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), Wyoming County Coal LLC (WCC), Knott County Coal LLC (KCC), Empire Kentucky Land, Inc, Colonial Coal Company, Inc. (Empire) and Perry County Resources LLC (PCR). All significant intercompany accounts and transactions have been eliminated.

On February 12, 2019, ARC Acquisition Corporation (ARCAC) was formed as a wholly owned subsidiary of ARC. On February 12, 2019, ARCAC merged with Empire Kentucky Land, Inc which is the 100% owner of Colonial Coal Company, Inc. ARC Acquisition Corporation was subsequently renamed Empire Kentucky Land, Inc.

On September 25, 2019, Perry County Resources LLC (PCR) was formed as a wholly owned subsidiary of QEI.

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, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or any other period. These financial statements should be read in conjunction with the Company’s 2018 audited consolidated financial statements and notes thereto which were filed on Form 10-K on April 3, 2019.

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, 2019 and December 31, 2018 was $47,987 and $58,246, respectively. The total balance of restricted cash also includes amounts held under the management agreement in the amount of $0 and $82,828, respectively. See note 5 for terms of the management agreement.

The balance as of September 30, 2019 and December 31, 2018 was $297,987 and $411,692, 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, 2019 and September 30, 2018.

	September 30, 2019		September 30, 2018
Cash	$	716,840	$	57,739
Restricted Cash		297,987		286,043
Total cash and restricted cash presented in the consolidated statement of cash flows	$	1,014,827	$	343,782

Asset Acquisition:

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, a seller note of $350,000 and a seller note of $250,000. On September 20, 2019 Wyoming County received a Notice of Breach of the asset purchase agreement between WCC and Synergy Coal, LLC due to consideration of $225,000 not being paid, failure to file for permit transfers and pay delinquent transfer fees of $10,500 and other contract breaches, including failure to transfer reclamation surety bonds. Subsequent to the balance sheet date, WCC has paid the delinquent transfer fees and has filed for permit transfer. As of the balance sheet date, the West Virginia permit transfers have not yet been approved, the seller has not been paid cash amounts due, and WCC has not substituted its reclamation surety bonds for the seller’s bond collateral. (Note 8)

On February 12, 2019, through a share exchange, ARC merged with Empire Kentucky Land, Inc, its wholly-owned subsidiary Colonial Coal Company, Inc and purchased assets consisting of surface and mineral ownership and other related agreements of Empire Coal Holdings, LLC in exchange for a cash payment of $500,000 which was carried as a seller note until paid on February 21, 2019, a seller note of $2,000,000 payable in the form of a royalty from production off of the property and 2,000,000 common shares of ARC’s stock valued at $24,400,000. The note is currently in default as a result of non-payment at the earlier of i) completion of the securities offering and ii) August 20, 2019 (Maturity date). The default interest rate is 5%. American Resources Corporation has received a Breach of Promissory Notes from Empire Kentucky Land, Inc. The amount being sought is $2,000,000 as well as additional fees and charges. The acquired assets have an anticipated life of 25 years. Capitalized mining rights will be amortized based on productive activities over the anticipated life of 25 years. Amortization expense for this asset for the 3 months ended September 30, 2019 and 2018 amounted to $145,733 and $0, respectively. Amortization expense for this asset for the 9 months ended September 30, 2019 and 2018 amounted to $677,333 and $0, respectively. The assets will be measured for impairment when an event occurs that questions the realization of the recorded value.

The stock and assets acquired 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 Empire Coal were as follows at the purchase date:

Assets
Acquired Mining Rights	$	25,400,000
Land		1,500,000
Liabilities
Seller Note	$	2,500,000

On August 16, 2019, ERC acquired certain assets known as the Gold Star Acquisition in exchange for assuming certain liabilities of LC Energy, LLC and the payment of $400,000. The fair values of the asset retirement obligation liabilities assumed were determined to be $1,300,000. The liabilities assumed do not require fair value readjustments.

The assets acquired 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 and cash, 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. Because the transaction closed near the end of the reporting quarter the values assigned are provisional as of September 30, 2019 while the company continues to gather information. The assets acquired and liabilities assumed of LC Energy Operations, LLC were as follows at the purchase date:

Assets
Cash	$	400,000
Restricted Cash		250,000
Surface Equipment		10,574
Processing and Loading Facility		639,426
Liabilities
Reclamation liability	$	1,300,000

On September 23, 2019, American Resources Corporation, (“Buyer”) entered into a binding agreement with Bear Branch Coal LLC, a Kentucky limited liability company, Perry County Coal LLC, a Kentucky limited liability company, Ray Coal LLC, a Kentucky limited liability company, and Whitaker Coal LLC, a Kentucky limited liability company (each a “Seller” and collectively, “Sellers”). The agreement was entered into as part of the bankruptcy proceedings of Cambrian Holding Company LLC, (“Cambrian), and is subject to approval by the United States Bankruptcy Court for the Eastern District of Kentucky (the “Bankruptcy Court”) in the chapter 11 bankruptcy cases of the Sellers, Case No. 19-51200(GRS), by entry of an order in form and substance acceptable to Sellers and Buyer (the “Sale Order). Under the agreement of the Sale Order, each Seller will sell, transfer, assign, convey and deliver to American Resources Corporation, effective as of the Closing, all assets, rights, titles, permits, leases, contracts and interests of such Seller free and clear of all liens, claims, interests and encumbrances, to the fullest extent permitted by the Bankruptcy Court. In consideration for the purchased assets, the Buyer will assume certain liabilities. Additionally, the Buyer will assume all liabilities relating to the transferred permits and the associated reclamation and post-mining liabilities of the purchased assets. On September 26,2019, the Company received notice that a certain lease assumption as part of the PCR acquisition was being disputed by the lessor.

On September 27, 2019, PCR closed and acquired certain assets in exchange for assuming certain liabilities of Perry County Coal, LLC and a cash payment of $1. The preliminary fair values of the asset retirement obligation liabilities assumed were determined to be $4,987,748. The liabilities assumed do not require fair value readjustments.

The assets acquired 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 and a cash payment of $1, 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. Because the transaction closed near the end of the reporting quarter the values assigned are provisional as of September 30, 2019 while the company continues to gather information therefore the company’s conclusion is tentative while the transaction is being evaluated under ASC 805-10-20. The assets acquired and liabilities assumed of Perry County Coal, LLC were as follows at the purchase date:

Assets
Coal Inventory	$	651,698
Mine Development		518,199
Coal Refuse		177,444
Land		840,976
Underground Equipment		863,053
Surface Equipment		4,688
Processing and Loading Facility		1,444,596
Liabilities
Reclamation liability	$	2,950,761
Accrued liabilities		2,036,987

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) deposits. 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, 2019 and 2018, $- and $- were incurred for loss on settlement on ARO, respectively.

The table below reflects the changes to our ARO:

Balance at December 31, 2018	$	18,538,806
Accretion – nine months September 30, 2019		962,699
Reclamation work – nine months September 30, 2019		-
Asset disposition		-
Gold Star Acquisition		1,300,000
Perry County Acquisition		2,950,761
Balance at September 30, 2019	$	23,752,266

Customer Concentration and Disaggregation of Revenue: For the three months ended September 30, 2019 and 2018, 93% and 71% of revenue came from two customers, respectively. For the nine months ended September 30, 2019 and 2018, 82% and 85% of revenue came from two and three customers, respectively.

As of September 30, 2019, and December 31, 2018, 99% and 99% of outstanding accounts receivable came from one and two customers, respectively.

For the three months ended September 30, 2019 and 2018, 93% and 44% of revenue was generated from sales to the steel and industrial industry. For the nine months ended September 30, 2019 and 2018, 57% and 62% of generated from sales to the steel and industrial industry, respectively. For the three months ended September 30, 2019 and 2018, 7% and 56% of revenue was generated from sales to the utility generation industry. For the nine months ended September 30, 2019 and 2018, 43% and 38% of generated from sales to the utility generation industry, respectively.

Leases: In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (“ASU 2016-02”). ASU 2016-02, along with related amendments issued from 2017 to 2018 (collectively, the “New Leases Standard”), requires a lessee to recognize a right-of-use asset and a lease liability on the balance sheet. The Company adopted ASU 2016-02 effective January 1, 2019 using the modified retrospective approach and elected the option to not restate comparative periods in transition and also elected the package of practical expedients for all leases within the standard, which permits the Company not to reassess its prior conclusions about lease identification, lease classification and initial direct costs.

Beneficial Conversion Features of Convertible Securities: Conversion options that are not bifurcated as a derivative pursuant to ASC 815 and not accounted for as a separate equity component under the cash conversion guidance are evaluated to determine whether they are beneficial to the investor at inception (a beneficial conversion feature) or may become beneficial in the future due to potential adjustments. The beneficial conversion feature guidance in ASC 470-20 applies to convertible stock as well as convertible debt which are outside the scope of ASC 815. A beneficial conversion feature is defined as a nondetachable conversion feature that is in the money at the commitment date. In addition, our preferred stock issues contain conversion terms that may change upon the occurrence of a future event, such as antidilution adjustment provisions. The beneficial conversion feature guidance requires recognition of the conversion option’s in-the-money portion, the intrinsic value of the option, in equity, with an offsetting reduction to the carrying amount of the instrument. The resulting discount is amortized as a dividend over either the life of the instrument, if a stated maturity date exists, or to the earliest conversion date, if there is no stated maturity date. If the earliest conversion date is immediately upon issuance, the dividend must be recognized at inception. When there is a subsequent change to the conversion ratio based on a future occurrence, the new conversion price may trigger the recognition of an additional beneficial conversion feature on occurrence.

The Company has a loan, convertible into common shares at $5.25 per share, with a beneficial conversion feature added through a loan modification on February 4^th, 2019. At the time of the modification the loan had a maturity date of three months, and the conversions may occur any time from the time of the modification.

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, 2019 and December 31, 2018 amounted to $-, for both periods. Allowance for other accounts receivables as of September 30, 2019 and December 31, 2018 amounted to $- and $-, respectively.

Trade and loan receivables are carried at amortized cost, net of allowance for losses. Amortized cost approximated book value as of September 30, 2019 and December 31, 2018.

Reclassifications:

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