Form 10-Q - Quarterly report [Sections 13 or 15(d)]

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ROC

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024


☐	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: 333-254676

CYBER APP SOLUTIONS CORP.

(Exact Name of Registrant as Specified in its Charter)


Nevada	98-1585090
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2000 Bering Drive Suite 875 Houston, Texas	77057
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (725) 231-1001

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

    Title of each class

    Trading
Symbol(s)

    Name of each exchange on which registered

    Common Stock, par value $0.001 per share

    CYRB

    OTC Pink Open Markets

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 ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

As of May 13, 2024, the registrant had 80,896,865 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents


		Page

PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Changes in Stockholders' Deficit	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

PART II.	OTHER INFORMATION	24

Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
Signatures		27

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

Cyber App Solutions Corp.

Condensed Consolidated Balance Sheets

(Unaudited)


	March 31, 2024			December 31, 2023
ASSETS
Current assets
Cash and cash equivalents	$	80,357		$	1,248,191
Related party note receivable		25,000			25,000
Prepaid expenses and other current assets		425,119			502,330
Total current assets		530,476			1,775,521
Property, plant and equipment
Helium and CO2 properties, net (full cost method)		12,324,525			12,348,505
Other property, plant and equipment, net		1,833,251			1,854,496
Total property, plant and equipment, net		14,157,776			14,203,001
Other non-current assets
Right-of-use assets - operating leases		985,763			1,023,497
Other long-term assets		187,109			192,103
Total assets	$	15,861,124		$	17,194,122
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable	$	1,820,015		$	1,698,364
Notes payable, fair value option		19,168,307			20,082,880
Interest expense payable		1,612,107			146,667
Derivative liabilities		2,813,832			2,882,692
Accrued expenses and other current liabilities		753,962			542,623
Operating lease liabilities - current		170,959			161,524
Total current liabilities		26,339,182			25,514,750
Long-term liabilities
Asset retirement obligations		769,805			758,373
Operating lease liabilities		817,373			865,113
Total long-term liabilities		1,587,178			1,623,486
Total liabilities		27,926,360			27,138,236
Commitments and contingencies (Note 16)

Stockholders' deficit
Common Stock, $0.001 par value, 250,000,000 shares authorized; 80,896,865 shares and 80,744,354 shares issued and outstanding as of March 31,2024 and December 31, 2023, respectively		80,896			80,744
Additional paid-in capital		34,428,503			34,238,016
Accumulated deficit		(46,574,635	)		(44,262,874	)
Total stockholders' deficit		(12,065,236	)		(9,944,114	)
Total liabilities and stockholders' deficit	$	15,861,124		$	17,194,122

The accompanying notes are an integral part of these condensed consolidated financial statements.

Cyber App Solutions Corp.

Condensed Consolidated Statements of Operations

(Unaudited)


	For the Three Months Ended
	March 31,
	2024			2023
Helium revenue	$	222,088		$	—

Operating expenses
Depreciation, depletion, amortization and accretion		78,339			13,374
Lease and well operating expenses		53,893			13,544
Shut-in expenses		114,237			82,960
Gathering and processing expenses		256,542			—
Production taxes		7,633			—
General and administrative expenses		1,522,807			727,777
General and administrative expenses - related parties		15,000			35,000
Total operating expenses		2,048,451			872,655
Net loss from operations		(1,826,363	)		(872,655	)
Other income (expense)
Interest expense		(723,391	)		(536,337	)
Event of default fees		(745,440	)		(1,927,939	)
Interest income - related parties		—			7
Unrealized gain on fair value of notes payable		914,573			—
Unrealized gain on derivatives mark-to-market		68,860			—
Total other expense		(485,398	)		(2,464,269	)
Net loss before taxes		(2,311,761	)		(3,336,924	)
Income tax expense		—			—
Net loss	$	(2,311,761	)	$	(3,336,924	)

Loss per common share
Basic and Diluted	$	(0.03	)	$	(0.05	)

Weighted Average Number of Common Shares Outstanding:
Basic and Diluted		80,809,396			66,782,084

The accompanying notes are an integral part of these condensed consolidated financial statements.

Cyber App Solutions Corp.

Condensed Consolidated Statements of Changes in Stockholders' Deficit

(Unaudited)



	Common Stock						Additional			Accumulated			Total
	Shares			Amount			Paid-In Capital			Deficit			Stockholders' Deficit

December 31, 2022		65,828,862		$	65,829		$	21,885,539		$	(32,515,471	)	$	(10,564,103	)
Capital contributions		1,949,226			1,949			648,051			—			650,000
Equity financing costs		(77,969	)		(78	)		(25,922	)		—			(26,000	)
Net loss		—			—			—			(3,336,924	)		(3,336,924	)
March 31, 2023		67,700,119		$	67,700		$	22,507,668		$	(35,852,395	)	$	(13,277,027	)



	Common Stock				Additional		Accumulated			Total
	Shares		Amount		Paid-In Capital		Deficit			Stockholders' Deficit

December 31, 2023		80,744,354	$	80,744	$	34,238,016	$	(44,262,874	)	$	(9,944,114	)
Stock compensation expense		2,424		2		3,028		—			3,030
Issuance of common stock for cash		150,087		150		187,459		—			187,609
Net loss		—		—		—		(2,311,761	)		(2,311,761	)
March 31, 2024		80,896,865	$	80,896	$	34,428,503	$	(46,574,635	)	$	(12,065,236	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Cyber App Solutions Corp.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	For the Three Months Ended
	March 31,
	2024			2023
Cash Flows From Operating Activities
Net loss	$	(2,311,761	)	$	(3,336,924	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation, depletion, amortization and accretion		78,339			13,374
Stock compensation expense		3,030			—
Interest expense		720,000			536,337
Event of default fees		745,440			1,927,939
Amortization of lease costs		102,253			17,327
Amortization of intangible costs		7,490			7,490
Unrealized gain on derivatives mark-to-market		(68,860	)		—
Unrealized gain on fair value of notes payable		(914,573	)		—
Changes in operating assets and liabilities:
Prepaids and other current assets		74,715			64,054
Other long-term assets		—			—
Accounts payable		148,585			184,082
Accrued expenses and other liabilities		240,679			(41,600	)
Lease liabilities		(102,824	)		(23,495	)
Net cash used in operating activities		(1,277,487	)		(651,416	)

Cash Flows From Investing Activities
Additions to helium properties		(51,022	)		—
Additions to other property, plant and equipment		(26,934	)		(32,541	)
Net cash used in investing activities		(77,956	)		(32,541	)

Cash Flows From Financing Activities
Proceeds from capital contributions		—			650,000
Equity issuance costs		—			(26,000	)
Common stock issuance proceeds		187,609			—
Net cash provided by financing activities		187,609			624,000
Net decrease in cash and cash equivalents		(1,167,834	)		(59,957	)

Cash and cash equivalents, beginning of period		1,248,191			124,489
Cash and cash equivalents, end of period	$	80,357		$	64,532

The accompanying notes are an integral part of these condensed consolidated financial statements.

Cyber App Solutions Corp.

Condensed Consolidated Statements of Cash Flows (Continued)

(Unaudited)


	For the Three Months Ended
	March 31,
	2024			2023
Supplemental disclosures of cash flow information
Cash paid for interest	$	3,391		$	—
Cash paid for taxes	$	—		$	—

Non-cash investing and financing activities
Change in capital accruals	$	(56,274	)	$	868,876

The accompanying notes are an integral part of these condensed consolidated financial statements.

Cyber App Solutions Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – Organization and General Business Information

CYBER APP SOLUTIONS CORP. (the “Company” or "CYRB") is a corporation established under the corporation laws in the State of Nevada on February 19, 2021. The Company's corporate office is in Houston, Texas.

The Company is focused on the acquisition, exploration, development and production of helium and food grade carbon dioxide (CO2) along with having the capabilities for carbon capture and storage. The Company’s assets are concentrated in the St. Johns Field located in Apache County, Arizona of the United States (the “St. Johns Field").

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

These unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of the Company for the periods presented. Certain information in footnote disclosures normally included in financial statements prepared in accordance with GAAP has been condensed or omitted pursuant to the rules of the SEC and the accounting standards for interim financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2023, filed on April 2, 2024.

The preparation of financial statements in conformity with GAAP 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole.

Principles of Consolidation

The accompanying financial statements are consolidated and include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

Segment Information

The Company has one reportable operating segment. The Company has identified its Chief Executive Officer as its chief operating decision maker, who evaluates the operations of the Company using consolidated information for purposes of allocating resources and assessing performance.

Recently Issued Accounting Pronouncements

In March 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-02, "Codification Improvements." The ASU removes references to various FASB Concepts Statements in a variety of Topics in the Accounting Standards Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance. ASU 2024-02 will be effective for annual periods beginning after December 15, 2024, and although permitted, the Company does not intend to early adopt.

In March 2024, the SEC adopted final rules under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. The rules will require public entities to provide certain climate-related information in their annual reports and registration statements. The rules will be effective for non-accelerated filers commencing with the fiscal period beginning January 1, 2027. In April 2024, the SEC voluntarily issued an administrative stay of the implementation of the rules, pending judicial review. The Company will evaluate the impact of the final rules on its consolidated financial statements and disclosures.

In November 2023, the FASB issued ASU 2023-07 "Segment Reporting (Topic 820)," which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendment prescribes interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements. The ASU is effective for public companies with annual periods beginning after December 15, 2023, and interim periods within fiscals years beginning after December 15, 2024. CYRB is currently evaluating the impact of the standard on its segment reporting disclosures.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" (ASU 2023-09). ASU 2023-09 requires companies to disclose, on an annual basis, specific categories in the effective tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, ASU 2023-09 requires companies to disclose additional information about income taxes paid. ASU 2023-09 will be effective for annual periods beginning after December 15, 2024, and although permitted, the Company does not intend to early adopt. CYRB is continuing to evaluate the provisions of ASU 2023-09 and does not anticipate a material impact on its consolidated financial statements and related disclosures upon adoption.

Note 3 – Liquidity

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company’s development activities require it to make significant operating and capital expenditures. Its primary sources of liquidity have been through the issuance of debt and equity. The primary uses of cash have been for the St. Johns Field Acquisition, development of the St. Johns Field, commencing production, helium plant installation, corporate overhead, debt service costs, and paydown of debt.

The Company has a history of recurring losses from operations and had a working capital deficit as of March 31, 2024 and December 31, 2023. We have no committed capital to address our material liquidity needs over the next twelve months from the date of these condensed consolidated financial statements being issued and there is no assurance that the Company will raise the capital required. Additionally, the Company has no assurance of future profitability. These matters raise substantial doubt about our ability to continue as a going concern for a period of one year after the date that these condensed consolidated financial statements are issued. The condensed consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these uncertainties.

Note 4 – Revenue Recognition

Revenues from Contracts with Customers

Helium and CO2 sales are recognized at the point title and control of the product is transferred to the customer, which will differ depending on the terms of each contract. Transfer of title and control drives the presentation of gathering, processing and other post-production expenses within the Company's Condensed Consolidated Statement of Operations.

For those contracts where the Company has concluded that control of the product transfers at the tailgate of the plant, the Company recognizes revenue on a gross basis, with gathering, processing and other post-production expenses presented within the Gathering and processing expenses line item on the Company's Condensed Consolidated Statements of Operations. Expenses and fees incurred after title and control transfers are netted against revenues. Alternatively, for those contracts where the Company has concluded that title and control of the product transfers at or near the wellhead or inlet of the plant, the Company recognizes helium and CO2 revenues net of gathering, processing and other post-production expenses.

Performance Obligations

The Company's contractual performance obligations arise upon the production of gas from wells in which the Company has an ownership interest. The performance obligations are considered satisfied upon control of helium and CO2 being transferred to the customer(s) at the dedicated delivery point, which in the Company's current contract is the tailgate of the plant. The Company records revenue in the month production is delivered to the customer. Payment is unconditional once the performance obligations have been satisfied. At this time, the volume and price can be reasonably estimated and amounts due from customers are accrued in Accounts receivable, net in the Condensed Consolidated Balance Sheets. As of March 31, 2024 and December 31, 2023, there was no receivable accrued because the purchaser withheld the Company's proceeds to offset payables owed by the Company to the purchaser.

Disaggregated Revenue Information

For the three months ended March 31, 2024, all of the Company's revenue is from helium sales at the St. Johns Field.

Note 5 – Property, Plant and Equipment, Net

Property and equipment, net is comprised of the following:


	March 31, 2024			December 31, 2023
Land	$	259,793		$	259,793
Unproved helium and CO2 properties		10,059,012			10,055,182
Proved helium and CO2 properties		2,117,359			2,099,508
Less: accumulated depletion		(111,639	)		(65,978	)
Total helium and CO2 properties, net		12,324,525			12,348,505

Plant		1,863,900			1,863,900
Other property and equipment		51,908			51,908
Less: accumulated depreciation		(82,557	)		(61,312	)
Total other property and equipment, net		1,833,251			1,854,496

Total property, plant and equipment, net	$	14,157,776		$	14,203,001

Helium and CO2 Properties

As the Company's development work progresses and the reserves on the Company's properties are proven, capitalized costs attributed to the properties and mineral interest are subject to depletion. Depletion of capitalized costs is provided using the units-of-production method based on proved helium and CO2 reserves. Depletion expense for the three months ended March 31, 2024 and 2023, was $45,661 and $0, respectively.

These capitalized costs are subject to a ceiling test that limits such pooled costs, net of applicable deferred taxes, to the aggregate of the present value of future net revenues attributable to proved helium and CO2 reserves discounted at 10%. Any costs in excess of the ceiling are written off as a non-cash expense. The Company did not record an impairment to proved helium and CO2 properties during the three months ended March 31, 2024 and 2023.

Costs associated with unproved properties are excluded from the amortization base until the properties are evaluated or impairment is indicated. The costs associated with unproved leasehold acreage and related seismic data, are initially excluded from the amortization base. Leasehold costs are either transferred to the amortization base with the costs of drilling and/or completing a well on the lease or are assessed at least annually for possible impairment or reduction in value. The Company’s decision to withhold costs from amortization and the timing of the transfer of those costs into the amortization base involves judgment and may be subject to changes over time based on several factors, including drilling plans, availability of capital, project economics and drilling results from adjacent acreage. The Company did not record an impairment to unproved helium and CO2 properties during the three months ended March 31, 2024 and 2023.

Other Property, Plant and Equipment

The Company's other property, plant and equipment include a vehicle and helium plant costs. The vehicle is depreciated using the straight-line method over an estimated useful life of 5 years and the helium plant is depreciated using the straight-line method over an estimated useful life of 25 years. Related to the vehicle, for the three months ended March 31, 2024 and 2023, the Company recorded depreciation of $2,605 in both periods. Related to the helium plant that commenced operations in July 2023, for the three months ended March 31, 2024 and 2023, the Company recorded depreciation of $18,640 and $0, respectively.

Note 6 – Fair Value Measurements

Financial Instruments

The Company’s financial instruments measured at fair value on a recurring basis consist of notes payable where the fair value option was elected, freestanding warrants and embedded conversion options that required to be bifurcated and accounted for separately as

derivative financial instruments. The table below sets forth the financial instruments measured at fair value on a recurring basis, by level within the fair value hierarchy, as of March 31, 2024 and December 31, 2023.


	March 31, 2024
	Level 1		Level 2		Level 3		Total
Notes Payable, Fair Value Option
Convertible notes issued to Kips Bay Select, LP and Cyber One, Ltd. in November 2023	$	—	$	—	$	19,168,307	$	19,168,307
Total Notes Payable, Fair Value Option	$	—	$	—	$	19,168,307	$	19,168,307

Derivative Liabilities
Warrants	$	—	$	—	$	2,813,832	$	2,813,832
Total Derivative Liabilities	$	—	$	—	$	2,813,832	$	2,813,832


	December 31, 2023
	Level 1		Level 2		Level 3		Total
Notes Payable, Fair Value Option
Convertible notes issued to Kips Bay Select, LP and Cyber One, Ltd. in November 2023	$	—	$	—	$	20,082,880	$	20,082,880
Total Notes Payable, Fair Value Option	$	—	$	—	$	20,082,880	$	20,082,880

Derivative Liabilities
Warrants	$	—	$	—	$	2,882,692	$	2,882,692
Total Derivative Liabilities	$	—	$	—	$	2,882,692	$	2,882,692

The outstanding principal amount under the convertible notes issued to Kips Bay Select, LP and Cyber One, Ltd., including the $250,000 per Event of Default included in the Mandatory Premium Amount (see Note 7 – Debt for defining of such terms), due was approximately $21,000,000 compared to the fair value under the fair value option of $19,168,307.

As of March 31, 2024 and December 31, 2023, the Company used the Monte Carlo simulation to estimate the fair value of the notes payable and the Black-Scholes-Merton model to estimate the fair value of the warrants, which both included assumptions such as risk-free rate, volatility, and expected term. After determining the fair value of the notes payable and warrants, the Company implemented the probability-weighted expected return method (PWERM), which considered the probability of success and failure of the Company. Changes in any of the assumptions used in the valuation models may result in significantly higher or lower fair value measurements. The following assumptions were used to fair value the notes payable and warrants:


	March 31, 2024		December 31, 2023
	Notes Payable	Warrants	Notes Payable	Warrants
Expected volatility	32.00%	75.00%	34.00%	77.00%
Risk-free interest rate	5.37%	4.20%	5.14%	3.81
Dividend yield	—	—	—	—
Term (years)	0.31	4.64	0.55	4.89
Success probability	15.00%	15.00%	15.00%	15.00%

A reconciliation of the Company’s Level 3 balance is as follows:


Level 3 Balance at December 31, 2023	$	22,965,572
Unrealized gain recognized in earnings		(983,433	)
Level 3 Balance at March 31, 2024	$	21,982,139

For the three months ended March 31, 2024 and 2023, there was an unrealized gain $983,433 and $0, respectively, on mark-to-market of the warrants and change in fair value of the notes payable recorded in the accompanying Condensed Consolidated Statement of Operations.

The Company separates interest expense from the full change in fair value of the notes payable and presents that amount in Interest expense in the accompanying Condensed Consolidated Statement of Operations. The remainder of the change in fair value of the notes payable are presented in Unrealized gain on fair value of notes payable in the accompanying Condensed Consolidated Statement of Operations.

The carrying amounts of the Company’s cash, related party note receivable, accounts payable, and accrued expenses approximate their fair values because of the short-term maturities or liquid nature of these assets and liabilities.

Fair Value of Non-Financial Assets and Liabilities

Non-financial assets and liabilities that are initially measured at fair value are comprised of asset retirement obligations and stock-based compensation. The Company did not add any asset retirement obligations during three months ended March 31, 2024 or 2023.

The Company measures stock-based compensation based on the fair value of the award on the date of grant. During the three months ended March 31, 2024, a Board of Director elected to receive their first quarter 2024 compensation in the form of common stock of the Company. The Company measured the fair value of the award at $3,030 based on the price per share the Company received when it sold common stock in private placements near the time of the compensation award.

Note 7 – Debt

Securities Purchase Agreement with Kips Bay Select LP and Cyber One LTD

On November 21, 2023, the Company entered into a Securities Purchase Agreement (“SPA”) with Kips Bay Select LP and Cyber One, LTD, pursuant to which the Company agreed to issue and sell to each of Kips Bay Select LP and Cyber One, LTD, i) a convertible promissory note which will be convertible into shares of common stock (the “Conversion Shares”) and (ii) a common stock purchase warrant (each a “Warrant” and collectively, the “Warrants”) which will be exercisable to purchase shares of common stock (the “Warrant Shares).

Convertible Promissory Notes

On November 21, 2023, pursuant to the SPA, the Company issued a convertible promissory note to each of Kips Bay Select LP (“Kips Bay 2023 Note”) and Cyber One, LTD (“Cyber One 2023 Note”), collectively referred to as the Holders, in the principal amount of $8,000,000 to each for an aggregate principal amount of $16,000,000. The Kips Bay 2023 Note and the Cyber One 2023 Note are collectively referred to as the “2023 Convertible Notes”. The 2023 Convertible Notes were issued with an original issue discount of 50% and bear simple interest accruing as of November 21, 2023, at the rate of 5% per annum or 18% per annum following any Event of Default (as defined in the SPA and 2023 Convertible Notes agreements). The interest shall be computed on the basis of a 360-day year and twelve 30-day months and shall not compound. The 2023 Convertible Notes have a maturity date of July 21, 2024 (the “Maturity Date”).

The 2023 Convertible Notes are convertible (in whole or in part), at the option of the Holders, into such number of fully paid and non-assessable shares of common stock at a conversion price equal to the lower of (i) 70% of the lowest trading price of the common stock in the 15 trading days ending on the date of the delivery of the applicable conversion notice, and (ii) the Valuation Cap Price (defined as $250,000,000 subject to reduction of 10% upon each occurrence of an event of default divided by the number of shares of Common Stock on a fully diluted basis), with a Floor Price (defined as $100,000,000 divided by the number of shares of common stock on a fully diluted basis immediately prior to giving effect to the applicable conversion).

Due to the 2023 Convertible Notes having numerous embedded derivatives, the Company elected the fair value option to account for them. See fair value disclosures in Note 6 - Fair Value Measurement. The Company separates interest expense from the full change in fair value of the 2023 Convertible Notes and presents that amount in Interest expense in the accompanying Condensed Consolidated Statement of Operations. The remainder of the change in fair value of the 2023 Convertible Notes are presented in Unrealized gain on fair value of notes payable in the accompanying Condensed Consolidated Statement of Operations.

Pursuant to the terms and conditions of the 2023 Convertible Notes, the Company shall repay the $16,000,000 commencing on January 21, 2024 with $1,500,000 due monthly and any remaining outstanding principal due on July 21, 2024. The Company have the option to accelerate payments and reduce the overall principal repaid. As of March 31, 2024, the Company had made no payments on the outstanding principal and interest amounts of the 2023 Convertible Notes.

The 2023 Convertible Notes limit the Company’s ability to issue any debt, equity or equity-linked securities (including options or warrants) that are convertible into, exchangeable or exercisable for, or include the right to receive shares of our common stock and to issue any securities in a capital or debt raising transactions or series of related transactions with more favorable terms than the 2023 Convertible Notes without the consent of the Holders.

The following events constituted an Event of Default under the 2023 Convertible Notes: (i) any default in the payment of any portion of the principal or interest; (ii) failure to observe or perform material covenants; (iii) inability to convert the 2023 Convertible Notes

into its common stock; (iv) failure to timely deliver shares of common stock or make payment of any fees or liquidated damages under the 2023 Convertible Notes; (v) failure to have required minimum shares of common stock authorized, reserved and available for issuance; (vi) default on any other indebtedness; (vii) apply for or consent to the appointment of or the commencement of any type of receivership or any voluntary or involuntary bankruptcy, (viii) any judgment or settlements exceeding $250,000, (ix) failure to instruct transfer agent to remove any legends from the shares of common stock; (x) the Company’s common stock no longer publicly traded or cease to be listed on the trading market; (xi) any SEC or judicial stop trade order or any restrictions on transactions in the shares of the common stock; (xii) failure to comply with reporting requirements of the 1934 Act; (xiii) failure to file timely with the SEC; (xiv) a Fundamental Transaction, as defined in the SPA, and (xv) any inaccurate representations or warranties made by the Company in any transaction documents or public filings. The 2023 Convertible Notes did not contain any financial covenants.

The Company failed to make the interest payments starting in December 2023, principal payments starting in January 2024, and did not file with the SEC an initial Registration Statement on Form S-1 covering the resale of all Conversion Shares and Warrant Shares. These items resulted in Events of Default under the SPA and 2023 Convertible Notes.

The Event of Default had the following significant impacts: (i) the interest rate per annum on outstanding principal amounts increased from 5.0% to 18.0%; (ii) a Mandatory Premium Amount became due, which consists of $250,000 for every Event of Default that has occurred and its reoccurrence plus the $16,000,000 outstanding principal and the accrued interest, up to the sum of the 130% of the $16,000,000 outstanding principal and accrued interest; and (iii) the conversion price of the notes were no longer subjected to a floor price. The Mandatory Premium Amounts as of March 31, 2024 was approximately $22,000,000.

Registration Payment Arrangements

In connection with the SPA, on November 21, 2023, the Company entered into a registration rights agreement (“Registration Rights Agreement”) with Kips Bay Select LP and Cyber One, LTD, pursuant to which the Company agreed to file with the SEC by January 5, 2024 an initial Registration Statement on Form S-1 covering the resale of all of the Conversion Shares, Warrant Shares, and any common stock of the Company issued or issuable with respect to the Conversion Shares, the Warrant Shares, or the 2023 Convertible Notes (the “Registrable Securities”). The initial Registration Statement on Form S-1 was to register for resale at least the number of shares of common stock equal to 200% of the sum of (i) the maximum number of Conversion Shares issuable upon conversion of the 2023 Convertible Notes and related interest and (ii) the maximum number of Warrant Shares issuable upon exercise of the warrants, as of the date such Registration Statement on Form S-1 was initially filed with the SEC.

If (i) a Registration Statement of Form S-1 covering the resale of all of the Registrable Securities required to be covered thereby and required to be file by the Company pursuant to this Registration Rights Agreement is (A) not filed with the SEC on or before January 5, 2024 (a “Filing Failure”) or (B) not declared effective by the SEC on or before (a) with respect to the initial Registration Statement on Form S-1, the earlier of the (A) February 19, 2024 and (B) 2nd business day after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that such Registration Statement on Form S-1 will not be reviewed or will not be subject to further review and (b) with respect to any additional Registration Statements on Form S-1 that may be required to be filed by the Company pursuant to this Registration Rights Agreement, the earlier of the (A) 60th calendar day following the date on which the Company was required to file such additional Registration Statement on Form S-1 and (B) 2nd business day after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that such Registration Statement on Form S-1 will not be reviewed or will not be subject to further review, for such Registration Statement on Form S-1 (an “Effectiveness Failure”), (ii) on any day after the Registration Statement on Form S-1 has been declared effective by the SEC (the “Effective Date”) sales of all of the Registrable Securities required to be included on such Registration Statement on Form S-1 or the prospectus contained therein is not available for use for any reason (a “Maintenance Failure”), or (iii) if a Registration Statement on Form S-1 is not effective for any reason or the prospectus contained therein is not available for use for any reason (a “Current Public Information Failure”), the Company shall pay an amount in cash equal to one and half percent (1.5%) of the $16,000,000 principal amount (the “Registration Delay Payments”).

The Registration Delay Payments are due (1) on the date of such Filing Failure, Effectiveness Failure, Maintenance Failure or Current Public Information Failure, as applicable, and (2) on every thirty (30) day anniversary of (I) a Filing Failure until such Filing Failure is cured; (II) an Effectiveness Failure until such Effectiveness Failure is cured; (III) a Maintenance Failure until such Maintenance Failure is cured; and (IV) a Current Public Information Failure until the earlier of (i) the date such Current Public Information Failure is cured and (ii) such time that such public information is no longer required pursuant to Rule 144 (in each case, pro rated for periods totaling less than thirty (30) days). In the event the Company fails to make Registration Delay Payments in a timely manner in accordance with the foregoing, such Registration Delay Payments shall bear interest at the rate of two percent (2%) per month (prorated for partial months) until paid in full. Notwithstanding the foregoing, no Registration Delay Payments shall be owed (other than with respect to a Maintenance Failure resulting from a suspension or delisting of (or a failure to timely list) the shares of common stock on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB, OTCQX or the OTC Pink) with respect to any period during which all Registrable Securities may be sold without restriction under Rule 144 (including, without limitation, volume restrictions) and without the need for current public information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable).

A Filing Failure occurred on January 5, 2024 and has still not been cured as of March 31, 2024. The Company recorded $745,440 for Registration Delay Payments in the accompanying Condensed Consolidated Statement of Operations in Event of default fees and such amount was accrued in the accompanying Condensed Consolidated Balance Sheets in Interest expense payable as of March 31, 2024.

Interest Expense

Interest expense for the periods were as follows:


	For the Three Months Ended
	March 31,
	2024		2023
2023 Convertible Notes interest expense	$	720,000	$	—
Interest on convertible notes extinguished in November 2023		—		536,337
Other		3,391		—
Total interest expense	$	723,391	$	536,337

Note 8 – Derivatives

On November 21, 2023, pursuant to the SPA (as described in Note 7 – Debt), the Company issued to each Kips Bay Select LP and Cyber One, LTD warrants to subscribe for and purchase from the Company up to 3,846,154 shares of common stock, collectively 7,692,308 shares of common stock. These freestanding warrants were bifurcated and accounted for separately as derivative financial instruments. The Company used the Black-Scholes Melton pricing model to value the derivative instruments. The following table summarizes the Company’s derivative liabilities:


	March 31, 2024		December 31, 2023
Kips Bay 2023 Note - warrants	$	1,406,916	$	1,441,346
Cyber One 2023 Note - warrants		1,406,916		1,441,346
Total derivative liabilities	$	2,813,832	$	2,882,692

Because the fair value option was elected for the 2023 Convertible Notes, the initial fair value of the warrants were not presented as a discount to the face value of the 2023 Convertible Notes.

The gains and losses resulting from the mark-to-market of the bifurcated conversion options and warrants are included within “Unrealized gain on derivatives mark-to-market” in the Condensed Consolidated Statements of Operations. For the three months ended March 31, 2024 and 2023, there was a gain of $68,860 and $0, respectively, on mark-to-market of the bifurcated conversion options and warrants.

Note 9 – Asset Retirement Obligations

The following table summarizes the changes in the Company’s asset retirement obligation for period below:


Asset retirement obligations - December 31, 2023	$	758,373
Accretion expense		11,432
Asset retirement obligations- March 31, 2024	$	769,805

Note 10 – Leases

As of March 31, 2024 and December 31, 2023, the Company had operating leases recorded on the Condensed Consolidated Balance Sheets for equipment leased at the helium plant in the St. Johns Field, office space in Houston, Texas (the “Houston Office”) and a site lease agreement in Arizona (the “Site Lease Agreement”) for storage of equipment. The helium plant equipment lease expires in March 2028, the Houston Office lease was amended in October 2023 and included an extension of the expiration date from October 2025 to January 2027 and the Site Lease Agreement expired in February 2024. All the leases had renewal options, but the Company did not

recognize any of the renewal options. The Company excluded variable lease payments for operating expenses in the Houston Office and the service component of the equipment lease.

The accompanying balance sheets include leases with terms greater than 12 months at commencement. The present value of future lease payments was determined based upon the Company’s incremental borrowing rate. The table below summarizes the Company's discount rate and remaining lease term.


	March 31, 2024			March 31, 2023
Weighted-average discount rate
Operating leases		26.80	%		10.00	%

Weighted-average remaining lease term (years)
Operating leases		3.87			2.59

The following table presents the components of the Company’s lease expenses for the following periods.


		Three Months Ended
		March 31, 2024		March 31, 2023
Lease costs	Classification on our Statement of Operations
Operating lease costs	General and administrative expenses	$	11,285	$	15,875
Operating lease costs	Lease operating expenses	$	968	$	1,452
Operating lease costs	Gathering and processing expenses	$	90,000	$	—
Short-term lease costs	General and administrative expenses	$	—	$	2,209
Variable lease costs	Gathering and processing expenses	$	60,000	$	—
Variable lease costs	General and administrative expenses	$	8,354	$	10,769

Supplemental cash flow information related to leases were as follows:


	Three Months Ended
	March 31, 2024			March 31, 2023
Cash paid for amounts included in the measurement of lease liabilities
Operating lease - operating cash flows	$	(102,824	)	$	(23,495	)

Maturities of the Company’s operating lease liabilities included on the accompanying Condensed Consolidated Balance Sheets as of March 31, 2024 were as follows:



	Operating Leases
2024		303,462
2025		405,855
2026		407,207
2027		363,943
2028		90,000
Total minimum lease payments		1,570,467
Less: imputed interest		(582,135	)
Present value of future minimum lease payments		988,332
Less current obligation under leases		(170,959	)
Non-current lease obligations	$	817,373

Note 11 - Warrants

On November 21, 2023, pursuant to the SPA (as described in Note 7 – Debt), the Company issued to each Kips Bay Select LP and Cyber One, LTD warrants to subscribe for and purchase from the Company up to 3,846,154 shares of common stock, collectively 7,692,308 shares of common stock, at an exercise price equal to the lower of: (i) $3.12 per share and (ii) the Valuation Cap Price. The warrants are exercisable from November 21, 2023 and expire on November 21, 2028. In case of a registration (as defined in the Registration Rights Agreement), the warrants may be exercised, in whole or in part, at such time by means of a “cashless exercise” on terms and conditions provided in the warrants. The Valuation Cap Price means the price per share of common stock calculated by

dividing $250,000,000 by the number of shares of Common Stock on a fully diluted basis immediately prior to giving effect to the applicable exercise under this Warrant, subject to adjustment as provided therein. As of March 31, 2024 and December 31, 2023, 7,692,308 warrants were outstanding and exercisable.

All warrants noted above were separated from their respective debt instruments and fair valued at each reporting period. See fair value disclosures in Note 6 - Fair Value Measurements.

Note 12 – Stockholders' Deficit

Common Stock

The Company has one class of common stock. As of March 31, 2024 and December 31, 2023, the Company's authorized capital consists of 250,000,000 shares of common stock with a par value of 0.001 per share.

During the three months ended March 31, 2024, the Company issued 150,087 shares of common stock in private placements for proceeds of $187,609.

Stock Based Compensation

During the three months ended March 31, 2024, the Company issued 2,424 shares of common stock to a member of the Board of Directors at their election for their first quarter of 2024 compensation as opposed to their cash retainer. The compensation expense for the award totaled $3,030 and was estimated using a fair value of $1.25 per share. The fair value per share was based on the price the Company received when it sold common stock in private placements. The expense was recorded to General and administrative expenses on the Company’s Condensed Consolidated Statements of Operations.

Conversion Features

The Holders of the 2023 Convertible Notes have the right to convert all or part of their outstanding principal amount to shares of common stock. See Note 7 – Debt for the conversion price and adjustments.

Common Stock Reserved

The Company reserved 41,191,116 shares of common stock for issuance upon conversion of the 2023 Convertible Notes and exercise of Warrants and 10,842,453 shares of common stock for certain indemnified transfers of common stock at the stock transfer agent.

Note 13 – Net Loss Per Share

Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period, giving effect to all potential dilutive securities outstanding for the period. Basic and diluted loss per share is computed using the treasury stock method.

For the three months ended March 31, 2023, the numerator of basic net loss per share is the net loss of the accounting acquirer attributable to common stockholders for the comparative reporting periods. The denominator of basic net loss per share is weighted average number of common shares of the accounting acquirer outstanding pre-acquisition, multiplied by the exchange ratio.

The following table sets forth the computation of basic and diluted net loss per share:


	For the Three Months Ended
	March 31,
	2024			2023
Numerator:
Net loss	$	(2,311,761	)	$	(3,336,924	)
Denominator:
Weighted average common stock outstanding - Basic and Diluted		80,809,396			66,782,084
Net loss per share of common stock outstanding - Basic and Diluted	$	(0.03	)	$	(0.05	)

As the Company was in a net loss position for all periods presented, the Company has determined all potentially dilutive shares would be anti-dilutive in these periods and therefore are excluded from the calculation of diluted weighted average shares outstanding. This results in the calculation of weighted average shares outstanding to be the same for basic and diluted earnings per share.

For the three months ended March 31, 2024 and 2023, the Company had outstanding warrants to purchase shares of common stock and debt instruments convertible into common stock. There would be 35,529,258 and 6,349,756 of additional common shares at March 31, 2024 and 2023, respectively, related to the possible exercise of outstanding warrants and conversion of the debt instruments.

Note 14 – Income Taxes

The Company is a C corporation and is subject to U.S. federal income tax and state and local income taxes.

The Company’s effective tax rate for the three months ended March 31, 2024 and 2023 was 0%. As of March 31, 2024, the Company has U.S. net operating loss (“NOLs”) carryforwards of $4,384,563 to offset taxable income, if any, in future years. Federal NOLs generated in 2023 and 2024 may be carried forward indefinitely. 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 asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset will not be realized. Tax periods for all fiscal years after 2021 remain open to examination by the federal and state taxing jurisdictions to which the Company is subject.

As of March 31, 2024, the Company has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements.

Note 15 – Transactions with Related Parties

Consulting Arrangements

The Company had advisory consulting agreements with TPG Commercial Finance, an entity in which Jim Culver, a principal owner of either directly or indirectly more than 10% of the Company’s common stock, is the President/Owner. For the three months ended March 31, 2024 and 2023, the Company incurred costs of $0 and $20,000, respectively. The costs were recorded in the Consolidated Statements of Operations to “General and administrative expenses – related parties”.

The Company received human resource services from an immediate family member of a named executive officer. For the three months ended March 31, 2024 and 2023, the Company incurred $15,000 in fees related to Human Resource services. These costs were recorded in the Condensed Consolidated Statements of Operations to “General and administrative expenses – related parties”.

Related Party Note Receivable

In September 2022, the Company loaned $25,000 to VVC Resources, an entity in which Jim Culver, a principal owner of either directly or indirectly more than 10% of the Company’s common stock, is the President and CEO. The loan bore interest at zero percent. There was no stated maturity date for the loan. As of March 31, 2024 and December 31, 2023, the related party note receivable had a balance of $25,000.

Co-Tenancy Arrangement

In October 2023, the Board approved a co-tenancy arrangement whereby we expanded the leased space in our Houston office and share the expanded space with Pantheon Resources, PLC, an entity where our Chairman of the Board of Directors, David Hobbs, serves as Executive Chairman. We share equally the costs of the lease and office supplies.

Note 16 – Commitments and Contingencies

Commitments

As of March 31, 2024, all of the assets of the Company have been pledged as collateral for the 2023 Convertible Notes.

Contingencies

Legal

In the ordinary course of business, the Company is party to various legal actions. In management’s opinion, the outcome of any such currently pending legal actions will not have a material adverse effect on the Company’s financial position or results of operations.

On March 1, 2022, a potential lender filed a motion for a default judgment against the Company's wholly owned subsidiary, Proton Green, LLC ("Proton Green") seeking a $1,000,000 break-up fee related to a commitment letter for a proposed senior secured term loan facility. The parties unsuccessfully attempted to mediate the case on October 23, 2023. Discovery is complete and the parties have filed cross-motions for summary judgment. All briefings are complete and the parties are awaiting the court's decision. No accrual has been recorded to the condensed consolidated financial statements because the Company is unable to conclude that an unfavorable outcome is probable. Legal fees incurred associated with loss contingencies are expensed.

The Company was served a lawsuit on May 2, 2024, in which it was named as one of several defendants in a complaint filed in the Federal District Court of the Northern District of Illinois, Eastern Division by Alpha Carta, Ltd. et al (the “Alpha Carta Litigation”). Alpha Carta, Ltd. (“Alpha Carta”) alleges that Proton Green breached three promissory notes (the “Notes”), a Forbearance Agreement, and a proposed unexecuted revised Forbearance Agreement with respect to payments due on the Notes and that Proton Green owes, with an aggregate balance of principal and interest, in excess of $30,000,000 (the “AC Debt”). Other claims against the defendants include conspiracy to commit fraud, rescission, and declaratory judgment, all related to the AC Debt. Proton Green asserts, in contrast, that it reached a loan settlement agreement (“Loan Settlement Agreement”) with Alpha Carta to settle the AC Debt for $8,000,000, which has been paid. Alpha Carta denies the existence of such Loan Settlement Agreement and alleges that if such Loan Settlement Agreement does exist, it was executed fraudulently.

The Company believes that the claims asserted in the Alpha Carta Litigation have no merit and intends to vigorously defend them. The Company is unable to reasonably estimate the possible loss or range of loss, if any, associated with these claims, and accordingly, it has not accrued any liability associated with the Alpha Carta Litigation.

There are no other material litigation, arbitration or governmental proceeding currently pending against the Company or any members of its management team in their capacity as such requiring a contingent liability to be recognized as of the date of the consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside of our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, market prices for helium and Carbon Dioxide (“CO2“), production volumes, estimates of proved reserves, capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed in our Annual Report on Form 10-K, particularly in “Item 1A. Risk Factors” and below in “Cautionary Statement Concerning Forward-Looking Statements,” all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange Act. All statements, other than statements of historical fact included in this report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (our "Annual Report on Form 10-K"), and the other risk factors and other cautionary statements contained in our other filings with the SEC. These forward-looking statements are based on management’s current beliefs as of the date of this Quarterly Report on Form 10-Q, based on currently available information, as to the outcome and timing of future events.

You should not place undue reliance on these forward-looking statements. Forward-looking statements may included statements about:

•

our ability to achieve steady state operations at our first helium plant in the St. Johns Field;

•

the adequacy and availability of capital resources, credit and liquidity, including, but not limited to, debt refinancing, exchanges or repurchases of debt, issuances of debt or equity securities, and our ability to generate sufficient cash flow from operations to fund our capital expenditures and meeting working capital needs;

•

our future financial performance;

•

potential actions of our stakeholders and lenders;

•

our ability to continue as a going concern;

•

our ability to cure defaults under our debt agreements;

•

our business strategy;

•

our reserves;

•

our liquidity and capital resources;

•

the future of our operations;

•

our drilling prospects, inventories, projects and programs;

•

our ability to replace the reserves we produce through drilling and property acquisitions;

•

our realized helium and CO2 prices;

•

the timing and amount of our future production of helium and CO2;

•

our competition and government regulations;

•

our ability to obtain permits and governmental approvals; and

•

our pending legal matters.

Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied by the forward-looking statements.

All forward-looking statements, expressed or implied, included in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

General

Overview

Cyber App Solutions Corp. (the “Company”, “CYRB”, “we”, “us”, or “ours”) is a corporation established under the corporation laws in the State of Nevada on February 19, 2021. Our corporate office is in Houston, Texas.

We are focused on the acquisition, exploration, development and production of helium and food grade carbon dioxide (CO2) and we have the capabilities for carbon capture and storage. Our assets are concentrated in the St. Johns Field located in Apache County, Arizona of the United States (the “St. Johns Field").

Market Conditions

Helium

Helium is a unique element in that it is the second most abundant in the universe, the most stable, yet rare and difficult to capture and store on the Earth, found in only a few locations spanning about twenty production fields globally. Its unique qualities make it a non-renewable and limited natural resource, highly demanded in many growing industries such as medical technology, high-tech, space exploration and national defense. Specific uses for helium include: semiconductor and fiber-optics manufacturing, cooling superconducting magnets in MRI machines, leak detection, as a purge gas and pressurizing agent in spacecraft, leak detection, airbags, deep sea diving oxygen tanks, and more.

Production of helium goes back to 1900s. Since that time, the industry has experienced four notable periods of shortage between year 2006 and today, with the helium production currently experiencing a Helium shortage 4.0 started in 2022 and driven by the increased demand from growing industries and technologies and decreased production. Decreased production is partially attributable to the US government, one of the world’s largest and most dependable suppliers of helium, selling off its national helium reserve located near the Hugoton-Panhandle field that spans across Texas, Oklahoma, and Kansas and sanctions imposed on Russian exports. The demand for helium is currently estimated at 5.9 billion cubic feet (Bcf) and expected to increase to about 8 Bcf by 20301. The United States has been a leading producer of helium2 and currently holds roughly 40% of the global production market share, which is expected to decrease to about 30% by year 2030. The next leading producers of helium have been Russia, Algeria and Qatar.

CO2

The U.S. carbon dioxide market size was valued at $3.2 billion in 2021 and is expected to expand at a compound annual growth rate (CAGR) of 8.4% from 2022 to 2030. The food & beverages segment led with a revenue share of 34.52% in the year 2021.3 In the U.S. beverage industry, CO2 is commonly utilized for carbonating soft drinks and beer. Additional uses for CO2 are enhanced oil recovery, dry ice production, wastewater treatment, welding, fire suppression, plant growth, food preservation, food refrigeration and freezing, and more. Characteristics of its use include creating carbonation for desired fizziness, diverse sources (industrial processes, fermentation), adherence to food-grade standards, reliance on a stable supply chain, and transportation/storage in liquid or compressed gas forms. Industry-specific details are recommended for the latest information.

CO2 for beverages can come from various sources: fermentation processes (alcoholic beverage production), industrial processes (chemical manufacturing), natural sources (natural springs), dry ice production, biogas production (anaerobic digestion), and upstream oil and gas operations (natural gas processing). Regardless of the source, CO2 must meet strict quality standards to ensure safety and taste in the final beverage product, often involving purification processes by manufacturers.

The largest single food and beverage grade CO2 supplier in the U.S. is located at Jackson Dome, Mississippi (the “Jackson Dome”). Supply was disrupted recently due to geologic contamination of the reservoir, although it has begun to come back online. Additionally,

ExxonMobil announced in a November 2, 2023 press release that it had completed the acquisition of Denbury, Inc., who was the primary operator at the Jackson Dome. Based on ExxonMobil’s July 13, 2023 press release, the acquisition allows them to serve a range of hard-to-decarbonize industries with a comprehensive carbon capture and sequestration offering, which we believe means they are focused on carbon capture and sequestration in the Jackson Dome rather than CO2 production. The curtailment of CO2 plants here and elsewhere in the country, we believe, has led and will lead to a shortage of CO2 supply to the food and beverage industry.


1	https://pubs.aip.org/physicstoday/article/76/9/18/2908156/Helium-prices-surge-to-record-levels-as-shortage
2	https://www.usgs.gov/news/national-news-release/usgs-seeks-public-comment-helium-supply-risk
3	https://www.grandviewresearch.com/industry-analysis/us-carbon-dioxide-market-report

U.S. Department of Energy Program

In August 2023, we received notice regarding a potential financial award from the U.S. Department of Energy (“DoE”) that we, as a member of a consortium of companies, which includes us, Black & Veatch, Carbon Collect, CarbonCapture, Carbon Solutions, Arizona State University, University of New Mexico, University of Utah, Tallgrass, and the Arizona Geological Survey, had been selected to receive an approximately $11,600,000 grant for plans to develop the Southwest Regional Direct Air Capture (“DAC”) Hub to advance the design of a regional DAC hub. The program aims to expedite the deployment of a nationwide network of large-scale DAC CO2 removal sites to address legacy CO2 pollution and complement rapid emission reduction in the region. We will work alongside our consortium partners to develop a storage field development plan to securely sequester CO2 captured from the atmosphere into our St. Johns Field basin. Under the program, we expect that we will receive reimbursement for certain overhead fees incurred. The negotiations of the DoE award are ongoing and we anticipate completing negotiations during the first half of 2024.

Segment Information

We manage our business globally within one reportable segment, which is consistent with how our management reviews the business, prioritizes investment and resource allocation decisions and assesses operating performance.

Fair Value Measurement

Our financial instruments measured at fair value on a recurring basis consist of convertible promissory notes issued on November 21, 2023 (the “2023 Convertible Notes”), to each of two investors, with an aggregate principal amount of $16,000,000, with a stated interest rate of 5% per annum and default interest rate of 18% per annum and freestanding warrants issued along with the 2023 Convertible Notes. We use significant unobservable inputs (Level 3) to measure the fair value of the instruments. For the three months ended March 31, 2024 and 2023, there was an unrealized gain of $983,433 and $0, respectively, on mark-to-market of the warrants and change in fair value of the notes payable recorded in the accompanying Condensed Consolidated Statement of Operations.

Results of Operations and Financial Condition

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023


	For the Three Months Ended
	March 31,				Change
	2024		2023		$		%
Helium revenue	$	222,088	$	—	$	222,088		100	%

Operating expenses
Depreciation, depletion, amortization and accretion		78,339		13,374		64,965		486	%
Lease and well operating expenses		53,893

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CYRB Cyber App Solutions Corporation (PK)