• Filing Date: 2019-02-14
  • Form Type: S-1/A
  • Description: General form for registration of securities under the Securities Act of 1933 (Amendment)
v3.10.0.1
Document and Entity Information
9 Months Ended
Sep. 30, 2018
Document and Entity Information:  
Entity Registrant Name American Resources Corporation
Entity Central Index Key 0001590715
Document Type S-1/A
Document Period End Date Sep. 30, 2018
Amendment Flag true
Amendment Description To update financials.
Current Fiscal Year End Date --12-31
Entity Current Reporting Status Yes
Entity Filer Category Non-accelerated Filer
Entity Small Business true
Entity Ex Transition Period false
Entity Emerging Growth Company true
Document Fiscal Year Focus 2018
v3.10.0.1
CONSOLIDATED BALANCE SHEETS - USD ($)
Sep. 30, 2018
Dec. 31, 2017
Dec. 31, 2016
CURRENT ASSETS      
Cash $ 57,739 $ 186,722 $ 784,525
Accounts Receivable 2,801,040 1,870,562 2,753,199
Inventory 426,725 615,096 0
Prepaid fees 147,826 0 0
Accounts Receivable - Other 102,994 30,021 199,701
Total Current Assets 3,536,324 2,702,401 3,737,425
OTHER ASSETS      
Cash - restricted 286,043 198,943 141,102
Processing and rail facility 2,802,855 2,914,422 2,914,422
Underground equipment 9,346,692 8,887,045 7,500,512
Surface equipment 4,532,724 3,957,603 3,751,054
Mining rights (net of amortization of $181,385 and $0) 2,036,567 0 0
Less Accumulated Depreciation (6,600,108) (4,820,569) (2,262,855)
Land 0 178,683 178,683
Accounts Receivable - Other 0 127,718 196,347
Note Receivable 4,117,139 4,117,139 4,117,139
Total Other Assets 16,521,912 15,560,984 16,536,404
TOTAL ASSETS 20,058,236 18,263,385 20,273,829
CURRENT LIABILITIES      
Accounts payable 6,813,924 5,360,537 2,196,060
Accrued management fee 0 17,840,615 17,840,615
Accrued interest 624,209 336,570 122,945
Accrued dividend on Series B 104,157 0 0
Funds held for others 63,767 82,828 24,987
Due to affiliate 636,378 124,000 74,000
Current portion of long term-debt (net of issuance costs and debt discount) 14,625,099 9,645,154 4,431,006
Current portion of reclamation liability 2,275,848 2,033,862 519,489
Total Current Liabilities 25,143,382 35,423,566 25,209,102
OTHER LIABILITIES      
Long-term portion of note payable (net of issuance costs) 5,072,493 5,081,688 4,964,941
Reclamation liability 20,289,527 17,851,195 17,607,384
Total Other Liabilities 25,362,020 22,932,883 22,572,325
Total Liabilities 50,505,402 58,356,449 47,781,427
STOCKHOLDERS' DEFICIT      
Additional paid-in capital 19,816,567 1,527,254 88,193
Accumulated deficit (50,265,183) (42,019,595) (27,651,030)
Total American Resources Corporation's Shareholders' Deficit (30,447,166) (40,490,920) (27,562,355)
Non controlling interest 0 397,856 54,757
Total Stockholders' Deficit (30,447,166) (40,093,064) (27,507,598)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 20,058,236 18,263,385 20,273,829
Class A Common stock [Member]      
STOCKHOLDERS' DEFICIT      
Common stock, value 118 89 0
Series A Preferred Stock [Member]      
STOCKHOLDERS' DEFICIT      
Preferred stock, value 482 482 482
Series B Preferred Stock [Member]      
STOCKHOLDERS' DEFICIT      
Preferred stock, value 850 850 $ 0
Series C Preferred Stock [Member]      
STOCKHOLDERS' DEFICIT      
Preferred stock, value $ 0 $ 0  
v3.10.0.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
Sep. 30, 2018
Dec. 31, 2017
Dec. 31, 2016
OTHER ASSETS      
Mining rights net of amortization $ 181,385 $ 0 $ 0
CURRENT LIABILITIES      
Long term-debt net of issuance costs and debt discount 387,442 35,000 0
OTHER LIABILITIES      
Note payable net of issuance costs $ 420,293 $ 440,333 $ 451,389
Class A Common stock [Member]      
STOCKHOLDERS' DEFICIT      
Common Stock, Par Value $ .0001 $ 0.0001 $ 0.0001
Common Stock, Shares Authorized 230,000,000 230,000,000 230,000,000
Common Stock, Shares Issued 1,192,044 892,044 0
Common Stock, Shares Outstanding 1,192,044 892,044 0
Series A Preferred Stock [Member]      
STOCKHOLDERS' DEFICIT      
Preferred Stock, Par Value $ .0001 $ 0.0001 $ 0.0001
Preferred Stock, Shares Authorized 5,000,000 5,000,000 5,000,000
Preferred Stock, Shares Issued 4,817,792 4,817,792 4,817,792
Preferred Stock, Shares Outstanding 4,817,792 4,817,792 4,817,792
Series B Preferred Stock [Member]      
STOCKHOLDERS' DEFICIT      
Preferred Stock, Par Value $ .001 $ 0.001 $ 0.001
Preferred Stock, Shares Authorized 20,000,000 20,000,000 20,000,000
Preferred Stock, Shares Issued 850,000 850,000 850,000
Preferred Stock, Shares Outstanding 850,000 850,000 850,000
Series C Preferred Stock [Member]      
STOCKHOLDERS' DEFICIT      
Preferred Stock, Par Value $ .0001 $ 0.0001  
Preferred Stock, Shares Authorized 20,000,000 20,000,000  
Preferred Stock, Shares Issued 0 0  
Preferred Stock, Shares Outstanding 0 0  
v3.10.0.1
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Dec. 31, 2017
Dec. 31, 2016
Consolidated Statements Of Operations            
Coal Sales $ 8,890,322 $ 4,192,244 $ 23,219,222 $ 13,770,183 $ 19,231,249 $ 5,345,145
Processing Services Income 147,946 159,724 167,462 1,563,864 1,589,749 2,256,049
Total Revenue 9,038,268 4,351,968 23,386,684 15,334,047 20,820,998 7,601,194
Cost of Coal Sales and Processing (6,690,698) (2,797,140) (16,783,801) (12,307,399) (16,344,567) (8,961,653)
Accretion Expense (539,771) (339,288) (1,435,295) (1,181,055) (1,791,051) (1,664,774)
Loss on settlement 0 (30,055) 0 (281,907) 0 (71,245)
Depreciation (649,983) (697,214) (1,779,539) (1,856,442) (2,557,714) (2,262,855)
Amortization of mining rights (181,385) 0 (181,385) 0 0 0
General and Administrative (1,142,522) (26,940) (2,175,794) (189,604) (1,378,111) (237,601)
Professional Fees (784,922) (144,712) (1,222,937) (565,995) (694,366) (391,659)
Consulting Fees - Related Party 0 0 0 0 0 (12,340,615)
Production Taxes and Royalties (1,041,667) (865,950) (2,769,584) (3,464,611) (4,974,013) (1,250,365)
Impairment Loss from notes receivable from related party 0 0 0 0 (250,000) (510,902)
Development Costs (2,188,833) (1,035,286) (5,908,207) (4,172,759) (6,850,062) (1,760,594)
Total Expenses from Operations (13,219,781) (5,936,585) (32,256,542) (24,019,772) (34,839,884) (29,452,263)
Net Loss from Operations (4,181,513) (1,584,617) (8,869,858) (8,685,725) (14,018,886) (21,851,069)
Other Income 875,942 67,844 1,295,065 309,418 343,100 54,757
Gain on cancelation of debt 0 0 315,000 0 0 0
Receipt of previously impaired receivable 0 117,657 92,573 241,574 387,427 0
Amortization of debt discount and debt issuance costs     (420,134) (284,406) (477,056) (9,406)
Interest Income 0 0 41,171 0 298,721 0
Interest expense (305,655) (342,683) (864,104) (567,970) (558,772) (283,564)
Net Loss (3,611,226) (1,741,799) (7,990,153) (8,702,703) (14,025,466) (22,089,282)
Less: Series B dividend requirement (17,000) 0 (104,157) 0 (53,157) 0
Less: Net income attributable to Non Controlling Interest 0 (67,844) (151,278) (309,418) (343,099) (54,757)
Net loss attributable to American Resources Corporation Shareholders $ (3,628,226) $ (1,809,643) $ (8,245,588) $ (9,012,121) $ (14,421,722) $ (22,144,039)
Net loss per share - basic and diluted $ (2.49) $ (2.03) $ (8.76) $ (11.87) $ (18.20) $ 0.00
Weighted average shares outstanding 1,038,783 891,180 941,495 759,397 792,391 0
v3.10.0.1
CONSOLIDATED STATEMENTS OF STOCKHOLDERS OF EQUITY - USD ($)
Common Stock
Preferred Stock A
Preferred Stock B
Additional Paid-In Capital
Retained Earnings
Non-Controlling Interest
Total
Beginning Balance, Shares at Dec. 31, 2015 0 2,550,430 0        
Beginning Balance, Amount at Dec. 31, 2015 $ 0 $ 0 $ 0 $ 0 $ (5,506,991) $ 0 $ (5,506,991)
Stock-based compensation, Shares   2,267,362          
Stock-based compensation, Amount   $ 482   88,193     88,675
Beneficial conversion feature             0
Net loss         (22,144,039) 54,757 (22,089,282)
Ending Balance, Shares at Dec. 31, 2016 0 4,817,792 0        
Ending Balance, Amount at Dec. 31, 2016 $ 0 $ 482 $ 0 88,193 (27,651,030) 54,757 (27,507,598)
Stock-based compensation, Amount       40,000     40,000
Recapitalization, Shares 845,377            
Recapitalization, Amount $ 85     (85)     0
Sale of Preferred Series B Stock, Shares     850,000        
Sale of Preferred Series B Stock, Amount     $ 850 849,150     850,000
Conversion of Debt, Shares 33,334            
Conversion of Debt, Amount $ 3     49,997     50,000
Beneficial conversion feature       50,000     50,000
Issuance of shares to consultant, Shares 13,333            
Issuance of shares to consultant, Amount $ 1     9,999     10,000
Relative fair value debt discount on warrants issued       440,000     440,000
Net loss         (14,358,565) 343,099 (14,025,466)
Ending Balance, Shares at Dec. 31, 2017 892,044 4,817,792 850,000        
Ending Balance, Amount at Dec. 31, 2017 $ 89 $ 482 $ 850 $ 1,527,254 $ (42,019,595) $ 397,856 (40,093,064)
Beneficial conversion feature             0
Net loss             (7,990,153)
Ending Balance, Amount at Sep. 30, 2018             $ (30,447,166)
v3.10.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
9 Months Ended 12 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Dec. 31, 2017
Dec. 31, 2016
Cash Flows from Operating activities:        
Net loss $ (7,990,153) $ (8,702,703) $ (14,025,466) $ (22,089,282)
Adjustments to reconcile net income (loss) to net cash        
Depreciation 1,779,539 1,856,442 2,557,714 2,262,855
Amortization of mining rights 181,385 0 0 0
Accretion expense 1,435,295 1,181,055 1,791,051 1,664,774
Cancelation of debt (315,000) 0 0 0
Loss on reclamation settlements 0 281,907 0 71,245
Assumption of note payable in reverse merger 0 50,000 50,000 0
Gain on disposition (807,591) 0    
Recovery of previously impaired receipts (92,573) (241,574) (387,427) 510,902
Amortization of debt discount 420,134 284,406 477,056 9,406
Warrant expense 234,067 0 0 0
Option expense 13,410 0 0 0
Impairment of related party note receivable 0 0 250,000 0
Stock compensation expense 201,250 10,000 50,000 88,675
Change in current assets and liabilities:        
Accounts receivable (930,478) 2,123,881 882,637 (2,753,199)
Inventory 188,371 0 (615,096) 0
Prepaid expenses and other assets (147,826) 0 0 920
Restricted cash used to pay interest expense 0 0 14,981 13,984
Accounts payable 973,057 2,824,351 3,096,351 2,196,060
Funds held for others (19,061) 0 0 0
Due to affiliates 512,378 0 0 0
Accrued expenses 0 0 0 12,340,615
Accrued interest 287,639 90,000 213,625 122,945
Reclamation liability settlements 0 (709,132) 0 (256,892)
Cash used in operating activities (4,076,157) (951,367) (5,644,574) (5,816,992)
Cash Flows from Investing activities:        
Note receivable 0 0 0 (4,117,139)
Increase in restricted cash 0 0 (57,841) (116,115)
Restricted cash used to pay down debt 0 0 65,604 54,421
Advances made in connection with management agreement (99,582) (75,000) (77,800) (1,845,902)
Advance repayment in connection with management agreement 222,304 469,645 625,227 1,175,000
Cash paid for PPE, net (127,957) (176,597) (173,432) (34,200)
Cash received from acquisitions, net of $0 and $100 cash paid 0 0 0 5,315,700
Cash (used in) provided by investing activities (5,235) 218,048 381,758 431,765
Cash Flows from Financing activities:        
Principal payments on long term debt (2,064,902) (318,576) (392,002) (303,706)
Proceeds from long term debt 5,316,977 1,670,000 4,440,000 4,857,391
Proceeds from related party 0 50,000 50,000  
Net proceeds from (payments to) factoring agreement 787,434 (1,521,577) (32,985) 1,616,067
Proceeds from sale of series B preferred equity 0 600,000 0 0
Proceeds from private placements 0 0 600,000 0
Cash provided by financing activities 4,039,509 479,847 4,665,013 6,169,752
(Decrease) increase in cash and restricted cash (41,883) (253,472) (597,803) 784,525
Cash and restricted cash, beginning of period 385,665 784,525 784,525  
Cash and restricted cash, end of period 343,782 531,053 385,665 784,525
Cash, beginning of year 186,722 784,525 784,525 0
Cash, end of year     186,722 784,525
Non-cash investing and financing activities        
Assumption of net assets and liabilities for asset acquisitions 2,217,952 0 0 2,745,582
Equipment for notes payable 906,660 1,222,500 1,419,650 904,425
Purchase of related party note receivable in exchange for Series B Equity 0 250,000 250,000 0
Preferred Series B Dividends 104,157 0 0 0
Affiliate note for equipment 0 0 0 63,000
Conversion of note payable to common stock 0 50,000 50,000 0
Beneficial conversion feature on note payable 0 50,000 50,000 0
Forgiveness of accrued management fee 17,840,615 0 0 0
Relative fair value debt discount on warrant issue 0 300,000 440,000 0
Cash paid for interest 156,331 193,564 345,147 160,619
Cash paid for income taxes $ 0 $ 0 $ 0 $ 0
v3.10.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended 12 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Notes to Financial Statements    
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

American Resources Corporation (ARC or the Company) operates through subsidiaries that were acquired in 2016 and 2015 for the purpose of acquiring, rehabilitating and operating various natural resource assets including coal, oil and natural gas.

 

Basis of Presentation and Consolidation:

 

The consolidated financial statements include the accounts for the nine months ended September 30, 2018 and 2017 of the Company and its wholly owned subsidiaries Quest Energy Inc (QEI), Deane Mining, LLC (Deane), Quest Processing LLC (Quest Processing), ERC Mining Indiana Corp (ERC), McCoy Elkhorn Coal LLC (McCoy) and Knott County Coal LLC (KCC). All significant intercompany accounts and transactions have been eliminated.

 

As of July 1, 2018, the accounts of Land Resources & Royalties, LLC have been deconsolidated from the financial statements based upon the ongoing review of its status as a variable interest entity.

 

On August 23, 2018, KCC disposed of certain non-operating assets totaling $111,567 and the corresponding asset retirement obligation totaling $919,158 which resulted in a gain of $807,591.

 

The accompanying Consolidated Financial Statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”)

 

Interim Financial Information

 

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been omitted. In the opinion of management, these interim unaudited Consolidated Financial Statements reflect all normal and recurring adjustments necessary for a fair presentation of the results for the periods presented. Results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 or any other period. These financial statements should be read in conjunction with the Company’s 2017 audited financial statements and notes thereto which were filed on Form 10K on April 23, 2018.

 

Going Concern: The Company has suffered recurring losses from operations and currently has a working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. We plan to generate profits by expanding current coal operations as well as developing new coal operations. However, we will need to raise the funds required to do so through sale of our securities or through loans from third parties. We do not have any commitments or arrangements from any person to provide us with any additional capital. If additional financing is not available when needed, we may need to cease operations. We may not be successful in raising the capital needed to expand or develop operations. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern. The accompanying financial statements have been prepared assuming the Company will continue as a going concern; no adjustments to the financial statements have been made to account for this uncertainty.

 

Convertible Preferred Securities: We account for hybrid contracts that feature conversion options in accordance with generally accepted accounting principles in the United States. ASC 815, Derivatives and Hedging Activities (“ASC 815”) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

 

We also follow ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) in its evaluation of the accounting for a hybrid instrument. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception; (b) variations in something other than the fair value of the issuer’s equity shares; or (c) variations inversely related to changes in the fair value of the issuer’s equity shares. Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date with remeasurements reported as a component of other income/expense in the accompanying Consolidated Statements of Operations.

 

Cash is maintained in bank deposit accounts which, at times, may exceed federally insured limits. To date, there have been no losses in such accounts.

 

Restricted cash: As part of the Kentucky New Markets Development Program an asset management fee reserve was set up in the amount of $116,115. The funds are held to pay annual asset management fees to an unrelated party through 2021. The balance as of September 30, 2018 and December 31, 2017 was $73,730 and $116,115, respectively. A lender of the Company also required a reserve account to be established. The balance as of September 30, 2018 and December 31, 2017 was $148,546 and $0, respectively. The total balance of restricted cash also includes amounts held under the management agreement in the amount of $63,767 and $82,828, respectively. See note 5 for terms of the management agreement.

 

The balance as of September 30, 2018 and December 31, 2017 was $286,043 and $198,943, respectively.

 

The following table sets forth a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheet that agrees to the total of those amounts as presented in the consolidated statement of cash flows for the nine months ended September 30, 2018 and September 30, 2017.

 

   

September 30,

2018

   

September 30,

2017

 
Cash   $ 57,739     $ 342,041  
Restricted Cash     286,043       189,012  
Total cash and restricted cash presented in the consolidated statement of cash flows   $ 343,782     $ 531,053  

 

Asset Acquisitions:

 

On April 21, 2018, McCoy acquired certain assets known as the Point Rock Mine (Point Rock) in exchange for assuming certain liabilities of the seller. The fair values of the liabilities assumed were $53,771 for prior vendors and $2,098,052 for asset retirement obligation totaling $2,151,823. The liabilities assumed do not require fair value readjustments. In addition, McCoy entered into a surface and mineral sub-lease in the amount of up to $4,000,000 to be paid only upon coal extraction at $2 per extracted ton of coal. McCoy will also pay a portion of the sales price as a royalty with an annual minimum payment of $60,000 starting in January 2019. The acquired assets have an anticipated life of 5 years. Capitalized mining rights will be amortized based on productive activities over the anticipated life of 5 years. Amortization expense for the 3 months ended September 30, 2018 and 2017 amounted to $179,318 and $0, respectively. The assets will be measured for impairment when an event occurs that questions the realization of the recorded value.

 

The assets acquired of Point Rock do not represent a business as defined in FASB AS 805-10-20 due to their classification as a single asset. Accordingly, the assets acquired are initially recognized at the consideration paid, which was the liabilities assumed, including direct acquisition costs, of which there were none. The cost is allocated to the group of assets acquired based on their relative fair value. The assets acquired and liabilities assumed of Point Rock were as follows at the purchase date:

 

Assets      
Mining Rights   $ 2,151,823  
Liabilities        
Vendor Payables   $ 53,771  
Asset Retirement Obligation   $ 2,098,052  

 

On May 10, 2018, KCC acquired certain assets known as the Wayland Surface Mine (Wayland) in exchange for assuming certain liabilities of the seller. The fair values of the liabilities assumed were $66,129 for asset retirement obligation. The liabilities assumed do not require fair value readjustments. In addition, KCC entered into a royalty agreement with the seller to be paid only upon coal extraction in the amount of $1.50 per extracted ton of coal. The acquired assets have an anticipated life of 7 years. Capitalized mining rights will be amortized based on productive activities over the anticipated life of 7 years. Amortization expense for the 3 months ended September 30, 2018 and 2017 amounted to $2,067 and $0, respectively. The assets will be measured for impairment when an event occurs that questions the realization of the recorded value.

 

The assets acquired of Wayland do not represent a business as defined in FASB AS 805-10-20 due to their classification as a single asset. Accordingly, the assets acquired are initially recognized at the consideration paid, which was the liabilities assumed, including direct acquisition costs, of which there were none. The cost is allocated to the group of assets acquired based on their relative fair value. The assets acquired and liabilities assumed of Wayland were as follows at the purchase date:

 

Assets      
Mining Rights   $ 66,129  
Liabilities        
Asset Retirement Obligation   $ 66,129  

 

Asset Retirement Obligations (ARO) – Reclamation: At the time they are incurred, legal obligations associated with the retirement of long-lived assets are reflected at their estimated fair value, with a corresponding charge to mine development. Obligations are typically incurred when we commence development of underground and surface mines, and include reclamation of support facilities, refuse areas and slurry ponds or through acquisitions.

 

Obligations are reflected at the present value of their future cash flows. We reflect accretion of the obligations for the period from the date they incurred through the date they are extinguished. The asset retirement obligation assets are amortized using the units-of-production method over estimated recoverable (proved and probable) reserves. We are using a discount rate of 10%. Federal and State laws require that mines be reclaimed in accordance with specific standards and approved reclamation plans, as outlined in mining permits. Activities include reclamation of pit and support acreage at surface mines, sealing portals at underground mines, and reclamation of refuse areas and slurry ponds.

 

We assess our ARO at least annually and reflect revisions for permit changes, change in our estimated reclamation costs and changes in the estimated timing of such costs. During the periods ending September 30, 2018 and 2017, $0 and $281,907 were incurred for loss on settlement on ARO, respectively.

 

The table below reflects the changes to our ARO:

 

Balance at December 31, 2017   $ 19,885,057  
Accretion – nine months September 30, 2018     1,435,295  
Reclamation work – nine months September 30, 2018     (0 )
Asset disposition     (919,158 )
Point Rock Acquisition     2,098,052  
Wayland Acquisition     66,129  
Balance at September 30, 2018   $ 22,565,375  

 

Allowance For Doubtful Accounts: The Company recognizes an allowance for losses on trade and other accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging and expected future write-offs, as well as an assessment of specific identifiable amounts considered at risk or uncollectible.

 

Allowance for trade receivables as of September 30, 2018 and December 31, 2017 amounted to $0, for both periods. Allowance for other accounts receivables as of September 30, 2018 and December 31, 2017 amounted to $0 and $92,573, respectively.

 

Trade and loan receivables are carried at amortized cost, net of allowance for losses. Amortized cost approximated book value as of September 30, 2018 and December 31, 2017.

 

Reclassifications: Reclassifications of prior periods have been made to conform with current year presentation.

 

New Accounting Pronouncements:

 

  - ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, effective for years beginning after December 15, 2017. ASU 2016-01 was adopted on January 1, 2018 and the standard did not have a material effect on the consolidated financial statements or related disclosures
  - ASU 2016-02, Leases, effective for years beginning after December 15, 2019. We expect to adopt ASU 2016-02 beginning January 1, 2019 and are in the process of assessing the impact that this new guidance is expected to have on our consolidated financial statements and related disclosures.
  - ASU 2017-09, Compensation – Stock Compensation, effective beginning after December 31, 2017. ASU 2017-09 was adopted on January 1, 2018 and the standard did not have a material effect on the consolidated financial statements or related disclosures
  - ASU 2017-11, Earnings Per Share, effective beginning after December 15, 2018. We expect to adopt ASU 2017-11 beginning January 1, 2019 and are in the process of assessing the impact that this new guidance is expected to have on our consolidated financial statements and related disclosures.
  - ASU 2018-05, Income Taxes, effective beginning after December 15, 2017, was adopted on January 1, 2018 with no effect on our consolidated financial statements and related disclosures.
  - ASU 2018-07, Compensation-Stock Compensation (Topic 718), effective beginning after December 15, 2018 was adopted on July 1, 2018 and the standard did not have a material effect on the consolidated financial statements or related disclosures.

  

Management has elected to early adopt ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business effective at inception.

 

ASU 2016-18, Statement of Cash Flows: Restricted Cash (Topic 230). Topic 230 addressed how restricted cash was presented in the statement of cash flows. We adopted Topic 230 as of January 1, 2018 resulting in modifications as to the manner in which restricted cash transactions are presented in the statement of cash flows.

 

ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Topic 606 supersedes the revenue recognition requirements in Topic 605 and requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company’s primary source of revenue is from the sale of coal through both short-term and long-term contracts with utilities, industrial customers and steel producers whereby revenue is currently recognized when risk of loss has passed to the customer. During the fourth quarter of 2017, the Company finalized its assessment related to the new standard by analyzing certain contracts representative of the majority of the Company’s coal sales and determined that the timing of revenue recognition related to the Company’s coal sales will remain consistent between the new standard and the previous standard. The Company also reviewed other sources of revenue, and concluded the current basis of accounting for these items is in accordance with the new standard. The Company adopted ASU 2014-09 effective January 1, 2018 using the modified retrospective method, and there was no cumulative adjustment to retained earnings.

American Resources Corporation (ARC or the Company) operates through subsidiaries that were acquired in 2016 and 2015 for the purpose of acquiring, rehabilitating and operating various natural resource assets including coal, oil and natural gas.

 

Basis of Presentation and Consolidation:

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Quest Energy Inc (QEI), Deane Mining, LLC (Deane), Quest Processing LLC (Quest Processing), ERC Mining Indiana Corp (ERC), McCoy Elkhorn Coal LLC (McCoy) and Knott County Coal LLC (KCC). All significant intercompany accounts and transactions have been eliminated.

 

On January 5, 2017, QEI entered into a share exchange agreement with NGFC Equities, Inc (NGFC). Under the agreement, the shareholders of QEI exchanged 100% of its common stock to NGFC for 4,817,792 newly created Series A Preferred shares that is convertible into approximately 95% of outstanding common stock of NGFC. The previous NGFC shareholders retained 845,377 common shares as part of the agreement. The conditions to the agreement were fully satisfied on February 7, 2017, at which time the Company took full control of NGFC. NGFC has been renamed to American Resources Corporation (ARC). The transaction was accounted for as a recapitalization. QEI was the accounting acquirer and ARC will continue the business operations of QEI, therefore, the historical financial statements presented are those of QEI and its subsidiaries. The equity and share information reflect the results of the recapitalization. On May 15, 2017 ARC initiated a one-for-thirty reverse stock split. The financial statements have been retrospectively restated to give effect to this split.

 

Entities for which ownership is less than 100% a determination is made whether there is a requirement to apply the variable interest entity (VIE) model to the entity. Where the company holds current or potential rights that give it the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, combined with a variable interest that gives the Company the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, the Company would be deemed to have a controlling interest.

 

The Company is the primary beneficiary of ERC Mining, LLC, which qualifies as a variable interest entity. Accordingly, the assets, liabilities, revenue and expenses of ERC Mining, LLC have been included in the accompanying consolidated financial statements. The Company has no ownership in ERC Mining, LLC. Determination of the Company as the primary beneficiary is based on the power through its management functions to direct the activities that most significantly impact the economic performance of ERC Mining, LLC. On March 18, 2016, the company lent ERC Mining, LLC $4,117,139 to facilitate the transaction described in Note 6, which represent amounts that could be significant to ERC. No further support has been provided. The Company has ongoing involvement in the management of ERC Mining, LLC to ensure their fulfillment of the transaction described in Note 6.

 

The Company is the primary beneficiary of Land Resources & Royalties LLC (LRR) which qualifies as a variable interest entity. Accordingly, the assets, liabilities, revenue and expenses of Land Resources & Royalties have been included in the accompanying consolidated financial statements. The Company has no ownership in LRR. Determination of the Company as the primary beneficiary is based on the power through its management functions to direct the activities that most significantly impact the economic performance of LRR. On October 24, 2016, the company issued LRR a note in the amount of $178,683 to facilitate the transaction described in Note 5, which represent amounts that could be significant to LRR. No further support has been provided. The Company has ongoing involvement in the management of LRR to ensure their fulfillment of the transaction described in Note 5.

 

Deane was formed in November 2007 for the purpose of operating underground coal mines and coal processing facilities. Deane was acquired on December 31, 2015 and as such no operations are presented prior to the acquisition date.

 

Quest Processing was formed in November 2014 for the purpose of operating coal processing facilities and had no operations before March 8, 2016.

 

ERC was formed in April 2015 for the purpose managing an underground coal mine and coal processing facility. Operations commenced in June 2015.

 

McCoy was formed in February 2016 for the purpose of operating underground coal mines and coal processing facilities. The assets of McCoy were acquired on February 17, 2016 and as such no operations are presented prior to the acquisition date.

 

KCC was formed in September 2004 for the purpose of operating underground coal mines and coal processing facilities. KCC was acquired on April 14, 2016 and as such no operations are presented prior to the acquisition date.

 

On February 17, 2016, McCoy Elkhorn Coal LLC (McCoy) acquired certain assets in exchange for $100 and for assuming certain liabilities of Fortress Resources, LLC. The fair values of the asset retirement obligation liabilities assumed were determined to be $3,561,848 respectively. The liabilities assumed do not require fair value readjustments.

 

The assets acquired of McCoy do not represent a business as defined in FASB AS 805-10-20. McCoy does not have an integrated set of activities and assets that that is capable of being conducted and managed for the purpose of providing a return or other economic benefit to their investors, members or participants. Accordingly, the assets acquired are initially recognized at the consideration paid, which was the liabilities assumed, including direct acquisition costs, of which there were none. The cost is allocated to the group of assets acquired based on their relative fair value. The assets acquired and liabilities assumed of McCoy were as follows at the purchase date: 

 

Assets      
Cash   $ 2,935,800  
Underground Mining Equipment     531,249  
Surface Mining Equipment     36,218  
Coal Preparation and Loading Facilities     58,681  
Liabilities        
Asset Retirement Obligation   $ 3,561,848  

 

On April 14, 2016, the Company acquired 100% of the membership interests of ICG Knott County, LLC, subsequently renamed Knott County Coal LLC. The fair values of the asset retirement obligation liabilities assumed were determined to be $4,499,434 respectively. The liabilities assumed do not require fair value readjustments.

 

The assets acquired of ICG Knott County do not represent a business as defined in FASB AS 805-10-20. IGC Knott County does not have an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return or other economic benefit to their investors, members or participants. Accordingly, the assets acquired and liabilities assumed are initially recognized at the consideration paid, including direct acquisition costs. The cost is allocated to the group of assets acquired and liabilities assumed based on their relative fair value. The assets and liabilities assumed of ICG Knott County were as follows on the purchase date:

  

Assets      
Cash   $ 2,380,000  
Underground Mining Equipment     1,533,937  
Surface Mining Equipment     206,578  
Land     178,683  
Coal Preparation and Loading Facilities     200,236  
Liabilities        
Asset Retirement Obligation   $ 4,499,434  

 

As a result of the KCC and McCoy acquisitions during 2016, $8,061,282 of ARO was assumed for net cash of $5,315,700 and property, equipment and land of $2,745,582.

 

Going Concern: The Company has suffered recurring losses from operations and currently a working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. We plan to generate profits by expanding current coal operations as well as developing new coal operations. However, we will need to raise the funds required to do so through sale of our securities or through loans from third parties. We do not have any commitments or arrangements from any person to provide us with any additional capital. If additional financing is not available when needed, we may need to cease operations. We may not be successful in raising the capital needed to expand or develop operations. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern. The accompanying financial statements have been prepared assuming the Company will continue as a going concern; no adjustments to the financial statements have been made to account for this uncertainty.

 

Estimates: Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual results could vary from those estimates.

 

Convertible Preferred Securities: We account for hybrid contracts that feature conversion options in accordance with generally accepted accounting principles in the United States. ASC 815, Derivatives and Hedging Activities (“ASC 815”) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

 

We also follow ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) in its evaluation of the accounting for a hybrid instrument. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception; (b) variations in something other than the fair value of the issuer’s equity shares; or (c) variations inversely related to changes in the fair value of the issuer’s equity shares. Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives, and are carried as a liability at fair value at each balance sheet date with remeasurements reported in interest expense in the accompanying Consolidated Statements of Operations.

 

Related Party Policies: In accordance with FASB ASC 850 related parties are defined as either an executive, director or nominee, greater than 10% beneficial owner, or an immediate family member of any of the proceeding. Transactions with related parties are reviewed and approved by the directors of the Company, as per internal policies.

 

Advance Royalties: Coal leases that require minimum annual or advance payments and are recoverable from future production are generally deferred and charged to expense as the coal is subsequently produced.

 

Cash is maintained in bank deposit accounts which, at times, may exceed federally insured limits. To date, there have been no losses in such accounts.

 

As of December 31, 2017 and 2016 total cash, including restricted cash, amounted to $385,665 and $925,627, respectively. Restricted cash as of December 31, 2017 and 2016 amounted to $198,943 and $141,102, respectively.

 

Restrictions to cash include funds held for the benefit other parties in the amount of $82,828 and $24,987 as of December 31, 2017 and 2016, respectively. The use of these funds are in conjunction with the management of the property owned by this party and the duration of the restrictions matches the duration of the management agreement. (See Note 7)

 

As part of the Kentucky New Markets Development Program (See Note 3) an asset management fee reserve was set up in the amount of $116,115. The funds are held to pay annual asset management fees to an unrelated party through 2021. (See Note 6)

 

Concentration: As of December 31, 2017 and 2016 63% and 78% of revenue and 99% and 97% of outstanding accounts receivable came from three and two customers, respectively.

 

Coal Property and Equipment are recorded at cost. For equipment, depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally ranging from three to seven years. Amortization of the equipment under capital lease is included with depreciation expense.

 

Property and equipment and amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future net undiscounted cash flows expected to be generated by the related assets. If these assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the assets.

 

Costs related to maintenance and repairs which do not prolong the asset’s useful life are expensed as incurred.

 

Mine Development: Costs of developing new coal mines, including asset retirement obligation assets, are capitalized and amortized using the units-of-production method over estimated recoverable coal deposits or proven reserves. Costs incurred for development and expansion of existing coal deposits or proven reserves are expensed as incurred.

 

Asset Retirement Obligations (ARO) – Reclamation: At the time they are incurred, legal obligations associated with the retirement of long-lived assets are reflected at their estimated fair value, with a corresponding charge to mine development. Obligations are typically incurred when we commence development of underground and surface mines, and include reclamation of support facilities, refuse areas and slurry ponds or through acquisitions.

 

Obligations are reflected at the present value of their future cash flows. We reflect accretion of the obligations for the period from the date they incurred through the date they are extinguished. The asset retirement obligation assets are amortized using the units-of-production method over estimated recoverable coal deposits. We are using a discount rate of 10%, risk free rate of .23% and inflation rate of 1.5%. Federal and State laws require that mines be reclaimed in accordance with specific standards and approved reclamation plans, as outlined in mining permits. Activities include reclamation of pit and support acreage at surface mines, sealing portals at underground mines, and reclamation of refuse areas and slurry ponds.

 

We assess our ARO at least annually and reflect revisions for permit changes, change in our estimated reclamation costs and changes in the estimated timing of such costs. During 2017 and 2016, $0 and $71,245 were incurred for loss on settlement on ARO.

 

The table below reflects the changes to our ARO:

 

    2017     2016  
Beginning Balance   $ 18,126,873     $ 8,586,464  
Accretion     1,791,051       1,664,774  
Reclamation work     (32,867 )     (185,647 )
McCoy Acquisition     -       3,561,848  
KCC Acquisition     -       4,499,434  
Ending balance   $ 19,885,057     $ 18,126,873  
Current portion of reclamation liability   $ 2,033,862     $ 519,489  
Long-term portion of reclamation liability   $ 17,851,195     $ 17,607,384  

 

Income Taxes include U.S. federal and state income taxes currently payable and deferred income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period of enactment. Deferred income tax expense represents the change during the year in the deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax asset will not be realized.

 

The Company filed an initial tax return in 2015. Management believes that the Company’s income tax filing positions will be sustained on audit and does not anticipate any adjustments that will result in a material change. Therefore, no reserve for uncertain income tax positions has been recorded. The Company’s policy for recording interest and penalties, if any, associated with income tax examinations will be to record such items as a component of income taxes.

 

Revenue Recognition: The Company recognizes revenue in accordance with ASC 605 when the terms of the contract have been satisfied; generally, this occurs when delivery has been rendered, the fee is fixed or determinable, and collectability is reasonably assured. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.

 

Our revenue is comprised of sales of mined coal and services for processing coal. All of the activity is undertaken in eastern Kentucky.

 

We recognize revenue from coal sales at the time risk of loss passes to the customer at contracted amounts and amounts are deemed collectible. Revenue from coal processing and loading are recognized when services have been performed according to the contract in place.

 

Leases: Leases are reviewed by management based on the provisions of ASC 840 and examined to see if they are required to be categorized as an operating lease, a capital lease or a financing transaction.

 

The Company leases certain equipment and other assets under noncancelable operating leases, typically with initial terms of 3 to 7 years. Minimum rent on operating leases is expensed on a straight-line basis over the term of the lease. In addition to minimum rental payments, certain leases require additional payments based on sales volume, as well as reimbursement of real estate taxes, which are expensed when incurred. Capital leases are recorded at the present value of the future minimum lease payments at the inception of the lease. The gross amount of assets recorded under capital lease amounted to $333,875, all of which is classified as surface equipment.

 

Loan Issuance Costs and Discounts are amortized using the effective interest method. Amortization expense amounted to $477,056 and $9,406 as of December 31, 2017 and 2016, respectively. Amortization expense for the next five years is expected to be $11,520, annually.

 

Allowance For Doubtful Accounts: The Company recognizes an allowance for losses on trade and other accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging and expected future write-offs, as well as an assessment of specific identifiable amounts considered at risk or uncollectible.

 

Allowance for trade receivables as of December 31, 2017 and 2016 amounted to $0 and $0, respectively. Allowance for other accounts receivables as of December 31, 2017 and 2016 amounted to $92,573 and $640,000, respectively.

 

Trade and loan receivables are carried at amortized cost, net of allowance for losses. Amortized cost approximated book value as of December 31, 2017 and 2016.

 

Inventory: Inventory consisting of mined coal is stated at the lower of cost (first in, first out method) or net realizable value.

 

Stock-based Compensation: Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense over the applicable vesting period of the stock award (generally 0 to 5 years) using the straight-line method. Stock compensation to employees is accounted for under ASC 718 and stock compensation to non-employees is accounted for under ASC 505.

 

Earnings Per Share: The Company’s basic earnings per share (EPS) amounts have been computed based on the average number of shares of common stock outstanding for the period and include the effect of any participating securities as appropriate. Diluted EPS includes the effect of the Company’s outstanding stock options, restricted stock awards, restricted stock units and performance-based stock awards if the inclusion of these items is dilutive.

 

For the years ended December 31, 2017 and 2016, the Company had 5,364,230 and 0 outstanding stock warrants, respectively. For the years ended December 31, 2017 and 2016, the Company did not have any restrictive stock awards, restricted stock units, or performance-based awards.

 

Reclassifications: Reclassifications have been made to conform with current year presentation.

 

New Accounting Pronouncements: Management has determined that the impact of the following recent FASB pronouncements will not have a material impact on the financial statements.

 

  Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, effective for years beginning after December 15, 2017
  ASU 2015-11, Simplifying the Measurement of Inventory, effective for years beginning after December 15, 2016. Adoption of ASU 2015-11 did not have a material effect on the consolidated financial statements.
  ASU 2015-17, Balance Sheet Classification of Deferred Taxes, effective for years beginning after December 15, 2016. Adoption of ASU 2015-17 did not have a material effect on the consolidated financial statements or related disclosures.
  ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, effective for years beginning after December 15, 2017
  ASU 2016-02, Leases, effective for years beginning after December 15, 2019. We expect to adopt ASU 2016-02 beginning January 1, 2019 and are in the process of assessing the impact that this new guidance is expected to have on our consolidated financial statements and related disclosures.
  ASU 2016-18, Statement of Cash Flows: Restricted Cash, effective beginning after December 15, 2017
  ASU 2017-01, Business Combinations, effective beginning after December 15, 2017
  AUS 2017-09, Compensation – Stock Compensation, effective beginning after December 31, 2017
  ASU 2017-11, Earnings Per Share, effective beginning after December 15, 2018
  ASU 2018-05, Income Taxes, effective beginning after December 15, 2017. We expect to adopt ASU 2018-05 beginning January 1, 2018 and are in the process of assessing the impact that this new guidance is expected to have on our consolidated financial statements and related disclosures.

   

Management has elected to early adopt ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business effective at inception. See above in Note 1.

 

ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Topic 606 supersedes the revenue recognition requirements in Topic 605 and requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We adopted Topic 606 as of January 1, 2018 using the modified retrospective method of adoption. Implementation of Topic 606 caused no change in previously recognized revenue.

 

v3.10.0.1
PROPERTY AND EQUIPMENT
9 Months Ended 12 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Notes to Financial Statements    
PROPERTY AND EQUIPMENT

At September 30, 2018 and December 31, 2017, property and equipment were comprised of the following:

 

   

September 30,

2018

   

December 31,

2017

 
Processing and rail facility   $ 2,802,855     $ 2,914,422  
Underground equipment     9,346,692       8,887,045  
Surface equipment     4,532,724       3,957,603  
Mining rights (Less: accumulated amortization of $181,385)     2,036,567       -  
Land     -       178,683  
Less: Accumulated depreciation     (6,600,108 )     (4,820,569 )
                 
Total Property and Equipment, Net   $ 12,118,730     $ 11,117,184  

 

Depreciation expense amounted to $649,983 and $697,214 for the three month periods September 30, 2018 and September 30, 2017, respectively. Depreciation expense amounted to $1,779,539 and $1,856,442 for the nine month periods September 30, 2018 and September 30, 2017, respectively.

 

The estimated useful lives are as follows:

 

Processing and Rail Facilities 20 years  
Surface Equipment 7 years  
Underground Equipment 5 years  
Mining Rights 5 years  

At December 31, 2017 and 2016, property and equipment were comprised of the following:

  

    2017     2016  
Processing and rail facility   $ 2,914,422     $ 2,914,422  
Underground equipment     8,887,045       7,500,512  
Surface equipment     3,957,603       3,751,054  
Land     178,683       178,683  
Less: Accumulated depreciation     (4,820,569 )     (2,262,855 )
                 
Total Property and Equipment, Net   $ 11,117,184     $ 12,081,816  

  

Depreciation expense amounted to $2,557,714 and $2,262,855 for the years of December 31, 2017 and 2016, respectively.

 

The estimated useful lives are as follows:

  

Processing and Rail Facilities   20 years
Surface Equipment   7 years
Underground Equipment   5 years

 

v3.10.0.1
NOTES PAYABLE
9 Months Ended 12 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Notes to Financial Statements    
NOTES PAYABLE

The net increase in debt includes the following:

 

Total debt balance as of December 31, 2017   $ 14,726,842  
         
During the nine-month period ended September 30, 2018, $2,450 ,000 was drawn from the ARC business loan which carries annual interest at 7%, is due within two months of advancement and is secure by all company assets. On June 4, 2018, $30,000 and September 28, 2018, $75,000 of this note was repaid.     2,450,000  
         
On January 25, 2018, QEI entered into an equipment loan agreement with an unrelated party in the amount of $346,660. The agreement calls for monthly payments of $11,360 until maturity date of December 24, 2020 and carries an interest rate of 9%. The loan is secured by the underlying surface equipment purchased by the loan. Loan proceeds were used directly to purchase equipment.     346,660  
         
On March 28, 2018, QEI entered into an equipment loan agreement with an unrelated party in the amount of $135,000. The agreement called for payments of $75,000 and $60,000 are due on April 6, 2018 and April 13, 2018, respectively, at which date the note was repaid in full. Loan proceeds were used directly to purchase equipment.     135,000  
         
On May 9, 2018, QEI entered into a loan agreement with an unrelated party in the amount of $1,000,000 with a maturity date of September 24, 2018 with monthly payments of $250,000 due beginning June 15, 2018. The note is secured by the assets and equity of the company and carries an interest rate of 0%.  Proceeds of the note were split between receipt of $575,000 cash and $425,000 payment for new equipment. No payments have been made on the note which is in default.     1,000,000  
         
During May 2018, the company entered into a financing arrangement with two unrelated parties. The notes totaled $2,859,500, carried an original issue discount of $752,535, interest rate of 33% and have a maturity date of January 2019 and are secured by future receivables as well as personal guarantees of two officers of the company.     2,963,958  
         
During the nine-month period ended September 30, 2018 net additions to the factoring agreement totaled $787,435.     787,435  
         
Total increases to debt     7,683,053  
         
Less cash payments     (2,064,902 )
         
In May 2018, an unrelated party forgave $315,000 of the $540,000 equipment loan agreement dated September 30, 2016.     (315,000 )
         
Issuance discount     (752,535 )
         
Amortization of issuance cost and loan discounts     420,134  
         
Ending debt balance at September 30, 2018   $ 19,697,592  
         
Less current portion:   $ 14,625,099  
         
Total long term debt at September 30, 2018   $ 5,072,493  

During the year ended December 31, 2017 and 2016, principal payments on long term debt totaled $392,002 and $303,706, respectively. During the year ended December 31, 2017 and 2016, new debt issuances totaled $5,909,650 and $5,824,816, respectively, primarily from $4,490,000 of working capital loans and $1,419,650 of equipment loans in 2017 and $4,688,152 from the Kentucky New Markets Development program and $967,425 in equipment loans in 2016. (See Note 5). During the year ended December 31, 2017 and 2016, net proceeds from our factoring agreement totaled $32,985 and $1,616,067, respectively.

 

During the year ended December 31, 2017 and 2016, discounts on debt issued amounted to $490,000 and $-, respectively related to the ARC business loan discussed below and the note payable discussed in note 9. During 2017 and 2016, $455,000 and $- was amortized into expense with $35,000 and $- remaining as unamortized discount.

 

Long-term debt consisted of the following at December 31, 2017 and 2016: 

 

    2017     2016  
             
Equipment Loans - QEI            
             
Note payable to an unrelated company in monthly installments of $2,064, with interest at 8.75%, through maturity in March 2019, when the note is due in full. The note is secured by equipment and a personal guarantee by an officer of the Company.   $ 30,962     $ 50,235  
                 
Note payable to an unrelated company in monthly installments of $1,468, With interest at 6.95%, through maturity in March 2021, when the note is due in full. The note is secured by equipment and a personal guarantee by an officer of the Company     57,290       64,175  
                 
On September 8, 2017, Quest entered into an equipment purchase agreement with an unaffiliated entity, to purchase certain underground mining equipment for $600,000. The agreement provided for $80,000 paid upon execution, $30,000 monthly payments until the balance is paid in full.     460,000       0  
                 
On October 19, 2017, Quest entered into an equipment financing agreement with an unaffiliated entity, to purchase certain surface equipment for $90,400. The agreement calls for monthly payments until maturity of October 19, 2019 and interest of 9.95%.     88,297       0  

 

On October 20, 2017, Quest entered into an equipment financing agreement with an unaffiliated entity, to purchase certain surface equipment for $50,250. The agreement calls for monthly payments until maturity of October 20, 2019 and interest of 10.60%.     51,320       0  
                 
On December 4, 2017, Quest entered into an equipment financing agreement with an unaffiliated entity, to purchase certain surface equipment for $56,900. The agreement calls for monthly payments until maturity of January 7, 2021.     56,900       0  
                 
Business Loan - ARC                
                 
On October 4, 2017, ARC entered into a consolidated loan agreement with an unaffiliated entity. $5,444,632 has been advanced under the note. $1,300,000 of the note was advanced after December 31, 2017. The agreement calls for interest of 7% and with all outstanding amounts due on demand. The note is secured by all assets of Quest and subsidiaries. In conjunction with the loan, a warrants for up to 5,017,006 common shares were issued at an exercise price ranging from $.01 to $11.44 per share and with an expiration date of October 2, 2020. The loan consolidation was treated as a loan modification for accounting purposes giving rise to a discount of $140,000. The discount was amortized over the life of the loan with $105,000 included as interest expense and $35,000 included as a note discount as of December 31, 2017.     4,444,632       175,000  
                 
Equipment Loans – ERC                
                 
Equipment lease payable to an unrelated company in 48 equal payments of $771 with an interest rate of 5.25% with a balloon payment at maturity of June 30, 2019. The note is secured by equipment and a corporate guarantee from Quest Energy Inc. The equipment is being utilized as part of the management agreement referred to in Note 7. Therefore, the title of the assets are not held with ERC and there is a corresponding receivable due for the payment of this note.     27,288       35,644  
                 
Equipment lease payable to an unrelated company in 48 equal payments of $3,304 with an interest rate of 5.25% with a balloon payment at maturity of June 30, 2019. The note is secured by equipment and a corporate guarantee from Quest Energy Inc. The equipment is being utilized as part of the management agreement referred to in Note 7. Therefore, the title of the assets are not held with ERC and there is a corresponding receivable due for the payment of this note.     128,254       161,738  
                 
Equipment lease payable to an unrelated company in 48 equal payments of $2,031 with an interest rate of 5.25% with a balloon payment at maturity of August 13, 2019. The note is secured by equipment and a corporate guarantee from Quest Energy Inc. The equipment is being utilized as part of the management agreement referred to in Note 7. Therefore, the title of the assets are not held with ERC and there is a corresponding receivable due for the payment of this note.     36,890       60,541  

 

Equipment Loans - McCoy            
             
Equipment note payable to an unrelated company, with monthly payments of $150,000 in September 2016, October 2016, November 2016 and a final payment of $315,000 due in December 2016. No extensions have been entered into subsequent to December 31, 2017 resulting in the note being in default.     540,000       540,000  
                 
On May 2, 2017, Quest entered into an equipment purchase agreement with an unaffiliated entity, Inc. to purchase certain underground mining equipment for $250,000. Full payment was due September 12, 2017.     135,000       0  
                 
On June 12, 2017, Quest entered into an equipment purchase agreement with an unaffiliated entity, Inc. to purchase certain underground mining equipment for $22,500. Full payment was due September 12, 2017.     22,500       0  
                 
On September 25, 2017, Quest entered into an equipment purchase agreement with an unaffiliated entity, Inc. to purchase certain underground mining equipment for $350,000. The agreement provided for $20,000 monthly payments until the balance is paid in full.     330,000       0  
                 
Business Loans - McCoy                
                 
Business loan agreement with Crestmark Bank in the amount of $200,000, with monthly payments of 23,000, with an interest rate of 12%, through maturity in January 1, 2018. The note is secured by a corporate guaranty by the Company and a personal guaranty.     66,667       0  
                 
Seller Note - Deane                
                 
Deane Mining - promissory note payable to an unrelated company, with monthly interest payments of $10,000, at an interest rate of 6%, beginning June 30, 2016. The note is due December 31, 2017. No payments have been made on the note and no extensions have been entered into subsequent to December 31, 2017, resulting in the note being in default.     2,000,000       2,000,000  
                 
Accounts Receivable Factoring Agreement                
                 
McCoy, Deane and Knott County secured accounts receivable note payable to a bank. The agreement calls for interest of .30% for each 10 days of outstanding balances. The advance is secured by the accounts receivable, corporate guaranty by the Company and personal guarantees by two officers of the Company. The agreement ends in October 2018     1,582,989       1,616,167  
                 
Kentucky New Markets Development Program                
                 
Quest Processing - loan payable to Community Venture Investment XV, LLC, with interest only payments due quarterly until March 2023, at which time quarterly principal and interest payments are due. The note bears interest at 3.698554% and is due March 7, 2046. The loan is secured by all equipment and accounts of Quest Processing. See Note     4,117,139       4,117,139  
                 
Quest Processing - loan payable to Community Venture Investment XV, LLC, with interest only payments due quarterly until March 2023, at which time quarterly principal and interest payments are due. The note bears interest at 3.698554% and is due March 7, 2046. The loan is secured by all equipment and accounts of Quest Processing. See Note     1,026,047       1,026,047  
                 
Less: Debt Discounts and Loan Issuance Costs     (475,333 )     (451,389 )

 

Affiliate Notes            
             
Notes payable to affiliate, due on demand with no interest and is uncollateralized. Equipment purchasing was paid by an affiliate resulting in the note payable.   $ 74,000     $ 74,000  
                 
During July 2017, an officer of the Company advanced $50,000 to Quest. The advance is unsecured, non interest bearing and due on demand.   $ 50,000     $ 0  
                 
      14,850,842       9,469,947  
Less: Current maturities     9,769,154       4,505,006  
                 
Total Long-term Debt   $ 5,081,688     $ 4,964,941  

 

Total interest expense was $558,772 in 2017 and $283,564 in 2016.

 

Future minimum principal payments, interest payments and payments on capital leases are as follows:

 

Payable In   Loan Principal     Lease Principal     Total Loan and Lease Principal     Lease Interest  
                         
2018     9,704,444       64,710       9,769,154       8,560  
2019     312,707       125,798       438,505       3,722  
2020     37,283       -       37,283       -  
2021     10,491       -       10,491       -  
2022     -       -       -       -  
Thereafter     4,595,409               4,595,409          

 

v3.10.0.1
RELATED PARTY TRANSACTIONS
9 Months Ended 12 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Notes to Financial Statements    
RELATED PARTY TRANSACTIONS

On June 12, 2015, the Company executed a consulting agreement with an entity with common ownership. No fees or repayments have occurred during the nine-month period September 30, 2018 and 2017, respectively.

 

The amount outstanding and payable as of September 30, 2018 and December 31, 2017, was $0 and $17,840,615, respectively. The amount was due on demand and did not accrue interest. The amounts under the agreement were cancelled and forgiven on May 31, 2018. The forgiveness was accounted for as an increase in additional paid in capital.

 

On April 30, 2017, the Company purchased $250,000 of secured debt that had been owed to a third party, by an operating subsidiary of a related party. As a result of the transaction, the Company is now the creditor on the notes. The first note in the amount of $150,000 is dated March 13, 2013, carries an interest rate of 12% and was due on September 13, 2015. The second note in the amount of $100,000 is dated July 17, 2013, carries an interest rate of 12% and was due January 17, 2016. Both notes are in default and have been fully impaired due to collectability uncertainty.

 

During the three month period ended September 30, 2018, the Company incurred royalty expense in the amount of $64,537 to a related entity formally consolidated as a variable interest entity. As of September 30, 2018 the company owed the related entity a total of $512,378 for unpaid royalties and advances.

On June 12, 2015, the Company executed a consulting agreement with an entity with common ownership. During 2017 and 2016, the Company incurred fees totaling $0 and $12,340,615, respectively, relating to services rendered under this agreement. The amount outstanding and payable as of December 31, 2017 and 2016, was $17,840,615 and $17,840,615, respectively. The amount is due on demand and does not accrue interest.

 

On January 1, 2016, the Company awarded stock options for 857,464 shares that were cashlessly exercised into 290,513 shares of Series A preferred stock or consulting efforts to an entity with common ownership. No stock options were awarded to related parties during 2017.

 

During 2015, equipment purchasing was paid by an affiliate resulting in a note payable. The balance of the note was $74,000 as of December 31, 2017 and 2016, respectively.

 

On April 30, 2017, the Company purchased $250,000 of secured debt that had been owed to that party, by an operating subsidiary of a related party. As a result of the transaction, the Company is now the creditor on the notes. The first note in the amount of $150,000 is dated March 13, 2013, carries an interest rate of 12% and was due on September 13, 2015. The second note in the amount of $100,000 is dated July 17, 2013, carries an interest rate of 12% and was due January 17, 2016. Both notes are in default and have been fully impaired due to collectability uncertainty. (see Note 9)

 

During July 2017, an officer of the Company advanced $50,000 to Quest. The advance is unsecured, non interest bearing and due on demand. (see Note 3)

 

On June 12, 2015, the Company executed a consulting agreement with an entity with common ownership. During 2017 and 2016, the Company incurred fees totaling $0 and $12,340,615, respectively, relating to services rendered under this agreement. The amount outstanding and payable as of December 31, 2017 and 2016, was $17,840,615 and $17,840,615, respectively. The amount is due on demand and does not accrue interest.

 

v3.10.0.1
VARIABLE INTEREST ENTITY
12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
VARIABLE INTEREST ENTITY

On October 24, 2016, the Company sold certain mineral and land interests to a subsidiary of an entity, LRR, owned by members of the Company’s management. LRR leases various parcels of land to QEI and engages in other activities creating miscellaneous income. The consideration for the transaction was a note in the amount of $178,683. The note bears no interest and is due in 2026. The balance as of December 31, 2016 was $130,145. As of January 28, 2017, the note was paid in full. This transaction was eliminated upon consolidation as a variable interest entity.

 

The Company’s management also manages the operations of LRR. LRR has assets totaling $475,401 and liabilities totaling $77,443 as of December 31, 2017 for which there were no restrictions. The Company’s risk associated with LRR is greater than its ownership percentage and its involvement does not affect the Company’s business beyond the relationship described above.

v3.10.0.1
KENTUCKY NEW MARKETS DEVELOPMENT PROGRAM
12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
KENTUCKY NEW MARKETS DEVELOPMENT PROGRAM

On March 18, 2016, Quest Processing entered into two loans under the Kentucky New Markets Development Program for a total of $5,143,186. Quest Processing paid $460,795 of debt issuance costs resulting in net proceeds of $4,682,391. See note 3. The Company retains the right to call $5,143,186 of the loans in March 2023. State of Kentucky income tax credits were generated for the lender which the Company has guaranteed over their statutory life of seven years in the event the credits are recaptured or reduced. At the time of the transaction, the income tax credits were valued at $2,005,843. The Company has not established a liability in connection with the guarantee because it believes the likelihood of recapture or reduction is remote.

 

On March 18, 2016, ERC Mining LLC, an entity consolidated as a VIE, lent $4,117,139 to an unaffiliated entity, as part of the Kentucky New Markets Development Program loans. The note bears interest at 4% and is due March 7, 2046. The balance as of December 31, 2017 and 2016 was $4,117,139 and $4,117,139, respectively. Payments of interest only are due quarterly until March 18, 2023 at which time quarterly principal and interest are due. The note is collateralized by the equity interests of the borrower.

 

The Company’s management also manages the operations of ERC Mining LLC. ERC Mining LLC has assets totaling $4,415,860 and liabilities totaling $4,117,139 as of December 31, 2017 for which there are to be used in conjunction with the transaction described above. Assets totaling $3,818,418 and liabilities totaling $4,117,139, respectively, are eliminated upon consolidation. The Company’s risk associated with ERC Mining LLC is greater than its ownership percentage and its involvement does not affect the Company’s business beyond the relationship described above.

 

v3.10.0.1
MANAGEMENT AGREEMENT
9 Months Ended 12 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Notes to Financial Statements    
MANAGEMENT AGREEMENT

On April 13, 2015, ERC entered into a mining and management agreement with an unrelated entity, to operate a coal mining and processing facility in Jasonville, Indiana. Under the management agreement, net funds advanced for the nine-month period ended September 30, 2018 and 2017 are $99,582 and $75,000, respectively and the amounts repaid totaled $127,957 and $394,645, respectively. During the nine-month period ended September 30, 2018 and 2017, fees paid under the agreement amounted $313,114 and $0, respectively which has been recorded in other income.

On April 13, 2015, ERC entered into a mining and management agreement with an unrelated entity, to operate a coal mining and processing facility in Jasonville, Indiana. The agreement called for a monthly base fee of $20,000 in addition to certain per ton fees based on performance to be paid to ERC. During 2017 and 2016 no fee had been paid and due to the uncertainty of collection, no fee has been recorded. Fees earned totaled $240,000 and $240,000 for 2017 and 2016, respectively, which have been fully reserved. The agreement called for equipment payments to be made by the entity. As of December 31, 2017, and 2016 amounts owed from the entity to ERC for equipment payments amounted to $192,432 and $258,096, respectively.

 

During 2017, ERC had advances of $77,800 and repayments of $625,227 of amounts previously advanced. During 2016, ERC had advances of $1,975,000 which is unsecured, non-interest bearing and due upon demand and repayments of previously advanced amounts of $1,175,000. Of the amounts received in 2017, $387,427 was the collection of a previously impaired amount.

 

As part of the agreement, ERC retained the administrative rights to the underlying mining permit and reclamation liability. The entity has the right within the agreement to take the mining permits and reclamation liability at any time. In addition, all operational activity that takes place on the facility is the responsibility of the entity. ERC acts as a fiduciary and as such has recorded cash held for the entity’s benefit as both an asset and an offsetting liability amounting to $82,828 and $24,987 respectively as of December 31, 2017 and 2016.

v3.10.0.1
INCOME TAXES
12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The primary temporary differences that give rise to the deferred tax assets and liabilities are as follows: accrued expenses.

 

Deferred tax assets consisted of $4,152,800 at December 31, 2017, which was fully reserved. Deferred tax assets consist of net operating loss carryforwards in the amount of $4,152,800 at December 31, 2017, which was fully reserved. The net operating loss carryforwards for years 2015, 2016 and 2017 begin to expire in 2035. The application of net operating loss carryforwards are subject to certain limitations as provided for in the tax code. The Tax Cuts and Jobs Act was signed into law on December 22, 2017, and reduced the corporate income tax rate from 34% to 21%. The Company’s deferred tax assets, liabilities, and valuation allowance have been adjusted to reflect the impact of the new tax law. 

 

The Company’s effective income tax rate is lower than what would be expected if the U.S. federal statutory rate (34%) were applied to income before income taxes primarily due to certain expenses being deductible for tax purposes but not for financial reporting purposes. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. All years are open to examination as of December 31, 2017.

 

v3.10.0.1
EQUITY TRANSACTIONS
9 Months Ended 12 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Notes to Financial Statements    
EQUITY TRANSACTIONS

On July 18, 2018, we issued 150,000 common shares valued at $165,000 to Sylva International LLC for an agreement to provide digital marketing services to the Company. The agreement was subsequently terminated by the Company for breach of contract. The Company fully recognized $165,000 of stock based compensation for the nine months September 30, 2018.

 

On September 12, 2018, pursuant to the Company’s Employee Incentive Stock Option Plan, we issued a total of 636,830 options to certain employees. The options have an expiration date of September 10, 2025 and have an exercise price of $1.00 per share. Of the total options issued, 25,000 vested immediately, with the balance of 611,830 options vesting equally over the course of three years, subject to restrictions regarding the employee’s continued employment by the Company. The fair value of the options is $482,751. The Company recognized $13,410 as option expense for the nine months September 30, 2018. The unamortized expense at September 30, 2018 is $469,342.

 

On September 14, 2018, we issued 105,000 common shares valued at $152,250 and 175,000 warrants to Redstone Communications LLC and 45,000 common shares valued at $65,250 and 75,000 warrants to Mr. Marlin Molinaro as compensation for the first six months of an agreement to provide for public relations with existing shareholders, broker dealers, and other investment professionals for the Company. The warrants fair value was determined to be $234,067. The warrants granted are non-refundable and vest immediately and have an expiration date of September 14, 2023. Stock based compensation of $36,205 for the common shares issued and $234,067 for the warrant granted was expensed during the nine months September 30, 2018. As of September 30, 2018, the unamortized expense for the common shares issued is $181,250.

 

The Company has Series A Preferred stock outstanding, which has the following key provisions: par value of $0.0001, voting rights of 33(1/3) votes of Class A Common stock for each Series A Preferred stock, conversion to Class A Common stock at a rate 3(1/3) Class A Common stock, liquidation rights at $1.65 per share, and anti-dilution protection through March 21, 2020 for conversion into Class A Common Stock at no less than 72.0% of the fully-diluted Class A Common stock outstanding. The Company evaluated the embedded conversion option under ASC 815. The conversion option was deemed clearly and closely related to its equity host instrument and as such was not bifurcated.

 

Total preferred dividend requirement for the nine-month period ending September 30, 2018 and 2017 amounted to $104,157 and $0, respectively.

 

Total stock, warrant and option compensation expense for the nine-month period ending September 30, 2018 and 2017 amounted to $448,727 and $0, respectively.

 

The price of the above stock, warrants and options were determined using the closing stock price at the date of the grant and the Black-Sholes Option Pricing Model.

 

    9/30/2018  
Expected Dividend Yield   0%  
Expected volatility   120%  
Risk-free rate   1.4%  
Expected life of warrants   3-7 Years  

 

          Weighted     Weighted        
          Average     Average     Aggregate  
    Number of     Exercise     Contractual     Intrinsic  
    Warrants     Price     Life in Years     Value  
Outstanding - December 31, 2017     5,364,230     $ 2.638       2.835     $ 138,069  
Exercisable - December 31, 2017     5,364,230     $ 2.638       2.835     $ 138,069  
Granted     886,830     $ 1.000       6.388     $ 5,386,975  
Forfeited or Expired     -       -       -       -  
Exercised     -     $ -       -       -  
Outstanding - September 30, 2018     6,251,060     $ 2.432       2.474     $ 31,556,641  
Exercisable - September 30, 2018     5,639,230     $ 2.590       1.982     $ 27,836,687  

A new 2016 Stock Incentive Plan (2016 Plan) was approved by the Board during January 2016. The Company may grant up to 6,363,225 shares of Series A Preferred stock under the 2016 Plan. The 2016 Plan is administered by the Board of Directors, which has substantial discretion to determine persons, amounts, time, price, exercise terms, and restrictions of the grants, if any. The options issued under the 2016 Plan vest upon issuance.

 

During 2016, the Company issued options amounting to 6,363,225 shares (which includes shares disclosed above) under an adopted stock option plan that were cashlessly exercised into 2,267,362 shares of Series A preferred stock resulting in an expense of $88,675.

 

On May 10, 2017, the Company issued warrants amounting to 8,334 common shares to a board member. The options expire May 9, 2020 and have an exercise price of $3.60. An expense in the amount of $40,000 was recognized for this issuance.

 

The Company had a note payable in the amount of $50,000 which was assumed as part of the share exchange agreement and accounted for as an expense in the recapitalization transaction. On February 22, 2017, the Company modified the note to add a conversion option with a price of $1.50. The conversion option was beneficial, therefore, the Company recognized $50,000 as a discount to the assumed note payable. The note was immediately converted, resulting in the issuance of 33,334 shares and the full amortization of the discount.

 

The Company has Series A Preferred stock outstanding, which has the following key provisions: par value of $0.0001, voting rights of 33(1/3) votes of Class A Common stock for each Series A Preferred stock, conversion to Class A Common stock at a rate 3(1/3) Class A Common stock, liquidation rights at $1.65 per share, and anti-dilution protection through March 21, 2020 for conversion into Class A Common Stock at no less than 72.0% of the fully-diluted Class A Common stock outstanding. The Company evaluated the embedded conversion option under ASC 815. The conversion option was deemed clearly and closely related to its equity host instrument and as such was not bifurcated.

 

On March 7, 2017, ARC closed a private placement whereby it issued an aggregate of 500,000 shares of ARC’s Series B Preferred Stock at a purchase price of $1.00 per Series B Preferred share and warrants to purchase an aggregate of 208,334 shares of the ARC’s common stock (subject to certain adjustments), for proceeds to ARC of $500,000 (the “March 2017 Private Placement”). After deducting for fees and expenses, the aggregate net proceeds from the sale of the preferred series B shares and the warrants in the March 2017 Private Placement were approximately $500,000. The ‘A’ warrants totaling 138,889 shares expire March 6, 2020 and hold an exercise price of $7.60 per share. The ‘A-1’ warrants totaling 69,445 shares expire March 6, 2020 and hold an exercise price of $.003 per share.

 

On April 2, 2017, American Resources Corporation closed a private placement whereby it issued an aggregate of 100,000 shares of the ARC’s Series B Preferred Stock at a purchase price of $1.00 per Series B Preferred share, and warrants to purchase an aggregate of 27,778 shares of the ARC’s common stock (subject to certain adjustments), for proceeds to ARC of $100,000 (the “April 2017 Private Placement”). After deducting for fees and expenses, the aggregate net proceeds from the sale of the Series B Preferred Stock and the warrants in the April 2017 Private Placement were approximately $100,000. The ‘A’ warrants totaling 27,778 shares expire April 2, 2019 and hold an exercise price of $7.20 per share.

 

On April 30, 2017, American Resources Corporation closed on a private placement agreement whereby it issued an aggregate of 250,000 shares of the ARC’s Series B Preferred Stock and A warrants amounting to 69,445 to an unrelated party for the purchase of $250,000 of secured debt that had been owed to that party, by an operating subsidiary of a related party. As a result of the transaction, the Company is now the creditor on the notes. The first note in the amount of $150,000 is dated March 13, 2013, carries an interest rate of 12% and was due on September 13, 2015. The second note in the amount of $100,000 is dated July 17, 2013, carries an interest rate of 12% and was due January 17, 2016. Both notes are in default and were impaired. The A warrants totaling 69,445 shares expire April 29, 2019 and hold an exercise price of $7.20 per share.

 

The Series B Preferred Stock converts into common stock of the Company at the holder’s discretion at a conversion price of $3.60 per common share (one share of Series B Preferred converts to common at a ratio of 0.27778). Furthermore, the Series B Preferred share purchase agreement provides for certain adjustments to the conversion value of the Series B Preferred to common shares of the Company that are based on the EBITDA (earnings before interest, taxes, depreciation, and amortization) for the Company for the 12 months ended March 31, 2018 of $6,000,000. Those adjustments provide for a decrease in the conversion value based on the proportional miss of the Company’s EBITDA, up to a maximum of 30.0% decrease in the conversion value of the Series B Preferred to common shares.

 

The Series B Preferred share purchase agreement provides, for a period of nine months post execution of the purchase agreement, an option for the investor to put the Series B Preferred investment to the Company at a 12% premium to the Series B Preferred purchase price should the Company achieve certain hurdles, such as a secondary offering and an up-listing to a national stock exchange. Such put option expires after 20 days from notification of the Company to the Series B Preferred investor of the fulfillment of such qualifications.

 

Total preferred dividend requirement for 2017 and 2016 amounted to $53,157 and $0, respectively.

 

Total stock-based compensation expense incurred for awards to employees during 2017 and 2016 was $0 and $88,675, respectively. Fair value was determined using the total enterprise value approach.

 

On July 5, 2017, the Company issued 13,333 common shares and warrants to purchase 33,333 shares to an unrelated consulting company. The warrants had an exercise price of $3.60 with a three-year term. The total compensation expense related to this warrant was $10,000 which was determined using the closing stock price at the date of the grant and the Black-Sholes Option Pricing Model.

 

In conjunction with the ARC business loan, warrants of 5,996,609 common shares were issued and 979,603 were subsequently canceled at an exercise price ranging from $.01 to $11.44 per share and with an expiration date of October 2, 2020.

 

    2017  
Expected Dividend Yield     0 %
Expected volatility     13.73 %
Risk-free rate     1.62 %
Expected life of warrants   2-3 years  

 

 

          Weighted     Weighted        
          Average     Average     Aggregate  
    Number of     Exercise     Contractual     Intrinsic  
    Warrants     Price     Life in Years     Value  
Outstanding – December 31, 2015     -       -       -       -  
Exercisable - December 31, 2015     -       -       -       -  
Granted     -       -       -       -  
Forfeited or Expired     -       -       -       -  
Outstanding - December 31, 2016     -       -       -       -  
Exercisable - December 31, 2016     -       -       -       -  
Granted     6,343,833     $ 2.317       2.706     $ 174,253  
Forfeited or Expired     979,603     $ 0.560       1.997     $ 36,184  
Exercised     -       -       -       -  
Outstanding - December 31, 2017     5,364,230     $ 2.638       2.835     $ 138,069  
Exercisable - December 31, 2017     5,364,230     $ 2.638       2.835     $ 138,069  

 

v3.10.0.1
CONTINGENCIES
9 Months Ended 12 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Notes to Financial Statements    
CONTINGENCIES

In the course of normal operations, the Company is involved in various claims and litigation that management intends to defend. The range of loss, if any, from potential claims cannot be reasonably estimated. However, management believes the ultimate resolution of matters will not have a material adverse impact on the Company’s business or financial position.

 

Should the Company decide to renew the consulting agreement with Redstone Communication, LLC, as compensation for the following six months of engagement, we will issue to Redstone Communications another five-year option to purchase up to 175,000 common shares of our Company at an exercise price of $1.50 per share, another 105,000 common shares, and a cash payment of $10,000 per month for the second six-month term (with the first two months payable in advance upon renewal of the second term). Furthermore, we will issue to Mr. Marlin Molinaro another five-year option to purchase up to 75,000 common shares of our Company at an exercise price of $1.50 per share and another 45,000 common shares. Should Redstone Communications, LLC and Mr. Molinaro receive and exercise the options received under the second six months of engagement, the Company will receive up to $262,500 and $112,500, respectively.

In the course of normal operations, the Company is involved in various claims and litigation that management intends to defend. The range of loss, if any, from potential claims cannot be reasonably estimated. However, management believes the ultimate resolution of matters will not have a material adverse impact on the Company’s business or financial position.

 

The company leases various office space some from an entity which we consolidate as a variable interest entity. (see note 5). The future annual rent is $6,000 through 2021. Rent expense for 2017 and 2016 amounted to $26,000 each year, respectively.

 

v3.10.0.1
SUBSEQUENT EVENTS
9 Months Ended 12 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Notes to Financial Statements    
SUBSEQUENT EVENTS

During October 2018, an officer of the company advanced an additional $13,500. The advance is non-interest bearing, non-secured and due on demand.

 

On October 25, 2018, Wyoming County Coal LLC was formed as a wholly owned subsidiary of Quest Energy Inc.

 

On November 7, 2018, Wyoming County Coal LLC, acquired 5 permits, coal processing and loading facilities, surface ownership, mineral ownership, and coal refuse storage facilities from unrelated entities. Consideration for the acquired assets was the assumption of reclamation bonds totaling $234,240, 1,727,273 shares of common stock of the company priced at $12.79 per share of common stock, a seller note of $350,000 and a seller note of $250,000. Management is still gathering the information needed to complete the allocation of the purchase price to the assets acquired and liabilities assumed.

 

On October 24, 2018, options totaling 69,420 common shares of the company were exercised by a non-affiliated shareholder. The exercise was a cashless exercise.

 

On November 5, 2018, 4,336,012 Series A preferred shares were converted into 14,453,373 common shares of the company in a cashless conversion under the terms of the agreement.

 

On November 7, 2018, 964,290 Series B preferred shares were converted into 267,859 common shares of the company in a cashless conversion.

 

On November 7, 2018, $36,000 worth of trade payables were settled with 6,000 common shares of the company.

 

On November 8, 2018, the Company's Board of Directors elected to amend its Articles of Incorporation, canceled its Series B Preferred Stock, designated 20,000,000 shares of a newly created Series C Preferred Stock, and amended its Series A Preferred stock for the following key provisions: voting rights of 333(1/3) votes of Class A Common stock for each Series A Preferred stock, and anti-dilution protection through March 1, 2020 at no less than 72.0% of the fully-diluted Class A Common stock. The newly created Series C Preferred Stock carries the following key provisions: automated conversion to Class A Common Stock upon the completion of a underwritten equity offering totaling $5,000,000 or more and a paid in kind annual dividend with a 10% annual percentage rate.

 

On November 13, 2018, $300,000 was advanced under the ARC business loan which carries annual interest at 7%, is due within two months of advancement and is secure by all company assets.

 

On November 14, $225,000 of debt to an unrelated entity, was converted into 37,500 shares of Class A Common stock.

 

On November 15, three independent directors were appointed. As compensation for their services, each of the directors were issued a three-year warrant to purchase up to 15,000 common shares of our company at an exercise price of $6.00 per share, subject to certain price adjustments and other provisions found within the respective warrants. Should each of the three directors exercise the option through a cash payment to the Company, the Company will receive up to $90,000 from each director, and each director will receive up to 15,000 restricted common shares of the Company. There are no registration rights associated with this warrant that require the Company to register the shares.

 

On November 27, 2018, 50,000 shares of Series C preferred shares were sold at $1.00 per share resulting in proceeds of $50,000 for the Company.

 

On December 3, 2018, 10,000 shares of Class A Common stock and an option to purchase 417 shares of the company were issued to an unrelated firm for consulting services. The option has a strike price of $6.00 per share, has a two-year term, and can be exercised via a cashless exercise by the holder at any time during its term. The agreement also carries the commitment that a cash fee of $10,000 will be payable under the agreement at the time the company closes a financing of greater than $1.0 million. An additional 15,000 shares will be issued on June 1, 2019 if the agreement is still in effect.

 

On December 24, 2018, the ARC business loan was amended to reflect the proper state of incorporation for the Company.

 

On December 31, 2018, the Company entered into a loan agreement with an unrelated party.  The loan is for an amount up to $6,500,000 of which $3,000,000 was advanced on December 31, 2018 and $2,000,000 was advanced on February 1, 2019.  The promissory agreement carries interest at 5% annual interest rate and payments of principal and interest shall be repaid at a per-ton rate of coal sold to the lender.  The outstanding amount of the note has a maturity of April 1, 2020.  The note is secured by the assets of the Company. 

 

On January 16, 2019, an affiliate of the Company converted its remaining 29,051 shares of Series A Preferred into 96,837 Class A Common shares

 

On January 17, 2019, a non-affiliated shareholder partially exercised 300,000 shares of a warrant they held in the Company. The exercise was cashless, and the shareholder received 299,697 shares of common stock as a result of the conversion.

 

On January 25, 2019, the Company extended its consulting agreement with Redstone Communications, LLC for an additional six-month term, and as a result, we issued 105,000 restricted common shares to Redstone Communications LLC and 45,000 restricted common shares to Mr. Marlin Molinaro, another five-year option to purchase up to 175,000 common shares of our Company at an exercise price of $1.50 per share and issued to Mr. Marlin Molinaro another five-year option to purchase up to 75,000 common shares of our Company at an exercise price of $1.50 per share as compensation for the second six months of an agreement. Should Redstone Communications, LLC and Mr. Molinaro receive and exercise the options received under the second six months of engagement, the Company will receive up to $262,500 and $112,500, respectively. These common shares have not been physically issued.

 

On January 27, 2019, the Company issued 1,000 shares of Class A Common Stock to an unrelated party for the consideration of $5,000 cash to the Company.

 

On January 28, 2019, the Company issued a total of 400 shares of Class A Common Stock to two unrelated parties for the total consideration of $2,000 cash to the Company.

 

On January 30, 2019, the Company entered into an Investor Relations Agreement with American Capital Ventures, Inc. (“American Capital”) whereby American Capital will provide, among other services, assistance to the Company in planning, reviewing and creating corporate communications, press releases, and presentations and consulting and liaison services to the Company relating to the conception and implementation of its corporate and business development plan. The term of the agreement is six months and American Capital was immediately issued 9,000 shares of Class A Common stock as compensation under the agreement.

 

On February 1, 2019, the Company issued a total of 1,000 shares of Class A Common Stock to two unrelated parties for the total consideration of $5,000 cash to the Company.

 

On February 4, 2019, the ARC business loan was amended to allow conversion of outstanding amounts to Class A Common shares at a price per share of $5,25.

 

On February 12, 2019, McCoy signed a contract with an unrelated party for the acquisition of stock and membership interests of entities with non-operating assets consisting of surface and mineral ownership and other related agreements. The transaction is expected to close simultaneous with this offering. Consideration is expected to be in the form of 2,000,000 Class A common shares, priced at $12.79 per share of common stock, as well as $500,000 cash and a promissory note totaling $2,000,000 with a maturity of less than 1 year. The note is secured by a land contract on the acquired property.

 

On February 6, 2019, a non-affiliated shareholder partially exercised 300,000 shares of a warrant they held in the Company. The exercise was cashless, and the shareholder received 299,730 shares of common stock as a result of the conversion. 

 

On February 4 through February 8, 2019, the Company issued a total of 17,800 shares of Class A Common Stock to sixteen unrelated parties for the total consideration of $89,000 cash to the Company.

 

On February 10, 2019, $3,000 worth of trade payables were settled with 500 common shares of the company.

 

 

On January 25, 2018, Quest entered into an equipment financing agreement with an unaffiliated entity, to purchase certain surface equipment for $346,660. The agreement calls for monthly payments until maturity of December 25, 2020.

 

During 2018, the company drew an additional $1,300,000 on the ARC business loan. (see note 3)

 

On March 29, 2018, Quest entered into an equipment financing agreement with an affiliated entity, to purchase certain surface mining equipment for $135,000. Payments of $75,000 and $60,000 are due on April 6, 2018 and April 13, 2018, respectively.

 

v3.10.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
9 Months Ended 12 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Summary Of Significant Accounting Policies    
Basis of Presentation and Consolidation

The consolidated financial statements include the accounts for the nine months ended September 30, 2018 and 2017 of the Company and its wholly owned subsidiaries Quest Energy Inc (QEI), Deane Mining, LLC (Deane), Quest Processing LLC (Quest Processing), ERC Mining Indiana Corp (ERC), McCoy Elkhorn Coal LLC (McCoy) and Knott County Coal LLC (KCC). All significant intercompany accounts and transactions have been eliminated.

 

As of July 1, 2018, the accounts of Land Resources & Royalties, LLC have been deconsolidated from the financial statements based upon the ongoing review of its status as a variable interest entity.

 

On August 23, 2018, KCC disposed of certain non-operating assets totaling $111,567 and the corresponding asset retirement obligation totaling $919,158 which resulted in a gain of $807,591.

 

The accompanying Consolidated Financial Statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”)

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Quest Energy Inc (QEI), Deane Mining, LLC (Deane), Quest Processing LLC (Quest Processing), ERC Mining Indiana Corp (ERC), McCoy Elkhorn Coal LLC (McCoy) and Knott County Coal LLC (KCC). All significant intercompany accounts and transactions have been eliminated.

 

On January 5, 2017, QEI entered into a share exchange agreement with NGFC Equities, Inc (NGFC). Under the agreement, the shareholders of QEI exchanged 100% of its common stock to NGFC for 4,817,792 newly created Series A Preferred shares that is convertible into approximately 95% of outstanding common stock of NGFC. The previous NGFC shareholders retained 845,377 common shares as part of the agreement. The conditions to the agreement were fully satisfied on February 7, 2017, at which time the Company took full control of NGFC. NGFC has been renamed to American Resources Corporation (ARC). The transaction was accounted for as a recapitalization. QEI was the accounting acquirer and ARC will continue the business operations of QEI, therefore, the historical financial statements presented are those of QEI and its subsidiaries. The equity and share information reflect the results of the recapitalization. On May 15, 2017 ARC initiated a one-for-thirty reverse stock split. The financial statements have been retrospectively restated to give effect to this split.

 

Entities for which ownership is less than 100% a determination is made whether there is a requirement to apply the variable interest entity (VIE) model to the entity. Where the company holds current or potential rights that give it the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, combined with a variable interest that gives the Company the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, the Company would be deemed to have a controlling interest.

 

The Company is the primary beneficiary of ERC Mining, LLC, which qualifies as a variable interest entity. Accordingly, the assets, liabilities, revenue and expenses of ERC Mining, LLC have been included in the accompanying consolidated financial statements. The Company has no ownership in ERC Mining, LLC. Determination of the Company as the primary beneficiary is based on the power through its management functions to direct the activities that most significantly impact the economic performance of ERC Mining, LLC. On March 18, 2016, the company lent ERC Mining, LLC $4,117,139 to facilitate the transaction described in Note 6, which represent amounts that could be significant to ERC. No further support has been provided. The Company has ongoing involvement in the management of ERC Mining, LLC to ensure their fulfillment of the transaction described in Note 6.

 

The Company is the primary beneficiary of Land Resources & Royalties LLC (LRR) which qualifies as a variable interest entity. Accordingly, the assets, liabilities, revenue and expenses of Land Resources & Royalties have been included in the accompanying consolidated financial statements. The Company has no ownership in LRR. Determination of the Company as the primary beneficiary is based on the power through its management functions to direct the activities that most significantly impact the economic performance of LRR. On October 24, 2016, the company issued LRR a note in the amount of $178,683 to facilitate the transaction described in Note 5, which represent amounts that could be significant to LRR. No further support has been provided. The Company has ongoing involvement in the management of LRR to ensure their fulfillment of the transaction described in Note 5.

 

Deane was formed in November 2007 for the purpose of operating underground coal mines and coal processing facilities. Deane was acquired on December 31, 2015 and as such no operations are presented prior to the acquisition date.

 

Quest Processing was formed in November 2014 for the purpose of operating coal processing facilities and had no operations before March 8, 2016.

 

ERC was formed in April 2015 for the purpose managing an underground coal mine and coal processing facility. Operations commenced in June 2015.

 

McCoy was formed in February 2016 for the purpose of operating underground coal mines and coal processing facilities. The assets of McCoy were acquired on February 17, 2016 and as such no operations are presented prior to the acquisition date.

 

KCC was formed in September 2004 for the purpose of operating underground coal mines and coal processing facilities. KCC was acquired on April 14, 2016 and as such no operations are presented prior to the acquisition date.

 

On February 17, 2016, McCoy Elkhorn Coal LLC (McCoy) acquired certain assets in exchange for $100 and for assuming certain liabilities of Fortress Resources, LLC. The fair values of the asset retirement obligation liabilities assumed were determined to be $3,561,848 respectively. The liabilities assumed do not require fair value readjustments.

 

The assets acquired of McCoy do not represent a business as defined in FASB AS 805-10-20. McCoy does not have an integrated set of activities and assets that that is capable of being conducted and managed for the purpose of providing a return or other economic benefit to their investors, members or participants. Accordingly, the assets acquired are initially recognized at the consideration paid, which was the liabilities assumed, including direct acquisition costs, of which there were none. The cost is allocated to the group of assets acquired based on their relative fair value. The assets acquired and liabilities assumed of McCoy were as follows at the purchase date: 

 

Assets      
Cash   $ 2,935,800  
Underground Mining Equipment     531,249  
Surface Mining Equipment     36,218  
Coal Preparation and Loading Facilities     58,681  
Liabilities        
Asset Retirement Obligation   $ 3,561,848  

 

On April 14, 2016, the Company acquired 100% of the membership interests of ICG Knott County, LLC, subsequently renamed Knott County Coal LLC. The fair values of the asset retirement obligation liabilities assumed were determined to be $4,499,434 respectively. The liabilities assumed do not require fair value readjustments.

 

The assets acquired of ICG Knott County do not represent a business as defined in FASB AS 805-10-20. IGC Knott County does not have an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return or other economic benefit to their investors, members or participants. Accordingly, the assets acquired and liabilities assumed are initially recognized at the consideration paid, including direct acquisition costs. The cost is allocated to the group of assets acquired and liabilities assumed based on their relative fair value. The assets and liabilities assumed of ICG Knott County were as follows on the purchase date:

  

Assets      
Cash   $ 2,380,000  
Underground Mining Equipment     1,533,937  
Surface Mining Equipment     206,578  
Land     178,683  
Coal Preparation and Loading Facilities     200,236  
Liabilities        
Asset Retirement Obligation   $ 4,499,434  

 

As a result of the KCC and McCoy acquisitions during 2016, $8,061,282 of ARO was assumed for net cash of $5,315,700 and property, equipment and land of $2,745,582.

 

Interim Financial Information

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been omitted. In the opinion of management, these interim unaudited Consolidated Financial Statements reflect all normal and recurring adjustments necessary for a fair presentation of the results for the periods presented. Results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 or any other period. These financial statements should be read in conjunction with the Company’s 2017 audited financial statements and notes thereto which were filed on Form 10K on April 23, 2018.

 
Going Concern

The Company has suffered recurring losses from operations and currently has a working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. We plan to generate profits by expanding current coal operations as well as developing new coal operations. However, we will need to raise the funds required to do so through sale of our securities or through loans from third parties. We do not have any commitments or arrangements from any person to provide us with any additional capital. If additional financing is not available when needed, we may need to cease operations. We may not be successful in raising the capital needed to expand or develop operations. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern. The accompanying financial statements have been prepared assuming the Company will continue as a going concern; no adjustments to the financial statements have been made to account for this uncertainty.

The Company has suffered recurring losses from operations and currently a working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. We plan to generate profits by expanding current coal operations as well as developing new coal operations. However, we will need to raise the funds required to do so through sale of our securities or through loans from third parties. We do not have any commitments or arrangements from any person to provide us with any additional capital. If additional financing is not available when needed, we may need to cease operations. We may not be successful in raising the capital needed to expand or develop operations. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern. The accompanying financial statements have been prepared assuming the Company will continue as a going concern; no adjustments to the financial statements have been made to account for this uncertainty.

Estimates  

Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual results could vary from those estimates.

Convertible Preferred Securities

We account for hybrid contracts that feature conversion options in accordance with generally accepted accounting principles in the United States. ASC 815, Derivatives and Hedging Activities (“ASC 815”) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

 

We also follow ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) in its evaluation of the accounting for a hybrid instrument. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception; (b) variations in something other than the fair value of the issuer’s equity shares; or (c) variations inversely related to changes in the fair value of the issuer’s equity shares. Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date with remeasurements reported as a component of other income/expense in the accompanying Consolidated Statements of Operations.

We account for hybrid contracts that feature conversion options in accordance with generally accepted accounting principles in the United States. ASC 815, Derivatives and Hedging Activities (“ASC 815”) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

 

We also follow ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) in its evaluation of the accounting for a hybrid instrument. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception; (b) variations in something other than the fair value of the issuer’s equity shares; or (c) variations inversely related to changes in the fair value of the issuer’s equity shares. Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives, and are carried as a liability at fair value at each balance sheet date with remeasurements reported in interest expense in the accompanying Consolidated Statements of Operations.

 

Related Party Policies  

In accordance with FASB ASC 850 related parties are defined as either an executive, director or nominee, greater than 10% beneficial owner, or an immediate family member of any of the proceeding. Transactions with related parties are reviewed and approved by the directors of the Company, as per internal policies.

Advance Royalties  

Coal leases that require minimum annual or advance payments and are recoverable from future production are generally deferred and charged to expense as the coal is subsequently produced.

Cash

Cash is maintained in bank deposit accounts which, at times, may exceed federally insured limits. To date, there have been no losses in such accounts.

Cash is maintained in bank deposit accounts which, at times, may exceed federally insured limits. To date, there have been no losses in such accounts.

As of December 31, 2017 and 2016 total cash, including restricted cash, amounted to $385,665 and $925,627, respectively. Restricted cash as of December 31, 2017 and 2016 amounted to $198,943 and $141,102, respectively.

 

Restrictions to cash include funds held for the benefit other parties in the amount of $82,828 and $24,987 as of December 31, 2017 and 2016, respectively. The use of these funds are in conjunction with the management of the property owned by this party and the duration of the restrictions matches the duration of the management agreement. (See Note 7)

 

As part of the Kentucky New Markets Development Program (See Note 3) an asset management fee reserve was set up in the amount of $116,115. The funds are held to pay annual asset management fees to an unrelated party through 2021. (See Note 6)

Restricted cash

As part of the Kentucky New Markets Development Program an asset management fee reserve was set up in the amount of $116,115. The funds are held to pay annual asset management fees to an unrelated party through 2021. The balance as of September 30, 2018 and December 31, 2017 was $73,730 and $116,115, respectively. A lender of the Company also required a reserve account to be established. The balance as of September 30, 2018 and December 31, 2017 was $148,546 and $0, respectively. The total balance of restricted cash also includes amounts held under the management agreement in the amount of $63,767 and $82,828, respectively. See note 5 for terms of the management agreement.

 

The balance as of September 30, 2018 and December 31, 2017 was $286,043 and $198,943, respectively.

 

The following table sets forth a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheet that agrees to the total of those amounts as presented in the consolidated statement of cash flows for the nine months ended September 30, 2018 and September 30, 2017.

 

   

September 30,

2018

   

September 30,

2017

 
Cash   $ 57,739     $ 342,041  
Restricted Cash     286,043       189,012  
Total cash and restricted cash presented in the consolidated statement of cash flows   $ 343,782     $ 531,053  
 
Asset Acquisitions

On April 21, 2018, McCoy acquired certain assets known as the Point Rock Mine (Point Rock) in exchange for assuming certain liabilities of the seller. The fair values of the liabilities assumed were $53,771 for prior vendors and $2,098,052 for asset retirement obligation totaling $2,151,823. The liabilities assumed do not require fair value readjustments. In addition, McCoy entered into a surface and mineral sub-lease in the amount of up to $4,000,000 to be paid only upon coal extraction at $2 per extracted ton of coal. McCoy will also pay a portion of the sales price as a royalty with an annual minimum payment of $60,000 starting in January 2019. The acquired assets have an anticipated life of 5 years. Capitalized mining rights will be amortized based on productive activities over the anticipated life of 5 years. Amortization expense for the 3 months ended September 30, 2018 and 2017 amounted to $179,318 and $0, respectively. The assets will be measured for impairment when an event occurs that questions the realization of the recorded value.

 

The assets acquired of Point Rock do not represent a business as defined in FASB AS 805-10-20 due to their classification as a single asset. Accordingly, the assets acquired are initially recognized at the consideration paid, which was the liabilities assumed, including direct acquisition costs, of which there were none. The cost is allocated to the group of assets acquired based on their relative fair value. The assets acquired and liabilities assumed of Point Rock were as follows at the purchase date:

 

Assets      
Mining Rights   $ 2,151,823  
Liabilities        
Vendor Payables   $ 53,771  
Asset Retirement Obligation   $ 2,098,052  

 

On May 10, 2018, KCC acquired certain assets known as the Wayland Surface Mine (Wayland) in exchange for assuming certain liabilities of the seller. The fair values of the liabilities assumed were $66,129 for asset retirement obligation. The liabilities assumed do not require fair value readjustments. In addition, KCC entered into a royalty agreement with the seller to be paid only upon coal extraction in the amount of $1.50 per extracted ton of coal. The acquired assets have an anticipated life of 7 years. Capitalized mining rights will be amortized based on productive activities over the anticipated life of 7 years. Amortization expense for the 3 months ended September 30, 2018 and 2017 amounted to $2,067 and $0, respectively. The assets will be measured for impairment when an event occurs that questions the realization of the recorded value.

 

The assets acquired of Wayland do not represent a business as defined in FASB AS 805-10-20 due to their classification as a single asset. Accordingly, the assets acquired are initially recognized at the consideration paid, which was the liabilities assumed, including direct acquisition costs, of which there were none. The cost is allocated to the group of assets acquired based on their relative fair value. The assets acquired and liabilities assumed of Wayland were as follows at the purchase date:

 

Assets      
Mining Rights   $ 66,129  
Liabilities        
Asset Retirement Obligation   $ 66,129  
 
Concentration  

As of December 31, 2017 and 2016 63% and 78% of revenue and 99% and 97% of outstanding accounts receivable came from three and two customers, respectively.

Coal Property and Equipment  

Coal Property and Equipment are recorded at cost. For equipment, depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally ranging from three to seven years. Amortization of the equipment under capital lease is included with depreciation expense.

 

Property and equipment and amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future net undiscounted cash flows expected to be generated by the related assets. If these assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the assets.

 

Costs related to maintenance and repairs which do not prolong the asset’s useful life are expensed as incurred.

Mine Development  

Costs of developing new coal mines, including asset retirement obligation assets, are capitalized and amortized using the units-of-production method over estimated recoverable coal deposits or proven reserves. Costs incurred for development and expansion of existing coal deposits or proven reserves are expensed as incurred.

Asset Retirement Obligations (ARO) - Reclamation

At the time they are incurred, legal obligations associated with the retirement of long-lived assets are reflected at their estimated fair value, with a corresponding charge to mine development. Obligations are typically incurred when we commence development of underground and surface mines, and include reclamation of support facilities, refuse areas and slurry ponds or through acquisitions.

 

Obligations are reflected at the present value of their future cash flows. We reflect accretion of the obligations for the period from the date they incurred through the date they are extinguished. The asset retirement obligation assets are amortized using the units-of-production method over estimated recoverable (proved and probable) reserves. We are using a discount rate of 10%. Federal and State laws require that mines be reclaimed in accordance with specific standards and approved reclamation plans, as outlined in mining permits. Activities include reclamation of pit and support acreage at surface mines, sealing portals at underground mines, and reclamation of refuse areas and slurry ponds.

 

We assess our ARO at least annually and reflect revisions for permit changes, change in our estimated reclamation costs and changes in the estimated timing of such costs. During the periods ending September 30, 2018 and 2017, $0 and $281,907 were incurred for loss on settlement on ARO, respectively.

 

The table below reflects the changes to our ARO:

 

Balance at December 31, 2017   $ 19,885,057  
Accretion – nine months September 30, 2018     1,435,295  
Reclamation work – nine months September 30, 2018     (0 )
Asset disposition     (919,158 )
Point Rock Acquisition     2,098,052  
Wayland Acquisition     66,129  
Balance at September 30, 2018   $ 22,565,375  

At the time they are incurred, legal obligations associated with the retirement of long-lived assets are reflected at their estimated fair value, with a corresponding charge to mine development. Obligations are typically incurred when we commence development of underground and surface mines, and include reclamation of support facilities, refuse areas and slurry ponds or through acquisitions.

 

Obligations are reflected at the present value of their future cash flows. We reflect accretion of the obligations for the period from the date they incurred through the date they are extinguished. The asset retirement obligation assets are amortized using the units-of-production method over estimated recoverable coal deposits. We are using a discount rate of 10%, risk free rate of .23% and inflation rate of 1.5%. Federal and State laws require that mines be reclaimed in accordance with specific standards and approved reclamation plans, as outlined in mining permits. Activities include reclamation of pit and support acreage at surface mines, sealing portals at underground mines, and reclamation of refuse areas and slurry ponds.

 

We assess our ARO at least annually and reflect revisions for permit changes, change in our estimated reclamation costs and changes in the estimated timing of such costs. During 2017 and 2016, $0 and $71,245 were incurred for loss on settlement on ARO.

 

The table below reflects the changes to our ARO:

 

    2017     2016  
Beginning Balance   $ 18,126,873     $ 8,586,464  
Accretion     1,791,051       1,664,774  
Reclamation work     (32,867 )     (185,647 )
McCoy Acquisition     -       3,561,848  
KCC Acquisition     -       4,499,434  
Ending balance   $ 19,885,057     $ 18,126,873  
Current portion of reclamation liability   $ 2,033,862     $ 519,489  
Long-term portion of reclamation liability   $ 17,851,195     $ 17,607,384  

 

Income Taxes  

Income Taxes include U.S. federal and state income taxes currently payable and deferred income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period of enactment. Deferred income tax expense represents the change during the year in the deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax asset will not be realized.

 

The Company filed an initial tax return in 2015. Management believes that the Company’s income tax filing positions will be sustained on audit and does not anticipate any adjustments that will result in a material change. Therefore, no reserve for uncertain income tax positions has been recorded. The Company’s policy for recording interest and penalties, if any, associated with income tax examinations will be to record such items as a component of income taxes.

 

Revenue Recognition  

The Company recognizes revenue in accordance with ASC 605 when the terms of the contract have been satisfied; generally, this occurs when delivery has been rendered, the fee is fixed or determinable, and collectability is reasonably assured. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.

 

Our revenue is comprised of sales of mined coal and services for processing coal. All of the activity is undertaken in eastern Kentucky.

 

We recognize revenue from coal sales at the time risk of loss passes to the customer at contracted amounts and amounts are deemed collectible. Revenue from coal processing and loading are recognized when services have been performed according to the contract in place.

Leases  

Leases are reviewed by management based on the provisions of ASC 840 and examined to see if they are required to be categorized as an operating lease, a capital lease or a financing transaction.

 

The Company leases certain equipment and other assets under noncancelable operating leases, typically with initial terms of 3 to 7 years. Minimum rent on operating leases is expensed on a straight-line basis over the term of the lease. In addition to minimum rental payments, certain leases require additional payments based on sales volume, as well as reimbursement of real estate taxes, which are expensed when incurred. Capital leases are recorded at the present value of the future minimum lease payments at the inception of the lease. The gross amount of assets recorded under capital lease amounted to $333,875, all of which is classified as surface equipment.

 

Loan Issuance Costs and Discounts  

Loan Issuance Costs and Discounts are amortized using the effective interest method. Amortization expense amounted to $477,056 and $9,406 as of December 31, 2017 and 2016, respectively. Amortization expense for the next five years is expected to be $11,520, annually.

Allowance For Doubtful Accounts

The Company recognizes an allowance for losses on trade and other accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging and expected future write-offs, as well as an assessment of specific identifiable amounts considered at risk or uncollectible.

 

Allowance for trade receivables as of September 30, 2018 and December 31, 2017 amounted to $0, for both periods. Allowance for other accounts receivables as of September 30, 2018 and December 31, 2017 amounted to $0 and $92,573, respectively.

 

Trade and loan receivables are carried at amortized cost, net of allowance for losses. Amortized cost approximated book value as of September 30, 2018 and December 31, 2017.

The Company recognizes an allowance for losses on trade and other accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging and expected future write-offs, as well as an assessment of specific identifiable amounts considered at risk or uncollectible.

 

Allowance for trade receivables as of December 31, 2017 and 2016 amounted to $0 and $0, respectively. Allowance for other accounts receivables as of December 31, 2017 and 2016 amounted to $92,573 and $640,000, respectively.

 

Trade and loan receivables are carried at amortized cost, net of allowance for losses. Amortized cost approximated book value as of December 31, 2017 and 2016.

Inventory  

Inventory consisting of mined coal is stated at the lower of cost (first in, first out method) or net realizable value.

Stock-based Compensation  

Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense over the applicable vesting period of the stock award (generally 0 to 5 years) using the straight-line method. Stock compensation to employees is accounted for under ASC 718 and stock compensation to non-employees is accounted for under ASC 505.

 

Earnings Per Share  

The Company’s basic earnings per share (EPS) amounts have been computed based on the average number of shares of common stock outstanding for the period and include the effect of any participating securities as appropriate. Diluted EPS includes the effect of the Company’s outstanding stock options, restricted stock awards, restricted stock units and performance-based stock awards if the inclusion of these items is dilutive.

 

For the years ended December 31, 2017 and 2016, the Company had 5,364,230 and 0 outstanding stock warrants, respectively. For the years ended December 31, 2017 and 2016, the Company did not have any restrictive stock awards, restricted stock units, or performance-based awards.

Reclassifications

Reclassifications of prior periods have been made to conform with current year presentation.

Reclassifications have been made to conform with current year presentation.

New Accounting Pronouncements
  - ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, effective for years beginning after December 15, 2017. ASU 2016-01 was adopted on January 1, 2018 and the standard did not have a material effect on the consolidated financial statements or related disclosures
  - ASU 2016-02, Leases, effective for years beginning after December 15, 2019. We expect to adopt ASU 2016-02 beginning January 1, 2019 and are in the process of assessing the impact that this new guidance is expected to have on our consolidated financial statements and related disclosures.
  - ASU 2017-09, Compensation – Stock Compensation, effective beginning after December 31, 2017. ASU 2017-09 was adopted on January 1, 2018 and the standard did not have a material effect on the consolidated financial statements or related disclosures
  - ASU 2017-11, Earnings Per Share, effective beginning after December 15, 2018. We expect to adopt ASU 2017-11 beginning January 1, 2019 and are in the process of assessing the impact that this new guidance is expected to have on our consolidated financial statements and related disclosures.
  - ASU 2018-05, Income Taxes, effective beginning after December 15, 2017, was adopted on January 1, 2018 with no effect on our consolidated financial statements and related disclosures.
  - ASU 2018-07, Compensation-Stock Compensation (Topic 718), effective beginning after December 15, 2018 was adopted on July 1, 2018 and the standard did not have a material effect on the consolidated financial statements or related disclosures.

  

Management has elected to early adopt ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business effective at inception.

 

ASU 2016-18, Statement of Cash Flows: Restricted Cash (Topic 230). Topic 230 addressed how restricted cash was presented in the statement of cash flows. We adopted Topic 230 as of January 1, 2018 resulting in modifications as to the manner in which restricted cash transactions are presented in the statement of cash flows.

 

ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Topic 606 supersedes the revenue recognition requirements in Topic 605 and requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company’s primary source of revenue is from the sale of coal through both short-term and long-term contracts with utilities, industrial customers and steel producers whereby revenue is currently recognized when risk of loss has passed to the customer. During the fourth quarter of 2017, the Company finalized its assessment related to the new standard by analyzing certain contracts representative of the majority of the Company’s coal sales and determined that the timing of revenue recognition related to the Company’s coal sales will remain consistent between the new standard and the previous standard. The Company also reviewed other sources of revenue, and concluded the current basis of accounting for these items is in accordance with the new standard. The Company adopted ASU 2014-09 effective January 1, 2018 using the modified retrospective method, and there was no cumulative adjustment to retained earnings.

Management has determined that the impact of the following recent FASB pronouncements will not have a material impact on the financial statements.

 

  Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, effective for years beginning after December 15, 2017
  ASU 2015-11, Simplifying the Measurement of Inventory, effective for years beginning after December 15, 2016. Adoption of ASU 2015-11 did not have a material effect on the consolidated financial statements.
  ASU 2015-17, Balance Sheet Classification of Deferred Taxes, effective for years beginning after December 15, 2016. Adoption of ASU 2015-17 did not have a material effect on the consolidated financial statements or related disclosures.
  ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, effective for years beginning after December 15, 2017
  ASU 2016-02, Leases, effective for years beginning after December 15, 2019. We expect to adopt ASU 2016-02 beginning January 1, 2019 and are in the process of assessing the impact that this new guidance is expected to have on our consolidated financial statements and related disclosures.
  ASU 2016-18, Statement of Cash Flows: Restricted Cash, effective beginning after December 15, 2017
  ASU 2017-01, Business Combinations, effective beginning after December 15, 2017
  AUS 2017-09, Compensation – Stock Compensation, effective beginning after December 31, 2017
  ASU 2017-11, Earnings Per Share, effective beginning after December 15, 2018
  ASU 2018-05, Income Taxes, effective beginning after December 15, 2017. We expect to adopt ASU 2018-05 beginning January 1, 2018 and are in the process of assessing the impact that this new guidance is expected to have on our consolidated financial statements and related disclosures.

   

Management has elected to early adopt ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business effective at inception. See above in Note 1.

 

ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Topic 606 supersedes the revenue recognition requirements in Topic 605 and requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We adopted Topic 606 as of January 1, 2018 using the modified retrospective method of adoption. Implementation of Topic 606 caused no change in previously recognized revenue.

 

v3.10.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
9 Months Ended 12 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Schedule of restricted cash and cash equivalents
   

September 30,

2018

   

September 30,

2017

 
Cash   $ 57,739     $ 342,041  
Restricted Cash     286,043       189,012  
Total cash and restricted cash presented in the consolidated statement of cash flows   $ 343,782     $ 531,053  
 
Schedule of assets acquired and liabilities assumed  
    2017     2016  
Beginning Balance   $ 18,126,873     $ 8,586,464  
Accretion     1,791,051       1,664,774  
Reclamation work     (32,867 )     (185,647 )
McCoy Acquisition     -       3,561,848  
KCC Acquisition     -       4,499,434  
Ending balance   $ 19,885,057     $ 18,126,873  
Current portion of reclamation liability   $ 2,033,862     $ 519,489  
Long-term portion of reclamation liability   $ 17,851,195     $ 17,607,384  
Schedule of Asset Retirement Obligations
Balance at December 31, 2017   $ 19,885,057  
Accretion – nine months September 30, 2018     1,435,295  
Reclamation work – nine months September 30, 2018     (0 )
Asset disposition     (919,158 )
Point Rock Acquisition     2,098,052  
Wayland Acquisition     66,129  
Balance at September 30, 2018   $ 22,565,375  
 
Point Rock [Member]    
Schedule of assets acquired and liabilities assumed
Assets      
Mining Rights   $ 2,151,823  
Liabilities        
Vendor Payables   $ 53,771  
Asset Retirement Obligation   $ 2,098,052  
 
Wayland [Member]    
Schedule of assets acquired and liabilities assumed
Assets      
Mining Rights   $ 66,129  
Liabilities        
Asset Retirement Obligation   $ 66,129  
 
ICG Knott County [Member]    
Schedule of Asset Retirement Obligations  
Assets      
Cash   $ 2,380,000  
Underground Mining Equipment     1,533,937  
Surface Mining Equipment     206,578  
Land     178,683  
Coal Preparation and Loading Facilities     200,236  
Liabilities        
Asset Retirement Obligation   $ 4,499,434  
McCoy [Member]    
Schedule of Asset Retirement Obligations  
Assets      
Cash   $ 2,935,800  
Underground Mining Equipment     531,249  
Surface Mining Equipment     36,218  
Coal Preparation and Loading Facilities     58,681  
Liabilities        
Asset Retirement Obligation   $ 3,561,848  
v3.10.0.1
PROPERTY AND EQUIPMENT (Tables)
9 Months Ended 12 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Property And Equipment    
Property, Plant and Equipment
   

September 30,

2018

   

December 31,

2017

 
Processing and rail facility   $ 2,802,855     $ 2,914,422  
Underground equipment     9,346,692       8,887,045  
Surface equipment     4,532,724       3,957,603  
Mining rights (Less: accumulated amortization of $181,385)     2,036,567       -  
Land     -       178,683  
Less: Accumulated depreciation     (6,600,108 )     (4,820,569 )
                 
Total Property and Equipment, Net   $ 12,118,730     $ 11,117,184  
    2017     2016  
Processing and rail facility   $ 2,914,422     $ 2,914,422  
Underground equipment     8,887,045       7,500,512  
Surface equipment     3,957,603       3,751,054  
Land     178,683       178,683  
Less: Accumulated depreciation     (4,820,569 )     (2,262,855 )
                 
Total Property and Equipment, Net   $ 11,117,184     $ 12,081,816  
Property, Plant and Equipment, Estimated Useful Lives
Processing and Rail Facilities 20 years  
Surface Equipment 7 years  
Underground Equipment 5 years  
Mining Rights 5 years  
Processing and Rail Facilities   20 years
Surface Equipment   7 years
Underground Equipment   5 years
v3.10.0.1
NOTES PAYABLE (Tables)
9 Months Ended 12 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Notes Payable    
Schedule of note payable
Total debt balance as of December 31, 2017   $ 14,726,842  
         
During the nine-month period ended September 30, 2018, $2,450 ,000 was drawn from the ARC business loan which carries annual interest at 7%, is due within two months of advancement and is secure by all company assets. On June 4, 2018, $30,000 and September 28, 2018, $75,000 of this note was repaid.     2,450,000  
         
On January 25, 2018, QEI entered into an equipment loan agreement with an unrelated party in the amount of $346,660. The agreement calls for monthly payments of $11,360 until maturity date of December 24, 2020 and carries an interest rate of 9%. The loan is secured by the underlying surface equipment purchased by the loan. Loan proceeds were used directly to purchase equipment.     346,660  
         
On March 28, 2018, QEI entered into an equipment loan agreement with an unrelated party in the amount of $135,000. The agreement called for payments of $75,000 and $60,000 are due on April 6, 2018 and April 13, 2018, respectively, at which date the note was repaid in full. Loan proceeds were used directly to purchase equipment.     135,000  
         
On May 9, 2018, QEI entered into a loan agreement with an unrelated party in the amount of $1,000,000 with a maturity date of September 24, 2018 with monthly payments of $250,000 due beginning June 15, 2018. The note is secured by the assets and equity of the company and carries an interest rate of 0%.  Proceeds of the note were split between receipt of $575,000 cash and $425,000 payment for new equipment. No payments have been made on the note which is in default.     1,000,000  
         
During May 2018, the company entered into a financing arrangement with two unrelated parties. The notes totaled $2,859,500, carried an original issue discount of $752,535, interest rate of 33% and have a maturity date of January 2019 and are secured by future receivables as well as personal guarantees of two officers of the company.     2,963,958  
         
During the nine-month period ended September 30, 2018 net additions to the factoring agreement totaled $787,435.     787,435  
         
Total increases to debt     7,683,053  
         
Less cash payments     (2,064,902 )
         
In May 2018, an unrelated party forgave $315,000 of the $540,000 equipment loan agreement dated September 30, 2016.     (315,000 )
         
Issuance discount     (752,535 )
         
Amortization of issuance cost and loan discounts     420,134  
         
Ending debt balance at September 30, 2018   $ 19,697,592  
         
Less current portion:   $ 14,625,099  
         
Total long term debt at September 30, 2018   $ 5,072,493  

 

    2017     2016  
             
Equipment Loans - QEI            
             
Note payable to an unrelated company in monthly installments of $2,064, with interest at 8.75%, through maturity in March 2019, when the note is due in full. The note is secured by equipment and a personal guarantee by an officer of the Company.   $ 30,962     $ 50,235  
                 
Note payable to an unrelated company in monthly installments of $1,468, With interest at 6.95%, through maturity in March 2021, when the note is due in full. The note is secured by equipment and a personal guarantee by an officer of the Company     57,290       64,175  
                 
On September 8, 2017, Quest entered into an equipment purchase agreement with an unaffiliated entity, to purchase certain underground mining equipment for $600,000. The agreement provided for $80,000 paid upon execution, $30,000 monthly payments until the balance is paid in full.     460,000       0  
                 
On October 19, 2017, Quest entered into an equipment financing agreement with an unaffiliated entity, to purchase certain surface equipment for $90,400. The agreement calls for monthly payments until maturity of October 19, 2019 and interest of 9.95%.     88,297       0  

 

On October 20, 2017, Quest entered into an equipment financing agreement with an unaffiliated entity, to purchase certain surface equipment for $50,250. The agreement calls for monthly payments until maturity of October 20, 2019 and interest of 10.60%.     51,320       0  
                 
On December 4, 2017, Quest entered into an equipment financing agreement with an unaffiliated entity, to purchase certain surface equipment for $56,900. The agreement calls for monthly payments until maturity of January 7, 2021.     56,900       0  
                 
Business Loan - ARC                
                 
On October 4, 2017, ARC entered into a consolidated loan agreement with an unaffiliated entity. $5,444,632 has been advanced under the note. $1,300,000 of the note was advanced after December 31, 2017. The agreement calls for interest of 7% and with all outstanding amounts due on demand. The note is secured by all assets of Quest and subsidiaries. In conjunction with the loan, a warrants for up to 5,017,006 common shares were issued at an exercise price ranging from $.01 to $11.44 per share and with an expiration date of October 2, 2020. The loan consolidation was treated as a loan modification for accounting purposes giving rise to a discount of $140,000. The discount was amortized over the life of the loan with $105,000 included as interest expense and $35,000 included as a note discount as of December 31, 2017.     4,444,632       175,000  
                 
Equipment Loans – ERC                
                 
Equipment lease payable to an unrelated company in 48 equal payments of $771 with an interest rate of 5.25% with a balloon payment at maturity of June 30, 2019. The note is secured by equipment and a corporate guarantee from Quest Energy Inc. The equipment is being utilized as part of the management agreement referred to in Note 7. Therefore, the title of the assets are not held with ERC and there is a corresponding receivable due for the payment of this note.     27,288       35,644  
                 
Equipment lease payable to an unrelated company in 48 equal payments of $3,304 with an interest rate of 5.25% with a balloon payment at maturity of June 30, 2019. The note is secured by equipment and a corporate guarantee from Quest Energy Inc. The equipment is being utilized as part of the management agreement referred to in Note 7. Therefore, the title of the assets are not held with ERC and there is a corresponding receivable due for the payment of this note.     128,254       161,738  
                 
Equipment lease payable to an unrelated company in 48 equal payments of $2,031 with an interest rate of 5.25% with a balloon payment at maturity of August 13, 2019. The note is secured by equipment and a corporate guarantee from Quest Energy Inc. The equipment is being utilized as part of the management agreement referred to in Note 7. Therefore, the title of the assets are not held with ERC and there is a corresponding receivable due for the payment of this note.     36,890       60,541  

 

Equipment Loans - McCoy            
             
Equipment note payable to an unrelated company, with monthly payments of $150,000 in September 2016, October 2016, November 2016 and a final payment of $315,000 due in December 2016. No extensions have been entered into subsequent to December 31, 2017 resulting in the note being in default.     540,000       540,000  
                 
On May 2, 2017, Quest entered into an equipment purchase agreement with an unaffiliated entity, Inc. to purchase certain underground mining equipment for $250,000. Full payment was due September 12, 2017.     135,000       0  
                 
On June 12, 2017, Quest entered into an equipment purchase agreement with an unaffiliated entity, Inc. to purchase certain underground mining equipment for $22,500. Full payment was due September 12, 2017.     22,500       0  
                 
On September 25, 2017, Quest entered into an equipment purchase agreement with an unaffiliated entity, Inc. to purchase certain underground mining equipment for $350,000. The agreement provided for $20,000 monthly payments until the balance is paid in full.     330,000       0  
                 
Business Loans - McCoy                
                 
Business loan agreement with Crestmark Bank in the amount of $200,000, with monthly payments of 23,000, with an interest rate of 12%, through maturity in January 1, 2018. The note is secured by a corporate guaranty by the Company and a personal guaranty.     66,667       0  
                 
Seller Note - Deane                
                 
Deane Mining - promissory note payable to an unrelated company, with monthly interest payments of $10,000, at an interest rate of 6%, beginning June 30, 2016. The note is due December 31, 2017. No payments have been made on the note and no extensions have been entered into subsequent to December 31, 2017, resulting in the note being in default.     2,000,000       2,000,000  
                 
Accounts Receivable Factoring Agreement                
                 
McCoy, Deane and Knott County secured accounts receivable note payable to a bank. The agreement calls for interest of .30% for each 10 days of outstanding balances. The advance is secured by the accounts receivable, corporate guaranty by the Company and personal guarantees by two officers of the Company. The agreement ends in October 2018     1,582,989       1,616,167  
                 
Kentucky New Markets Development Program                
                 
Quest Processing - loan payable to Community Venture Investment XV, LLC, with interest only payments due quarterly until March 2023, at which time quarterly principal and interest payments are due. The note bears interest at 3.698554% and is due March 7, 2046. The loan is secured by all equipment and accounts of Quest Processing. See Note     4,117,139       4,117,139  
                 
Quest Processing - loan payable to Community Venture Investment XV, LLC, with interest only payments due quarterly until March 2023, at which time quarterly principal and interest payments are due. The note bears interest at 3.698554% and is due March 7, 2046. The loan is secured by all equipment and accounts of Quest Processing. See Note     1,026,047       1,026,047  
                 
Less: Debt Discounts and Loan Issuance Costs     (475,333 )     (451,389 )

 

Affiliate Notes            
             
Notes payable to affiliate, due on demand with no interest and is uncollateralized. Equipment purchasing was paid by an affiliate resulting in the note payable.   $ 74,000     $ 74,000  
                 
During July 2017, an officer of the Company advanced $50,000 to Quest. The advance is unsecured, non interest bearing and due on demand.   $ 50,000     $ 0  
                 
      14,850,842       9,469,947  
Less: Current maturities     9,769,154       4,505,006  
                 
Total Long-term Debt   $ 5,081,688     $ 4,964,941  

 

Schedule of Future Minimum Lease Payments for Capital Leases  
Payable In   Loan Principal     Lease Principal     Total Loan and Lease Principal     Lease Interest  
                         
2018     9,704,444       64,710       9,769,154       8,560  
2019     312,707       125,798       438,505       3,722  
2020     37,283       -       37,283       -  
2021     10,491       -       10,491       -  
2022     -       -       -       -  
Thereafter     4,595,409               4,595,409          
v3.10.0.1
EQUITY TRANSACTIONS (Tables)
9 Months Ended 12 Months Ended
Sep. 30, 2018
Dec. 31, 2017
Equity Transactions    
Schedule of Stockholders' Equity Note, Warrants
    9/30/2018  
Expected Dividend Yield   0%  
Expected volatility   120%  
Risk-free rate   1.4%  
Expected life of warrants   3-5 Years  

 

          Weighted     Weighted        
          Average     Average     Aggregate  
    Number of     Exercise     Contractual     Intrinsic  
    Warrants     Price     Life in Years     Value  
Outstanding - December 31, 2017     5,364,230     $ 2.638       2.835     $ 138,069  
Exercisable - December 31, 2017     5,364,230     $ 2.638       2.835     $ 138,069  
Granted     886,830     $ 1.000       6.388     $ 5,386,975  
Forfeited or Expired     -       -       -       -  
Exercised     -     $ -       -       -  
Outstanding - September 30, 2018     6,251,060     $ 2.432       2.474     $ 31,556,641  
Exercisable - September 30, 2018     5,639,230     $ 2.590       1.982     $ 27,836,687  

          Weighted     Weighted        
          Average     Average     Aggregate  
    Number of     Exercise     Contractual     Intrinsic  
    Warrants     Price     Life in Years     Value  
Outstanding – December 31, 2015     -       -       -       -  
Exercisable - December 31, 2015     -       -       -       -  
Granted     -       -       -       -  
Forfeited or Expired     -       -       -       -  
Outstanding - December 31, 2016     -       -       -       -  
Exercisable - December 31, 2016     -       -       -       -  
Granted     6,343,833     $ 2.317       2.706     $ 174,253  
Forfeited or Expired     979,603     $ 0.560       1.997     $ 36,184  
Exercised     -       -       -       -  
Outstanding - December 31, 2017     5,364,230     $ 2.638       2.835     $ 138,069  
Exercisable - December 31, 2017     5,364,230     $ 2.638       2.835     $ 138,069  
v3.10.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)
Sep. 30, 2018
Dec. 31, 2017
Sep. 30, 2017
Dec. 31, 2016
Summary Of Significant Accounting Policies Details Abstract        
Cash $ 57,739 $ 186,722 $ 342,041 $ 784,525
Restricted Cash 286,043 $ 198,943 189,012 $ 141,102
Total cash and restricted cash presented in the consolidated statement of cash flows $ 343,782   $ 531,053  
v3.10.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($)
Sep. 30, 2018
Aug. 23, 2018
Dec. 31, 2017
Dec. 31, 2016
Assets        
Underground Mining Equipment $ 9,346,692   $ 8,887,045 $ 7,500,512
Land 0   178,683 $ 178,683
Point Rock [Member]        
Assets        
Mining Rights 2,151,823      
Liabilities        
Vendor Payables 53,771      
Asset Retirement Obligation 2,098,052      
Wayland [Member]        
Assets        
Mining Rights 66,129      
Liabilities        
Asset Retirement Obligation $ 66,129      
KCC [Member]        
Liabilities        
Asset Retirement Obligation   $ 919,158    
ICG Knott County [Member]        
Assets        
Cash     2,380,000  
Underground Mining Equipment     1,533,937  
Surface Mining Equipment     206,578  
Land     178,683  
Coal Preparation and Loading Facilities     200,236  
Liabilities        
Asset Retirement Obligation     4,499,434  
McCoy [Member]        
Assets        
Cash     2,935,800  
Underground Mining Equipment     531,249  
Surface Mining Equipment     36,218  
Coal Preparation and Loading Facilities     58,681  
Liabilities        
Asset Retirement Obligation     $ 3,561,848  
v3.10.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - USD ($)
3 Months Ended 9 Months Ended 12 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Dec. 31, 2017
Dec. 31, 2016
Summary Of Significant Accounting Policies Details 2Abstract            
Beginning Balance     $ 19,885,057 $ 18,126,873 $ 18,126,873 $ 8,586,464
Accretion Expense $ 539,771 $ 339,288 1,435,295 $ 1,181,055 1,791,051 1,664,774
Reclamation work     0   (32,867) (185,647)
Asset disposition     (919,158)      
Point Rock Acquisition     2,098,052      
Wayland Acquisition     66,129      
McCoy Acquisition         0 3,561,848
KCC Acquisition         0 4,499,434
Ending Balance 22,565,375   22,565,375   19,885,057 18,126,873
Current portion of reclamation liability 2,275,848   2,275,848   2,033,862 519,489
Long-term portion of reclamation liability $ 20,289,527   $ 20,289,527   $ 17,851,195 $ 17,607,384