American Resources Corp 10-K/A

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. Overview. Our primary source of revenue is the sale of metallurgical coal and coal used in pulverized coal injection (PCI). Both metallurgical and PCI coal is an essential building block in the steel manufacturing process. The overall outlook of the metallurgical coal business is dependent on a variety of factors such as pricing, regulatory uncertainties and global economic conditions. Coal consumption and production in the U.S. have been driven in recent periods by several market dynamics and trends, such as the global economy, a strong U.S. dollar and accelerating production cuts. Results of Operations. Year Ended December 31, 2021 compared to Year Ended December 31, 2020. Revenues. Revenues for the year ended December 31, 2021 were $7,755,306 and 2020 were $1,059,691, respectively. The primary drivers for revenue increase was additional demand for coal since Covid-19. Trends which led to revenue growth were the re-opening of our mines after Covid-19 lock down and demand for our coal and the products that it is used in. To meet specific demand and customer requests, Perry County and Carnegie 1 were re-opened. These two mines were re-opened before others because they offered the desired quality of our customers while focusing on the steel and specialty markets. Contribution of revenues: Year ended 2021 For the year ended 2021, tons sold to steel making end users amounted to 60,512 with a realized sales price of $75.39. For the year ended 2021, tons sold to industrial and specialty end users amounted to 28,333,408 with a realized sales price of $112.46.For the year ended 2021, 87% of coal sales revenue was contributed by Perry County and 13% of coal sales revenue was contributed by McCoy. The reason for the difference in sales contribution is that Perry County commenced operations post Covid-19 lockdown before McCoy did. Year ended 2020 For the year ended 2020, tons sold to steel making end users amounted to 6,569 with a realized sales price of $59.09. For the year ended 2020, tons sold to industrial and utility end users amounted to 1,099.98 with a realized sales price of $58.24. For the year ended 2020, 88% of coal sales revenue was contributed by McCoy and 12% of coal sales revenue was contributed by Perry. The reason for the difference in sales contribution is that Perry County shut down first due to Covid-19 lockdown. 32 Table of Contents Expenses. Total Operating Expenses for the year ended December 31, 2021 were $36,088,714 and 2020 were $17,507,056, respectively. The primary driver for the increase in operating expenses was restarting production in the mines due to an increase of demand since Covid-19. Trends which led to higher expenses are inflation in labor and consumable goods. To meet specific demand and customer requests, Perry County and Carnegie 1 were re-opened with updated mine plans and more efficient long term operating structure. This re-working included one time development costs for expanding and increasing efficient capacity at the operating locations. Total Other Income/(Expenses) for the period ended December 31, 2021 were $(232,994) and 2020 were $20,537, respectively. Financial Condition. Total Assets as of December 31, 2021 amounted to $42,872,702 and 2020 amounted to $38,415,395, respectively. The primary driver for the higher asset balance was an increase in cash from debt and equity. Total Liabilities as of December 31, 2021 amounted to $45,218,110 and 2020 amounted to $58,420,895, respectively. The primary drivers for the decrease in liability balance was execution of convertible debt. Liquidity and Capital Resources. 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. The Company will use a combination of cash proceeds from operations, conversation of common stock warrants, issuance of common stock for cash or for debt conversion and issuance of new debt instruments to satisfy both short term and long term obligations, including the settlement of payables and debt that are in default of their original agreements. 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. Business Effect of Covid-19. During 2021 and 2020, the worldwide COVID-19 outbreak has resulted in muted demand for infrastructure and steel products and their necessary inputs including Metallurgical coal. These recent developments are expected to result in lower sales and gross margins. Because of the adverse market conditions caused by the global pandemic the Company’s operations were idled in January 2020 and resumed during December 2020. Capital Resources. We had no material commitments for capital expenditures as of December 31, 2021. Off-Balance Sheet Arrangements As of December 31, 2021, we had no off-balance sheet arrangements. 33 Table of Contents Critical Accounting Policies and Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amounts of revenues and expenses reported for the period then ended. Mine development costs . Mine development costs represent the costs incurred to prepare future mine sites for mining. These costs include costs of acquiring, permitting, planning, research, and establishing access to identify mineral reserves and other preparations for commercial production as necessary to develop and permit the properties for mining activities. Operating expenditures, including certain professional fees and overhead costs, are not capitalized but are expensed as incurred. Amortization of mine development costs, with respect to a specific mine, commences when mining of the related reserves begins. Amortization is computed using the units-of-production method over the proven and probable reserves dedicated to the specific mine. Asset retirement obligations . We recognize as a liability an asset retirement obligation, or ARO, associated with the retirement of a tangible long-lived asset in the period in which it is incurred or becomes determinable, with an associated increase in the carrying amount of the related long-lived asset. The initially recognized asset retirement cost is amortized using the same method and useful life as the long-lived asset to which it relates. Amortization begins when mining of the specific mineral property begins. Accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. Estimating the future ARO requires management to make estimates and judgments regarding timing and existence of a liability, as well as what constitutes adequate restoration. Inherent in the fair value calculation are numerous assumptions and judgments including the ultimate costs, inflation factors, credit adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding adjustment is made to the related asset. Cost of Goods Sold and Gross Profit . Cost of Goods Sold for coal mined and processed include direct labor, materials and utilities. Activities related to metal recover are inherent in both direct coal labor and overhead labor and does not require additional variable costs. Impairment of Long-lived Assets. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These events and circumstances include, but are not limited to, a current expectation that a long-lived asset will be disposed of significantly before the end of its previously estimated useful life, a significant adverse change in the extent or manner in which we use a long-lived asset or a change in its physical condition. When such events or changes in circumstances occur, a recoverability test is performed comparing projected undiscounted cash flows from the use and eventual disposition of an asset or asset group to its carrying amount. If the projected undiscounted cash flows are less than the carrying amount, an impairment is recorded for the excess of the carrying amount over the estimated fair value. We make various assumptions, including assumptions regarding future cash flows in our assessments of long-lived assets for impairment. The assumptions about future cash flows and growth rates are based on the current and long-term business plans related to the long-lived assets. 34 Table of Contents Item 7A. Quantitative and Qualitative Disclosure About Market Risk. The Company 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.