American Resources Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. American Resources operates coal mining and processing businesses and is also developing metal recovery and critical- and rare-earth-element activities. The company reports that it has no proven or probable reserves under the cited SEC definitions.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $8.87 million | $9.08 million | Down 2.3% |
| Operating loss | $2.64 million | $3.98 million | Loss narrowed |
| Net loss | $3.10 million | $2.75 million | Loss increased 12.6% |
| Basic and diluted loss per share | $0.04 | $0.04 | Unchanged as reported |
| Cash used in operations | $7.34 million | $5.73 million | Use increased |
| Cash used in investing | $0.97 million provided | $0.79 million used | Improved |
| Cash used in financing | $2.19 million | $0.24 million provided | Shifted to cash use |
Coal sales were $8.72 million, compared with $9.03 million. Royalty income rose to $125,000 from $12,000; metal recovery and sales were $21,000 versus $37,000. Operating expenses were $11.50 million, including $5.63 million of development costs and $2.71 million of coal sales and processing costs. The filing does not present a standalone gross margin. The reported operating-loss-to-revenue ratio improved to about 29.7% from 43.9%; net-loss-to-revenue was about 35.0% versus 30.3%.
Balance sheet and liquidity
- At March 31, cash was $297,000 and restricted cash was $2.12 million. Combined cash and restricted cash was $2.42 million, down from $10.99 million at year-end 2022. Current assets were $5.75 million versus current liabilities of $21.84 million, a current ratio of approximately 0.26.
- Total assets were $49.50 million; total liabilities were $42.15 million; stockholders’ equity was $7.35 million.
- Current long-term debt was $840,000; convertible notes were zero at quarter-end. Lease liabilities totaled about $10.66 million, including current and long-term portions. The balance sheet also reports a $20.54 million remediation liability.
- Management says it expects to rely on cash on hand, future borrowings and operating cash flow; it has no available credit lines and says there is uncertainty about executing its funding plans. It may reduce mine development or seek debt, equity or asset-sale proceeds if cash flows are insufficient.
Material changes and notable items
- On January 31, 2023, $9.89 million of remaining convertible notes was converted into 9,420,230 common shares, extinguishing future liabilities under those notes. Shares outstanding rose from 66.78 million at year-end to 76.20 million at March 31; 78.21 million were reported outstanding as of May 15.
- Revenue declined slightly year over year, while the operating loss narrowed. Net loss increased, in part reflecting the absence of the $1.52 million debt-cancellation gain recorded in Q1 2022 and higher interest expense.
- Inventory rose to $2.96 million from $447,000 and accounts receivable rose to $1.69 million from $661,000. The filing reports a $2.51 million cash use from the inventory increase.
- Related-party transactions include $959,000 of Q1 services incurred under an agreement with Land Betterment Corporation, a related entity; $3.24 million was payable under that agreement at quarter-end. The company also reported $3.01 million payable to related parties overall.
Outlook, risks and contingencies
- No quantitative revenue, earnings, production or capital-spending guidance is provided. Management cites persistent supply-chain constraints and potential demand and margin effects from market conditions and COVID-related impacts.
- Management disclosed that disclosure controls were not effective because of insufficient accounting and reporting staff and untimely reconciliations. It said external consultants and review processes supported the reported financial statements.
- The company faces regulatory, environmental, mine-safety, reclamation and permitting risks. It reports unabated or uncorrected violations that could affect future permit approvals, and several operations and facilities are idle or would require significant investment to restart.
- Contingencies include Kentucky Energy Cabinet assessments totaling $1.16 million, with $1.43 million accrued as payable to the Commonwealth of Kentucky, and Mine Safety and Health Administration assessments of $856,000, with $351,000 accrued. Management says the ultimate loss on claims cannot be reasonably estimated and believes their resolution will not materially harm the business or financial position.
- The filing reports no subsequent events. Management estimates public-company compliance costs at approximately $35,000 per month if activities remain similar.
Important facts for investors to verify
- Reconcile the filing’s differing depreciation figures: the income statement reports $13,336 for Q1 2023, while the property-and-equipment note reports depreciation expense of $319,195.
- Reconcile the remediation/asset-retirement-obligation disclosures: the balance sheet reports $20.54 million, while the ARO note reports a March 31 balance of $20.30 million and describes $1.34 million of quarterly accretion, which does not match the $248,291 accretion expense shown in the income statement.
- Assess near-term funding needs and cash burn given $297,000 of unrestricted cash, substantial current liabilities, no available credit lines and management’s stated financing uncertainty.
- Evaluate dilution and potential further share issuance following the conversion of $9.89 million of notes into more than 9.4 million shares.
- Review related-party service terms and payables, mine and environmental compliance exposures, and the effect of permit restrictions on planned operations.