s percentage ownership is determined by assuming that options, warrants and
convertible securities that are held by such a person (but not those held by any other person) and are exercisable within 60 days from that date have been
exercised;
4,300,841
89.27%
(5) Based on 4,794,425 shares of Series A Convertible Preferred Stock outstanding as of December 31, 2017. These percentages have been rounded for
convenience;
(6) Mr. Jensen beneficially owns 58,933 shares of our Series A Convertible Preferred Stock through his equity ownership in T Squared Partners, LP, which
shares are included in the table above;
(7) Mr. Sauve beneficially owns 38,417 shares of our Series A Convertible Preferred Stock through his equity ownership in T Squared Partners, LP, which
shares are included in the table above;
(8) Our officers and directors do not own any shares of our Class A Common Stock (892,044 shares outstanding) or any shares of our Series B Convertible
Preferred Stock (850,000 shares outstanding, exclusive of any shares due from accrued interest).
31
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Transactions with Related Persons, Promoters and Certain Control Persons.
On June 12, 2015, the Company executed a consulting agreement with an entity with common ownership. During 2017 and 2016, the Company
incurred fees totaling $0 and $12,340,615 relating to services rendered under this agreement. The amount outstanding and payable as of
December 31, 2017 and 2016, was $17,840,615 and $17,840,615, respectively. The amount is due on demand and does not accrue interest.
On January 1, 2016, the Company awarded stock options for 827,862 shares in exchange for consulting efforts to an entity with common
ownership. No stock options were awarded to related parties during 2017.
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,
2017 and 2016, 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.
During July 2017, an officer of the Company advanced $50,000 to the Company. The advance is unsecured, non interest bearing and due on
demand.
The following table sets forth information concerning the annual and long-term compensation of our executive officers for services rendered
in all capacities to us during the last two completed fiscal years. The listed individuals shall hereinafter be referred to as the “Named Executive
Officers.” We also have included below a table regarding compensation paid to our directors who served during the last completed fiscal year. The
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
address for all individuals identified in the following tables is 9002 Technology Lane, Fishers, IN 46038.
Summary Compensation Table - Officers
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
Non-equity
Incentive plan
Compensation
($)
(h)
Nonqualified
deferred
compensation
earnings
($)
(i)
(j)
All other
Compensation
($)
Total
($)
5,000
-0-
-0-
-0-
22,800
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
5,000
-0-
22,800
156,000
-0-
-0-
-0-
-0-
-0-
156,000
-0-
Year
2017
2016
2017
Name and
principal
position
I. Andrew
Weeraratne,
(1)
CEO,
CFO
Mark C.
Jensen, (2)
CEO
Thomas M.
Sauve, (3)
President
2017
156,000
-0-
-0-
-0-
-0-
-0-
-0-
156,000
2017
Kirk P.
Taylor, (4)
CFO
___________
(1) The amount of value for the services of Mr. Weeraratne was determined by agreement for shares in which he received as a founder for (1) control, (2)
willingness to serve on the Board of Directors and (3) participation in the foundational days of the corporation. Mr. Weeraratne submitted his resignation to
the Company on February 7, 2017 in connection with a change of control of the Company.
156,000
156,000
-0-
-0-
-0-
-0-
-0-
-0-
(2) Of the salary amount listed in this table, $32,000.00 was accrued and unpaid in 2017. The employment agreement for fiscal year 2017 also allows for
payment of a bonus that has not yet been calculated. On January 2, 2018, the Company entered into an employment agreement with Mr. Jensen, at an
annual salary rate of $156,000. The Company also has provided for a discretionary quarterly performance bonus of up to $.64 per clean ton of coal mined.
The payment of such bonus shall be in the sole discretion of the Company’s management and/or applicable Board of Directors.
(3) Of the salary amount listed in this table, $32,000.00 was accrued and unpaid in 2017. The employment agreement for fiscal year 2017 also allows for
payment of a bonus that has not yet been calculated. On January 2, 2018, the Company entered into an employment agreement with Mr. Sauve, at an
annual salary rate of $156,000. The Company also has provided for a discretionary quarterly performance bonus of up to $.54 per clean ton of coal mined.
The payment of such bonus shall be in the sole discretion of the Company’s management and/or applicable Board of Directors.
(4) Of the salary amount listed in this table, $26,293.16 was accrued and unpaid in 2017. The employment agreement for fiscal year 2017 also allows for
payment of a bonus that has not yet been calculated. On January 2, 2018, the Company entered into an employment agreement with Mr. Taylor, at an
annual rate of $156,000. The Company also has provided for a discretionary quarterly performance bonus of up to $.20 per clean ton of coal mined. The
payment of such bonus shall be in the sole discretion of the Company’s management and/or applicable Board of Directors.
32
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
(a)
Director Compensation
(c)
(d)
(e)
Stock
Awards
Option
Awards
(g)
(h)
(f)
Nonqualified
deferred
compensation
earnings
($)
Non-Equity
Incentive Plan
Compensation
($)
All Other
Compensation
($)
(b)
Fees
Earned or
Paid in
Cash
($)
($)
($)
Name and principal position
James C. New (1)
I. Andrew Weeraratne (2)
Eugene Nichols (3)
Bo G. Engberg (4)
William D. Bishop (5)
Mark C. Jensen (6)
Thomas M. Sauve (7)
__________
(1) Mr. New submitted his resignation to the Company on February 7, 2017 in connection with a change of control of the Company.
-0-
-0-
-0-
-0-
50,000
-0-
-0-
1,500
-0-
15,000
1,500
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
Total
($)
1,500
-0-
15,000
1,500
50,000
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
-0-
(2) Mr. Weeraratne submitted his resignation to the Company on February 7, 2017 in connection with a change of control of the Company.
(3) Mr. Nichols submitted his resignation to the Company on February 7, 2017 in connection with a change of control of the Company.
(4) Mr. Engberg submitted his resignation to the Company on February 7, 2017 in connection with a change of control of the Company.
(5) Mr. Bishop was appointed as director on May 10, 2017 and as compensation to Bill Bishop for his service on the Board of Directors, the Company issued
Mr. Bishop a three-year option to purchase up to 8,334 common shares of our company at an exercise price of $3.60 per share, subject to certain price
adjustments and other provisions found within the option issued to Mr. Bishop. Effective November 8, 2017, Mr. Bishop resigned as a director of the
Company and Mr. Bishop’s resignation from the Board of Directors did not result from any disagreement with the Company.
(6) Mr. Jensen was appointed as a director on February 7, 2017. On January 2, 2018, the Company entered into an employment agreement with Mr. Jensen,
at an annual salary rate of $156,000. The Company also has provided for a discretionary quarterly performance bonus of up to $.64 per clean ton of coal
mined. The payment of such bonus shall be in the sole discretion of the Company’s management and/or applicable Board of Directors. Mr. Jensen is not
paid separately for his services as a director for the Company.
(7) Mr. Sauve was appointed as a director on February 7, 2017. On January 2, 2018, the Company entered into an employment agreement with Mr. Sauve, at
an annual salary rate of $156,000. The Company also has provided for a discretionary quarterly performance bonus of up to $.54 per clean ton of coal
mined. The payment of such bonus shall be in the sole discretion of the Company’s management and/or applicable Board of Directors. Mr. Sauve is not
paid separately for his services as a director for the Company.
No retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by the Company for the benefit of its
employees.
There are no understandings or agreements regarding compensation our management will receive after a business combination that is required to be included in
this table, or otherwise.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
33
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Director Independence.
We have not:
·
·
Established our own definition for determining whether our director or nominees for directors are “independent” nor has it adopted any other
standard of independence employed by any national securities exchange or inter-dealer quotation system, though our current directors would not be
deemed to be “independent” under any applicable definition given that he is an officer of the Company; nor,
Established any committees of the Board of Directors.
Item 14. Principal Accounting Fees and Services.
Audit fees
Audit related fees
Tax fees
All other fees
$
2017
2016
130,000 $
---
---
---
97,000
---
---
---
The Company does not currently have an audit committee. The normal functions of the audit committee are handled by the board of directors.
34
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
PART IV
Item 15. Exhibits, Financial Statement Schedule.
The following exhibits are filed herewith except as otherwise noted. Exhibits referenced in previous filings by the Company with the SEC are
incorporated by reference herein.
Exhibit No. Description
3.1
Articles of Incorporation of Natural Gas Fueling and Conversion Inc. (filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-1,
filed with the SEC on November 27, 2013)
3.2
3.3
3.4
3.5
3.6
14.1
Amended and Restated Articles of Incorporation of NGFC Equities Inc. (filed as Exhibit 3.1 to the Company’s 8k filed on February 25, 2015).
Articles of Amendment to Articles of Incorporation of NGFC Equities, Inc. (filed as Exhibit 10.2 to the Company’s Form 8-K on February 21,
2017).
Articles of Amendment to Articles of Incorporation of American Resources Corporation dated March 24, 2017 (filed as Exhibit 3.4 to the
Company’s Form 10-Q, filed with the SEC on February 20, 2018.
Bylaws of Natural Gas Fueling and Conversion Inc. (filed as Exhibit 3.2 to the Company’s Registration Statement on Form S-1, filed with the
SEC on November 27, 2013).
By-Laws, of NGFC Equities Inc., as amended and restated (filed as Exhibit 3.2 to the Company’s 8k filed on February 25, 2015).
Code of Business Conduct and Ethics (filed as Exhibit 14.1 to the Company’s Registration Statement on Form S-1, filed with the SEC on
November 27, 2013).
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
31.1
31.2
32.1
32.2
95.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 95 – Mine Safety Disclosure pursuant to Regulation S-K, Item 104 filed herewith.
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
35
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AMERICAN RESOURCES CORPORATION
NAME
TITLE
/s/ Mark C. Jensen
Mark C. Jensen
Principal Executive Officer,
Chief Executive Officer, Chairman of the Board of Directors
DATE
April 20, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
registrant and in the capacities and on the dates indicated.
NAME
TITLE
/s/ Mark C. Jensen
Mark C. Jensen
/s/ Kirk P. Taylor
Kirk P. Taylor
/s/ Thomas M. Sauve
Thomas M. Sauve
DATE
April 20, 2018
Principal Executive Officer,
Chief Executive Officer, Chairman of the Board of Directors
Principal Financial Officer, Chief Financial Officer
April 20, 2018
Director
April 20, 2018
36
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants
Which Have Not Registered Securities Pursuant to Section 12 of the Act
None.
37
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
AMERICAN RESOURCES CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
CONTENTS
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and board of directors of
American Resources Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of American Resources Corporation and its subsidiaries (collectively, the
“Company”) as of December 31, 2017 and 2016, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash
flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations
and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1
to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial
doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is
not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for
our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2017.
Houston, Texas
April 20, 2018
F-2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
CURRENT ASSETS
Cash
Accounts Receivable
Inventory
Intercompany
Accounts Receivable - Other
Total Current Assets
OTHER ASSETS
Cash - restricted
Processing and rail facility
Underground equipment
AMERICAN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
2017
2016
$
186,722 $
1,870,562
615,096
-
30,021
2,702,401
784,525
2,753,199
-
-
199,701
3,737,425
198,943
2,914,422
8,887,045
141,102
2,914,422
7,500,512
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
3,957,603
(4,820,569)
178,683
127,718
4,117,139
15,560,984
3,751,054
(2,262,855)
178,683
196,347
4,117,139
16,536,404
$
18,263,385 $
20,273,829
$
5,360,537 $
17,840,615
336,570
82,828
124,000
9,645,154
2,033,862
35,423,566
2,196,060
17,840,615
122,945
24,987
74,000
4,431,006
519,489
25,209,102
5,081,688
17,851,195
22,932,883
4,964,941
17,607,384
22,572,325
58,356,449
47,781,427
89
482
-
482
850
1,527,254
(42,019,595)
(40,490,920)
397,856
(40,093,064)
-
88,193
(27,651,030)
(27,562,355)
54,757
(27,507,598)
Surface equipment
Less Accumulated Depreciation
Land
Accounts Receivable - Other
Note Receivable
Total Other Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable
Accrued management fee
Accrued interest
Funds held for others
Due to affiliate
Current portion of long term-debt (net of unamortized discount of $35,000 and $0)
Current portion of reclamation liability
Total Current Liabilities
OTHER LIABILITIES
Long-term portion of note payable (net of issuance costs $440,333 and $451,389)
Reclamation liability
Total Other Liabilities
Total Liabilities
STOCKHOLDERS' DEFICIT
AREC - Class A Common stock: $.0001 par value; 230,000,000 shares authorized, 892,044 and 0 shares issued and
outstanding for the period end
AREC - Series A Preferred stock: $.0001 par value; 4,817,792 shares authorized, 4,817,792 shares issued and
outstanding
AREC - Series B Preferred stock: $.001 par value; 20,000,000 shares authorized, 850,000 shares issued and
outstanding
Additional paid-in capital
Accumulated deficit
Total American Resources Corporation Shareholders' Equity
Non controlling interest
Total Stockholders' Deficit
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
$
18,263,385 $
20,273,829
The accompanying footnotes are integral to the consolidated financial statements
F-3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
AMERICAN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Coal Sales
Processing Services Income
Total Revenue
Cost of Coal Sales and Processing
Accretion Expense
Loss on reclamation settlement
Depreciation
General and Administrative
Professional Fees
Consulting Fees - Related Party
Production Taxes and Royalties
Impairment Loss from notes receivable from related party
Development Costs
Total Expenses from Operations
Net Loss from Operations
Other Income
Amortization of debt discount and debt issuance costs
Interest Income
Receipt of previously impaired receivables
Interest
Net Loss
Less: Preferred dividend requirement
Less: Net income attributable to Non Controlling Interest
Net loss attributable to American Resources Corporation Shareholders
Net loss per share - basic and diluted
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Years ended December 31,
2017
2016
$
19,231,249 $
1,589,749
5,345,145
2,256,049
20,820,998
7,601,194
(16,344,567)
(1,791,051)
-
(2,557,714)
(1,378,111)
(694,366)
-
(4,974,013)
(250,000)
(6,850,062)
(8,961,653)
(1,664,774)
(71,245)
(2,262,855)
(237,601)
(391,659)
(12,340,615)
(1,250,365)
(510,902)
(1,760,594)
(34,839,884)
(29,452,263)
(14,018,886)
(21,851,069)
343,100
(477,056)
298,721
387,427
54,757
(9,406)
-
-
(558,772)
(283,564)
(14,025,466)
(22,089,282)
(53,157)
-
(343,099)
(54,757)
$
(14,421,722) $
(22,144,039)
$
(18.20) $
-
Weighted average shares outstanding
792,391
-
The accompanying footnotes are integral to the consolidated financial statements
F-4
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
AMERICAN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS OF EQUITY
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Common Common Preferred Preferred Preferred Preferred Paid-In Retained Controlling
Shares Stock A Shares A Stock B Shares B Stock Capital
Earnings
Interest
Total
Additional
Non-
Balance January 1,
2016
Stock-based
compensation
New issuances
Net loss
Balance
31, 2016
December
- $
- 2,550,430 $
-
- $
- $
- $ (5,506,991) $
- $ (5,506,991)
-
-
-
- 2,267,362
482
-
-
-
-
-
-
-
-
-
-
88,193
-
-
-
-
-
-
88,675
-
-
- (22,144,039)
54,757 (22,089,282)
- $
- 4,817,792 $
482
- $
- $
88,193 $ (27,651,030) $
54,757 $ (27,507,598)
Additional
Non-
Common Common Preferred Preferred Preferred Preferred Paid-In Retained Controlling
Shares Stock A Shares A Stock B Shares B Stock Capital
Earnings
Interest
Total
Balance January 1,
2017
- $
- 4,817,792 $
482
Recapitalization
845,377
85
-
-
- $
-
-
88,193 (27,651,030)
54,757 (27,507,598)
-
(85)
-
-
-
of
Sale
Series B Stock
Preferred
-
Conversion of Debt
33,334
-
3
-
-
- 850,000
850
849,150
-
-
-
49,997
-
-
-
850,000
-
50,000
Beneficial
feature
conversion
Issuance of shares to
consultant
Stock-based
compensation
Relative fair value debt
discount
on warrants issued
Net loss
Balance
31, 2017
-
-
-
-
-
-
50,000
-
-
50,000
13,333
1
9,999
10,000
-
-
-
-
-
-
40,000
-
-
40,000
-
-
-
-
-
-
-
-
-
-
-
440,000
-
-
440,000
-
- (14,358,565)
343,099 (14,025,466)
December
892,044 $
89 4,817,792 $
482 850,000 $
850 1,527,254 (42,019,595)
397,856 (40,093,064)
The accompanying footnotes are integral to the consolidated financial statements
F-5
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
AMERICAN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows from Operating activities:
Net loss
Adjustments to reconcile net income (loss) to net cash
Depreciation
Accretion expense
Loss on reclamation settlements
Assumption of note payable in reverse merger
Amortization of debt discount and debt issuance costs
Impairment (recovery) of advances receivable
Impairment of related party note receivable
Stock compensation expense
Change in current assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Inventory
Restricted cash used to pay interest expense
Accounts payable
Accrued expenses
Accrued interest
Reclamation liability settlements
Cash used in operating activities
Cash Flows from Investing activities:
Note receivable
Increase in restricted cash
Restricted cash used to pay down debt
Advances made in connection with management agreement
Advance repayment in connection with management agreement
Cash paid for PPE, net
Cash received from acquisitions, net of $0 and $100 cash paid
Cash provided by investing activities
Cash Flows from Financing activities:
Principal payments on long term debt
Proceeds from long term debt (net of issuance costs $0 and $460,795)
Proceeds from related party
Net (payments) proceeds from factoring agreement
Proceeds from private placements
Cash provided by financing activities
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Years ended December 31,
2017
2016
$
(14,025,466) $
(22,089,282)
2,557,714
1,791,051
-
50,000
477,056
(387,427)
250,000
50,000
2,262,855
1,664,774
71,245
-
9,406
510,902
-
88,675
882,637
-
(615,096)
14,981
3,096,351
-
213,625
-
(5,644,574)
(2,753,199)
920
-
13,984
2,196,060
12,340,615
122,945
(256,892)
(5,816,992)
-
(57,841)
65,604
(77,800)
625,227
(173,432)
-
381,758
(4,117,139)
(116,115)
54,421
(1,845,902)
1,175,000
(34,200)
5,315,700
431,765
(392,002)
4,440,000
50,000
(32,985)
600,000
4,665,013
(303,706)
4,857,391
1,616,067
-
6,169,752
Increase(decrease) in cash
Cash, beginning of year
Cash, end of year
Supplemental Information
Assumption of net assets and liabilities for asset acquisitions
Equipment for notes payable
Purchase of related party note receivable in exchange for Series B Equity
Affiliate note for equipment
Conversion of note payable to common stock
Beneficial conversion feature on note payable
Relative fair value debt discount on warrant issue
Cash paid for interest
(597,803)
784,525
784,525
-
$
186,722 $
784,525
$
$
$
$
$
$
$
$
- $
1,419,650 $
250,000 $
- $
50,000 $
50,000 $
440,000 $
2,745,582
904,425
-
63,000
-
-
-
345,147 $
160,619
The accompanying footnotes are integral to the consolidated financial statements
F-6
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Table of Contents
AMERICAN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
American Resources Corporation (ARC or the Company) operates through subsidiaries that were acquired in 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) and Knott
County Coal LLC (KCC). 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
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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 is 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.
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.
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Table of Contents
McCoy was formed in February 2016 for the purpose of operating underground coal mines and coal processing facilities. The assets of McCoy
were 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 February 17, 2016, McCoy Elkhorn Coal LLC (McCoy) acquired certain assets in exchange for $100 and for assuming certain liabilities of
Fortress Resources, LLC. The fair values of the asset retirement obligation liabilities assumed were determined to be $3,561,848 respectively. The
liabilities assumed do not require fair value readjustments.
The assets acquired of McCoy do not represent a business as defined in FASB AS 805-10-20. McCoy does not have an integrated set of activities
and assets that that is capable of being conducted and managed for the purpose of providing a return or other economic benefit to their investors,
members or participants. 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 McCoy were as follows at the purchase date:
Assets
Cash
Underground Mining Equipment
Surface Mining Equipment
Coal Preparation and Loading Facilities
Liabilities
Asset Retirement Obligation
$ 2,935,800
531,249
36,218
58,681
$ 3,561,848
On April 14, 2016, the Company acquired 100% of the membership interests of ICG Knott County, LLC, subsequently renamed Knott County Coal
LLC. The fair values of the asset retirement obligation liabilities assumed were determined to be $4,499,434 respectively. The liabilities assumed
do not require fair value readjustments.
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The assets acquired of ICG Knott County do not represent a business as defined in FASB AS 805-10-20. IGC Knott County does not have an
integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return or other economic
benefit to their investors, members or participants. Accordingly, the assets acquired and liabilities assumed are initially recognized at the
consideration paid, including direct acquisition costs. The cost is allocated to the group of assets acquired and liabilities assumed based on their
relative fair value. The assets and liabilities assumed of ICG Knott County were as follows on the purchase date:
Assets
Cash
Underground Mining Equipment
Surface Mining Equipment
Land
Coal Preparation and Loading Facilities
Liabilities
Asset Retirement Obligation
$ 2,380,000
1,533,937
206,578
178,683
200,236
$ 4,499,434
As a result of the KCC and McCoy acquisitions during 2016, $8,061,282 of ARO was assumed for net cash of $5,315,700 and property, equipment
and land of $2,745,582.
F-8
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Table of Contents
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
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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.
F-9
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Table of Contents
As of December 31, 2017 and 2016 total cash, including restricted cash, amounted to $385,665 and $925,627, respectively. Restricted cash as of
December 31, 2017 and 2016 amounted to $198,943 and $141,102, respectively.
Restrictions to cash include funds held for the benefit other parties in the amount of $82,828 and $24,987 as of December 31, 2017 and 2016,
respectively. The use of these funds are in conjunction with the management of the property owned by this party and the duration of the
restrictions matches the duration of the management agreement. (See Note 7)
As part of the Kentucky New Markets Development Program (See Note 3) an asset management fee reserve was set up in the amount of
$116,115. The funds are held to pay annual asset management fees to an unrelated party through 2021. (See Note 6)
Concentration: As of December 31, 2017 and 2016 63% and 78% of revenue and 99% and 97% of outstanding accounts receivable came from
three and two customers, respectively.
Coal Property and Equipment are recorded at cost. Coal properties are depreciated using the units-of-production method over the estimated
recoverable reserves. 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.
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Mine Development: Costs of developing new coal mines, including asset retirement obligation assets, or significantly expanding the capacity of
existing mines, are capitalized and amortized using the units-of-production method over estimated recoverable reserves. Costs not incurred for
development 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 using the units-of-production method over
estimated recoverable (proved and probable) reserves. We are using a discount rate of 10%. Federal and State laws require that mines be
reclaimed in accordance with specific standards and approved reclamation plans, as outlined in mining permits. Activities include reclamation of
pit and support acreage at surface mines, sealing portals at underground mines, and reclamation of refuse areas and slurry ponds.
We assess our ARO at least annually and reflect revisions for permit changes, change in our estimated reclamation costs and changes in the
estimated timing of such costs. During 2017 and 2016, $0 and $71,245 were incurred for loss on settlement on ARO.
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Table of Contents
The table below reflects the changes to our ARO:
Beginning Balance
Accretion
Reclamation work
McCoy Acquisition
KCC Acquisition
Ending balance
Current portion of reclamation liability
Long-term portion of reclamation liability
2017
2016
$ 18,126,873 $ 8,586,464
1,664,774
1,791,051
(185,647)
(32,867)
3,561,848
-
4,499,434
-
$ 19,885,057 $ 18,126,873
$ 2,033,862 $
519,489
$ 17,851,195 $ 17,607,384
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
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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: 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.
Our revenue is comprised of sales of mined coal and services for processing coal. All of the activity is undertaken in eastern Kentucky.
We recognize revenue from coal sales at the time risk of loss passes to the customer at contracted amounts and amounts are deemed collectible.
Revenue from coal processing and loading are recognized when services have been performed according to the contract in place.
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.
Loan Issuance Costs and Discounts are amortized using the effective interest method. Amortization expense amounted to $477,056 and
$9,406 as of December 31, 2017 and 2016, respectively. Amortization expense for the next five years is expected to be $11,520, 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.
F-11
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Table of Contents
Allowance for trade receivables as of December 31, 2017 and 2016 amounted to $0 and $0, respectively. Allowance for other accounts
receivables as of December 31, 2017 and 2016 amounted to $92,573 and $640,000, respectively.
Trade and loan receivables are carried at amortized cost, net of allowance for losses. Amortized cost approximated book value as of December
31, 2017 and 2016.
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 ASC 505.
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, 2017 and 2016, the Company had 5,364,230 and 0 outstanding stock warrants, respectively. For the years
ended December 31, 2017 and 2016, the Company did not have any 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.
·
·
·
Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers , effective for years beginning after December 15, 2017
ASU 2015-11, Simplifying the Measurement of Inventory, effective for years beginning after December 15, 2016. Adoption of ASU 2015-11 did not
have a material effect on the consolidated financial statements.
ASU 2015-17, Balance Sheet Classification of Deferred Taxes, effective for years beginning after December 15, 2016. Adoption of ASU 2015-17 did
not have a material effect on the consolidated financial statements or related disclosures.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
·
·
·
·
·
·
·
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, 2019. We expect to adopt ASU 2016-02 beginning January 1, 2019 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 2016-18, Statement of Cash Flows: Restricted Cash, effective beginning after December 15, 2017
ASU 2017-01, Business Combinations, effective beginning after December 15, 2017
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.
Management has elected to early adopt ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business effective at
inception. See above in Note 1.
F-12
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Table of Contents
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. We adopted Topic 606 as of January 1,
2018 using the modified retrospective method of adoption. Implementation of Topic 606 caused no change in previously recognized revenue.
NOTE 2 – PROPERTY AND EQUIPMENT
At December 31, 2017 and 2016, property and equipment were comprised of the following:
Processing and rail facility
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2017
2016
$ 2,914,422 $ 2,914,422
Underground equipment
Surface equipment
Land
Less: Accumulated depreciation
Total Property and Equipment, Net
8,887,045
3,957,603
178,683
(4,820,569)
7,500,512
3,751,054
178,683
(2,262,855)
$ 11,117,184 $ 12,081,816
Depreciation expense amounted to $2,557,714 and $2,262,855 for the years of December 31, 2017 and 2016, respectively.
The estimated useful lives are as follows:
Processing and Rail Facilities
Surface Equipment
Underground Equipment
NOTE 3 – NOTES PAYABLE
20 years
7 years
5 years
During the year ended December 31, 2017 and 2016, principal payments on long term debt totaled $392,002 and $303,706, respectively. During
the year ended December 31, 2017 and 2016, new debt issuances totaled $5,909,650 and $5,824,816, respectively, primarily from $4,490,000 of
working capital loans and $1,419,650 of equipment loans in 2017 and $4,688,152 from the Kentucky New Markets Development program and
$967,425 in equipment loans in 2016. (See Note 5). During the year ended December 31, 2017 and 2016, net proceeds from our factoring
agreement totaled $32,985 and $1,616,067, respectively.
During the year ended December 31, 2017 and 2016, discounts on debt issued amounted to $490,000 and $-, respectively related to the ARC
business loan discussed below and the note payable discussed in note 9. During 2017 and 2016, $455,000 and $- was amortized into expense
with $35,000 and $- remaining as unamortized discount.
Long-term debt consisted of the following at December 31, 2017 and 2016:
2017
2016
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.
$
30,962 $
50,235
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
57,290
64,175
On September 8, 2017, Quest entered into an equipment purchase agreement with an unaffiliated entity, to purchase
certain underground mining equipment for $600,000. The agreement provided for $80,000 paid upon execution, $30,000
monthly payments until the balance is paid in full.
On October 19, 2017, Quest entered into an equipment financing agreement with an unaffiliated entity, 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%.
460,000
88,297
0
0
F-13
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Table of Contents
On October 20, 2017, Quest entered into an equipment financing agreement with an unaffiliated entity, 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%.
On December 4, 2017, Quest entered into an equipment financing agreement with an unaffiliated entity, to purchase
certain surface equipment for $56,900. The agreement calls for monthly payments until maturity of January 7, 2021.
51,320
56,900
0
0
Business Loan - ARC
On October 4, 2017, ARC entered into a consolidated loan agreement with an unaffiliated entity. $5,444,632 has been
advanced under the note. $1,300,000 of the note was advanced after December 31, 2017. 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, a 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.
Equipment Loans – ERC
4,444,632
175,000
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 June 30, 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 7. Therefore, the title
of the assets are not held with ERC and there is a corresponding receivable due for the payment of this note.
27,288
35,644
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 June 30, 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 7. Therefore, the title
of the assets are not held with ERC and there is a corresponding receivable due for the payment of this note.
128,254
161,738
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 7. Therefore, the title
of the assets are not held with ERC and there is a corresponding receivable due for the payment of this note.
36,890
60,541
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Table of Contents
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. No extensions have been entered into
subsequent to December 31, 2017 resulting in the note being in default.
540,000
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. Full payment was due September 12, 2017.
On June 12, 2017, Quest entered into an equipment purchase agreement with an unaffiliated entity, Inc. to purchase
certain underground mining equipment for $22,500. Full payment was due September 12, 2017.
On September 25, 2017, Quest entered into an equipment purchase agreement 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.
135,000
22,500
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 is secured by a corporate guaranty by the Company
and a personal guaranty.
66,667
0
0
0
0
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. 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
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 2018
1,582,989
1,616,167
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
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
Less: Debt Discounts and Loan Issuance Costs
1,026,047
1,026,047
(475,333)
(451,389)
F-15
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
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. The advance is unsecured, non interest bearing
and due on demand.
$
50,000 $
0
Less: Current maturities
Total Long-term Debt
14,850,842
9,769,154
9,469,947
4,505,006
$
5,081,688 $
4,964,941
Total interest expense was $558,772 in 2017 and $283,564 in 2016.
Future minimum principal payments, interest payments and payments on capital leases are as follows:
Payable In
2018
2019
2020
2021
2022
Thereafter
Loan
Principal
Lease
Principal
Total Loan
and Lease
Principal
Lease
Interest
9,704,444
312,707
37,283
10,491
-
4,595,409
64,710
125,798
-
-
-
9,769,154
438,505
37,283
10,491
-
4,595,409
8,560
3,722
-
-
-
NOTE 4 – RELATED PARTY TRANSACTIONS
On June 12, 2015, the Company executed a consulting agreement with an entity with common ownership. During 2017 and 2016, the Company
incurred fees totaling $0 and $12,340,615, respectively, relating to services rendered under this agreement. The amount outstanding and payable
as of December 31, 2017 and 2016, was $17,840,615 and $17,840,615, respectively. The amount is due on demand and does not accrue interest.
On January 1, 2016, the Company awarded stock options for 857,464 shares that were cashlessly exercised into 290,513 shares of Series A
preferred stock or consulting efforts to an entity with common ownership. No stock options were awarded to related parties during 2017.
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,
2017 and 2016, 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 9)
During July 2017, an officer of the Company advanced $50,000 to Quest. The advance is unsecured, non interest bearing and due on demand.
(see Note 3)
On June 12, 2015, the Company executed a consulting agreement with an entity with common ownership. During 2017 and 2016, the Company
incurred fees totaling $0 and $12,340,615, respectively, relating to services rendered under this agreement. The amount outstanding and payable
as of December 31, 2017 and 2016, was $17,840,615 and $17,840,615, respectively. The amount is due on demand and does not accrue interest.
F-16
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTE 5 – VARIABLE INTEREST ENTITY
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. The balance as of December 31, 2016 was
$130,145. As of January 28, 2017, the note was paid in full. This transaction was eliminated upon consolidation as a variable interest entity.
NOTE 6 – 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, 2017 and 2016
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.
NOTE 7 – 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. During 2017 and 2016 no fee had been paid and due to the uncertainty of collection, no fee has been recorded. Fees earned
totaled $240,000 and $240,000 for 2017 and 2016, respectively, which have been fully reserved. The agreement called for equipment payments
to be made by the entity. As of December 31, 2017 and 2016 amounts owed from the entity to ERC for equipment payments amounted to
$192,432 and $258,096, respectively.
During 2017, ERC had advances of $77,800 and repayments of $625,227 of amounts previously advanced. During 2016, ERC had advances of
$1,975,000 which is unsecured, non-interest bearing and due upon demand and repayments of previously advanced amounts of $1,175,000. 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 $82,828 and $24,987 respectively as of December 31, 2017 and 2016.
F-17
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
NOTE 8 – 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 $4,152,800 at December 31, 2017, which was fully reserved. Deferred tax assets consist of net operating loss
carryforwards in the amount of $4,152,800 at December 31, 2017, which was fully reserved. The net operating loss carryforwards for years 2015,
2016 and 2017 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 (34%) 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, 2017.
NOTE 9 – EQUITY TRANSACTIONS
A new 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.
During 2016, the Company issued options amounting to 6,363,225 shares (which includes shares disclosed above) under an adopted stock option
plan that were cashlessly exercised into 2,267,362 shares of Series A preferred stock resulting in an expense of $88,675.
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. 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, ARC 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 $7.60 per share. The ‘A-1’
warrants totaling 69,445 shares expire March 6, 2020 and hold an exercise price of $.003 per share.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
F-18
Table of Contents
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. 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. 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 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.
Total preferred dividend requirement for 2017 and 2016 amounted to $53,157 and $0, respectively.
Total stock based compensation expense incurred for awards to employees during 2017 and 2016 was $0 and $88,675, respectively. Fair value
was determined using the total enterprise value approach.
On July 5, 2017, the Company issued 13,333 common shares and warrants to purchase 33,333 shares to an unrelated consulting company. 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.
In conjunction with the ARC business loan, warrants of 5,996,609 common shares were issued and 979,603 were subsequently canceled at an
exercise price ranging from $.01 to $11.44 per share and with an expiration date of October 2, 2020.
Expected Dividend Yield
Expected volatility
Risk-free rate
Expected life of warrants
F-19
2017
0%
13.73%
1.62%
2-3 years
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Table of Contents
Outstanding – December 31, 2015
Exercisable - December 31, 2015
Granted
Forfeited or Expired
Outstanding - December 31, 2016
Exercisable - December 31, 2016
Granted
Forfeited or Expired
Exercised
Outstanding - December 31, 2017
Exercisable - December 31, 2017
NOTE 10 – CONTINGENCIES
Weighted
Average
Exercise
Price
Number of
Warrants
Weighted
Average
Contractual
Life in Years
-
-
-
-
-
-
2.317
0.560
-
2.638
2.638
-
-
-
-
-
-
2.706 $
1.997 $
-
2.835 $
2.835 $
Aggregate
Intrinsic
Value
-
-
-
-
-
-
174,253
36,184
-
138,069
138,069
-
-
-
-
-
-
6,343,833 $
979,603 $
-
5,364,230 $
5,364,230 $
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.
The company leases various office space some from an entity which we consolidate as a variable interest entity. (see note 5). The future annual
rent is $6,000 through 2021. Rent expense for 2017 and 2016 amounted to $26,000 each year, respectively.
NOTE 11 – SUBSEQUENT EVENTS
On January 25, 2018, Quest entered into an equipment financing agreement with an unaffiliated entity, to purchase certain surface equipment for
$346,660. The agreement calls for monthly payments until maturity of December 25, 2020.
During 2018, the company drew an additional $1,300,000 on the ARC business loan. (see note 3)
On March 29, 2018, Quest entered into an equipment financing agreement with an affiliated entity, to purchase certain surface mining equipment
for $135,000. Payments of $75,000 and $60,000 are due on April 6, 2018 and April 13, 2018, respectively.
F-20
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Certification of Principal Executive Officer
I, Mark C. Jensen, certify that:
1.
I have reviewed this annual report on Form 10-K of American Resources Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: April 20, 2018
AMERICAN RESOURCES CORPORATION
By:
/s/ Mark C. Jensen
Mark C. Jensen,
Chief Executive Officer
Principal Executive Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Certification of Principal Financial Officer and
Principal Accounting Officer
EXHIBIT 31.2
I, Kirk P. Taylor, certify that:
1.
I have reviewed this annual report on Form 10-K of American Resources Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: April 20, 2018
AMERICAN RESOURCES CORPORATION
By:
/s/ Kirk P. Taylor
Kirk P. Taylor,
Chief Financial Officer
Principal Financial Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Certification of Principal Executive Officer
Pursuant to 18 U.S.C. SECTION 1350
EXHIBIT 32.1
In connection with the Annual Report of American Resources Corporation, (the “Company”) on Form 10-K for the year ending December
31, 2017 to be filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Mark C. Jensen, Principal
Executive Officer of the Company, certify, to my knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350,
that:
(i)
(ii)
the accompanying Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as
amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the
dates and for the periods covered by the Report.
It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934.
AMERICAN RESOURCES CORPORATION
By:
/s/ Mark C. Jensen
Mark C. Jensen,
Chief Executive Officer
Principal Executive Officer
April 20, 2018
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Certification of Principal Financial Officer
and Principal Accounting Officer
Pursuant to 18 U.S.C. SECTION 1350
EXHIBIT 32.2
In connection with the Annual Report of American Resources Corporation (the “Company”) on Form 10-K for the year ending December 31,
2017 to be filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), I, Kirk P. Taylor, Principal Financial
Officer and Principal Accounting Officer of the Company, certify, to my knowledge, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18
U.S.C. Section 1350, that:
(i)
(ii)
the accompanying Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as
amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the
dates and for the periods covered by the Report.
It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934.
AMERICAN RESOURCES CORPORATION
By:
/s/ Kirk P. Taylor
Kirk P. Taylor,
Chief Financial Officer
Principal Financial Officer
Principal Accounting Officer
April 20, 2018
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EXHIBIT 95.1
Federal Mine Safety and Health Act Information
We work to prevent accidents and occupational illnesses. We have in place health and safety programs that include extensive employee training,
safety incentives, drug and alcohol testing and safety audits. The objectives of our health and safety programs are to provide a safe work
environment, provide employees with proper training and equipment and implement safety and health rules, policies and programs that foster
safety excellence.
Our mining operations are subject to extensive and stringent compliance standards established pursuant to the Federal Mine Safety and Health
Act of 1977 (the “Mine Act”). MSHA monitors and rigorously enforces compliance with these standards, and our mining operations are inspected
frequently. Citations and orders are issued by MSHA under Section 104 of the Mine Act for violations of the Mine Act or any mandatory health or
safety standard, rule, order or regulation promulgated under the Mine Act.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) requires issuers to include in periodic reports filed with the
SEC certain information relating to citations or orders for violations of standards under the Mine Act. We present information below regarding
certain mining safety and health violations, orders and citations, issued by MSHA and related assessments and legal actions and mine-related
fatalities with respect to our active coal mining operations. In evaluating this information, consideration should be given to factors such as: (i) the
number of violations, orders and citations will vary depending on the size of the coal mine, (ii) the number of violations, orders and citations issued
will vary from inspector to inspector and mine to mine, and (iii) violations, orders and citations can be contested and appealed, and in that process,
are often reduced in severity and amount, and are sometimes dismissed.
The following tables include information required by the Dodd-Frank Act for the twelve months ended December 31, 2017. The mine data retrieval
system maintained by MSHA may show information that is different than what is provided herein. Any such difference may be attributed to the
need to update that information on MSHA’s system and/or other factors.
Section 104(a)
S&S
Citations(1)
Section 104(b)
Orders(2)
Section 104(d)
Citations and
Orders(3)
Section
110(b)(2)
Violations(4)
Section 107(a)
Orders(5)
Total Dollar
Value of MSHA
Assessments
Proposed (in
thousands)(6)
1
0
1
1
0
Received
Notice of
Pattern of
Violations
Under
Section
104(e)
(yes/no)(7)
0
0
0
0
0
0 $
0 $
0 $
0 $
0 $
62.9
24.0
13.9
15.7
0.4
Legal Actions
Pending as of
Last
Day of Period
Legal Actions
Initiated During
Period
Legal Actions
Resolved
During Period
No
No
No
No
No
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Mine or Operating Name /
MSHA Identification Number
Active Operations
McCoy Elkhorn Mine #15 / 15-
18775
McCoy Elkhorn Carnegie Mine / 15-
19313
McCoy Elkhorn Bevins Branch
Preparation Plant / 15-10445
Deane Mining Access Mine / 15-
19532
Deane Mining Mill Creek
Preparation Plant / 15-16577
72
16
24
16
1
3
2
2
1
0
Mine or Operating Name /
MSHA Identification Number
Active Operations
McCoy Elkhorn Mine #15 / 15-18775
McCoy Elkhorn Carnegie Mine / 15-19313
McCoy Elkhorn Bevins Branch Preparation Plant / 15-10445
Deane Mining Access Mine / 15-19532
Deane Mining Mill Creek Preparation Plant / 15-16577
Total Number of
Mining Related
Fatalities
0
0
0
0
0
1
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The number of legal actions pending before the Federal Mine Safety and Health Review Commission as of December 31, 2017 that fall into each
of the following categories is as follows:
Mine or Operating Name /
MSHA Identification Number
Active Operations
McCoy Elkhorn Mine #15 / 15-
18775
McCoy Elkhorn Carnegie Mine /
15-19313
McCoy Elkhorn Bevins Branch
Preparation Plant / 15-10445
Deane Mining Access Mine / 15-
19532
Deane Mining Mill
Preparation Plant / 15-16577
Creek
Contests of
Citations and
Orders
Contests of
Proposed
Penalties
Complaints for
Compensation
Complaints of
Discharge /
Discrimination /
Interference
Applications
for Temporary
Relief
Appeals of
Judge’s Ruling
136
136
27
27
46
3
27
27
46
3
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(1) Mine Act section 104(a) S&S citations shown above are for alleged violations of mandatory health or safety standards that could significantly and
substantially contribute to a coal mine health and safety hazard. It should be noted that, for purposes of this table, S&S citations that are included in another
column, such as Section 104(d) citations, are not also included as Section 104(a) S&S citations in this column.
(2) Mine Act section 104(b) orders are for alleged failures to totally abate a citation within the time period specified in the citation.
(3) Mine Act section 104(d) citations and orders are for an alleged unwarrantable failure (i.e., aggravated conduct constituting more than ordinary negligence) to
comply with mandatory health or safety standards.
(4) Mine Act section 110(b)(2) violations are for an alleged “flagrant” failure (i.e., reckless or repeated) to make reasonable efforts to eliminate a known violation
of a mandatory safety or health standard that substantially and proximately caused, or reasonably could have been expected to cause, death or serious
bodily injury.
(5) Mine Act section 107(a) orders are for alleged conditions or practices which could reasonably be expected to cause death or serious physical harm before
such condition or practice can be abated and result in orders of immediate withdrawal from the area of the mine affected by the condition.
(6) Amounts shown include assessments proposed by MSHA during the three months ended March 31, 2017 on all citations and orders, including those
citations and orders that are not required to be included within the above chart. This number may differ from actual assessments paid to MSHA as the
Company may contest any proposed penalty.
(7) Mine Act section 104(e) written notices are for an alleged pattern of violations of mandatory health or safety standards that could significantly and
substantially contribute to a coal mine safety or health hazard.
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