American Resources(AREC) - 2021 Q4 - Annual Report

PART I Business American Resources Corporation primarily mines and processes metallurgical coal for the steel industry, having strategically shifted from natural gas fueling stations and now also recovering metals and rare earth elements - The company's business focus shifted to coal mining and processing after the acquisition of Quest Energy Inc. in 2017, which is now named American Carbon Corp[12] - ARC has diversified its revenue streams by establishing subsidiaries focused on metal recovery (American Metals LLC) and rare earth elements (American Rare Earth LLC)[13] - The company has no "proven" or "probable" reserves as defined by SEC Industry Guide 7, and therefore its business activities are considered to be in the exploration stage[14] - Since mid-2019, the company has ceased mining or selling thermal coal, focusing exclusively on metallurgical coal for the steel industry[14] Operating Subsidiaries and Properties Operations are managed through subsidiaries like McCoy Elkhorn and Perry County Resources, which are active coal producers, while others hold idled mines and processing facilities for future development or reclamation Key Operating Subsidiaries and their Status | Subsidiary | Location | Key Assets | Status | | :--- | :--- | :--- | :--- | | McCoy Elkhorn Coal LLC | Pike County, KY | Mine 15, Carnegie 1 Mine, Bevins Prep Plants | Carnegie 1 Mine restarted Oct 2021 | | Knott County Coal LLC | Knott County, KY | Wayland Surface Mine, Supreme Energy Prep Plant | Wayland mine idled | | Deane Mining LLC | Letcher/Knott County, KY | Access Energy Mine, Mill Creek Prep Plant | Mines idled | | Wyoming County Coal LLC | Wyoming County, WV | Pioneer Prep Plant, Hatcher rail loadout | All assets idled, in planning phase | | Perry County Resources LLC | Perry County, KY | E4-2 Mine, Davidson Branch Prep Plant | E4-2 Mine restarted Mar 2021 | | ERC Mining Indiana Corp | Greene/Sullivan County, IN | Gold Star Mine | Idled, undergoing reclamation | 2021 Production and Sales Data for Active Mines | Mine | 2021 Tons Produced | 2021 Avg. Sale Price/Ton ($) | | :--- | :--- | :--- | | Carnegie 1 Mine | 7,889.63 | 138.00 | | E4-2 Mine | 79,546.75 | 83.17 | Business Operations The company's coal operations rely on approximately 200 mineral and surface leases, with sales primarily to domestic and international steelmaking customers managed by third-party intermediaries in a highly competitive market - The company's coal mining operations are dependent on approximately 200 leases for mineral and surface rights[58] - Coal sales are primarily outsourced to third-party intermediaries, with all contracts requiring management approval; the COVID-19 pandemic has disrupted traditional sales channels[59] - The company competes in a highly competitive market against larger domestic and international producers, including Corsa Coal, Ramaco Resources, Blackhawk Mining, and Coronado Coal[60] Environmental, Governmental, and Other Regulatory Matters The company's operations are subject to extensive federal, state, and local environmental, health, and safety regulations, requiring costly compliance and significant financial assurance for reclamation obligations - Operations are heavily regulated by laws such as SMCRA, CAA, CWA, and RCRA, which cover permitting, reclamation, water discharge, and air emissions[63] - The company is required to secure performance of its reclamation obligations through surety bonds or other financial security; as of December 31, 2021, the company had approximately $31.28 million in outstanding surety bonds[75][78] - Regulations concerning global climate change and greenhouse gas (GHG) emissions, such as the EPA's Clean Power Plan, could reduce demand for coal and adversely impact the business, although the company is currently focused on metallurgical coal, not power generation[93][96] Risk Factors As a Smaller Reporting Company, American Resources Corporation is not required to provide the information for this item - The company is exempt from providing Risk Factors disclosure due to its status as a Smaller Reporting Company[116] Unresolved Staff Comments The company reports that it has no unresolved staff comments - There are no unresolved comments from SEC staff[116] Properties The company's principal executive offices are leased in Fishers, Indiana, and its subsidiary American Rare Earth has leased land and warehouse space for a critical element purification facility - Principal offices are leased in Fishers, Indiana; the lease was amended effective January 1, 2022, for a ten-year term at $5,869 per month[117] - American Rare Earth has leased nearly 7 acres of land for 5 years at $3,500 per month and 6,700 sq. ft. of warehouse space for 2 years at $4,745.83 per month for a purification facility[117][118] Legal Proceedings The company is subject to ordinary routine litigation incidental to its business operations, with specific details provided in the financial statements - The company is involved in routine litigation; specific details are provided in Note 9 of the financial statements[118][61] Mine Safety Disclosures Information regarding mine safety violations and other regulatory matters is included in Exhibit 95.1 of this Annual Report - Mine safety disclosures are provided in Exhibit 95.1 to this Form 10-K[119] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A Common Stock trades on NASDAQ under AREC, has not paid dividends, and this section details historical stock prices, shareholder count, and recent issuances of unregistered securities - The company's Class A Common Stock is traded on the NASDAQ Capital Market under the ticker AREC; as of March 28, 2022, there were 153 shareholders of record holding 65,742,185 shares[121][122] Quarterly Common Stock Price Range (2020-2021) | Quarter Ending | High ($) | Low ($) | | :--- | :--- | :--- | | 2020 | | | | Mar 31 | 1.11 | 0.320 | | Jun 30 | 1.40 | 0.73 | | Sep 30 | 2.33 | 1.14 | | Dec 31 | 4.93 | 1.26 | | 2021 | | | | Mar 31 | 8.02 | 1.08 | | Jun 30 | 4.20 | 2.59 | | Sep 30 | 2.64 | 1.75 | | Dec 31 | 2.67 | 1.59 | - In June 2021, the company issued 8,600,000 shares of Class A Common Stock, raising net proceeds of $27,943,000[127] - All previously outstanding Series A, B, and C Preferred Stock were converted into common shares as of February 2019[128][132][136] Selected Financial Data As a smaller reporting company, American Resources Corporation is not required to provide the information for this item - The company is exempt from providing Selected Financial Data due to its status as a smaller reporting company[155] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant increase in 2021 revenue driven by renewed coal demand, rising operating expenses due to production restarts, and improved financial condition from equity offerings and debt conversion Results of Operations (2021 vs. 2020) | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Revenues | 7,755,306 | 1,059,691 | | Total Operating Expenses | 36,088,714 | 17,507,056 | Financial Condition (as of Dec 31) | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Total Assets | 42,872,702 | 38,415,395 | | Total Liabilities | 45,218,110 | 58,420,895 | - The increase in revenue was primarily driven by additional demand for coal as the market recovered from the COVID-19 pandemic; operations, which were idled in January 2020, resumed in December 2020[157][161] - Critical accounting policies include the capitalization and amortization of mine development costs, estimation of asset retirement obligations (ARO), and impairment testing of long-lived assets[163][164][166] Quantitative and Qualitative Disclosure About Market Risk As a smaller reporting company, American Resources Corporation is not required to provide the information for this item - The company is exempt from providing Quantitative and Qualitative Disclosure About Market Risk due to its status as a smaller reporting company[168] Financial Statements and Supplementary Data This section incorporates by reference the report of the independent registered public accounting firm and the company's financial statements, included from page F-1 - The company's audited financial statements and the independent auditor's report are filed as part of this report, beginning on page F-1[168] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports that it had no disagreements with its accounting firm on accounting and financial disclosure during the reporting period - There were no disagreements with the company's accountants during the reporting period[168] Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2021, due to a material weakness in internal control over financial reporting caused by insufficient accounting staff and lack of segregation of duties - Management concluded that disclosure controls and procedures were not effective as of December 31, 2021[170] - A material weakness was identified: a lack of segregation of duties within the financial reporting function due to an insufficient number of accounting staff[172][173] Other Information The company reports no other information for this item - No other information is reported under this item[177] PART III Directors, Executive Officers and Corporate Governance This section provides biographical information for the company's executive officers and directors, including the CEO, President, CFO, COO, and three independent directors, and outlines the board's three committees Executive Officers and Directors (as of Dec 31, 2021) | Name | Position(s) | | :--- | :--- | | Mark C. Jensen | CEO, Chairman of the Board | | Thomas M. Sauve | President, Director | | Kirk P. Taylor | Chief Financial Officer | | Tarlis R. Thompson | Chief Operating Officer | | Michael Layman | Director (Independent) | | Gerardine Botte, PH.D. | Director (Independent) | | Courtenay O. Taplin | Director (Independent) | - The Board of Directors has three independent members: Michael Layman, Gerardine Botte, and Courtenay O. Taplin[196] - The board has an Audit Committee, a Compensation Committee (both comprised of the three independent directors), and a Safety and Environmental Committee[204][205][207][208] Executive Compensation This section details the compensation for Named Executive Officers and directors for fiscal years 2020 and 2021, primarily consisting of base salaries and significant stock option awards, with employment agreements in place for most executives 2021 Executive Officer Compensation | Name | Position | Salary ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Mark C. Jensen | CEO | 250,000 | 643,500 | 893,500 | | Thomas M. Sauve | President | 200,000 | 365,750 | 568,615 | | Kirk P. Taylor | CFO | 200,000 | 143,000 | 347,973 | | Tarlis R. Thompson | COO | 175,000 | 266,000 | 441,000 | - Executive compensation is primarily composed of base salary and stock option awards, with the value of option awards representing a significant portion of total compensation in 2021[210] - Directors receive compensation in the form of stock option awards; in 2021, option awards for non-employee directors ranged from $199,500 to $332,500 in value[215] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details the beneficial ownership of the company's common stock as of December 31, 2021, identifying Golden Properties, Ltd. as the only beneficial owner of more than 5%, and outlining holdings of executive officers and directors - Golden Properties, Ltd. is the only entity known to beneficially own more than 5% of the company's common stock, with deemed ownership of 9.99% (6,167,965 shares) due to warrant holdings[229] Beneficial Ownership of Officers and Directors | Name | Position | Shares Beneficially Owned | Percent of Class (%) | | :--- | :--- | :--- | :--- | | Mark C. Jensen | CEO, Director | 5,237,160 | 8.48% | | Thomas M. Sauve | President, Director | 4,455,646 | 7.22% | | Kirk P. Taylor | CFO | 1,620,383 | 2.54% | | Tarlis R. Thompson | COO | 163,170 | 0.26% | | All Directors and Officers as a Group | | 11,476,359 | 18.50% | Certain Relationships and Related Transactions, and Director Independence The company discloses several transactions with related parties, including property leases and contract services agreements with entities owned or controlled by management, and confirms the independence of three board members - The company leases property and mineral rights from Land Resources & Royalties LLC (LRR), an entity owned by members of the company's management; in 2021, royalty expenses to LRR were $232,208[234] - A Contract Services Agreement is in place with Land Betterment Corp, an entity controlled by certain members of management; in 2020, the company incurred $1,547,671 under this agreement; as of Dec 31, 2021, $355,899 was due under the agreement[236] - The Board has determined that directors Botte, Layman, and Taplin are independent under NASDAQ listing standards[239] Principal Accounting Fees and Services This section details the fees paid to the company's independent registered public accounting firm, B.F. Borgers CPA, PC, for services rendered in 2021 and 2020, all of which were pre-approved by the audit committee Accountant Fees (2021 vs. 2020) | Fee Category | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Audit Fees | 200,000 | 180,000 | | Audit-Related Fees | 10,000 | 45,500 | | Tax Fees | - | - | | All Other Fees | - | - | PART IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including articles of incorporation, bylaws, material contracts, employment agreements, certifications, and mine safety disclosures, many of which are incorporated by reference Consolidated Financial Statements Financial Statements Overview The consolidated financial statements for 2021 and 2020 show increased revenue but a larger net loss in 2021, with improved financial condition due to increased assets, decreased liabilities, and a reduced stockholders' deficit, primarily from financing activities Key Financial Highlights (2021 vs. 2020) | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Total Revenue | 7,755,306 | 1,059,691 | | Net Loss | (32,504,323) | (10,255,763) | | Total Assets | 42,872,702 | 38,415,395 | | Total Liabilities | 45,128,110 | 58,420,895 | | Total Stockholders' Deficit | (2,345,408) | (20,005,500) | | Cash, end of year | 12,588,113 | 11,201,203 | Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies and financial figures, covering consolidation, asset details, debt, related party transactions, equity, and legal contingencies, including significant regulatory assessments and permit transfer liabilities - The company's primary revenue source is coal sales, recognized when control transfers to the customer (typically upon railcar loading); in 2021, 75.3% of revenue came from two coal customers[317][320] - As of Dec 31, 2021, total notes payable were $5.83 million and convertible notes payable were $9.19 million (net of discount)[343][344] - The company has significant legal and regulatory contingencies, including claims from the Kentucky Energy Cabinet totaling $1,427,990 and from the Mine Health Safety Administration of $918,611[398] - Subsequent to year-end, on January 26, 2022, the company received forgiveness for $1.52 million of principal and accrued interest on its Paycheck Protection Program (PPP) loan[405]