American Resources Corporation — FY 2022 Form 10-K
Reporting period: Year ended December 31, 2022; comparison is with FY 2021. The company’s principal operating business is metallurgical and PCI coal, with additional activities in metal recovery and critical-element processing.
Financial performance and position
| Metric | FY 2022 / Dec. 31, 2022 | FY 2021 / Dec. 31, 2021 |
|---|---|---|
| Total revenue | $39.47 million | $7.76 million |
| Coal sales | $39.10 million | $7.52 million |
| Operating expenses | $63.47 million | $36.09 million |
| Loss from operations | $24.00 million | $28.33 million |
| Net loss attributable to ARC shareholders | $1.45 million | $32.50 million |
| Cash from operating activities | $6.07 million provided | $29.09 million used |
| Cash and restricted cash | $10.99 million | $12.59 million |
| Total assets | $55.92 million | $42.87 million |
| Total liabilities | $55.63 million | $45.13 million per balance sheet |
- Revenue rose about 409%, primarily as coal mines restarted and demand recovered. The Carnegie 1 and 2 mines supplied reported steelmaking coal sales; Perry County supplied industrial and specialty coal sales.
- Operating expenses increased about 76%. Development expense was $28.13 million, compared with $18.10 million in 2021. The filing cites mine restarts, development work, and inflation in labor and consumables.
- The $1.45 million net loss was substantially smaller than in 2021, but included $23.63 million of reported gains: $16.00 million on patent sales, $4.51 million on asset sales, and $3.12 million on debt cancellation. The company still reported a $24.00 million operating loss.
- Cash and restricted cash totaled $10.99 million, including $8.87 million unrestricted cash and $2.12 million restricted cash. Unrestricted cash declined from $11.49 million. Operating cash flow was positive, while investing activities used $7.64 million and financing activities used $0.03 million.
- Current liabilities were $27.44 million versus current assets of $10.76 million. Current convertible debt was $9.79 million; current long-term debt was $1.92 million. The balance sheet also reported $20.30 million of remediation liabilities and $11.79 million of lease liabilities.
- The company reported $284,696 of stockholders’ equity at year-end. The filing identifies substantial common-stock issuance through debt and warrant conversions; 78,213,454 shares were reported outstanding on March 31, 2023.
Changes, outlook, and risks
- Management attributed the revenue improvement to mine restarts and stronger customer demand. Carnegie 1 produced approximately 105,607 tons and Carnegie 2 approximately 6,200 tons in 2022; Perry County’s E4-2 mine produced approximately 105,577 tons. E4-2 was also idled during the year following regional historic flooding.
- No quantified forward guidance is provided. Management says it expects to fund obligations through operating cash, warrant exercises, stock issuance or debt conversions, and new debt, including to address payables and debt in default. It states it is not aware of trends likely to materially change liquidity.
- The company’s statements are prepared on a going-concern basis. Significant near-term obligations, current-liability excess over current assets, and reliance on financing are relevant liquidity considerations.
- In January 2023, the remaining convertible notes, reported at $9.89 million, converted into 9,420,230 common shares, extinguishing the note liabilities but increasing share count.
- Mining operations face coal-price and demand volatility, permitting and environmental requirements, reclamation obligations, safety regulation, and potential customer concentration. Three coal customers represented 99.7% of 2022 revenue. Surety bonds outstanding were approximately $30.94 million.
- The filing reports outstanding regulatory issues on the Applicator Violator List and says regulators could withhold new permit approvals. Some West Virginia permit transfers remained subject to approval.
- Related-party service costs under an agreement with Land Betterment Corp. were $5.57 million in 2022, of which $3.08 million was paid; $4.48 million remained due at year-end. The agreement provides for a 10% markup on passed-through costs and a share of cost savings.
- Management concluded that internal controls over financial reporting were ineffective because limited accounting staff resulted in insufficient segregation of duties and review. Management plans to add accounting staff but gives no assurance on timing. The independent auditor issued an unqualified opinion on the financial statements and reported no critical audit matters.
Investor verification points
- Reconcile reported mine production and sales volumes, realized prices, and recognized coal revenue; the mine-level and MD&A figures may not align clearly with total coal sales.
- Review the nature, cash proceeds, and accounting for the $16.00 million patent-sale gain and $4.51 million asset-sale gain, and assess whether these gains are recurring.
- Confirm the maturity, status, and post-year-end conversion accounting for the convertible notes, along with the resulting dilution and other outstanding warrants and options.
- Assess near-term liquidity, defaulted obligations, related-party payables, reclamation liabilities, and the funding needed to sustain operations and meet regulatory requirements.
- Review the material weakness remediation plan, the related-party Land Betterment arrangement, and the status of regulatory violations and permit transfers.