Royal Energy Resources, Inc. - FORM 10-K/A

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EX-32.2 - Royal Energy Resources, Inc.	ex32-2.htm
EX-32.1 - Royal Energy Resources, Inc.	ex32-1.htm
EX-31.2 - Royal Energy Resources, Inc.	ex31-2.htm
EX-31.1 - Royal Energy Resources, Inc.	ex31-1.htm
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EX-23.3 - Royal Energy Resources, Inc.	ex23-3.htm
EX-23.2 - Royal Energy Resources, Inc.	ex23-2.htm
EX-23.1 - Royal Energy Resources, Inc.	ex23-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K/A

(Amendment No. 1)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-52547

Royal Energy Resources, Inc.

(Exact name of registrant as specified in its charter)

Delaware		11-3480036
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

56 Broad Street, Suite 2
Charleston, SC		29401
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (843) 900-7693

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.00001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment to this Form 10-K/A. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]

Accelerated filer [X]

Non-accelerated filer [ ]
(Do not check if a
smaller reporting company)

Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

As of June 30, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s equity held by non-affiliates of the registrant was approximately $91,808,202 based on the closing price of the registrant’s common stock on the OTC Bulletin Board on such date. As of March 20, 2017, the registrant had 17,184,095 shares of common stock and 51,000 shares of Series A Convertible Preferred Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy information statement; and, (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933.

None.

TABLE OF CONTENTS

	Explanatory Note	3

	PART II

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 9A.	Controls and Procedures	25
	PART III
Item 15	Exhibits, Financial Statement Schedules	27
	Index to Financial Statements	29

Explanatory Note

This Amendment No. 1 to the annual report of Royal Energy Resources, Inc. (the “Company”) on Form 10-K/A amends our annual report on Form 10-K for the year ended December 31, 2016 (the “Original 10-K”), which was originally filed on April 3, 2017.

We are filing this amendment to amend Item 7 of the original 10-K in order to adhere to Items 303 and 303(a)(3) of Regulation S-K and to provide consistency between certain MD&A disclosures and the financial statements. We are also amending section F (Financial Statements) of the original audited financial statements for the year ended December 31, 2016 to provide additional discontinued operations disclosures required by ASC 205-20-50-1 and 50-2, to update auditor’s reports to comply with Item 308(b) of Regulation S-K and to properly align report dates. Additionally, the financial statements have been expanded to include a disclosure to update the provisional amounts used in the Rhino acquisition accounting which occurred subsequent to the filing of the Original 10-K and included in the Form 10-Q for the quarter ending March 31, 2017.

We are also filing this amendment to amend Item 9A to clarify that management’s assessment of its internal controls over financial reporting (“ICFR”) excludes any assessment of the ICFR of Rhino Resource Partners, LP, and its subsidiaries, which we acquired control of on March 17, 2016 in a material acquisition, and to include the attestation report of our independent registered accounting firm on our ICFR.

This Form 10-K/A also includes the currently dated signature page and certifications from the Company’s principal executive officer and principal financial officer. This Amendment No. 1 does not reflect other subsequent events occurring after the original filing date of the Original 10-K or modify or update in any way disclosures made in the Original 10-K except as noted above. This Amendment No. 1 should be read in conjunction with the Original 10-K and with other Company filings with the Securities and Exchange Commission subsequent to the filing of the Original 10-K.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Annual Report on Form 10-K/A includes forward looking statements (“Forward Looking Statements”). All statements other than statements of historical fact included in this report are Forward Looking Statements. In the normal course of its business, Royal Energy Resources, Inc. and its subsidiaries (the “Company,”) in an effort to help keep its shareholders and the public informed about the Company’s operations, may from time-to-time issue certain statements, either in writing or orally, that contains or may contain Forward-Looking Statements. Although the Company believes that the expectations reflected in such Forward Looking Statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies, past and possible future, of acquisitions and projected or anticipated benefits from acquisitions made by or to be made by the Company, or projections involving anticipated revenues, earnings, levels of capital expenditures or other aspects of operating results. All phases of the Company’s operations are subject to a number of uncertainties, risks and other influences, many of which are outside the control of the Company and any one of which, or a combination of which, could materially affect the results of the Company’s proposed operations and whether Forward Looking Statements made by the Company ultimately prove to be accurate. Such important factors (“Important Factors”) and other factors could cause actual results to differ materially from the Company’s expectations are disclosed in this report. All prior and subsequent written and oral Forward Looking Statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Important Factors included in section 1A “Risk Factors” of the Original 10-K that could cause actual results to differ materially from the Company’s expectations as set forth in any Forward Looking Statement made by or on behalf of the Company.

Overview

The Company previously pursued gold, silver, copper and rare earth metals mining concessions in Romania and mining leases in the United States. Commencing in January 2015, the Company began a series of transactions under which the Company would dispose of all of its existing assets, undergo a change in ownership control and management, and repurpose itself as a North American energy recovery company, with plans to purchase a group of synergistic, long-lived energy assets by taking advantage of favorable valuations for mergers and acquisitions in the current energy markets. In April 2015, the Company completed its first acquisition in furtherance of its change in principle operations, consisting of 40,976 net acres of coal and coalbed methane, located across 22 counties in West Virginia. See below regarding acquisition of majority control of Rhino Resource Partners LP. See Note 3 to the consolidated financial statements for completed acquisitions.

Current management of the Company acquired control of the Company in March 2015, with the goal of using the Company as a vehicle to acquire undervalued natural resource assets. The Company has raised approximately $8.45 million through the sale of shares of common stock in private placements, $6.35 million through issuance of notes payable and is currently evaluating a number of possible acquisitions of operating coal mines and non-operating coal assets. There are currently many coal assets for sale at attractive prices due to distressed conditions in the coal industry. The distressed conditions are mainly due to low natural gas prices causing coal generated power to be displaced by gas generated power. Excessive environmental regulation and low international prices for metallurgical coal also increased the stress on the industry. The resulting drop in demand from coal buyers has caused the price of coal to decline considerably, and caused bankruptcy filings by many of the major coal operators. Despite the current distress in the industry, industry experts still predict that coal will supply a significant percentage of the nation’s energy needs for the foreseeable future, and thus overall demand for coal will remain significant. Also, demand for metallurgical coal has improved and metallurgical coal prices seem likely to stay in a range that will allow lower cost North American coal mines to produce profitably. Management believes there are a number of attractive acquisition candidates in the coal industry which can be operated profitably at current prices and under the current regulatory environment.

Royal Energy Resources, Inc. Purchase of Majority Control of Rhino Resource Partners LP

On January 21, 2016, a definitive agreement was completed between Royal and Wexford Capital LP and certain of its affiliates (collectively, “Wexford”) whereby Royal acquired 676,912 of Rhino’s issued and outstanding common units from Wexford. The definitive agreement also included a commitment by Royal to acquire within 60 days from the date of the definitive agreement, or March 21, 2016, all of the issued and outstanding membership interests of Rhino GP LLC (“Rhino GP”), Rhino’s general partner, as well as 945,526 of Rhino’s issued and outstanding subordinated units from Wexford.

On March 17, 2016, Royal completed the acquisition of all of the issued and outstanding membership interests of Rhino GP as well as the 945,526 issued and outstanding subordinated units from Wexford. Royal obtained control of, and a majority limited partner interest, in Rhino with the completion of this transaction. Immediately subsequent to the consummation of the transaction, the following members of the board of directors of the Partnership’s general partner tendered their resignations effective immediately: Mark Zand, Philip Braunstein, Ken Rubin, Arthur Amron, Douglas Lambert and Mark Plaumann. As the owner of the Partnership’s general partner, Royal has the right to appoint the members of the board of directors of the Partnership’s general partner and so appointed the following individuals as new directors to fill the vacancies resulting from the resignations: William Tuorto, Ronald Phillips, Michael Thompson, Ian Ganzer, Douglas Holsted, Brian Hughs and David Hanig.

On March 21, 2016, Rhino and Royal entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which Rhino issued 6,000,000 of its common units to Royal in a private placement at $1.50 per common unit for an aggregate purchase price of $9.0 million. Royal paid Rhino $2.0 million in cash and delivered a promissory note payable to the Partnership in the amount of $7.0 million. The promissory note was payable in three installments: (i) $3.0 million on July 31, 2016; (ii) $2.0 million on or before September 30, 2016 and (iii) $2.0 million on or before December 31, 2016. On May 13, 2016, the Company paid the $3,000,000 installment which was due on July 31, 2016, and on September 30, 2016 paid the $2,000,000 installment which was due on that date.

In the event the disinterested members of the board of directors of Rhino’s general partner determine that the Partnership does not need the capital that would be provided by either or both installments set forth in (ii) and (iii) above, in each case, Rhino had the option to rescind Royal’s purchase of 1,333,334 common units and the applicable installment would not be payable (each, a “Rescission Right”). If Rhino failed to exercise a Rescission Right, in each case, Rhino had the option to repurchase 1,333,334 of its common units at $3.00 per common unit from Royal (each, a “Repurchase Option”). The Repurchase Options terminated on December 31, 2017. Royal’s obligation to pay any installment of the promissory note was subject to certain conditions, including that Rhino had entered into an agreement to extend the Credit Facility, as amended, to a date no sooner than December 31, 2017. In the event such conditions are not satisfied as of the date each installment is due, Royal had the right to cancel the remaining unpaid balance of the promissory note in exchange for the surrender of such number of common units equal to the principal balance cancelled divided by $1.50.

Overview after Rhino Acquisition

We are a diversified energy company formed in Delaware that is focused on coal and energy related assets and activities, including energy infrastructure investments. We produce, process and sell high quality coal of various steam and metallurgical grades. We market our steam coal primarily to electric utility companies as fuel for their steam powered generators. Customers for our metallurgical coal are primarily steel and coke producers who use our coal to produce coke, which is used as a raw material in the steel manufacturing process. In addition, we have expanded our business to include infrastructure support services, as well as other joint venture investments to provide for the transportation of hydrocarbons and drilling support services in the Utica Shale region. We have also invested in joint ventures that provide sand for fracking operations to drillers in the Utica Shale region and other oil and natural gas basins in the United States.

We have a geographically diverse asset base with coal reserves located in Central Appalachia, Northern Appalachia, the Illinois Basin and the Western Bituminous region. As of December 31, 2016, through the Rhino acquisition, we controlled an estimated 256.9 million tons of proven and probable coal reserves, consisting of an estimated 203.5 million tons of steam coal and an estimated 53.4 million tons of metallurgical coal. In addition, as of December 31, 2016, we controlled an estimated 196.5 million tons of non-reserve coal deposits. Both our estimated proven and probable coal reserves and non-reserve coal deposits as of December 31, 2016 decreased when compared to the estimated tons and deposits reported as of December 31, 2015 due to the sale of our Elk Horn coal leasing business in August 2016. As part of the recent audits of the majority of our coal reserves and deposits performed by Marshall Miller & Associates, Inc., this outside expert performed an independent pro forma economic analysis using industry-accepted guidelines and this was used, in part, to classify tonnage as either proven and probable coal reserves or non-reserve coal deposits, based on market conditions near the time of the issuance of the outside expert’s report.

We operate underground and surface mines located in Kentucky, Ohio, West Virginia and Utah. The number of mines that we operate will vary from time to time depending on a number of factors, including the existing demand for and price of coal, depletion of economically recoverable reserves and availability of experienced labor. In the third quarter of 2015, we temporarily idled a majority of our Central Appalachia operations due to ongoing weak coal market conditions for met and steam coal produced from this region. We resumed mining operations at all of our Central Appalachia operations in 2016 to fulfill customer contracts that we secured for 2016 and 2017.

Our principal business strategy is to safely, efficiently and profitably produce and sell both steam and metallurgical coal from our diverse asset base. In addition, we intend to continue to expand and potentially diversify our operations through strategic acquisitions, including the acquisition of long-term, cash generating natural resource assets. We believe that such assets will allow us to grow our cash and enhance stability of our cash flow.

For the year ended December 31, 2016, we generated revenues of approximately $138.6 million and a net loss from continuing operations of approximately $14.2 million. For the year ended December 31, 2016, we produced approximately 2.6 million tons of coal and sold approximately 2.8 million tons of coal, approximately 90% of which were pursuant to long-term supply contracts.

Factors That Impact Our Business

Our results of operations in the near term could be impacted by a number of factors, including (1) our ability to fund our ongoing operations and necessary capital expenditures, (2) the availability of transportation for coal shipments, (3) poor mining conditions resulting from geological conditions or the effects of prior mining, (4) equipment problems at mining locations, (5) adverse weather conditions and natural disasters or (6) the availability and costs of key supplies and commodities such as steel, diesel fuel and explosives.

On a long-term basis, our results of operations could be impacted by, among other factors, (1) our ability to fund our ongoing operations and necessary capital expenditures, (2) changes in governmental regulation, (3) the availability and prices of competing electricity-generation fuels, (4) the world-wide demand for steel, which utilizes metallurgical coal and can affect the demand and prices of metallurgical coal that we produce, (5) our ability to secure or acquire high-quality coal reserves and (6) our ability to find buyers for coal under favorable supply contracts.

We have historically sold a majority of our coal through supply contracts and anticipate that we will continue to do so. As of December 31, 2016, we had commitments under supply contracts to deliver annually scheduled base quantities of coal as follows:

Year	Tons (in thousands)		Number of customers
2017		3,669		14
2018		701		5

Some of the contracts have sales price adjustment provisions, subject to certain limitations and adjustments, based on a variety of factors and indices.

Results of Operations

As noted above, the Company completed the acquisition of control of Rhino on March 17, 2016. Accordingly, the Company began consolidating the operations of Rhino on that date. The following summarizes the financial statements of Royal for the year and four months ended December 31, 2016 and 2015 and the years ended August 31, 2015 and 2014 which includes the results of operation of Rhino from the date that the Company acquired majority control, as adjusted for provisional changes in the fair value of certain Rhino assets and liabilities as of the date of the transaction.

Segment Information

As of December 31, 2016, we have four reportable business segments: Central Appalachia, Northern Appalachia, Rhino Western and Illinois Basin. Additionally, we have an Other category that includes our ancillary businesses and our remaining oil and natural gas activities. Our Central Appalachia segment consists of two mining complexes: Tug River and Rob Fork, which, as of December 31, 2016, together included one underground mines, three surface mines and three preparation plants and loadout facilities in eastern Kentucky and southern West Virginia. We idled a majority of our Central Appalachia operations beginning in the third quarter of 2015 to reduce excess coal inventory. We resumed mining operations at all of our Central Appalachia operations during the three months ended September 30, 2016. The Central Appalachia segment also includes the GS Energy mine, which is currently inactive, the Blaze Mining royalty and Blaze Minerals. Our Northern Appalachia segment consists of the Hopedale mining complex, the Sands Hill mining complex, and the Leesville field. The Hopedale mining complex, located in northern Ohio, included one underground mine and one preparation plant and loadout facility as of December 31, 2016. Our Sands Hill mining complex, located in southern Ohio, included two surface mines, a preparation plant and a river terminal as of December 31, 2016. Our Rhino Western segment includes our underground mine in the Western Bituminous region at our Castle Valley mining complex in Utah. Our Illinois Basin segment includes one underground mine, preparation plant and river loadout facility at our Pennyrile mining complex located in western Kentucky, as well as our Taylorville field reserves located in central Illinois. The Pennyrile mining complex began production and sales in mid-2014. Our Other category is comprised of our ancillary businesses and our remaining oil and natural gas activities.

Evaluating Our Results of Operations

Our management uses a variety of financial measurements to analyze our performance, including (1) Adjusted EBITDA, (2) coal revenues per ton and (3) cost of operations per ton.

Adjusted EBITDA. The discussion of our results of operations below includes references to, and analysis of, our segments’ Adjusted EBITDA results. Adjusted EBITDA represents net income before deducting interest expense, income taxes and depreciation, depletion and amortization, while also excluding certain non-cash and/or non-recurring items. Adjusted EBITDA is used by management primarily as a measure of our segments’ operating performance. Adjusted EBITDA should not be considered an alternative to net income, income from operations, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Because not all companies calculate Adjusted EBITDA identically, our calculation may not be comparable to similarly titled measures of other companies. Please read “—Reconciliation of Adjusted EBITDA to Net Income by Segment” for reconciliations of Adjusted EBITDA to net income by segment for each of the periods indicated.

Coal Revenues Per Ton. Coal revenues per ton represents coal revenues divided by tons of coal sold. Coal revenues per ton is a key indicator of our effectiveness in obtaining favorable prices for our product.

Cost of Operations Per Ton. Cost of operations per ton sold represents the cost of operations (exclusive of DD&A) divided by tons of coal sold. Management uses this measurement as a key indicator of the efficiency of operations.

Summary

Historical year ended December 31, 2016 compared to four months ended December 31, 2015, and historical years ended August 31, 2015 and 2014 (in millions)

The following table sets forth certain information regarding our revenues, operating expenses, other income and expenses, and operational data on a historical basis for the year ended December 31, 2016, the four months ended December 31, 2015 and the years ended August 31, 2015 and 2014.

	Historical
				Four Months
	Year ended			Ended			Years ended
	December 31,			December 31,			August 31,
	2016			2015**			2015			2014
Statement of Operations Data:
Total revenues	$	138.6		$	—		$	0.3		$	—
Costs and expenses:
Cost of operations		111.6			—			0.3			—
Freight and handling costs		1.3			—			—			—
Depreciation, depletion and amortization		4.5			0.2			0.1			—
Selling, general and administrative		14.1			0.8			0.4			0.8
Asset impairment		16.7			—			—			—
Total costs and expenses		148.2			1.0			0.8			0.8
(Loss) from operations		(9.7	)		(1.0	)		(0.5	)		(0.8	)
Other income (expense):
Interest expense		(4.3	)		—			—			—
Other		—			(0.2	)		—			—
Equity in (loss) income of unconsolidated affiliates		(0.2	)		—			—			—
Total other income (expense)		(4.5	)		(0.2	)		—			—
Net (loss) before discontinued operations and noncontrolling interest		(14.2	)		(1.2	)		(0.5	)		(0.8	)
Income from discontinued operations		0.7			-			-			-
Net loss before noncontrolling interest		(13.5	)		(1.2	)		(0.5	)		(0.8	)
Other Financial Data
Adjusted EBITDA	$	11.3		$	(1.0	)	$	(0.4	)	$	(0.8	)

* Totals may not foot due to rounding

** Operating results for the four months ended December 31, 2014 included no revenues and $0.08 of selling, general and administrative expense and ($0.01) of other income (loss).

Year Ended December 31, 2016 Compared to Year Ended August 31, 2015

Summary

Tons Sold. The following table presents tons of coal sold by reportable segment for the years ended December 31, 2016 and August 31, 2015:

	Year ended December 31,		Year ended August 31,		Increase (decrease)
Segment	2016		2015		Tons		%*
	(in thousands, except %)
Central Appalachia		558.6		4.2		554.4		13200	%
Northern Appalachia		464.3		-		464.3		n/a
Rhino Western		717.6		-		717.6		n/a
Illinois Basin		1,033.4		-		1,033.4		n/a
Total*		2,773.9		4.2		2,769.7		65,946	%

Calculated percentages and the rounded totals presented are based upon on actual whole ton amounts and not the rounded amounts presented in this table.

We sold approximately 2.8 million tons of coal in the year ended December 31, 2016 as compared to approximately 4 thousand tons sold for the year ended August 31, 2015. The increase in total tons sold year-to-year was primarily due to the acquisition of Rhino on March 17, 2016.

Revenues. The following table presents revenues and coal revenues per ton by reportable segment for the year ended December 31, 2016 and the year ended August 31, 2015:

	Year Ended December 31,		Year Ended August 31,		Increase (Decrease)
Segment	2016		2015		$			%*
(in millions except per ton data and %)
Central Appalachia
Coal revenues	$	32.8	$	0.3	$	32.5			10834	%
Freight and handling revenues		-		-		-			n/a
Other revenues		0.2		-		0.2			n/a
Total revenues	$	33.0	$	0.3	$	32.7			10900	%
Coal revenues per ton*	$	58.66	$	67.26	$	(8.60	)		(13	%)
Northern Appalachia
Coal revenues	$	24.4	$	-	$	24.4			n/a
Freight and handling revenues		1.3		-		1.3			n/a
Other revenues		5.9		-		5.9			n/a
Total revenues	$	31.6	$	-	$	31.6			n/a
Coal revenues per ton*	$	52.47		$ n/a	$	52.47			n/a
Rhino Western
Coal revenues	$	26.8	$	-	$	26.8			n/a
Freight and handling revenues		-		-		-			n/a
Other revenues		-		-		-			n/a
Total revenues	$	26.8	$	-	$	26.8			n/a
Coal revenues per ton*	$	37.36		$ n/a	$	37.36			n/a
Illinois Basin
Coal revenues	$	46.8	$	-	$	46.8			n/a
Freight and handling revenues		-		-		-			n/a
Other revenues		0.1		-		0.1			n/a
Total revenues	$	46.9	$	-	$	46.9			n/a
Coal revenues per ton*	$	45.25		$ n/a	$	45.25			n/a
Other**
Coal revenues	$	-	$	-	$	-			n/a
Freight and handling revenues		-		-		-			n/a
Other revenues		0.3		-		0.3			n/a
Total revenues	$	0.3	$	-	$	0.3			n/a
Coal revenues per ton*		n/a		n/a		n/a			n/a
Total
Coal revenues	$	130.8	$	0.3	$	130.5			43500	%
Freight and handling revenues		1.3		-		1.3			n/a
Other revenues		6.5		-		6.5			n/a
Total revenues	$	138.6	$	0.3	$	138.3			46100	%
Coal revenues per ton*	$	47.15	$	67.26	$	(20.11	)		(30	%)

*	Percentages and per ton amounts are calculated based on actual amounts and not the rounded amounts presented in this table.

**	The Other category includes results for our ancillary businesses. The activities performed by these ancillary businesses also do not directly relate to coal production. As a result, coal revenues and coal revenues per ton are not presented for the Other category.

Our revenues increased to $138.6 million in the year ended December 31, 2016 as compared to $0.3 million in the year ended August 31, 2015. Operations in the 2015 period included the initial operation in West Virginia of Blue Grove which operated the GS Energy mine commencing in June 2015. These operations were subsequently suspended at the end of July when the coal purchaser filed Chapter 11 Bankruptcy. The Company collected its unpaid receivables during the last quarter of 2016. On March 17, 2016, Royal acquired the majority of Rhino and began consolidating its operations. We sold 4.2 thousand tons of coal in the 2015 period and approximately 2.8 million tons in the 2016 period.

Costs and Expenses. The following table presents costs and expenses (including the cost of purchased coal) and cost of operations per ton by reportable segment for the year ended December 31, 2016 and the year ended August, 31, 2015:

	December 31,		August 31,		Increase/(Decrease)
Segment	2016		2015		$			% *
	(in millions, except per ton data and %)
Central Appalachia
Cost of operations (exclusive of depreciation, depletion and amortization shown separately below)	$	21.9	$	0.3	$	21.6			7200	%
Freight and handling costs		-		-		-			n/a
Depreciation, depletion and amortization		1.2		0.1		1.1			1100	%
Selling, general and administrative		11.6		0.4		11.2			2800	%
Total costs		34.7		0.8		33.9			4238	%
Cost of operations per ton*	$	39.21	$	67.63	$	(28.42	)		(42	%)
Northern Appalachia
Cost of operations (exclusive of depreciation, depletion and amortization shown separately below)	$	22.7	$	-	$	22.7			n/a
Freight and handling costs		1.3		-		1.3			n/a
Depreciation, depletion and amortization		0.6		-		0.6			n/a
Selling, general and administrative		0.1		-		0.1			n/a
Total costs		24.7		-		24.7			n/a
Cost of operations per ton*	$	48.89		$ n/a	$	48.89			n/a
Rhino Western
Cost of operations (exclusive of depreciation, depletion and amortization shown separately below)	$	22.8	$	-	$	22.8			n/a
Freight and handling costs		-		-		-			n/a
Depreciation, depletion and amortization		1.0		-		1.0			n/a
Selling, general and administrative		0.1		-		0.1			n/a
Total costs		23.9		-		23.9			n/a
Cost of operations per ton*	$	31.77		$ n/a	$	31.77			n/a
Illinois Basin
Cost of operations (exclusive of depreciation, depletion and amortization shown separately below)	$	43.7	$	-	$	43.7			n/a
Freight and handling costs		-		-		-			n/a
Depreciation, depletion and amortization		1.7		-		1.7			n/a
Selling, general and administrative		0.2		-		0.2			n/a
Total costs		45.6		-		45.6			n/a
Cost of operations per ton*	$	42.29		$ n/a	$	42.29			n/a
Other
Cost of operations (exclusive of depreciation, depletion and amortization shown separately below)	$	0.5	$	-	$	0.5			n/a
Freight and handling costs		-		-		-			n/a
Depreciation, depletion and amortization		-		-		-			n/a
Selling, general and administrative		2.1		-		2.1			n/a
Total costs		2.6		-		2.6			n/a
Cost of operations per ton**		n/a		n/a		n/a			n/a
Total
Cost of operations (exclusive of depreciation, depletion and amortization shown separately below)	$	111.6	$	0.3	$	111.3			37100	%
Freight and handling costs		1.3		-		1.3			n/a
Depreciation, depletion and amortization		4.5		0.1		4.4			4400	%
Selling, general and administrative		14.1		0.4		13.7			3425	%
Total costs		131.5		0.8		130.7			16337	%
Cost of operations per ton*	$	40.23	$	67.63	$	(27.40	)		(41	%)

*	Percentages and per ton amounts are calculated based on actual amounts and not the rounded amounts presented in this table.

**	Cost of operations presented for our Other category includes costs incurred by our ancillary businesses. The activities performed by these ancillary businesses do not directly relate to coal production. As a result, per ton measurements are not presented for our Other category.

Cost of Operations. Total cost of operations was $111.6 million for the year ended December 31, 2016 as compared to $0.3 million for the year ended August 31, 2015. Our cost of operations per ton was $40.23 for the year ended December 31, 2016, a decrease of $27.40, or 41%, from the year ended August 31, 2015. Total cost of operations for all segments increased due to the acquisition of Rhino on March 17, 2016. The increase in the cost of operations on a per ton basis was due to the acquisition of Rhino.

Freight and Handling. Total freight and handling cost for the year ended December 31, 2016 increased by $1.3 million, or 100%, to $1.3 million. This increase was due to the acquisition of Rhino on March 17, 2016.

Depreciation, Depletion and Amortization. Total DD&A expense for the year ended December 31, 2016 was $4.5 million as compared to $0.1 million for the twelve months ended August 31, 2015. The increase is due to the acquisition of Rhino on March 17, 2016.

Selling, General and Administrative. Selling, general and administrative (“SG&A”) expense for the year ended December 31, 2016 increased to $14.1 million as compared to $0.4 million for the year ended August 31, 2015. This increase was due to the acquisition of Rhino on March 17, 2016.

Asset impairment. Asset impairment for the year ended December 31, 2016 was $16.7 million compared to $0 million for the year ended August 31, 2015. The 2016 asset impairment of $16.7 million reflects an impairment charge in our Central Appalachia segment from the impairment of the Blaze Mining royalty agreement in West Virginia.

Interest Expense. Interest expense for the year ended December 31, 2016 was $4.3 million as compared to $0 million for the year ended August 31, 2015, an increase of $4.3 million, or 100%. This increase was due acquisition of Rhino Energy on March 17, 2016.

Adjusted EBITDA from Continuing Operations (Amended). The following table presents Adjusted EBITDA from continuing operations by reportable segment for the years ended December 31, 2016 and August 31, 2015:

							Increase
Segment	2016			2015			(Decrease)
	(in millions)
Central Appalachia	$	(0.5	)	$	(0.4	)	$	(0.1	)
Northern Appalachia		7.5			-			7.5
Rhino Western		3.8			-			3.8
Illinois Basin		3.0			-			3.0
Other		(2.5	)		-			(2.5	)
Total	$	11.3		$	(0.4	)	$	11.7

Adjusted EBITDA for the year ended December 31, 2016 was $11.3 million, which was an $11.7 million increase compared to the year ended August 31, 2015. Adjusted EBITDA increased due to the improvement year-to-year in our loss, due mostly to the acquisition of Rhino. Please read “Reconciliation of Adjusted EBITDA to Net Income by Segment” for reconciliations of Adjusted EBITDA from continuing operations to net income on a segment basis.

Reconciliation of Adjusted EBITDA to Net Income by Segment (Amended)

The following tables present reconciliations of Adjusted EBITDA to the most directly comparable GAAP financial measures for each of the periods indicated. Adjusted EBITDA excludes the effect of certain non-cash and/or non-recurring items. Adjusted EBITDA is used by management primarily as a measure of our segments’ operating performance. Adjusted EBITDA should not be considered an alternative to net income, income from operations, cash flows from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Because not all companies calculate Adjusted EBITDA identically, our calculation may not be comparable to similarly titled measures of other companies.

Year ended December 31, 2016	Central Appalachia			Northern Appalachia		Rhino Western		Illinois Basin		Other			Total

Net (loss) income from continuing operations	$	(20.0	)	$	6.7	$	2.5	$	0.5	$	(3.9	)	$	(14.2	)
Plus:
DD&A		1.2			0.6		1.0		1.7		0.0			4.5
Interest expense		1.6			0.2		0.3		0.8		1.4			4.3
EBITDA from continuing operations†*	$	(17.2	)	$	7.5	$	3.8	$	3.0	$	(2.5	)	$	(5.4	)

Plus: Non-cash asset impairment and other non-cash charges**		16.7			-		-		-		-			16.7
Adjusted EBITDA†*	$	(0.5	)	$	7.5	$	3.8	$	3.0	$	(2.5	)	$	11.3

Year ended August 31, 2015	Central Appalachia			Northern Appalachia		Rhino Western		Illinois Basin		Other		Total

Net (loss) income from continuing operations	$	(0.5	)	$	-	$	-	$	-	$	-	$	(0.5	)
Plus:
DD&A		0.1			-		-		-		-		0.1
Interest expense		-			-		-		-		-		-
EBITDA from continuing operations†*	$	(0.4	)	$	-	$	-	$	-	$	-	$	(0.4	)

Plus: Non-cash asset impairment and other non-cash charges**		-			-		-		-		-		-
Adjusted EBITDA†*	$	(0.4	)	$	-	$	-	$	-	$	-	$	(0.4	)

†	Calculated based on actual amounts and not the rounded amounts presented in this table.

*	Totals may not foot due to rounding.

**	The total $16.7 million of non-cash impairment charges incurred during the twelve months ended December 31, 2016 related to the impairment in the Central Appalachia segment of the Blaze Mining royalty. Please see our more detailed discussion of these asset impairment and related charges that is included earlier in this section.

	We believe that the isolation and presentation of these specific items to arrive at Adjusted EBITDA is useful because it enhances investors’ understanding of how we assess the performance of our business. We believe the adjustment of these items provides investors with additional information that they can utilize in evaluating our performance. Additionally, we believe the isolation of these items provides investors with enhanced comparability to prior and future periods of our operating results.

Years Ended August 31, 2015 and 2014

Revenues and Cost of Revenues

During the year ending August 31, 2015, we disposed of our existing mining and oil and gas assets, and acquired 40,976 net acres of coal and coalbed methane mineral rights in 22 counties in West Virginia. Also, during the year ended August 31, 2015, we acquired Blue Grove, which is the exclusive operator for GS Energy, which owns and leases approximately 6,000 net acres of coal and coalbed methane mineral rights and a surface coal mine in McDowell County, West Virginia. We also entered into an agreement to acquire GS Energy, the completion of which was subject to the completion of an audit of GS Energy and due diligence. Pending the completion of the acquisition of GS Energy, Blue Grove began surface mining of the minerals owned or leased by GS Energy. The Company also has entered into option agreements to acquire other coal assets, and is evaluating the purchase of other coal mines in the Appalachian region.

Our revenues from coal mining commenced during the month of June 2015. We had no revenues during the prior fiscal year. Below is a summary of the revenues and expenses from our coal mining operations in the year ending August 31, 2015.

Revenues			$	281,276
Cost of revenues:
Subcontractor costs	$	200,312
Hauling expense		20,035
Production taxes		20,130
Royalties		18,287
Engineering, analysis and other		24,044
Total cost of sales				282,808
Gross margin (loss)			$	(1,532	)

The Company produced 4,182 tons at an average sales price of $67 per ton. Subcontract costs averaged approximately $48 per ton and hauling expense averaged approximately $5 per ton. Production taxes are based on state rates and royalties are based on contracted amounts. Engineering and analysis are operating requirements.

The Company temporarily suspended coal operations at the end of July 2015 when the coal purchaser filed Chapter 11 Bankruptcy.

Costs and Expenses

Our costs and expenses for the years ended August 31, 2015 and 2014 are summarized as follows:

	2015		2014
Amortization expense	$	90,573	$	-
Selling, general and administrative expense:
Related party		116,667		402,000
Other		277,474		394,694
Total	$	484,714	$	796,694

Amortization Expense

The Company acquired a two-year exclusive management agreement and other operational agreements as a part of the acquisition of Blue Grove on June 10, 2015. The value of all of the agreements was being amortized over a two-year period. The 2015 amortization expense of $90,573 represents 2 ½ months of amortization.

Selling, General and Administrative Expenses

Related party – During the year ended August 31, 2015, the Company recorded expense for officer compensation of $116,667. During the year ended August 31, 2014, the Company recorded a $402,000 expense for officer compensation. The compensation was paid with common stock and was determined as the difference between the value of the stock of $502,500 and the amount paid of $100,500.

Other - During the year ended August 31, 2015 and 2014, our other selling, general and administrative expenses were $394,141 and $796,694, respectively. Set forth below is a breakdown of our selling, general and administrative expenses:

	Year ended August 31, 2015		Year ended August 31, 2014
Officer compensation	$	116,667	$	402,000
Accounting and auditing		92,560		16,435
Legal and other professional services		58,120		19,765
Consulting fees		63,560		348,365
Coal land and mineral rights property taxes		16,842		-
Bad debt expense		13,000		-
Office expenses		5,917		50
Rent		7,420		-
Dues and subscriptions		7,500		-
Travel		4,841		-
Website		6,875		-
New York city and state franchise tax, interest and penalties		-		7,936
Other		839		2,143
Total	$	394,141	$	796,694

Set forth below is a summary of material changes in our selling, general and administrative expenses:

	●	Officer compensation amounted to $116,667 in 2015 and $402,000 in 2014.

	●	Accounting and auditing fees were $92,560 in fiscal 2015 as compared to $16,435 in fiscal 2014, an increase of $76,125 in 2015 as compared to 2014. The increase includes $50,000 as a non-refundable retainer to the firm owned by the Company’s CFO, who does not receive separate compensation. The 2015 amount includes all of the 2014 audit cost and $15,000 as a part of the 2015 audit. The other increases are a result of additional services associated with acquisitions and increased activity.

	●	Legal and other professional services amounted to $58,120 in fiscal 2015, as compared to $19,765 in fiscal 2014. Professional fees in fiscal 2015 represented legal fees and corporate filings of $44,283, filing agent fees of $4,241, press releases of $2,230 and stock transfer agent fees of $7,366. Professional fees in the fiscal 2014 amounted included legal fees and corporate filings of $14,375, filing agent fees of $3,978 and stock transfer agent fees of $1,412. The increase was the result of a change in control of the Company during the period, as well as increased acquisition activity in the period.

	●	Consulting fees declined $284,805 from $348,365 in 2014 to $63,560 in 2015. In the 2014 period the value of common stock issued for consulting fees amounted to $320,000. In the 2015 period, the value of common stock issued for consulting fees amounted to $41,000.

	●	The Company assumed an accrual for property taxes in the amount of $56,598 ($44,142 for 2014 taxes) on April 13, 2015 with the acquisition of Blaze Minerals. An additional accrual of $16,842 was recorded after the acquisition.

	●	Bad debt expense of $13,000 in 2015 was recorded on our receivable from coal sales due to the purchaser filing bankruptcy. The reserve is based on an offer to acquire this receivable at 70% of face value.

	●	Office expenses increased from $50 in fiscal 2014 to $5,917 in fiscal 2015 as a result of the opening of new corporate office in Charleston, South Carolina. The Company entered into a one-year lease agreement for office space in Charleston, South Carolina which commenced effective April 1, 2015 at the rate of $1,400 per month.

	●	The Company incurred dues and subscriptions of $7,500 in fiscal 2015, as compared to $0 in fiscal 2014, representing costs incurred to list the Company’s common stock on the OTC Bulletin Board.

	●	The Company incurred travel costs of $4,841 in fiscal 2015 as compared to $0 in fiscal 2014, primarily as a result of travel costs necessary to evaluate acquisitions and raising capital.

	●	The Company incurred website costs of $6,875 in fiscal 2015 as compared to $0 in fiscal 2014, primarily relating to efforts to develop and maintain its corporate website.

	●	Other expenses amounted to $839 and $2,143 in fiscal 2015 and 2014, respectively.

Other expense (income) for the years ended August 31, 2015 and 2014 was $15,923 and $20,163, respectively, as follows.

	Year ended August 31, 2015			Year ended August 31, 2014
Loss (gain) on commodities trading	$	10,660		$	(1,451	)
Interest and other income		(1,028	)		-
Interest expense:
Related party		6,291			21,614
Total	$	15,923		$	20,163

Loss (gain) on commodities trading amounted to a loss of $10,660 in 2015 and a gain of $1,451 in 2014. The Company discontinued commodities trading during the fiscal year ending August 31, 2015.

Interest and other income in 2015 includes interest income accrued on the Company’s note receivable and interest received on cash balances.

Interest expense amounted to $6,291 for a related party in 2015 and $21,363 in 2014, a decline of $15,072. The related party interest is on a note executed in March 2015 in the amount of $203,593, the proceeds of which were used to repay all existing liabilities of the Company at the time. The 2014 amount included $20,625 in loan fee amortization which was originally paid with common stock.

The Company’s net loss for the years ended August 31, 2015 and 2014 amounted to $502,169 ($0.05 per share) and $816,857 ($0.16 per share), respectively. The weighted average number of shares outstanding during the 2015 period was 10,335,741 shares, as compared to 5,060,675 shares in the 2014 period.

Four Months Ended December 31, 2015 and 2014

Operating Expenses

Operating expenses during the four months ended December 31, 2015 and 2014 are summarized as follows.

	2015		2014

Depreciation and amortization	$	144,916	$	-
Selling, general and administrative expense		808,728		79,394
	$	953,644	$	79,394

The Company had no operations in 2014. During 2015, operations consisted of Blue Grove’s operation of the surface coal mine owned by GS Energy, which were temporarily suspended when the coal purchaser filed for Chapter 11 bankruptcy.

During the 2015 period, the Company recorded $144,916 in amortization expense associated with the intangible assets acquired in the Blue Grove acquisition, which occurred in June of 2015.

During the four months ended December 31, 2015 and 2014, our selling, general and administrative expenses were $808,728 and $79,394, respectively. Set forth below is a breakdown of our selling, general and administrative expenses:

	2015		2014

Officer compensation	$	541,666	$	-
Consulting fees		14,000		60,560
Payroll taxes		38,088		-
Other professional services		47,963		5,174
Coal land and mineral rights property taxes		19,621		-
Accounting and auditing		21,912		13,290
Travel		14,156		-
Franchise tax		90,000		-
Other		21,322		370
	$	808,728	$	79,394

Set forth below is a summary of material changes in our selling, general and administrative expenses:

	●	Officer compensation amounted to $541,666 in the 2015 period and none in the 2014 period. During the 2015 period, the Company entered into initial employment agreements with its officers, which provided for bonuses in the form of common stock. Officer compensation expense in 2015 includes $350,000 associated with these bonuses. The remaining officer compensation expense of $191,666 represents non-bonus officer compensation that accrued during the period under the employment agreements.

	●	Consulting fees amounted to $14,000 in the 2015 period as compared to $60,560 in the prior year period. The decrease is due to issuing two consulting agreements in the 2014 period which includes $41,000 which was paid with common stock.

	●	Payroll taxes in the amount of $38,088 are recorded for the officer compensation in the 2015 period. There was no compensation in the 2014 period.

	●	Other professional services in 2015 were $47,963 and represented legal fees of $40,228, engineering fees of $3,806, stock transfer agent fees of $2,264 and filing agent fees of $1,665. In comparison, our professional services were $5,174 in the same period in 2014. The increase was the result of increased acquisition activity in the period.

	●	Property taxes in the 2015 period of $19,621 represent accruals of property taxes on the mineral rights acquired by the Company in March 2015. The Company did not own any mineral or property rights in the 2014 period.

	●	Accounting and auditing amounted to $21,912 in the 2015 period and $13,290 in the 2014 period. The increase is primarily due to the Company’s growth and acquisition activity.

	●	The Company incurred $14,156 in travel costs during the period, primarily associated with continuing acquisition activity.

	●	The Company incurred $90,000 of franchise taxes in the 2015 period. The Company did not incur franchise taxes in the 2014 period.

	●	Other selling, general and administrative costs amounted to $21,322 in the 2015 period and $370 in the 2014 period. The increase in such expenses in the 2015 period was attributable to increased obligations for rent, website, telephone and other office costs as compared to the 2014 period and is a result of the growth of the Company.

Other expense (income) for the four months ended December 31, 2015 and 2014 was $250,944 and $8,974, respectively, as follows.

	2015			2014

Loss on commodities trading	$	-		$	8,743
Loss on forfeiture of deposit		250,000			-
Interest and other (income)
Related party		(2,078	)		-
Other		(1,061	)		(103	)
Interest expense
Related party		4,083			-
Other		-			334
	$	250,944		$	8,974

Loss on commodities trading amounted to a loss of $8,743 in 2014 with no activity in the 2015 period.

Loss on forfeiture of deposit of $250,000 occurred as a result of the Company’s decision not to close on the acquisition of a mine complex in Gatling, Ohio.

Interest income amounted to $2,078 in accrued interest on a note receivable from a related party and $1,061 from cash deposits in the 2015 period and other income of $103 in the 2014 period.

Interest expense amounted to $4,083 for a related party in 2015 and $334 for other in 2014. The related party interest is on a note executed in March 2015 in the amount of $203,593, the proceeds of which were used to repay all existing liabilities of the Company at the time.

Our net loss for the four months ended December 31, 2015 and 2014 was $1,204,588 ($0.08 per share) and $88,368 ($0.01 per share), respectively. The weighted average number of shares outstanding during the 2015 period was 14,794,212 shares, as compared to 8,316,217 shares during the 2014 period.

Liquidity and Capital Resources

Liquidity

The principal indicators of our liquidity are our cash on hand and availability under our amended and restated credit agreement. As of December 31, 2016, our available liquidity was $13.0 million, including cash on hand of $0.1 million and $12.9 million available under our credit facility. On May 13, 2016, we entered into a Fifth Amendment of our amended and restated agreement that initially extended the term of the senior secured credit facility to July 31, 2017. Per the Fifth Amendment, the term of the credit facility automatically extended to December 31, 2017 when the revolving credit commitments were reduced to $55 million or less by December 31, 2016. The Fifth Amendment also immediately reduced the revolving credit commitments under the credit facility to a maximum of $75 million and maintains the amount available for letters of credit at $30 million. In December 2016, we entered into a Seventh Amendment of our amended and restated credit agreement. The Seventh Amendment immediately reduced the revolving credit commitments by $11.0 million and provided for additional revolving credit commitment reductions of $2.0 million each on June 30, 2017 and September 30, 2017. The Seventh Amendment further reduces the revolving credit commitments over time on a dollar-for-dollar basis for the net cash proceeds received from any asset sales after the Seventh Amendment date once the aggregate net cash proceeds received exceeds $2.0 million. For more information about our amended and restated credit agreement, please read — “Amended and Restated Credit Agreement.”

Our business is capital intensive and requires substantial capital expenditures for purchasing, upgrading and maintaining equipment used in developing and mining our reserves, as well as complying with applicable environmental and mine safety laws and regulations. Our principal liquidity requirements are to finance current operations, fund capital expenditures, including acquisitions from time to time, and service our debt. Historically, our sources of liquidity included cash generated by our operations, borrowings under our credit agreement and issuances of equity securities. Our ability to access the capital markets on economic terms in the future will be affected by general economic conditions, the domestic and global financial markets, our operational and financial performance, the value and performance of our equity securities, prevailing commodity prices and other macroeconomic factors outside of our control. Failure to obtain financing or to generate sufficient cash flow from operations could cause us to significantly reduce our spending and to alter our short- or long-term business plan. We may also be required to consider other options, such as selling assets or merger opportunities, and depending on the urgency of our liquidity constraints, we may be required to pursue such an option at an inopportune time.

Since the current maturity date of our credit facility is December 31, 2017, we are unable to demonstrate that we have sufficient liquidity to operate our business over the next twelve months from the date of filing our Original 10-K filing and thus substantial doubt is raised about our ability to continue as a going concern. Accordingly, our independent registered public accounting firm has included an emphasis paragraph with respect to our ability to continue as a going concern in its report on our consolidated financial statements for the year ended December 31, 2016. The presence of the going concern emphasis paragraph in our auditors’ report may have an adverse impact on our relationship with third parties with whom we do business, including our customers, vendors, lenders and employees, making it difficult to raise additional debt or equity financing to the extent needed and conduct normal operations. As a result, our business, results of operations, financial condition and prospects could be materially adversely affected.

Since our credit facility has an expiration date of December 31, 2017, we determined that our credit facility debt liability of $10.0 million at December 31, 2016 should be classified as a current liability on our consolidated statements of financial position. The classification of our credit facility balance as a current liability raises substantial doubt of our ability to continue as a going concern for the next twelve months. We are also considering alternative financing options that could result in a new long-term credit facility. However, we may be unable to complete such a transaction on terms acceptable to us or at all. If we are unable to extend the expiration date of our amended and restated credit facility, we will have to secure alternative financing to replace our credit facility by the expiration date of December 31, 2017 in order to continue our business operations. If we are unable to extend the expiration date of our amended and restated credit facility or secure a replacement facility, we will lose a primary source of liquidity, and we may not be able to generate adequate cash flow from operations to fund our business, including amounts that may become due under our credit facility. Furthermore, although met coal prices and demand have improved in recent months, if weak demand and low prices for steam coal persist and if met coal prices and demand weaken, we may not be able to continue to give the required representations or meet all of the covenants and restrictions included in our credit facility. If we violate any of the covenants or restrictions in our amended and restated credit agreement, including the maximum leverage ratio, some or all of our indebtedness may become immediately due and payable, and our lenders’ commitment to make further loans to us may terminate. If we are unable to give a required representation or we violate a covenant or restriction, then we will need a waiver from our lenders in order to continue to borrow under our amended and restated credit agreement. Although we believe our lenders loans are well secured under the terms of our amended and restated credit agreement, there is no assurance that the lenders would agree to any such waiver. Failure to obtain financing or to generate sufficient cash flow from operations could cause us to further curtail our operations and reduce our spending and to alter our business plan. We may also be required to consider other options, such as selling additional assets or merger opportunities, and depending on the urgency of our liquidity constraints, we may be required to pursue such an option at an inopportune time. If we are not able to fund our liquidity requirements for the next twelve months, we may not be able to continue as a going concern.

We continue to take measures, including the suspension of cash distributions on Rhino’s common and subordinated units and cost and productivity improvements, to enhance and preserve our liquidity so that we can fund our ongoing operations and necessary capital expenditures and meet our financial commitments and debt service obligations.

Cash Flows

Years ended December 31, 2016 and August 31, 2015

Net cash provided by operating activities was $6.6 million for the year ended December 31, 2016 as compared to $0.4 million used in operating activities for the year ended August 31, 2015. The increase in cash provided by operating activities is primarily due to the operations from the Rhino acquisition.

Net cash provided by investing activities was $2.3 million for the year ended December 31, 2016 as compared to $0.3 million used in investing activities for the year ended August 31, 2015. The increase in cash provided by investing activities was primarily due to proceeds from the sale of Elk Horn in the year ended December 31, 2016.

Net cash used in financing activities was $15.9 million for the year ended December 31, 2016 as compared to $4.8 million provided by financing activities for the year ended August 31, 2015. The decrease in cash provided by financing activities was primarily due to repayments on debt in the year ended December 31, 2016.

Years ended August 31, 2015 and 2014

Net cash used in operating activities was $0.4 million for the year ended August 31, 2015 as compared to $26.0 thousand used in operating activities for the year ended August 31, 2014. The increase in cash used by operating activities is primarily due to the startup of operations.

Net cash used in investing activities was $0.3 million for the year ended August 31, 2015 as compared to $25.0 thousand used in investing activities for the year ended August 31, 2014. The increase in cash used by investing activities was primarily due to a deposit on a potential acquisition.

Net cash provided by financing activities was $4.8 million for the year ended August 31, 2015 as compared to $19.0 thousand provided by financing activities for the year ended August 31, 2014. The increase in cash provided by financing activities was primarily due to equity raised during the year ended August 31, 2015.

Four months ended December 31, 2015 and 2014

Net cash used in operating activities was $0.1 million for the four month ended December 31, 2015 as compared to $20.0 thousand used in operating activities for the four month December 31, 2014. The increase in cash used by operating activities is primarily due to the startup of operations.

Net cash used in investing activities was $10.0 thousand for the four months ended December 31, 2015 as compared to $9.0 thousand provided by investing activities for the four months December 31, 2014. The change is deemed insignificant to the overall operations.

Net cash provided by financing activities was $3.0 million for the four months ended December 31, 2015 as compared to $11.0 thousand provided by financing activities for the four months ended December 31, 2014. The increase in cash provided by financing activities was primarily due to equity raised during the four months ended December 31, 2015.

Capital Expenditures

Our mining operations require investments to expand, upgrade or enhance existing operations and to meet environmental and safety regulations. Maintenance capital expenditures are those capital expenditures required to maintain our long-term operating capacity. For example, maintenance capital expenditures include expenditures associated with the replacement of equipment and coal reserves, whether through the expansion of an existing mine or the acquisition or development of new reserves, to the extent such expenditures are made to maintain our long-term operating capacity. Expansion capital expenditures are those capital expenditures that we expect will increase our operating capacity over the long term. Examples of expansion capital expenditures include the acquisition of reserves, acquisition of equipment for a new mine or the expansion of an existing mine to the extent such expenditures are expected to expand our long-term operating capacity.

Actual maintenance capital expenditures for the year ended December 31, 2016 were approximately $2.5 million. These amounts were primarily used to rebuild, repair or replace older mining equipment. Expansion capital expenditures for the year ended December 31, 2016 were approximately $5.0 million, which were primarily related to the development of our Riveredge mine on our Pennyrile property in western Kentucky. For the year ending December 31, 2017, we have budgeted $10 million to $15 million for maintenance capital expenditures. We expect a minimal amount of 2017 expansion capital expenditures since we have completed the development of the Pennyrile mine and we currently do not anticipate developing any of our other internal projects in 2017.

Amended and Restated Credit Agreement

On July 29, 2011, we executed the Amended and Restated Credit Agreement. The maximum availability under the amended and restated credit facility was $300.0 million, with a one-time option to increase the availability by an amount not to exceed $50.0 million. Of the $300.0 million, $75.0 million was available for letters of credit. In April 2015, the Amended and Restated Credit Agreement was amended and the borrowing commitment under the facility was reduced to $100.0 million and the amount available for letters of credit was reduced to $50.0 million. As described below, in March 2016 and May 2016, the borrowing commitment under the facility was further reduced to $80.0 million and $75.0 million, respectively, and the amount available for letters of credit was reduced to $30.0 million.

Loans under the senior secured credit facility currently bear interest at a base rate equaling the prime rate plus an applicable margin of 3.50%. The Amended and Restated Credit Agreement also contains letter of credit fees equal to an applicable margin of 5.00% multiplied by the aggregate amount available to be drawn on the letters of credit, and a 0.15% fronting fee payable to the administrative agent. In addition, we incur a commitment fee on the unused portion of the senior secured credit facility at a rate of 1.00% per annum. Borrowings on the line of credit are collateralized by all of our unsecured assets.

Our Amended and Restated Credit Agreement requires us to maintain certain minimum financial ratios and contains certain restrictive provisions, including among others, restrictions on making loans, investments and advances, incurring additional indebtedness, guaranteeing indebtedness, creating liens, and selling or assigning stock. As of and for the year ended December 31, 2016, we were in compliance with respect to all covenants contained in the credit agreement.

On March 17, 2016, we entered into the Fourth Amendment of our Amended and Restated Credit Agreement. The Fourth Amendment amended the definition of change of control in the Amended and Restated Credit Agreement to permit Royal to purchase the membership interests of Rhino’s general partner. The Fourth Amendment reduced the borrowing capacity under the credit facility to a maximum of $80 million and reduced the amount available for letters of credit to $30 million. The Fourth Amendment eliminated the option to borrow funds utilizing the LIBOR rate plus an applicable margin and established the borrowing rate for all borrowings under the facility to be based upon the current PRIME rate plus an applicable margin of 3.50%. The Fourth Amendment eliminated Rhino’s capability to make Swing Loans under the facility and eliminated our ability to pay distributions to its common or subordinated unitholders. The Fourth Amendment altered the maximum leverage ratio, calculated as of the end of the most recent month, on a trailing twelve-month basis, to 6.75 to 1.00. The leverage ratio shall be reduced by 0.50 to 1.00 for every $10 million of net cash proceeds, in the aggregate, received by us after the date of the Fourth Amendment from a liquidity event; provided, however, that in no event shall the maximum permitted leverage ratio be reduced below 3.00 to 1.00. A liquidity event is defined in the Fourth Amendment as the issuance of any equity by Rhino on or after the Fourth Amendment effective date (other than the Royal equity contribution discussed above), or the disposition of any assets by us. The Fourth Amendment required us to maintain minimum liquidity of $5 million and minimum EBITDA (as defined in the credit agreement), calculated as of the end of the most recent month, on a trailing twelve month basis, of $8 million. The Fourth Amendment limited the amount of Rhino capital expenditures to $15 million, calculated as of end of the most recent month, on a trailing twelve-month basis. The Fourth Amendment required us to provide monthly financial statements and a weekly rolling thirteen-week cash flow forecast to the Administrative Agent.

On May 13, 2016, we entered into the Fifth Amendment of our Amended and Restated Credit Agreement that extended the term to July 31, 2017. Per the Fifth Amendment, the credit facility will be automatically extended to December 31, 2017 if revolving credit commitments are reduced to $55 million or less on or before July 31, 2017. The Fifth Amendment immediately reduced the revolving credit commitments under the credit facility to a maximum of $75 million and maintained the amount available for letters of credit at $30 million. The Fifth Amendment further reduced the revolving credit commitments over time on a dollar-for-dollar basis in amounts equal to each of the following: (i) the face amount of any letter of credit that expires or whose face amount is reduced by any such dollar amount, (ii) the net proceeds received from any asset sales, (iii) the Royal scheduled capital contributions (as outline below), (iv) the net proceeds from the issuance of any equity by us up to $20.0 million (other than equity issued in exchange for any Royal contribution as outlined in the Securities Purchase Agreement or the Royal scheduled capital contributions to us as outlined below), and (v) the proceeds from the incurrence of any subordinated debt. The first $11 million of proceeds received from any equity issued by us described in clause (iv) above shall also satisfy the Royal scheduled capital contributions as outlined below. The Fifth Amendment requires Royal to contribute $2 million to Rhino each quarter beginning September 30, 2016 through September 30, 2017 and $1 million on December 1, 2017, for a total of $11 million. The Fifth Amendment further reduces the revolving credit commitments as follows:

Date of Reduction		Reduction Amount
September 30, 2016		The lesser of (i) $2 million or (ii) the positive difference (if any) of $2 million minus the proceeds from the issuance of any of our equity (excluding any Royal equity contributions)

December 31, 2016		The lesser of (i) $2 million or (ii) the positive difference (if any) of $4 million minus the proceeds from the issuance of any of our equity (excluding any Royal equity contributions)

March 31, 2017		The lesser of (i) $2 million or (ii) the positive difference (if any) of $6 million minus the proceeds from the issuance of any of our equity (excluding any Royal equity contributions)

June 30, 2017		The lesser of (i) $2 million or (ii) the positive difference (if any) of $8 million minus the proceeds from the issuance of any of our equity (excluding any Royal equity contributions)

September 30, 2017		The lesser of (i) $2 million or (ii) the positive difference (if any) of $10 million minus the proceeds from the issuance of any of our equity (excluding any Royal equity contributions)

December 1, 2017		The lesser of (i) $1 million or (ii) the positive difference (if any) of $11 million minus the proceeds from the issuance of any of our equity (excluding any Royal equity contributions)

The Fifth Amendment requires that on or before March 31, 2017, we shall have solicited bids for the potential sale of certain non-core assets, satisfactory to the administrative agent, and provided the administrative agent, and any other lender upon its request, with a description of the solicitation process, interested parties and any potential bids. The Fifth Amendment limits any payments by us to Rhino’s general partner to: (i) the usual and customary payroll and benefits of the our management team so long as our management team remains employees of our general partner, (2) the usual and customary board fees of Rhino’s general partner, and (3) the usual and customary general and administrative costs and expenses of Rhino’s general partner incurred in connection with the operation of its business in an amount not to exceed $0.3 million per fiscal year. The Fifth Amendment limits asset sales to a maximum of $5 million unless we receive consent from the lenders. The Fifth Amendment altered Rhino’s maximum leverage ratio, calculated as of the end of the most recent month, on a trailing twelve-month basis, as follows:

Period		Ratio
For the month ending April 30, 2016, through the month ending May 31, 2016		7.50 to 1.00
For the month ending June 30, 2016, through the month ending August 31, 2016		7.25 to 1.00
For the month ending September 30, 2016, through the month ending November 30, 2016		7.00 to 1.00
For the month ending December 31, 2016, through the month ending March 31, 2017		6.75 to 1.00
For the month ending April 30, 2017, through the month ending June 30, 2017		6.25 to 1.00
For the month ending July 31, 2017, through the month ending November 30, 2017		6.0 to 1.00
For the month ending December 31, 2017		5.50 to 1.00

The leverage ratios above shall be reduced by 0.50 to 1.00 for every $10 million of aggregate proceeds received by us from: (i) the issuance of Rhino’s equity (excluding any Royal capital contributions) and/or (ii) the proceeds received from the sale of assets, provided that the leverage ratio shall not be reduced below 3.50 to 1.00. The Fifth Amendment removes the $5.0 million minimum liquidity requirement and requires us to have any deposit, securities or investment accounts with a member of the lending group.

In July 2016, we entered into the Sixth Amendment of our amended and restated senior secured credit facility that permitted the sale of Elk Horn that was discussed earlier. The Sixth Amendment reduced the maximum commitment amount allowed under the credit facility based on the initial cash proceeds of $10.5 million that were received for the Elk Horn sale. The Sixth Amendment further reduced the maximum commitment amount allowed under the credit facility for the additional $1.5 million to be received from the Elk Horn sale by $375,000 each quarterly period beginning September 30, 2016 through June 30, 2017.

In December, 2016, we entered into a Seventh Amendment, which allows Rhino’s Series A preferred units as outlined in the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership. The Seventh Amendment immediately reduces the revolving credit commitments by $11.0 million and provides for additional revolving credit commitment reductions of $2.0 million each on June 30, 2017 and September 30, 2017. The Seventh Amendment further reduces the revolving credit commitments over time on a dollar-for-dollar basis for the net cash proceeds received from any asset sales after the Seventh Amendment date once the aggregate net cash proceeds received exceeds $2.0 million. The Seventh Amendment alters the maximum leverage ratio to 4.0 to 1.0 effective December 31, 2016 through May 31, 2017 and 3.5 to 1.0 from June 30, 2017 through December 31, 2017. The maximum leverage ratio shall be reduced by 0.50 to 1.0 for every $10.0 million of net cash proceeds, in the aggregate, received after the Seventh Amendment date from (i) the issuance of any equity by Rhino and/or (ii) the disposition of any assets in excess of $2.0 million in the aggregate, provided, however, that in no event will the maximum leverage ratio be reduced below 3.0 to 1.0. The Seventh Amendment alters the minimum consolidated EBITDA figure, as calculated on a rolling twelve months basis, to $12.5 million from December 31, 2016 through May 31, 2017 and $15.0 million from June 30, 2017 through December 31, 2017. The Seventh Amendment alters the maximum capital expenditures allowed, as calculated on a rolling twelve months basis, to $20.0 million through the expiration of the credit facility. A condition precedent to the effectiveness of the Seventh Amendment was the receipt of the $13.0 million of cash proceeds received by Rhino from the issuance of the Series A preferred units pursuant to the Preferred Unit Agreement, which we used to repay outstanding borrowings under the revolving credit facility. Per the Seventh Amendment, the receipt of $13.0 million cash proceeds fulfills the required Royal equity contributions as outlined in the previous amendments to Rhino’s credit agreement.

At December 31, 2016, $10.0 million was outstanding under the facility at a variable interest rate of PRIME plus 3.50% (7.25% at December 31, 2016). In addition, we had outstanding letters of credit of approximately $26.1 million at a fixed interest rate of 5.00% at December 31, 2016. Based upon a maximum borrowing capacity of 4.00 times a trailing twelve-month EBITDA calculation (as defined in the credit agreement), we had not used $12.9 million of the borrowing availability at December 31, 2016. During the year ended December 31, 2016, we had average borrowings outstanding of approximately $38.4 million under our credit agreement.

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to off-balance sheet arrangements that include guarantees and financial instruments with off-balance sheet risk, such as bank letters of credit and surety bonds. No liabilities related to these arrangements are reflected in our consolidated balance sheet, and we do not expect any material adverse effects on our financial condition, results of operations or cash flows to result from these off-balance sheet arrangements.

Federal and state laws require us to secure certain long-term obligations related to mine closure and reclamation costs. We typically secure these obligations by using surety bonds, an off-balance sheet instrument. The use of surety bonds is less expensive for us than the alternative of posting a 100% cash bond or a bank letter of credit, either of which would require a greater use of our credit agreement. We then use bank letters of credit to secure our surety bonding obligations as a lower cost alternative than securing those bonds with a committed bonding facility pursuant to which we are required to provide bank letters of credit in an amount of up to 25% of the aggregate bond liability. To the extent that surety bonds become unavailable, we would seek to secure our reclamation obligations with letters of credit, cash deposits or other suitable forms of collateral.

As of December 31, 2016, we had $26.1 million in letters of credit outstanding, of which $20.7 million served as collateral for approximately $48.9 million in our surety bonds outstanding that secure the performance of our reclamation obligations.

Contractual Obligations

The following lists our contractual obligations as of December 31, 2016.

	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years
	(in thousands)
Debt obligations	$	12,040	$	12,040	$	-	$	-	$	-
Asset retirement obligations		27,420		917		4,816		2,293		19,394
Operating lease obligations (a)		2,681		2,533		148		-		-
Diesel Fuel obligations		2,034		2,034		-		-		-
Advance royalties (b)		17,171		1,640		3,280		3,415		8,836
Total	$	61,346	$	19,164	$	8,244	$	5,708	$	28,230

(a) Some of our surface mining equipment and a coal handling and loading facility are categorized as operating leases.

(b) We have obligations on various coal and land leases to prepay certain amounts, which are recoupable in future years when mining occurs.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Management evaluates its estimates and judgments on an on-going basis. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Nevertheless, actual results may differ from the estimates used and judgments made. Note 2 to the consolidated financial statements included elsewhere in this report provides a summary of all significant accounting policies. We believe that of these significant accounting policies, the following may involve a higher degree of judgment or complexity.

Property, Plant and Equipment

Property, plant, and equipment, including coal properties, oil and natural gas properties, mine development costs and construction costs, are recorded at cost, which includes construction overhead and interest, where applicable. Expenditures for major renewals and betterments are capitalized, while expenditures for maintenance and repairs are expensed as incurred. Mining and other equipment and related facilities are depreciated using the straight-line method based upon the shorter of estimated useful lives of the assets or the estimated life of each mine. Coal properties are depleted using the units-of-production method, based on estimated proven and probable reserves. Mine development costs are amortized using the units-of-production method, based on estimated proven and probable reserves. Gains or losses arising from sales or retirements are included in current operations.

On March 30, 2005, the Financial Accounting Standards Board (FASB) ratified the consensus reached by the Emerging Issues Task Force, or EITF, on accounting for stripping costs in the mining industry. This accounting guidance applies to stripping costs incurred in the production phase of a mine for the removal of overburden or waste materials for the purpose of obtaining access to coal that will be extracted. Under the guidance, stripping costs incurred during the production phase of the mine are variable production costs that are included in the cost of inventory produced and extracted during the period the stripping costs are incurred. We have recorded stripping costs for all of our surface mines incurred during the production phase as variable production costs that are included in the cost of inventory produced. We define a surface mine as a location where we utilize operating assets necessary to extract coal, with the geographic boundary determined by property control, permit boundaries, and/or economic threshold limits. Multiple pits that share common infrastructure and processing equipment may be located within a single surface mine boundary, which can cover separate coal seams that typically are recovered incrementally as the overburden depth increases. In accordance with the accounting guidance for extractive mining activities, we define a mine in production as one from which saleable minerals have begun to be extracted (produced) from an ore body, regardless of the level of production; however, the production phase does not commence with the removal of de minimis saleable mineral material that occurs in conjunction with the removal of overburden or waste material for the purpose of obtaining access to an ore body. We capitalize only the development cost of the first pit at a mine site that may include multiple pits.

Asset Impairments

We follow the accounting guidance on the impairment or disposal of property, plant and equipment, which requires that projected future cash flows from use and disposition of assets be compared with the carrying amounts of those assets when potential impairment is indicated. When the sum of projected undiscounted cash flows is less than the carrying amount, impairment losses are recognized. In determining such impairment losses, we must determine the fair value for the assets in question in accordance with the applicable fair value accounting guidance. Once the fair value is determined, the appropriate impairment loss must be recorded as the difference between the carrying amount of the assets and their respective fair values. Also, in certain situations, expected mine lives are shortened because of changes to planned operations. When that occurs and it is determined that the mine’s underlying costs are not recoverable in the future, reclamation and mine closing obligations are accelerated and the mine closing accrual is increased accordingly. To the extent it is determined that asset carrying values will not be recoverable during a shorter mine life, a provision for such impairment is recognized.

We performed a comprehensive review of our current coal mining operations as well as potential future development projects as of December 31, 2016 to ascertain any potential impairment losses. Based on the impairment analysis, we concluded that none of the coal properties, mine development costs or other coal mining equipment and related facilities were impaired at December 31, 2016, except for the Blaze Mining royalty. For the year ended December 31, 2016, the Company recorded a $16.7 million asset impairment related to the Blaze Mining royalty.

Asset Retirement Obligations

The accounting guidance for asset retirement obligations addresses asset retirement obligations that result from the acquisition, construction, or normal operation of long-lived assets. This guidance requires companies to recognize asset retirement obligations at fair value when the liability is incurred or acquired. Upon initial recognition of a liability, an amount equal to the liability is capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. We have recorded the asset retirement costs in Coal properties.

We estimate our future cost requirements for reclamation of land where we have conducted surface and underground mining operations, based on our interpretation of the technical standards of regulations enacted by the U.S. Office of Surface Mining, as well as state regulations. These costs relate to reclaiming the pit and support acreage at surface mines and sealing portals at underground mines. Other reclamation costs are related to refuse and slurry ponds, as well as holding and related termination or exit costs.

We expense contemporaneous reclamation which is performed prior to final mine closure. The establishment of the end of mine reclamation and closure liability is based upon permit requirements and requires significant estimates and assumptions, principally associated with regulatory requirements, costs and recoverable coal reserves. Annually, we review our end of mine reclamation and closure liability and make necessary adjustments, including mine plan and permit changes and revisions to cost and production levels to optimize mining and reclamation efficiency. When a mine life is shortened due to a change in the mine plan, mine closing obligations are accelerated, the related accrual is increased and the related asset is reviewed for impairment, accordingly.

The adjustments to the liability from annual recosting reflect changes in expected timing, cash flow, and the discount rate used in the present value calculation of the liability. Each respective year includes a range of discount rates that are dependent upon the timing of the cash flows of the specific obligations. Changes in the asset retirement obligations for the year ended December 31, 2016 were calculated with discount rates that ranged from 7.0% to 9.12%. Changes in the asset retirement obligations for the year ended December 31, 2015 were calculated with discount rates that ranged from 2.9% to 5.9%. The discount rates changed from previous years due to changes in applicable market indicators that are used to arrive at an appropriate discount rate. Other recosting adjustments to the liability are made annually based on inflationary cost increases or decreases and changes in the expected operating periods of the mines. The related inflation rate utilized in the recosting adjustments was 2.3% for 2016 and 2015.

Workers’ Compensation and Pneumoconiosis (“black lung”) Benefits

Certain of our subsidiaries are liable under federal and state laws to pay workers’ compensation and coal workers’ black lung benefits to eligible employees, former employees and their dependents. We currently utilize an insurance program and state workers’ compensation fund participation to secure our on-going obligations depending on the location of the operation. Premium expense for workers’ compensation benefits is recognized in the period in which the related insurance coverage is provided.

Our black lung benefit liability is calculated using the service cost method that considers the calculation of the actuarial present value of the estimated black lung obligation. The actuarial calculations using the service cost method for our black lung benefit liability are based on numerous assumptions including disability incidence, medical costs, mortality, death benefits, dependents and interest rates.

In addition, our liability for traumatic workers’ compensation injury claims is the estimated present value of current workers’ compensation benefits, based on actuarial estimates. The actuarial estimates for our workers’ compensation liability are based on numerous assumptions including claim development patterns, mortality, medical costs and interest rates.

Revenue Recognition

Most of our revenues are generated under supply contracts with electric utilities, industrial companies or other coal-related organizations, primarily in the United States. Revenue is recognized and recorded when shipment or delivery to the customer has occurred, prices are fixed or determinable and the title or risk of loss has passed in accordance with the terms of the supply contract. Under the typical terms of these contracts, risk of loss transfers to the customers at the mine or port, when the coal is loaded on the rail, barge, truck or other transportation source that delivers coal to its destination. Advance payments are deferred and recognized in revenue as coal is shipped and title has passed.

Freight and handling costs paid directly to third-party carriers and invoiced to coal customers are recorded as freight and handling costs and freight and handling revenues, respectively.

Other revenues generally consist of limestone sales, coal handling and processing, rebates and rental income. With respect to other revenues recognized in situations unrelated to the shipment of coal, we carefully review the facts and circumstances of each transaction and do not recognize revenue until the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. Advance payments received are deferred and recognized in revenue when earned.

Derivative Financial Instruments

We occasionally use diesel fuel contracts to manage the risk of fluctuations in the cost of diesel fuel. Our diesel fuel contracts meet the requirements for the normal purchase normal sale, or NPNS, exception prescribed by the accounting guidance on derivatives and hedging, based on the terms of the contracts and management’s intent and ability to take physical delivery of the diesel fuel.

Recent Accounting Pronouncements

Refer to Item 8. Note 2 of the notes to the consolidated financial statements for a discussion of recent accounting pronouncements, which is incorporated herein by reference. There are no known future impacts or material changes or trends of new accounting guidance beyond the disclosures provided in Note 2.

Item 9A. Controls and Procedures. (Amended)

(a)

Disclosure Controls and Procedures.

Our principal executive officer (CEO) and principal financial officer (CFO) undertook an evaluation of our disclosure controls and procedures as of the end of the period covered by this report. The CEO and CFO have concluded that our disclosure controls and procedures were not effective as of December 31, 2016 at the reasonable assurance level. For purposes of this section, the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b)

Management’s Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision of our CEO and CFO, and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including the CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our evaluation under this framework, our management concluded that our internal control over financial reporting was not effective as of December 31, 2016 in the following areas:

Segregation of Duties: We do not have sufficient controls over financial reporting due to a lack of segregation of duties (which was a continuation of what had existed as of August 31, 2015, as reported in the 2015 Form 10-K). Specifically:

	1	There are no formal controls over our cash receipts and disbursements; individuals with control over cash also have significant roles with us, and compensating controls are not adequate to fully reduce this control deficiency.

	2	Individuals who have responsibility for recording transactions are also responsible for reconciliations and the financial close process. Our limited number of personnel in turn limits the distribution of review and reconciliation responsibilities.

Financial Close, Consolidation and Reporting: We do not have effective internal controls over our financial close, consolidation and reporting process. During 2016, beginning with the acquisition of controlling interest in Rhino Resource Partners, LP, our financial reporting complexities increased significantly without a corresponding increase in our resources dedicated to maintenance of a control structure and the preparation of financial information to be included in our public filings. We are evaluating various plans to restructure our financial closing process, including engaging additional personnel experienced in financial reporting and evaluating the time commitment and responsibilities of those currently assigned such responsibilities.

Audit Committee Oversight: We do not have an audit committee. When a company does not have an audit committee, the entire board of directors is considered the audit committee under the Securities Exchange Act of 1934. Our board of directors does not include any independent members. We do not have a member of the board of directors designated as our financial expert; nor do we have a code of business conduct and ethics, an audit charter or a whistleblower policy. Therefore, we do not have any independent oversight of our external financial reporting and internal control over financial reporting.

Management’s assessment of its internal controls over financial reporting is limited to its assets and operations other than the Partnership and its subsidiaries. As noted in Item 1, we acquired control of the Partnership on March 17, 2016. The acquisition of control of the Partnership was a material acquisition. The Partnership’s internal controls over financial reporting were last audited for the fiscal year ended December 31, 2014, and were found to be effective at that time. We understand that there have been no material changes to the Partnership’s internal controls over financial reporting since December 31, 2014, but have been unable to completely assess the Partnership’s internal controls as of December 31, 2016. We plan to include an assessment of the Partnership’s and its subsidiaries internal controls over financial reporting in our annual report for the year ended December 31, 2017.

(c)

Attestation Report of the Registered Public Accounting Firm.

The attestation report of Brown Edwards & Company, LLP, our independent registered public accounting firm, on our internal control over financial reporting is incorporated herein by reference to “Report of Independent Registered Public Accounting Firm” dated January 29, 2018 included in the Financial Statements included herein in Item 8. The report of Brown Edwards & Company, LLP identified the same material weaknesses in our internal controls over financial reporting, as described in management’s report above.

(d)

Changes in Internal Control Over Financial Reporting.

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

See “Index to the Consolidated Financial Statements” set forth on Page F-1.

(2) Financial Statement Schedules

All schedules are omitted because they are not applicable or the required information is presented in the financial statements or notes thereto.

(3) Exhibits

The exhibits required to be filed by Item 15 are set forth in, and filed with or incorporated by reference in, the “Exhibit Index” of the Original Form 10-K. The “Exhibit Index” to this Form 10-K/A sets forth the additional exhibits required to be filed with this Form 10-K/A.

EXHIBIT LIST

Exhibit Number	Description	Filer

23.1*	Consent of GZTY CPA GROUP LLC	Royal

23.2*	Consent of Paritz & Company, P.A.	Royal

23.3*	Consent of Brown Edwards & Company, LLP	Royal

23.4*	Consent of Marshall Miller and Associates, Inc.	Royal

31.1*	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241)	Royal

31.2*	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241)	Royal

32.1*	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)	Royal

32.2*	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)	Royal

* Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ROYAL ENERGY RESOURCES, INC.

	By:	/s/ WILLIAM L. TUORTO
		William L. Tuorto
		Chief Executive Officer and Director

Date: January 29. 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ William L. Tuorto	Chief Executive Officer and Director (Principal Executive Officer)	January 30, 2018
William L. Tuorto

/s/ Douglas C. Holsted	Chief Financial Officer (Principal Financial and Accounting Officer)	January 30, 2018
Douglas C. Holsted

/s/ Brian Hughs	Director	January 30, 2018
Brian Hughs

INDEX TO FINANCIAL STATEMENTS

ROYAL ENERGY RESOURCES, INC.

Reports of Independent Registered Public Accounting Firms	F-1

Consolidated Balance Sheets as of December 31, 2016 and August 31, 2015	F-7

Consolidated Statements of Operations and Comprehensive Income for the Year Ended December 31, 2016, the four months ended December 31, 2015, and the Years Ended August 31, 2015 and 2014	F-8

Consolidated Statements of Stockholder’s Equity (Deficit) for the Year Ended December 31, 2016, the four months ended December 31, 2015, and the Years Ended August 31, 2015 and 2014	F-9

Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, the four months ended December 31, 2015, and the Years Ended August 31, 2015 and 2014	F-10

Notes to Consolidated Financial Statements	F-12

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To Those Charged with Governance of

Royal Energy Resources, Inc.

Charleston, SC

We have audited the accompanying consolidated balance sheet of Royal Energy Resources, Inc. and Subsidiaries (the “Company”) as of December 31, 2016, and the related consolidated statements of operations and comprehensive income, stockholders’ equity (deficit), and cash flows for the year then ended and the consolidated statements of operations and comprehensive income and cash flows for the four-month period ended December 31, 2015. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The financial statements of the Company as of August 31, 2015 and 2014 were audited by other auditors whose reports dated November 24, 2015, and December 8, 2014, respectively, expressed unqualified opinions on those statements but included an emphasis of a matter paragraph related to the Company’s ability to continue as a going concern.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Royal Energy Resources, Inc. and Subsidiaries as of December 31, 2016, and the consolidated results of their operations and cash flows for the year ended December 31, 2016 and the four-month period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements include the financial position and results of Rhino Resource Partners, LP (“Rhino”), which are significant to the consolidated financial statements. As described in Note 3, Rhino was acquired in 2016, and certain of the provisional values assigned to acquired assets and liabilities were subject to change as valuations were finalized in the first quarter of 2017. As further discussed in Note 26 (Unaudited), such revisions significantly impacted the carrying values of assets, liabilities and the results of operations and resulted in a bargain purchase gain.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, at December 31, 2016, beyond the operations of Rhino, the Company has not established sources of revenues sufficient to fund the development of its business, or to pay projected operating expenses and commitments for the next year. This raises substantial doubt that the Company will be able to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Royal Energy Resources, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework -2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated January 29, 2018, expressed an adverse opinion.

	/s/ Brown Edwards & Company, LLP

	CERTIFIED PUBLIC ACCOUNTANTS

513 State Street Bristol, Virginia
March 31, 2017, except for the reference to our report on internal control over financial reporting and the disclosures in Footnote 25, as to which the date is January 29, 2018

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To Those Charged with Governance of
Royal Energy Resources, Inc.

Charleston, SC

We have audited Royal Energy Resources, Inc.’s (“the Company”) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control—Integrated Framework - 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Royal Energy Resources, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

Management has elected to exclude from this engagement the internal controls over financial reporting of Rhino Resource Partners LP, its consolidated subsidiary acquired on March 17, 2016, relying on the guidance provided by the Division of Corporation Finance of the Securities and Exchange Commission under the topic Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports in its Frequently Asked Questions (revised September 24, 2007), specifically Question 3. Therefore, the audit of internal controls over financial reporting does not include the controls of Rhino Resource Partners LP at December 31, 2016. Management’s report on internal controls over financial reporting pursuant to Section 404(a) of the Sarbanes-Oxley Act of 2002 and its separate attestation related to disclosure controls and procedures filed under Item 9A with this Form 10-K/A also includes language related to the exclusion of the internal controls over financial reporting of Rhino Resource Partners LP.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

F-2

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment:

Segregation of Duties: Royal Energy Resources, Inc. does not have sufficient controls over financial reporting due to a lack of segregation of duties. Specifically:

	1	There are no formal controls over cash receipts and disbursements; individuals with control over cash also have significant roles with the Company, and compensating controls are not adequate to fully reduce this control deficiency.

	2	Individuals who have responsibility for recording transactions are also responsible for reconciliations and the financial close process. The limited number of personnel in turn limits the distribution of review and reconciliation responsibilities.

Financial Close, Consolidation and Reporting: Royal Energy Resources, Inc. does not have effective internal controls over its financial close, consolidation and reporting process. During 2016, beginning with the acquisition of controlling interest in Rhino Resource Partners, LP, its financial reporting complexities increased significantly without a corresponding increase in the resources dedicated to maintenance of a control structure and the preparation of financial information to be included in its public filings.

Audit Committee Oversight: Royal Energy Resources, Inc. does not have an audit committee. When a company does not have an audit committee, the entire board of directors is considered the audit committee under the Securities Exchange Act of 1934. Principle 2, Board of Directors of COSO Small Companies Guidance states, “[w]hen a board chooses not to have an audit committee, the full board performing the activities described should have a sufficient number of independent members.” Royal Energy Resources, Inc.’s board of directors does not include any independent members. The Company does not have a member of the board of directors designated as its financial expert; nor does it have a code of business conduct and ethics, an audit charter or a whistleblower policy. Therefore the Company does not have any independent oversight of its external financial reporting and internal control over financial reporting.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2016 financial statements, and this report does not affect our report dated March 31, 2017, except for the reference to our report on internal control over financial reporting and the disclosures in Footnote 25, as to which the date is January 29, 2018, on those financial statements.

F-3

In our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, Royal Energy Resources, Inc. and Subsidiaries has not maintained effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control— Integrated Framework - 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2016, and the related consolidated statements of operations and comprehensive income, stockholders’ equity (deficit), and cash flows of Royal Energy Resources, Inc., for the year then ended and the consolidated statements of operations and comprehensive income and cash flows for the four-month period ended December 31, 2015, and our report dated March 31, 2017, except for the reference to our report on internal control over financial reporting and the disclosures in Footnote 25, as to which the date is January 29, 2018, expressed an unqualified opinion.

Our report on the consolidated financial statements as of and for the year ended December 31, 2016, and for the four-month period ended December 31, 2015, included two emphasis of a matter paragraphs, the first of which discussed that the accompanying consolidated financial statements include the financial position and results of Rhino Resource Partners, LP (“Rhino”), which are significant to the consolidated financial statements. As described in Note 3, Rhino was acquired in 2016, and certain of the provisional values assigned to the acquired assets and liabilities were subject to change as valuations were finalized in the first quarter of 2017. As further discussed in Note 26 (Unaudited), such revisions significantly impacted the carrying values of assets, liabilities and the results of operations and resulted in a bargain purchase gain.

The second emphasis of a matter paragraph disclosed that the consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, at December 31, 2016, beyond the operations of Rhino, the Company has not established sources of revenues sufficient to fund the development of its business, or to pay projected operating expenses and commitments for the next year. This raises substantial doubt that the Company will be able to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Brown Edwards & Company, LLP

CERTIFIED PUBLIC ACCOUNTANTS

513 State Street

Bristol, Virginia

January 29, 2018

F-4

Paritz & Company, P.A.	15 Warren Street, Suite 25
	Hackensack, New Jersey 07601

	(201)342-7753

	Fax: (201) 342-7598

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Royal Energy Resources, Inc.

We have audited the accompanying consolidated balance sheet of Royal Energy Resources, Inc. as of August 31, 2015, and the related consolidated statement of operations, stockholders’ equity, and cash flows for the year ended August 31, 2015. Royal Energy Resource’s management is responsible for these financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Royal Energy Resources, Inc. as of August 31, 2015, and the results of its operations and its cash flows for the year ended August 31, 2015 in conformity with accounting principles generally accepted in the United States of America.

The consolidated financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has not established sources of revenues sufficient to fund the development of its business, or to pay projected operating expenses and commitments for the next year. The Company has accumulated a net loss of $5,010,502 since inception through August 31, 2015, and incurred a loss of $502,169 for the year ended August 31, 2015. These factors, among others, raise substantial doubt that the Company will be able to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Paritz & Company, P.A.

Hackensack, NJ

November 24, 2015

F-5

GZTY CPA Group, LLC

52 Bridge Street

Metuchen, NJ 08840

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

Royal Energy Resources, Inc.

(formerly World Marketing, Inc.)

We have audited the accompanying balance sheet of Royal Energy Resources, Inc. as of August 31, 2014 and the related statements of operations, cash flows and the statement of stockholders’ deficit for the year ended August 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Royal Energy Resources, Inc., as of August 31, 2014, and the results of its operations and its cash flows for the year ended August 31, 2014 in conformity with accounting principles generally accepted in the United States of America.

The financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has no established source of revenue and is dependent on its ability to raise capital from shareholders or other sources to sustain operations. These factors among other matters as set forth in Note 2, raise substantial doubt that the Company will be able to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ GZTY CPA Group LLC

Metuchen New Jersey

December 8, 2014

F-6

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)

	December 31, 2016			August 31, 2015

Assets
CURRENT ASSETS
Cash and cash equivalents	$	86		$	4,180
Accounts receivable, less allowance for bad debts of $0 and $13, respectively		13,893			31
Inventories		8,050			-
Notes receivable and accrued interest - related party		-			43
Advance royalties, current portion		898			-
Prepaid expenses and other assets		8,461			1
Total current assets		31,388			4,255
PROPERTY, PLANT AND EQUIPMENT:
At cost, including coal properties, mine development and construction costs		69,684			7,066
Less accumulated depreciation, depletion and amortization		(4,572	)		-
Net property, plant and equipment		65,112			7,066
Advance royalties, net of current portion		7,652			-
Investment in unconsolidated affiliates		5,121			-
Intangible purchase option		21,750			-
Goodwill		7,594			-
Intangible assets, less accumulated amortization of $68 and $91, respectively		33			779
Other non-current assets		27,591			250
TOTAL ASSETS	$	166,242		$	12,350

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	10,447		$	73
Accrued expenses and other		11,405			56
Notes payable - Related party		504			404
Current portion of long-term debt		12,040			-
Current portion of asset retirement obligations		917			-
Related party advances and accrued interest payable		71			34
Total current liabilities		35,384			567
NON-CURRENT LIABILITIES:
Asset retirement obligations, net of current portion		26,503			-
Other non-current liabilities		39,073			-
Total non-current liabilities		65,576			-
Total liabilities		100,960			567
COMMITMENTS AND CONTINGENCIES (NOTE 20)
STOCKHOLDERS' EQUITY

Preferred stock: $0.00001 par value; authorized 10,000,000 shares; 51,000 issued and outstanding at December 31, 2016 and August 31, 2015		-			-
Common stock: $0.00001 par value; authorized 500,000,000 shares; 17,212,278 shares and 13,850,230 shares issued and outstanding at December 31, 2016, and August 31, 2015, respectively		1			1
Additional paid-in capital		47,295			16,793
Stock subscription receivable		(213	)		-
Accumulated other comprehensive income		874			-
Accumulated deficit		(20,579	)		(5,011	)
Total stockholders’ equity owned by common shareholders		27,378			11,783
Non-controlling interest		37,904			-
Total stockholders' equity		65,282			11,783
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	166,242		$	12,350

See accompanying notes to consolidated financial statements.

F-7

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income

Year ended December 31, 2016, Four months ended December 31, 2015 and years ended August 31, 2015 and 2014

(in thousands)

				Four
	Year ended			Months ended			Year ended			Year ended
	December 31, 2016			December 31, 2015			August 31, 2015			August 31, 2014

REVENUES:
Coal sales	$	130,739		$	-		$	281		$	-
Freight and handling revenues		1,338			-			-			-
Other revenues		6,492			-			-			-
Total revenues		138,569			-			281			-
COSTS AND EXPENSES:
Cost of operations (exclusive of depreciation, depletion and amortization shown separately below)		111,634			-			283			-
Freight and handling costs		1,268			-			-			-
Depreciation, depletion and amortization		4,503			145			91			-
Asset impairment		16,746			-			-			-
Selling, general and administrative expense (exclusive of depreciation, depletion and amortization shown separately above)		14,142			808			394			797
Total costs and expenses		148,293			953			768			797
INCOME (LOSS) FROM OPERATIONS		(9,724	)		(953	)		(487	)		(797	)
INTEREST AND OTHER EXPENSE/(INCOME:)
Interest expense
Other		4,285			-			-			-
Related party		12			4			6			21
Interest income
Other		(1	)		(1	)		-			-
Related party		(6	)		(2	)		(1	)		-
Equity in net loss/(income) of unconsolidated affiliates, net		183			-			-			-
Loss on commodities trading		-			-			10			(1	)
Loss on forfeiture of deposit		-			250			-			-
Total other expense (income)		4,473			251			15			20
NET LOSS FROM CONTINUING OPERATIONS		(14,197	)		(1,204	)		(502	)		(817	)
INCOME FROM DISCONTINUED OPERATIONS		650			-			-			-
NET LOSS BEFORE NON-CONTROLLING INTEREST		(13,547	)		(1,204	)		(502	)		(817	)
Less net earnings attributable to non-controlling interest		817			-			-			-
NET LOSS ATTRIBUTABLE TO COMPANY'S STOCKHOLDERS		(14,364	)		(1,204	)		(502	)		(817	)
OTHER COMPREHENSIVE LOSS:
Fair market value adjustment for available-for-sale investment		1,614			-			-			-
Less comprehensive earnings attributable to non-controlling interest		740			-			-			-
COMPREHENSIVE LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(13,490	)	$	(1,204	)	$	(502	)	$	(817	)

Net income (loss) per share, basic and diluted
Continuing operations	$	(0.97	)	$	(0.08	)	$	(0.05	)	$	(0.16	)
Discontinued operations	$	0.04		$	-		$	-		$	-
	$	(0.93	)	$	(0.08	)	$	(0.05	)	$	(0.16	)

Weighted average shares outstanding, basic and diluted		14,527,495			14,794,212			10,335,741			5,060,675

See accompanying notes to consolidated financial statements.

F-8

Royal Energy Resources, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity (Deficit)

Year ended December 31, 2016, Four months ended December 31, 2015 and years ended August 31, 2015 and 2014

(in thousands, except shares)

																	Accumulated
	Preferred stock					Common stock					Additional Paid In			Non-Controlling			Other Comprehensive		Treasury			Stock Subscription			Accumulated
	Shares			Amount		Shares			Amount		Capital			Interest			Income (Loss)		Stock			Receivable			Deficit			Total

Balance, August 31, 2013		100,000		$	-		179,609		$	1	$	3,513		$	-		$	-	$	-		$	-		$	(3,692	)	$	(178	)
Treasury stock acquired		-			-		(5,292	)		-		-			-			-		(3	)		-			-			(3	)
Common stock issued for:																													-
Consulting contract		-			-		800,000			-		320			-			-		-			-			-			320
Amounts due related party and compensation		-			-		6,700,000			-		502			-			-		-			-			-			502
Loan extension fee		-			-		275,000			-		21			-			-		-			-			-			21
Loan principal		-			-		300,000			-		22			-			-		-			-			-			22
Net loss		-			-		-			-		-			-			-		-			-			(817	)		(817	)
Balance, August 31, 2014		100,000		$	-		8,249,317		$	1	$	4,378		$	-		$	-	$	(3	)	$	-		$	(4,509	)	$	(133	)
Sell treasury stock		-			-		5,292			-		(2	)		-			-		3			-			-			1
Common stock issued for:																													-
Consulting contract		-			-		410,000			-		41			-			-		-			-			-			41
Acquisition of Blaze Minerals		-			-		2,803,621			-		7,009			-			-		-			-			-			7,009
Acquisition of Blue Grove		-			-		350,000			-		875			-			-		-			-			-			875
Cash		-			-		2,032,000			-		4,505			-			-		-			-			-			4,505
Retire preferred stock		(49,000	)		-		-			-		(13	)		-			-		-			-			-			(13	)
Net loss		-			-		-			-		-			-			-		-			-			(502	)		(502	)
Balance August 31, 2015		51,000			-		13,850,230			1		16,793			-			-		-			-			(5,011	)		11,783
Common stock issued for:																													-
Cash		-			-		1,218,000			-		3,045			-			-		-			-			-			3,045
Services		-			-		95,597			-		500			-			-		-			-			-			500
Modification of Blue Grove transaction		-			-		(340,000	)		-		(534	)		-			-		-			-			-			(534	)
Net loss		-			-		-			-		-			-			-		-			-			(1,204	)		(1,204	)
Balance December 31, 2015		51,000			-		14,823,827			1		19,804			-			-		-			-			(6,215	)		13,590
Common stock issued for:
Cash		-			-		112,500			-		900			-			-		-			-			-			900
Services		-			-		28,094			-		283			-			-		-			-			-			283
Acquisition of Blaze Mining royalty		-			-		1,750,000			-		21,263			-			-		-			-			-			21,263
Conversion of convertible notes payable					-		447,857			-		2,462			-			-					-						2,462
Stock subscription receivable		-			-		50,000			-		213			-			-		-			(213	)					-
Mark-to-market investment		-			-		-			-		-			740			874		-			-			-			1,614
Initial valuation of non-controlling interest		-			-		-			-		-			3,524			-		-			-			-			3,524
Change in proportion of non-controlling interest		-			-		-			-		2,370			(2,370	)		-		-			-			-
New units issued by subsidiary		-			-		-			-		-			35,193			-		-			-			-			35,193
Net loss		-			-		-			-		-			817			-		-			-			(14,364	)		(13,547	)
Balance December 31, 2016		51,000		$	-		17,212,278		$	1	$	47,295		$	37,904		$	874	$	-		$	(213	)	$	(20,579	)	$	65,282

See accompanying notes to consolidated financial statements.

F-9

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Year Ended December 31, 2016, Four Months Ended December 31, 2015, and Years Ended August 31, 2015 and 2014

(in thousands)

				Four
	Year ended			Months ended			Year ended			Year ended
	December 31, 2016			December 31, 2015			August 31, 2015			August 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(13,547	)	$	(1,204	)	$	(502	)	$	(817	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation, depletion and amortization		4,915			145			91			-
Accretion of asset retirement obligations		1,131			-			-			-
Amortization of deferred revenue		(1,174	)		-			-			-
Amortization of advance royalties		818			-			-			-
Amortization of debt issuance costs		975			-			-			-
Loss on retirement of advance royalties		44			-			-			-
Loss on sale of marketable securities		-			-			10			-
Loss (gain) on sale/disposal of assets, net		(593	)		-			-			-
Loss on forfeiture of deposit					250
Equity-based compensation		791			375			41			341
Equity-based compensation - former related party		-			-			-			402
Equity in loss of unconsolidated affiliates		144			-			-			-
Distributions from unconsolidated affiliate		300			-			-			-
Accrued interest income - related party		(6	)		(2	)		(1	)		-
Accrued interest expense - related party		12			4			6			-
Provision (recovery) of bad debts		49			-			13			-
Asset impairment		16,746			-			-			-
Change in assets and liabilities:		-			-			-			-
Accounts receivable		(3,123	)		-			(44	)		-
Inventories		(1,290	)		-			-			-
Advance royalties		(721	)		-			-			-
Prepaid expenses and other assets		229			-			(1	)		-
Accounts payable		1,801			231			16			48
Accounts payable - related party		20			-			-			-
Accrued expenses and other liabilities		(147	)		90			-			-
Asset retirement obligations		(822	)		-			-			-
Net cash provided by (used in) operations		6,552			(111	)		(371	)		(26	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Rhino Resource Partners LP		(4,500	)		-			-			-
Investment in Blaze Mining royalty		150			-			-			-
Note receivable - related party		-			-			(43	)		-
Cash acquired in acquisitions		619			-			6			-
Treasury stock transactions		-			-			1			(3	)
Marketable securities		-			-			9			(20	)
Deposit		-			-			(250	)		-
Advances to related party		-			(10	)		-			-
Proceeds from sale of Elk Horn		11,100			-			-			-
Other		35			-			-			-
Additions to property, plant and equipment		(5,075	)		-			-			(2	)
Net cash (used in) investing activities		2,329			(10	)		(277	)		(25	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit		101,050			-			-			-
Repayments on line of credit		(132,509	)		-			-			-
Payments on debt issuance costs		(1,594	)		-			-			-
Loan proceeds		4,000			-			-			18
Non-controlling interest		10,960			-			-			-
Proceeds of related party loans		100			-			404			-
Advances from related parties, net		-			-			2			1
Proceeds from issuance of common stock		900			3,045			4,505			-
Repayment of notes payable and long-term debt		(1,156	)		-			(83	)		-
Proceeds from issuance of convertible notes		2,350			-			-			-
Net cash provided by (used in) financing activities		(15,899	)		3,045			4,828			19
Net increase (decrease) in cash and cash equivalents		(7,018	)		2,924			4,180			(32	)
Cash, beginning of period		7,104			4,180			-			32
Cash, end of period	$	86		$	7,104		$	4,180		$	-

See accompanying notes to consolidated financial statements.

F-10

ROYAL ENERGY RESOURCES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued

Year ended December 31, 2016, Four months ended December 31, 2015 and years ended August 31, 2015 and 2014

(in thousands)

			Four
	Year ended		Months ended		Year ended		Year ended
	December 31, 2016		December 31, 2015		August 31, 2015		August 31, 2014
Supplemental cash flow information
Cash paid for interest	$	3,800	$	-	$	3	$	-
Cash paid for income taxes	$	-	$	-	$	-	$	-

Non-cash investing and financing activities
Common stock issued as part of acquisition of coal royalty interests	$	21,263	$	-	$	-	$	-
Rhino units issued to non-controlling interest in exchange for intangible purchase option		21,750		-		-		-
Property and equipment additions in accounts payable		1,100		-		-		-
Value of LTIP units issued		600		-		-		-
Common stock issued for convertible notes payable and accrued interest		2,462		-		-		-
Issuance of common stock in payment of accrued compensation		-		17		-		-
Issuance of common stock for prepaid consulting fees		-		133		-		-
Common stock issued for Blaze Minerals mineral interests		-		-		7,009		-
Liabilities assumed in acquisition of Blaze Minerals mineral interests		-		-		57		-
Preferred stock acquired in exchange for former subsidiaries		-		-		13		-
Common stock issued for:
Acquisition of Blue Grove Coal, LLC		-		-		875		-
Amount due related party		-		-		-		101
Loan principal		-		-		-		23
Accounts payable and accrued expenses assumed by related party		-		-		-		72
Loan principal assumed by related party		-		-		-		8
Consulting agreement cancelled		-		-		-		43

See accompanying notes to consolidated financial statements.

F-11

ROYAL ENERGY RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016, AUGUST 31, 2015 AND 2014

AND THE FOUR MONTHS ENDED DECEMBER 31, 2015

1. ORGANIZATION AND BASIS OF PRESENTATION

Basis of Presentation and Principles of Consolidation—The accompanying consolidated financial statements include the accounts of Royal Energy Resources, Inc. (“Royal”) and its wholly owned subsidiaries, Rhino GP LLC (“Rhino GP”), Blaze Minerals, LLC (“Blaze Minerals”), a West Virginia limited liability company and Blue Grove Coal, LLC (“Blue Grove”), a West Virginia limited liability company and its majority owned subsidiary Rhino Resource Partners LP (“Rhino”)(the “Partnership”)(OTCQB:RHNO), a Delaware limited partnership (collectively the “Company”). Rhino GP is the general partner of Rhino.

Intercompany transactions and balances have been eliminated in consolidation.

On January 21, 2016, the board of directors of the Company elected to change the Company’s fiscal year end to December 31, from August 31. Accordingly, the company filed a transition report on Form 10-Q containing unaudited financial statements for the period from September 1, 2015 to December 31, 2015, together with comparative statements for the period from September 1, 2014 to December 31, 2014, in accordance with Rule 13a-10(c). The audit of this period is included herein.

Organization and nature of business

Royal is a Delaware corporation which was incorporated on March 22, 1999, under the name Webmarketing, Inc. On July 7, 2004, the Company revived its charter and changed its name to World Marketing, Inc. In December 2007 the Company changed its name to Royal Energy Resources, Inc. Since 2007, the Company pursued gold, silver, copper and rare earth metal mining concessions in Romania and mining leases in the United States. Commencing in January 2015, the Company began a series of transactions to sell all of its existing assets, undergo a change in ownership control and management and repurpose itself as a North American energy recovery company, planning to purchase a group of synergistic, long-lived energy assets, but taking advantage of favorable valuations for mergers and acquisitions in the current energy markets. On April 13, 2015, the Company executed an agreement for the first acquisition in furtherance of its change in principal operations.

Blaze Minerals is the owner of 40,976 net acres of coal and coalbed methane mineral interest in 22 counties across West Virginia.

Blue Grove is a licensed mine operator based in McDowell County, West Virginia and is currently under contract to operate a mine owned by GS Energy, LLC.

Rhino was formed on April 19, 2010 to acquire Rhino Energy LLC (the “Operating Company”). The Operating Company and its wholly owned subsidiaries produce and market coal from surface and underground mines in Kentucky, Ohio, West Virginia and Utah. The majority of sales are made to domestic utilities and other coal-related organizations in the United States.

Royal Energy Resources, Inc. Acquisition of Rhino

On January 21, 2016, a definitive agreement (“Definitive Agreement”) was completed between Royal and Wexford Capital whereby Royal acquired 676,911 issued and outstanding common units of Rhino from Wexford Capital for $3.5 million. The Definitive Agreement also included the committed acquisition by Royal within sixty days from the date of the Definitive Agreement of all of the issued and outstanding membership interests of the General Partner, as well as 945,525 issued and outstanding subordinated units of Rhino from Wexford Capital for $1.0 million.

On March 17, 2016, Royal completed the acquisition of all of the issued and outstanding membership interests of the General Partner as well as the 945,525 issued and outstanding subordinated units from Wexford Capital. Royal obtained control of, and a majority limited partner interest, in Rhino with the completion of this transaction.

F-12

On March 21, 2016, Royal and Rhino entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which Rhino issued 6,000,000 common units to Royal in a private placement at $1.50 per common unit for an aggregate purchase price of $9.0 million. Royal paid the Partnership $2.0 million in cash and delivered a promissory note payable to Rhino in the amount of $7.0 million (the “Rhino Promissory Note”). The promissory note was payable in three installments: (i) $3.0 million on July 31, 2016; (ii) $2.0 million on or before September 30, 2016 and (iii) $2.0 million on or before December 31, 2016.

As a result of these transactions, Rhino became a majority owned subsidiary of Royal. See Note 3.

Option Agreement

On December 30, 2016, Rhino entered into an option agreement (the “Option Agreement”) with Royal, Rhino Resources Partners Holdings, LLC (“Rhino Holdings”), an entity wholly owned by certain investment partnerships managed by Yorktown Partners LLC (“Yorktown”), and Rhino GP. Upon execution of the Option Agreement, Rhino received an option (the “Call Option”) from Rhino Holdings to acquire substantially all of the outstanding common stock of Armstrong Energy, Inc. (“Armstrong Energy”) that is currently owned by investment partnerships managed by Yorktown, which currently represents approximately 97% of the outstanding common stock of Armstrong Energy. The Option Agreement stipulates that Rhino can exercise the Call Option no earlier than January 1, 2018 and no later than December 31, 2019. In exchange for Rhino Holdings granting Rhino the Call Option, Rhino issued 5.0 million common units, representing limited partner interests in the Partnership (the “Call Option Premium Units”) to Rhino Holdings upon the execution of the Option Agreement. The Option Agreement stipulates Rhino can exercise the Call Option and purchase the common stock of Armstrong Energy in exchange for a number of common units to be issued to Rhino Holdings, which when added with the Call Option Premium Units, will result in Rhino Holdings owning 51% of the fully diluted common units of Rhino. The purchase of Armstrong Energy through the exercise of the Call Option would also require Royal to transfer a 51% ownership interest in the Rhino GP to Rhino Holdings. Rhino’s ability to exercise the Call Option is conditioned upon (i) sixty (60) days having passed since the entry by Armstrong Energy into an agreement with its bondholders to restructure its bonds and (ii) the amendment of Rhino’s revolving credit facility to permit the acquisition of Armstrong Energy. The percentage ownership of Armstrong Energy represented by the Armstrong Shares as of the date the Call Option is exercised is subject to dilution based upon the terms under which Armstrong Energy restructures its indebtedness, the terms of which have not been determined yet.

The Option Agreement also contains an option (the “Put Option”) granted by Rhino to Rhino Holdings whereby Rhino Holdings has the right, but not the obligation, to cause Rhino to purchase substantially all of the outstanding common stock of Armstrong Energy from Rhino Holdings under the same terms and conditions discussed above for the Call Option. The exercise of the Put Option is dependent upon (i) the entry by Armstrong Energy into an agreement with its bondholders to restructure its bonds and (ii) the termination and repayment of any outstanding balance under Rhino’s revolving credit facility. In the event either the Partnership or Rhino GP fail to perform their obligations in the event Rhino Holdings exercises the Put Option, then Rhino Holdings and the Partnership each have the right to terminate the Option Agreement, in which event no party thereto shall have any liability to any other party under the Option Agreement, although Rhino Holdings shall be allowed to retain the Call Option Premium Units.

Rhino Series A Preferred Unit Purchase Agreement

On December 30, 2016, Rhino entered into a Series A Preferred Unit Purchase Agreement (the “Preferred Unit Agreement”) with Weston Energy LLC (“Weston”), an entity wholly owned by certain investment partnerships managed by Yorktown, and Royal. Under the Preferred Unit Agreement, Weston and Royal agreed to purchase 1,300,000 and 200,000, respectively, of Series A preferred units representing limited partner interests in the Partnership (“Series A Preferred Units”) at a price of $10.00 per Series A preferred unit. The Series A preferred units have the preferences, rights and obligations set forth in the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership, Weston and Royal paid cash of $11.0 million and $2.0 million, respectively, to the Partnership and Weston assigned to the Partnership a $2.0 million note receivable from Royal originally dated September 30, 2016 (the “Weston Promissory Note”).

F-13

The Preferred Unit Agreement contains customary representations, warrants and covenants, which include among other things, that, for as long as the Series A preferred units are outstanding, the Partnership will cause CAM Mining, LLC (“CAM Mining”), which comprises the partnership’s Central Appalachia segment, to conduct its business in the ordinary course consistent with past practice and use reasonable best efforts to maintain and preserve intact its current organization, business and franchise and to preserve the rights, franchises, goodwill and relationships of its employees, customers, lenders, suppliers, regulators and others having business relationships with CAM Mining.

The Preferred Unit Agreement stipulates that upon the request of the holder of the majority of the Partnership’s common units following their conversion from Series A preferred units, as outlined in the Amended and Restated Partnership Agreement, the Partnership will enter into a registration rights agreement with such holder. Such majority holder has the right to demand two shelf registration statements and registration statements on Form S-1, as well as piggyback registration rights.

Fourth Amended and Restated Agreement of Limited Partnership of Rhino Resource Partners LP

On December 30, 2016, the General Partner entered into the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership (“Amended and Restated Partnership Agreement”) to create, authorize and issue the Series A Preferred Units.

The Series A preferred units are a new class of equity security that rank senior to all classes or series of equity securities of the Partnership with respect to distribution rights and rights upon liquidation. The holders of the Series A preferred units shall be entitled to receive annual distributions equal to the greater of (i) 50% of the CAM Mining free cash flow (as defined below) and (ii) an amount equal to the number of outstanding Series A preferred units multiplied by $0.80. “CAM Mining free cash flow” is defined in the Amended and Restated Partnership Agreement as (i) the total revenue of the Partnership’s Central Appalachia business segment, minus (ii) the cost of operations (exclusive of depreciation, depletion and amortization) for the Partnership’s Central Appalachia business segment, minus (iii) an amount equal to $6.50, multiplied by the aggregate number of met coal and steam coal tons sold by the Partnership from its Central Appalachia business segment. If the Partnership fails to pay any or all of the distributions in respect of the Series A preferred units, such deficiency will accrue until paid in full and the Partnership will not be permitted to pay any distributions on its partnership interests that rank junior to the Series A preferred units, including its common units. The Series A preferred units will be liquidated in accordance with their capital accounts and upon liquidation will be entitled to distributions of property and cash in accordance with the balances of their capital accounts prior to such distributions to equity securities that rank junior to the Series A preferred units.

The Series A preferred units will vote on an as-converted basis with the common units, and the Partnership will be restricted from taking certain actions without the consent of the holders of a majority of the Series A preferred units, including: (i) the issuance of additional Series A preferred units, or securities that rank senior or equal to the Series A preferred units; (ii) the sale or transfer of CAM Mining or a material portion of its assets; (iii) the repurchase of common units, or the issuance of rights or warrants to holders of common units entitling them to purchase common units at less than fair market value; (iv) consummation of a spin off; (v) the incurrence, assumption or guaranty indebtedness for borrowed money in excess of $50.0 million except indebtedness relating to entities or assets that are acquired by the Partnership or its affiliates that is in existence at the time of such acquisition or (vi) the modification of CAM Mining’s accounting principles or the financial or operational reporting principles of the Partnership’s Central Appalachia business segment, subject to certain exceptions.

The Partnership will have the option to convert the outstanding Series A Preferred Units at any time on or after the time at which the amount of aggregate distributions paid in respect of each Series A Preferred Unit exceeds $10.00 per unit. Each Series A preferred unit will convert into a number of common units equal to the quotient (the “Series A Conversion Ratio”) of (i) the sum of $10.00 and any unpaid distributions in respect of such Series A Preferred Unit divided by (ii) 75% of the volume-weighted average closing price of the common units for the preceding 90 trading days (the “VWAP”); provided however, that the VWAP will be capped at a minimum of $2.00 and a maximum of $10.00. On December 31, 2021, all outstanding Series A preferred units will convert into common units at the then applicable Series A Conversion Ratio.

F-14

Debt Classification— The Company evaluated the Partnership’s amended and restated senior secured credit facility at December 31, 2016 to determine whether this debt liability should be classified as a long-term or current liability on the Company’s consolidated balance sheet. On May 13, 2016, the Partnership entered into a fifth amendment (the “Fifth Amendment”) of its amended and restated agreement that initially extended the term of the senior secured credit facility to July 31, 2017. Per the Fifth Amendment, the term of the credit facility automatically extended to December 31, 2017 when the revolving credit commitments were reduced to $55 million or less as of December 31, 2016. As of December 31, 2016, the Partnership has met the requirements to extend the maturity date of the credit facility to December 31, 2017. Since the credit facility has an expiration date of December 2017, the Partnership determined that its credit facility debt liability of $10.0 million at December 31, 2016 should be classified as a current liability on its consolidated balance sheet. The classification of the credit facility balance as a current liability raises substantial doubt of the Company’s ability to continue as a going concern for the next twelve months. The Company is considering alternative financing options that could result in a new long-term credit facility. Since the credit facility has an expiration date of December 31, 2017, the Company will have to secure alternative financing to replace its credit facility by the expiration date of December 31, 2017 in order to continue its normal business operations and meet its obligations as they come due. The financial statements do not include any adjustments relating to the recoverability and classification of assets carrying amounts or the amount of and classification of liabilities that may result should the Company be unable to continue as a going concern.

Discontinued Operations - The Company’s majority owned subsidiary, Rhino, sold its Elk Horn operation in August 2016. The Company valued the Elk Horn assets at their sale value and recognized no gain or loss on the sale. Discontinued operations includes the earnings from operations since the acquisition date.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL

Trade Receivables and Concentrations of Credit Risk. See Note 20 for discussion of major customers. The Company does not require collateral or other security on accounts receivable. The credit risk is controlled through credit approvals and monitoring procedures.

Cash and Cash Equivalents. The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

Inventories. Inventories are stated at the lower of cost, based on a three month rolling average, or market. Inventories primarily consist of coal contained in stockpiles.

Advance Royalties. The Company is required, under certain royalty lease agreements, to make minimum royalty payments whether or not mining activity is being performed on the leased property. These minimum payments may be recoupable once mining begins on the leased property. The Company capitalizes the recoupable minimum royalty payments and amortizes the deferred costs once mining activities begin on the units-of-production method or expenses the deferred costs when the Company has ceased mining or has made a decision not to mine on such property.

Property, Plant and Equipment. Property, plant, and equipment, including coal properties, oil and natural gas properties, mine development costs and construction costs, are recorded at cost, which includes construction overhead and interest, where applicable. Expenditures for major renewals and betterments are capitalized, while expenditures for maintenance and repairs are expensed as incurred. Mining and other equipment and related facilities are depreciated using the straight-line method based upon the shorter of estimated useful lives of the assets or the estimated life of each mine. Coal properties are depleted using the units-of-production method, based on estimated proven and probable reserves. Mine development costs are amortized using the units-of-production method, based on estimated proven and probable reserves. The Company assumes zero salvage values for the majority of its property, plant and equipment when depreciation and amortization are calculated. Gains or losses arising from sales or retirements are included in current operations.

F-15

Stripping costs incurred in the production phase of a mine for the removal of overburden or waste materials for the purpose of obtaining access to coal that will be extracted are variable production costs that are included in the cost of inventory produced and extracted during the period the stripping costs are incurred. The Company defines a surface mine as a location where the Company utilizes operating assets necessary to extract coal, with the geographic boundary determined by property control, permit boundaries, and/or economic threshold limits. Multiple pits that share common infrastructure and processing equipment may be located within a single surface mine boundary, which can cover separate coal seams that typically are recovered incrementally as the overburden depth increases. In accordance with the accounting guidance for extractive mining activities, the Company defines a mine in production as one from which saleable minerals have begun to be extracted (produced) from an ore body, regardless of the level of production; however, the production phase does not commence with the removal of de minimis saleable mineral material that occurs in conjunction with the removal of overburden or waste material for the purpose of obtaining access to an ore body. The Company capitalizes only the development cost of the first pit at a mine site that may include multiple pits.

Asset Impairments for Coal Properties, Mine Development Costs and Other Coal Mining Equipment and Related Facilities. The Company follows the accounting guidance in Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment, on the impairment or disposal of property, plant and equipment for its coal mining assets, which requires that projected future cash flows from use and disposition of assets be compared with the carrying amounts of those assets when potential impairment is indicated. When the sum of projected undiscounted cash flows is less than the carrying amount, impairment losses are recognized. In determining such impairment losses, the Company must determine the fair value for the coal mining assets in question in accordance with the applicable fair value accounting guidance. Once the fair value is determined, the appropriate impairment loss must be recorded as the difference between the carrying amount of the coal mining assets and their respective fair values. Also, in certain situations, expected mine lives are shortened because of changes to planned operations or changes in coal reserve estimates. When that occurs and it is determined that the mine’s underlying costs are not recoverable in the future, reclamation and mine closing obligations are accelerated and the mine closing accrual is increased accordingly. To the extent it is determined that coal asset carrying values will not be recoverable during a shorter mine life, a provision for such impairment is recognized.

Debt Issuance Costs. Debt issuance costs reflect fees incurred to obtain financing and are amortized (included in interest expense) using the effective interest method over the life of the related debt. Debt issuance costs are included in prepaid expenses and other current assets as of December 31, 2016 since the Company classified its credit facility balance as a current liability.

Asset Retirement Obligations. The accounting guidance for asset retirement obligations addresses asset retirement obligations that result from the acquisition, construction or normal operation of long-lived assets. This guidance requires companies to recognize asset retirement obligations at fair value when the liability is incurred or acquired. Upon initial recognition of a liability, an amount equal to the liability is capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. The Company has recorded the asset retirement costs for its mining operations in coal properties.

The Company estimates its future cost requirements for reclamation of land where it has conducted surface and underground mining operations, based on its interpretation of the technical standards of regulations enacted by the U.S. Office of Surface Mining, as well as state regulations. These costs relate to reclaiming the pit and support acreage at surface mines and sealing portals at underground mines. Other reclamation costs are related to refuse and slurry ponds, as well as holding and related termination/exit costs.

The Company expenses contemporaneous reclamation which is performed prior to final mine closure. The establishment of the end of mine reclamation and closure liability is based upon permit requirements and requires significant estimates and assumptions, principally associated with regulatory requirements, costs and recoverable coal reserves. Annually, the Company reviews its end of mine reclamation and closure liability and makes necessary adjustments, including mine plan and permit changes and revisions to cost and production levels to optimize mining and reclamation efficiency. When a mine life is shortened due to a change in the mine plan, mine closing obligations are accelerated, the related accrual is increased and the related asset is reviewed for impairment, accordingly.

F-16

The adjustments to the liability from annual recosting reflect changes in expected timing, cash flow and the discount rate used in the present value calculation of the liability. Each respective year includes a range of discount rates that are dependent upon the timing of the cash flows of the specific obligations. Changes in the asset retirement obligations for the year ended December 31, 2016 were calculated with discount rates that ranged from 7.0% to 9.1%. The discount rates may change in each respective year due to changes in applicable market indicators that are used to arrive at an appropriate discount rate. Other recosting adjustments to the liability are made annually based on inflationary cost increases or decreases and changes in the expected operating periods of the mines. The related inflation rate utilized in the recosting adjustments was 2.3 % for 2016.

Revenue Recognition. Most of the Company’s revenues are generated under long-term coal sales contracts with electric utilities, industrial companies or other coal-related organizations, primarily in the eastern United States. Revenue is recognized and recorded when shipment or delivery to the customer has occurred, prices are fixed or determinable and the title or risk of loss has passed in accordance with the terms of the sales agreement. Under the typical terms of these agreements, risk of loss transfers to the customers at the mine or port, when the coal is loaded on the rail, barge, truck or other transportation source that delivers coal to its destination. Advance payments received are deferred and recognized in revenue as coal is shipped and title has passed.

Freight and handling costs paid directly to third-party carriers and invoiced to coal customers are recorded as freight and handling costs and freight and handling revenues, respectively.

Other revenues generally consist of coal royalty revenues, limestone sales, coal handling and processing, oil and natural gas royalty revenues, rebates and rental income. With respect to other revenues recognized in situations unrelated to the shipment of coal, the Company carefully reviews the facts and circumstances of each transaction and does not recognize revenue until the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. Advance payments received are deferred and recognized in revenue when earned.

Equity-Based Compensation. The Company applies the provisions of ASC Topic 718 to account for any stock/unit awards granted to employees, directors or consultants. This guidance requires that all share-based payments to employees or directors, including grants of stock options, be recognized in the financial statements based on their fair value. Royal has granted stock awards to officers and consultants and Rhino GP has granted restricted units to directors and certain employees of Rhino GP and Rhino that contain only a service condition. The fair value of each stock grant and each restricted unit award was calculated using the closing price of Rhino’s common units on the date of grant.

Expense related to unit awards is recorded in the selling, general and administrative line of the Company’s consolidated statements of operations and comprehensive income.

Derivative Financial Instruments. On occasion, the Company has used diesel fuel contracts to manage the risk of fluctuations in the cost of diesel fuel. The diesel fuel contracts have met the requirements for the normal purchase normal sale (“NPNS”) exception prescribed by the accounting guidance on derivatives and hedging, based on management’s intent and ability to take physical delivery of the diesel fuel. The Company had one diesel fuel contract as of December 31, 2016 to purchase approximately 1.0 million gallons of diesel fuel at fixed prices through December 2017.

Investments in Joint Ventures. Investments in joint ventures are accounted for using the equity method or cost basis depending upon the level of ownership, the Company’s ability to exercise significant influence over the operating and financial policies of the investee and whether the Company is determined to be the primary beneficiary of a variable interest entity. Equity investments are recorded at original cost and adjusted periodically to recognize the Company’s proportionate share of the investees’ net income or losses after the date of investment. Any losses from the Company’s equity method investment are absorbed by the Company based upon its proportionate ownership percentage. If losses are incurred that exceed the Company’s investment in the equity method entity, then the Company must continue to record its proportionate share of losses in excess of its investment. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred.

F-17

Income Taxes. The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740 “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred taxes and liabilities are measured using enacted tax rates or expected tax rates 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 results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if, based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

Loss Contingencies. In accordance with the guidance on accounting for contingencies, the Company records loss contingencies at such time that an unfavorable outcome becomes probable and the amount can be reasonably estimated. When the reasonable estimate is a range, the recorded loss is the best estimate within the range. If no amount in the range is a better estimate than any other amount, the minimum amount of the range is recorded. The Company discloses information concerning loss contingencies for which an unfavorable outcome is probable. See Note 19, “Commitments and Contingencies,” for a discussion of such matters.

Management’s 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 and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recently Issued Accounting Standards. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 clarifies the principles for recognizing revenue and establishes a common revenue standard for U.S. financial reporting purposes. The guidance in ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). ASU 2014-09 supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and most industry-specific accounting guidance. Additionally, ASU 2014-09 supersedes some cost guidance included in ASC 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, assets within the scope of ASC 360, Property, Plant, and Equipment, and intangible assets within the scope of ASC 350, Intangibles—Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in ASU 2014-09. In July 2015, the FASB approved to defer the effective date of ASU 2014-09 by one year. Accordingly, ASU 2014-09 will be effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. The Company is currently evaluating the requirements of this new accounting guidance.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 provides guidance on management’s responsibility in evaluating whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter with early adoption permitted. The adoption of ASU 2014-15 did not have a material impact on the Company’s consolidated financial statements.

F-18

In January 2015, the FASB issued ASU 2015-01, “Income Statement-Extraordinary and Unusual Items”. ASC 225-20, Income Statement—Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions. ASU 2015-01 eliminates the concept of extraordinary items. The amendments in ASU 2015-01 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The effective date is the same for both public business entities and all other entities. The adoption of ASU 2015-01 on January 1, 2016 has not had a material impact on the Company’s financial statements.

In February 2015, the FASB issued ASU 2015-02, “Consolidation”. ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments of ASU 2015-02: a) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities, b) eliminate the presumption that a general partner should consolidate a limited partnership, c) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships and d) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU 2015-02 is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments in this Update using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. A reporting entity also may apply the amendments retrospectively. The adoption of ASU 2015-02 on January 1, 2016 did not have a material impact on the Company’s financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 requires that lessees recognize all leases (other than leases with a term of twelve months or less) on the balance sheet as lease liabilities, based upon the present value of the lease payments, with corresponding right of use assets. ASU 2016-02 also makes targeted changes to other aspects of current guidance, including identifying a lease and lease classification criteria as well as the lessor accounting model, including guidance on separating components of a contract and consideration in the contract. The amendments in ASU 2016-02 will be effective for the Company on January 1, 2019 and will require modified retrospective application as of the beginning of the earliest period presented in the financial statements. Early application is permitted. The Company is currently evaluating this guidance.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 provides guidance on eight cash flow issues, including debt prepayment or debt extinguishment costs. ASU 2016-15 requires that cash payments related to debt prepayments or debt extinguishments, excluding accrued interest, be classified as a financing activity rather than an operating activity even when the effects enter into the determination of net income. The amendments in ASU 2016-15 will be effective on January 1, 2018 and must be applied retrospectively. Early application is permitted. The Company is currently evaluating this guidance.

In October 2016, the FASB issued ASU 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties that are Under Common Control.” ASU 2016-17 amends the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. ASU 2016-17 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption of ASU 2016-17 is not expected to have a material impact on the Company’s financial statements.

F-19

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805).” ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating this guidance.

3. ACQUISITIONS

Acquisition of Blaze Minerals, LLC

On April 13, 2015 the Company entered into a Securities Exchange Agreement with Wastech, Inc. (“Wastech”), under which the Company acquired all of the issued and outstanding membership units of Blaze Minerals, LLC (“Blaze Minerals”). Blaze Minerals owns 40,976 net acres of coal and coalbed methane mineral rights in 22 counties in West Virginia (the “Mineral Rights”). The Company acquired Blaze Minerals by the issuance of 2,803,621 shares of common stock. The shares were valued at $7 million based upon a per share value of $2.50 per share, which was the price at which the Company issued its common stock in a private placement at the time. The assets acquired and liabilities assumed as part of the acquisition were recognized at their fair values at the acquisition date as follows:

	(thousands)
Mineral rights	$	7,066
Liabilities assumed		57
Common stock issued	$	7,009

Acquisition of Blue Grove Coal, LLC

On June 10, 2015, the Company, via a Securities Exchange Agreement, completed the acquisition of Blue Grove Coal, LLC (“Blue Grove”) in exchange for 350,000 shares of its common stock from Ian and Gary Ganzer (the “Members”). Simultaneous with the Company’s acquisition of Blue Grove, Blue Grove entered into an Operator Agreement with GS Energy, LLC, under which Blue Grove has an exclusive right to mine the coal properties of GS Energy for a two year period. During the term of the Operator Agreement, Blue Grove is entitled to all revenues from the sale of coal mined from GS Energy’s properties, and is responsible for all costs associated with the mining of the properties or the properties themselves, including operating costs, lease, rental or royalty payments, insurance and bonding costs, property taxes, licensing costs, etc. Simultaneous with the acquisition of Blue Grove, Blue Grove also entered into a Management Agreement with Black Oak Resources, LLC (“Black Oak”), a company owned by the Members. Under the Management Agreement, Blue Grove subcontracted all of its responsibilities under the Operator Agreement with GS Energy to Black Oak. In consideration, Black Oak is entitled to 75% of all net profits generated by the mining of the coal properties of GS Energy. Subsequently, the agreement with Black Oak was amended to provide that Black Oak was entitled to 100% of the first $400,000 and 50% of the next $1,000,000, for a maximum of $900,000 of net profits generated by the mining of the coal properties of GS Energy.

The assets acquired as part of the acquisition were recognized at their fair values at the acquisition date as follows:

	(thousands)
Cash	$	5
Intangible assets		870
Common stock issued	$	875

On December 23, 2015, the Company and the Members entered into an Amendment to Securities Exchange Agreement (“Amendment”) originally entered into on June 10, 2015 under which the Company acquired all of the membership interests of Blue Grove in exchange for 350,000 shares of the Company’s common stock. Pursuant to the Amendment, the consideration for the acquisition of Blue Grove was reduced from 350,000 shares of the Company’s common stock to 10,000 shares.

F-20

The Company reduced additional paid-in capital by $533,821 and the investment in Blue Grove by the same amount when the shares were returned to be cancelled. This left a value of $101,300 assigned to the intangible asset to be amortized over its remaining life.

Acquisition of Rhino GP LLC and Rhino Resource Partners LP

On January 21, 2016 Royal entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Wexford Capital, LLC (“Wexford”), under which Royal agreed to purchase, and Wexford agreed to sell, a controlling interest in Rhino in two separate transactions. Pursuant to the Purchase Agreement, Royal purchased 676,912 common units of Rhino from three holders for total consideration of $3,500,000. The common units purchased by Royal represented approximately 40.0% of the issued and outstanding common units of Rhino and 23.1% of the total outstanding common units and subordinated units. The subordinated units are convertible into common units on a one for one basis upon the occurrence of certain conditions.

At a second closing held on March 17, 2016, Royal purchased all of the membership interest of Rhino GP, and 945,526 subordinated units of Rhino from two holders thereof, for aggregate consideration of $1,000,000. The subordinated units purchased by Royal represented approximately 76.5% of the issued and outstanding subordinated units of Rhino, and when combined with the common units already owned by Royal, resulted in Royal owning approximately 55.4% of the outstanding Units of Rhino. Rhino GP is the general partner of Rhino, and in that capacity controls Rhino.

On March 21, 2016, Royal entered into a Securities Purchase Agreement (the “SPA”) with Rhino, under which Royal purchased 6,000,000 newly issued common units of Rhino for $1.50 per common unit, for a total investment in Rhino of $9,000,000. Closing under the SPA occurred on March 22, 2016. Royal paid the purchase by making a cash payment of $2,000,000 and by issuing a promissory note in the amount of $7,000,000 to Rhino, which was payable without interest on the following schedule: $3,000,000 on or before July 31, 2016; $2,000,000 on or before September 30, 2016; and $2,000,000 on or before December 31, 2016. On May 13, 2016 and September 30, 2016, Royal paid the Partnership $3.0 million and $2.0 million, respectively, for the promissory note installments that were due July 31, 2016 and September 30, 2016, respectively. The installment due December 31, 2016 was extended until December 31, 2018.

Rhino has the right to rescind the note installments due on December 31, 2018 before such installment is paid in the event the disinterested members of Rhino’s board conclude that Rhino does not need the capital that would be provided by the installment. If Rhino elects to rescind the installment, Royal will be obligated to return for cancellation 1,333,334 common units. In the event Rhino fails to exercise its rescission rights as to the installments due on December 31, 2018, Rhino will have an option to repurchase the common units represented by those installments at a price of $3.00 per common unit, which option may only be exercised in full and in cash as to the installment on or before December 31, 2017.

Royal has the right to cancel any installment and return the common units represented by the installment to Rhino for cancellation in the event certain conditions are not true as of the time any installment of the note is due. Such conditions are that all representations and warranties in the SPA remain true and correct, Rhino has entered into an agreement to extend its Credit Facility to December 31, 2017, and that Rhino is not then in default under the Credit Facility.

The promissory note is secured by a first lien on 1,333,334 of the common units issued under the SPA. The installment due on July 31, 2016 was with full recourse to the Company, and the installment due on September 30, 2016 was nonrecourse to Royal. The installment due on December 31, 2016 is nonrecourse to Royal, and Rhino’s only recourse is to cancel the common units in the event of nonpayment of the promissory note, which has been extended until December 31, 2018.

On April 13, 2016, Royal acquired 114,814 subordinated units for $115 in cash. After issuing other new units during the period, the Company’s ownership became 84.5% of the common units and 85.8% of the subordinated units for a combined ownership of 84.6% until December 30, 2016.

F-21

Rhino’s common units currently trade on the OTCQB Marketplace under the symbol “RHNO.” Rhino’s common units previously traded on the NYSE until December 17, 2015, when the NYSE suspended trading after Rhino failed to maintain an average global market capitalization over a consecutive 30 trading-day period of at least $15 million for its common units.

Rhino is a diversified energy limited partnership formed in Delaware that is focused on coal and energy related assets and activities, including energy infrastructure investments. Rhino produces, processes and sells high quality coal of various steam and metallurgical grades. Rhino markets its steam coal primarily to electric utility companies as fuel for their steam powered generators. Customers for its metallurgical coal are primarily steel and coke producers who use its coal to produce coke, which is used as a raw material in the steel manufacturing process. Rhino’s business includes investments in oilfield services for independent oil and natural gas producers and land-based drilling contractors in North America. The investments provide completion and production services, including pressure pumping, pressure control, flowback and equipment rental services, and also produce and sell natural sand for hydraulic fracturing.

Rhino has a geographically diverse asset base with coal reserves located in Central Appalachia, Northern Appalachia, the Illinois Basin and the Western Bituminous region. As of December 31, 2015, Rhino controlled an estimated 363.6 million tons of proven and probable coal reserves, consisting of an estimated 310.1 million tons of steam coal and an estimated 53.5 million tons of metallurgical coal. In addition, as of December 31, 2015, Rhino controlled an estimated 436.8 million tons of non-reserve coal deposits. In August 2016, Rhino sold their Elk Horn coal leasing business, as described further below, which controlled, as of December 31, 2015, an estimated 100.1 million tons of proven and probable coal reserves and an estimated 197.5 million tons of non-reserve coal deposits.

At December 31, 2016, the Company’s investment in Rhino consists of $13,500,215 in cash and $2,000,000 in notes payable. The acquisition was completed in three steps as described above. The coal properties and the related asset retirement obligation have been determined by an appraiser. The original provisional assets and liabilities have been adjusted as described below as information became available. The Company will engage an appraiser to value the remaining assets and liabilities acquired, at which time the value will be assigned to specific assets and liabilities. The appraisal will be completed within the one year measurement period.

The following table summarizes the assets and liabilities reported by Rhino, acquired by the Company on March 17, 2016 and included in the Company’s consolidated financial statements at December 31, 2016. The non-controlling interest in Rhino was valued based on the trading price of their units on the closing date.

F-22

Royal Energy Resources

Acquisition of Rhino Resource Partners LP

( in thousands)

	Original						Revised
	Provisional						Provisional
	Amounts			Revisions			Amounts

Assets:
Current assets	$	23,390	E	$	1,319
			G	$	(1,592	)	$	23,117
Property, plant and equipment	$	77,800	B	$	(13,800	)
			C	$	690
			H	$	2,122		$	66,812
Other non-current assets	$	42,686	A	$	(2,639	)	$	40,047
Total identifiable assets	$	143,876					$	129,976
Liabilities:
Current liabilities	$	64,473	D	$	(1,663	)	$	62,810
Long-term debt less current portion	$	2,536					$	2,536
Asset retirement obligations, net of current portion	$	27,108					$	27,108
Other non-current liabilities	$	44,098	F	$	(7,006	)	$	37,092
Total liabilities	$	138,215					$	129,546
Net identifiable assets	$	5,661					$	430
Goodwill	$	2,363	A	$	2,639		$	7,594
			B	$	13,800
			C	$	(690	)
			D	$	(1,663	)
			E	$	(1,319	)
			F	$	(7,006	)
			G	$	1,592
			H	$	(2,122	)
	$	8,024					$	8,024
Non-controlling shareholders	$	3,524					$	3,524
Total consideration paid	$	4,500					$	4,500

The columns above present the original estimates of the fair value of acquired assets and liabilities, and subsequent adjustments to those estimates.

A - Asset impairments subsequent to 3/17/16 that should have had no value

B - Loss on assets of discontinued operations that should have been adjusted to fair value at 3/17/16.

C - Gain on sales and disposals of assets subsequent to the acquisition should have been part of the original asset valuation

D - The gain from debt extinguishment should have been part of the original liability valuation

E - Inventory step up

F - Repurchase obligation

G - Unamortized loan costs

H - Property corrections

Operating results for the Company, as if the acquisition of Rhino occurred at the beginning of each period, for the years ended December 31, 2016 and 2015 are as follows.

	Year ended December 31,
	2016			2015
	(in thousands)
Revenues	$	170,780		$	195,313

Comprehensive (loss)	$	(12,207	)	$	(10,074	)

Net loss per share, basic and fully diluted	$	(0.84	)	$	(0.81	)

Blaze Mining Company, LLC Option Termination and Royalty Agreement

On May 29, 2015, the Company entered into an Option Agreement with Blaze Energy Corp. (“Blaze Energy”) to acquire all of the membership units of Blaze Mining Company, LLC (“Blaze Mining”), which is a wholly-owned subsidiary of Blaze Energy. Under the Option Agreement, as amended, the Company had the right to complete the purchase through March 31, 2016 by the issuance of 1,272,858 shares of the Company’s common stock and payment of $250,000 in cash. Blaze Mining controlled operations for and had the right to acquire 100% ownership of Alpheus Coal Impoundment reclamation site in McDowell County, West Virginia under a contract with Gary Partners, LLC, which owned the property. On February 22, 2016, the Company facilitated a series of transactions wherein: (i) Blaze Mining and Blaze Energy entered into an Asset Purchase Agreement to acquire substantially all of the assets of Gary Partners, LLC; (ii) Blaze Mining entered into an Assignment Agreement to assign its rights under the Asset Purchase Agreement to a third party; and (iii) the Company and Blaze Energy entered into an Option Termination Agreement, as amended, whereby the following royalties granted to Blaze Mining under the Assignment Agreement were assigned to the Company: a $1.25 per ton royalty on raw coal or coal refuse mined or removed from the property, and a $1.75 per ton royalty on processed or refined coal or coal refuse mined or removed from the property (the “Royalties”). Pursuant to the Option Termination Agreement, the parties thereby agreed to terminate the Option Agreement by the issuance of 1,750,000 shares of the Company’s common stock to Blaze Energy in consideration for the payment by Blaze Energy of $350,000 to the Company and the assignment by Blaze Mining of the Royalties to the Company. The transactions closed on March 22, 2016.

F-23

Pursuant to an Advisory Agreement with East Coast Management Group, LLC (“ECMG”), the Company agreed to compensate ECMG $200,000 in cash; $0.175 of the $1.25 royalty on raw coal or coal refuse; and $0.25 of the $1.75 royalty on processed or refined coal for its services in facilitating the Option Termination Agreement.

The transaction was initially valued based on the trading price of the Company’s common stock on March 22, 2016 as follows. See Note 5.

	(thousands)
Royalty interests	$	21,113
Cash received		350
Cash paid		(200	)
Common stock issued	$	21,263

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets as of December 31, 2016 and 2015 and August 31, 2015, consisted of the following:

	December 31, 2016		August 31, 2015
	(in thousands)
Other prepaid expenses	$	761	$	1
Debt issuance costs—net		981		-
Prepaid insurance		1,432		-
Prepaid leases		77		-
Supply inventory		614		-
Deposits		164		-
Available-for-sale investment		3,532		-
Note receivable-current portion		900		-
Total	$	8,461	$	1

Debt issuance costs were included in prepaid expenses and other current assets for the year ended December 31, 2016 since the credit facility balance was classified as a current liability. See Note 11 for further information on the amendments to the amended and restated senior secured credit facility.

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, including coal properties and mine development and construction costs, as of December 31, 2016 and 2015 and August 31, 2015 are summarized as follows:

	December 31, 2016			August 31, 2015
	(in thousands)
Coal properties, mining and other equipment	$	69,684		$	7,066
Total		69,684			7,066
Less accumulated depreciation, depletion and amortization		(4,572	)		-
	$	65,112		$	7,066

F-24

Depreciation expense for mining and other equipment and related facilities, depletion expense for coal and oil and natural gas properties, amortization expense for mine development costs, amortization expense for intangible assets and amortization expense for asset retirement costs for the years ended December 31, 2016, the four months ended December 31, 2015 and the years ended December 31, 2015 and 2014 was as follows:

	December 31,					August 31,		August 31,
	2016			2015		2015		2014
	(in thousands)
Depreciation and amortization expense for coal properties, mining and other equipment and mine development costs	$	4,572		$	-	$	-	$	-
Amortization expense for intangible assets		67			145		91		-
Amortization expense for asset retirement costs		(136	)		-		-		-
	$	4,503		$	145	$	91	$	-

Asset Impairments-2016

The Company performed a comprehensive review of our current coal mining operations as well as potential future development projects for the year ended December 31, 2016 to ascertain any potential impairment losses. Based on the impairment analysis, the Company concluded that none of the coal properties, mine development costs or other coal mining equipment and related facilities was impaired at December 31, 2016, except for the Blaze Mining royalty As production from this property had not begun at December 31, 2016, the Company engaged a third-party engineer to provide an estimate of fair value. The specialist valued the royalty interests at $4.4 million. Accordingly, the Company recorded an asset impairment loss of $16.7 million in the fourth quarter of 2016.

6. GOODWILL AND INTANGIBLE ASSETS

ASC Topic 350 addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. Under the provisions of ASC Topic 350, goodwill and other intangible assets with indefinite useful lives are no longer amortized but instead tested for impairment at least annually.

Goodwill in the provisional amount of $7.6 million arose from the Company’s purchase of Rhino. See Note 3.

As discussed in Note 1, Rhino and Rhino Holdings executed an Option Agreement in December 2016 where Rhino received a Call Option from Rhino Holdings to acquire substantially all of the outstanding common stock of Armstrong Energy. In exchange for Rhino Holdings granting the Call Option, Rhino issued 5.0 million common units to Rhino Holdings upon the execution of the Option Agreement. The Call Option was valued at $21.8 million based upon the closing price of the Partnership’s publicly traded common units on the date the Option Agreement was executed.

Intangible assets as of December 31, 2016 and August 31, 2015 consist of the following:

	December 31, 2016			August 31, 2015
	(in thousands)
Blue Grove contract rights	$	101		$	870
Accumulated amortization		(68	)		(91	)
	$	33		$	779

The contract intangible asset has a useful life of two years and is amortized over the useful life on a straight-line basis. See Note 3 for modification of purchase agreement.

F-25

7. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

Investments in other entities are accounted for using the consolidation, equity method or cost basis depending upon the level of ownership, the Company’s ability to exercise significant influence over the operating and financial policies of the investee and whether the Company is determined to be the primary beneficiary of a variable interest entity. Equity investments are recorded at original cost and adjusted periodically to recognize the Company’s proportionate share of the investees’ net income or losses after the date of investment. Any losses from the Company’s equity method investments are absorbed by the Company based upon its proportionate ownership percentage. If losses are incurred that exceed the Company’s investment in the equity method entity, then the Company must continue to record its proportionate share of losses in excess of its investment. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred.

As of December 31, 2016 and 2015, Rhino has recorded its investment in Mammoth of $1.9 million as a short-term asset, which Rhino has classified as available-for-sale. In October 2016, Rhino contributed its limited partner interests in Mammoth to Mammoth Energy Services, Inc. in exchange for 234,300 shares of common stock of Mammoth Energy Services, Inc. Rhino recorded a fair market value adjustment of $1.6 million for the available-for-sale investment based on the market value of the shares at December 31, 2016, which was recorded in Other Comprehensive Income.

In September 2014, Rhino made an initial investment of $5.0 million in a new joint venture, Sturgeon Acquisitions LLC (“Sturgeon”), with affiliates of Wexford Capital and Gulfport. The Company accounts for the investment in this joint venture and results of operations under the equity method based upon its ownership percentage. The Company recorded its proportionate share of the operating loss for this investment for the year ended December 31, 2016 of approximately $0.2 million. The Company has recorded its investment in Sturgeon on the Investment in unconsolidated affiliates line of the Company’s consolidated balance sheet and in the Other category for segment reporting purposes.

8. OTHER NON-CURRENT ASSETS

Other non-current assets as of December 31, 2016 and August 31, 2015 consisted of the following:

	December 31, 2016		August 31, 2015
	(in thousands)
Deposits and other	$	218	$	250
Non-current receivable		27,157		-
Deferred expenses		216		-
	$	27,591	$	250

As of December 31 2016, the non-current receivable balance of $27.2 million consisted of the amount due from workers’ compensation and black lung insurance providers for potential claims that are the primary responsibility of the Company’s, but are covered under Rhino’s insurance policies. See Note 15 for discussion of the $27.2 million that is also recorded in other non-current workers’ compensation liabilities.

9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities as of December 31, 2016 and 2015 and August 31, 2015 consisted of the following:

	December 31, 2016		August 31, 2015
	(in thousands)
Payroll, bonus and vacation expense	$	1,721	$	17
Non-income taxes		2,669		29
Royalty expenses		1,617		-
Accrued interest		601		-
Health claims		630		-
Workers' compensation & pneumoconiosis		2,450		-
Accrued insured litigation claims		277		-
Other		867		10
Due Rhino GP		573		-
	$	11,405	$	56

F-26

The $0.3 million accrued for insured litigation claims as of December 31, 2016 consists of probable and estimable litigation claims that are the primary obligation of the Company. This amount is also due from the Company’s insurance providers and is included in accounts receivable, net of allowance for doubtful accounts on the consolidated balance sheet. The Company presents this amount on a gross asset and liability basis as a right of setoff does not exist per the accounting guidance in ASC Topic 210. This presentation has no impact on the results of operations or cash flows.

10. NOTES PAYABLE – RELATED PARTY

Related party notes payable consist of the following at December 31, 2016 and August 31, 2015.

	December 31, 2016		August 31, 2015
	(in thousands)
Demand note payable dated March 6, 2015; owed E-Starts Money Co., a related party; interest at 6% per annum	$	204	$	204
Demand note payable dated June 11, 2015; owed E-Starts Money Co., a related party; non-interest bearing		200		200
Demand note payable dated September 22, 2016; owed E-Starts Money Co., a related party; non-interest bearing		50		-
Demand note payable dated December 8, 2016; owed E-Starts Money Co., a related party; non-interest bearing		50		-
	$	504	$	404

The related party notes payable have accrued interest of $22 thousand at December 31, 2016 and $6 thousand at August 31, 2015. Related party interest expense amounted to $12, $4 and $6 for the year ended December 31, 2016, for the four months ended December 31, 2015 and for the year ended August 31, 2015 and zero for the year ended August 31, 2014.

11. DEBT

Debt as of December 31, 2016 and August 31, 2015 consisted of the following:

	December 31, 2016		August 31, 2015
	(in thousands)
Senior secured credit facility with PNC Bank, N.A.	$	10,040	$	-
Note payable to Weston Energy dated December 30, 2016; interest at 8% per annum; due January 15, 2017		2,000		-

Total notes payable	$	12,040	$	-

On March 17, 2016, the Operating Company, as borrower, and Rhino and certain of Rhino’s subsidiaries, as guarantors, entered into a fourth amendment (the “Fourth Amendment”) of the Amended and Restated Credit Agreement. The Fourth Amendment amended the definition of change of control in the Amended and Restated Credit Agreement to permit Royal to purchase the membership interests of Rhino’s general partner. The Fourth Amendment also eliminated the option to borrow funds utilizing the LIBOR rate plus an applicable margin and establishes the borrowing rate for all borrowings under the facility to be based upon the current PRIME rate plus an applicable margin of 3.50%. The balance on March 17, 2016 was $41,783.

F-27

On May 13, 2016, Rhino entered into the Fifth Amendment of the Amended and Restated Credit Agreement, which extended the term to July 31, 2017.

In July 2016, Rhino entered into a sixth amendment (the “Sixth Amendment”) of the amended and restated senior secured credit facility that permitted the sale of Elk Horn that was discussed earlier. The Sixth Amendment further reduced the maximum commitment amount allowed under the credit facility for the additional $1.5 million that is to be received from the Elk Horn sale by $375,000 each quarterly period beginning September 30, 2016 through June 30, 2017.

In December, 2016, Rhino entered into a seventh amendment of the amended and restated credit agreement (the “Seventh Amendment”). The Seventh Amendment allows for the Series A preferred units as outlined in the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership. The Seventh Amendment immediately reduced the revolving credit commitments by $11.0 million and provides for additional revolving credit commitment reductions of $2.0 million each on June 30, 2017 and September 30, 2017. The Seventh Amendment further reduced the revolving credit commitments over time on a dollar-for-dollar basis for the net cash proceeds received from any asset sales after the Seventh Amendment date once the aggregate net cash proceeds received exceeds $2.0 million. The Seventh Amendment altered the maximum leverage ratio to 4.0 to 1.0 effective December 31, 2016 through May 31, 2017 and 3.5 to 1.0 from June 30, 2017 through December 31, 2017. The maximum leverage ratio shall be reduced by 0.50 to 1.0 for every $10.0 million of net cash proceeds, in the aggregate, received after the Seventh Amendment date from (i) the issuance of any equity by Rhino and/or (ii) the disposition of any assets in excess of $2.0 million in the aggregate, provided, however, that in no event will the maximum leverage ratio be reduced below 3.0 to 1.0. The Seventh Amendment alters the minimum consolidated EBITDA figure, as calculated on a rolling twelve months basis, to $12.5 million from December 31, 2016 through May 31, 2017 and $15.0 million from June 30, 2017 through December 31, 2017. The Seventh Amendment alters the maximum capital expenditures allowed, as calculated on a rolling twelve months basis, to $20.0 million through the expiration of the credit facility. A condition precedent to the effectiveness of the Seventh Amendment is the receipt of the $13.0 million of cash proceeds received by Rhino from the issuance of the Series A preferred units pursuant to the Preferred Unit Agreement, which will be used to repay outstanding borrowings under the revolving credit facility. Per the Seventh Amendment, the receipt of $13.0 million cash proceeds fulfills the required Royal equity contribution, which was a requirement of prior amendments to the credit agreement.

At December 31, 2016, the Operating Company had borrowed $10.0 million at a variable interest rate of PRIME plus 3.50% (7.25% at December 31, 2016). In addition, the Operating Company had outstanding letters of credit of $26.1 million at a fixed interest rate of 5.00% at December 31, 2016. Based upon a maximum borrowing capacity of 4.00 times a trailing twelve-month EBITDA calculation (as defined in the credit agreement), the Operating Company had not used $12.9 million of the borrowing availability at December 31, 2016.

Weston Energy - Short-term note payable dated December 30, 2016 and due January 15, 2017 with interest at 8% per annum.

The Company did not capitalize any interest costs during the year ended December 31, 2016.

F-28

12. ASSET RETIREMENT OBLIGATIONS

The changes in asset retirement obligations for the year ended December 31, 2016, the four months ended December 31, 2015 and the years ended August 31, 2015 and 2014 are as follows:

				Four months
	Year ended			Ended		Year ended		Year ended
	December 31, 2016			December 31, 2015		August 31, 2015		August 31, 2014
	(in thousands)
Balance at beginning of period, including current portion	$	-		$	-	$	-		0
Acquired		28,200			-		-		0
Accretion expense		1,105			-		-		0
Adjustments to the liability from annual recosting and other		(1,685	)						0
Liabilities settled		(200	)						0
Balance at end of period		27,420			-		-		0
Less current portion		(917	)		-		-		0
Non-current portion	$	26,503		$	-	$	-		0

13. INCOME TAXES

The income tax provision (benefit) consists of the following:

				Four months
	Year ended			ended			Year ended			Year ended
	December 31, 2016			December 31, 2015			August 31, 2015			August 31, 2014
	(in thousands)
Federal:
Current	$	-		$	-		$	-		$	-
Deferred		(6,053,200	)		(436,400	)		(170,700	)		(277,700	)
State and local:		-
Current
Deferred		(712,200	)		(51,300	)		(20,100	)		(32,700	)
Change in valuation allowance		6,765,400			487,700			190,800			310,400
Income tax expense	$	-		$	-		$	-		$	-

The expected tax benefit based on the statutory rate is reconciled with actual tax benefit as follows:

				Four months
	Year ended			ended			Year ended			Year ended
	December 31, 2016			December 31, 2015			August 31, 2015			August 31, 2014

U.S. federal statutory rate		-34.0	%		-34.0	%		-34.0	%		-34.0	%
State income tax, net of federal benefit		-4.0	%		-4.0	%		-4.0	%		-4.0	%
Increase (decrease) in valuation allowance		38.0	%		38.0	%		38.0	%		38.0	%
Income tax provision (benefit)		0.0	%		0.0	%		0.0	%		0.0	%

F-29

Deferred tax assets consist of the effects of temporary differences attributable to the following:

	December 31, 2016			August 31, 2015
Deferred tax assets:	(in thousands)
Net operating losses	$	1,332,600		$	178,500
Bad debt allowance		-			4,900
Asset impairment		6,363,500			-
Investment in public limited partnership		(375,100	)		-

Accrued expenses		94,100			8,600
Deferred tax assets		7,415,100			192,000
Valuation allowance		(7,415,100	)		(192,000	)
Deferred tax assets, net of valuation allowance	$	-		$	-

Due to the changes in ownership of the Company in connection with the change in control and related transactions in March 2015, approximately $55,000 in existing net operating loss carryforwards (computed in accordance with IRS section 382) are available to reduce future taxable income. These NOLs begin to expire in 2019. In addition, losses incurred from the date of the merger to August 31, 2015 aggregating approximately $415,000 are also available to reduce future taxable income. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax assets for every period because it is more likely than not that all of the deferred tax assets will not be realized.

A reconciliation of the changes in valuation allowance for the year ended August 31, 2015 is as follows:

Balance at August 31, 2014	$	1,533,200
Current year addition		190,800
Effect of change in control		(1,532,000	)
Balance at August 31, 2015	$	192,000

14. STOCKHOLDERS’ EQUITY

The authorized capital stock of the Company consists of 500,000,000 shares of Common Stock, par value $0.00001 per share, and 10,000,000 shares of Preferred Stock, par value $0.00001 per share. In March 2017, the Company filed an amendment to its Certificate of Incorporation to reduce the authorized shares of Common Stock to 25,000,000 shares and to reduce the authorized shares of Preferred Stock to 5,000,000 shares.

Series A preferred stock

The Company’s Board is authorized, without further stockholder approval, to issue Preferred Stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series.

The Board has authorized one series of Preferred Stock, which is known as the “Series A Preferred Stock,” for 100,000 shares. The certificate of designation of the Series A Preferred Stock provides: the holders of Series A Preferred Stock shall be entitled to receive dividends when, as and if declared by the Board of Directors of the Company; participates with common stock upon liquidation; convertible into one share of common stock; and has voting rights such that the Series A Preferred Stock shall have an aggregate voting right for 54% of the total shares entitled to vote.

At December 31, 2016 and August 31, 2015, 51,000 shares of Series A Preferred Stock were issued and outstanding.

F-30

Common stock

In October 2012, the Company amended its charter to authorize issuance of up to 500,000,000 shares of common stock with a par value of $0.00001. At December 31, 2016, 17,212,278 shares were issued and outstanding. At August 31, 2015, 13,850,230 shares were issued and outstanding.

During the year ended December 31, 2016, the Company issued shares of common stock in the following transactions:

	●	On February 5, 2016, the Company issued 37,500 shares in exchange for $300,000 in cash.

	●	On February 17, 2016, the Company issued 11,608 shares each to William Tuorto and Brian Hughs, executive officers, in exchange for accrued compensation in the amount of $125,832 each.

	●	On March 1, 2016, the Company issued 4,878 shares to Ronald Phillips, President, in exchange for a $50,000 bonus pursuant to his employment contract.

	●	On March 22, 2016, the Company issued 1,750,000 restricted shares in exchange for the Blaze Mining royalties. (See Note 3).

	●	On April 13, 2016, the Company issued 62,500 shares in exchange for $500,000 in cash.

	●	On May 17, 2016, the Company issued 12,500 shares in exchange for $100,000 in cash.

	●	On October 10, 2016, the Company issued 50,000 shares to East Hill Investment, Ltd. pursuant to a securities purchase agreement in exchange for a note in the amount of $212,500.

	●	On December 6, 2016, the Company issued a total of 447,857 shares in exchange for convertible notes payable in the amount of $2,350,000 and related accrued interest of $112,671. The majority of the convertible notes were originally issued in April 2016.

During the four months ended December 31, 2015, the Company issued shares of common stock in the following transactions:

	●	Between September 14, 2015 and October 9, 2015, the Company issued 1,218,000 shares of common stock for cash proceeds of $3,045,000 pursuant to a private offering.

	●	On October 22, 2015, the Company issued 95,597 shares of its common stock, valued at $500,000, as compensation under employment agreements with officers. Of this amount, $350,000 was in payment of bonuses pursuant to employment agreements. The remaining $150,000 was pursuant to a two-year employment agreement originally executed on June 10, 2015, of which $16,667 was accrued at August 31, 2015 and $133,333 was recorded as a prepaid expense to be amortized over the life of the agreement. During the four months ended December 31, 2015, $25,000 was amortized to expense. During 2016, $72,917 was amortized to expense.

	●	On December 23, 2015, the Company amended the Blue Grove acquisition agreement (Note 3) and the consideration for the purchase was reduced from 350,000 shares of the Company’s common stock to 10,000 shares.

During the year ended August 31, 2015, the Company issued shares of common stock in the following transactions:

	●	On December 12, 2014, the Company issued 410,000 shares of common stock to a consultant in exchange for $41,000 in services.

	●	On March 9, 2015, the Company issued 250,000 shares of common stock for cash proceeds of $50,000.

	●	On April 17, 2015, the Company issued 2,803,621 shares of common stock to acquire Blaze Minerals. The shares were valued at $2.50 share, based upon the price for which the Company sold its common stock in a private placement. See Note 4.

	●	On June 10, 2015, the Company issued 350,000 shares of common stock to acquire Blue Grove.

	●	Between June 12, 2015 and August 31, 2015, the Company issued 1,782,000 shares of common stock for cash proceeds of $4,455,000 pursuant to a private offering.

F-31

Stock subscription receivable

On October 4, 2016, the Company entered into a securities purchase agreement with East Hill Investments, Ltd. (“East Hill”), a British Virgin Islands company. The agreement provided that the Company would sell 1,000,000 shares of its common stock, par value $0.00001, to East Hill for an aggregate purchase price of $4,250,000. The transaction was to be completed in a series of transactions for 25,000 to 50,000 shares each. The initial transaction was on October 4, 2016 in the amount of $212,500 for which the Company received a note originally due October 19, 2016 and extended to November 30, 2016. During the first quarter of 2017, both parties agreed to cancel the transaction and the shares were returned to the Company to be cancelled.

15. OTHER NON-CURRENT LIABILITIES

Other non-current liabilities consist of the following at December 31, 2016 and August 31, 2015.

	December 31, 2016			August 31, 2015
	(in thousands)
Workers' compensation and black lung claims	$	41,523		$	-
Less current portion		(2,450	)		-
Non-current obligations	$	39,073		$	-

WORKERS’ COMPENSATION AND BLACK LUNG

Certain of the Company’s subsidiaries are liable under federal and state laws to pay workers’ compensation and coal workers’ black lung benefits to eligible employees, former employees and their dependents. The Company currently utilizes an insurance program and state workers’ compensation fund participation to secure its on-going obligations depending on the location of the operation. Premium expense for workers’ compensation benefits is recognized in the period in which the related insurance coverage is provided.

The Company’s black lung benefit liability is calculated using the service cost method that considers the calculation of the actuarial present value of the estimated black lung obligation. The Company’s actuarial calculations using the service cost method for its black lung benefit liability are based on numerous assumptions including disability incidence, medical costs, mortality, death benefits, dependents and interest rates. The Company’s liability for traumatic workers’ compensation injury claims is the estimated present value of current workers’ compensation benefits, based on actuarial estimates, which are based on numerous assumptions including claim development patterns, mortality, medical costs and interest rates. The discount rate used to calculate the estimated present value of future obligations for black lung was 4.0% for December 31, 2016 and for workers’ compensation was 2.0% at December 31, 2016.

F-32

The uninsured black lung and workers’ compensation expenses for the year ended December 31, 2016, the four months ended December 31, 2015 and the years ended August 31, 2015 and 2014 are as follows:

				Four months
	Year ended			ended		Year ended		Year ended
	December 31, 2016			December 31, 2015		August 31, 2015		August 31, 2014
	(in thousands)
Black lung benefits:
Service cost	$	(401	)	$	-	$	-		-
Interest cost		287							-
Actuarial loss/(gain)		-			-		-		-
Total black lung		(114	)		-		-		-
Workers' compensation expense		3,177			-		-		-
Total expense	$	2,949		$	-	$	-		-

The changes in the black lung benefit liability for the year ended December 31, 2016, the four months ended December 31, 2015 and the years ended August 31, 2015 and 2014 are as follows:

				Four months
	Year ended			ended		Year ended		Year ended
	December 31, 2016			December 31, 2015		August 31, 2015		August 31, 2014
	(in thousands)

Benefit obligations assumed on acquisition	$	9,196		$	-	$	-		-
Service cost		(401	)						-
Interest cost		287			-		-		-
Actuarial loss (gain)		-			-		-		-
Benefits and expenses paid		(300	)		-		-		-
Total changes	$	8,782		$	-	$	-		-

The classification of the amounts recognized for the workers’ compensation and black lung benefits liability as of December 31, 2016 and August 31, 2015 are as follows:

	December 31, 2016			August 31, 2015
	(in thousands)
Black lung claims	$	8,782		$	-
Insured black lung and workers' compensation claims		27,157			-
Workers' compensation claims		5,584			-
Total obligations		41,523			-
Less current portion		(2,450	)		-
Non-current obligations	$	39,073		$	-

The balance for insured black lung and workers’ compensation claims as of December 31, 2016 consisted of $27.2 million. This is a primary obligation of the Company, but is also due from the Company’s insurance providers and is included in Note 8 as non-current receivables. The Company presents this amount on a gross asset and liability basis since a right of setoff does not exist per the accounting guidance in ASC Topic 210. This presentation has no impact on the results of operations or cash flows.

F-33

16. RELATED PARTY TRANSACTIONS

On March 6, 2015, the Company borrowed $203,593 from E-Starts Money Co. (“E-Starts”) pursuant to a 6% demand promissory note. (See Note 9) The proceeds were used to repay all of our indebtedness at the time. E-Starts is owned by William L. Tuorto, our Chairman and Chief Executive Officer. On June 11, 2015, the Company borrowed an additional $200,000 from E-Starts pursuant to a non-interest bearing demand promissory note. On September 22, 2016, we borrowed $50,000 from E-Starts pursuant to a non-interest bearing demand promissory note and on December 8, 2016, we borrowed an additional $50,000 from E-Starts pursuant to a non-interest bearing demand promissory note. The total amount owed to E-Starts at December 31, 2016 and December 31, 2015 was $503,593 and $403,593, respectively, plus accrued interest.

GS Energy, LLC is owned by Ian and Gary Ganzer and is a creditor of Blue Grove Coal, LLC.

The details of the due to related party account are summarized as follows:

	December 31, 2016		August 31, 2015
	(in thousands)
Due to E-Starts Money Co
Expense advances	$	11	$	10
Accrued interest		22		6
Total obligations		33		16
Due to GS Energy, LLC		18		18
Due to Ian and Gary Ganzer		20		-
Total	$	71	$	34

On May 14, 2015, the Company entered into an Option Agreement to acquire substantially all of the assets of Wellston for 500,000 shares of the Company’s common stock. The Option Agreement originally terminated on September 1, 2015, but was later extended to December 31, 2016. Wellston owns approximately 1,600 acres of surface and 2,200 acres of mineral rights in McDowell County, West Virginia (the “Wellston Property”). Pursuant to the Option Agreement, pending the closing of the Wellston Property, the Company agreed to loan Wellston up to $500,000 from time to time. The loan is pursuant to Promissory Note bearing interest at 12% per annum, due and payable at the expiration of the Option Agreement, and secured by a Deed of Trust on the Wellston Property. The Company ultimately loaned Wellston $53,000. Our President and Secretary, Ronald Phillips, owns a minority interest in Wellston, and is the manager of Wellston. On September 13, 2016, Wellston sold its assets to an unrelated third party, and we received a royalty of $1 per ton on the first 250,000 tons of coal mined from the property in consideration for a release of our lien on Wellston’s assets.

In January 2014, the President and Chief Executive Officer of the Company acquired 6,700,000 shares of the Company’s common stock in exchange for $100,500 due to him, including $71,550 assumed by him of the Company’s liabilities to third party vendors. The fair value of the shares was $502,500. The difference between the value of the shares and the amount paid of $402,000 is included as non-cash compensation in selling, general and administrative expense in the statement of operations. This compensation is for the years 2008 through 2014 for which the President and Chief Executive Officer had not been previously received any compensation.

17. EMPLOYEE BENEFITS

401(k) Plans—Rhino and certain subsidiaries sponsor defined contribution savings plans for all employees. Under one defined contribution savings plan, the Operating Company matches voluntary contributions of participants up to a maximum contribution based upon a percentage of a participant’s salary with an additional matching contribution possible at the Operating Company’s discretion. The expense under these plans for the period owned by the Company is included in cost of operations and selling, general and administrative expense in the Company’s consolidated statements of operations and was as follows:

			Four months
	Year ended		ended		Year ended
	December 31,		December 31,		August 31,
	2016		2015		2015
	(in thousands)

401(k) plan expense	$	1,206	$	-	$	-

F-34

18. EQUITY-BASED COMPENSATION

Stock option plan - The Royal Energy Resources, Inc. 2015 Stock Option Plan and the Royal Energy Resources, Inc. 2015 Employee, Consultant and Advisor Stock Compensation Plan (“Plans”) were approved by the Company’s board on July 31, 2015. Each Plan reserves 1,000,000 shares for awards under each Plan. The Company’s Board of Directors is designated to administer the Plan. No options are outstanding under the Plans at December 31, 2016. 95,597 shares were issued from the Employee, Consultant and Advisor Stock Compensation Plan during the four months ended December 31, 2015 and 28,094 shares were issued during the year ended December 31, 2016. As of December 31, 2016, there are 1,000,000 shares available under the Stock Option Plan and 876,309 shares available under the Employee, Consultant and Advisor Stock Compensation Plan. The shares issued under the Employee, Consultant and Advisor Stock Compensation Plan were expensed at their market value on the date of issuance.

In October 2010, the General Partner of Rhino established the Rhino Long-Term Incentive Plan (the “Plan” or “LTIP”). The Plan is intended to promote the interests of the Partnership by providing to employees, consultants and directors of the General Partner, the Partnership or affiliates of either incentive compensation awards to encourage superior performance. The LTIP provides for grants of restricted units, unit options, unit appreciation rights, phantom units, unit awards, and other unit-based awards. The aggregate number of units initially reserved for issuance under the LTIP was 247,940.

				Weighted
				Average
				Grant Date
	Common			Fair Value
	Units			(per unit)

Non-vested awards outstanding when Rhino was acquired		127		$	2.58
Granted		183		$	2.19
Vested		(310	)	$	2.35
Non-vested awards at December 31, 2016		-		$	-

For the years ended December 31, 2016 the Company recorded expense of approximately $0.4 million for the LTIP awards. For the year ended December 31, 2016, the total fair value of the awards that vested was $0.7 million. As of December 31, 2016, the Company did not have any unrecognized compensation expense or intrinsic value of any non-vested LTIP awards.

19. COMMITMENTS AND CONTINGENCIES

Coal Sales Contracts and Contingencies—As of December 31, 2016, the Company had commitments under sales contracts to deliver annually scheduled base quantities of coal as follows:

Year	Tons (in thousands)		Number of customers
2017		3,669		14
2018		701		5

Some of the contracts have sales price adjustment provisions, subject to certain limitations and adjustments, based on a variety of factors and indices.

Purchase Commitments—As of December 31, 2016, the Company had a commitment to purchase approximately 1.0 million gallons of diesel fuel at fixed prices from January 2017 through December 2017 for approximately $2.0 million.

F-35

Leases—The Company leases various mining, transportation and other equipment under operating leases. The Company also leases coal reserves under agreements that call for royalties to be paid as the coal is mined. Lease and royalty expense for the year ended December 31, 2016, the four months ended December 31, 2015 and the years ended August 31, 2015 and 2014 was as follows:

			Four months
	Year ended		ended		Year ended		Year ended
	December 31, 2016		December 31, 2015		August 31, 2015		August 31, 2014
	(in thousands)

Lease expense	$	4,062	$	6	$	7		-
Royalty expense	$	8,115	$	-	$	-		-

Approximate future minimum lease and royalty payments (not including advance royalties already paid and recorded as assets in the accompanying consolidated balance sheet) are as follows:


Years Ending December 31,	Royalties		Leases
	(in thousands)
2017	$	1,640	$	2,533
2018		1,615		148
2019		1,665		-
2020		1,648		-
2021		1,767		-
Thereafter		8,836		-
Total minimum royalty and lease payments	$	17,171	$	2,681

Environmental Matters—Based upon current knowledge, the Company believes that it is in compliance with environmental laws and regulations as currently promulgated. However, the exact nature of environmental control problems, if any, which the Company may encounter in the future cannot be predicted, primarily because of the increasing number, complexity and changing character of environmental requirements that may be enacted by federal and state authorities.

Legal Matters—The Company is involved in various legal proceedings arising in the ordinary course of business due to claims from various third parties, as well as potential citations and fines from the Mine Safety and Health Administration, potential claims from land or lease owners and potential property damage claims from third parties. The Company is not party to any other pending litigation that is probable to have a material adverse effect on the financial condition, results of operations or cash flows of the Company. Management is also not aware of any significant legal, regulatory or governmental proceedings against or contemplated to be brought against the Company.

Guarantees/Indemnifications and Financial Instruments with Off-Balance Sheet Risk—In the normal course of business, the Company is a party to certain guarantees and financial instruments with off-balance sheet risk, such as bank letters of credit and performance or surety bonds. No liabilities related to these arrangements are reflected in the consolidated balance sheet. The amount of bank letters of credit outstanding with PNC Bank, N.A., as the letter of credit issuer under the credit facility, was $26.1 million as of December 31, 2016. The bank letters of credit outstanding reduce the borrowing capacity under the credit facility. In addition, the Company has outstanding surety bonds with third parties of $48.9 million as of December 31, 2016 to secure reclamation and other performance commitments.

The credit facility is fully and unconditionally, jointly and severally guaranteed by Rhino and substantially all of its wholly owned subsidiaries. Borrowings under the credit facility are collateralized by the unsecured assets of Rhino and substantially all of its wholly owned subsidiaries. See Note 12 for a more complete discussion of the Company’s debt obligations.

F-36

Joint Ventures—The Company may contribute additional capital to the Timber Wolf joint venture that was formed in the first quarter of 2012. The Company did not make any capital contributions to the Timber Wolf joint venture during the year ended December 31, 2016.

The Company may contribute additional capital to the Sturgeon joint venture that was formed in the third quarter of 2014. Rhino made an initial capital contribution of $5.0 million during the year ended December 31, 2014 based upon its proportionate ownership interest.

Blue Grove Coal, LLC (“Blue Grove”). On June 10, 2015, the Company acquired Blue Grove in exchange for 350,000 shares of its common stock. Blue Grove was owned 50% by Ian Ganzer, our chief operating officer, and 50% by Gary Ganzer, Ian Ganzer’s father (the “Members”). Simultaneous with the Company’s acquisition of Blue Grove, Blue Grove entered into an operator agreement with GS Energy, LLC, under which Blue Grove has an exclusive right to mine the coal properties of GS Energy for a two year period. During the term of the Operator Agreement, Blue Grove is entitled to all revenues from the sale of coal mined from GS Energy’s properties, and is responsible for all costs associated with the mining of the properties or the properties themselves, including operating costs, lease, rental or royalty payments, insurance and bonding costs, property taxes, licensing costs, etc. Simultaneous with the acquisition of Blue Grove, Blue Grove also entered into a Management Agreement with Black Oak Resources, LLC (“Black Oak”), a company owned by the Members. Under the Management Agreement, Blue Grove subcontracted all of its responsibilities under the Management Agreement with GS Energy to Black Oak. In consideration, Black Oak was entitled to 75% of all net profits generated by the mining of the coal properties of GS Energy. Subsequently, the agreement with Black Oak was amended to provide that Black Oak was entitled to 100% of the first $400,000 and 50% of the next $1,000,000, for a maximum of $900,000 of net profits generated by the mining of the coal properties of GS Energy.

The Members have an option to purchase the membership interests in Blue Grove from the Company. If exercised between ten and sixteen months after closing, the exercise price of the option is $50,000 less any dividends received on the shares of common stock issued in the acquisition, plus 90% of the shares issued to acquire Blue Grove. If exercised between sixteen and twenty-four months after closing, the exercise price of the option is 80% of the shares issued to acquire Blue Grove. The call option will terminate when (i) the parties agree it has terminated, (ii) when the Company pays the Members at least $1,900,000 to acquire their shares of common stock, or (iii) when a comparable option granted to the Members with respect to common stock issued to them to acquire GS Energy is terminated. The Company also has an option to sell the Blue Grove membership interests back to the Members. If exercised between ten and sixteen months after closing, the exercise price of the Company’s option is 90% of the common stock issued to the Ganzers to acquire Blue Grove. If exercised between sixteen and twenty-four months after closing, the exercise price of the Company’s option is 80% of the common stock issued to the Members to acquire Blue Grove.

On December 23, 2015, the Company and the Members entered into an Amendment to Securities Exchange Agreement (“Amendment”) originally entered into on June 8, 2015. Pursuant to the Amendment, the consideration for the acquisition of Blue Grove was reduced from 350,000 shares of the Company’s common stock to 10,000 shares. See Note 3.

Distributions on Common Units. Beginning with the quarter ended June 30, 2015 and continuing through the quarter ended December 31, 2016, Rhino has suspended the cash distribution on its common units. For each of the quarters ended September 30, 2014, December 31, 2014 and March 31, 2015, Rhino paid cash distributions per common unit at levels lower than the minimum quarterly distribution. Rhino has not paid any distribution on its subordinated units for any quarter after the quarter ended March 31, 2012. The distribution suspension and prior reductions were the result of prolonged weakness in the coal markets, which has continued to adversely affect its cash flow.

F-37

20. MAJOR CUSTOMERS

The Company had revenues or receivables from the following major customers that in each period equaled or exceeded 10% of revenues or receivables.

			Four months
	Year ended		Ended		Year ended		Year ended
	December 31, 2016		December 31, 2015		August 31, 2015		August 31, 2014
	(in thousands)
Revenues
PPL Corporation	$	34,308	$	-	$	-		-
PacifiCorp Energy	$	14,923	$	-	$	-		-
Big Rivers	$	11,930	$	-	$	-		-
Alpha Natural Resources	$	-	$	-	$	281		-

	December 31, 2016		August 31, 2015
	(in thousands)
Accounts receivable
PPL Corporation	$	1,496	$	-
PacifiCorp Energy		1,509		-
Big Rivers		-		-
Alpha Natural Resources		-		44

21. FAIR VALUE MEASUREMENTS

The Company determines the fair value of assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations. The fair value hierarchy is based on whether the inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions of what market participants would use.

The fair value hierarchy includes three levels of inputs that may be used to measure fair value as described below:

	●	Level One - Quoted prices for identical instruments in active markets.
	●	Level Two - The fair value of the assets and liabilities included in Level 2 are based on standard industry income approach models that use significant observable inputs.
	●	Level Three - Unobservable inputs significant to the fair value measurement supported by little or no market activity.

In those cases when the inputs used to measure fair value meet the definition of more than one level of the fair value hierarchy, the lowest level input that is significant to the fair value measurement in its totality determines the applicable level in the fair value hierarchy.

The book values of cash and cash equivalents, accounts receivable and accounts payable are considered to be representative of their respective fair values because of the immediate short-term maturity of these financial instruments. The fair value of the Company’s senior secured credit facility was determined based upon a market approach and approximates the carrying value at December 31, 2016. The fair value of the senior secured credit facility is a Level 2 measurement.

As of December 31, 2016, the Company had a recurring fair value measurement relating to its investment in Mammoth Energy Services, Inc. (“Mammoth, Inc.”). In October 2016, the Company contributed its limited partner interests in Mammoth to Mammoth Energy Services, Inc. (“Mammoth, Inc.”) in exchange for 234,300 shares of common stock of Mammoth, Inc. The common stock of Mammoth, Inc. began trading on the NASDAQ Global Select Market in October 2016 under the ticker symbol TUSK and the Company sold 1,953 shares during the initial public offering of Mammoth, Inc. and received proceeds of approximately $27,000. The Company’s remaining shares of Mammoth, Inc. are subject to a 180-day lock-up period from the date of Mammoth Inc.’s initial public offering and are classified as a held-for-sale investment on the Company’s consolidated balance sheet. Based on the availability of a quoted price, the recurring fair value measurement of the Mammoth, Inc. shares is a Level 2 measurement.

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As of December 31, 2016, December 31, 2015 and August 31, 2015, the Company did not have any nonrecurring fair value measurements related to any assets held for sale.

For the years ended December 31, 2016, the four months ended December 31, 2015 and the year ended August 31, 2015, the Company had nonrecurring fair value measurements related to asset impairments as described in Note 6. The nonrecurring fair value measurements for the asset impairments were Level 3 measurements.

22. SEGMENT INFORMATION

The Company primarily produces and markets coal from surface and underground mines in Kentucky, West Virginia, Ohio and Utah and sells primarily to electric utilities in the United States.

As of December 31, 2016, the Company has four reportable business segments: Central Appalachia, Northern Appalachia, Rhino Western and Illinois Basin. Additionally, the Company has an Other category that includes its ancillary businesses.

The Company’s Other category as reclassified is comprised of the Company’s ancillary businesses and its remaining oil and natural gas activities. The Company has not provided disclosure of total expenditures by segment for long-lived assets, as the Company does not maintain discrete financial information concerning segment expenditures for long lived assets, and accordingly such information is not provided to the Company’s chief operating decision maker. The information provided in the following tables represents the primary measures used to assess segment performance by the Company’s chief operating decision maker.

Reportable segment results of operations and financial position for the year ended December 31, 2016 are as follows (Note: “DD&A” refers to depreciation, depletion and amortization). The Company did not have a reportable segment prior to March 17, 2016.

	Central			Northern		Rhino		Illinois					Total
	Appalachia			Appalachia		Western		Basin		Other			Consolidated

Total assets	$	41,995		$	10,967	$	27,498	$	14,665	$	71,117		$	166,242
Total revenues		33,031			31,620		26,726		46,843		349			138,569
DD&A		1,215			577		992		1,681		38			4,503
Interest expense		1,579			201		312		784		1,421			4,297
Net income (loss) from continuing operations	$	(20,031	)	$	6,783	$	2,526	$	459	$	(3,934	)	$	(14,197	)

23. SUBSEQUENT EVENTS

On March 27, 2017, the Company filed a Certificate of Amendment to its Certificate of Incorporation which changed the authorized capital of the Company. The authorized preferred shares, par value $0.00001 per share was reduced from 10,000,000 shares to 5,000,000 shares and the authorized common shares, par value $0.00001 per share, was reduced from 500,000,000 shares to 25,000,000 shares.

On December 30, 2016, Royal entered into a Secured Promissory Note and a Pledge and Security Agreement with Weston Energy, LLC (“Weston”) under which Royal borrowed $2.0 million from Weston (the “Loan”). The Loan bore interest at 8% per annum and all principal and interest was due and payable on January 15, 2017, which date was later extended to January 31, 2017. The Loan was payable, at the option of Royal, either in cash, or in common units of Rhino. The proceeds of the Loan were used to make an investment of $2.0 million in 200,000 Series A Preferred Units of Rhino on December 30, 2016, at $10 per Series A Preferred Unit.

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On January 27, 2017, Royal repaid the Loan in full by the payment of $1,000,000 cash to Weston and the sale to Weston of 100,000 Series A Preferred Units at $10 per Series A Preferred Unit. Royal funded the cash portion of the repayment of the Loan by selling its remaining 100,000 Series A Preferred Units to a third party for $10 per Series A Preferred Unit. As a result, Royal did not realize any gain or loss on its investment in the Series S Preferred Units.

24. SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED)

	Three Months Ended
	March 31, 2016		June 30, 2016		September 30, 2016			December 31, 2016

Revenues	$	7,258	$	42,740	$	43,415		$	45,156
Cost and Expenses:
Cost of operations		3,994		33,860		35,249			38,531
Asset impairment		-		-		-			16,746
INCOME (LOSS) FROM OPERATIONS		624		2,337		1,425			(14,197	)

Income (loss) from continuing operations		249		577		(615	)		(14,364	)
Income from discontinued operations		-		-		650			-

Net income (loss) attributable to Company shareholders	$	157	$	382	$	(629	)	$	(14,274	)

Net income (loss) per share, basic and diluted:
Continuing operations	$	.01	$	.02	$	.04		$	(0.85	)
Discontinued operations		-		-		(.04	)		-
Total	$	.01	$	.02	$	-		$	(0.85	)

* Amount in 2nd Quarter of $13,300 recorded as asset impairment was reclassified as an adjustment to the original purchase price.

Amount in 3rd Quarter of $575 in discontinued operations and gains of $1,763 were reclassified as an adjustment to the original purchase price.

	Three Months Ended
	November 30, 2014			February 28, 2015			May 31, 2015			August 31, 2015
Revenues:	$	-		$	-		$	-		$	281
Cost of operations		-			-			-			283
INCOME (LOSS) FROM OPERATIONS		(11	)		(78	)		(49	)		(348	)

Income (loss)		(20	)		(80	)		(52	)		(350	)

Net income (loss) attributable to Company shareholders	$	(20	)	$	(80	)	$	(52	)	$	(350	)

Net income (loss) per share, basic and diluted:	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.03	)
	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.03	)

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25. DISCONTINUED OPERATIONS (AMENDED)

Elk Horn Coal Leasing

In August 2016, the Company entered into an agreement to sell its Elk Horn coal leasing company (“Elk Horn”) to a third party for total cash consideration of $12.0 million. The Company received $10.5 million in cash consideration upon the closing of the Elk Horn transaction and the remaining $1.5 million of consideration will be paid in ten equal monthly installments of $150,000 on the 20th of each calendar month beginning on September 20, 2016. The Company valued the Elk Horn assets at their sale value and recognized no gain or loss on the sale. Discontinued operations includes the earnings from operations since the acquisition date.

Major components of net income from discontinued operations for the period from the date of acquisition of Rhino to the date of sale is summarized as follows:

Other revenues	$	1,707
Cost of operations (exclusive of depreciation, depletion and Amortization shown separately below)		650
Depreciation, depletion and amortization		237
Selling, general and administrative (exclusive of depreciation, depletion And amortization shown separately above)		161
Interest expense and other		9
Income from discontinued operations	$	650

Cash Flows. The depreciation, depletion and amortization amounts for Elk Horn for the period presented is listed in the previous table. The Company did not fund any capital expenditures for Elk Horn for the period presented. Elk Horn did not have any material non-cash investing items for the period presented.

26. REVISION TO RHINO ACQUISITION AMOUNTS (UNAUDITED)

The Rhino acquisition was completed in three steps as described in Note 3. The fair value of Rhino’s property, plant and equipment was determined by an independent, third-party appraiser that completed their report during the first quarter of 2017. The fair value of Rhino’s coal properties were based on observable inputs from market transactions that closely related to the nature of Rhino’s coal properties. The asset retirement obligations of Rhino were adjusted to fair value based upon current risk adjusted discount rates. The original provisional assets and liabilities were adjusted as of March 31, 2017 within the one year measurement period. The total income statement impact of these adjustments was recognized during the three months ended March 31, 2017. The table below reflects the fair value of the assets acquired and the liabilities assumed for the acquisition of Rhino.

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	Adjusted Values (Unaudited)		Provisional Amounts (See Note 3)
	(in thousands)
Assets:
Current assets	$	25,851	$	23,117
Property, plant and equipment*		229,950		66,812
Other non-current assets		37,673		40,047
Goodwill		-		7,594
Liabilities:
Current liabilities		60,211		62,810
Long-term debt, net of current portion		2,536		2,536
Asset retirement obligations, net of current portion		17,986		27,108
Other non-current Liabilities		37,090		37,092

*Property, plant and equipment as adjusted consists of the follow classes:
Land	$	10,994
Mineral rights		43,552
Buildings and equipment		174,374
Construction in progress		1,030
Total	$	229,950

The provisional amount at December 31, 2016 was calculated at a composite amount and not allocated to individual classes.

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Royal Energy Resources, Inc. - FORM 10-K/A - January 30, 2018

Attached files

Royal Energy Resources, Inc. Reports