Sky Quarry Inc

Condensed Consolidated Balance Sheets

As of September 30, 2024 and December 31, 2023 (Unaudited)

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

See accompanying Notes to Condensed Consolidated Financial Statements.

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

Condensed Consolidated Statements of Shareholders’ Equity

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Nine Months Ended September 30, 2024 and 2023

**1.**NATURE OF OPERATIONS

Sky Quarry Inc. and its subsidiaries (“Sky Quarry”, “SQI” or the “Company”) are, collectively, an oil production, refining, and a development-stage environmental remediation company formed to deploy technologies to facilitate the recycling of waste asphalt shingles and remediation of oil-saturated soils. The recycling and production of oil from asphalt shingles is expected to reduce the dependence on landfills for the disposal of waste and to also reduce dependence on foreign and domestic virgin crude oil extraction for industrial uses.

**2.**BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements include the accounts of Sky Quarry and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

These accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and are not audited. Certain information and footnote disclosures that are usually included in the financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been either condensed or omitted in accordance with SEC rules and regulations. The accompanying condensed consolidated financial statements contain all the adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s financial position as of September 30, 2024 and December 31, 2023, the results of operations for the three and nine months ended September 30, 2024 and 2023, and the cash flows for the nine months ended September 30, 2024 and 2023. The results of operations for the three and nine months ended September 30, 2024 and 2023 are not necessarily indicative of the results for a full-year period. These interim unaudited condensed consolidated financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 1-K for the year ended December 31, 2023 filed with the SEC.

Significant Accounting Policies

The significant accounting policies were described in Note 1 to the audited consolidated financial statements included in the Company’s annual report on Form 1-K for the year ended December 31, 2023. There have been no changes to these policies during the quarter ended September 30, 2024 that are of significance or potential significant to the Company.

**3.**GOING CONCERN

These condensed consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which assumes that the Company will be able to realize its assets and satisfy its liabilities in the normal course of business for the foreseeable future. Management is aware, in making its going concern assessment, of material uncertainties related to events and conditions that may cast significant doubt upon the Company’s ability to continue as a going concern. As of September 30, 2024, the Company has an accumulated deficit of $19,764,071. During the nine months ended September 30, 2024, the Company had negative cash flows from operations of $4,616,746. The Company has received financing and capital through private placements of $3,217,912 of debt capital and $3,365,655 of equity capital during the nine months ended September 30, 2024.

Without additional financing, the Company does not have sufficient operating cash flows to pay for its expenditures and settle its obligations as they mature. Subsequent to September 30, 2024, there is uncertainty in meeting these obligations. The Company does have to raise additional capital in the form of debt, equity and/or warrant exercise proceeds, or a combination thereof, to fund future capital expenditures, retire maturing debt obligations and any possible acquisitions. The Company’s current plan includes closely monitoring its growth and operating expenses, refinancing its current debt with longer term debt with amortization schedules that decrease monthly debt service obligations. These actions are intended to mitigate the going concern uncertainties and support the Company’s growth plans in commercializing its extraction technology. There is no assurance, however, that the Company will be successful in these efforts.

Management believes that the implementation of its plans will allow the Company to continue as a going concern. Investors are encouraged to review the financial statements and related disclosures for a comprehensive understanding of the Company’s financial position. Refer to the subsequent event Note 22 for the additional details on the capital raised from the Company’s Reg A Offering.

The condensed consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary were the going concern assumption inappropriate. These adjustments could be material.

**4.**INVENTORY

Inventory consists primarily of raw crude, chemicals and finished goods. Inventory consisted of the following:

**5.**MINERAL LEASES

Through its acquisition of 2020 Utah, the Company indirectly acquired certain mineral rights under three mineral leases entitled “Utah State Mineral Lease for Bituminous-Asphaltic Sands” between the State of Utah’s School and Institutional Trust Land Administration (“SITLA”), as lessor, and 2020 Utah, as lessee, covering certain lands in the PR Spring Area largely adjacent to each other (the “SITLA Leases”). The SITLA Mineral Lease consisted of the following and is included in oil and gas properties in the Condensed Consolidated Balance Sheet.

During the nine months ending September 30, 2024 and year ending December 31, 2023, the Company did not record any amortization of the lease rights as operations have not yet commenced.

The Company (through its subsidiary) holds mineral leases (or the operating rights under leases) covering approximately 5,930.3 net acres within the State of Utah. Terms of the SITLA Leases are set forth in the table below.

Notes:

1. Leases may be extended past expiry date by continued payment of annual rent and annual advance minimum royalty.

2. Annual rent may be credited against production royalties payable during the year.

3. Annual advance minimum royalty may be credited against production royalties payable during the year.

4. The production royalty is payable on the market price of products produced from the leased substances, without deduction of costs for mining, overhead, labor, distribution or general and administrative activities.

**6.**PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment is comprised of the following:

PR Spring Property, plant and equipment consists of research and development equipment and mining equipment. Eagle Springs Refinery consists of tanks, buildings, refining processing equipment, shop, lab and equipment. Each class of property, plant and equipment is estimated to have a useful life of 5 years and are being amortized over a straight-line basis.

Depreciation and amortization expense totaled $219,746 and $589,267 for the three and nine months ended September 30, 2024, respectively, and $157,470 and $308,875 for the three and nine months ended September 30, 2023, respectively.

**7.**OIL AND GAS PROPERTIES

Oil and gas properties are comprised of the following:

Oil and gas properties include undeveloped lands, unproved properties and seismic costs where management has not fully evaluated for technical feasibility and commercial viability.

Additions during the period ended September 30, 2024, relate to development of the land, extraction facility and mine at PR Spring. Disposals during the period ended September 30, 2023 related to the sale of non-utilized equipment at PR Spring.

**8.**RIGHT-OF-USE ASSET AND LEASE LIABILITY

The components of lease expense, associated with the Company’s leasing of office space, consisted of amortization of the right-of-use asset of $17,927 and $52,455, respectively, during the three and nine months ended September 30, 2024, and accretion of the lease liability of $3,573 and $12,046, respectively, for the three and nine months ended September 30, 2024. The components of lease expense consisted of amortization of the right-of-use asset of $16,637 and $21,557, respectively, during the three and nine months ended September 30, 2023, and accretion of the lease liability of $4,863 and $11,972, respectively, for the three and nine months ended September 30, 2023.

The weighted average remaining lease term in years was 1.67 and 2.42 as of September 30, 2024 and December 31, 2023, respectively. The weighted average discount rate as of both September 30, 2024, and December 31, 2023, was 10.25%.

Amortization expense on operating leases is included as part of general and administrative expenses on the income statement. The total lease expense recognized on the income statement is the sum of the accretion of the lease liability and amortization expense. This total expense reflects the cost of using the leased asset over the lease term.

The following table reconciles the undiscounted future cash flows for the next five years and thereafter to the operating lease liabilities recorded within the condensed consolidated balance sheet as of September 30, 2024:

**9.**GOODWILL

Goodwill is derived from the acquisition of Foreland in 2022. Goodwill recognized from the acquisition was $3,209,003.

**10.**ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

**11.**WARRANT LIABILITY

The details of warrant liability transactions for the nine months ended September 30, 2024 and year ended December 31, 2023 are as follows:

On August 27, 2024, as consideration for the reduction of weekly payments to certain lenders during the Company’s Reg A Offering, the Company issued common stock, warrants to purchase (“Purchase Warrant”) up to an aggregate of 625,000 shares of the Company’s common stock (the “Common Warrants”) at $4.50 per share.

The Purchase Warrant provides for a value calculation for the Purchase Warrant using the Black Scholes model in the event of certain fundamental transactions. The fair value calculation provides for a floor on the volatility amount utilized in the value calculation at 100% or greater. The Company has determined this provision introduces leverage to the holders of the Purchase Warrant that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own equity shares. Therefore, pursuant to ASC 815, the Company has classified the Purchase Warrant as a liability in its condensed consolidated balance sheet. The classification of the Purchase Warrant, including whether the Purchase Warrant should be recorded as a liability or as equity, is evaluated at the end of each reporting period with changes in the fair value reported in other income (expense) in the condensed consolidated statements of operations and comprehensive loss. The Purchase Warrant was initially recorded at a fair value at $1,936,937 at the grant date and is re-valued at each reporting date. Upon the issuance of warrants, the fair value of the Purchase Warrant liability was recorded as a loss on debt modification.

During the three and nine months ended September 30, 2024, the Company recognized change in fair value of the warrant liability of $0. As of December 31, 2023, the fair value of the warrant liability was $0.

All changes in the fair value of the warrant liabilities are recognized as a change in fair value of warrant liability in the Company’s consolidated statements of operations until they are either exercised or expire.

The warrant liabilities for the Common Warrants were valued using a Black Scholes pricing model with the following weighted average assumptions:

**12.**LINES OF CREDIT

On December 21, 2022, Foreland entered into an Invoice Purchase and Security Agreement (the “IPSA”) and inventory finance rider (the “Rider”) with Alterna Capital Solutions, LLC (“Alterna”). Under the terms of the IPSA, Alterna provides an advance of 85% of the amount of the purchased receivables to Foreland and during the time the receivables remain outstanding, is granted a continuing senior security interest in all assets of Foreland, to the extent and in the amount of the purchased receivables. The Rider provides a standby security for certain letters of credit in place with certain crude oil suppliers to Foreland. The letters of credit are adjusted periodically to correlate with the price and quantities of purchased heavy crude oil. The Agreement is senior secured by the sale-ready and pre-sale petroleum product inventory on hand at Foreland and matures on December 21, 2024. Funds drawn under the agreement accrue interest at a per annum rate equal to the sum of the Wall Street Journal Prime Rate plus 2.25%. In addition, a collateral monitoring fee of 0.17% on outstanding advances made is due monthly. Repayment of advances shall be payable from collection of Foreland accounts receivable, including those accounts arising from the sale of the inventory to its customers.

**13.**DEBT

Debt consisted of the following:

As of September 30, 2024, the maturity date of debt is as follows:

The debt terms related to private lenders are as follows:

On April 30, 2024, Foreland entered into a business loan and security agreement with Lendspark Corporation for a loan in the amount of $1,500,000 (Lendspark #3). The loan is repaid in 44 equal weekly payments of $45,000 for total repayment of $1,980,000. The loan is secured by all of the assets of Foreland. Subsequent to April 30, 2024, as inducement to a reduction in payment the lender was issued 350,000 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $4.50 per share for a period of five years from the issuance date of the warrant. The warrants were classified as equity and the fair value of the warrants were recorded separately as debt discount and amortized over the term of the debt.

On August 27, 2024, the Company entered into a promissory note for $1,200,000 from private lender A. The note is secured by the 2020 Resources LLC’s Solar Turbine, bears interest at 10% per month, with a minimum interest of $150,000, and matured on October 14, 2024. Repayment of the note is based on proceeds from the Reg A Offering with distribution of escrow funds of 100 percent (100%) of the outstanding loan amount to private Lender A. As inducement for advancing the note, the lender was issued 750,000 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $4.50 per share for a period of five years from the issuance date of the warrant. The warrants were classified as equity and the fair value of the warrants were recorded separately as debt discount and amortized over the term of the debt. On October 10, 2024, the note was repaid in full.

On May 16, 2024, Foreland entered into a business loan and security agreement with Lendspark Corporation for a loan in the amount of $900,000 (Lendspark #4). The loan is repaid in 40 equal weekly payments of $30,750 for total repayment of $1,215,000. The loan is secured by all of the assets of Foreland. As inducement for advancing the note, the lender was issued 100,000 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $4.50 per share for a period of three years from the issuance date of the warrant. The warrants were classified as equity and the fair value of the warrants were recorded separately as debt discount and amortized over the term of the debt.

On January 23, 2023, the Company entered into a promissory note for $100,000 from private lender B. The note is unsecured, bears interest at 20% per annum and matured on March 23, 2023. As inducement for advancing the note, the lender was issued 6,667 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $6.00 per share for a period of two years from the issuance date of the warrant. The warrants were classified as equity and the fair value of the warrants were recorded separately as debt discount and amortized over the term of the debt. The loan has been repaid as of October 24, 2024.

On June 14, 2023, Foreland entered into a business loan and security agreement with Lendspark Corporation for a loan in the amount of $1,500,000 (Lendspark #1). The loan is repaid in 44 equal weekly payments of $45,000 for total repayment of $1,980,000. The loan is secured by all of the assets of Foreland. As of December 31, 2023, there are unamortized debt issuance costs of $5,764. On April 19, 2024 the loan was repaid in full.

On February 21, 2023, the Company entered into a binding term sheet with private lender A for a convertible loan of $1,000,000 to be personally guaranteed and secured by members of the Board and received a deposit of $400,000. During the course of loan document preparation, it was determined that certain terms agreed to in the term sheet could not be completed. On April 6, 2023, the parties amended the terms of the term sheet by way of a debt satisfaction agreement under which the unsecured deposit, plus accrued interest calculated at 20% per annum, would be repaid on or before May 21, 2023, after which amounts unpaid would incur interest at the rate of 30% per annum. As inducement to enter into the debt satisfaction agreement, the lender was issued 666,667 common share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $2.70 per share for a period of five years from the issuance date. The warrants were classified as equity and the fair value of the warrants was recorded separately as debt discount and amortized over the term of the debt. On July 18, 2024, the loan was repaid in full.

On June 20, 2024 the Company entered into a promissory note for $800,000 from private lender A. The note is secured by the 2020 Resources LLC’s Solar Turbine, bears interest at 10% per month, with a minimum interest of $100,000, and matured on August 20, 2024. Repayment of the note was to be paid from the proceeds of the Warrant Offering with distribution of escrow funds of sixty percent (60%) to private Lender A. As inducement for advancing the note, the lender was issued 200,000 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $2.70 per share for a period of five years from the issuance date. The warrants were classified as equity and the fair value of the warrants were recorded separately as debt discount and amortized over the term of the debt. On July 18, 2024, the note was repaid in full.

On June 13, 2024 the Company entered into a promissory note for $122,500 from private lender C. The note is unsecured, carries an original issue discount (OID) of $22,500, providing the initial purchase price of $100,000 and matured on August 12, 2024. Repayment of the note was to be made on the earlier of (a) sixty days; or (b) the date that the Company receives a minimum of $1,000,000 in funding from sale of convertible notes, sale of equipment, or proceeds from the Warrant Offering. As inducement for advancing the note, the lender was issued 50,000 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $4.50 per share for a period of five years from the issuance date of the warrant. The warrants were classified as equity and the fair value of the warrants were recorded separately as debt discount and amortized over the term of the debt. On July 22, 2024, the note was repaid in full.

On June 3, 2024, Foreland entered into a business loan and security agreement with Clearview Funding Group LLC. for a loan in the amount of $105,000. The loan is repaid in 8 equal weekly payments of $17,063 for total repayment of $136,000. The loan is secured by the 2020 Resources Solar Turbine. As inducement for advancing the note, the lender was issued 100,000 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $4.50 per share for a period of five years from the issuance date of the warrant. The warrants were classified as equity and the fair value of the warrants were recorded separately as debt discount and amortized over the term of the debt. On July 29, 2024 the note was repaid in full.

LIABILITY FOR SALE OF FUTURE REVENUES

As of September 30, 2024, the Company is party to seven agreements related to the sale of future revenues with Libertas Funding, LLC (“Libertas”), a total of five agreements remain outstanding and two agreements have been terminated. The agreements, summarized below, contain substantially the same terms and conditions and grant a continuing security interest in all assets of Foreland, to the extent and in the amount of the purchased receivables.

Interest and discounts related to the agreements are amortized to expense over the estimated term of the agreements, which is anticipated to be between 10 to 12 months from the funding of each agreement. During the nine months ended September 30, 2024, the Company amortized an aggregate of $3,805,971 of discount, respectively, to interest expense. Unamortized interest and discounts in the aggregate is $1,524,807 as of September 30, 2024. The interest expense is recorded using the effective interest method. Subsequent to September 30, 2024, as inducement to a reduction in payment the lender was issued 375,000 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $4.50 per share for a period of five years from the issuance date of the warrant. The warrants were classified as equity and the fair value of the warrants were recorded separately as debt discount and amortized over the term of the debt.

On January 18, 2024, Foreland entered into an agreement of sale of future receivables with Libertas for the sale of $4,224,000 of future sales receipts for gross proceeds of $3,300,000, of which $884,667 was used to pay off the Libertas September 14, 2023 agreement. Under the agreement, Foreland will make weekly delivery of receivables not less than $91,429 until the amount sold is extinguished. As of September 30, 2024, a total of $2,937,305, exclusive of debt discounts, remained outstanding.

On January 11, 2024, Foreland entered into an agreement of sale of future receivables with Libertas for the sale of $2,632,852 of future sales receipts for gross proceeds of $2,056,916, of which $796,916 and $1,260,000 was used to pay off the Libertas May 17, 2023 and June 30, 2023 agreements respectively. Under the agreement, Foreland will make weekly delivery of receivables not less than $56,988 until the amount sold is extinguished. As of September 30, 2024, a total of $1,723,582, exclusive of debt discounts, remained outstanding.

On February 19, 2024, Foreland entered into an agreement of sale of future receivables with Libertas for the sale of $1,386,000 of future sales receipts for gross proceeds of $1,018,500. Under the agreement, Foreland will make weekly delivery of receivables not less than $30,000 until the amount sold is extinguished. As of September 30, 2024, a total of $916,140, exclusive of debt discounts, remained outstanding.

On October 25, 2023, Foreland entered into an agreement of sale of future receivables with Libertas for the sale of $1,731,660 of future sales receipts for gross proceeds of $1,302,000. Under the agreement, Foreland will make weekly delivery of receivables not less than $37,482 until the amount sold is extinguished. As of September 30, 2024, a total of $626,014, exclusive of debt discounts, remained outstanding.

On May 16, 2024, Foreland entered into an agreement of sale of future receivables with Libertas for the sale of $665,000 of future sales receipts for gross proceeds of $500,000. Under the agreement, Foreland will make weekly delivery of receivables not less than $15,833 until the amount sold is extinguished. As inducement for advancing the note, the lender was issued 375,000 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $4.50 per share for a period of five years from the issuance date of the warrant. The warrants were classified as equity and the fair value of the warrants were recorded separately as debt discount and amortized over the term of the debt. As of September 30, 2024, a total of $127,817, exclusive of debt discounts, remained outstanding.

On June 30, 2023, Foreland entered into an agreement of sale of future receivables with Libertas for the sale of $2,520,000 of future sales receipts with proceeds of $2,000,000 used to pay off Libertas agreement dated January 17, 2023. Under the agreement, Foreland will make weekly delivery of receivables not less than $50,000 until the amount sold is extinguished. As of September 30, 2024, a total of $0, exclusive of debt discounts, remained outstanding.

On September 14, 2023, Foreland entered into an agreement of sale of future receivables with Libertas for the sale of $1,463,000 of future sales receipts for gross proceeds of $1,100,000. Under the agreement, Foreland will make weekly delivery of receivables not less than $31,667 until the amount sold is extinguished. As of September 30, 2024, a total of $0, exclusive of debt discounts, remained outstanding.

On May 17, 2023, Foreland entered into an agreement of sale of future receivables with Libertas for the sale of $2,560,250 of future sales receipts for gross proceeds of $1,925,000, of which $575,357 was applied to pay off Libertas agreement dated February 21, 2023. Under the agreement, Foreland will make weekly delivery of receivables not less than $55,417 until the amount sold is extinguished. As of September 30, 2024, a total of $0 exclusive of debt discounts, remained outstanding.

During the period ended March 31, 2024, the Company refinanced 3 agreements with Libertas. Management determined that the transaction should be accounted for as a debt extinguishment. Accordingly, the Company recognized a loss on extinguishment related to loan origination fees of $108,887, which is recorded on the statement of operations and comprehensive loss for the period ended September 30, 2024.

As of September 30, 2024, the Company had the following unamortized debt discounts related to the Libertas agreements:

On April 19, 2024, Foreland entered into an agreement of sale of future receivables with Parkside Funding for the sale of $552,000 of future sales receipts for gross proceeds of $400,000. Under the agreement, Foreland will make weekly delivery of receivables not less than $27,600 until the amount sold is extinguished.

On April 19, 2024, Foreland entered into an agreement of sale of future receivables with UFS West for the sale of $552,000 of future sales receipts for gross proceeds of $400,000. Under the agreement, Foreland will make weekly delivery of receivables not less than $27,600 until the amount sold is extinguished.

**14.**CONVERTIBLE DEBENTURES

On November 24, 2023, the Company issued a promissory note in the amount of $2,000,000, convertible at the election of the holder into shares of common stock at an exercise price of $1.60 per share prior to the reverse split and $4.80 post reverse split, with a maturity date of November 24, 2026. The note has a term of thirty-six months and bears interest at a rate of 9% per annum payable semi-annually, with any outstanding interest and principal due on maturity. On April 30, 2024 the note holder elected to convert the accumulated interest as of December 31, 2023 totaling $18,247 to 3,802 shares of common stock, and on June 30, 2024 elected to convert the accumulated interest from January 1, 2024 to June 30, 2024 totaling $89,260 to 18,596 shares of common stock.

**15.**INCOME TAXES

As of September 30, 2024, the Company had U.S. federal net operating loss carryforwards.

The Company considered all positive and negative evidence. Given the caution of Subtopic 30-21 regarding the difficulty in forming a conclusion that a valuation allowance is not needed in the case of cumulative losses, it is the Company’s conclusion that it is more likely than not that the Company’s existing deferred tax assets in the U.S. will not be realized and that a valuation allowance is necessary as of September 30, 2024. Accordingly, the Company has recorded a full valuation allowance of in the U.S. The Company has evaluated all of the negative and positive evidence as of September 30, 2024, and concludes that due to the Company being in a 3-year cumulative loss position, it is more likely than not that the net Canadian deferred tax assets will be not realized. As such, the Company has recorded and maintained a full valuation allowance in Canada.

The Company has not performed a Section 382 study to determine whether it had experienced a change in ownership and, if so, whether the tax attributes (net operating losses or credits) were impaired. Under Section 382 of the Internal Revenue Code of 1986, as amended, the Company’s ability to utilize net operating loss or other tax attributes, such as research tax credits, in any taxable year may be limited if the Company has experienced an “ownership change.” Generally, a Section 382 ownership change occurs if there is a cumulative increase of more than 50 percentage points in the stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock within a specified testing period. Similar rules may apply under state tax laws.

As of September 30, 2024, and December 31, 2023, the Company does not have any unrecognized tax benefits. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2024 and December 31, 2023, the Company had no accrued interest or penalties related to uncertain tax positions.

**16.**NET LOSS PER COMMON SHARE

Net loss per common share is computed based on the weighted average number of common shares outstanding and, when appropriate, dilutive potential common stock outstanding during the period. Stock options, convertible preferred stock and warrants are considered to be potential common stock. The computation of diluted net loss per common share does not assume exercise or conversion of securities that would have an anti-dilutive effect.

Basic net loss per common share is the amount of net loss for the period available to each weighted average share of common stock outstanding during the reporting period. Diluted net loss per common share is the amount of net loss for the period available to each weighted average share of common stock outstanding during the reporting period and to each share of potential common stock outstanding during the period, unless inclusion of potential common stock would have an anti-dilutive effect.

All outstanding options, warrants and convertible preferred stock for common shares are not included in the computation of diluted net loss per common share because they are anti-dilutive, which for the three months ended September 30, 2024 and 2023, totaled 7,062,242 and 6,949,258, respectively, and for the nine months ended September 30, 2024 and 2023, totaled 7,062,242 and 6,949,258, respectively.

**17.**EQUITY

During the three and nine months ended September 30, 2024, the Company issued 838,123 and 1,123,421 shares of common stock, respectively, for acceptance of share subscriptions and conversion of debt, amounting to $2,371,245 and $3,206,711, net of offering costs of $1,399,765 and $1,720,619, respectively.

During the three and nine months ended September 30, 2023, the Company issued 33,334 and 94,723 shares of common stock, respectively, for acceptance of share subscriptions and conversion of debt, amounting to $0 and $116,886, net of offering costs of $0 and $0, respectively.

During the three and nine months ended September 30, 2024, the Company issued 0 and 123,200 shares of series B preferred stock, respectively, for acceptance of share subscriptions amounting to $0 and $267,126, net of offering costs of $0 and $40,874, respectively. There were no issuance of series B preferred stock for the three and nine months ended September 30, 2023.

For the three and nine months ended September 30, 2024 the Company incurred equity issuance costs of $1,399,765 and $1,761,493, respectively. For the three and nine months ended September 30, 2023 the Company incurred equity issuance costs of $0 and $0, respectively. These costs consisted of legal, marketing, accounting, printing, administration, broker-dealer, escrow and filing fees directly related to their respective offerings.

On June 14, 2024, the SEC qualified an offering of securities submitted by the Company under Regulation A (the “2024 Reg A Offering”). Under the 2024 Reg A Offering, the Company proposed to sell up to 3,333,333 shares (“Shares”) at a price of $6.00 per Share, and up to 4,852,224 shares of common stock underlying warrants (“Warrant”) issued in the Company’s 2021 Reg A Offering, exercisable at a price of $4.50 per Warrant.

On September 29, 2021, the SEC qualified an offering of securities submitted by the Company under Regulation A (the “2021 Reg A Offering”). Under the 2021 Reg A Offering, the Company proposed to sell up to 5 million units (“Units”) at a price of $3.75 per Unit (as adjusted for the Company’s 1 for 3 reverse split completed in April 2024). Each Unit was comprised of one share of common stock (an “Offering Share”) and one warrant to purchase an additional share (an “Offering Warrant”) at an exercise price of $7.50 per share for a period of three years from the date of issuance of the warrant. The Company reserved from treasury a maximum of 5,000,000 Shares issuable under the 2021 Reg A Offering, assuming full subscription, and a maximum of 1,666,667 shares issuable on exercise of the Offering Warrants (“Warrant Shares”) issued in connection with the 2021 Reg A Offering, assuming full subscription and full exercise. The Company did not issue Unit certificates but instead issued Offering Shares and Offering Warrants in the number of Units subscribed for to subscribers under the 2021 Reg A Offering. The Reg A Offering closed on September 29, 2022, with total gross proceeds of $18,195,838.

The table below sets forth the shares reserved as of September 30, 2024, by the Company for future potential issuance.

As of September 30, 2024, the Company had issued and outstanding a total of 5,684,788 warrants each to purchase one share of common stock, exercisable at a range from $2.70 to $7.50 per share for cash and a range length of time to exercise from 0.5 to 5 years.

As of September 30, 2024 and December 31, 2023, the Company has share purchase warrants issued and outstanding of 5,684,788 and 5,599,079, respectively.

On June 14, 2024, the Company entered into an engagement agreement with Digital Offering, LLC to provide broker-dealer services in connection with the 2024 Reg A Offering. Under the terms of the engagement letter, the Company will issue a warrant to purchase one share of the Company’s common stock (an “Agent Warrant”) equal to 2.30% of the total Shares sold to investors under the offering at an exercise price of $7.50 per share and subject to transfer, lock-up and exercise restrictions as set forth in Rule 5110 of the Financial Industry Regulatory Authority, Inc (“FINRA”), as applicable. The 2024 Reg A Offering closed on October 9, 2024 and 25,714 Agent Warrants were issued to Digital Offering, LLC in connection with its services under the 2024 Reg A Offering.

**18.**STOCK OPTION PLAN

On March 27, 2020, the Company adopted an incentive stock option plan (the “Plan”). The Plan allows the Board of Directors of the Company to grant options to acquire shares of common stock of the Company to directors, officers, key employees and consultants. The option price, term and vesting periods are determined at the discretion of the Board of Directors, subject to certain restrictions as required by the policies of Section 422 of the Internal Revenue Code. The Plan is a fixed number plan with a maximum of 1,666,667 shares of common stock reserved for issuance under the Plan.

On September 7, 2024 the Company amended the 2020 Stock Plan to increase the number of shares of common stock of the Corporation available for grant under the plan from 1,666,666 (as adjusted for the 1 for 3 reverse split) to 4,000,000.

The table below sets forth share options outstanding as of September 30, 2023.

During the three and nine months ended September 30, 2024, the Company recorded share-based compensation expense of $74,604 and $534,572, respectively. During the three and nine months ended September 30, 2023, the Company recorded share-based compensation expense of $102,571 and $325,887, respectively.

As of September 30, 2024, the Company had $437,527 of unrecognized share-based compensation costs related to non-vested awards that will be recognized over a weighted average period of 3 years. As of September 30, 2024,211,111 options have vested, and are exercisable. The options issued during 2022 vest equally over 3 years commencing on the first anniversary of the grant date. Of the options issued during 2023,31,111 vested immediately on grant date, with the remaining options vesting equally over 3 years commencing on the first anniversary of the grant date.

The following sets forth the outstanding common share options and related activity for the period ended September 30, 2024:

**19.**RELATED PARTY TRANSACTIONS

Related party transactions in these consolidated financial statements are as follows:

On September 16, 2020, the Company issued a promissory note to JPMorgan, in the amount of $450,000. Portions of the note were converted from time to time into Shares until paid in full. JPMorgan is a related party as a significant shareholder holding directly and indirectly, as of September 30, 2024, 2,249,882 common shares (12.89%), 25,000 common share purchase warrants, and 1 preferred share of the Company.

On June 21, 2021, stockholders of the Company unanimously consented to terminate a Stockholders Agreement entered into by all of the stockholders and the Company on September 24, 2020, and approved a governance agreement (the “JPM Agreement”) between the Company and JPMorgan, which grants to JPMorgan the following rights:

·a consent right with respect to certain business transaction matters, including: (a) material changes to the nature of the Company’s business, (b) a grant of certain stock options or restricted stock, (c) the Company’s entry into certain employment or compensation agreements, (d) the incurrence by the Company of more than $500,000 of debt, (e) the Company’s entry into a related party agreement, (f) a sale transaction, (g) a loan by the Company in excess of $500,000, (h) settlement of a lawsuit or other dispute in excess of $500,000 or (i) any investment by the Company in excess of $500,000;

·Board of Director observation rights;

·the right to receive certain quarterly and annual financial statements of the Company; and

·certain inspection rights so long as JPMorgan owns at least 10% of the Company’s outstanding shares of common stock.

For the three and nine months ended September 30, 2024, the Company paid sitting and committee fees of $45,000 and $112,750, respectively, to members of the board of directors.

For the three and nine months ended September 30, 2023, the Company paid sitting and committee fees of $46,250 and $120,250, respectively, to members of the board of directors.

**20.**GENERAL AND ADMINISTRATIVE EXPENSES

During the three months and nine months ended September 30, 2024 and 2023, general and administrative expenses consisted of the following**:**

**21.**COMMITMENTS AND CONTINGENCIES

As of September 30, 2024, the Company has the following commitments for two leased land rights of way rentals in Nye County, Nevada, totaling approximately 40 acres:

**22.**SUBSEQUENT EVENTS

Management performed a review and determined that, except as disclosed elsewhere herein and below, no material events occurred subsequent from September 30, 2024 to November 14, 2024, the date of presentation of these financial statements.

On October 8, 2024, the Company entered into a promissory note for $165,000 from private lender. The note is unsecured, bears interest at a set amount of $15,000, and matured on October 18, 2024, and was paid in full on October 10, 2024. As consideration for advancing the note, the lender was issued 15,000 share purchase warrants, each warrant granting the holder the right to purchase one common share of the Company at a price of $4.50 per share for a period of three years from the date of issuance.

On October 9, 2024 the Company closed its Reg A Offering of its common stock, with 1,118,005 Common shares for gross proceeds of $6,708,030. Fees associated with this closing amounted to $983,248 for net proceeds of $5,724,782 to the Company. A total of $249,008 in holdback funds related to the Reg A Offering which will be released to the Company in January 2025.

On October 17, 2024, the Company entered into an investor relations services agreement with an investor relations company (the “IR company”). As consideration for the performance of the services, upon the date of the execution and delivery of the agreement the Company shall pay to the IR Company the sum of $300,000. Pursuant to the agreement, the IR company has agreed to communicate information about the Company to the financial community including, but not limited to, creating Company profiles, media distribution and building a digital community with respect to the Company. The IR company is arm's-length to the Company and neither IR Company nor its principals hold an equity interest in the Company's securities, either directly or indirectly, or the right to acquire any equity interest.

On October 11, 2024, the Company issued a $216,000 payment to Parkside Funding LLC, to fully extinguish the outstanding loan amount.

On October 11, 2024, the Company issued a $216,000 payment to UFS West LLC, to fully extinguish the outstanding loan amount.