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Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-11 · 197 added, 94 removed, 90 unchanged (76% of the section changed)

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In preparing the management’s discussion and analysis, the registrant presumes that you have read or have access to the discussion and analysis for the preceding fiscal year.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENT S

This document includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 or the Reform Act.

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PLAN OF OPERATIONS

Camber’s aim is to become a growth-oriented diversified energy company.

The Company owns minority, non-operated working interests in certain oil & gas wells in Texas and/or Louisiana, and through its investment in Viking, the organization provides custom energy & power solutions to commercial and industrial clients in North America.

Viking also holds an exclusive license in Canada to a patented carbon-capture system, and has a majority interest in:

(i) an entity with intellectual property rights to a fully developed, patent pending, ready-for-market proprietary Medical & Bio-Hazard Waste Treatment system using Ozone Technology;

and (ii) entities with the intellectual property rights to fully developed, patent pending, ready-for-market proprietary Electric Transmission and Distribution Open Conductor Detection Systems.

Merger with Viking

On August 1, 2023, pursuant to that certain Agreement and Plan of Merger, dated as of February 15, 2021, by and between the Company and Viking Energy Group, Inc.

(“Viking”), as amended on April 18, 2023 (as amended, the “Merger Agreement”), a wholly owned subsidiary of the Company (“Merger Sub”) merged with and into Viking (the “Merger”), with Viking surviving the Merger as a wholly owned subsidiary of the Company.

Although this Quarterly Report on Form 10-Q is filed after completion of the Merger, given that the Merger closed after June 30, 2023, the financial statements herein do not include a consolidation of Viking's financial statements at the Camber level.

Rather, the financial statements herein account for Camber's previous investments in Viking under the equity method of accounting, consistent with previously filed financial reports.

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time on August 1, 2023 as set forth in the Certificate of Merger duly filed with the Nevada Secretary of State (the “Effective Time”), each share:

(i) of common stock, par value $0.001 per share, of Viking (the “Viking Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares owned by Camber, Viking and Merger Sub, was converted into the right to receive one share of common stock of Camber (the “Camber Common Stock”);

(ii) of Series C Preferred Stock of Viking (the “Viking Series C Preferred Stock”) issued and outstanding immediately prior to the Effective Time was converted into the right to receive one share of Series A Convertible Preferred Stock of Camber (the “New Camber Series A Preferred Stock”) and (iii) of Series E Convertible Preferred Stock of Viking (the “Viking Series E Preferred Stock,” and, together with the Viking Series C Preferred Stock, the “Viking Preferred Stock”) issued and outstanding immediately prior to the Effective Time was converted into the right to receive one share of Series H Preferred Stock of Camber (the “New Camber Series H Preferred Stock,” and, together with the New Camber Series A Preferred Stock, the “New Camber Preferred”).

Pursuant to the Certificate of Designations for the New Camber Series A Preferred Stock, dated as of August 1, 2023 (the “Series A COD”), each share of New Camber Series A Preferred Stock is convertible into 890 shares of Camber Common Stock (subject to a beneficial ownership limitation preventing conversion into Camber Common Stock if the holder would be deemed to beneficially own more than 9.99% of Camber Common Stock), is treated equally with Camber Common Stock with respect to dividends and liquidation, and only has voting rights with respect to voting:

Company Overview

Camber Energy, Inc.

(“Camber”, the “Company”, “we”, “us” or “our”) is a growth-oriented diversified energy company.

Through Viking’s majority-owned subsidiaries we provide custom energy and power solutions to commercial and industrial clients in North America, and have a majority interest in:

(i) an entity with intellectual property rights to a fully developed, patented, proprietary Medical and Bio-Hazard Waste Treatment system using Ozone Technology;

and (ii) entities with the intellectual property rights to fully developed, patented and patent pending, proprietary Electric Transmission and Distribution Open Conductor Detection Systems.

Also through Viking, we hold n license to a patented clean energy and carbon-capture system with exclusivity in Canada and for multiple locations in the United States.

Viking’s other subsidiaries own interests in oil properties in the United States.

The Company is also exploring other renewable energy-related opportunities and/or technologies, which are currently generating revenue, or have a reasonable prospect of generating revenue within a reasonable period of time.

Custom Energy and Power Solutions:

Simson-Maxwell Acquisition

On August 6, 2021, Viking acquired approximately 60.5% of the issued and outstanding shares of Simson-Maxwell Ltd.

(“Simson-Maxwell”), a Canadian federal corporation, for $7,958,159 in cash.

Simson-Maxwell manufactures and supplies power generation products, services and custom energy solutions.

Simson-Maxwell provides commercial and industrial clients with efficient, flexible, environmentally responsible and clean-tech energy systems involving a wide variety of products, including CHP (combined heat and power), tier 4 final diesel and natural gas industrial engines, solar, wind and storage.

Simson-Maxwell also designs and assembles a complete line of electrical control equipment including switch gear, synchronization and paralleling gear, distribution, Bi-Fuel and complete power generation production controls.

Operating for over 80 years, Simson-Maxwell’s seven branches assist with servicing a large number of existing maintenance arrangements and meeting the energy and power-solution demands of the Company’s other customers.

Clean Energy and Carbon-Capture System:

In August 2021, Viking entered into a license agreement with ESG Clean Energy, LLC (“ESG”), to utilize ESG’s patent rights and know-how related to stationary electric power generation and heat and carbon dioxide capture (the “ESG Clean Energy System”).

The intellectual property licensed by Viking includes certain patents and/or patent applications, including:

10,774,733, File date:

October 24, 2018, Issue date:

September 15, 2020, Titled:

“Bottoming Cycle Power System”;

17/661,382, Issue date:

August 8, 2023, Titled:

‘Systems and Methods Associated With Bottoming Cycle Power Systems for Generating Power, Capturing Carbon Dioxide and Producing Products’ ;

11624307, Issue date:

April 22, 2023, Titled:

‘Systems and Methods Associated With Bottoming Cycle Power Systems for Generating Power and Capturing Carbon Dioxide ’ (iv) European (validated in the United Kingdom, France and Germany) Patent No.:

EP3728891, Issue date:

April 12, 2023, Titled:

“Bottoming Cycle Power System”;

Patent Application No.:

17/224,200, File date:

April 7, 2021, Titled:

“Bottoming Cycle Power System” (which was subsequently approved by the U.S.

Patent & Trademark Office in March, 2022 (No.

Patent Application No.:

17/358,197, File date:

June 25, 2021, Titled:

“Bottoming Cycle Power System”;

Patent Application No.:

17/448,943, File date:

September 27, 2021, Titled:

“Systems and Methods Associated With Bottoming Cycle Power Systems for Generating Power and Capturing Carbon Dioxide”;

and (viii) U.S.

Patent Application No.:

17/448,938, File date:

September 27, 2021, Titled:

“Systems and Methods Associated With Bottoming Cycle Power Systems for Generating Power, Capturing Carbon Dioxide and Producing Products.

The ESG Clean Energy System is designed to, among other things, generate clean electricity from internal combustion engines and utilize waste heat to capture approximately 100% of the carbon dioxide (CO2) emitted from the engine without loss of efficiency, and in a manner to facilitate the production of certain commodities.

11,286,832, for example, covers the invention of an “exhaust-gas-to-exhaust-gas heat exchanger” that efficiently cools – and then reheats – exhaust from a primary power generator so greater energy output can be achieved by a secondary power source with safe ventilation.

Another key aspect of this patent is the development of a carbon dioxide capture system that utilizes the waste heat of the carbon dioxide pump to heat and regenerate the adsorber that enables carbon dioxide to be safely contained and packaged.

The Company intends to sell, lease and/or sub-license the ESG Clean Energy System to third parties using, among other things, Simson-Maxwell’s existing distribution channels.

The Company may also utilize the ESG Clean Energy System for its own account, whether in connection with its petroleum operations, Simson-Maxwell’s power generation operations, or otherwise.

Medical Waste Disposal System Using Ozone Technology:

In January 2022, Viking acquired a 51% interest in Viking Ozone Technology, LLC (“Viking Ozone”), which owns the intellectual property rights to a patented (i.e., US Utility Patent No.

11,565,289), proprietary medical and biohazard waste treatment system using ozone technology.

Simson-Maxwell has been designated the exclusive worldwide manufacturer and vendor of this system.

The technology is designed to be a sustainable alternative to incineration, chemical, autoclave and heat treatment of bio-hazardous waste, and for the treated waste to be classified as renewable fuel for waste-to-energy (“WTE”) facilities in many locations around the world.

Open Conductor Detection Technologies:

In February 2022, Viking acquired a 51% interest in two entities, Viking Sentinel Technology, LLC (“Viking Sentinel”) and Viking Protection Systems, LLC (“Viking Protection”), that own the intellectual property rights to patented (i.e.

utility patent 11,769,998 titled “ Electric Transmission Line Ground Fault Prevention Systems Using Dual, High Sensitivity Monitoring Devices’) and patent pending (i.e., US Applications 16/974,086, and 17/693,504), proprietary electric transmission and distribution open conductor detection systems.

The systems are designed to detect a break in a transmission line, distribution line, or coupling failure, and to immediately terminate the power to the line before it reaches the ground.

The technology is intended to increase public safety and reduce the risk of causing an incendiary event, and to be an integral component within grid hardening and stability initiatives by electric utilities to improve the resiliency and reliability of existing infrastructure.

Oil and Gas Properties

Existing Assets:

Through Mid-Con Petroleum, LLC and Mid-Con Drilling, LLC (collectively, the “Mid-Con Entities”), wholly owned subsidiaries of Viking, the Company owns working interests in oil fields in Kansas, which include a combination of producing wells, non-producing wells and water injection wells.

Divestitures in 2022:

On July 8, 2022, four of the wholly owned subsidiaries of Petrodome Energy, LLC (“Petrodome”), a wholly owned subsidiary of the Company, entered into Purchase and Sale Agreements to sell all of their interests in the oil and gas assets owned by those Petrodome subsidiaries, including in the aggregate, interests in 8 producing wells, 8 shut-in wells, 2 saltwater disposal wells and 1 inactive well, to third parties for $3,590,000 in cash.

The proceeds from the sale were used to fully repay Petrodome’s indebtedness to CrossFirst Bank under the June 13, 2018 revolving line of credit loan.

This transaction resulted in the disposition of most of the Company’s total oil and gas reserves (see Note 6).

The Company recorded a loss on the transaction in the amount of $8,961,705, as follows:

Proceeds from sale

Reduction in oil and gas full cost pool (based on % of reserves disposed)

(12,791,680 )

ARO recovered

Loss on disposal

$ (8,961,705 )

Additionally, in July 2022, the Company received an unanticipated refund of a $1,200,000 performance bond as a result of Petrodome ceasing to operate certain assets in the State of Louisiana.

The gain from this refund was included in the “loss from the sale of oil and gas properties and fixed assets’ in the Consolidated Statement of Operations.

Merger with Viking Energy Group, Inc.

On August 1, 2023, Camber completed the previously announced merger (“the Merger”) with Viking Energy Group, Inc.

(“Viking”) pursuant to the terms and conditions of the Agreement and Plan of Merger between Camber and Viking dated February 15, 2021, which was amended on April 18, 2023 (as amended, the “Merger Agreement”), with Viking surviving the Merger as a wholly owned subsidiary of Camber.

Upon the terms and conditions in the Merger Agreement, each share:

(i) of common stock, par value $0.001 per share, of Viking (the “Viking Common Stock”) issued and outstanding, other than shares owned by Camber, was converted into the right to receive one share of common stock of Camber (the “Camber Common Stock”);

(ii) of Series C Preferred Stock of Viking (the “Viking Series C Preferred Stock”) issued and outstanding was converted into the right to receive one share of Series A Convertible Preferred Stock of Camber (the “New Camber Series A Preferred Stock”) and (iii) of Series E Convertible Preferred Stock of Viking (the “Viking Series E Preferred Stock,” and, together with the Viking Series C Preferred Stock, the “Viking Preferred Stock”) issued and outstanding was converted into the right to receive one share of Series H Preferred Stock of Camber (the “New Camber Series H Preferred Stock,” and, together with the New Camber Series A Preferred Stock, the “New Camber Preferred”).

Each share of New Camber Series A Preferred Stock is convertible into 890 shares of Camber Common Stock (subject to a beneficial ownership limitation preventing conversion into Camber Common Stock if the holder would be deemed to beneficially own more than 9.99% of Camber Common Stock), is treated equally with Camber Common Stock with respect to dividends and liquidation, and only has voting rights with respect to voting:

(a) on a proposal to increase or reduce Camber’s share capital;

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and/or (g) with respect to a proposed merger or consolidation in which Camber is a party or a subsidiary of Camber is a party.

Pursuant to the Certificate of Designations for the New Camber Series H Preferred Stock, dated as of August 1, 2023 (the “Series H COD”), each share of New Camber Series H Preferred Stock has a face value of $10,000 per share, is convertible into a certain number of shares of Camber Common Stock, with the conversion ratio based upon achievement of certain milestones by Viking’s subsidiary, Viking Protection Systems, LLC (provided the holder has not elected to receive the applicable portion of the purchase price in cash pursuant to that certain Purchase Agreement, dated as of February 9, 2022, by and between Viking and Jedda Holdings, LLC), is subject to a beneficial ownership limitation of 4.99% of Camber Common Stock (but may be increased up to a maximum of 9.99% at the sole election of a holder by the provision of at least 61 days’ advance written notice) and has voting rights equal to one vote per share of Camber Series H Preferred Stock held on a non-cumulative basis.

Holders of Viking Common Stock and Viking Preferred Stock had any fractional shares of Camber Common Stock or New Camber Preferred after the Merger rounded up to the nearest whole share.

At the Effective Time, each then outstanding option or warrant to purchase Viking Common Stock (a “Viking Option”), to the extent unvested, automatically became fully vested and was converted automatically into an option or warrant (an “Adjusted Option”) to purchase, on substantially the same terms and conditions as were applicable to such Viking Option immediately prior to the Effective Time, except that (i) instead of being exercisable into Viking Common Stock, such Adjusted Option is exercisable into Camber Common Stock, and (ii) all references to the “Company” in the Viking Option agreements are references to Camber in the Adjusted Option agreements.

At the Effective Time, each promissory note issued by Viking that is convertible into Viking Common Stock (a “Viking Convertible Note”) that, as of immediately prior to the Effective Time, is outstanding and unconverted, was converted into a promissory note convertible into Camber Common Stock (an “Adjusted Convertible Note”) having substantially the same terms and conditions as applied to the corresponding Viking Convertible Note as of immediately prior to the Effective Time (including, for the avoidance of doubt, any extended post-termination conversion period that applies following consummation of the Merger), except that (i) instead of being convertible into Viking Common Stock, such Adjusted Convertible Note is convertible into Camber Common Stock, and (ii) all references to the “Company” in the Viking Convertible Note agreements are references to Camber in the Adjusted Convertible Note agreements.

In connection with the Merger, Camber issued approximately 49,290,152 shares of Camber Common Stock, which represents approximately 59.99% of the outstanding Camber Common Stock after giving effect to such issuance.

Each share of New Camber Series H Preferred Stock has a face value of $10,000 per share, is convertible into a certain number of shares of Camber Common Stock, with the conversion ratio based upon achievement of certain milestones by Viking’s subsidiary, Viking Protection Systems, LLC (provided the holder has not elected to receive the applicable portion of the purchase price in cash pursuant to that certain Purchase Agreement, dated as of February 9, 2022, by and between Viking and Jedda Holdings, LLC), is subject to a beneficial ownership limitation of 4.99% of Camber Common Stock (but may be increased up to a maximum of 9.99% at the sole election of a holder by the provision of at least 61 days’ advance written notice) and has voting rights equal to one vote per share of Camber Series H Preferred Stock held on a non-cumulative basis.

Each outstanding option or warrant to purchase Viking Common Stock (a “Viking Option”), to the extent unvested, automatically became fully vested and was converted automatically into an option or warrant (an “Adjusted Option”) to purchase, on substantially the same terms and conditions as were applicable to such Viking Option, except that instead of being exercisable into Viking Common Stock, such Adjusted Option is exercisable into Camber Common Stock.

Each outstanding promissory note issued by Viking that is convertible into Viking Common Stock (a “Viking Convertible Note”) was converted into a promissory note convertible into Camber Common Stock (an “Adjusted Convertible Note”) having substantially the same terms and conditions as applied to the corresponding Viking Convertible Note (including, for the avoidance of doubt, any extended post-termination conversion period that applies following consummation of the Merger), except that instead of being convertible into Viking Common Stock, such Adjusted Convertible Note is convertible into Camber Common Stock.

In connection with the Merger, Camber issued approximately 49,290,152 shares of Camber Common Stock, which represented approximately 59.99% of the outstanding Camber Common Stock after giving effect to such issuance.

In addition, Camber reserved for issuance approximately 88,647,137 additional shares of Camber Common Stock in connection with the potential (1) conversion of the New Camber Series A Preferred Stock, (2) conversion of the New Camber Series H Preferred Stock, (3) exercise of the Adjusted Options and (4) conversion of the Adjusted Convertible Notes.

In connection with the closing of the Merger, on August 1, 2023, Camber filed each of the Series A COD and the Series H COD with the Nevada Secretary of State.

Doris will continue to serve as President and Chief Executive Officer of the combined company, and the combined company will continue to have its headquarters in Houston, Texas.

Certificate of Designation for New Camber Series A Preferred Stock

The Series A COD designated up to 28,092 shares of the authorized but unissued shares of its preferred stock as New Camber Series A Preferred Stock.

The following is a summary of the principal terms of the New Camber Series A Preferred Stock.

The holders of the New Camber Series A Preferred Stock (the “Series A Holders”) are entitled to receive, and Camber shall pay, dividends on shares of the New Camber Series A Preferred Stock equal to the amount of the dividend or distribution per share of Camber Common Stock payable at such time multiplied by the number of shares of Camber Common Stock the shares of New Camber Series A Preferred Stock held by such Holder are convertible into.

Voting Rights

Except as required by applicable law the Series A Holders have no right to vote on any matters, questions or proceedings of Camber except:

(a) on a proposal to increase or reduce Camber’s share capital;

(b) on a resolution to approve the terms of a buy-back agreement;

(d) on a proposal for the disposal of all or substantially all of Camber’s property, business and undertaking;

(f) during the winding-up of Camber;

and/or (g) with respect to a proposed merger or consolidation in which Camber is a party or a subsidiary of Camber is a party.

Each share of New Camber Series A Preferred Stock entitles the holder thereof to 890 votes on all matters Series A Holders have the right to vote.

Series A Holders will vote together as one class.

Upon any liquidation, dissolution or winding-up of Camber, whether voluntary or involuntary (a “Liquidation”), Series A Holders will be entitled to receive out of the assets of Camber, whether such assets are capital or surplus, for each share of New Camber Series A Preferred Stock the same amount that a holder of Camber Common Stock would receive if the New Camber Series A Preferred Stock were fully converted to Camber Common Stock, which amounts shall be paid pari passu with all holders of Camber Common Stock.

A Fundamental Transaction, as defined in the Series A COD, shall not be treated as a Liquidation.

Each share of New Camber Series A Preferred Stock is convertible, at the option of the Holder thereof, at any time after the date of issuance of such share, at the office of Camber or any transfer agent for such stock, into eight hundred and ninety (890) shares of fully paid and non-assessable Camber Common Stock (the “Series A Conversion Rate”).

The Series A Conversion Rate is subject to a beneficial ownership limitation of 9.99% as set forth in Section 6(b) of the Series A COD.

Certain Adjustments

If Camber, at any time while the New Camber Series A Preferred Stock is outstanding, issues stock splits, effects a recapitalization of the Camber Common Stock, makes a subsequent rights offerings, or makes any dividend or other distribution of its assets, then the Series A Holders can adjust the Series A Conversion Rate of the New Camber Series A Preferred Stock to account for such transaction.

Certificate of Designation for New Camber Series H Preferred Stock

The Series H COD designated up to 2,075 shares of the authorized but unissued shares of its preferred stock as New Camber Series H Preferred Stock.

The following is a summary of the principal terms of the New Camber Series H Preferred Stock.

Voting Rights

Except as required by applicable law, holders of the New Camber Series H Preferred Stock (“Series H Holders”) have voting rights equal to one vote per share of New Camber Series H Preferred Stock held on a non-cumulative basis.

Each share of New Camber Series H Preferred Stock is convertible into a number of shares of Camber Common Stock as set forth in Section 5(a) of the Series H COD (the “Series H Conversion Rate”).

The Series H Conversion Rate is subject to the beneficial ownership limitation of 4.99% as set forth in Section 5(b) of the Series H COD, provided that such beneficial ownership limitation may be increased up to a maximum of 9.99% at the sole election of a holder of such New Camber Series H Preferred Stock.

For accounting purposes, the Merger is deemed a reverse acquisition.

Consequently, Viking (the legal subsidiary) was treated as the acquiror of Camber (the legal parent).

Accordingly, these consolidated financial statements reflect the financial position, operating results, and cash flow of Viking up to the date of the Merger, and the combined financial position, operating results and cash flow of Viking and Camber from August 1, 2023 to September 30, 2023.

The prior year comparative financial information is that of Viking.

Doris continues to serve as President and Chief Executive Officer of the combined company, and the combined company continues to have its headquarters in Houston, Texas.

Going Concern Qualification

The Company’s consolidated financial statements included herein have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company generated a net loss of $(425,295) for the six months ended June 30, 2023 as compared to a net loss of $63,560,442 for the six months ended June 30, 2022.

The 2023 income was comprised of, among other things, certain non-cash items with a total net impact of $3,756,060 including:

(i) a gain on derivative and warrant liability of $6,888,313 (ii) loss in earnings of unconsolidated entity of $1,531,132;

The Company generated a net loss of $(25,272,428) for the nine months ended September 30, 2023, as compared to a net loss of $(14,695,711) for the nine months ended September 30, 2022.

The loss for the nine months ended September 30, 2023, was comprised of, among other things, certain non-cash items, including:

(i) goodwill impairment of $14,486,745;

(ii) change in fair value of derivative liability of $5,803,791;

(iii) loss on extinguishment of debt of $605,507;

(iii) amortization of debt discount of $873,776;

and (iv) depreciation, depletion and accretion of $5,544.

As of June 30, 2023, the Company has a stockholders’ deficit of $16,019,471 and total long-term debt of $35,523,337, net of debt discount.

As of June 30, 2023, the Company has a working capital deficiency of approximately $10.6 million.

The largest components of current liabilities creating this working capital deficiency are a derivative liability of $5.1 million.

Management believes it will be able to continue to leverage the expertise and relationships of its operational and technical teams to enhance existing assets and identify new development and acquisition opportunities in order to improve the Company’s financial position.

The Company may have the ability, if it can raise additional capital, to acquire new assets in a separate division from existing subsidiaries.

Nonetheless, recent oil and gas price volatility as a result of geopolitical conditions and the global COVID-19 pandemic have already had and may continue to have a negative impact on the Company’s financial position and results of operations.

Negative impacts could include but are not limited to:

The Company’s ability to sell our oil and gas production, reduction in the selling price of the Company’s oil and gas, failure of a counterparty to make required hedge payments, possible disruption of production as a result of worker illness or mandated production shutdowns, the Company’s ability to maintain compliance with loan covenants and/or refinance existing indebtedness, and access to new capital and financing.

(iv) depreciation, depletion and amortization of $698,061;

and (v) accretion of asset retirement obligation of $67,599.

As of September 30, 2023, the Company had a stockholders’ equity of $29,189,192, long-term debt of $38,849,855 and a working capital deficiency of $9,451,778.

The largest components of current liabilities creating this working capital deficiency is drawings by Simson-Maxwell against its bank credit facility of $4,324,791, accrued interest on notes payable to Discover of $4,594,469 and a derivative liability of $3,319,210.

These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern.

The Company’s ability to continue as a going concern is dependent upon its ability to utilize the resources in place to generate future profitable operations, to develop additional acquisition opportunities, and to obtain the necessary financing to meet its obligations and repay its liabilities arising from business operations when they come due.

Management believes the Company will be able to continue to develop new opportunities and will be able to obtain additional funds through debt and / or equity financings to facilitate its development strategy;

Management believes the Company may be able to continue to develop new opportunities and may be able to obtain additional funds through debt and / or equity financings to facilitate its business strategy;

however, there is no assurance of additional funding being available.

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RESULTS OF CONTINUING OPERATIONS

The following discussion of the financial condition and results of operation of the Company for the three and six months ended June 30, 2023 and 2022, should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The following discussion of the financial condition and results of operation of the Company for the three and nine months ended September 30, 2023 and 2022, should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 24, 2023.

Liquidity and Capital Resources

As of June 30, 2023, and December 31, 2022, the Company had $137,485 and $1,166,596 in cash holdings, respectively.

Three months ended June 30, 2023 compared to the three months ended June 30, 2022

The Company had gross revenues of $83,648 for the three months ended June 30, 2023, as compared to $171,651 for the three months ended June 30, 2022, reflecting a decrease of $88,003.

The Company’s operating expenses increased to $2,160,367 for the three-month period ended June 30, 2023, from $1,140,859 in the corresponding prior period.

Lease operating costs decreased by $9,350 to $32,015 for the three-month period ended June 30, 2023 as compared to $41,365 for the three-month period ended June 30, 2022, due to lower realized production levels.

DD&A expense was relatively unchanged at $2,722 for the three months ended June 30, 2023 as compared to $2,870 for the three months ended June 30, 2022.

General and administrative expenses reflected an increase of $1,029,006 to $2,125,630, when compared to $1,096,624 in the corresponding prior period, primarily due to non-recurring costs associated with the pending merger.

Income (loss) from Operations

The Company generated a loss from operations for the three months ended June 30, 2023 of $(2,076,719), when compared to a loss from operations of $(969,208) for the three months ended June 30, 2022.

As of September 30, 2023, and December 31, 2022, the Company had $1,432,599 and $3,239,349 in cash holdings, respectively.

Three months ended September 30, 2023, compared to the three months ended September 30, 2022

The Company had gross revenues of $10,131,070 for the three months ended September 30, 2023, as compared to $6,160,706 for the three months ended September 30, 2022, an increase of $3,970,364 or 64%.

The increase is driven primarily by higher power generation unit sales revenues.

Service and repair revenues and oil and gas revenues also increased during the period as compared to the prior year.

The Company’s operating expenses increased by $1,520,587 to $10,674,454 for the three-month period ended September 30, 2023, from $9,153,867 in the corresponding prior year three-month period.

Cost of goods sold for the three months ended September 30, 2023 were $6,653,715, as compared to $4,817,640 for the three-month period ended September 30, 2022 due to increased power segment sales.

Lease operating costs decreased by $35,748 to $207,931 for the three-month period ended September 30, 2023, as compared to $243,679 for the three-month period ended September 30, 2022.

Similarly, depreciation, depletion and amortization (“DD&A”) expense decreased by $75,830 to $237,361 for the three-month period ended September 30, 2023, as compared to $313,191 for the three-month period ended September 30, 2022.

General and administrative expenses increased by $829,831 to $3,557,486 compared to $2,727,655 in the corresponding prior period due to the merger.

The Company did not incur any stock-based compensation expenses during the quarter, as compared to an expense of $1,025,464 in the corresponding prior year three-month period.

Loss from Operations

The Company generated a loss from operations for the three months ended September 30, 2023, of $(543,384), compared to $(2,993,161) for the three months ended September 30, 2022.

Other Income (Expense)

The Company had other income of $3,997,500 for the three months ended June 30, 2023, as compared to other income of $5,564,213 for the three months ended June 30, 2022, primarily a result of the Company’s stock price and its impact on our derivatives.

Net Income (Loss)

The Company had net income of $1,920,781 during the three-month period ended June 30, 2023, compared with a net income of $4,595,005 for the three-month period ended June 30, 2022, primarily as a result of the items discussed above.

Six months ended June 30, 2023 compared to the six months ended June 30, 2022

The Company had gross revenues of $177,119 for the six months ended June 30, 2023, as compared to $308,058 for the six months ended June 30, 2022, reflecting a decrease of $130,939.

The Company’s operating expenses increased to $3,625,488 for the six-month period ended June 30, 2023, from $2,294,835 in the corresponding prior period.

Lease operating costs decreased by $15,630 to $75,100 for the six-month period ended June 30, 2023 as compared to $90,730 for the six-month period ended June 30, 2022, due to lower realized production levels.

DD&A expense was relatively unchanged at $5,544 for the six months ended June 30, 2023 as compared to $5,737 for the six months ended June 30, 2022.

General and administrative expenses and stock-based compensation combined reflected an increase of $1,346,476 to $3,544,844, when compared to $2,198,368 in the corresponding prior period, primarily due to non-recurring costs associated with the pending merger.

Income (loss) from Operations

The Company generated a loss from operations for the six months ended June 30, 2023 of $(3,448,369), when compared to a loss from operations of $(1,986,777) for the six months ended June 30, 2022.

The Company had other expense, net, of $(21,820,704) for the three months ended September 30, 2023, as compared to other expense of $(7,867,526) for the three months ended September 30, 2022, an increase of $13,953,178.

The increase was due primarily to goodwill impairment of $14,486,745, a loss on the change in fair value of derivative liability of $5,986,536, a loss on extinguishment of debt of $442,203 and higher interest expense and debt discount amortization during the quarter, partially offset by the loss on sale of oil and gas assets of $7,744,680 recorded during the corresponding prior year three-month period.

The Company had a net loss of $(22,364,088) during the three-month period ended September 30, 2023, compared with a net loss of $(10,680,687) for the three-month period ended September 30, 2022.

Nine months ended September 30, 2023, compared to the nine months ended September 30, 2022

The Company had gross revenues of $24,407,583 for the nine months ended September 30, 2023, as compared to $18,666,268 for the nine months ended September 30, 2022, an increase of $5,741,315 or 31%.

The increase is driven by higher power generation unit sales and service revenues, partially offset by lower oil and gas revenues, reflecting the impact of oil and gas dispositions in 2022.

The Company’s operating expenses increased by $2,062,809 to $27,621,176 for the nine-month period ended September 30, 2023, from $25,558,367 in the corresponding prior year nine-month period.

Cost of goods sold for the nine months ended September 30, 2023 were $16,256,686, as compared to $9,871,239 for the nine-month period ended September 30, 2022 due to higher power segment sales.

Lease operating costs decreased by $895,724 to $534,123 for the nine-month period ended September 30, 2023, as compared to $1,429,847 for the nine-month period ended September 30, 2022, due to the disposition of oil and gas properties in 2022.

Similarly, DD&A expense decreased by $628,600 to $698,061 for the nine-month period ended September 30, 2023, as compared to $1,326,661 for the nine-month period ended September 30, 2022, as a result of dispositions of oil and gas properties.

General and administrative expenses decreased by $1,143,710 to $10,064,707, compared to $11,208,417 in the corresponding prior period, due to a $1.8 million bad debt reserve against oil and gas receivables recorded in 2022 and the impact of cost reduction initiatives at Simson-Maxwell during the past year.

Loss from Operations

The Company generated a loss from operations for the nine months ended September 30, 2023, of $(3,213,593), compared to $(6,892,099) for the nine months ended September 30, 2022.

Other Income (Expense)

The Company had other income of $3,023,074 for the six months ended June 30, 2023, as compared to other (expense) of $(61,573,665) for the six months ended June 30, 2022, primarily a result of the Company’s stock price and its impact on our derivatives.

Net Income (Loss)

The Company had a net loss of $(425,295) during the six-month period ended June 30, 2023, compared with a net loss of $(63,560,442) for the six-month period ended June 30, 2022, primarily as a result of the items discussed above.

The Company had other expense, net, of $(22,058,835) for the nine months ended September 30, 2023, as compared to other expense of $(7,803,612) for the nine months ended September 30, 2022, an increase of $14,255,223.

The increase was due primarily to goodwill impairment of $14,486,745, a loss on the change in fair value of derivative liability of $5,803,791, a loss on extinguishment of debt of $605,507 and higher interest expense and debt discount amortization during the period, partially offset by the loss on sale of oil and gas assets of $7,744,680 recorded during the corresponding prior year nine-month period.

The Company had a net loss of $(25,272,428) during the nine-month period ended September 30, 2023, compared with a net loss of $(14,695,711) for the nine-month period ended September 30, 2022.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions and apply judgments.

We prepare our consolidated financial statements in conformity with U.S.

GAAP, which requires management to make certain estimates and assumptions and apply judgments.

We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the consolidated financial statements are prepared and actual results could differ from our estimates and such differences could be material.

Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions.

On a regular basis, we review our critical accounting policies and how they are applied in the preparation of our consolidated financial statements, as well as the sufficiency of the disclosures pertaining to our accounting policies in the footnotes accompanying our financial statements.

Described below are the most significant policies we apply in preparing our consolidated financial statements, some of which are subject to alternative treatments under GAAP.

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See “Note 4 - Summary of Significant Accounting Policies” to our consolidated financial statements.

Consolidation of Variable Interest Entities

The Company consolidates the financial results of its subsidiaries, defined as entities in which the Company holds a controlling financial interest.

Several of the Company’s subsidiaries are considered to be Variable Interest Entities (“VIE’s”) which are defined as an entity for which any of the following conditions exist:

The total equity is not sufficient to permit the entity to finance its activities without additional subordinated financial support.

The equity holders as a group have one of the following four characteristics:

Lack the power to direct activities that most significantly impact the entity’s economic performance.

Possess non-substantive voting rights.

Lack the obligation to absorb the entity’s expected losses.

Lack the right to receive the entity expected residual returns.

The Company consolidates the financial results of a VIE when it is determined that the Company is the primary beneficiary of the VIE.

Oil and Gas Property Accounting

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In accordance with SEC requirements, we based the estimated discounted future net cash flows from proved reserves on the unweighted arithmetic average of the prior 12-month commodity prices as of the first day of each of the months constituting the period and costs on the date of the estimate.

The estimates of proved reserves materially impact depreciation, depletion, amortization and accretion (“DD&A”) expense.

The estimates of proved reserves materially impact DD&A expense.

If the estimates of proved reserves decline, the rate at which we record DD&A expense will increase, reducing future net income.

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Changes in any of these assumptions can result in significant revisions to the estimated ARO.

Derivative liabilities

The Series C Preferred Stock certificate of designation, or COD, contains provisions that could result in modification of the Series C Preferred Stock conversion price that is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No.

Revenue Recognition

Oil and Gas Revenues

Sales of crude oil, natural gas, and natural gas liquids (“NGLs”) are included in revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts.

Performance obligations primarily comprise delivery of oil, gas, or NGLs at a delivery point, as negotiated within each contract.

Each barrel of oil, million BTU (“MMBtu”) of natural gas, or other unit of measure is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated.

Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer.

The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to:

whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title.

In each case, the time between delivery and when payments are due is not significant.

Power Generation Revenues

Through its 60.5% ownership in Simson-Maxwell, the Company manufactures and sells power generation products, services and custom energy solutions.

Sale of Power Generation Units

The Company considers the completed unit or units to be a single performance obligation for purposes of revenue recognition and recognizes revenue when control of the product is transferred to the customer, which typically occurs upon shipment or delivery to the customer.

Progress payments are recognized as contract liabilities until the completed unit is delivered.

Revenue is measured as the amount of consideration the Company expects to be entitled in exchange for the transfer of the units, which is generally the price stated in the contract.

The Company does not allow returns because of the customized nature of the units and does not offer discounts, rebates, or other promotional incentives or allowances to customers.

Simson-Maxwell has elected to recognize the cost for freight activities when control of the product has transferred to the customer as an expense within cost of goods.

Parts Revenue

The Company considers the purchase orders for parts, which in some cases are governed by master sales agreements, to be the contracts with the customers.

For each contract, the Company considers the commitment to transfer products, each of which is distinct, to be the identified performance obligations.

Revenue is measured as the amount of consideration the Company expects to be entitled in exchange for the transfer of product, which is generally the price stated in the contract specific for each item sold, adjusted for the value of expected returns.

Simson-Maxwell has elected to recognize the cost for freight activities when control of the product has transferred to the customer as an expense within cost of goods sold in the consolidated statements of comprehensive income.

Parts revenues are recognized at the point in time when control of the product is transferred to the customer, which typically occurs upon shipment or delivery to the customer.

Service and Repairs

Service and repairs are generally performed on customer owned equipment and billed based on labor hours incurred.

Each repair is considered a performance obligation.

As a result of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation.

Simson-Maxwell generally uses the cost-to-cost measure of progress for its service work because the customer controls the asset as it is being serviced.

Most service and repairs are completed in one or two days.

Intangible Assets

Intangible assets include amounts capitalized for the Company’s license agreement with ESG as described in Note 2.

This asset is amortized on a straight-line basis over the remaining life of the related patents being licensed, which is approximately 16 years.

Additionally, with the acquisition of Simson-Maxwell, the Company identified other intangible assets consisting of customer relationships (which is being amortized on a straight-line basis over 10 years) and Simson-Maxwell brand (which is not being amortized) with an aggregate appraised fair value $3,908,126.

With the acquisition of a 51% interest in Viking Ozone, Viking Sentinel and Viking Protection, as described in Note 8, the Company has aggregate intangible assets of $15,433,340.

These assets have an indefinite life and are not being amortized.

The Company reviews these intangible assets, at least annually, for possible impairment when events or changes in circumstances that the assets carrying amount may not be recoverable.

In evaluating the future benefit of its intangible assets, the Company estimates the anticipated undiscounted future net cash flows of the intangible assets over the remaining estimated useful life.

If the carrying amount is not recoverable, an impairment loss is recorded for the excess of the carrying value of the asset over its fair value.

The Company did not record any impairment of intangible assets during the nine months ended September 30, 2023.

Derivative Liability

The Series C Preferred Stock COD contains provisions that could result in modification of the Series C Preferred Stock conversion price that is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No.

The Series C Preferred Stock are convertible into shares of common stock at a fixed $162.50 conversion rate.

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If the Company does not elect to pay the Conversion Premium in cash, the Company will issue all shares due for the conversion and the estimated shares due for the conversion premium.

If the VWAP calculation for the portion of the Measurement Period following the date of conversion is lower than the VWAP for the portion of the Measurement Period prior to the date of conversion, the holder will be issued additional common shares, referred to as True-Up shares.

If the VWAP calculation is higher, no True-Up shares are issued.

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The fair value of the potential True-Up share obligation has been estimated using a binomial pricing mode and the lesser of the conversion price or the low closing price of the Company’s stock subsequent to the conversion date.

and the historical volatility of the Company’s common stock.

(See Note 10)

and the historical volatility of the Company’s common stock (See Note 12).

Capitalized terms used but not defined in this section have the meaning assigned to them in the Series C COD.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis