American Resources Corp 10-K/A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 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 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. 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, 2024 compared to Year Ended December 31, 2023. For the Years Ended December 31, 2024 2023 Change (As Restated) (As Restated) Revenue Coal sales $ 15,002 $ 11,198,665 $ (11,183,663 ) Metal recovery and sales 108,535 66,552 41,983 Service fee revenue 99,960 - 99,960 Royalty income 159,737 556,682 (396,945 ) Total revenue 383,234 11,821,899 (11,438,665 ) Operating expenses (income) Coal production and holdings costs 2,526,975 7,575,098 (5,048,123 ) Accretion 991,520 1,015,563 (24,043 ) Depreciation 2,185,332 2,323,431 (138,099 ) Amortization of mining rights 1,235,932 1,222,686 13,246 General and administrative 21,024,382 10,670,358 10,354,024 Professional fees 2,625,898 1,542,175 1,083,723 Litigation expense 240,658 11,067,926 (10,827,268 ) Production taxes and royalties 35,533 2,995,435 (2,959,902 ) Development 2,148,132 11,313,837 (9,165,705 ) Gain on sale of equipment (400,000 ) (1,529,408 ) 1,129,408 Total operating expenses 32,614,362 48,197,101 (15,582,739 ) Net loss from operations (32,231,128 ) (36,375,202 ) 4,144,074 Other income (expense) Earnings from equity method investees (409,268 ) (562,696 ) 153,428 Other income and (expense) 221,471 170,780 50,691 Interest income 1,101,578 30,229 1,071,349 Interest expense (8,021,459 ) (1,988,074 ) (6,033,385 ) Total other income (expenses) (7,107,678 ) (2,349,761 ) (4,757,917 ) Net loss (39,338,806 ) (38,724,963 ) (613,843 ) Less: Non-controlling interest 87,814 197,555 (109,741 ) Net loss attributable to AREC shareholders $ (39,250,992 ) $ (38,527,408 ) $ (723,584 ) 29 Table of Contents The following table summarizes the changes in revenue generating operations: For the Years Ended December 31, 2024 2023 Change (As Restated) Revenue Coal sales $ 15,002 $ 11,198,665 $ (11,183,663 ) Metal recovery and sales 108,535 66,552 41,983 Service fee revenue 99,960 - 99,960 Royalty income 159,737 556,682 (396,945 ) Total revenue $ 383,234 $ 11,821,899 $ (11,438,665 ) Revenues Revenues for the 2024 and 2023 were $383,234 and $11,821,899, 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 56,909 tons with a realized net sales price of $126. 30 Table of Contents The following table summarizes the changes in operating expenses (income): For the Years Ended December 31, 2024 2023 Change (As Restated) (As Restated) Operating expenses (income) Coal production and holdings costs $ 2,526,975 $ 7,575,098 $ (5,048,123 ) Accretion 991,520 1,015,563 (24,043 ) Depreciation 2,185,332 2,323,431 (139,009 ) Amortization of mining rights 1,235,932 1,222,686 13,246 General and administrative 21,024,382 10,670,358 10,354,024 Professional fees 2,625,898 1,542,175 1,083,723 Litigation expense 240,658 11,067,926 (10,827,268 ) Production taxes and royalties 35,533 2,995,435 (2,959,902 ) Development 2,148,132 11,313,837 (9,165,705 ) Gain on sale of equipment (400,000 ) (1,529,408 ) 1,129,408 Total operating expenses $ 32,614,362 $ 48,197,101 $ (15,582,739 ) Total operating expenses decreased in 2024 as compared to 2023. This decrease was primarily attributable to decreases in coal production and holdings costs, depreciation expense, litigation expense, production taxes and royalties and development. These decreases were partially offset by amortization of mining, general and administrative and professional. The $10.4 million increase in general and administrative expenses for the year ended December 31, 2024 was primarily attributable to consulting, and administrative services provided by affiliates in support of the Company’s operations, and higher rent expense related to the addition of new office and operating locations. 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 following table summarizes the changes in other income (expense): For the Years Ended December 31, 2024 2023 Change (As Restated) Other income (expense) Earnings from equity method investees $ (409,268 ) $ (562,696 ) $ 153,428 Other income and (expense) 221,471 170,780 50,691 Interest income 1,101,578 30,229 1,071,349 Interest expense (8,021,459 ) (1,988,074 ) (6,033,385 ) Total other income (expenses), net $ (7,107,678 ) $ (2,349,761 ) $ (4,757,917 ) The increase in net other expense is primarily attributable to the net increase in interest expense and bond fund income driven by the WCC bonds being outstanding for the full twelve months of 2024 compared to approximately seven months in 2023. Liquidity and Capital Resources. 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 limited. We anticipate our ReElement and Electrified Materials new businesses to achieve increasing revenues in 2026; 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 capital 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. 31 Table of Contents Cash Flows Year Ended December 31, 2024 compared to Year Ended December 31, 2023 Years Ended December 31, 2024 2023 (As Restated) (As Restated) Consolidated statement of cash flow data: Cash used in operating activities $ (21,243,213 ) $ (19,518,781 ) Cash used in investing activities (125,400,361 ) (31,743,043 ) Cash provided by financing activities 145,679,343 45,348,555 Net change in cash and restricted cash $ (964,231 ) $ (5,913,269 ) The $1,724,432 increase in cash used in operating activities was primarily due to a $613,843 increase in net loss, a $2,713,871 decrease in cash flow provided by changes in working capital, and an increase of $1,603,282 in non-cash charges. Cash used in investing activities during 2024 was $125,400,361 compared to cash used in investing activities of $31,743,043 in 2023. The change was primarily due to the $120,956,337 increase in the purchase of restricted investments within the tax-exempt bond funds and a $1,129,408 decrease in proceeds from the sale of equipment offset by restricted investments sold of $25,797,202, proceeds from short-term investments of $73,421 and a decrease of $2,557,804 in purchases of property and equipment. Cash provided by financing activities during 2024 was $145,679,343 compared to $45,348,555 in 2023. The change was due to an increase in proceeds from tax exempt bonds, net of $106,243,315 and an increase in proceeds from convertible promissory note of $642,721, proceeds from exercise of stock options of $156,900, cash received from warrant conversions of $32,339, repayment of long term debt of $1,158,428 offset by a decrease in proceeds received from other financing obligations of $5,239,412. Capital Resources. We had no material commitments for capital expenditures as of December 31, 2024. Off-Balance Sheet Arrangements As of December 31, 2024, we had no off-balance sheet arrangements. 32 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. 33 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.