Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References in this report (the "Quarterly Report") to "we," "us," "our," or the "Company" refer to Integrated Rail & Resources Inc. and its consolidated subsidiaries. References to "TSII" refer to Tar Sands Holdings II, LLC, our wholly owned subsidiary. References to the "Sponsor" refer to DHIP Natural Resources Investments, LLC. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report, as well as the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2025. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Overview

Integrated Rail & Resources Inc. is an energy infrastructure and processing company focused on repurposing and upgrading legacy oil sands and refining assets to support third-party feedstock processing and refined-product delivery. The Company is a Delaware corporation that, in 2025, consummated the Business Combination with TSII. Its core assets are located at Asphalt Ridge in northeastern Utah, one of the largest and most accessible oil sands deposits in the United States, where the Company owns 760 acres of fee-simple land, a permitted open-pit mine, and an existing large-scale extraction, refining and terminaling facility in Vernal, Utah (the "Facility"). With the planned equity and debt capital raises following the Business Combination, together with commitments under the Shell Commitment Agreement, the Company intends to upgrade and bring its existing Facility online to process and refine third-party crude feedstock into products meeting customer specifications. The expected In-Service Date for the Facility is during the second half of 2027.

Business Combination

On December 12, 2025, the Company consummated its Business Combination with TSII pursuant to the Merger Agreement. The Business Combination was accounted for as an asset acquisition in accordance with ASC 805-10-55. Prior to the Business Combination, the Company (then Integrated Rail and Resources Acquisition Corp.) was a Special Purpose Acquisition Company ("SPAC"). As a result, the Company's historical financial results prior to the Business Combination reflect the operations of the SPAC, and the financial results after the Business Combination reflect the combined operations. Upon close of the Business Combination, the trust account was terminated and the remaining funds were transferred to the Company's operating bank account.

PIPE Investment

On January 23, 2026, the Company entered into a Securities Purchase Agreement with Creto IRRX PIPE Investment, LLC ("Creto") for the sale of Series A Convertible Preferred Stock. Creto invested $2,550,000 on January 23, 2026, $2,750,000 on February 6, 2026, and $450,000 on March 23, 2026 and acquired an aggregate of 57,500 Series A Preferred Stock. The Series A Convertible Preferred Stock is convertible into shares of Common Stock pursuant to a Certificate of Designations. Key covenants include information and "blue sky" undertakings, use of proceeds aligned to an agreed operating budget, and maintenance of sufficient authorized common stock for full conversion.

Series A Preferred Stock Issued to Creditor

In February 2026, one of the Company's creditors agreed to receive 7,055 shares of the Company's Series A Preferred Stock as payment for $705,589 of the Company's payables. The Series A Convertible Preferred Stock is convertible into shares of Common Stock pursuant to a Certificate of Designations. Key covenants include information and "blue sky" undertakings, use of proceeds aligned to an agreed operating budget, and maintenance of sufficient authorized common stock for full conversion.

Results of Operations

Prior to the close of the business combination, the Company was a SPAC and had neither engaged in any operations nor generated any operating revenues. Our only activities from inception through December 12, 2025 were organizational activities and those necessary to prepare for the Initial Public Offering and an initial Business Combination. We generated non-operating income in the form of interest income on marketable securities held in the Trust Account after the Initial Public Offering. After the close of the business combination, we have not generated any operating revenue.

For the three months ended March 31, 2026, we had net loss of $206,812, which consisted of a change in fair value of warrant liabilities of $1,692,000, change in fair value of the conversion even liability $726,944 and rental income of $10,000, partially offset by operating costs of $2,566,394 and excise tax interest and penalties of $68,873.

For the three months ended March 31, 2025, we had a net loss of $3,351,335, which consisted of change in fair value of warrant liabilities of $1,881,000, operating costs of $1,035,602, excise tax interest and penalties of $288,390, interest expense of $162,092, change in fair value of conversion event of $12,656, and a provision for income taxes of $5,851, partially offset by the interest and income earned on cash and investment in the Trust Account of $34,256.

Liquidity and Capital Resources

At March 31, 2026, we had $2,553,946 in cash and a working capital deficit of $30,932,044.

For the three months ended March 31, 2026, cash used in operating activities was $3,544,876. Net loss of $206,812 was affected by change in fair value of warrant liabilities of $1,692,000, change in fair value of conversion event liability of $726,944, offset by accretion of asset retirement obligation $10,244 and amortization of right to use assets of $367. Changes in operating assets and liabilities used $929,731 of cash from operating activities.

For the three months ended March 31, 2025, cash used in operating activities was $1,004,734. Net loss of $3,351,335 was affected by change in fair value of Warrant Liabilities of $1,881,000, interest and income on cash and Trust Account investments of $34,256, interest expense of $162,092 and change in fair value of conversion event liability of $12,656. Changes in operating assets and liabilities provided $325,109 of cash from operating activities.

For the three months ended March 31, 2026, cash provided by investing activities was $0.

For the three months ended March 31, 2025, cash used in investing activities was $150,000 affected by cash deposited in Trust Account.

For the three months ended March 31, 2026, cash provided by financing activities was $5,726,657, primarily consisting of proceeds from issuance of preferred stock of $5,750,000, proceeds from advances from Endeavor of $21,709 offset by, repayment of Promissory Note due to Sponsor of $45,052.

For the three months ended March 31, 2025, cash provided by financing activities was $1,339,000 affected by proceeds from note payable from a related party of $1,350,000 and repayment of note payable with a related party of $11,000.

We intend to finance operations and the restoration of the Facility through a combination of proceeds from the PIPE investment, additional equity and debt financing, and potential future revenue from the Shell Commitment Agreement once the Facility achieves its In-Service Date.

At March 31, 2026, we had cash of $2,553,946 and material cash requirements including promissory notes and other obligations outstanding, including a Note Payable due to the Sponsor of $5,228,173, Notes Payable due to related parties of $2,043,710, a Promissory Note to Sellers of $12,000,000, investment banking financing fees of $1,750,000, accrued excise tax of $3,283,971 and other accrued liabilities.

We anticipate that we will continue to incur net losses into the foreseeable future as we invest in upgrading our Facility, complete permitting, and prepare for commencement of commercial operations. We have based our anticipated operating capital requirements on assumptions that may prove to be incorrect, and we may use all our available capital resources sooner than we expect.

We have incurred and expect to continue to incur significant costs in pursuit of financing after our acquisition on December 12, 2025. There are no assurances that such additional capital will ultimately be available. In connection with our assessment of going concern considerations in accordance with FASB ASC 205-40, "Presentation of Financial Statements - Going Concern," management believes its current cash position and planned fundraising activities will be sufficient to allow us to meet our obligations as they become due within one year from the date these financial statements are issued. However, management has determined that these factors raise substantial doubt about our ability to continue as a going concern for the next twelve months from the issuance of these condensed consolidated financial statements. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management plans to raise funds through a public offering and will continue its efforts to consummate such a financing.

Off-Balance Sheet Financing Arrangements

We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

Contractual Obligations

As of March 31, 2026, we have promissory notes and other obligations outstanding, including a Note Payable due to the Sponsor of $5,228,173, Notes Payable due to related parties of $2,043,710, a Promissory Note to Sellers of $12,000,000, investment banking financing fees of $1,750,000, and other accrued liabilities of $12,250,442.

The Company incurred an investment banking merger and acquisition advisory fee of $1,750,000 upon closing of the Business Combination, which is reported as a payable on the consolidated balance sheet. The investment banking advisory fee balance at March 31, 2026 was $1,562,383.

Critical Accounting Estimates

Derivative Liabilities

In determining the fair value of the Warrants and conversion event, expected share-price volatility, expected time to consummating a business combination, risk-free interest rate, discount rate, probability of closing on a business combination, and a market adjustment for an implied probability of closing on a business combination are utilized. The Company estimates the volatility, probability of closing on a business combination and market adjustment for implied probability of closing on a business combination based on a set of peer companies. The Company estimates common stock based on historical volatility that matches the expected remaining life of the warrants. The fair value of the warrant liabilities and conversion event liability is subject to change in future periods based on the underlying assumptions and changes in market data.

Asset Retirement Obligations

The Asset retirement obligation ("ARO") consists of future land reclamation expenses on open mine properties. The fair value of the ARO was recorded as a liability in the period in which the mine was acquired with a corresponding increase in the carrying amount of asset retirement costs of the assets. The liability is accreted for the change in its present value each period based on the expected dates that the mine will be required to be reclaimed. The future estimated reclamation cost was determined to be $796,000, discounted over an estimated life of 10 years using a credit-adjusted risk-free rate of 7.46%.

Recent Accounting Standards

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material adverse effect on the Company's consolidated financial statements.