Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
The following discussion and analysis summarizes
the significant factors affecting our operating results, financial condition, liquidity and cash flows as of and for the periods presented
below. The following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto
included elsewhere in this Report. The discussion contains forward-looking statements that are based on the beliefs of management, as
well as assumptions made by, and information currently available to, management. Actual results could differ materially from those discussed
in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Report,
particularly in the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
Unless the context otherwise requires, references
in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we”,
“us”, “our”, and the “Company” are intended to refer to (i) following the Business Combination (as
defined below), the business and operations of New Era Energy & Digital, Inc. and its consolidated subsidiaries, and (ii) prior to
the Business Combination, New Era Helium, Inc. (the predecessor entity in existence prior to the consummation of the Business Combination)
and its consolidated subsidiaries.
Business Overview and Strategy
New Era Energy & Digital, Inc. was initially
incorporated in the State of Delaware on November 5, 2020 under the name Roth CH Acquisition V Co., which was formed for the purpose of
entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business
combination with one or more target businesses. Roth CH Acquisition V Co. consummated an initial public offering, after which its securities
began trading on the Nasdaq on December 1, 2021. In December 2024, Roth CH Acquisition V Co. merged with and into Roth CH V Holdings,
Inc., a Nevada corporation and a wholly owned subsidiary of Roth CH Acquisition V Co., formed on June 24, 2024, for the sole purpose of
reincorporating Roth CH Acquisition V Co. into the State of Nevada, with Roth CH V Holdings, Inc. surviving such merger.
Immediately following the reincorporation, the
Company completed its business combination (the “Business Combination”) with New Era Helium Corp., a Nevada corporation, pursuant
to that certain Business Combination Agreement and Plan of Reorganization, dated as of January 3, 2024 (as amended on June 5, 2024, August
8, 2024, September 11, 2024, and September 30, 2024, the “BCA”), by and among New Era Helium Corp., Roth CH Acquisition V
Co., Roth CH V Holdings, Inc., and Roth CH V Merger Sub Corp., a Delaware corporation and a wholly-owned subsidiary of Roth CH Acquisition
V Co. The Company subsequently changed its name to “New Era Helium, Inc.” and later to “New Era Energy & Digital,
Inc.”
We are a vertically-integrated developer and operator
of next-generation digital infrastructure and integrated power assets accelerating speed-to-power for advanced AI hyperscalers. In the
second half of 2025, we executed a strategic pivot from our legacy natural gas operations to focus exclusively on developing data center
campuses where power, land, and connectivity can be assembled and delivered on accelerated timelines. Our mission is to deliver speed-to-power
by converging behind-the-meter power flexibility with data center development capabilities. Our primary strategy is to aggregate and entitle
“Powered Land” and to develop “Powered Shells” and build-to-suit assets in power-advantaged markets, beginning
with the Permian Basin, which benefits from energy abundance, regulatory clarity, and fiber connectivity.
We are initially focused on our flagship project,
TCDC, a 438-acre campus in Ector County, Texas, designed to support over 1 GW of potential compute capacity through phased development,
with projected power delivery beginning as early as the end of 2027. We believe our proximity to major natural gas pipelines, fiber networks
and CO2 pipelines will provide us with the ability to serve our customers lower transmission costs and best-in-class uptime
for purposes of reliably generating AI compute to capitalize on the AI revolution. We intend to execute through partnering across engineering,
construction, procurement, power generation and sustainability with a world-class developer partner to provide our hyperscaler tenants
with certainty of execution and speed-to-power.
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Our principal executive offices are located at
200 N. Loraine Street, Suite 1324, Midland, TX 79701, and our phone number is (432) 695-6997. Our website is www.newerainfra.ai.
Information found on or accessible through our website is not incorporated by reference into this prospectus and should not be considered
part of this prospectus.
Recent Developments
SharonAI Purchase Agreement
On January 21, 2025, we entered into a Limited
Liability Company Agreement (the “LLC Agreement”) with SharonAI for the creation of TCDC as a joint venture of the Company
and SharonAI (the “Joint Venture”). Pursuant to the terms of the LLC Agreement, the purpose of the Joint Venture was to engage
in (i) the purchase, building, and development of a site in Texas with an initial 250 MW gas-fired power plant and corresponding data
center, (ii) the operation of this site, and (iii) any and all lawful activities necessary or incidental thereto.
The Company made a $75,000 contribution to the Joint Venture on April
16, 2025. On July 16, 2025, the Company made an additional contribution of $750,000. On September 26, 2025, the Company made an additional
contribution of $25,000. On November 21, 2025, the Company made an additional contribution of $12,500. For the year ended December 31,
2025, the Company recognized an equity loss of $119,236, representing its 50% share of the joint venture’s net loss of $238,473.
The carrying amount of the investment as of December 31, 2025, was $3,631,005.
On January 16, 2026, we acquired the remaining 50% member interest
in TCDC, from SharonAI, pursuant to the Membership Interest Purchase Agreement (the “SharonAI Purchase Agreement”), dated
as of January 16, 2026, by and between the Company and SharonAI, for an aggregate purchase price of $70 million, of which (a) $10 million
is payable in cash, (b) $10 million is payable in equity securities to be issued in connection with the Company’s next equity financing
transaction, and (c) $50 million is payable in the form of a senior secured convertible promissory note (the “Convertible Note”).
The entirety of the acquisition consideration is subject to a 19.99% ownership cap.
The Convertible Note matures on June 30, 2026
and has an interest rate of 10% per annum payable on the maturity date in cash. The Convertible Note is secured by the Company’s
ownership in TCDC and the assets of TCDC. SharonAI may convert 20% of the Convertible Note into shares of the Company’s Common Stock
at a conversion price equal to the 30-day volume-weighted average price of the Common Stock prior to the conversion date. The conversion
price for the Convertible Note has a floor of 20% of the market price on the closing date of the Purchase Agreement. Based on the closing
share price of $4.33 on January 16, 2026, the maximum number of shares of Common Stock issuable pursuant to the Convertible Note, assuming
a floor price of $0.87, is approximately 11.5 million shares. The Convertible Note contains customary affirmative and negative covenants
of the Company.
Investor Waiver
On February 1, 2026, the Company entered into
an Amended and Restated Consent and Waiver (the “Amended Waiver”) with ATW AI Infrastructure LLC (the “Investor”)
pursuant to which the Investor agreed to partially waive the anti-dilution provisions of the First Tranche Warrant and Second Tranche
Warrant (the “Investor Warrants”) such that the exercise prices of the First Tranche Warrant and Second Tranche Warrant were
each adjusted down solely to $2.00. As a result of the anti-dilution adjustments in the Investor Warrants, as modified by the Amended
Waiver, the number of shares of Common Stock of the Company issuable pursuant to the First Tranche Warrant total 5.5 million shares and
the number of shares of Common Stock issuable pursuant to the Second Tranche Warrant total 10.7 million shares.
The Investor also waived certain provisions of
that certain Securities Purchase Agreement, dated December 6, 2024, between the Company and the Investor (the “Securities Purchase
Agreement”), relating to restrictions on Variable Rate Transactions (as defined in the Securities Purchase Agreement), additional
issuances of equity securities, redemption or payment of cash dividends, and stock splits. The parties agreed to certain administrative
updates to the Securities Purchase Agreement including cashless exercise after 75 days from the effective date of the Amended Waiver (solely
to the extent a resale registration statement is not effective), registration rights obligations, the provision of a transfer agent instruction
letter, and a forced exercise provision granting the Company the right to force exercise of the Investor Warrants assuming certain conditions
are met.
Option for Land Acquisition
On February 12, 2026, TCDC entered into a non-binding
letter of intent (the “LOI”) with Jones Bros. Dirt & Paving Contractors, Inc. to acquire approximately 54 acres of vacant
land located in Odessa, Ector County, Texas for an estimated total purchase price of $3,510,000. As part of the purchase price, TCDC deposited
$100,000 as non-refundable earnest money following execution of the LOI. The exclusivity period runs for a period of 90 days following
execution of the LOI. If the parties do not execute a mutually acceptable purchase and sale agreement within 30 days of the execution
of the LOI, the LOI shall be terminated.
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Trends and Other Key Factors Affecting Results
of Operations
U.S. Power Demand and Supply Dynamics
The rapid expansion of AI, HPC, and cloud infrastructure,
coupled with rising demand from data centers, broad-based electrification, and other emerging electrical needs, has driven record levels
of power consumption while domestic electricity providers face significant supply constraints stemming from insufficient new generation
capacity and aging infrastructure. We believe we are well positioned to help fill this need by providing consistent baseload generation,
in part behind-the-meter to our customers. Powered land is becoming increasingly difficult for hyperscalers to access, and we believe
our projects provide “speed-to-power” in a manner differentiated from our peers. However, there can be no assurance that U.S.
power demand will continue to grow at current rates, or that advances in technology and efficiency applicable to new or existing power
sources will not materially diminish the current trajectory of rising electricity demand.
Artificial Intelligence and Data Center Infrastructure
Demand
Our partnerships with hyperscalers will depend,
in part, on our ability to identify and secure sites capable of supporting the co-location of power assets and data centers. A decline
or slowdown in the deployment of AI infrastructure, a reduction in the power requirements associated with AI workloads, or broader market
saturation in the AI sector could adversely affect demand for our solutions and materially impact our business prospects.
Tenant Acquisition and Retention
Our revenue model is heavily dependent on securing
multi-GW scale anchor tenants and maintaining long-term power delivery and leasing agreements. Our ability to attract high-credit-quality tenants—particularly
large AI developers, hyperscalers, and sovereign compute platforms—is critical to achieving scale and recurring revenues. Changes
in customer requirements, economic conditions, or competitive offerings could hinder tenant growth or increase churn risk. Delays in tenant
onboarding or renegotiation of terms due to construction timelines may also impact financial performance.
Environmental Stewardship and Community Relations
Although we believe that public support for AI
infrastructure remains at acceptable levels, public perception and environmental stewardship remain critical to the long-term viability
of our business. Any material shift in local sentiment, changes in federal or state law, organized stakeholder opposition, or heightened
perceptions of environmental risk could result in reputational harm or disruptions to our operations.
Geopolitical Environment and Policy Considerations
Energy infrastructure and computing capacity are
increasingly viewed through the lens of national security and economic competitiveness. Changes in U.S. energy policy, particularly with
respect to land use regulation, artificial intelligence governance, foreign investment review, or export controls, may materially affect
our operations. Our ability to navigate this evolving policy landscape, especially as it pertains to the regulatory treatment of nuclear
energy, grid resilience, and the designation of critical infrastructure, will be an important factor in our long-term scalability and
strategic positioning.
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Principal Components of Results of Operations
We operate our business within a single reportable
segment, which is consistent with how our management reviews our business, makes investment and resource allocation decisions, and assesses
operating performance. Management primarily reviews total assets and income (loss) from operations of the single reportable segment.
Revenues, net
Pursuant to the Company’s ongoing oil and
gas and helium obligations that existed prior to its strategic pivot, the Company previously sold its oil to a single purchaser on a monthly
basis, pursuant to a purchase agreement (the “Oil Purchase Agreement”), at a price based on an index price from the purchaser.
The Oil Purchase Agreement with continue on a month-to-month basis thereafter unless and until terminated by the Company or the purchaser
with a 30-day advance notice. Oil that is produced from the Company’s wells is stored in tank batteries located on the Company’s
lease. When the purchaser’s truck connects to the storage tank and oil enters the truck, control of the oil is transferred to the
purchaser, the Company’s obligations are satisfied, and revenue is recognized. During 2025, the Company did not have any oil sales as it disposed of its oil properties in 2024.
We currently sell our natural gas and natural
gas liquids to Cimmaron Midstream, formerly known as IACX, (“Cimmaron”) a processor, pursuant to that certain Marketing Agreement,
at a price based on an index price from the purchaser, which expired on May 31, 2024. This agreement currently continues on a month-to-month
basis unless and until terminated by the Company or the purchaser with a 30-day advance notice. IACX processes our gas for natural gas
liquids and other usable components in its facilities. We receive value for our natural gas and any associated natural gas liquids as
further defined as hydrocarbons pursuant to the Marketing Agreement. Although the Company produces helium alongside its natural gas, IACX
will not compensate us for our helium produced under our existing contract. To date, we have not generated any revenue from the production
of helium.
Under our natural gas and natural gas liquid contracts
with processors, when the unprocessed natural gas is delivered at the sales meter, control of the gas is transferred to the purchaser,
the Company’s obligations are satisfied, and revenue is recognized. In the cases where the Company sells to a processor, management
has determined that the processors are customers. The Company recognizes the revenue in these contracts based on the net proceeds received
from the processor.
The Company has no unsatisfied performance obligations
at the end of each reporting period.
Lease operating expenses
Lease operating expenses represent costs incurred
in operations of producing properties and workover costs. The majority of these costs are comprised of labor costs, production taxes,
compression, workover, and repair costs.
39
Depletion, depreciation, amortization, and
accretion
The Company follows the full cost accounting method
to account for oil and natural gas properties, whereby costs incurred in the acquisition, exploration and development of oil and gas reserves
are capitalized. Such costs include lease acquisition, geological and geophysical activities, rentals on nonproducing leases, drilling,
completing and equipping of oil and gas wells, administrative costs directly attributable to those activities and asset retirement costs.
The Company records depletion expense for oil and natural gas properties on a units of production basis over the life of the full cost
pool’s reserves. The Company records depreciation expense for computer equipment and furniture and fixtures over a useful life of
five years. The Company records depreciation expense for leasehold improvement over a useful life of five to fifteen years.
General and administrative costs
General and administrative costs primarily include
costs incurred for overhead, consisting of payroll and benefits for the Company’s corporate staff, contractor and consulting costs,
stock compensation expenses, accounting and legal costs, and office rent.
Gain on sale of assets
Gain on sale of assets consists of gains recorded
on significant sales of oil and natural gas properties. As a full cost company, disposition of oil and natural gas properties are accounted
for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship
between capital costs and proved reserves of oil and gas, in which case the gain or loss is recognized to operations.
Other income and expense
Other income (expenses) primarily consists of interest income and expense,
changes in the fair value of derivative instruments, losses associated with the extinguishment of debt, losses from the Company’s
investment in a joint venture, and other miscellaneous gains and losses recorded on certain transactions. Interest income relates primarily
to interest earned on certificates of deposit associated with operating bonds. Interest expense is primarily associated with interest
on outstanding notes. Changes in the fair value of derivative instruments reflect periodic mark-to-market adjustments on derivative assets
and liabilities. The loss on debt extinguishment relates to the settlement of certain outstanding obligations during the period. The loss
on investment in joint venture represents the Company’s share of results from its joint venture investment. Other income (expense),
net consists of miscellaneous gains and losses recorded during the period.
Income taxes
The provision for income taxes is determined using
the asset and liability approach of accounting for income taxes. Under this approach, deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts
for income tax purposes and net operating loss and tax credit carryforwards. The amount of deferred taxes on these temporary differences
is determined using the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, as
applicable, based on tax rates and laws in the respective tax jurisdiction enacted as of the balance sheet date.
The Company reviews its deferred tax assets for recoverability
and establishes a valuation allowance based on projected future taxable income, applicable tax strategies and the expected timing of the
reversals of existing temporary differences. A valuation allowance is provided when it is more likely than not (likelihood of greater
than 50 percent) that some portion or all the deferred tax assets will not be realized. The balance of the Company’s valuation allowance
as of $10,003,463 and $2,487,466 for the years ended December 31, 2025 and 2024, respectively.
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The Company recognizes the tax benefit from an
uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities,
based upon the technical merits of the position. If all or a portion of the unrecognized tax benefit is sustained upon examination by
the taxing authorities, the tax benefit will be recognized as a reduction to the Company’s deferred tax liability and will affect
the Company’s effective tax rate in the period it is recognized.
The Company records any tax-related interest charges
as interest expense and any tax-related penalties as other expense in the consolidated statements of operations of which there have been
none to date. The Company is also subject to Texas Margin Tax. The Company realized no Texas Margin Tax in the accompanying consolidated
financial statements as we do not anticipate owing any Texas Margin Tax for the periods presented.
Stock-based compensation
The Company accounts for its stock-based compensation
awards in accordance with Accounting Standards Codification Topic 718, Compensation-Stock Compensation (“ASC 718”). ASC 718
requires all stock-based payments to employees and non-employees including grants of stock options, to be recognized as expense in the
statements of operations based on their grant date fair values. The Company periodically issues common stock and common stock options
to consultants and directors for various services. Costs of these transactions are measured at the fair value of the service received
or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is measured at
the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or
(ii) the date at which the counterparty’s performance is complete.
Results of Operations
To provide readers with meaningful comparisons,
the following analysis provides comparisons of the financial results for the years ended December 31, 2025 and 2024. We analyze and explain
the differences between years in the specific line items of the Consolidated Statements of Operations and Comprehensive (Loss) Income.
The Year Ended December 31, 2025 Compared to
the Year Ended December 31, 2024
The following table sets forth our results of
operations for the years presented:
For the Years Ended December 31, Variance
Revenues, Net
Costs and expenses
Other income (expenses)
Change in fair value of derivative asset (16,999 ) - (16,999 ) (100.0 )
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Net Revenue by Product Category
The following table summarizes the Company’s
net audited consolidated revenues disaggregated by product category:
Natural gas, net represented 72.9% of the revenue
for the year ended December 31, 2025, compared to 47.3% for the year ended December 31, 2024, and increased $393,666 for the year ended
December 31, 2025, as compared to the year ended December 31, 2024. The increase in revenue was primarily due to a $384,000 increase related
to a $0.41 per Mcf increase in gas prices net of processing and transportation, and a $10,000 increase related to a 36 MMcf increase in
gas sales volumes.
Natural gas liquids (“NGLs”) represented
27.1% of the revenue for the year ended December 31, 2025, compared to 47.7% for the year ended December 31, 2024, and decreased $14,250
for the year ended December 31, 2025 compared to the year ended December 31, 2024. The decrease in revenue was primarily due to a $34,000
decrease related to a $7.24 per Bbl decrease in NGL prices, partially offset by a $20,000 increase related to a 343 Bbl increase in NGL
sales volumes.
No revenue was generated from oil sales for the
year ended December 31, 2025, compared to 5% for the year ended December 31, 2024, and decreased $26,796 for the year ended December 31,
2025, as compared to the year ended December 31, 2024. This decrease was due to the sale of the Company’s oil properties during
2024.
Operating Expenses
For the Years Ended December 31, Variance
Costs and expenses
The Company experienced an overall increase in operating expenses
of $12,123,154 for the year ended December 31, 2025, as compared to the year ended December 31, 2024.
Lease operating expenses increased $48,854 for
the year ended December 31, 2025, compared to the year ended December 31, 2024. The increase was primarily due to a $130,000 increase
related to road and location repair work, $120,000 increase related to the amortization of a standby retainer, consulting, and services
agreement, a $98,000 increase in severance tax expense related to an audit of severance tax report in 2020 - 2022 and associated adjustments
related to the findings, partially offset by a $272,000 decrease in workover costs.
42
Impairment expenses increased $12,062,639 for
the year ended December 31, 2025, as compared to the year ended December 31, 2024. The increase was primarily due to a $6,732,000 impairment
of oil and gas properties as a result of a ceiling test failure, a $5,330,000 impairment of the gas processing plant.
Depletion, depreciation, amortization and accretion
increased $20,207 for the year ended December 31, 2025, as compared to the year ended December 31, 2024. a $57,000 increase in accretion
expense associated with asset retirement obligations, a $28,000 increase in depletion expense due to a 36 MMcfe increase in sales volumes,
and a $18,000 increase in depreciation expense associated with the purchase of equipment during 2025, partially offset by an $82,000 decrease
in depletion expense related to a decrease in the depletion rate.
General and administrative costs decreased $8,546
for the year ended December 31, 2025, as compared to the year ended December 31, 2024. The decrease was primarily due to a $5,918,000
decrease in equity compensation, a $166,000 decrease for to non-employee compensation related to disposition of Company oil and gas properties,
partially offset by a $1,656,000 increase in public relations and market costs, a $1,193,000 increase in legal fees, a $765,000 increase
in director and officer insurance, a $684,000 increase in employee compensation and benefits, a $586,000 increase in professional fees
primarily association with exchange and filing related costs, $479,000 increase in consulting costs, a $463,000 increase in bad debt expense,
and a $249,000 increase in board member compensation.
Other (Expense) Income
For the Years Ended December 31, Variance
Other income (expenses)
Change in fair value of derivative asset (16,999 ) - (16,999 ) (100.0 )
Interest income increased $84,790 for the year
ended December 31, 2025, as compared to the year ended December 31, 2024. Aventus Properties is controlled by Joel Solis, a former director
of the Company. This increase was primarily due to interest earned on a note issued by the Company to Aventus Properties on October 23,
2025. This note was repaid on December 8, 2025.
Interest expense increased $4,024,076 for the
year ended December 31, 2025, as compared to the year ended December 31, 2024. this increase was primarily due to a $4,120,000 increase
related to the convertible note interest, deferral fees and amortization of debt discount and debt issuance cost, and a $160,000 increase
related to interest expense associated with excise and withholding taxes, partially offset by a $165,000 decrease related to interest
expense associated with the 10% convertible debentures issued to certain investors as part of several bridge financing rounds in 2024
(the “Bridge Financing Debentures”), and a $64,000 decrease related to the promissory note held by Beaufort Acquisitions,
Inc. (the “Beaufort Acquisitions Note”). Both the Bridge Financing Debentures and the Beaufort Acquisitions Note were paid
off in December 2024.
The remaining other expense, net increased $702,100 for the year
ended December 31, 2025, as compared to the year ended December 31, 2024. This increase was primarily due to a $577,000 loss on the extinguishment
of the convertible note, a $294,000 increase related to penalties and interest on late payment of withholding and excise taxes, a $267,000
decrease in fees to operate properties charged to the purchaser of certain properties, previously owned by the Company, located in Chaves
County, New Mexico that were sold effective July 2023, a $119,000 loss related to the Company’s ownership in a joint venture, partially
offset by a $555,000 decrease related to changes in fair value of derivative assets and liabilities.
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Liquidity and Capital Resources
Going Concern
Our cash and cash equivalents are not sufficient
to fund our planned operations for a period of at least one year from the date these financial statements are issued. Until we can generate
substantial revenue and achieve profitability, we will need to raise additional capital to fund our ongoing operations and capital needs.
There is no assurance, however, that additional financing will be available when needed or that we will be able to obtain financing on
terms acceptable to us. These conditions raise substantial doubt about our ability to continue as a going concern.
Sources of Liquidity
We are currently focused in the near-term on using
our available liquidity for the development of our flagship data center project, TCDC. We expect our liquidity to be supported by a diversified
mix of debt and equity capital, including project financing for the buildout of our flagship project as well as tenant prepayments and
advances, strategic equity investments and government grants. Although we plan to fund near-term development activity through a combination
of these methods, there can be no assurance that such capital will be available in the amounts required or on favorable terms. Access
to financing may be constrained by changes in macroeconomic conditions, increases in interest rates, customer-specific credit risks, regulatory
shifts, or other market factors beyond our control.
On January 23, 2026, we filed a shelf registration
statement on Form S-3 (File No. 333-292892) with the SEC, which was declared effective on January 30, 2026 (the “Registration Statement”).
The Registration Statement, which includes a base prospectus, allows us at any time to offer any combination of securities described in
the prospectus in one or more offerings in an aggregate amount of up to $350 million. The Registration Statement is intended to provide
us flexibility to conduct registered sales of our securities, subject to market conditions and our future capital needs. The terms of
any future offering under the Registration Statement will be established at the time of such offering and will be described in a prospectus
supplement filed with the SEC prior to the completion of any such offering.
In February and March 2026, we issued 3,284,600
shares of Common Stock underlying the First Tranche Warrant to the Investor at an exercise price of $2.00 per share for total proceeds
of $6,569,200.
We may also experience delays in construction
that extend beyond our estimated development timeline. Prolonged development periods could increase project costs beyond budgeted amounts
and reduce the availability of construction loans from project partners or third party financing sources during interim periods. Any such
timing misalignments could necessitate additional bridge capital or contingency financing, which may not be available on acceptable terms,
or at all. Furthermore, unanticipated events—such as permitting delays, failure to secure required regulatory approvals, or force
majeure events—could result in liquidity shortfalls or force us to amend our capital plan.
Market conditions may also affect our ability
to raise capital. For example, credit providers or their regulators may shift policy away from funding projects involving nuclear generation
assets, or may reduce exposure to long-duration infrastructure development with extended pre-revenue periods. Even if financing is available,
we may be required to accept unfavorable terms, including higher cost of capital, restrictive covenants, or equity dilution, all of which
could impair our ability to execute our business plan. If we are unable to raise capital in the amounts, timing, or terms we expect, we
may be forced to delay capital expenditures, amend or terminate our purchase commitments for long-lead materials or surrender assets pledged
as collateral under our financing agreements in order to preserve liquidity, which could materially extend our development timeline and
delay one or more phases of our projects, preventing us from achieving planned operational and financial milestones within the anticipated
timeframe.
Additionally, if we do not obtain stockholder
approval to issue Common Stock in connection with the SharonAI Purchase Agreement, we would not be able to pay the portion of the acquisition
consideration that is due and payable in shares of Common Stock to the extent such issuances would equal or exceed the 20% share ownership
limitation imposed by Nasdaq (the “Share Cap”). In such event, the SharonAI Purchase Agreement requires us to satisfy the
remaining payment in cash in an amount equal to the difference between (i) the fair market value of the securities that SharonAI would
have been issued but for the Share Cap, minus (ii) the fair market value of all of the securities that actually were issued to SharonAI.
It is possible that we would need to raise additional funding if we are required to make such payments in cash. Such additional funding
may not be available to us on acceptable terms, or at all, and we may be subject to certain contractual restrictions on raising capital.
In the event we are unable to raise the cash required to make such payments, we could default on the Convertible Note and all amounts
owed thereunder may become due and payable.
Planned Use of Capital
The capital expenditures we expect to incur as
we complete the development of our flagship project will be significant. We currently estimate that the total capital expenditures we
will incur to complete the development of our flagship project could exceed $15 billion, excluding amounts expected to be financed by
our tenants of which approximately $50 million to $300 million is expected to be incurred in the next twelve months across all phases.
These near-term expenditures are expected to be funded through a combination of tenant prepayments, project-level debt financing, and
strategic equity capital. Required capital expenditures are difficult to estimate with precision and will depend on final tenant composition,
generation mix, supply chain dynamics, and site optimization decisions.
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Uses and Availability of Funds
We recorded a net loss of $29,585,804 for the
year ended December 31, 2025, and net loss of $13,782,384 for the year ended December 31, 2024. As of December 31, 2025, we had a working
capital of $2,545,098 and a cash balance of $1,202,728.
Historically, our primary sources of liquidity have been cash
received from oil, natural gas, and product sales, contributions from members, and borrowings. Management’s assessment of the entity’s
ability to continue as a going concern involves making a judgement, at a particular point in time, about inherently uncertain future outcomes
of events or conditions.
Any judgment about the future is based on information
available at the time at which the judgment is made. Subsequent events
may result in outcomes that are inconsistent with judgments that were reasonable at the time they were made. Management has taken into
account the following:
a. Our financial position; and
b. The risks facing us that could impact liquidity and capital adequacy.
Our
future capital requirements will depend on many factors, including the our revenue growth rate and the timing and extent of spending
to support further sales and marketing efforts. We currently expect to require approximately $73.9 million over the next twelve months,
including $9.85 million payable by March 31, 2026 and up to an additional $50.0 million payable by June 30, 2026 related to outstanding
financing arrangements. We also expect to incur approximately $10.0 million in general and administrative expenses and approximately
$3.9 million of other costs. Upon executing binding term sheets or definitive agreements with data center users, these costs may
increase materially.
We cannot provide any assurance that additional
financing will be available to it on commercially acceptable terms, if at all. If we are unable to raise additional capital, our business,
results of operations and financial condition could be materially and adversely affected.
As a result, in connection with the our assessment of going concern
considerations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)
2014-15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management has determined that
our liquidity condition raises substantial doubt about our ability to continue as a going concern through the twelve months following
the issuance date of the December 31, 2025 consolidated financial statements. These consolidated financial statements do not include
any adjustments relating to the recovery of recorded assets or the classification of liabilities that might result should we be unable
to continue as a going concern.
Cash Flows
Cash flows for the years ended December 31,
2025 and 2024
The following table summarizes our cash flow activity
for the periods presented:
For the Years Ended December 31,
Cash Provided by (Used in)
Net cash used in operating activities
Operating activities used cash of $11,699,112
for the year ended December 31, 2025, primarily due to an increase in our net loss for the year offset by changes in non-cash adjustments
including impairment expense and amortization of debt discount and debt issuance costs.
Operating activities used cash of $5,349,948 for
the year ended December 31, 2024, primarily due to a gain on sale of assets offset by stock-based compensation.
Net cash used in investing activities
Investing activities provided cash of $5,363,624
for the year ended December 31, 2025, related to the investment in the Joint Venture and purchase of property, plant and equipment and
the purchase of interest in oil and natural gas properties.
Investing activities used cash of $533,054 for
the year ended December 31, 2024, related to the purchasing of property, plant and equipment offset by proceeds from the sale of interest
in oil and natural gas properties and proceeds from the sale of restricted investments.
45
Net cash provided by financing
activities
Financing activities used cash of $17,211,720
for the year ended December 31, 2025, primarily related to proceeds from proceeds from the convertible note and issuance of common stock
offset by repayment of notes payable and repayment of the convertible note.
Financing activities provided cash of $6,816,736 for the year
ended December 31, 2024, primarily related to proceeds from bridge financing, proceeds from the convertible note, and issuance of
common stock offset by repayment to related party.
Seasonality
We typically do not experience seasonality in
our operations.
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09,
“Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which enhances the transparency and decision usefulness
of income tax disclosures. The amendments address more transparency about income tax information through improvements to income tax disclosures
primarily related to the rate reconciliation and income taxes paid information. The ASU also includes certain other amendments to improve
the effectiveness of income tax disclosures. The amendments in the ASU are effective for public business entities for annual periods beginning
after December 31, 2024 on a prospective basis. The Company adopted this guidance during the current fiscal year and the adoption did
not have a material impact on the Company’s consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03,
“Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosure (Subtopic 220-40): Disaggregation
of Income Statement Expenses. This ASU requires public business entities to disclose, in interim and annual reporting periods, additional
information about certain expenses in the notes to the financial statements. The amendments in the ASU are effective for public entities
for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027, with early
adoption permitted. The Company is still evaluating the effect of the adoption of this guidance.
Critical Accounting Estimates
The Company prepares its consolidated financial
statements for inclusion in this Report in accordance with generally accepted accounting principles in the United States (“GAAP”).
See Note 2 of Notes to Consolidated Financial Statements. The following is a discussion of the Company’s most critical accounting
estimates, judgments and uncertainties that are inherent in the Company’s application of GAAP.
Reserves.
The Company’s proved reserve information
as of December 31, 2025 and 2024 was prepared by MKM Engineering, independent reservoir engineers. Because these estimates depend on many
assumptions, all of which may substantially differ from future actual results, proved reserve estimates will be different from the quantities
of oil and natural gas that are ultimately recovered. In addition, results of drilling, testing and production after the date of an estimate
may justify material revisions, positively or negatively, to the estimate of proved reserves. The Company’s estimates of proved
reserves materially impact depreciation, depletion and amortization (“DD&A”) expense. If the estimates of proved reserves
decline, the rate at which the Company records DD&A expense will increase, reducing future net income. Such a decline may result from
lower commodity prices, which may make it uneconomical to drill for and produce higher cost fields. Under the full cost method of accounting,
the Company performs a quarterly ceiling test in accordance with SEC Regulation S-X Rule 4-10. The ceiling test limits the net capitalized
costs of oil and gas properties to the present value (PV-10) of estimated future net revenues from proved reserves, based on SEC-prescribed
commodity prices, adjusted for discounted asset retirement obligations and income taxes. The calculation requires significant estimates
and assumptions, including reserve quantities, future production timing, future operating and development costs and commodity prices.
Declines in proved reserve estimates, reductions in projected future net revenues or other adverse changes in the underlying assumptions
may reduce the calculated ceiling limitation and result in non-cash impairment charges.
Asset Retirement Obligations.
The Company has significant obligations to remove
tangible equipment and facilities and to restore the land at the end of oil and natural gas production operations. The Company’s
removal and restoration obligations are primarily associated with plugging and abandoning wells. Estimating the future restoration and
removal costs is difficult and requires management to make estimates and judgments because most of the removal obligations are many years
in the future and in some cases have vague descriptions of what constitutes removal. Asset removal technologies and costs are constantly
changing, as are regulatory, political, environmental, safety and public relations considerations. Inherent in the present value calculation
are numerous assumptions and judgments including the ultimate settlement amounts, credit-adjusted discount rates, timing of settlement
and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact
the present value of the existing asset retirement obligations, a corresponding adjustment is generally made to the crude oil and natural
gas property balance.
46
Deferred Tax Asset Valuation Allowance.
The Company continually assesses both positive and negative evidence
for recoverability of its deferred tax assets and based on projected future taxable income, applicable tax strategies and the expected
timing of the reversals of existing temporary differences, the Company maintained a valuation allowance of $10,003,463 for the year ended
December 31, 2025. There can be no assurance that facts and circumstances will not materially change and require the Company to revise
this valuation allowance in a future period.
Stock-based Compensation.
The Company calculates the fair value of stock-based
compensation using various valuation methods. The Company determination on the appropriate valuation method requires the use of estimates
to derive the inputs necessary to determine fair value. Costs of these transactions are measured at the fair value of the service received
or the fair value of the equity instruments issued, whichever is more reliably measurable.
Warrants
The Company determines the accounting classification
of warrants it issues as either liability or equity classified by first assessing whether the warrants meet liability classification in
accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“ASC
480”), then in accordance with ASC 815-40 (“ASC 815”), Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock. Under ASC 480, warrants are considered liability classified if the warrants are mandatorily
redeemable, obligate the Company to settle the warrants or the underlying shares by paying cash or other assets, or warrants that must
or may require settlement by issuing variable number of shares. If warrants do not meet liability classification under ASC 480, the Company
assesses the requirements under ASC 815, which states that contracts that require or may require the issuer to settle the contract for
cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement
feature. If the warrants do not require liability classification under ASC 815, and in order to conclude equity classification, the Company
also assesses whether the warrants are indexed to its Common Stock and whether the warrants are classified as equity under ASC 815 or
other applicable GAAP. After all relevant assessments, the Company concludes whether the warrants are classified as liability or equity.
Liability classified warrants require fair value accounting at issuance and subsequent to initial issuance with all changes in fair value
after the issuance date recorded in the statements of operations. Equity classified warrants only require fair value accounting at issuance
with no changes recognized subsequent to the issuance date.
Related parties
Management approves all material related-party
transactions. Management considers the details of each new, existing or proposed related party transaction, including the terms of the
transaction, the business purpose of the transaction, and the benefits to the Company and the relevant related party. In determining whether
to approve a related party transaction, the following factors are considered: (1) if the terms are fair to the Company, (2) if there are
business reasons to enter into the transaction, or (3) if the transaction would present an improper conflict of interest for any officer.
Fair Value of Financial Instruments
Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market
participants at the measurement date. The hierarchy is broken down into three levels based on the observability of inputs as follows:
47
Commitments and Contingencies
Environmental Matters
The Company, as a lessee of oil and gas properties,
is subject to various federal, provincial, state and local laws and regulations relating to discharge of materials into, and protection
of, the environment. These laws and regulations may, among other things, impose liability on the lessee under an oil and gas lease for
the cost of pollution clean-up resulting from operations and subject the lessee to liability for pollution damages. In some instances,
the Company may be directed to suspend or cease operations in the affected area. There can be no assurance, however, that current regulatory
requirements will not change, or past noncompliance with environmental laws will not be discovered on the Company’s properties.
Irrevocable Standby Letter of Credit and
Promissory Note
On September 24, 2020, the Company entered into
an irrevocable standby letter of credit (“LOC”) and a promissory note with West Texas National Bank in the amount of $25,000
with variable interest initially of 4.25% per annum and maturing on December 24, 2021. No amount was drawn down under this LOC up to the
date it was amended on October 29, 2021.
On October 29, 2021, the Company entered into
an amendment of the LOC a new promissory note, increasing the amount to $425,000 with variable interest initially of 4.25% per annum and
maturing on September 29, 2026. On January 1, 2022, and March 29, 2022, the LOC was amended, and new promissory notes were executed increasing
the amount to $650,000 and $920,000, respectively. As of December 31, 2025, and December 31, 2024, no amount was drawn down under the
LOC.
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk.
As a smaller reporting company we are not required
to make disclosures under this Item.
Item 8. Financial Statements and Supplementary
Data.
Our financial statements, together with the report
of the independent registered public accounting firm, are appended to this Report and an index of those financial statements can be found
beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
We have had no change in, or disagreement with,
our independent registered public accountant on matters involving accounting and financial disclosure.
48
Item 9A. Controls and Procedures.
Disclosure controls and procedures are controls
and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated
and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding
required disclosure. Management is responsible for establishing and maintaining adequate internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange
Act, management has evaluated, with the participation of our Chief Executive Officer (who also serves as Interim Chief Financial Officer),
the effectiveness of our disclosure controls and procedures in effect as of December 31, 2025, the end of the period covered by this Report,
using the Internal Control Integrated Framework (“ICIF”) by COSO. Management selected the ICIF framework for its evaluation
as it is a control framework recognized by the SEC and the Public Company Accounting Oversight Board that is free from bias, permits reasonably
consistent qualitative and quantitative measurement of our internal controls, is sufficiently complete so that relevant controls are not
omitted and is relevant to an evaluation of internal controls over financial reporting. As a result of management’s evaluation,
our Chief Executive Officer (serving as Interim Chief Financial Officer) concluded that our disclosure controls and procedures were not
effective at a reasonable assurance level as of December 31, 2025, or as of the date of the filing of this Report.
Our disclosure controls and procedures, including
internal controls over financial reporting were not effective as of December 31, 2025, or as of the date of filing of this Report, because
management did not adequately evaluate and test its controls and procedures. The Company closed the Business Combination on December 6,
2024 and started trading on December 9, 2024. Prior to this, we were a private company with limited accounting personnel and other resources
with which to address our internal controls over financial reporting. Although the Company has initiated documentation of processes and
controls and performing certain controls, we were not able to rely upon the disclosure controls and procedures that were in place as of
December 31, 2025, or as of the date of this filing, and therefore have a material weakness in our internal control over financial reporting.
Implementation of Controls
During 2025, the Company continued the process
to develop and implement its internal controls over financial reporting. This included the documentation of processes and identification
of existing controls. In addition, in order to address segregation of duties issues as a result of the Company’s limited accounting
staff, the Company continues to engage a third party to assist in the monthly and quarterly accounting, a third party to assist in the
evaluation of appropriate accounting treatment and disclosures related to complex transactions and new pronouncements, and a third party
to assist in accounting for income taxes. The Company will develop and review plans in order to address the material weakness in its internal
controls over financial reporting. These plans may include engaging a third party to assist in the development, evaluation, testing and
monitoring of its internal controls over financial reporting. As of December 31, 2025, or as of the date of this filing, the Company has
not completed development nor finalized plans to address its material weakness in its internal controls over financial reporting.
The process of designing and implementing effective
internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory
environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations
as a public company. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these
initiatives will ultimately have the intended effects.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions
that Prevent Inspections.
Not applicable.
49
PART III
Item
10. Directors, Executive Officers and Corporate Governance.
Insider Trading Policy
The Company has adopted an insider trading compliance
policy and program (the “Insider Trading Policy”) applicable to directors, executive officers and employees. The Company believes
this policy is reasonably designed to promote compliance with insider trading laws, rules and regulations, and the Nasdaq listing standards.
A copy of the Insider Trading Policy is filed as Exhibit 19.1 to this Report.
Code of Ethics
All of our employees, including our Chief Executive