Financial statements
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Clinch Resources Limited Condensed Interim Consolidated Financial Statements ( Unaudited ) As of and for the three and six months ended June 30 , 2026 and 2025
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Clinch Resources Limited Condensed Interim Consolidated Financial Statements (Unaudited) As of and for the three and six months ended June 30, 2026 and 2025 Contents Condensed Interim Consolidated Financial Statements (Unaudited) Condensed Interim Consolidated Balance Sheets ................................................................................ 1 Condensed Interim Consolidated Statements of Operations ................................................................ 3 Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity (Deficit) .............. 4 Condensed Interim Consolidated Statements of Cash Flows .............................................................. 5 Notes to Condensed Interim Consolidated Financial Statements ........................................................ 7
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June 30 December 31 2026 2025 Assets Current assets: Cash 9,692,652$ 2,455,193$ Accounts receivable 1,235 - Coal inventories 457,417 - Advance royalties - 519,811 Prepaid expenses 2,202,364 1,535,028 Other current assets - 336,242 Total current assets 12,353,668 4,846,274 Property, plant, and equipment, net (Note 3 ) 9,674,103 6,160,384 Exploration and evaluation assets, net (Note 4 ) 17,737,056 14,491,839 Mineral properties (Note 5 ) 1,746,632 1,746,632 Right-of-use assets, net (Note 8 ) 31,734,272 3,468,553 Investment in related party (Note 9) 46,701,913 - Other noncurrent assets (Note 9 ) 20,261,693 3,374,094 Total assets 140,209,337$ 34,087,776$ Condensed Interim Consolidated Balance Sheets (Unaudited) Clinch Resources Limited 1
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June 30 December 31 2026 2025 Liabilities and shareholders’ equity (deficit) Current liabilities: Accounts payable 1,922,772$ 2,058,989$ Accrued expenses (Note 6 ) 3,124,642 29,655,774 Current portion of asset retirement obligations (Note 7 ) 74,453 74,453 Current portion of lease liabilities (Note 8 ) 5,118,947 2,921,137 Current portion of convertible notes with related parties - 3,750,000 Current portion of convertible notes with investors, net - 92,583,373 Current portion of notes payable to related entity - 1,600,000 Current portion of notes payable to investors, net - 14,572,907 Total current liabilities 10,240,814 147,216,633 Asset retirement obligations, less current portion (Note 7 ) 2,199,964 2,199,964 Convertible notes with founder, net (Note 11 ) 7,758,795 - Convertible notes with investors, net (Note 11 ) 4,204,554 - Other accrued expenses 6,197,402 - Derivative liabilities with investors 1,713,084 - Lease liabilities, less current portion (Note 8 ) 17,953,671 73,382 Total liabilities 50,268,284 149,489,979 Shareholders’ equity (deficit): Share capital (Note 12 ) 258,910,426 31,846,322 Contributed surplus 4,702,705 15,947,266 Accumulated deficit (173,672,078) (163,195,791) Total shareholders’ equity (deficit) 89,941,053 (115,402,203) Total liabilities and shareholders’ equity (deficit) 140,209,337 34,087,776$ which form an integral part of these Condensed Interim Consolidated Financial Statements. Clinch Resources Limited Condensed Interim Consolidated Balance Sheets (Unaudited) (continued) See accompanying Notes to the Condensed Interim Consolidated Financial Statements 2
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2026 2025 2026 2025 Revenue -$ 514,660$ 84,266$ 1,114,694$ Cost of revenue 1,962,753 407,911 3,492,243 2,156,392 Gross loss (1,962,753) 106,749 (3,407,977) (1,041,698) General and administrative expenses 3,149,508 2,470,492 6,283,115 4,233,023 Depreciation and amortization 1,153,288 225,390 1,707,490 543,356 Operating loss (6,265,549) (2,589,133) (11,398,582) (5,818,077) Non-operating income (expense): Other income, net (923,476) 553 (888,783) (271,478) Finance costs (Note 14 ) (745,838) (12,396,413) (2,686,822) (15,238,960) Gain on revaluation of derivative liabilities (Note 11 ) 1,147,682 - 4,497,900 8,150,323 Loss on sale of equipment - - - (150,522) Total non-operating expense, net (521,632) (12,395,860) 922,295 (7,510,637) Net loss (6,787,181)$ (14,984,993)$ (10,476,287)$ (13,328,714)$ Six months ended June 30 Clinch Resources Limited Condensed Interim Consolidated Statements of Operations (Unaudited) Condensed Interim Consolidated Financial Statements. June 30 Three months ended See accompanying Notes to the Condensed Interim Consolidated Financial Statements which form an in 3
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Common Share Contributed Accumulated Shares Capital Surplus Deficit Total Total shareholders’ equity (deficit) at January 1, 2025 104,708,756 24,323,009$ 14,520,537$ (130,347,291)$ (91,503,745)$ Purchase warrants issued in connection with convertible notes - - 2,111,520 - 2,111,520 Common shares issued in connection with convertible notes 3,000,000 240,000 - - 240,000 Share-based compensation - - 77,062 - 77,062 Net loss - - - (13,328,714) (13,328,714) Total shareholders’ equity (deficit) at June 30, 2025 107,708,756 24,563,009$ 16,709,119$ (143,676,005)$ (102,403,877)$ Total shareholders’ equity (deficit) at January 1, 2026 135,091,140 31,846,322$ 15,947,266$ (163,195,791)$ (115,402,203)$ Common shares issued in connection with reverse take over 1,500,000 2,700,000 - - 2,700,000 Common shares issued in exchange for real estate property 2,400,000 3,000,000 - - 3,000,000 Balance at March 17, 2026, pre-merger, pre-share issuance and prior to recording net loss for the quarter 138,991,140 37,546,322 15,947,266 (163,195,791) (109,702,203) Common shares issued in exchange of overriding royalties 8,217,773 5,000,000 - - 5,000,000 Common shares issued in connection with subscription receipt 15,668,844 27,831,958 - - 27,831,958 Common shares issued in connection with acquisition 7,000,000 12,600,000 - - 12,600,000 Purchase warrants issued in connection with convertible notes - 3,148,015 - 3,148,015 Common shares issued in connection with convertible notes 1,938,889 3,490,000 - - 3,490,000 Common shares issued in connection with convertible notes and accrued expenses 152,742,638 109,847,481 - - 109,847,481 Common shares issued in connection with acquisition of equity interest 26,507,634 47,713,741 - - 47,713,741 Balance at March 17, 2026, prior to recording net loss for the quarter 351,066,918 244,029,502 19,095,281 (163,195,791) 99,928,992 Common shares issued to holders of Arrow Share Purchase Warrants 8,267,180 14,880,924 (14,880,924) - - Common shares cancelled pursuant to legal settlement (4,016,190) - - - - Share-based compensation - - 488,348 - 488,348 Net loss - - - (10,476,287) (10,476,287) Total shareholders’ equity (deficit) at June 30, 2026 355,317,908 258,910,426$ 4,702,705$ (173,672,078)$ 89,941,053$ Clinch Resources Limited Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity (Deficit) (Unaudited) See accompanying Notes to the Condensed Interim Consolidated Financial Statements which form an integral part of these Condensed Interim Consolidated Financial Statements. 4
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2026 2025 Operating activities Net loss (10,476,287)$ (12,571,516)$ Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,101,194 543,354 Accretion of convertible notes 606,296 - Gain on revaluation of derivative liabilities 4,497,900 - Accretion of overriding royalties - - Amortization of discounts and debt issuance costs - - Loss on sale of equipment - 20,606 Compensation paid through issuance of convertible notes - - Interest and professional fees paid through issuance of convertible notes - - Share-based compensation 488,348 94,837 Receivables (1,235) (231,722) Coal inventories (457,417) - Advance royalties 519,811 (83,285) Prepaid expenses and other assets (667,336) 108,957 Other current assets (1,343,399) - Accounts payable and accrued expenses (6,977,049) (13,891,760) Deferred revenues - (187,970) Net cash used in operating activities (12,709,174) (26,198,499) Investing activities Purchases of property, plant, and equipment (1,420,726) (56,830) Costs capitalized as exploration and evaluation assets (3,245,217) (2,276,738) Investment in related parties 1,010,496 - Investment in other companies 92,042 - Net cash used in investing activities (3,563,405) (2,333,568) Financing activities Proceeds from issuance of convertible notes, net of debt issuance costs 8,989,150 28,957,482 Proceeds received from issuance of notes payable to founder - 575,000 Principal payments on notes payable to founder (3,750,000) - Principal payments on convertible notes with related parties (1,600,000) - Principal payments on convertible notes with investors 29,934,686 - Principal payments on notes payable to investors - (500,000) Principal payments on lease liabilities (10,063,797) (147,241) Net cash provided by financing activities 23,510,039 28,885,241 Condensed Interim Consolidated Statements of Cash Flows (Unaudited) Clinch Resources Limited June 30 Six months ended 5
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2026 2025 Net increase (decrease) in cash 7,237,460$ 353,174$ Cash at beginning of period 2,455,193 79,468 Cash at end of period 9,692,653$ 432,642$ Supplemental disclosure of cash flow information Cash paid for interest 2,539,750$ 8,021,089$ Supplemental disclosure of noncash activities Incurrence of lease liabilities 28,459,906$ -$ Common shares issued in connection with reverse take over 2,700,000 - Common shares issued in exchange for real estate property 3,000,000 - Common shares issued in exchange of overriding royalties 5,000,000 - Common shares issued in connection with subscription receipts 27,831,958 - Common shares issued in connection with acquisition 12,600,000 - Purchase warrants issued in connection with convertible notes - 1,364,520 Common shares issued in connection with convertible notes 3,490,000 - Common shares issued in connection with convertible notes and accrued expenses 109,847,481 - Common shares issued in connection with acquisition of equity interest 47,713,741 - Common shares issued to holders of Arrow Share Purchase Warrants 14,880,924 - See accompanying Notes to the Condensed Interim Consolidated Financial Statements and the Independent Auditor’s Review Report on Condensed Interim Consolidated Financial Statements, which form an integral part of these Condensed Interim Consolidated Financial Statements. Clinch Resources Limited Condensed Interim Consolidated Statements of Cash Flows (Unaudited) (continued) June 30 Six months ended 6
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 7 1. Nature of Operations and Basis of Presentation Nature of Operations Clinch Resources Ltd. (“Clinch”), through its wholly owned subsidiary, Arrow Resources Limited (“Arrow”), and Arrow’s majority -owned subsidiary, Active Resources, Inc. (“Active”) (collectively, the “Company”), is in the business of mining, processing, and selling metallurgical coal, as well as exploring, acquiring, and developing resource properties that are consistent with its existing coal business. The Company’s mining operations, which are principally located in the southern part of the State of West Virginia, USA, began in October 2021. As of June 30, 2026, the Company operates a coal preparation plant and a railroad load -out facility and processes coal for third parties. The Company continues to develop additional mines. Corporate Information The Company’s corporate address is 40 Temperance Street, Suite 3200, ON MH 0B4 Toronto, Canada. During the first quarter of 2026, Arrow completed a reverse takeover transaction (the “RTO”) with Clinch, resulting in Clinch becoming publicly listed. The transaction has been accounted for as a capital transaction, as Clinch did not meet the definition of a business under IFRS. In connection with the RTO, Clinch acquired all issued and outstanding shares of Arrow, and Arrow’s shareholders exchanged their shares for shares of Clinch. Concurrently, the Company completed an equity financing, issued additional convertible notes, and effected a comprehensive restructuring of its capital structure. As of December 31, 2025, the Company had approximately $96,300,000 of convertible notes outstanding and approximately $15,600,000 of accrued interest. During the three months ended March 31, 2026, substantially all outstanding convertible notes and related accrued interest were either repaid or converted into common shares in connection with the RTO. The total obligation settled exceeded $110,000,000 and represented a significant non-cash financing transaction.
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 8 1. Nature of Operations and Basis of Presentation (continued) In connection with the RTO financing, 1406681 B.C., Ltd. (“Finco”), a financing company which was acquired by Clinch as part of the RTO, issued approximately 15,668,844 common shares at a price of $1.80 per share for gross proceeds of approximately $28,200,000. Transaction costs associated with the financing and related transactions were recorded as a reduction of share capital to the extent attributable to equity issuance, with the remainder recorded as debt issuance costs. As a result of the RTO and related transactions, the Company’s issued and outstanding common shares increased significantly from approximately 146,700,000 shares at December 31, 2025 to approximately 355,000,000 shares on a post-transaction basis. The Company is in the process of finalizing the detailed allocation of shares issued in connection with the conversion of convertible notes and accrued interest, including the determination of conversion pricing applied at closing. Statement of Compliance The consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations as approved by the International Accounting Standards Board (IASB) effective as of June 30, 2026. The Company has consistently applied the same accounting policies throughout all periods presented. Prior to the RTO, the Company had multiple tranches of convertible notes issued between 2021 and 2025 with differing economic terms. These instruments included conversion features at fixed prices and variable prices based on discounts to future equity offerings, generally ranging from approximately 60% to 75% of the offering price. In addition, certain convertible notes included original issue discounts, issuance of common shares and warrants, and overriding royalty provisions tied to coal production. As a result of these transactions, the Company eliminated substantially all outstanding derivative liabilities associated with embedded conversion features and significantly reduced its outstanding liabilities. The consolidated financial statements were authorized for issuance by the Board of Directors on August 6, 2026. These consolidated financial statements have not bee n reviewed or audited by an independent auditor, and no assurance is provided by them. These consolidated financial statements are meant to be read in conjunction with the December 31, 2025, audited financial statements. 2. Summary of Significant Accounting Policies Basis of Measurement The consolidated financial statements have been prepared on a historical cost basis. The consolidated financial statements are presented in United States dollars.
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 9 2. Summary of Significant Accounting Policies (continued) Subsidiaries Subsidiaries include all entities over which the Company has control. The Company controls an entity when it is exposed to, or has rights to, variable returns from the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date control is acquired by the Company and are de-consolidated from the date control ceases. Financial statements of the subsidiaries are prepared for the same reporting period as the parent company using consistent accounting policies. All intercompany balances, revenues, expenses, earnings, and losses from intercompany transactions are eliminated upon consolidation. Currency The functional currency of the Company and each of its subsidiaries is the United States dollar, which is also the presentation currency of the consolidated financial statements. Company Environment and Risk Factors The Company, in the course of its business activities, is exposed to a number of risks including fluctuating market conditions of coal, transportation and fuel costs, changing government regulations, unexpected maintenance and equipment failure, employee benefits cost control, changes in estimates of proven and probable coal reserves, necessary mining permits, and control of adequate recoverable mineral properties. In addition, adverse weather and geological conditions may increase operating costs, sometimes substantially. Accounting Pronouncements Issued but Not Yet Effective No new standards, interpretations, amendments, or improvements to existing standards issued by the IASB or the International Financial Reporting Interpretations Committee that will have a significant impact on the Company’s consolidated financial statements and are mandatory for future accounting periods have been issued.
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 10 3. Property, Plant, and Equipment Plant and Improvements Mining Equipment Capitalized Asset Retirement Cost Total Cost Balance as of December 31, 2024 $ 5,060,437 $ 1,878,397 $ 77,044 $ 7,015,878 Additions in 2025 – 592,801 – 592,801 Disposals in 2025 – (178,301) – (178,301) Balance as of December 31, 2025 5,060,437 2,292,897 77,044 7,430,378 Additions in 2026 490,000 281,228 – 771,228 Disposals in 2026 – – – – Balance as of June 30, 2026 $ 5,550,437 $ 2,574,125 $ 77,044 $ 8,201,606 Accumulated depreciation Balance as of December 31, 2024 $ 1,372,779 $ 801,806 $ 77,044 $ 2,251,629 Depreciation and amortization 506,044 119,002 – 625,046 Disposals in 2025 – (125,097) – (125,097) Balance as of December 31, 2025 1,878,823 795,711 77,044 2,751,578 Depreciation and amortization 540,739 366,270 – 889,657 Disposals – – – – Balance as of June 30, 2026 $ 2,419,562 $ 1,161,981 $ 77,044 $ 3,658,587 Carrying amounts, excluding assets held for sale and construction in progress As of December 31, 2025 $ 3,181,614 $ 1,497,186 $ – $ 4,678,800 As of June 30, 2026 $ 3,130,875 $ 1,412,145 $ – $ 4,543,019 Plant and Equipment Land and Assets Held for Sale Construction in Progress Total Carrying amounts As of December 31, 2025 $ 4,678,800 $ 150,000 $1,331,584 $ 6,160,384 As of June 30, 2026 $ 4,543,019 $ 3,150,000 $1,981,084 $ 9,674,103
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 11 3. Property, Plant, and Equipment (continued) Construction in progress as of June 30, 202 6 included costs primarily related to continued expansion, renovation, and upgrades to a preparation plant and loadout. During the three months ended June 30, 2026, additions to property, plant , and equipment primarily related to mining equipment. Depreciation and amortization expense related to property, plant, and equipment commences upon in-service date. 4. Exploration and Evaluation Assets Mines Under Construction Producing Mines Total Cost Balance as of December 31, 2024 $10,738,625 $ 887,104 $11,625,729 Additions in 2025 3,753,214 – 3,753,214 Balance as of December 31, 2025 14,491,839 887,104 15,378,943 Additions during the three months ended June 30, 2026 3,245,217 – 3,245,217 Balance as of June 30, 2026 $ 17,737,056 $ 887,104 $ 18,624,160 Accumulated amortization Balance as of December 31, 2025 $ – $ 887,104 $ 887,104 Balance as of June 30, 2026 $ – $ 887,104 $ 887,104 Carrying amounts As of December 31, 2025 $ 14,491,839 $ – $14,491,839 As of June 30, 2026 $ 17,737,056 $ – $17,737,056 Amortization expense related to exploration and evaluations assets for producing mines commences when production begins.
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 12 5. Mineral Properties Cost Balance as of December 31, 2025 and June 30, 2026 $ 1,746,632 Accumulated depletion Balance as of December 31, 2025 and June 30, 2026 $ – Carrying amounts Balance as of December 31, 2025 and June 30, 2026 $ 1,746,632 No capitalized costs for mineral properties are associated with mines that were producing as of June 30, 2026. 6. Accrued Expenses The Company’s accrued expenses are summarized below as of: June 30 2026 December 31 2025 Accrued royalties $6,197,402 $11,197,402 Accrued interest 147,072 16,227,210 Accrued insurance financing 821,713 829,147 Accrued compensation 261,230 174,767 Other accrued liabilities 1,894,627 1,227,248 Balance at end of period, total $ 9,322,044 $29,655,774 As of December 31, 2025, accrued expenses included $16,227,210 of accrued interest related primarily to the Company’s convertible notes. During the three months ended March 31, 2026, in connection with the RTO, all this accrued interest was eliminated through a combination of (i) conversion into common shares together with the related debt instruments and (ii) cash repayment of the remaining balances not converted.
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 13 7. Reclamation Provision for Asset Retirement Obligations Changes in the Company’s ARO liabilities are summarized below: Six months ended June 30, 2026 Year ended December 31, 2025 Balance at beginning of period $ 2,274,417 $ 3,221,665 Accretion expense (Note 13) – – Change in estimate – (947,248) Balance at end of period 2,274,417 2,274,417 Less current portion 74,453 74,453 Long-term portion $ 2,199,964 $ 2,199,964 The current portion represents the amount of costs expected to be incurred by the Company within one year from the balance sheet date. As of June 30, 2026 and December 31, 2025, to secure reclamation obligations, the Company had $3,485,218 in surety bonds outstanding, of which $1,742,606 in surety bond collateral deposits were included in other noncurrent assets. 8. Lease Liabilities and Right-of-Use Assets The Company’s lease liabilities are summarized below: Interest Rate Maturity June 30, 2026 December 31 2025 Equipment, 2023 10.5% February 2027 $ 206,079 $2,793,000 Facilities, 2024 12% June 2027 142,512 201,519 Equipment, 2026 5.9 - 9% December 2030 22,724,024 201,519 Balance end of period 23,743,439 2,994,519 Less current portion 5,118,947 2,921,137 Long-term portion $17,953,671 $ 73,382 Lease liabilities and minimum lease obligations as of June 30, 2026 are as follows: Less than 1 year $ 5,504,244 1-5 years 18,239,195 Total payments 23,743,439 Less amounts representing interest 670,821 Total minimum lease obligations $23,072,618
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 14 8. Lease Liabilities and Right-of-Use Assets (continued) The Company’s right-of-use assets are summarized below: Equipment Facilities Total Gross right-of-use asset Balance, December 31, 2024 $5,715,042 $346,930 $6,061,972 Disposals and transfers (2,372,043) – (2,372,043) Balance, December 31, 2025 3,342,999 346,930 3,689,929 Lease expiration during the six months ended June 30, 2026 – – – Additions during the six months ended June 30, 2026 28,459,904 – 28,459,904 Disposals and transfers during the six months ended June 30, 2026 – – – Balance as of June 30, 2026 $31,802,903 $ 346,930 $32,149,833 Accumulated amortization Balance, December 31, 2024 $1,788,385 $57,823 $1,846,208 Amortization 216,512 115,642 332,154 Lease modification (1,956,986) – (1,956,986) Balance, December 31, 2025 47,911 173,465 221,376 Amortization during the six months ended June 30, 2026 24,005 170,182 211,538 Lease expiration during the six months ended June 30, 2026 – – – Balance as of June 30, 2026 $ 71,916 $ 343,647 $ 415,563 Net book value December 31, 2025 $ 3,295,088 $ 173,465 $ 3,468,553 June 30, 2026 $31,730,987 $ 3,285 $31,734,272 Amortization related to the right-of-use assets is included in depreciation and amortization expense in the consolidated statements of operations. Lease expense for short term leases totaled $121,834 for the six months ended June 30, 2026.
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 15 9. Investments Investment In Related Party Effective March 18, 2026, the Company acquired approximately 39% of the outstanding equity interests in JJ Resources, Inc. (“JJ Resources”). The consideration for the transaction included $5,000,000 million in cash and the issuance of 26,507,634 common shares. The issuance of these shares represents a significant component of the total equity issued in connection with the RTO and related transactions. The Company expects to account for this investment under the equity method based on its ownership interest and level of influence. Other Investments During 2025, the Company advanced approximately $1,235,388 to Virginia Carbon Products, LLC (“VCP”) in exchange for a $1,500,000 convertible note. During the six months ended June 30, 2026, the Company exchanged the $1,500,000 convertible note and issued 900,000 common shares at approximately $1.10 per share in exchange for 2,384,839 Series A Preferred Units of VCP, representing approximately a 30% ownership interest in VCP. The Series A Preferred Units provide the Company with preferential economic rights relative to common equity holders, including priority return of capital and preferential return provisions. The Company expects to account for this investment under the equi ty method based on its ownership interest and level of influence. During 2025, the Company advanced approximately $396,100 to Catalyst Resources, LLC (“Catalyst”) in exchange for a $500,000 convertible note. During the six months ended June 30, 2026, the Company exchanged the $500,000 convertible note and issued approximately 6,000,000 common shares to obtain a 50% ownership interest in Active Catalyst North Carolina JV, LLC (“Active Catalyst JV”), which was formed to hold certain lease assets. The Company shares control over Active Catalyst JV with its partner, including decision-making rights over significant activities. Accordingly, the Company expects to account for this investment under the equity method based on its ownership interest and level of influence. During the six months ended June 30, 2026, the Company formed Aster Resources, LLC (“Aster”) as a wholly owned subsidiary. As of March 31, 2026, Aster has not commenced operations and has no material assets, liabilities, or transactions. Accordingly, no significant activity has been recognized in the condensed interim consolidated financial statements related to this entity. These other investments have been included in Other noncurrent assets on the accompanying consolidated balance sheet.
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 16 10. Notes Payable The Company’s notes payable are summarized below as of: June 30 2026 December 31 2025 Note payable to founder - May 2019 $ – $ – Note payable to related entity - April 2020 – 1,600,000 Notes payable to investors - September 2022 – 7,500,000 Notes payable to investors - December 2022 – 6,000,000 Notes payable to investor - October 2025 – 1,072,907 Balance at end of period, total – 16,172,907 Unamortized discounts – – Balance at end of period, net $ – $ 16,172,907 During the six months ended June 30, 2026, as part of the RTO (Note 1), the Company repaid all the outstanding balances of notes payable and related accrued interest. 11. Convertible Notes and Derivative Liabilities Changes in the Company’s convertible notes are summarized below: Six months ended June 30, 2026 Year ended December 31, 2025 Balance at beginning of period $103,703,507 $49,938,987 Issuance of convertible notes 18,227,889 53,728,507 Recognition of derivative liabilities (4,497,900) – Conversion of notes in exchange for common shares (103,703,507) Principal payments – (3,550,000) Accretion of convertible notes 606,296 3,586,013 Balance at end of period, total 14,336,285 103,703,507 Unamortized discounts and debt issuance costs (2,372,936) (7,370,134) Balance at end of period, net 11,963,349 96,333,373 Less current portion of convertible notes, net of unamortized discounts and debt issuance costs – 96,333,373 Long-term portion of convertible notes, net of unamortized discount and debt issuance costs $ 11,963,349 $ –
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 17 11. Convertible Notes and Derivative Liabilities (continued) Changes in the Company’s derivative liabilities are summarized below: June 30 2026 December 31 2025 Balance at beginning of period $ – $ 8,150,323 Recognition of derivative liabilities 6,210,984 (8,150,323) Gain on revaluation of derivative liabilities (4,497,900) – Balance at end of period, total 1,713,084 – Less current portion of derivative liabilities – – Long-term portion of derivative liabilities $ 1,713,084 $ – Convertible notes issued in connection with the RTO In connection with the RTO, financing activities were undertaken through Clinch Resources Subco. Ltd. (“Finco”), a subsidiary of the Company. Prior to the RTO, the Company had multiple tranches of convertible notes issued between 2021 and 2025 with differing economic terms. These instruments included conversion features at fixed prices and variable prices based on discounts to future equity offerings, generally ranging from approximately 60% to 75% of the offering price. In addition, certain convertible notes included original issue discounts, issuance of common shares and warrants, and overriding royalty provisions tied to coal production. During the three months ended March 31, 2026, the Company settled substantially all outstanding convertible notes and related accrued interest through a combination of repayment and conversion into common shares. As a result of these transactions, the Company eliminated substantially all outstanding derivative liabilities associated with embedded conversion features and significantly reduced its outstanding liabilities. The conversion of convertible notes and accrued interest into common shares represents a significant non-cash financing activity and resulted in substantial dilution to existing shareholders. Due to the varying terms of the underlying instruments, the final number of shares issued and the effective conversion pricing applied remain subject to completion of closing schedules. During March 2026, the Company issued additional convertible notes totaling approximately $18.2 million, including approximately $6.0 million issued to investors , $11.8 million issued to the founder and additional convertible notes of $879,110 issued for debt issuance costs. These notes bear interest at 9.5% per annum, mature in March 2029, and include 4,277,194 common share purchase warrants. These share purchase warrants are convertible into common shares of the Company at a price of approximately $2.16 per share , subject only to customary anti -dilution adjustments for stock splits, stock dividends, recapitalizations, and similar events. Accordingly, the number of shares issuable upon conversion is fixed or determinable based on the outstanding principal and accrued interest divided by the stated conversion price. The Company determined that the embedded conversion feature is indexed to the Company’s own stock and does not require separate accounting as a derivative liability.
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 18 11. Convertible Notes and Derivative Liabilities (continued) Derivative liabilities The initial fair value of the 2025 embedded derivative liabilities was determined using the Black- Scholes Option Pricing model using the assumptions as follows: Ordinary share price $0.08 Exercise price $0.70-$1.08 Expected term (years) .33-.50 Risk-free interest rates 4.00%-4.33% Expected / weighted-average volatility 65% Dividend yield 0% The fair value of the 2025 embedded derivative liabilities as of December 31, 2025 was determined using the Black-Scholes Option Pricing model using the assumptions as follows: Ordinary share price $0.50 Exercise price $1.08 Expected term (years) .25-.50 Risk-free interest rates 3.75% Expected / weighted-average volatility 65% Dividend yield 0% The initial fair value of the 2026 embedded derivative liabilities was determined using the Black- Scholes Option Pricing model using the assumptions as follows: Ordinary share price $1.80 Exercise price $ 2.16 Expected term (years) 3.0 Risk-free interest rates 4.00% Expected / weighted-average volatility 65% Dividend yield 0% The fair value of the 2026 embedded derivative liabilities as of June 30, 2026 was determined using the Black-Scholes Option Pricing model using the assumptions as follows: Ordinary share price $1.17 Exercise price $ 2.16 Expected term (years) 2.99 Risk-free interest rates 4.00% Expected / weighted-average volatility 65% Dividend yield 0% 12. Share Capital The authorized capital of the Company consists of voting common shares with such rights, privileges, restrictions and conditions as the B oard of Directors of the Company may determine from time to time. The holders of common shares are entitled to one vote per share at meetings of
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 19 12. Share Capital (continued) the Company. As of June 30, 2026, 355,317,908 voting common shares were outstanding. The components of equity on the Company’s consolidated balance sheet include Share Capital, Contributed Surplus, and Accumulated Deficit. Share Capital is used to recognize the value of equity-settled ordinary share-based transactions. Contributed Surplus is used to record the issuance of options and warrants ( Note 12). Accumulated Deficit is used to record the Company’s change in operating deficit over time. In April 2025, Arrow issued 3,000,000 common shares as additional consideration for convertible notes for a total of $240,000 (Note 10). In June 2025, Arrow issued 8,615,453 common shares for payment of accrued interest of $662,355 for certain convertible notes (Note 10). In August 2025, Arrow issued 500,000 common shares for payment of accrued interest and an overriding royalty of $449,129 for certain convertible notes (Note 10). In August and September 2025, Arrow issued 12,892,437 common shares as additional consideration for convertible notes for a total of $1,672,829 (Note 10). In October, November and December 2025, Arrow issued 5,374,494 common shares as additional consideration for convertible notes for a total of $4,499,000 (Note 10). Effective in March 2026, the Company acquired certain real estate property in exchange for the issuance of 2,400,000 common shares valued at $3,000,000. During March 2026, i n connection with the RTO ( Note 1), the Company exchanged $5,000,000 of overriding royalties for 8,217,773 common shares. In connection with the RTO, during March 2026, Clinch Resources Subco. Ltd. (at such time, existing under the name 1406681 B.C. Ltd. (Finco)) issued an aggregate of 15,668,844 common shares, upon the conversion of an aggregate of 15,668,844 subscription receipts previously issued by Finco at an issue price of $1.80 per subscription receipt, for cash proceeds of $28,203,919. Total fees paid in connection with the issuance of the common shares and convertible notes totaled approximately $371,000 in addition to the issuance of 1,938,889 common shares valued at $3,490,000. The costs incurred related to the issuance of the common shares is recorded as a reduction of share capital, and the costs incurred related to the issuance of the convertible notes is recorded as debt issuance costs. In connection with the RTO, outstanding convertible notes of the Company, outstanding accrued interest, and other liabilities were converted into 152,742,638 common shares valued at $274,936,748, which represented approximately 95% of the outstanding conve rtible notes of the Company and related accrued interest (Note 6). Additionally, the remaining approximately 5% of outstanding convertible notes and related accrued interest was paid in full.
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 20 13. Other Share-based Payments The Company’s options activity is summarized below: Number of Options Weighted Average Exercise Price Total outstanding as of December 31, 2024 8,650,000 $0.75 Forfeited during 2025 (1,850,000) $1.25 Total outstanding as of December 31, 2025 6,800,000 $0.74 Granted during the six months ended June 30, 2026 12,500,000 $1.69 Exercised during the six months ended June 30, 2026 (3,000,000) $0.52 Total outstanding as of June 30, 2026 16,300,000 $1.51 Related to the options, the Company recorded share -based compensation expense of $126,459 in 2025, which was recorded as a component of general and administrative expense. Exercisable options totaled 16,400,000 as of June 30, 2026. The Company recorded $488,348 of share-based compensation expense for the six months ended June 30, 2026, compared to $77,062 for the six months ended June 30, 2025. Share purchase warrants The Company’s share purchase warrants activity is summarized below: Number of Warrants Exercise Price Expiration Date Total issued, outstanding and exercisable as of December 31, 2024 18,474,000 Issued during 2025 9,972,628 $1.25 January - December 2027 Exchanged during 2025 (1,200,000) Extended during 2025 5,900,000 Total issued, outstanding and exercisable as of December 31, 2025 33,146,628 Issued during the six months ended June 30, 2026 4,277,194 $2.16 March 11, 2029 Exchanged during the six months ended June 30, 2026 - Exercised during the six months ended June 30, 2026 (32,044,600) Total issued, outstanding and exercisable as of June 30, 2026 5,379,222
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 21 13. Other Share-based Payments (continued) Share purchase warrants (continued) During February 2023, in connection with certain professional services, the Company issued 2,000,000 share purchase warrants valued at $920,000, with an exercise price of $1.30 per share and exercisable until February 2025. During May 2024, in connection with the issuance of certain convertible notes ( Note 10) , the Company issued 3,068,000 share purchase warrants valued at $1,098,828 with an exercise price of $1.25 per share and exercisable until March 2026. In connection with the debt issuance costs of the convertible notes, the Company issued 499,000 of share purchase warrants valued at $160,179 with an exercise price of $1.25 per share and exercisable until March 2026. In July 2024, in connection with a short term advance, the Company issued 200,000 share purchase warrants valued at $75,600 with an exercise price of $1.25 per share and exercisable until July 2026. During October and December 2024, in connection with the issuance of certain convertible notes (Note 10) the Company issued 2,300,000 share purchase warrants valued at $860,180 with an exercise price of $1.25 per share and exercisable until December 2026. In connection with the debt issuance costs of the convertible notes, the Company issued 32,000 of share purchase warrants valued at $11,968 with an exercise price of $1.25 per share and exercisable until December 2026. During January 2025, in connection with the issuance of certain convertible notes ( Note 10), the Company issued 5,360,000 share purchase warrants valued at $1,334,640 with an exercise price of $1.25 per share and exercisable until January 2027. During March 2025, in connection with the issuance of certain convertible notes ( Note 10), the Company issued 120,000 share purchase warrants valued at $29,880 with an exercise price of $1.25 per share and exercisable until April 2027.
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 22 13. Other Share-based Payments (continued) Share purchase warrants (continued) During April 2025, in connection with the issuance of certain convertible notes ( Note 10), the Company issued 3,000,000 share purchase warrants valued at $747,000 with an exercise price of $1.25 per share and exercisable until March 2027. During August and September 2025, in connection with the issuance of certain convertible notes (Note 10), the Company issued 390,600 of share purchase warrants valued at $0, with an exercise price of $1.25 per share and exercisable until August and September 2027, respectively. During December 2025, in connection with the issuance of certain convertible notes (Note 10), the Company issued 1,102,028 of share purchase warrants valued at $0, with an exercise price of $1.25 per share and exercisable until December 2027. During November 2025, the Board of Directors approved the extension of the expiration date of 7,900,000 share purchase warrants previously expired and 10,375,000 share purchase warrants with an expiration date of November 30, 2025 to March 31, 2026. During December 2025, in connection with the issuance of certain convertible notes (Note 10), the Company issued convertible notes in exchange for 1,000,000 share purchase warrants. During March 2026, in connection with the issuance of certain convertible notes ( Note 10), the Company issued for 4,277,194 share purchase warrants. In connection with the RTO ( Note 20), 32,044,600 of share purchase warrants were exercised in exchange for 8,267,180 common shares. Fair Value of Options and Warrants Issued During the Period The fair value of each award is estimated on the date of the grant using an option pricing model and has been expensed by the Company over the service period. The Company used the following ranges of weighted average assumptions during 2026 and 2025: Ordinary share price $0.08 to $1.80 Expected term (years) 1 to 3 Risk-free interest rates 3.99% to 5.05% Expected / weighted-average volatility 65% Dividend yield 0% The risk-free interest rate is based on the U.S. Treasury rate for the expected life at the time of grant, volatility is based on the average long-term implied volatilities of peer companies as the Company’s trading history is limited, and the expected term is determined using the simplified method.
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 23 14. Finance Costs Finance costs are summarized below for each of the six months ended June 30: 2026 2025 Accretion of convertible notes $ 606,296 $ 170,000 Accretion of convertible notes – 3,586,013 Interest on notes payable to founder 195,130 187,447 Interest on notes payable to a related entity – 21,057 Interest related to lease liabilities 170,035 27,839 Amortization of debt issuance costs and discounts related to convertible notes 82,377 6,297,681 Interest on convertible notes 1,632,984 4,576,301 Interest on other notes payable – 372,622 Total finance costs $ 2,686,822 $15,238,960 15. Provision for Income Taxes For tax purposes as of June 30, 2026 and December 31, 2025, the Company has net operating loss (NOL) carryovers which are available to offset future taxable income. The Federal and the state NOL carryovers total approximately $108,222,000 as of December 31, 2025 and are limited to recognition of approximately $21,665,000 annually by Change in Ownership rules of Internal Revenue Code Section 382. The State NOL carryovers expire between 2034 and 2040. In accordance with International Accounting Standard 12, as a result of the Company’s recent losses, the Company recognizes the net deferred tax assets only to the extent that there is convincing evidence that the amounts will be utilized by the Company. The provision for income tax expense recognized differs from the amount that would result from applying federal statutory rates to income before income taxes due primarily to permanent differences, state income taxes, and the valuation allowance.
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 24 16. Other Related Party Transactions Related party transactions include any transactions with employees, other than amounts earned as a result of their employment, transactions with companies that employees or Directors either control or have significant influence over, transactions with comp anies who are under common control with the Company’s key management personnel , and transactions with close family members of key management personnel. Previously disclosed related party transactions include the note payable to founder (Note 10), notes payable to a related entity (controlled by a former Director) (Note 10), convertible notes and related derivative liabilities to related parties (Note 11), convertible notes and related derivative liabilities to employees and related entities (Note 11), common shares issued to former Directors (Note 12), share purchase warrants issued to a related entity (controlled by a former Director) (Note 13), share purchase warrants issued to founder (Note 13). 17. Commitments The Company leases coal reserves from land holding companies and various individuals under agreements that call for royalties to be paid as the coal is mined. The duration of these leases varies, but typically the lease terms are automatically extended as long as future mining is anticipated. Royalty payments are generally based upon a specified rate per ton or a percentage of the gross realization from the sale of the coal. The Company incurred royalty expenses of approximately $130,000 for the six months ended June, 2026 and 2025. Certain agreements require minimum annual royalties to be paid regardless of the amount of coal mined during the period. Future noncancelable minimum royalty and lease payments under these agreements are as follows as of June 30, 2026: 2026 $ 245,000 2027 490,000 2028 410,000 2029 410,000 2030 410,000 Thereafter 607,000 Total $ 2,572,000 18. Contingencies Environmental Matters The Company believes it is in compliance with federal, state and local environmental laws and regulations as currently promulgated. However, the exact nature of environmental control matters, if any, that the Company may encounter in the future cannot be predicted, primarily because of the increasing number, complexity and changing characteristics of environmental requirements that may be enacted by federal, state and local authorities. The Company’s policy is to accrue for environmental expenses when the costs are probable and can be reasonably estimated.
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Clinch Resources Limited Notes to Condensed Consolidated Interim Financial Statements (Unaudited) (continued) 25 18. Contingencies (continued) Litigation Liabilities for loss contingencies arising in the ordinary course of its business from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. The effect of the outcome of any matters on the Company’s future results of operations cannot be predicted with certainty. The Company believes that the final outcome of any litigation will not have a material adverse effect on the Company’s consolidated financial statements. In March 2023, the related party convertible note holder ( Note 11) (the “Plaintiff”) commenced litigation by filing a claim with the Supreme Court of Queensland, in Brisbane, Australia against Active, the founder and Arrow (the “Defendants”), seeking damages pursuant to Australian Consumer Law and breach of contract of their debt and equity investments for $16 million, interest, costs, and an order that certain transactions are void, among other remedies. In June 2024, Plaintiff and the Defendants entered into a Deed of Settlement and Release, pursuant to which Active agreed to pay Plaintiff an aggregate of $11,212,621 in installments, and Plaintiff agreed to transfer and deliver to the Company, in installments, $2,000,000 in principal amount of convertible notes, accrued interest on the convertible notes, and 14,316,701 common shares. The Company paid $2,000,000 under the settlement deed and the Plaintiff obtained a judgement against the Company in the amount of $9,212,621 in Queensland, Australia. In October 2025, Plaintiff and the Defendants entered into another Deed of Settlement and Release, pursuant to which Active agreed to pay Plaintiff the judgment amount of $9,212,621, of which $1,912,110 was paid immediately, and $7,300,511 was to be paid on or before December 31, 2025 in exchange for Plaintiff’s delivery of 14,316,701 common shares of Arrow. In December 2025, Plaintiff and the Defendants entered into a Deed of Variation to the October 2025 Deed of Settlement and Release, pursuant to which several investors funded the Company’s payment to Plaintiff of $3,000,000 of the settlement sum in exchange f or Plaintiff’s return to the Company, and the Company’s delivery to the investors of 6,000,000 common shares . The parties further agreed that, upon completion of the reverse takeover, the remaining $4,300,511 of the settlement amount would be deemed paid and satisfied by Plaintiff’s retention of 4,300,511 common shares, which would be exchanged for shares of the acquirer in the reverse takeover (Note 11), and Plaintiff would return to the Company the remaining 4,016,190 common shares, all in final settlement of the parties disputes . On April 30, 2026, the related party note holder returned to the Company the remaining 4,016,190 Arrow shares held by such party pursuant to the settlement arrangements previously disclosed. Upon completion of this transaction, Clinch held ownership of 100% of the Arrow shares.