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 June 30, 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 August 16, 2024, the registrant had 81,155,741 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	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	28

PART II.	OTHER INFORMATION	28

Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	30
Signatures		31

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

Cyber App Solutions Corp.

Condensed Consolidated Balance Sheets

(Unaudited)


	June 30, 2024			December 31, 2023
ASSETS
Current assets
Cash and cash equivalents	$	119,638		$	1,248,191
Related party note receivable		25,000			25,000
Prepaid expenses and other current assets		271,431			502,330
Total current assets		416,069			1,775,521
Property, plant and equipment
Helium and CO2 properties, net (full cost method)		12,387,165			12,348,505
Other property, plant and equipment, net		1,812,006			1,854,496
Total property, plant and equipment, net		14,199,171			14,203,001
Other non-current assets
Right-of-use assets - operating leases		946,654			1,023,497
Other long-term assets		8,984			192,103
Total assets	$	15,570,878		$	17,194,122
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable	$	2,137,537		$	1,698,364
Notes payable, fair value option		18,014,033			20,082,880
Interest expense payable		3,120,427			146,667
Derivative liabilities		2,774,918			2,882,692
Short-term loan		335,000			—
Accrued expenses and other current liabilities		745,018			542,623
Operating lease liabilities - current		182,314			161,524
Total current liabilities		27,309,247			25,514,750
Long-term liabilities
Asset retirement obligations		781,410			758,373
Operating lease liabilities		767,039			865,113
Total long-term liabilities		1,548,449			1,623,486
Total liabilities		28,857,696			27,138,236
Commitments and contingencies (Note 16)

Stockholders' deficit
Common Stock, $0.001 par value, 200,000,000 and 250,000,000 shares authorized as of June 30, 2024 and December 31, 2023, respectively; 81,074,842 shares and 80,744,354 shares issued and outstanding as of June 30,2024 and December 31, 2023, respectively		81,072			80,744
Additional paid-in capital		34,978,327			34,238,016
Accumulated deficit		(48,346,217	)		(44,262,874	)
Total stockholders' deficit		(13,286,818	)		(9,944,114	)
Total liabilities and stockholders' deficit	$	15,570,878		$	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						For the Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
Helium revenue	$	195,954		$	—		$	418,042		$	—

Operating expenses
Depreciation, depletion, amortization and accretion		72,755			13,536			151,094			26,910
Lease and well operating expenses		49,547			189,333			103,440			202,877
Shut-in expenses		(10,872	)		51,673			103,365			134,633
Gathering and processing expenses		260,143			—			516,685			—
Production taxes		6,735			—			14,368			—
General and administrative expenses		1,177,068			582,972			2,699,875			1,310,749
General and administrative expenses - related parties		15,000			2,500			30,000			37,500
Total operating expenses		1,570,376			840,014			3,618,827			1,712,669
Net loss from operations		(1,374,422	)		(840,014	)		(3,200,785	)		(1,712,669	)
Other income (expense)
Interest expense		(808,391	)		(542,297	)		(1,531,782	)		(1,078,634	)
Event of default fees		(788,320	)		(1,959,785	)		(1,533,760	)		(3,887,724	)
Interest income		6,363			1			6,363			8
Unrealized gain on fair value of notes payable		1,154,274			—			2,068,847			—
Unrealized gain on derivatives mark-to-market		38,914			185,011			107,774			185,011
Total other expense		(397,160	)		(2,317,070	)		(882,558	)		(4,781,339	)
Net loss before taxes		(1,771,582	)		(3,157,084	)		(4,083,343	)		(6,494,008	)
Income tax expense		—			—			—			—
Net loss	$	(1,771,582	)	$	(3,157,084	)	$	(4,083,343	)	$	(6,494,008	)

Loss per common share
Basic and Diluted	$	(0.02	)	$	(0.05	)	$	(0.05	)	$	(0.10	)

Weighted Average Number of Common Shares Outstanding:
Basic and Diluted		80,951,591			67,805,572			80,880,494			67,296,655

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	)
Capital contributions		299,881			300			99,700			—			100,000
Net loss		—			—			—			(3,157,084	)		(3,157,084	)
June 30, 2023		68,000,000		$	68,000		$	22,607,368		$	(39,009,479	)	$	(16,334,111	)



	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		—		3,030		—			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	$	80,894	$	34,428,505	$	(46,574,635	)	$	(12,065,236	)
Issuance of common stock for cash		177,977		178		549,822		—			550,000
Net loss		—		—		—		(1,771,582	)		(1,771,582	)
June 30, 2024		81,074,842	$	81,072	$	34,978,327	$	(48,346,217	)	$	(13,286,818	)

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 Six Months Ended
	June 30,
	2024			2023
Cash Flows From Operating Activities
Net loss	$	(4,083,343	)	$	(6,494,008	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation, depletion, amortization and accretion		151,094			26,910
Stock compensation expense		3,030			—
Interest expense		1,440,000			1,078,634
Event of default fees		1,533,760			3,887,724
Amortization of lease costs		203,538			34,654
Amortization of intangible costs		14,981			14,981
Unrealized gain on fair value of notes payable		(2,068,847	)		—
Unrealized gain on derivatives mark-to-market		(107,774	)		(185,011	)
Changes in operating assets and liabilities:
Prepaids and other current assets		220,912			(129,531	)
Other long-term assets		178,125			(12,000	)
Accounts payable		363,562			663,446
Accrued expenses and other liabilities		231,734			489,219
Lease liabilities		(203,978	)		(39,660	)
Short-term loan		85,000			—
Net cash used in operating activities		(2,038,206	)		(664,642	)

Cash Flows From Investing Activities
Additions to helium properties		(51,022	)		—
Additions to other property, plant and equipment		(26,934	)		(144,769	)
Net cash used in investing activities		(77,956	)		(144,769	)

Cash Flows From Financing Activities
Proceeds from capital contributions		—			750,000
Proceeds from short-term loans		250,000			—
Equity issuance costs		—			(26,000	)
Common stock issuance proceeds		737,609			—
Net cash provided by financing activities		987,609			724,000
Net decrease in cash and cash equivalents		(1,128,553	)		(85,411	)

Cash and cash equivalents, beginning of period		1,248,191			124,489
Cash and cash equivalents, end of period	$	119,638		$	39,078

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 Six Months Ended
	June 30,
	2024			2023
Supplemental disclosures of cash flow information
Cash paid for interest	$	6,782		$	—
Cash paid for taxes	$	—		$	—

Non-cash investing and financing activities
Change in capital accruals	$	(46,271	)	$	1,254,559

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, general and administrative expenses, debt service costs, and paydown of debt.

The Company’s sole helium plant in the St. Johns Field has not reached “steady state” production. CYRB has encountered significant difficulties to date at the helium plant because of mechanical issues and design limitations, resulting in inefficient operations and lower helium recovery rates, which has limited its revenues generated and led to recurring losses incurred. The Company has idled the helium plant.

The Company has a history of recurring losses from operations and had a working capital deficit as of June 30, 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 June 30, 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 and six months ended June 30, 2024, all of the Company's revenue was from helium sales at the St. Johns Field.

Note 5 – Property, Plant and Equipment, Net

Property and equipment, net is comprised of the following:


	June 30, 2024			December 31, 2023
Land	$	259,793		$	259,793
Unproved helium and CO2 properties		10,161,558			10,055,182
Proved helium and CO2 properties		2,117,359			2,099,508
Less: accumulated depletion		(151,545	)		(65,978	)
Total helium and CO2 properties, net		12,387,165			12,348,505

Plant		1,863,901			1,863,900
Other property and equipment		51,908			51,908
Less: accumulated depreciation		(103,803	)		(61,312	)
Total other property, plant and equipment, net		1,812,006			1,854,496

Total property, plant and equipment, net	$	14,199,171		$	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 June 30, 2024 and 2023 was $39,905 and $0, respectively, and for the six months ended June 30, 2024 and 2023 was $85,566 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 and six months ended June 30, 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 and six months ended June 30, 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. The Company recorded depreciation expense on vehicles during the three months ended June 30, 2024 and 2023, of $2,605, and during the six months ended June 30, 2024 and 2023 of $5,211. The Company recorded depreciation expense on the helium plant during the three months ended June 30, 2024 and 2023 of $18,640 and $0, respectively, and during the six months ended June 30, 2024 and 2023 of $37,280 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 June 30, 2024 and December 31, 2023.


	June 30, 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	$	—	$	—	$	18,014,033	$	18,014,033
Total Notes Payable, Fair Value Option	$	—	$	—	$	18,014,033	$	18,014,033

Derivative Liabilities
Warrants	$	—	$	—	$	2,774,918	$	2,774,918
Total Derivative Liabilities	$	—	$	—	$	2,774,918	$	2,774,918


	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 table below compares the aggregate unpaid balance on the 2023 Convertible Notes (see Note 7 – Debt for defining of such terms) to the fair value option for such notes as of June 30, 2024:


Unpaid balance	Amount
Outstanding principal amount	$	16,000,000
Interest expense payable		1,586,667
Mandatory premium amount		5,276,000
Unpaid balance	$	22,862,667

Fair value option	Amount
Notes payable, fair value option	$	18,014,033
Interest expense payable		1,586,667
Total fair value option reported	$	19,600,700

As of June 30, 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:


	June 30, 2024		December 31, 2023
	Notes Payable	Warrants	Notes Payable	Warrants
Expected volatility	32.00%	75.00%	34.00%	77.00%
Risk-free interest rate	5.47%	4.39%	5.14%	3.81%
Dividend yield	—	—	—	—
Term (years)	0.06	4.40	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		(2,176,621	)
Level 3 Balance at June 30, 2024	$	20,788,951

For the three months ended June 30, 2024 and 2023, there was an unrealized gain $1,193,188 and $185,011, respectively, and for the six months ended June 30, 2024 and 2023, there was an unrealized gain of $2,176,621 and $185,011, 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 and six months ended June 30, 2024 and 2023.

The Company measures stock-based compensation based on the fair value of the award on the date of grant. During the six months ended June 30, 2024, a member of the Company’s Board of Directors 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 had a maturity date of July 21, 2024 (the “Maturity Date”).

The 2023 Convertible Notes were 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). Notwithstanding the foregoing, at any time prior to the occurrence of an Event of Default, the conversion price shall not be less than 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).

Pursuant to the terms and conditions of the 2023 Convertible Notes, the Company was to 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. As of June 30, 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 the Company’s 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 has triggered multiple Events of Default under the SPA and 2023 Convertible Notes.

The Events 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 the $16,000,000 outstanding principal amount, accrued interest, and $250,000 for every Event of Default that has occurred and reoccurred, 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 Floor Price. The Mandatory Premium Amount as of June 30, 2024 was approximately $22,862,667.

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.

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 June 30, 2024. The Company recorded $1,533,760 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 June 30, 2024.

Short-term Borrowings

On April 12, 2024, the Company issued a short-term loan in the principal amount of $325,000, which resulted in net cash proceeds of $250,000. The loan had a maturity date of June 21, 2024. The Company used the net proceeds towards working capital. The principal amount of the loan and the $10,000 referral fee incurred to raise the capital was due and outstanding at June 30, 2024.

Interest Expense

Interest expense for the periods were as follows:


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
2023 Convertible Notes interest expense	$	720,000	$	—	$	1,440,000	$	—
Interest on convertible notes extinguished in November 2023		—		542,297		—		1,078,634
Interest on short-term borrowings		85,000		—		85,000		—
Other		3,391		—		6,782		—
Total interest expense	$	808,391	$	542,297	$	1,531,782	$	1,078,634

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, combined 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:


	June 30, 2024		December 31, 2023
Kips Bay 2023 Note - warrants	$	1,387,459	$	1,441,346
Cyber One 2023 Note - warrants		1,387,459		1,441,346
Total derivative liabilities	$	2,774,918	$	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 June 30, 2024 and 2023, there was a gain of $38,914 and $185,011, respectively, and for the six months ended June 30, 2024 and 2023 there was a gain of $107,774 and $185,011, 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		23,037
Asset retirement obligations- June 30, 2024	$	781,410

Note 10 – Leases

As of June 30, 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.


	June 30, 2024			June 30, 2023
Weighted-average discount rate
Operating leases		26.80	%		10.00	%

Weighted-average remaining lease term (years)
Operating leases		3.63			2.34

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

         
        Three Months Ended

        Six Months Ended

         
        June 30, 2024

        June 30, 2023

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CYRB Cyber App Solutions Corporation (PK)