SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2025

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

American Resources Corporation’s (ARC or the Company) operations are comprised of ARC (Corporate or Parent) and three operating segments that we describe as American Infrastructure, ReElements and Electrified Materials.  During this first quarter of 2025, the Company distributed out to its shareholders 90% ownership interest in American Infrastructure and 80% ownership interests in ReElements.  As of March 31, 2025, the Company has determined that American Infrastructure and ReElements, (the “VIEs”) meet the criteria to continue to be consolidated in our financial statements as variable interest entities under ASC 810, Consolidation. The Company holds contractual and financial interests in each of these entities that provide it with the power to direct key activities and the right to receive benefits or the obligation to absorb losses that could be significant.

American Infrastructure (our coal mining operations) is comprised of subsidiaries that were formed or acquired between 2015 and 2020 with operations focused on the extraction, processing, transportation, and distribution of coal for a variety of industries, with a primary focus on metallurgical quality coal to the steel industry.  Responsive to adverse market conditions and pricing pressures in the coal industry, during 2023 we suspended our coal production operations which significantly attributed to our decline in consolidated revenues from approximately $39 million in 2022 to $13 million in 2023 and $383,000 in 2024. 

Beginning in 2023, the focus of our business and capital allocation shifted towards the diversification of our revenue streams leading to the development of our ReElements and Electrified Materials segments which have been in the development (pre revenue) stages through 2024.  Electrified Materials is focused on the aggregation, recovery and sale of recovered metal and steel.  We established a new subsidiary, Electrified Materials Corporation (EMC, formerly known as American Metals) to operate this segment of our business.  ReElements is focused on the purification and monetization of critical and rare earth element deposits and end of life magnets and batteries.  American Rare Earth LLC was initially formed as a subsidiary to comprise the ReElements segment.  In 2024, we changed the name of American Rare Earth LLC to ReElement Technologies LLC and recently converted the company from a limited liability corporation to a corporation. 

Basis of Presentation and Consolidation:

The consolidated financial statements include the accounts of the Company, its consolidated subsidiaries and variable interest entities that include the following:

American Infrastructure:

American Infrastructure Corporation (AIC), 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), Advanced Carbon Materials LLC (ACM), and T.R. Mining & Equipment Ltd. (TR Mining).

ReElements:

ReElement Technologies LLC (RLMT), ReElement Marion LLC (RLM), and Kentucky Lithium LLC (KYL).

Electrified Materials:

Electrified Materials Corporation (EMC).

Corporate Office:

American Opportunity Venture II, LLC (AOV II).

All significant intercompany accounts and transactions have been eliminated in consolidation.  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 the primary beneficiary.

Acquisition Transactions

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 Infrastructure Corporation (AIC). 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 has accounted 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 March 31, 2025, the fair value of the assets acquired and consideration exchanged has not been recognized due to the lack of an independent valuation to support fair value.

On June 28, 2024, EMC entered into a Business Combination with AI Transportation Acquisition Corp. On November 27, 2024, EMC received notice of termination of the potential transaction and there are no ongoing discussions to effect a merger agreement.

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.

A.RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS:

Current Restatement

Subsequent to filing of our original 2025 Form 10-Q on May 28, 2025, we became aware of a few matters requiring adjustments to the consolidated financial statements included therein. Those matters have been corrected in this Amendment No. 2 to the March 31, 2025 Form 10-Q and include the following:

· Depreciation and amortization of mining rights in the 2024 statement of operations were overstated by $550,640 and $307,294, respectively, due to an error in the Company’s calculation of depreciation and amortization for the quarter ended September 30, 2024. Accumulated depreciation included in property & equipment, net in the March 31, 2025 and December 31, 2024 balance sheets was overstated by $857,934.

· Certain amounts previously classified as restricted cash on the consolidated balance sheets as of March 31, 2025 and December 31, 2024, should have been classified as restricted investments. Those reclassifications have been made in the accompanying consolidated balance sheets.

Prior Restatement

The Company identified certain accounting errors in the Company’s consolidated financial statements as of and for the quarterly period ended March 31, 2024 included in the March 31, 2024 Form 10-Q filed with the SEC on May 20, 2024.  The following describes the significant adjustments made to the consolidated financial statements as of and for the quarterly period ended March 31, 2024 included in the March 31, 2024 Form 10-Q filed with the SEC on May 20, 2024 that were corrected in the consolidated financial statements included in our original March 31, 2025 Form 10-Q filed with the SEC on May 28, 2025.

The following includes descriptions of the significant adjustments to the Company’s previously reported consolidated financial statements as of and for the quarterly period ended March 31, 2024.

1. Treasury bills and mutual fund reclassification

Treasury bills and mutual fund investments were incorrectly classified as cash and cash equivalents versus short-term investments on the balance sheets and the change in fair value of the investments was not recognized in the statement of operations. The adjustment corrects these matters.

2. Restricted investment reclassification

Cash balances in the WCC bond fund balances were classified as short-term investments on the balance sheets. The adjustment reclassifies the WCC bond fund balances to restricted cash.

3. Due from related party reclassification

A note receivable balance related to a working capital loan issued to American Acquisition Opportunity Inc was written off. However, the note was supported by Royalty Management Holding Corp., a related party, who has committed to issue shares of its stock if required to fulfill the obligation. The adjustment re-establishes the note receivable on the balance sheet and reverses the charge previously recognized in the statement of operations.

4. Accounts payable reclassification

A reclassification adjustment was made to properly present liabilities within the balance sheet. Certain liabilities were previously misclassified among trade payables, non-trade payables, and accounts payable – related party. This adjustment corrects the classification to reflect the nature of the underlying transactions more accurately.

5. Failed leaseback adjustment

Certain fixed assets under the Maxus lease agreements were incorrectly recorded as a sale and lease-back arrangement, resulting in the removal of the assets from the balance sheet and recognition of a gain on sale. This adjustment reinstates the fixed assets and derecognizes the right of use assets and related finance lease liabilities previously recorded. Additionally, the previously recorded finance lease liabilities have been reclassified as Other Financing Obligations on the balance sheet.

6. Operating lease recognition adjustment

An operating lease was previously not recognized on the balance sheet and accounted for under ASC 842, Leases. The adjustment recognizes this operating lease under the provisions of ASC 842.

7. Equity investment accounting adjustment

There were accounting errors determined with respect to equity investments. Adjustments have been applied to the Company’s equity investment in Novusterra, which was initially recorded at a derived value rather than fair market value (FMV). Additionally, the equity investment in SPAC American Acquisition Opportunity Inc. (AAO) was incorrectly carried at its cost basis without reflecting changes in earnings. An adjustment was made to account for AAO on the equity method of accounting.

8. Advanced Magnet Lab, Inc. loan reclassification

A note receivable from Advanced Magnet Lab, Inc. was incorrectly classified as Investment in Other Entities - Related Party on the balance sheet. An adjustment was recognized to reclassify this item to notes receivable on the balance sheet.

9. Interest Expense Adjustment

An adjustment was recorded to correct previously understated interest expense resulting from an error in the Company’s debt rollforward calculation. The prior calculation did not accurately reflect the outstanding balances and timing of interest accruals related to certain borrowings. This restatement reflects a true-up of interest expense to properly account for interest incurred during the applicable periods. In addition, the Company identified an error in the calculation of its debt rollforward, which resulted in an understatement of accrued interest, current portion of long-term debt, convertible promissory notes – related party, and interest expense in prior periods. This adjustment corrects the interest expense to reflect the proper accrual based on outstanding debt balances. In addition, there was an adjustment to correct the amount of interest income earned on the WCC Bond.

10. Accrued expenses and settlement adjustments

In connection with the 2024 audit and the re-audit of the 2023 financial statements, legal letter responses were requested and received from attorneys representing the Company with various litigation matters. Based on those responses, the Company concluded a loss was probable and reasonably estimated under Accounting Standards Codification 450. It was also concluded that the status of these litigation cases as of December 31, 2023 supported that a potential loss was probable at that date. Accordingly, adjustments were recognized to record the reserve for these potential litigation losses as of December 31, 2023. 

11. Bond balance reclassification

Based on the review of the terms, provisions and covenants under the WCC Bond, it was determined that the Company was not in compliance with certain provisions with those matters dating back to December 31, 2023. The assessment was that these compliance issues could be deemed an event of default which then could lead to the acceleration of maturity. Accordingly, the outstanding balance was reclassified to a current liability on the balance sheet.

12. Non-controlling interest recognition adjustment

Non-controlling interests were previously not recognized for those subsidiaries that the Company does not wholly own. This adjustment records the non-controlling interest in minority ownership in various subsidiaries.

13. Prepaid deposit removal adjustment

Certain prepaid deposits were refunded to the Company. However, the deposit amount recognized in the balance sheet was not de-recognized upon the Company’s receipt of such funds. The adjustment de-recognizes the deposits from the balance sheet and reverses the income recognized in the statement of operations that had been recorded when the funds were returned to the Company.

14. Reclassification of operating expenses

An adjustment was made to correct the classification of certain operating expenses within the consolidated statements of operations. Previously, certain expenses were misclassified among general and administrative (G&A), development expense, professional fees, production taxes and royalties, and cost of coal sales and processing. This adjustment reclassifies these expenditures to the correct expense classification in the statement of operations.

* Represents revision for immaterial error correction

The following tables summarize the effect of the restatement on each financial statement line item that was restated in the consolidated financial statements.

Balance Sheet as of March 31, 2024	As Reported			Adjustment			As Restated			Reference
Cash and cash equivalents	$	2,168,557		$	(1,171,794	)	$	996,763			1
Restricted cash - current		-			2,237,294			2,237,294			11
Restricted investment - current		-			24,447,474			24,447,474			2
Short-term investments		-			1,218,081			1,218,081			1
Interest receivables		-			47,542			47,542			*
Due from related party		-			741,243			741,243			3
Inventories		129,991			-			129,991			*
Prepaid expenses and other current assets		2,521,646			(780,744	)		1,740,902			13
Total current assets		4,820,194			26,739,096			31,559,290
Restricted cash		177,643,892			(176,122,480	)		1,521,412			11,2
Restricted investments		-			149,275,443			149,275,443			2
Property and Equipment, net		11,202,362			9,534,469			20,736,831			5
Right-of-use assets, net		18,108,411			(17,320,779	)		787,632			5
Right-of-use assets, net - related party		-			98,769			98,769			*
Investment in other entities - Related Parties		4,220,000			(2,319,463	)		1,900,537			7
Notes Receivable, net		99,022			280,000			379,022			8
Total assets	$	216,093,881		$	(9,834,945	)	$	206,258,936
Trade payables	$	4,389,695		$	(1,015,527	)	$	3,374,168			4
Non-trade payables		2,755,451			(2,062,356	)		693,095			4
Accounts Payable - Related Party		2,305,604			2,888,554			5,194,158			4
Accrued expenses		-			67,693			67,693			*
Accrued litigation settlement		-			14,163,105			14,163,105			10
Accrued interest		146,101			339,329			485,430			9
Other current liabilities		-			100,000			100,000			*
Notes payable		792,184			(792,184	)		-			9
Bond payable, current		-			43,560,566			43,560,566			13
Current portion of long term debt		-			2,140,328			2,140,328			9
Operating lease liabilities, current		59,691			19,457			79,148			*
Operating lease liabilities, current - related party		-			14,245			14,245			*
Finance lease - related party, current		5,510,004			(5,510,004	)		-			5
Other financing obligations, current		-			8,424,700			8,424,700			5
Total current liabilities		15,958,730			62,337,906			78,296,636
Remediation liability		21,537,089			312			21,537,401			*
Bond payable, net		192,430,933			(42,711,730	)		149,719,203			13
Convertible promissory note - related party		-			682,691			682,691			9
Finance lease - related party, non current		5,488,120			(5,464,263	)		23,857			5
Other financing obligations, net of current portion		-			7,354,076			7,354,076			5
Operating lease liabilities, non-current		480,004			281,135			761,139			6
Operating lease liabilities, non-current - related party		-			85,312			85,312			6
Total liabilities	$	235,894,876		$	22,565,439		$	258,460,315
Common Stock		7,732			-			7,732
Additional paid-in capital		165,111,534			17,828,451			182,939,985			7
Accumulated deficit		(184,920,261	)		(48,675,223	)		(233,595,484	)
Total stockholders' deficit		(19,800,995	)		(30,846,772	)		(50,647,767	)
Non-controlling interest		-			(1,553,612	)		(1,553,612	)		12
Total deficit		(19,800,995	)		(32,400,384	)		(52,201,379	)
Total liabilities and stockholders' deficit	$	216,093,881		$	(9,834,945	)	$	206,258,936

Refer to the financial statements included herein which present the impact of the restatement of the Company’s previously reported consolidated balance sheet, the statement of operations, statement of cashflow, and the consolidated stockholders’ deficit as of and for the three months ended March 31, 2024.

Statement of operations for the three months ended March 31, 2024	As Reported			Adjustment			As Restated			Reference
Cost of coal sales and processing		1,266,928			(290,476	)		976,452			14
Accretion		248,291			725			249,016			*
Depreciation		22,086			528,554			550,640			5
Amortization of mining rights		307,801			(507	)		307,294			*
General and administrative		2,062,021			1,660,650			3,722,671			14
Professional fees		390,196			556,156			946,352			14
Litigation expense		-			59,836			59,836			*
Production taxes and royalties		121,767			(112,212	)		9,555			14
Development		2,397,140			(1,994,752	)		402,388			14
Gain on sale of equipment		(458,000	)		58,000			(400,000	)		5
Total operating expenses		6,358,230			465,974			6,824,204
Net loss from operations		(6,264,211	)		(465,974	)		(6,730,185	)
Earnings from equity method investees		-			(214,975	)		(214,975	)		7
Other income and (expense)		251,639			(154,726	)		96,913			3
Interest income		36,095			453,708			489,803			9
Interest expense		(249,455	)		(413,224	)		(662,679	)		9
Total other income (expenses)		38,279			(329,217	)		(290,938	)
Net loss		(6,225,932	)		(795,191	)		(7,021,123	)
Non-controlling interest		-			79,760			79,760			*
Net loss attributable to AREC shareholders	$	(6,225,932	)	$	(715,431	)	$	(6,941,363	)

	Common				(As reported)						(Restated)			(As reported)						(Restated)			(As reported)					(Restated)			(As reported)						(Restated)
	Stock				Additional						Additional												Non-					Non-
	Par Value Shares		Amount		Paid-in Capital			Adjustments			Paid-in Capital			Accumulated Deficit			Adjustments			Accumulated Deficit			controlling interest		Adjustments			controlling interest			Total Deficit			Adjustments			Total Deficit
Balance as of December 31, 2023		76,247,370	$	7,627	$	178,910,546			2,842,715		$	181,753,261		$	(178,694,329	)		(46,598,004	)	$	(225,292,333	)		-		(1,473,852	)		(1,473,852	)	$	223,844			(45,229,141	)		(45,005,297	)
Exercise of cashless warrants		871,620		87		(87	)		-			(87	)		-			-			-			-		-			-			-			-			-
Exercise of common stock options		148,000		15		156,885			(3	)		156,882			-			-			-			-		-			-			156,900			(3	)		156,897
Issuance of common shares for consulting services		30,000		3		43,797			-			43,797			-			(43,797	)		-			-		-			-			43,800			-			43,800
Dividend-in-kind of Novustera, Inc. common stock to shareholders		-		-		(14,560,000	)		14,560,000			-						13,198,212			(1,361,788	)				-						(14,560,000	)					(1,361,788	)
Stock compensation - options		-		-		560,393			425,739			986,132						(560,393	)		-					-						560,393						986,132
Net loss		-		-		-			-			-			(6,225,932	)		(715,431	)		(6,941,363	)		-		(79,760	)		(79,760	)		(6,225,932	)		(795,191	)		(7,021,123	)
Balance as of March 31, 2024		77,296,990	$	7,732	$	165,111,534			17,828,451		$	182,939,985		$	(184,920,261	)		(48,675,223	)	$	(233,595,484	)		-		(1,553,612	)		(1,553,612	)	$	(19,800,995	)		(32,400,384	)		(52,201,379	)

Statement of Cash flows for the three months ended March 31, 2024	As Reported			Adjustment			As Restated			Reference
Cash Flows from Operating activities:
Net loss	$	(6,225,932	)	$	(795,191	)	$	(7,021,123	)
Stock-based compensation expense		560,393			425,739			986,132			7
Depreciation expense		32,496			518,144			550,640			5
Amortization of mining rights		304,970			2,324			307,294			*
Accretion expense		248,290			726			249,016			*
Amortization of finance right-to-use assets - related party		168,502			(168,502	)		-			6
Accretion of right-to-use assets		242,817			(242,817	)		-			6
Amortization of issuance costs and debt discount		41,572			(16,165	)		25,407			*
Investment in other entities - Related Parties, net		-			214,975			214,975			7
Gain on sale of equipment		-			(400,000	)		(400,000	)		5
Unrealized gain on short-term investments		-			26,819			26,819			*
Inventories		(75,991	)		75,991			-			*
Prepaid expenses and other current assets		(653,995	)		642,744			(11,251	)		13
Trade and non-trade payable		(2,172,024	)		1,917,240			(254,784	)		4
Accounts payable related party		(66,093	)		829,147			763,054			4
Accrued expenses		-			(244,116	)		(244,116	)		10
Accrued litigation settlement		-			59,835			59,835			*
Accrued interest		(366,457	)		366,457			-			9
Other current liabilities		(200,000	)		200,000			-			4
Issuance of common shares for services		-			43,800			43,800			*
Operating lease assets and liabilities, net - related party		(13,579	)		37,331			23,752			*
Operating lease assets and liabilities, net		-			(21,945	)		(21,945	)		*
Cash used in operating activities		(8,175,031	)		3,472,102			(4,702,929	)
Cash Flows from Investing activities:
Purchase of property and equipment, net of capitalized interest income and (expense)		(264,939	)		(617,486	)		(882,425	)		5
Restricted investments purchased		-			(143,425,715	)		(143,425,715	)		2
Proceeds from sale of equipment		4,062,115			(3,662,115	)		400,000			5
Proceeds from short-term investments, net		-			103,444			103,444			1
Cash (used in) provided by investing activities		3,797,176			(147,601,872	)		(143,804,696	)
Cash Flows from Financing activities:
Proceeds from tax exempt bonds, net		148,236,861			1,482,342			149,719,203			11
Proceeds from the exercise of stock option		156,900			(2	)		156,898			*
Proceeds received from other financing obligation		-			72,402			72,402			*
Proceeds from convertible promissory note - related party		-			142,471			142,471			9
Repayments of other financing obligation		-			(1,857,897	)		(1,857,897	)		5
Repayments of finance lease liabilities		(1,566,363	)		1,566,363			-			5
Repayments on notes payable		(12,472	)		12,472			-			*
Cash provided by financing activities		146,814,926			1,418,151			148,233,077

Use of Estimates:

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its assumptions on historical experiences and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In addition, management considers the basis and methodology used in developing and selecting these estimates, the trends in and amounts of these estimates, specific matters affecting the amount of and changes in these estimates, and any other matters related to these estimates, including significant issues concerning accounting principles and financial statement presentation. Such estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed herein. Significant estimates include, carrying amounts of long-lived assets, valuation assumptions for share-based payments, evaluation of debt modification accounting, effective borrowing rate determinations, analysis of fair value transferred upon debt extinguishment, legal claims and contingencies, valuation and calculation of measurements of income tax assets and liabilities.

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.

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

	March 31,		December 31,
	2025		2024
Cash and cash equivalents	$	24,623	$	604,485
Restricted cash		154,378,420		3,508,844
Total cash and restricted cash presented in the consolidated balance sheets	$	154,403,043	$	4,113,329

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 March 31, 2025 and December 31, 2024. 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, except for those amounts that are directly attributable to project funding activities, which are capitalized to construction in progress as part of the cost of the related asset.

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.

Construction in progress is related to the construction or development of leasehold improvements and equipment that have not yet been placed in service for our intended use. Construction in progress represents capital expenditures for direct costs of construction or acquisition and design fees incurred, and a proportional amount of bond interest income and expense for amounts capitalized directly related to the construction. Capitalization of these costs ceases and the construction in progress is transferred to the appropriate category of property, plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. Construction in progress is not depreciated. 

Property and equipment 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 were no impairments recognized during the periods ended March 31, 2025 and 2024. Costs related to maintenance and repairs which do not prolong an 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 events warrant to 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 first quarter of 2025.

The table below reflects the changes to our ARO:

	March 31, 2025		March 31,2024
Beginning Balance	$	22,279,905	$	21,288,385
Accretion		248,291		249,016
Ending Balance	$	22,528,196	$	21,537,401

Accretion expense amounted to $248,291 and $249,016 for the three months ending March 31, 2025 and 2024, 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 service fees 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.

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 the deferred tax assets will not be realized.

Management believes that the Company's income tax filing positions will be sustained on audit or any potential audit adjustments would be offset by the utilization of the Company’s unrecognized net operating loss carryforwards. 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.

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 3 presents the Company’s financial assets or liabilities measured at fair value as of March 31, 2025 and December 31, 2024. The carrying amounts of the Company’s cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their fair value at March 31, 2025 and December 31, 2024 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.

The allowance for note receivable was $99,022 and $99,022 as of March 31, 2025 and December 31, 2024, respectively. The note receivables have 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 and is stated at the lower of cost (first in, first out method) or net realizable value.

Stock-based Compensation: 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.

Segment Information: The Company’s operations include corporate and three operating segments. The Company’s Chief Executive Officer, as its chief operating decision maker (“CODM”), manages and allocates resources to the operations of the Company on a consolidated basis. The CODM assesses performance and allocates resources based on the Company’s consolidated statements of operations and key components and processes of the Company’s operations are managed centrally. Segment asset information is not used by the CODM to allocate resources. This enables our Chief Executive Officer to assess our overall level of available resources and determine how best to deploy these resources across projects to monitor and evaluate overall company performance, allocating resources, and establishing management compensation in line with our long-term company-wide strategic goals.

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 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) Disaggregation of Income Statement Expenses. The guidance in ASU 2024-03 requires public business entities to disclose in the notes to the financial statements, among other things, specific information about certain costs and expenses including purchases of inventory; employee compensation; and depreciation, amortization and depletion expenses for each caption on the statement of operations where such expenses are included. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted, and the amendments may be applied prospectively to reporting periods after the effective date or retrospectively to all periods presented in the financial statements. The Company is currently evaluating the provisions of this guidance and assessing the potential impact on the Company’s financial statement disclosures.

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07 - Segment Reporting (ASC 280): Improvements to Reportable Segment Disclosures, which enables investors to better understand an entity's overall performance and assess potential future cash flows through improved reportable segment disclosure requirements. The amendments enhance disclosures about significant segment expenses, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. ASU 2023-07 is effective for annual periods beginning after December 15, 2023. The Company adopted ASU No. 2023-07 on December 31, 2024. The adoption of the standard did not result in any significant disclosure changes in the Notes to the Consolidated Financial Statements.

No other new accounting pronouncements recently adopted or issued had or are expected to have a material impact on the consolidated financial statements.