UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q/A
Amendment No. 1
 
☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: March 31, 2018
or
 
☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______
 
Commission File Number: 000-55456
 
American Resources Corporation 
(Exact name of registrant as specified in its charter)
 
Florida
 
46-3914127
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
9002 Technology Lane
Fishers, IN 46038
(Address and Zip Code of principal executive offices)
 
Registrant’s telephone number, including area code: (606) 637-3740
 
Indicate by check mark whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☐  No ☒
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐  No ☒
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of the “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller Reporting Company
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒
 
As of May 15, 2018, the registrant had 892,044 shares of Class A common stock issued and outstanding.

 
 
AMERICAN RESOURCES CORPORATION
 
TABLE OF CONTENTS
 
 
 
PAGE
 
PART I. FINANCIAL INFORMATION
 
3
 
 
 
 
 
 
Consolidated Financial Statements
 
3
 
 
 
 
 
 
 
Consolidated Balance Sheets (Unaudited)
 
4
 
 
 
 
 
 
 
Consolidated Statements of Operation (Unaudited)
 
5
 
 
 
 
 
 
 
Consolidated Statements of Cash Flows (Unaudited)
 
6
 
 
 
 
 
 
 
Notes to Unaudited Consolidated Financial Statements
 
7
 
 
 
 
 
 
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
 
12
 
 
 
 
 
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
18
 
 
 
 
 
 
Item 4.
Controls and Procedures
 
18
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
19
 
 
 
 
 
 
Item 1.
Legal Proceedings
 
19
 
 
 
 
 
 
Item 1A.
Risk Factors
 
19
 
 
 
 
 
 
Item 2.
Unregistered Sale of Equity Securities and Use of Proceeds
 
19
 
 
 
 
 
 
Item 3.
Defaults upon Senior Securities
 
19
 
 
 
 
 
 
Item 4.
Mine Safety Disclosures
 
19
 
 
 
 
 
 
Item 5.
Other Information
 
19
 
 
 
 
 
 
Item 6.
Exhibits
 
20
 
 
 
 
 
 
SIGNATURES
 
21
 
 
 
2
 
PART I. FINANCIAL INFORMATION
 
Item 1. Consolidated Financial Statements
 
 
AMERICAN RESOURCES CORPORATION
 
CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
 
For the three months ended
March 31, 2018
 
 
AMERICAN RESOURCES CORPORATION
 
 
CONSOLIDATED BALANCE SHEETS
 
 
UNAUDITED
 
 
 
 
 
 
 
 
 
 

March 31,
2018
 
 
December 31,
2017 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
Cash
 $9,006 
 $186,722 
Accounts Receivable
  2,269,609 
  1,870,562 
Inventory
  317,122 
  615,096 
Prepaid fees
  443,482 
  - 
Accounts Receivable - Other
  29,259 
  30,021 
Total Current Assets
  3,068,478 
  2,702,401 
 
    
    
OTHER ASSETS
    
    
Cash - restricted
  85,786 
  198,943 
Processing and rail facility
  2,914,422 
  2,914,422 
Underground equipment
  8,887,045 
  8,887,045 
Surface equipment
  4,439,263 
  3,957,603 
Less Accumulated Depreciation
  (5,300,140)
  (4,820,569)
Land
  178,683 
  178,683 
Accounts Receivable - Other
  111,003 
  127,718 
Note Receivable
  4,117,139 
  4,117,139 
Total Other Assets
  15,433,201 
  15,560,984 
 
    
    
TOTAL ASSETS
 $18,501,679 
 $18,263,385 
 
 
3
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
Accounts payable
 $6,407,660 
 $5,360,537 
Accrued related party management fee
  17,840,615 
  17,840,615 
Accrued interest
  461,333 
  336,570 
Accrued dividend on Series B
  70,157 
  - 
Funds held for others
  12,056 
  82,828 
Due to affiliate
  124,000 
  124,000 
Current portion of long term-debt
  10,164,219 
  9,645,154 
Current portion of reclamation liability
  2,379,352 
  2,033,862 
Total Current Liabilities
  37,459,392 
  35,423,566 
 
    
    
OTHER LIABILITIES
    
    
Long-term portion of note payable (net of issuance costs of $437,335 and $440,333)
  5,782,253 
  5,081,688 
Reclamation liability
  17,964,267 
  17,851,195 
Total Other Liabilities
  23,746,520 
  22,932,883 
Total Liabilities
    
    
 
  61,205,912 
  58,356,449 
 
    
    
STOCKHOLDERS' DEFICIT
    
    
AREC - Class A Common stock: $.0001 par value; 230,000,000 shares
    
    
authorized, 892,044 shares issued and outstanding
  89 
  89 
AREC - Series A Preferred stock: $.0001 par value; 4,817,792 shares
  482 
  482 
authorized, 4,817,792 shares issued and outstanding
    
    
AREC - Series B Preferred stock: $.001 par value; 20,000,000 shares
  850 
  850 
authorized, 850,000 shares issued and outstanding
    
    
Additional paid-in capital
  1,527,254 
  1,527,254 
Accumulated deficit
  (44,759,278)
  (42,019,595)
Total American Resources Corporation's Shareholders' Equity
  (43,230,603)
  (40,490,920)
Non controlling interest
  526,370 
  397,856 
Total Stockholders' Deficit
  (42,704,233)
  (40,093,064)
 
    
    
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
 $18,501,679 
 $18,263,385 
 
The accompanying footnotes are integral to the unaudited consolidated financial statements
 
 
4
 
 
 
AMERICAN RESOURCES CORPORATION                
 
 
CONSOLIDATED STATEMENTS OF OPERATIONS                
 
 
UNAUDITED                
 
 
 
 
 
 
 
 
 
  
For the three
months ended
 
 
For the three
months ended
 
 
March 31, 2018  
 
 
March 31, 2017    
 
 
 
 
 
 
 
 
Coal Sales
 $7,305,860 
 $5,718,098 
Processing Services Income
  19,516 
  893,983 
 
    
    
Total Revenue
  7,325,376 
  6,612,081 
 
    
    
Cost of Coal Sales and Processing
  (5,473,428)
  (4,563,561)
Accretion Expense
  (447,762)
  (328,061)
Loss of ARO Settlement
  - 
  (155,922)
Depreciation
  (479,571)
  (459,644)
General and Administrative
  (476,589)
  (419,196)
Professional Fees
  (274,603)
  (307,307)
Production Taxes and Royalties
  (949,793)
  (1,672,240)
Development Costs
  (1,687,173)
  (1,795,205)
 
    
    
Total Operating expenses
  (9,788,919)
  (9,701,136)
 
    
    
Net Loss from Operations
  (2,463,543)
  (3,089,055)
 
    
    
Other Income and (expense)
    
    
Other Income
  128,514 
  176,978 
Interest Income
  41,171 
  - 
Interest expense
  (247,154)
  (128,533)
Total Other income (expense)
  (77,469)
  48,445 
 
    
    
Net Loss
  (2,541,012)
  (3,040,610)
 
    
    
Less: Series B dividend requirement
  (70,157)
  - 
 
    
    
Less: Net income attributable to Non Controlling Interest
  (128,514)
  (176,978)
 
    
    
Net loss attributable to American Resources Corp. Shareholders
 $(2,739,683)
 $(3,217,588)
 
    
    
Net loss per common share - basic and diluted
 $(2.93)
 $(3.60)
 
    
    
Weighted average common shares outstanding- basic and diluted
  892,044 
  845,427 
 
The accompanying footnotes are integral to the unaudited consolidated financial statements
 
 
5
 
 
AMERICAN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
 
 
 
 
 
 
 
 
 
For the three
months ended
 
 
For the three
months ended
 
 
 
March 31,
2018  
 
 
March 31,
2017
 
Cash Flows from Operating activities:
 
   
 
 
 
 
Net loss
 $(2,541,012)
 $(3,040,610)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
 
 
Depreciation
  479,571 
  459,644 
Accretion expense
  447,762 
  328,061 
Loss on reclamation settlements
  - 
  155,922 
Assumption of note payable in reverse merger
  - 
  50,000 
Amortization of issuance costs and debt discount
  37,841 
  52,841 
Recovery of previously impaired receivable
  (50,806)
  - 
Change in current assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
  (399,047)
  1,325,463 
Prepaid expenses and other assets
  (443,482)
  40,000 
Inventory
  297,974 
  - 
Accounts payable
  1,057,923 
  925,483 
Funds held for others
  (70,772)
  - 
Accrued interest
  124,763 
  30,000 
Reclamation liability settlements
  - 
  (355,785)
Cash used in operating activities
  (1,059,285)
  (28,981)
 
Cash Flows from Investing activities:
 
 
 
 
 
 
 
Advances made in connection with management agreement
  (7,000)
  (40,000)
Advance repayment in connection with management agreement
  79,219 
  75,000 
Cash paid for PPE, net
  - 
  (34,787)
Cash provided by investing activities
  72,219 
  213 
 
Cash Flows from Financing activities:
 
 
 
 
 
 
 
Principal payments on long term debt
  (191,517)
  (4,893)
Proceeds from long term debt
  1,000,000 
  - 
Payments on factoring agreement, net
  (112,290)
  (415,204)
Proceeds from sale of series B preferred equity
  - 
  500,000 
Cash provided by financing activities
  696,193 
  79,903 
 
Increase (decrease) in cash and restricted cash
  (290,873)
  51,135 
 
Cash and restricted cash, beginning of period
  385,665 
  925,627 
 
Cash and restricted cash, end of period
 $94,792 
 $976,762 
 
Supplemental Information
 
 
 
 
 
 
Non-cash investing and financing activities
 
 
 
 
 
 
 
Equipment for notes payable
 $481,660 
 $- 
Preferred Series B Dividends
 $70,157 
 $- 
Conversion of note payable to common stock
 $- 
 $50,000 
Beneficial conversion feature on note payable
 $- 
 $50,000 
 
Cash paid for interest
 $66,672 
 $45,692 
Cash paid for income taxes
 $- 
 $- 
 
The accompanying footnotes are integral to the unaudited consolidated financial statements
 
 
6
 
 
AMERICAN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
American Resources Corporation (ARC or the Company) was formed in June 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.
 
The accompanying Consolidated Financial Statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
 
Interim Financial Information
 
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been omitted. In the opinion of management, these interim unaudited Consolidated Financial Statements reflect all normal and recurring adjustments necessary for a fair presentation of the results for the periods presented. Results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 or any other period. These financial statements should be read in conjunction with the Company’s 2017 audited financial statements and notes thereto which were filed on form 10K on April 23, 2018.
 
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.
 
Convertible Preferred Securities: We account for hybrid contracts that feature conversion options in accordance with generally accepted accounting principles in the United States. ASC 815, Derivatives and Hedging Activities (“ASC 815”) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
 
7
 
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.
 
Cash is maintained in bank deposit accounts which, at times, may exceed federally insured limits. To date, there have been no losses in such accounts.
 
Restricted cash: As part of the Kentucky New Markets Development Program (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. The balance as of March 31, 2018 and December 31, 2017 was $85,786 and $198,943, respectively. The total balance of restricted cash also includes amounts held under the management agreement. See note 6.
 
The following table sets forth a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheet that agrees to the total of those amounts as presented in the consolidated statement of cash flows for the three months ended March 31, 2018 and March 31, 2017.
 
 
 
March 31, 2018
 
 
March 31, 2017    
 
Cash
 $9,006 
 $756,160 
Restricted Cash
  85,786 
  220,602 
Total cash and restricted cash presented
    
    
in the consolidated statement of cash flows
 $94,792 
 $976,762 
 
Asset Retirement Obligations (ARO) – Reclamation: At the time they are incurred, legal obligations associated with the retirement of long-lived assets are reflected at their estimated fair value, with a corresponding charge to mine development. Obligations are typically incurred when we commence development of underground and surface mines, and include reclamation of support facilities, refuse areas and slurry ponds or through acquisitions.
 
Obligations are reflected at the present value of their future cash flows. We reflect accretion of the obligations for the period from the date they incurred through the date they are extinguished. The asset retirement obligation assets are amortized using the units-of-production method over estimated recoverable (proved and probable) reserves. We are using a discount rate of 10%. Federal and State laws require that mines be reclaimed in accordance with specific standards and approved reclamation plans, as outlined in mining permits. Activities include reclamation of pit and support acreage at surface mines, sealing portals at underground mines, and reclamation of refuse areas and slurry ponds.
 
We assess our ARO at least annually and reflect revisions for permit changes, change in our estimated reclamation costs and changes in the estimated timing of such costs. During the period ending March 31, 2018 and 2017, $- and $155,922 were incurred for loss on settlement on ARO, respectively.
 
The table below reflects the changes to our ARO:
 
Balance at December 31, 2017
 $19,885,057 
Accretion – 3 months March 31, 2018
  447,762 
Reclamation work – 3 months March 31, 2018
  - 
Balance at March 31, 2018
 $20,343,619 
  
Allowance For Doubtful Accounts: The Company recognizes an allowance for losses on trade and other accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging and expected future write-offs, as well as an assessment of specific identifiable amounts considered at risk or uncollectible.
 
Allowance for trade receivables as of March 31, 2018 and December 31, 2017 amounted to $0, for both periods. Allowance for other accounts receivables as of March 31, 2018 and December 31, 2017 amounted to $0 and $92,573, respectively.
 
Trade and loan receivables are carried at amortized cost, net of allowance for losses. Amortized cost approximated book value as of March 31, 2018 and December 31, 2017.
 
Reclassifications: Reclassifications have been made to conform with current year presentation.
 
8
 
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.
 
-
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
 
-
ASU 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.
 
ASU 2016-18, Statement of Cash Flows: Restricted Cash (Topic 230). Topic 230 addressed how restricted cash was presented in the statement of cash flows. We adopted Topic 230 as of January 1, 2018 resulting modifications as to the manner in which restricted cash transactions are presented in the statement of cash flows.
 
ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Topic 606 supersedes the revenue recognition requirements in Topic 605 and requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company’s primary source of revenue is from the sale of coal through both short-term and long-term contracts with utilities, industrial customers and steel producers whereby revenue is currently recognized when risk of loss has passed to the customer. During the fourth quarter of 2017, the Company finalized its assessment related to the new standard by analyzing certain contracts representative of the majority of the Company’s coal sales and determined that the timing of revenue recognition related to the Company’s coal sales will remain consistent between the new standard and the previous standard. The Company also reviewed other sources of revenue, and concluded the current basis of accounting for these items is in accordance with the new standard. The Company adopted ASU 2014-09 effective January 1, 2018 using the modified retrospective method, and there was no cumulative adjustment to retained earnings.
 
NOTE 2 - PROPERTY AND EQUIPMENT
 
At March 31, 2018 and December 31, 2017, property and equipment were comprised of the following:
 
 
 
March 31,
2018
 
 
December 31,
2017
 
Processing and rail facility
 $2,914,422 
 $2,914,422 
Underground equipment
  8,887,045 
  8,887,045 
Surface equipment
  4,439,263 
  3,957,603 
Land
  178,683 
  178,683 
Less: Accumulated depreciation
  (5,300,140)
  (4,820,569)
 
    
    
Total Property and Equipment, Net
 $11,119,273 
 $11,117,184 
  
Depreciation expense amounted to $479,571 and $459,644 for the periods March 31, 2018 and March 31, 2017, respectively.
 
The estimated useful lives are as follows:
 
Processing and Rail Facilities
20 years
Surface Equipment
7 years
Underground Equipment
5 years
 
 
9
 
NOTE 3 - NOTES PAYABLE
 
During the three month period ended March 31, 2018 and 2017, principal payments on long term debt totaled $191,517 and $4,893, respectively. During the three-month period ended March 31, 2018 and 2017, increases to long term debt totaled $1,481,660 and $0, respectively, primarily $1,000,000 from the ARC business loan and $481,660 from equipment financings. The ARC business loan carries annual interest at 7%, is due within two months of advancement and is secure by all company assets. The equipment loan totaling $346,660 carries annual interest at 9%, is due in 24 months and is secured by the equipment. The equipment loan totaling $135,000 carries annual interest at 0%, was due one month after advancement, has been paid in full on May 2, 2018 and was secured by the equipment.
 
During the three-month period ended March 31, 2018 and 2017, proceeds from the factoring agreement totaled $6,714,836 and $2,039,226, respectively and repayments according to the factoring agreement totaled $6,827,126 and $2,454,430, respectively.
 
NOTE 4 - RELATED PARTY TRANSACTIONS
 
On June 12, 2015, the Company executed a consulting agreement with an entity with common ownership. During the three months ended March 31, 2018 and March 31, 2017, the Company incurred fees totaling $0 relating to services rendered under this agreement, respectively. The amount outstanding and payable as of March 31, 2018 and December 31, 2017, was $17,840,615 and $17,840,615, respectively. The amount is due on demand and does not accrue interest.
 
NOTE 5 – 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. Under the management agreement funds advanced for the three-month period ended March 31, 2018 and 2017are $7,000 and $40,000, respectively and the amounts repaid totaled $79,219 and $75,000, respectively.
 
NOTE 6 – EQUITY TRANSACTIONS
 
There were no common or other series A preferred transactions for the three-month period ending 2018.
 
Total preferred dividend requirement for the three month period ending March 31, 2018 and 2017 amounted to $70,157 and $0, respectively.
 
10
 
NOTE 7 - CONTINGENCIES
 
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.
 
NOTE 8 - SUBSEQUENT EVENTS
 
Loans
 
During April 2018, the company drew an additional $300,000 on the ARC business loan.
 
During May 2018, the company entered into a sale leaseback arrangement with an unrelated party to acquire new equipment. The transaction was accounted for as a financing transaction resulting in a note payable of $1,000,000 being recorded with a maturity date of September, 2018.
 
Acquisitions
 
On April 21, 2018, McCoy acquired two permits and entered into a surface lease and a mineral sub-lease from unrelated entities. Consideration for the acquired permits was the assumption of reclamation bonds totaling $1,036,200 and vendor payables totaling $53,771. The transaction is accounted for as an asset purchase under ASU 2017-01. Management is still gathering the information needed to complete the allocation of the purchase price to the assets acquired and liabilities assumed.
 
On May 10, 2018, Knott County acquired a mining permit from an unrelated party. Consideration for the acquired permits was the assumption of reclamation bonds totaling $75,000 and the payment of $1.50 per ton royalty of coal sold. The transaction is accounted for as an asset purchase under ASU 2017-01. Management is still gathering the information needed to complete the allocation of the purchase price to the assets acquired and liabilities assumed.
 
11
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
This Form 10-Q and other reports filed by Registrant from time to time with the Securities and Exchange Commission (collectively the “Filings”) contain or may contain forward looking statements and information that are based upon beliefs of, and information currently available to, Registrant’s management as well as estimates and assumptions made by Registrant’s management. When used in the filings the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan” or the negative of these terms and similar expressions as they relate to Registrant or Registrant’s management identify forward looking statements. Such statements reflect the current view of Registrant with respect to future events and are subject to risks, uncertainties, assumptions and other factors relating to Registrant’s industry, Registrant’s operations and results of operations and any businesses that may be acquired by Registrant. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
 
Although Registrant believes that the expectations reflected in the forward-looking statements are reasonable, Registrant cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, Registrant does not intend to update any of the forward-looking statements to conform these statements to actual results.
 
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. These operations represent historical operations of the company and do not represent the company’s current operations and business plan.
 
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) locatedin 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. We have not classified, and as a result, do not have any “proven” or “probable” reserves as defined in United States Securities and Exchange Commission Industry Guide 7, and as a result, our company and its business activities are deemed to be in the exploration stage until mineral reserves are defined on our properties.
 
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.
 
 
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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.
 
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.
 
 
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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 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.
 
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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.
 
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.
 
 
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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.
 
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 210 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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Results of Operations
 
Our consolidated operations had operating revenues of $7,325,376 for the three-months ended March 31, 2018 and $6,612,081 operating revenue for the three-months ended March 31, 2017. We have incurred net loss attributable to American Resources shareholders in the amount of $2,739,683 and a net loss of $3,217,588 respectively for the same periods.
 
The primary driver for increased revenue and decreased net loss was the commencement of underground mining operations in September 2017 at our Access Energy Mine. This was due to higher customer demand and pricing for the coal type that is produced from the Access Energy Mine.
 
From our inception to-date our activities have been primarily financed from the proceeds of our acquisitions, series B equity investments and loans.
 
For the three months ended March 31, 2018 and 2017, coal sales and processing expenses were $5,473,428 and $4,563,561 respectively, development costs, including loss on settlement of ARO were $1,687,173 and $1,951,127, respectively, and production taxes and royalties $949,793 and $1,672,240, respectively. Depreciation expense for the three months ended March 31, 2018 and 2017 were $479,571 and $459,644 respectively.
 
Liquidity and Capital Resources
 
As of March 31, 2018, our available cash was $9,006. We expect to fund our liquidity requirements with cash on hand, future borrowings and cash flow from operations. If future cash flows are insufficient to meet our liquidity needs or capital requirements, we may reduce our mine development and/or fund a portion of our expenditures through issuance of debt or equity securities, the entry into debt arrangements for from other sources, such as asset sales. We do not have any credit lines currently available to fund our liquidity requirements, and currently there is uncertainty regarding our ability to execute on the above strategy.
 
For the three months ending March 31, 2018 our net cash flow used in operating activities was $1,059,285 and for the period ending March 31, 2017 the net cash flow used in operating activities was $29,981.
 
For the three months ending March 31, 2018 and 2017 net cash provided by investing activities were $72,219 and $213 respectively.
 
For the three months ending March 31, 2018 and 2017 net cash proceeds from financing activities were $696,193 and $79,903 respectively.
 
As a public company, we will be subject to certain reporting and other compliance requirements of a publicly reporting company. We will be subject to certain costs for such compliance which private companies may not choose to make. We have identified such costs as being primarily for audits, legal services, filing expenses, financial and reporting controls and shareholder communications and estimate the cost to be approximately $10,000 monthly if the activities of our Company remain somewhat the same for the next few months. We have included such costs in our monthly cash flow needs and expect to pay such costs from a combination of cash from operations.
 
Off Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.
 
Critical Accounting Policies
 
The preparation of financial statements requires management to utilize estimates and make judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. These estimates are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. The estimates are evaluated by management on an ongoing basis, and the results of these evaluations form a basis for making decisions about the carrying value of assets and liabilities that are not readily apparent from other sources. Although actual results may differ from these estimates under different assumptions or conditions, management believes that the estimates used in the preparation of our financial statements are reasonable. The critical accounting policies affecting our financial reporting are summarized in Note1 to the financial statements included elsewhere in this report.
 
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Recent Accounting Pronouncements
 
Management has elected to early adopt ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business effective at inception.
 
ASU 2016-18, Statement of Cash Flows: Restricted Cash (Topic 230). Topic 230 addressed how restricted cash was presented in the statement of cash flows. We adopted Topic 230 as of January 1, 2018 resulting modifications as to the manner in which restricted cash transactions are presented in the statement of cash flows.
 
ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Topic 606 supersedes the revenue recognition requirements in Topic 605 and requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company’s primary source of revenue is from the sale of coal through both short-term and long-term contracts with utilities, industrial customers and steel producers whereby revenue is currently recognized when risk of loss has passed to the customer. During the fourth quarter of 2017, the Company finalized its assessment related to the new standard by analyzing certain contracts representative of the majority of the Company’s coal sales and determined that the timing of revenue recognition related to the Company’s coal sales will remain consistent between the new standard and the previous standard. The Company also reviewed other sources of revenue, and concluded the current basis of accounting for these items is in accordance with the new standard. The Company adopted ASU 2014-09 effective January 1, 2018 using the modified retrospective method, and there was no cumulative adjustment to retained earnings.
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
Because we are a smaller reporting company we are not required to include any disclosure under this item.
 
Item 4. Controls and Procedures
 
(a) Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures.
 
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief 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 U.S. generally accepted accounting principles.
 
With respect to the period ending March 31, 2018, 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 Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934.
 
Based upon our evaluation regarding the period ending March 31, 2018, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, has concluded that its disclosure controls and procedures were not effective due to the Company’s insufficient number of staff performing accounting and reporting functions and lack of timely reconciliations. 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 Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. However, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures 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 a 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 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.
 
(b) Changes in Internal Controls.
 
There have been no changes in the Company’s internal control over financial reporting during the period ended March 31, 2018 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.
 
 
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PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings
 
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
 
Item 1A. Risk Factors
 
Not applicable.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
 
Item 3. Defaults upon Senior Securities
 
None.
 
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 Quarterly Report.
 
Item 5. Other Information
 
None.
 
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Item 6. Exhibits
 
The following exhibits are filed herewith except as otherwise noted:
 
Exhibit No.
 
Description
 
 
 
 
 
 
 
 
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.
 
Mine Safety Disclosure pursuant to Regulation S-K, Item 104 filed herewith.
 
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
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SIGNATURES
 
Pursuant to the requirements 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  
 
 
 
 
 
Date: October 22, 2018
By:
/s/ Mark C. Jensen
 
 
Name:
Mark C. Jensen
 
 
Title:
CEO, Chairman of the Board
 
 
 
(Principal Executive Officer)
 
 

 
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