NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

American Resources Corporation’s (ARC or the Company) operations are focused on the aggregation, recovery and sale of recovered metal and steel. Historically, the Company was comprised of ARC (Corporate or Parent) and three operating segments known as American Infrastructure, ReElements and Electrified Materials. During the year ended December 31, 2025 the Company spun-off of the American Infrastructure and ReElements segments. Following the disposal of American Infrastructure and ReElements, the Company has operated as two-operating segments, Corporate Office and Electrified Materials.

Beginning in 2023, the focus of the Company’s business and capital allocation shifted towards the diversification of the Company’s revenue streams. This led to the development of the Company’s operations focused on the aggregation, recovery and sale of recovered metal and steel. The Company established a new subsidiary, Electrified Materials Corporation (EMC, formerly known as American Metals) for these operations. Electrified Materials has been in the development (pre revenue) stages since its creation.

American Infrastructure (the Company’s former coal mining operations) was 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. 

ReElements was 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, the Company changed the name of American Rate 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 and its majority owned subsidiaries. The majority owned subsidiaries include:

Electrified Materials:

Electrified Materials Corporation (EMC).

Corporate Office:

American Resources Corporation (ARC).

American Opportunity Venture II, LLC (AOV II).

As further described in Note 2 – Discontinued Operations, during the year ended December 31, 2025, the Company spun-off 81% and 91% of the ownership interests of ReElement Technologies, Inc. (“RLMT”) and American Infrastructure Corporation (“AIC”), respectively. As the transactions each represented a strategic shift in the Company’s operations, the results of ReElement and AIC are presented as discontinued operations in the consolidated financial statements and, as such, have been excluded from both continuing operations and segment results for all periods presented. The disclosures presented in the notes to the Consolidated Financial Statements are presented on a continuing operations basis unless otherwise noted. The legal entities included in discontinued operations are as follows:

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 Inc (RLMT), ReElement Marion LLC (RLM), and Kentucky Lithium LLC (KYL), ReElement Africa (RA) and ReElement Ghana (RG).

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.

During October 2021, the Company acquired a 23% ownership interest in FUB Mineral LLC (“FUB”). The Company evaluated FUB under the VIE guidance in ASC 810 and determined that FUB is a variable interest entity; however, the Company is not the primary beneficiary and therefore does not consolidate FUB. The Company’s investment in FUB is accounted for under the equity method of accounting.

During January 2021, the Company invested $2,250,000 for a 50% ownership interest and became the managing member of American Opportunity Venture, LLC (“AOV”). The Company evaluated AOV under the variable interest entity guidance in ASC 810 and determined that AOV is a variable interest entity for which the Company is the primary beneficiary. Accordingly, AOV is consolidated in the Company’s consolidated financial statements.

During March 2021, the Company invested $25,000 for 100% ownership and become the managing member of American Opportunity Venture II, LLC. (AOVII). As such, the investment in AOVII has been eliminated in the accompanying financial statements. As of December 31, 2025, AOVII has had no operational activity.

Acquisition Transactions

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

As discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, conditions existed at the time of issuance of those financial statements — including recurring operating losses and limited available liquidity  that raised substantial doubt about the Company's ability to continue as a going concern within one year from the issuance date of those financial statements. On October 13 2025, the Company received equity financing totaling gross proceeds of $33.7 million and on October 15, 2025, the Company receive equity financing totaling $40 million, both through a private placement of common shares, which substantially improved the Company's cash position and led to management’s later assessment that the conditions that had previously raised substantial doubt had been alleviated. Management has concluded that, as of the date of issuance of these consolidated financial statements, substantial doubt about the Company's ability to continue as a going concern no longer exists.

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, bonding collateral 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.

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 three 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 income and interest 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 asset group. 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 2025 and 2024. Costs related to maintenance and repairs which do not prolong an asset’s useful life are expensed as incurred.

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. Revenue from metal recovery and sales are recognized when conditions within the contract or sales agreement are met including transfer of title.

Income Taxes: We file a consolidated federal income tax return with our subsidiaries.

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.

The carrying amounts of the Company’s cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their fair value as of December 31, 2025 and 2024 due to their short-term nature.

Leases: The Company’s leases consist of operating and finance leases. Lease right‑of‑use assets and lease liabilities represent the present value of future minimum lease payments over the lease term and are recognized as of the lease commencement date. The Company has elected not to recognize right‑of‑use assets and lease liabilities for leases with an initial lease term of twelve months or less unless the lease contains a purchase option that is reasonably certain to be exercised.

Lease term, 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 each lease. Lease terms generally include the initial non‑cancelable period and renewal options that are reasonably certain to be exercised. The implicit rate in a lease is used to measure lease obligations when readily determinable. Otherwise, the Company uses its incremental borrowing rate based on information available at lease commencement, including the lease term and current economic conditions.

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.

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. 

Recent Accounting Pronouncements:

In December 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025‑11, Interim Reporting (Topic 270): Narrow‑Scope Improvements, which clarifies interim reporting disclosure requirements and improves the organization and navigability of existing guidance. The amendments do not change the recognition or measurement of interim financial statement amounts. This ASU is effective for interim reporting periods in fiscal years beginning after December 15, 2027, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In December 2025, the FASB also issued ASU 2025‑12, Codification Improvements, which includes technical corrections, clarifications, and other minor improvements to various Topics within the Accounting Standards Codification. The amendments are not expected to have a significant effect on current accounting practice. This ASU is effective for fiscal years beginning after December 15, 2026, including interim periods therein. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In November 2024, the FASB issued ASU 2024‑03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220‑40), which requires public business entities to disclose additional information about certain costs and expenses included in the statement of operations. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the provisions of this guidance and assessing the potential impact on its financial statement disclosures.

Recently Adopted Accounting Pronouncements:

In December 2023, the FASB issued ASU 2023‑09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the transparency and decision‑usefulness of income tax disclosures primarily through expanded rate reconciliation and income tax paid disclosures. The Company adopted this ASU effective January 1, 2025, and the adoption did not have a material impact on its consolidated financial statements.

No other accounting standards issued or effective during the period had, or are expected to have, a material impact on the Company’s consolidated financial statements.