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Item 7. Management’s Discussion and Analysis

2025-05-19 compared with 2024-04-15 · 73 added, 69 removed, 74 unchanged (66% of the section changed)

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.

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.

Our primary source of revenue through 2024 has been the sale of metallurgical coal and coal used in pulverized coal injection (PCI).

Both metallurgical and PCI coal are essential building blocks 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.

4 unchanged sentences

Year Ended December 31, 2024 compared to Year Ended December 31, 2023.

Year Ended December 31,

For the Years Ended

$ (12,596,163 )

Metal recovery and sales

Service fee revenue

Royalty income

2 unchanged sentences

Operating expenses (income)

Cost of coal sales and processing

(10,075,770 )

Coal production and holdings costs

Amortization of mining rights

1 unchanged sentence

Professional fees

Litigation expense

(10,827,268 )

Production taxes and royalties

Gain on sale of equipment

(16,388,158 )

Total operating expenses

4 unchanged sentences

Other income (expense)

Earnings from equity method investees

Other income and (expense)

Unrealized gain on short-term investments

Gain on cancelation of debt

Gain on sales of patents

(16,000,000 )

Interest income

Interest expense

Total other (expenses) income

Total other income (expenses), net

(40,196,740 )

(38,724,963 )

Non-controlling interest

Net loss attributable to AREC shareholders

$ (40,108,926 )

$ (38,527,408 )

Net loss per share - basic

Weighted average shares outstanding - basic

Revenues for the year ended December 31, 2023 were $16,744,075 and 2022 were $39,474,269, respectively.

The primary drivers for revenue decline were slowing down of global infrastructure markets, international import bans and overall softening in customer pricing.

In response to slower demand and customer requests, Perry County was idled.

Contribution of revenues:

All our sales are located in the United States with our operations located in the Central Appalachian basin of eastern Kentucky and West Virgina.

Our coal sales are categorized as metallurgical coal (“Met”) used for steel making, pulverized coal injections (“PCI”) used in the steel making process and high-BTU, low sulfur, low moisture bituminous coal (“High BTU”) used for a variety of uses within several industries, including industrial customers and specialty products.

Disaggregated information about our revenue is presented below:

For the year Ended December 31,

Year ended 2023

For the year ended 2023, tons sold to steel making end users amounted to 67,372.57 with a realized sales price of $180.32.

Steelmaking coal was contributed by McCoy Elkhorn’s Carnegie 1 mine.

For the year ended 2023, tons sold to industrial and specialty end users amounted to 0 tons.

Year ended 2022

For the year ended 2022, tons sold to steel making end users amounted to 111,807 with a realized sales price of $233.11.

Steelmaking coal was contributed by McCoy Elkhorn’s Carnegie 1 and Carnegie 2 mines.

For the year ended 2022, tons sold to industrial and specialty end users amounted to 105,577.11 with a realized sales price of $153.43.

For the year ended 2022, 100% of coal sales revenue was contributed by Perry County for industrial and specialty end users.

Cost and Expenses.

Cost of sales.

The decrease in cost of sales is due to lower sales volumes as a result of the ceasing of production on the Perry County mines.

The decrease in accretion expense in the year ended December 31, 2023 is driven primarily by the reduced liability balance due to no changes in the previous estimates.

Depreciation.

The decrease in depreciation expense in the year ended December 31, 2023 is primarily due to the Company’s significant disposal of fixed assets in 2022.

The Company has acquired the majority of new fixed assets under financing leases.

$ (1,581,518 )

The following table summarizes the changes in revenue generating operations:

For the Years Ended

(12,596,163 )

Metal recovery and sales

Service fee revenue

Royalty income

Total revenue

(12,851,165 )

Revenues for the 2024 and 2023 were $383,234 and $13,234,399, respectively.

The primary drivers of the decrease were reductions in coal sales and royalty income.

Declines were due to adverse market conditions and unfavorable pricing that led to our decision to suspend coal production activities beginning in 2023.

Our coal production businesses are located in the United States with our operations located in the Central Appalachian basin of eastern Kentucky and West Virgina.

Our coal sales for 2024 and 2023 were all classified as metallurgical coal (“Met”) used for steel making.

For the year ended 2024, the Company had de minimis tons of coal sold to steel making end users.

For the year ended 2023, tons sold to steel making end users amounted to 67,373 tons with a realized sales price of $180.

The following table summarizes the changes in operating expenses (income):

For the Years Ended

Operating expenses (income)

Coal production and holdings costs

Amortization of mining rights

General and administrative

The increase in general and administrative expense in the year ended December 31, 2023 is primarily due to higher compensation cost, higher stock compensation recognized during the year and increase in travel and health benefits.

Professional fees

Litigation expense

(10,827,268 )

Production taxes and royalties

The decrease in production taxes and royalties in the year ended December 31, 2023 is due to lower sales volumes and prices.

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 was primarily recognized in the prior period and is the reason for the significant decrease in December 31, 2023.

The Company expects to continue to improve mining performance and offset inflationary pressures through efficiency gains.

Other income (expenses).

The decrease in other income (expenses) is primarily due to the sale of patents that occurred totaling $16,000,000, the forgiveness of the PPP loan of $1,521,304 and the cancellation of notes payable by issuing common stock in lieu of payment to reduce our debt balance in prior year.

Gain on sale of equipment

Total operating expenses

Total operating expenses decreased in 2024 as compared to 2023.

This decrease was primarily attributable to decreases in coal production and holdings costs, litigation expense, production taxes and royalties and development.

These decreases were partially offset by increases in depreciation, amortization of mining, general and administrative and professional.

General and administrative expenses primarily consist of contract labor, payroll, facility maintenance, stock-based compensation to employees and consultants, insurance and other routine operating costs.

The decrease in our coal production and holding costs is aligned with the suspension of our coal production activities beginning in 2023.

The decrease in litigation expense is because in 2023, American Infrastructure recognized charges for certain litigation matters where the potential loss was assessed as probable in that year.

The increase in general and administrative expenses is primarily attributable to the shift in our business from coal production to other activities including the development of RLMT technology for refining rare earth and battery elements.

The following table summarizes the changes in other income (expense):

For the Years Ended

Other income (expense)

Earnings from equity method investees

Other income and (expense)

Interest income

Interest expense

Total other income (expenses), net

$ (7,107,678 )

$ (2,349,761 )

The increase in net other expense is primarily attributable to the net increase in interest expense driven by the WCC bonds being outstanding for the full twelve months of 2024 compared to approximately seven months in 2023 and the KCC bonds that were issued in March 2024.

Liquidity and Capital Resources.

Our primary sources of liquidity are derived from existing unrestricted cash balances, proceeds from future coal sales, and certain financing arrangements.

Our primary capital resource requirements stem from the cost of coal sales and processing, general and administrative, capital expenditures, debt service obligations, reclamation obligations, and collateral requirements.

As of December 31, 2023, the company has a cash balance of $7,034,370 and working capital of $16,814,931.

The Company will use a combination of cash proceeds from operations, 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.

These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company has incurred recurring losses and as of December 31, 2023, had an accumulated deficit of $178,694,329.

For the year ending December 31, 2023, the Company sustained a net loss of $11,455,086.

These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the date these financial statements were issued.

These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern.

The Company’s continuation as a going concern is contingent upon its ability to obtain additional financing and to generate revenue and cash flow to meet its obligations on a timely basis.

The Company will continue to seek to raise additional funding through debt or equity financing during the next twelve months from the date of issuance of these financial statements.

Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern.

There is no guarantee the Company will be successful in achieving these objectives.

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.

Our primary sources of liquidity are derived from existing unrestricted cash, reimbursements from bond funds and other debt and capital proceeds.

With the suspension of our coal production activities beginning in 2023 and the development stage of our new ReElement and Electrified Materials businesses through 2024, our sources of revenue in 2024 were primarily limited to royalty income and coal processing fees.

We anticipate our ReElement and Electrified Materials new businesses to achieve increasing revenues in 2025;

however, we will continue to require cash flows from financing activities to support operations and the continued development of our new business models.

As of December 31, 2024, the company has a cash balance of $604,485 and a working deficit of $73,477,808.

We expect to fund our liquidity requirements over the next 12 months primarily with cash on hand and additional debt and equity financing transactions.

If future cash flows are insufficient to meet our liquidity needs or capital requirements, we may be required to rationalize our expenditures or slow down efforts to further develop our new business models.

We do not have any credit lines currently available to fund our liquidity requirements.

Maintaining future liquidity is subject to significant uncertainties primarily related to the generation of revenues from our new business models at levels that surpass breakeven and the ability to obtain additional debt and equity financing.

Year Ended December 31, 2024 compared to Year Ended December 31, 2023

1 unchanged sentence

Consolidated statement of cash flow data:

Cash (used for) provided by operating activities

Cash used in operating activities

$ (22,225,352 )

Cash provided by (used for) investing activities

Cash provided by (used for) financing activities

$ (20,100,929 )

Cash provided by (used in) investing activities

Cash provided by financing activities

Net change in cash and restricted cash

$ 124,492,106

Cash used for operating activities during 2023 was $14,515,241 compared to cash provided by $2,549,189 in 2022.

The change was primarily due to a net loss of $11,455,086, offset by amortization of mining rights of $1,240,914, accretion expense of $993,165, amortization of right-of-use asset of $626,253, option expense of $1,506,292, unrealized gain on short-term investments of $499,639, gain on sale of equipment of $8,475,468 and a change in working capital of $1,284,489.

Cash used by investing activities during 2023 was $28,833,246 compared to $1,125,759 in 2022.

The change was primarily due to an increase in the net purchase of short-term investments of $29,797,565 in 2023 compared to $0 in 2022.

Cash provided by financing activities during 2023 was $37,387,162 compared to cash used by financing activities in 2022 of $1,015,848 for the prior year.

The change was due to $1,112,850 repayments on long term debt, $5,599,988 repayments of finance lease liabilities, and $44,100,000 proceeds from tax exempt bonds.

The $2,124,423 increase in cash used for operating activities was primarily due to a $1,471,777 increase in net loss and a $3,654,193 decrease in cash flow provided by changes in working capital offset by an increase of $3,001,547 in non-cash charges.

Cash provided by investing activities during 2024 was $55,976 compared to cash used in investing activities of $1,127,427 in 2023.

The change was primarily due to purchases of property and equipment, net of capitalized interest income and (expense) of $1,059,062 offset proceeds from sales of equipment of $400,000 and proceeds from short-term investments of $715,038.

Cash provided by financing activities during 2024 was $146,661,482 compared to $45,612,289 in 2023.

The change was due to proceeds from tax exempt bonds, net of $149,719,203, proceeds from convertible promissory note of $1,624,860, proceeds from exercise of stock option of $156,900, proceeds from warrant conversions of $32,339, proceeds received from other financing obligations of $2,493,819 offset by repayments of other financing obligations of $7,365,639.

Capital Resources.

32 unchanged sentences

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What changed 10-K

Item 7. Management’s Discussion and Analysis