American Resources Corp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

American Resources Corporation (ARC or the Company) operates through subsidiaries that were formed or acquired in 2020, 2019, 2018, 2016 and 2015 for the purpose of acquiring, rehabilitating and operating various natural resource assets including coal used in the steel making and industrial markets, critical and rare earth elements used in the electrification economy and aggregated metal and steel products used in the recycling industries.

Basis of Presentation and Consolidation*:*

The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries American Carbon Corp (ACC), Deane Mining, LLC (Deane), ERC Mining Indiana Corp (ERC), McCoy Elkhorn Coal LLC (McCoy), Knott County Coal LLC(KCC), Wyoming County Coal (WCC), Perry County Resources LLC (PCR), reElement Technologies LLC (RLMT), ReElement Marion LLC (RLM), Kentucky Lithium LLC (KYL), American Metals LLC (AM) , American Opportunity Venture II, LLC (AOV II), Advanced Carbon Materials LLC (ACM), and T.R. Mining & Equipment Ltd. (TR Mining). All significant intercompany accounts and transactions have been eliminated.

Entities for which ownership is less than 100% require that a determination is made as to 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 be primary.

Effective February 5, 2024, the Company acquired a 51% interest in TR Properties & Equipment Ltd. (TR) for consideration consisting of a 6% interest in the Company’s subsidiary, American Carbon Corporation (ACC). The Company’s investment in TR substantially consists of a single asset, mining rights. Accordingly, the transaction does not meet the definition of a business under ASC Topic 805, Business Combinations, and therefore the Company will account for the transaction as an asset acquisition. In an asset acquisition, goodwill or a bargain purchase gain are not recognized, but rather, any difference between the consideration transferred and the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable assets acquired. As of September 30, 2024, a preliminary allocation for this transaction has not been recorded as valuation procedures are pending with respect to the fair value of the assets acquired and consideration exchanged.

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 accompanying unaudited consolidated balance sheet as of September 30, 2024, unaudited consolidated statements of operations, changes in stockholders’ deficit and cash flows for the quarters ended September 30, 2024 and 2023 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information with the instructions to Form 10-Q. The accompanying balance sheet as of December 31, 2023, has been derived from the audited balance sheet as of December 31, 2023, included in the Company’s Form 10-K referenced below. However, the amounts presented herein reflect adjustments identified during the preparation of these unaudited financial statements for the period ending September 30, 2024, which resulted in the restatement of the December 31, 2023, financial statements.

These restatements correct previously reported amounts and incorporates all normal and recurring adjustments considered necessary for a fair presentation of the Company’s financial position and operating results. The accompanying balance sheet does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the financial statements include all normal and recurring adjustments considered necessary for a fair presentation of the Company’s financial position and operating results. Operating results for the three months and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or any other period. These financial statements and notes should be read in conjunction with the financial statements for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, or the SEC, on April 15, 2024.

Business Combination Agreement

On June 28, 2024, American Metals LLC, an Indiana limited liability company (the “Metals LLC”) and a wholly owned subsidiary of American Resources Corporation, and Electrified Materials Corporation, a Delaware corporation (“Pubco”), entered into a Business Combination Agreement (the “Business Combination Agreement”) with AI Transportation Acquisition Corp., a Cayman Islands exempted company (together with its successors, “AITR”), (iii) AITR Merger Sub 1 Corp, a Delaware corporation and a wholly-owned subsidiary of Pubco (“Merger Sub 1”), (iv) AITR Merger Sub 2 Corp, a Delaware corporation and a wholly-owned subsidiary of Pubco (“Merger Sub 2”), and (v) AITR, Pubco, Merger Sub 1, Merger Sub 2 and the Metals LLC are sometimes referred to herein individually as a “Party” and, collectively, as the “Parties.”

Pursuant to the Business Combination Agreement, subject to the terms and conditions set forth therein, at the closing of the transactions contemplated by the Business Combination Agreement (the “Closing Date”), on the Closing Date, prior to the time at which the First Effective Time occurs, AITR shall transfer by way of continuation from the Cayman Islands to Delaware and domesticate as a Delaware corporation (the “Domestication”) in accordance with Section 388 of the General Corporation Law of the State of Delaware (the “DGCL”) and Part XII of the Cayman Islands Companies Act (2020 Revision) (the “Cayman Islands Act”), on the terms and subject to the conditions set forth in the Business Combination Agreement.

Following the Domestication, the Parties will effect a business combination transaction whereby (a) AITR will merge with and into Merger Sub 1, with AITR continuing as the surviving entity (“Merger 1”), as a result of which, (i) AITR shall become a wholly-owned subsidiary of Pubco, and (ii) each issued and outstanding security of AITR immediately prior to the Closing Date shall no longer be outstanding and shall automatically be cancelled, in exchange for the right of the holder thereof to receive a substantially equivalent security of Pubco; (b) the Metals LLC will merge with and into Merger Sub 2, with the Metals LLC continuing as the surviving entity (“Merger 2”) as a result of which, (i) the Metals LLC shall become a wholly-owned subsidiary of Pubco; and (c) Pubco shall (i) acquire all of the issued and outstanding shares of common stock of the Metals LLC from its shareholders in exchange for shares of common stock of Pubco (the “Share Exchange”); and (d) Pubco will contribute its membership interest in the Metals LLC to AITR in exchange for shares of Pubco (the “Metals LLC Units Contribution” and, together with the Share Exchange, Merger 1, Merger 2, and the other transactions contemplated by the Business Combination Agreement, the “Transactions”), all upon the terms and subject to the conditions set forth in the Business Combination Agreement and in accordance with the applicable provisions of Delaware and Indiana law.

At the Closing Date, Pubco will issue and deliver to the shareholders of the Metals LLC an aggregate number of shares of common stock of Pubco (the “Pubco Common Stock”) with an aggregate value equal to One Hundred Million U.S. Dollars ($100,000,000) (the “Share Consideration”) plus the Closing Cash (defined as cash on the Metals LLC’s balance sheet as of immediately prior to Closing Date) minus Net Working Capital (as such term is defined in the Business Combination Agreement) less the Closing Debt (defined as the indebtedness of the Metals LLC on the Closing Date, less: (i) indebtedness that, by its terms, converts automatically into equity and (ii) any Transaction expenses), with each share of Pubco Common Stock valued at $10.00. In addition to the Share Consideration, the Business Combination Agreement provides for the potential payment of up to $70,000,000 in earnout consideration (the “Earnout Consideration”) to be issued and delivered to the shareholders of the Metals LLC at the Closing Date as provided in the Business Combination Agreement provided certain revenue targets are satisfied. Each Metals LLC shareholder shall receive its pro rata share of the Share Consideration based on the number of equity units (the “Metals LLC Units”) of Metals LLC owned by it, divided by the total number of Metals LLC Units outstanding (such percentage being each such holder’s “Pro Rata Share”). Each holder of Metals LLC Units shall also be entitled to receive its Pro Rata Share of the Earnout Consideration.

As of the date of this filing, the business combination agreement has not effectively close and Metals LLC is included in the accompanying consolidated financial statement included herein for all periods disclosed.

Going Concern

The Company has evaluated whether there are any conditions and events considered in the aggregate, which raise substantial doubt about its ability to continue as a going concern within one year beyond the issuance date of these financial statements. Based on such evaluation and the Company’s current plans, which are subject to change, and the Company’s existing liquidity, there is substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the date these financial statements were issued.

The accompanying financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.

The Company’s continuation as a going concern is contingent upon its ability to obtain additional financing and to generate revenue and cash flow to meet its obligations on a timely basis. The Company will continue to seek to raise additional funding through debt or equity financing during the next twelve months from the date of issuance of these financial statements. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern. There is no guarantee the Company will be successful in achieving these objectives.

Restatement of December 31, 2023 and 2022 Financial Statements

As previously disclosed in the American Resources Corporation (the “Company”) Form 8-K filed with the Securities and Exchange Commission (“SEC”) on May 3, 2024, following the entry of a cease-and-desist order by the SEC against the Company’s former auditor, BF Borgers CPA PC (“BF Borgers”), the Company engaged a new independent registered public accounting firm, GBQ Partners LLC (“GBQ”), and commenced the re-audit of our consolidated financial statements for the years ended December 31, 2023 and 2022, which had previously been audited by BF Borgers. As a result of the re-audit and based on discussion between the audit committee of the board of directors of the Company, management and GBQ, the Company concluded that the Company’s previously issued financial statements and interim periods as of and within the years ended December 31, 2024, 2023 and 2022 (collectively the “Previously Issued Financial Statements”) require restatement and can no longer be relied upon. It is expected that the restatement of the consolidated financial statements for the annual period referred to above will result in a material increase in net loss, material decrease in total assets, material increase in total liabilities and material decrease in stockholders’ equity in 2022 and 2023.

The accounting errors impacting our Previously Issued Financial Statements currently include (i) the lease transactions whereby the Company sold heavy machinery and equipment to a third-party lessor and leased back the heavy machinery and equipment as finance leases. The company has determined these lease transactions would be classified as a failed sale-leaseback transaction and accounted for as financing obligations as the Company has the option to repurchase the assets at a fixed price at the end of the term; (ii) the Company added back the fixed assets associated with the lease transaction and continue to depreciate them over their useful lives; (iii) the investments in other companies were incorrectly held at cost and didn’t account for the subsequent earnings or losses in accordance with the equity method; (iv) correct the historical and subsequent accounting for debt obligations; (v) correcting historical fiscal 2023 stock compensation transactions; (vi) missing related party operating and finance leases for the interim periods ending March 31, 2024 and June 30, 2024; (vii) missing interest income related to notes receivable – related party; and (viii) missing capitalized assets previously expensed as incurred.

The Company anticipates filing the restatements of the Previously Issued Financial Statements as soon as reasonably practical in an amended annual report on Form 10-K/A for the period ended December 31, 2023.

Refer to the financial statements included herein which present the impact of the restatement of the Company’s previously reported consolidated balance sheet and consolidated stockholders’ deficit for the year ended December 31, 2023 and the statement of operations and statement of cashflow for the three and nine months ended June 30, 2023.

Cash, Cash Equivalents and Restricted cash: Cash and cash equivalents include bank demand deposits and money market funds that invest primarily in U.S. government securities.

Restricted cash and cash equivalents are held in trusts related to the Tax-Exempt Bonds and are restricted as to withdrawal as required by the agreement entered into by the Company. All investments are classified as trading securities as of September 30, 2024 and December 31, 2023. Trading securities are recorded initially at cost and are adjusted to fair value at each reporting period with unrealized gains and losses recorded in the current period earnings or loss.

The following table sets forth the total of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets.

**Restricted Investments:**Consist of U.S. government securities, corporate fixed income, and U.S. government securities that are held in trusts related to the Tax-Exempt Bonds and are restricted as to withdrawal as required by the agreement entered into by the Company. All investments are classified as trading securities as of September 30, 2024 and December 31, 2023. Trading securities are recorded initially at cost and are adjusted to fair value at each reporting period with unrealized gains and losses recorded in the current period earnings or loss.

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, and or immediate family member and affiliated businesses of any of the proceedings.

***Property and Equipment:***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 five to twenty years.

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.

There was no impairment loss recognized during the period ending September 30, 2024, and the twelve months ended December 31, 2023. 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 coal deposits or proven reserves. Costs incurred for the development and expansion of existing reserves are expensed as incurred.

Coal Production and Holdings Costs*:*Coal production and holdings costs for coal mined and processed include direct labor, materials and utilities. Activities related to metal recovery are inherent in both direct coal labor and overhead labor and do not require additional variable costs.

***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 based on expected reclamation outflows over estimated recoverable coal deposit lives. We are using discount rates ranging from 6.16% to 7.22%, risk free rates ranging from 1.76% to 2.92% and inflation rate of 2%. Revisions to estimates are a result of changes in the expected spending estimate or the timing of the spending estimate associated with planned reclamation. 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, changes in our estimated reclamation costs and changes in the estimated timing of such costs. Management is currently in the process of assessing the ARO for the fiscal year and will include revisions if any during the fourth quarter of 2024.

The table below reflects the changes to our ARO for the nine months ended September 30, 2024 and the twelve months ended December 31, 2023:

Accretion expense amounted to $248,295 and $248,289 for the three months ending September 30, 2024 and 2023.

Accretion expense amounted to $744,877 and $744,873 for the nine months ending September 30, 2024 and 2023, respectively.

Revenue Recognition: Revenue is recognized when performance obligations under the terms of a contract with our customers are satisfied; for all contracts this occurs when control of the promised goods have been transferred to our customers. For coal shipments to domestic and international customers via rail, control is transferred when the railcar is loaded. Our revenue is comprised of sales of mined coal, sales of recovered metals and services for processing coal.

All the activity is undertaken in eastern Kentucky, Western West Virginia, and Southern Indiana. Revenue from metal recovery and sales are recognized when conditions within the contract or sales agreement are met including transfer of title. Revenue from coal processing and loading are recognized when services have been performed according to the contract in place. Our coal sales generally include 10 to 30-day payment terms following the transfer of control of the goods to the customer. We typically do not include extended payment terms in our contracts with customers. Our contracts with customers typically provide for minimum specifications or qualities of the coal we deliver. Variances from these specifications or quantities are settled by means of price adjustments. Generally, these price adjustments are settled within 30 days of delivery and are insignificant.

***Income Taxes:***We file a consolidated federal income tax return with our subsidiaries. The provision for income taxes is computed by applying statutory rates to income before taxes.

Deferred income taxes are recognized for the tax consequences in future years of temporary differences between the financial reporting and tax bases of assets and liabilities as of each period-end based on enacted tax laws and statutory rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. A 100% valuation allowance has been established on deferred tax assets at September 30, 2024 and December 31, 2023, due to the uncertainty of our ability to realize future taxable income.

We account for uncertainty in income taxes in our financial statements as required under ASC 740, “Income Taxes.” The standard prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition accounting. Management determined there were no material uncertain positions taken by us in our tax returns.

Fair Value: The Company follows the provisions of Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), which defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

Note 4 presents the Company’s financial assets or liabilities measured at fair value as of September 30, 2024 and December 31, 2023. The carrying amounts of the Company’s cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their fair value at September 30, 2024 and December 31, 2023 due to their short-term nature.

Leases: The Company reviews all arrangements for potential leases, and at inception, determines whether a lease is an operating or finance lease. Lease assets and liabilities, which generally represent the present value of future minimum lease payments over the term of the lease, are recognized as of the commencement date. Leases with an initial lease term of twelve months or less are classified as short-term leases and are not recognized in the balance sheets unless the lease contains a purchase option that is reasonably certain to be exercised.

Lease terms, discount rate, variable lease costs and future minimum lease payment determinations require the use of judgment and are based on the facts and circumstances related to the specific lease. Lease terms are generally based on their initial non-cancelable terms, unless there is a renewal option that is reasonably certain to be exercised. Various factors, including economic incentives, intent, past history and business needs are considered to determine if a renewal option is reasonably certain to be exercised. The implicit rate in a lease agreement is used when it can be determined to value the lease obligation. Otherwise, the Company’s incremental borrowing rate, which is based on information available as of the lease commencement date, including applicable lease terms and the current economic environment, is used to determine the value of the lease obligation.

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 current expected credit loss model requires the recognition of lifetime expected credit losses at each reporting date, considering past events, current conditions, and reasonable forecasts. In assessing the credit quality of our portfolio, management utilizes a provision matrix that classifies trade receivables by customer type and age of receivable. Government and education sector receivables carry a low risk, while a higher risk is attributed to the remaining receivables as their aging progresses. For receivables with questionable collectability, a specific reserve is assigned. The estimated credit losses are a reflection of these factors, with the matrix applying percentages to the receivables based on their risk profile, adjusted for current and expected future conditions.

Allowance for trade receivables as of September 30, 2024 and December 31, 2023 was $0 and $253,764, respectively. The allowance for note receivables was $99,022 and $368,500 as of September 30, 2024 and December 31, 2023. The note receivables has collateral in certain mining permits which are strategic to our subsidiary, Knott County Coal (KCC). The timing of payment on the note is uncertain resulting in a full allowance for the note.

Inventory:* *Inventory consists 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-based compensation to employees is accounted for under ASC 718, Compensation-Stock Compensation. Stock-based compensation expense related to stock awards granted to an employee is recognized based on the grant-date estimated fair values of the awards using the Black Scholes option pricing model (“Black Scholes”). The value is recognized as expense ratably over the requisite service period, which is generally the vesting term of the award. We adjust the expense for actual forfeitures as they occur. Stock-based compensation expense is classified in the accompanying consolidated statements of operations based on the function to which the related services are provided.

Black-Scholes requires a number of assumptions, of which the most significant are expected volatility, expected option term (the time from the grant date until the options are exercised or expire) and risk-free rate. Expected volatility is determined using the historical volatility for the Company. The risk-free interest rate is based on the yield of US treasury government bonds with a remaining term equal to the expected life of the option. Expected dividend yield is zero because we have never paid cash dividends on common shares, and we do not expect to pay any cash dividends in the foreseeable future.

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.

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.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which, among other updates, requires enhanced disclosures about significant segment expenses regularly provided to the chief operating decision maker, as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, and requires retrospective adoption. Early adoption is permitted. The Company is evaluating the impact of ASU 2023-07 on its consolidated financial statements and the related disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which requires enhanced annual disclosures with respect to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and may be adopted on a prospective or retrospective basis. Early adoption is permitted. The Company is evaluating the impact of ASU 2023-07 on its consolidated financial statements and the related disclosures.

NOTE 2 - PROPERTY AND EQUIPMENT

As of September 30, 2024 and December 31, 2023, property and equipment were comprised of the following:

Depreciation and amortization expense amounted to $886,186 and $2,579,115 for the three and nine months ended September 30, 2024. Depreciation and amortization expense amounted to $893,886 and $2,712,299 for the three and nine months ended September 30, 2023.

The estimated useful lives are as follows:

NOTE 3 – INVESTMENTS IN TRADING SECURITIES

Investments in trading securities consist of U.S. government and agency securities and fixed income funds that are by the Company or held in trusts related to the Company’s tax-exempt bonds. These investments held by a trust related to the Company’s tax-exempt bonds are classified as restricted cash and cash equivalents and as restricted investment on the accompanying balance sheets. All other securities are classified as short-term investments on the accompanying balance sheet. The short-term investment securities are classified as trading securities and, accordingly, the unrealized gains and losses are recorded in current period earnings or loss.

The Company’s investments in available-for-sale marketable securities are as follows:

There were no investments with unrealized losses that have been owned for more than or less than a year.

The debt securities outstanding as of September 30, 2024 have maturity dates ranging from the fourth quarter of 2024 through the second quarter of 2025.

NOTE 4 – FAIR VALUE MEASUREMENTS

The following tables set forth the Company’s financial instruments that were measured at fair value:

NOTE 5 – RIGHT OF USE ASSETS AND LEASES

The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use assets (“ROU”), operating lease liabilities, and operating lease liabilities, non-current. Finance leases are included in right-of-use assets, finance lease liabilities, and finance lease liabilities, non-current. Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As substantially all of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at lease commencement date in determining the present value of future payments. Incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. The ROU assets also include any prepaid lease payments made and initial direct costs incurred and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease, which is recognized when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Our principal offices are located at 12115 Visionary Way, Fishers, Indiana 46038. We pay $8,954 per month in rent for the office space and the rental lease expires December 2032. The rent is subject to escalation payments on an annual basis.

We also rent office space from an affiliated entity, LRR, at 11000 Highway 7 South, Kite, Kentucky 41828 with monthly rent of $1,702 per month and a lease expiration of December 31, 2029.

During the year, the Company entered into related party operating and financing leases with Land Resources & Royalties (LRR) for real estate, facilities and equipment. The Company has three related party operating leases between American Metals and LRR that were entered into in January 2024, each with a term of 5 years and the option to automatically extend the related party operating leases for an additional year. These related party operating leases are located in Hazard, KY, Marion, IN and Tract LRR-102.101 lying on the waters of the West Fork of the White River and have amonthly rent of $263, $20,058 and $20,000, respectively. The related party operating lease located in Marion, IN is subject to escalating rent payments of 2.5% per year. The first nine months of rent for the three related party operating leases is deferred per the lease agreements and is due on the thirteenth month or January 1, 2025. As of September 30, 2024, $245,724 has been accrued and is included in accounts payable – related party.

The Company has one related party finance lease that was entered into in April 2024 and has a term of 30 years and the option to automatically extend the lease for an additional 10 years that the Company determined it is probable to execute the extension and thus is included in the ROU asset and lease liability consideration. The related party finance lease has monthly rent of $113,773 that increases 2.5% per year. The Company has not made any payments on the related party finance lease as of September 30, 2024 and has a balance of $708,860 due for deferred rent payments included in accounts payable – related party.

The components of lease expense included on the Company’s statements of operations, inclusive of the related party component were as follows:

Other information related to leases is as follows:

The future minimum lease payments required under leases for nine months ended September 30, 2024 were as follows:

NOTE 6 - RELATED PARTY TRANSACTIONS

On February 13, 2020, the Company entered into a Contract Services Agreement with Land Betterment Corp, an entity controlled by certain members of the Company’s management who are also directors and shareholders. The contract terms state that service costs are passed through to the Company with a 12.5% mark-up and a 50% share of cost savings. The agreement covers services across all of the Company’s properties. For the three and nine months ended September 30, 2024, the amounts incurred under the agreement amounted to $1,019,087 and $3,330,119 and for the three and nine months ended September 30, 2023, the amounts incurred were $1,269,115 and $3,199,519. The amount paid for the three and nine months ended September 30, 2024 amounted to $1,523,112 and $4,275,867 and for the three and nine months ended September 30, 2023 $1,373,000 and $4,952,800. As of September 30, 2024 and December 31, 2023, the amount due under the agreement amounted to $1,750,433 and $2,883,181.

The Company is the holder of 2,000,000 LBX Tokens with a par value of $250 for each token. The token issuance process is undertaken by a related party, Land Betterment, and is predicated on proactive environmental stewardship and regulatory bond releases. As of September 30, 2024 and December 31, 2023, there is no market for the LBX Token and therefore no value has been assigned.

On June 11, 2020 the Company purchased $1,494,570 of secured debt including accrued interest that had been owed to Samuel Coal Holding Corp., by its operating subsidiary Samuel Coal Corp. As a result of the transaction, the Company is now the creditor on the four notes. The first note in the amount of $75,000 is dated June 28, 2013, carries an interest rate of 12% and was due on June 28, 2015. The second note in the amount of $150,000 is dated June 28, 2013, carries an interest rate of 12% and was due June 28, 2015. The third note in the amount of $199,500 is dated March 18, 2014, carries an interest rate of 4% and was due on March 18, 2016. The fourth note in the amount of $465,500 is dated March 18, 2014, carries an interest rate of 4% and was due on March 18, 2016. The notes are in default and have been fully impaired due to collectability uncertainty.

On October 24, 2016, the Company sold certain mineral and land interests to a subsidiary of an entity, Land Resources & Royalties, LLC (“LRR”), owned by members of the Company’s management. LRR leases various parcels of land to ACC 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. 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. As of September 30, 2024 and December 31, 2023, amounts owed to LRR totaled $894,172 and $509,129, respectively.

The Company was the sponsor of American Opportunity Ventures LLC (“AMAO”) a blank check company organized on January 20, 2021 and effectuated its business combination with Royalty Management Corporation (“RMCO”) on October 23, 2023 and at that point changed its name to Royalty Management Holding Corporation. The Company provided AMAO with money as needed for working capital needs. The advances from the Company are non-interest bearing and payable upon demand by the Company. The Company made cash advances to AMAO of $143,319 and $531,613 for the three and nine months ended September 30, 2023. No cash advances were made in 2024. As of September 30, 2024 and December 31, 2023, the Company had a balance of $741,243 due from RMCO.

In January 2024, American Metals, LLC, a subsidiary of the Company entered into three separate commercial lease agreements with LRR to rent office space and property located in Hazard, KY, Marion, IN and Fisher, IN. Refer to Note 5 for further information related to the related party operating leases.

On January 13, 2023, ReElement Technologies Corporation, a subsidiary of the Company, entered into a Line of Credit Agreement with LRR in the amount of $1,100,000 (the “Line of Credit”). Refer to Note 8 for further information on the convertible promissory notes.

On May 15, 2023, ReElement Technologies entered into a commercial lease agreement with LRR to rent property located in Marion, IN. Under the terms of the agreement, the Company is subject to monthly payments duringthe thirty (30) year lease term with an option to automatically extend the lease for ten (10) years. The Company anticipates extending the finance lease and has include the assumption in the Company’s accounting for the related party finance lease.

NOTE 7 - INVESTMENTS IN OTHER ENTITIES - RELATED PARTIES

The Company accounts for its investments and membership interest in other entities under the equity method of accounting if the Company has the ability to exercise significant influence, but not control, over the entity. Equity method investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investments may not be recoverable.

Royalty Management Co.

During January 2021, the company invested $2,250,000 for 50% ownership and became the managing member of American Opportunity Venture, LLC. (AOV) It has been determined that AOV is a variable interest entity and that the Company is the primary beneficiary, therefore AOV has been consolidated into the Company’s financial statement. As such, AOV’s sole investment in Royalty Management Co (RMCO) will be accounted for using the equity method of accounting. The sole investment was initially in American Acquisition Opportunity Inc (AMAO) a SPAC that closed its reverse merger with RMCO effective October 31, 2023. The Company recognizes the earnings or losses on a three-month lag to ensure consistency and timely filling of the Company’s financial statements. As of December 31, 2023 and September 30, 2024 the Company held 3,076,500 shares of Class A common stock in RMCO.

Novusterra, Inc.

On March 31, 2021, the Company entered into a Graphene Development Agreement with Novusterra, Inc (Novusterra), a related party, that provided a nonexclusive sublicense for fifty percent (50%) of the operating profits from Novustera’s Graphene manufacturing and marketing business activity. As part of the agreement, Novusterra’s Chairman of the Board of Directors at the time was replaced by the Company’s Mark Jensen, Chief Executive Officer and Chairman of the Board of Directors.

On August 30, 2022, we entered into a purchase agreement to sell the exclusive rights of the patent patents included in the Graphene Development Agreement for 4,000,000 common shares of Novusterra with a fair market value of $1,784,000 in stock of Novusterra. As part of the sale of the exclusive rights to the patents, Andrew Weeraratne resigned as director and CEO of Novusterra and Gregory Jensen, the Company’s general counsel, joined Novusterra as CEO and Director and Mark Jensen resigned as Chairman of the Board of Directors. Pursuant to the purchase agreement, Novusterra is no longer obligated to pay the Company fifty percent (50%) of the operating profits from their Graphene manufacturing and marketing business. However, Novusterra is still obligated to pay the Company ten percent (10%) of all revenue from the exclusive sublicense with Kenai Defense Company, LLC and for the Department of Defense under the contract that was transferred from the Company to Novusterra. Any subsequent contracts entered into by Novusterra with Kenai Defense Company, LLC and for the Department of Defense will have no future revenue allocations to the Company.

It has been determined that Novusterra is a variable interest entity and that the Company is not the primary beneficiary. As such, the investment in Novusterra has been accounted for using the equity method of accounting.

Effective March 6, 2024, the Company issued a special dividend to all stockholders on record of 91% of the Company’s ownership in Novusterra, Inc. resulting in the Company to receive 9% of future cash flows and holding 1,417,500 common shares of Novusterra, Inc. Due to the Company new ownership in Novusterra, Inc. the investment is accounted for using the cost method of accounting.

As of September 30, 2024 and December 31, 2023, the carrying value of the investment was $0 and $1,598,480.

FUB Mineral LLC

On October 1, 2021, the Company contributed $250,000 for a 23% ownership in FUB Mineral LLC (FUB). Simultaneously the Company issued a promissory note FUB for $350,000, this note was fully repaid as of April 15, 2022. On February 2, 2022, the Company issued a new promissory note for $535,000 to FUB with an interest rate of 10% and maturity date of February 1, 2023, which has been extended by the Company through the end of August 2024. As of September 30, 2024 and December 31, 2023, the Company had a note receivable balance of $0 and $99,022, respectively. The Company recorded an allowance for the full remaining balance of the note receivable as it was doubtful to receive payment as of September 30, 2024.

Advanced Magnet Lab, Inc

On December 21, 2022 the Company issued a convertible promissory note to Advanced Magnet, Inc. (“AML”) for $2a 10,000 with 10% interest rate that compounds monthly. The Company’s Chief Executive Officer is a director of AML The convertible promissory note may be prepaid at any time. The Company has the option to convert the principal amounts of the convertible promissory note at a share price of $1.50 per share. As of September 30, 2024 and December 31, 2023, the Company had a note receivable balance of $280,000.

NOTE 8 - NOTES & BONDS PAYABLE

Notes Payable

On September 25, 2017, the Company entered into an equipment purchase agreement, which carries 0% interest with an unaffiliated entity (“September 2017 Note”) to purchase certain underground mining equipment for $350,000. The agreement provided monthly payments of $20,000 until the balance is paid in full. The note matured on September 25, 2019 and is secured by the equipment purchased with the note. As of September 30, 2024 and December 31, 2023, the note is in default. As of both September 30, 2024 and December 31, 2023, the principal balance was $181,736.

On December 7, 2017, the Company entered into an equipment financing agreement, which carries 0% interest with an unaffiliated entity (“December 2017 Note”), to purchase certain surface equipment for $56,900. The note matured on January 1, 2021, and is secured by the equipment purchased with the note. As of September 30, 2024 and December 31, 2023, the note is in default. As of both September 30, 2024 and December 31, 2023, the principal balance was $12,472.

On April 20, 2022, the Company entered into a non-negotiable, secured promissory note agreement (“April 2022 Note”) with an unrelated party in the amount of $63,000. The note agreement shall accrue interest from the date of the agreement at a rate of 7% and the note agreement shall be repaid in full with principal and accrued interest on March 31, 2023. As of March 31, 2024 and December 31, 2023, the note was in default. As of September 30, 2024 and December 31, 2023, the principal balance was $63,000 and $63,000, respectively and the accrued interest balance was $11,611 and $6,560, respectively. For the nine months ended September 30, 2024 and 2023, the interest expense was $3,830 and 3,551, respectively.

On June 3, 2022, the Company entered into a promissory note agreement (“June 2022 Note”) with an unrelated party in the amount of $2,500,000. The note carried an interest rate of 5% and had a maturity date of May 27, 2023. As of September 30, 2024 and December 31, 2023, the loan was in default. As of September 30, 2024 and December 31, 2023, the principal balance was $547,449 and $547,449, respectively and the accrued interest balance was $110,983 and $81,584, respectively. For the nine months ended September 30, 2024, and September 30, 2023, the interest expense was $22,556 and $20,529 respectively.

Convertible Promissory Notes – Related party

On January 13, 2023, ReElement Technologies Corporation, a subsidiary of the Company, entered into a Line of Credit Agreement with LRR in the amount of $1,100,000 (the “Line of Credit”). In connection with the Line of Credit, ReElement entered into a series of Convertible Promissory Notes with LRR (the “Notes”) which allowed for borrowing up to the line of credit. Funds received from the Agreement will be used in the development of certain fixed assets.

During February 2024 through August 2024, the Company entered into Convertible Promissory Notes with Land Resources & Royalties LLC in the aggregate of $894,172. Each Convertible Promissory Note carries a three-year term from the respective effective date. The Convertible Promissory Notes mature February through August 2027.

The Convertible Promissory Notes carry an annual interest rate of 10%, compounded quarterly. For any Note issued on a date other than the last day of a calendar quarter, interest will be calculated for the stub period between the issuance date and the next quarter-end. In the event of default, the interest rate will increase to 13.5% per year, compounded quarterly, and will apply from the date of default until the Convertible Promissory Notes is fully paid or the default is remedied. Additionally, by mutual agreement between Land Resources & Royalties LLC and the Company, any interest due can be added to the Note’s principal and deferred until maturity date.

The Promissory Note’s principal amount, along with any accrued interest, is due in full upon the Note’s maturity date or in the event of default.

The Convertible Promissory Notes entered into with Land Resources & Royalties LLC are subject to a conversion feature. If the Company completes a round or series of a capital raise in the aggregate amount of a minimum of $7,000,000 in cash (the “Capital Raise”), then the Promissory Note and all accrued interest outstanding shall be immediately and automatically converted to Common Stock of the Company (such date, the “Conversion Date”) at the predetermined conversion price which is equal to the same per-share price as the investment under the Capital Raise.

As of September 30, 2024 and December 31, 2023, there was an aggregate of $894,172 and $0 outstanding under the Convertible Promissory Notes reported in Convertible promissory notes – related party in the accompanying unaudited condensed consolidated balance sheets. As of September 30, 2024 and December 31, 2023, accrued interest on the convertible promissory notes amounted to $25,772 and $0. For three months ended September 30, 2024 and September 30, 2023 the interest expense was $23,188 and $0 respectively. For nine months ended September 30, 2024 and September 30, 2023 the interest expense was $25,772 and $0 respectively.

Tax Exempt Bonds

On May 31, 2023, the West Virginia Economic Development Authority (the “Issuer”) issued $45 million aggregate principal amount of Solid Waste Disposal Facility Revenue Bonds, Series 2023 (the “2023 Tax Exempt Bonds”) pursuant to an Indenture of Trust dated as of June 8, 2023 between the Issuer and UMB Bank N.A., as trustee (the “Trustee”). The Tax-Exempt Bonds are payable solely from payments to be made by the Company under the Loan Agreement as evidenced by a Note from the Company to the Trustee. The proceeds of the Tax-Exempt Bonds were used to finance certain costs of the acquisition, construction, reconstruction, and equipping of solid waste disposal facilities at the Company’s Wyoming County, West Virginia development, and for capitalized interest and certain costs related to issuance of the Tax-Exempt Bonds.

The Tax-Exempt Bonds bear interest of 9% and have a final maturity of June 8, 2038.

The Tax Exempt Bonds are subject to redemption(i) in whole or in part at any time on or after June 1, 2030 at the option of the Issuer, upon the Company’s direction at a redemption price of 103% between June 1, 2030, through May 31, 2031, 102% between June 1, 2031, through May 31, 2032, 101% between June 1, 2032, through May 31, 2033, 100% from June 1, 2033 and thereafter, plus interest accrued to the redemption date; and (ii) at par plus interest accrued to the redemption date from certain excess Tax Exempt Bonds proceeds as further described in the Indenture of Trust.

The Company’s obligations under the Loan Agreement are (i) except as otherwise described below, secured by first priority liens on and security interests in substantially all of the Company’s and Subsidiary Guarantors’ real property and other assets, subject to certain customary exceptions and permitted liens, and in any event excluding accounts receivable and inventory; and (ii) jointly and severally guaranteed by the Subsidiary Guarantors, subject to customary exceptions.

The Loan Agreement contains certain affirmative covenants and representations, including but not limited to: (i) maintenance of a rating on the Tax Exempt Bonds; (ii) maintenance of proper books of records and accounts; (iii) agreement to add additional guarantors to guarantee the obligations under the Loan Agreement in certain circumstances; (iv) procurement of customary insurance; and (v)preservation of legal existence and certain rights, franchises, licenses and permits. The Loan Agreement also contains certain customary negative covenants, which, among other things, and subject to certain exceptions, include restrictions on (i) release of collateral securing the Company’s obligations under the Loan Agreement; (ii) mergers and consolidations and disposition of assets, and (iii)restrictions on actions that may jeopardize the tax-exempt status of the Tax-Exempt Bonds.

The Loan Agreement contains customary events of default, subject to customary thresholds and exceptions, including, among other things: (i) nonpayment of principal, purchase price, interest and other fees (subject to certain cure periods); (ii) bankruptcy or insolvency proceedings relating to us; (iii) material inaccuracy of a representation or warranty at the time made; and (v) cross defaults to the Indenture of Trust, the guaranty related to the Tax Exempt Bonds or any related security documents.

On March 28, 2024, the Company, closed a Bond Purchase Agreement (“Purchase Agreement”) with Hilltop Securities Inc. (the “Underwriter”), Knott County, Kentucky (the “Issuer”), a county and political subdivision organized and existing under the laws of the Commonwealth of Kentucky (the “Commonwealth”), whereby the Underwriter agrees to purchase from the Issuer, and the Issuer agrees to sell and deliver to the Underwriter, all (but not less than all) of the Knott County, Kentucky Industrial Building Revenue Bonds (Solid Waste Project), Series 2024 (the “Bonds”), at the purchase price of $150,000,000 (which is equal to the aggregate principal amount of the Bonds). The Bonds have been authorized pursuant to the laws of the Commonwealth. The proceeds of the sale of the Bonds will be used to develop ReElement’s Kentucky Lithium refining facility which is being designed with an initial capacity to produce 15,000 metric ton per annum of battery-grade lithium carbonate and/or lithium hydroxide. The Bonds are being offered and sold only to a limited number of “Qualified Institutional Buyers” within the meaning of Rule 144A of the Securities Act of1933, as amended (the “1933 Act”), or “Accredited Investors” within the meaning of Regulation D promulgated under the 1933 Act.

The Company accounts for investment income and interest expenses related to the tax-exempt bonds that are restricted for payment of project costs by capitalizing the net amount each period to construction in progress per ASC 835-20-30-11.

The Tax-Exempt Bonds bear interest of 4% and have a final maturity of March 28, 2044.

NOTE 9 – STOCKHOLDERS’ EQUITY

Common Stock

During the nine months ended September 30, 2024, the company issued 902,419 shares of common stock upon exercise of warrants.

During the nine months ended September 30, 2024, the company issued 138,000 shares of common stock upon the exercise of 148,000 options at an exercise price of $1.05 a share.

During the nine months ended September 30, 2024, the company issued 10,000 shares of common stock upon the exercise of 10,000 options at an exercise price of $1.20 a share.

During the nine months ended September 30, 2024, the company issued 102,500 shares of common stock in relation to consulting services.

During the nine months ended September 30, 2023, the remaining amounts of the convertible notes in the amount of $9,787,423 was converted into 9,420,230 common shares.

During the nine months ended September 30, 2023, the company issued 49,020 shares of common stock in relation to consulting services.

Stock based compensation:

Effective July 1, 2018, the Board of Directors of American Resources Corporation. adopted the 2018 Incentive Stock Plan. The plan provides for the allocation and issuance of stock and options (both incentive stock options and non-qualified stock options) to officers, directors, employees and consultants of the company. The board reserved a total of 4,000,000 shares for possible issuance under the plan.

Total stock-based compensation expense for grants to officers, employees and consultants was $748,641 and $846,079 for the three months ended September 30, 2024, and 2023, respectively, which was charged to general and administrative expense.

Total stock-based compensation expense for grants to officers, employees and consultants was $2,511,894 and $2,216,767 for the nine months ended September 30, 2024, and 2023, respectively, which was charged to general and administrative expense.

As of September 30, 2024 and 2023, the company has $6,273,780 and 10,055,806, respectively, of unrecognized compensation cost related to unvested stock options granted and outstanding, net of estimated forfeitures. The cost is expected to be recognized on a weighted average basis over a period of approximately five years.

The following table summarizes the activity of our stock options for the nine months ended September 30, 2024:

NOTE 10 - 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. These claims include amounts assessed by the Kentucky Energy Cabinet totaling $1,393,107, of which the Company has fully accrued for as a payable to the Commonwealth of Kentucky, including amounts owed to the Kentucky Energy Cabinet. During 2019, McCoy and Deane received notice of intent to place liens for amounts owed on federal excise taxes. The amounts associated with the notices are included in the company’s trade payables.

Additionally, on September 9, 2024, the Company and Kentucky Power Company reached a settlement under which the Company agreed to pay $275,000 to Kentucky Power Company to settle all old outstanding debts related to the subsidiary Perry County Resources, LLC. The Company has paid the settlement fine in full as of the date of this report. As such, old outstanding balances related to fiscal years before 2024 have been settled.

NOTE 11 - SUBSEQUENT EVENTS

On October 11, 2024, in connection with the Line of Credit Agreement with LRR, the Company entered into Convertible Promissory Note in the amount of $448,769. Payment terms and conversion features for the convertible promissory note are consistent with those description in Note 8.

On November 14, 2024, ReElement Technologies Corporation ("ReElement") will distribute Special Dividend on or about February 15, 2025 to shareholders of record as of December 31, 2024 ("Record Date"). Additionally, the Company closed on an initial investment as part of its private financing. This initial investment is part of an ongoing private financing round with a rolling close of up to $20 million. The investments were structured as two-year convertible notes with a 12% annual interest rate. These notes can convert into common shares of ReElement Technologies at a pre-money valuation of $150 million, translating to approximately $1.94 per share of American Resources common stock, based on the common shares outstanding as reported in the last quarter. American Resources Corporation will be distributing one share of ReElement Technologies Corporation for every three shares American Resources owned as of the Record Date.