What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-10 compared with 2023-11-14 · 88 added, 74 removed, 213 unchanged (43% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

You should read the following discussion and analysis in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

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.

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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:

Camber is a growth-oriented diversified energy company.

Through our 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.

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

Various of our 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.

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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.

In January 2022, Viking acquired a 51% interest in 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.

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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.

In February 2022, Viking acquired a 51% interest in two entities, Viking Sentinel and Viking Protection, that own the intellectual property rights to patented (i.e., U.S.

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.

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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.

As of March 31, 2024, the Company did not hold any interest in producing oil and gas properties.

Divestitures in 2024:

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

On February 1, 2024, the Company sold its working interest in oil and gas properties producing from the Cline and Wolfberry formations in Texas for gross proceeds of $205,000.

The Company recorded a net loss on this transaction, as follows:

Proceeds from sale (net of transaction costs)

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.

Divestitures in 2023:

On November 5, 2023, Mid-Con Petroleum, LLC and Mid-Con Drilling, LLC, wholly owned subsidiaries of Viking, sold 100% of their interest in oil and gas assets in Kansas, consisting of 168 producing wells, 90 injector wells and 34 non-producing wells, for gross proceeds of $515,000.

On December 1, 2023, a subsidiary of Petrodome sold its non-operated working interest in a producing oil well in Texas for proceeds of $250,000.

The Company recorded a net gain on these two transactions, as follows:

Proceeds from sale (net of transaction costs)

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

ARO recovered

Cash bond recoverable (net of fees)

Gain on disposal

Following these transactions, Petrodome ceased to be the operator of any oil and gas properties and applied for the refund of a cash performance bond of $50,000.

The refund, net of fees, is included in prepaids and other current assets at December 31, 2023 and was included in the determination of the gain on disposal.

Merger with Viking Energy Group, Inc.

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

On August 1, 2023, Camber Energy, Inc.

(“Camber”, the “Company”, “we”, “us” or “our”) 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.

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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.

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 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 (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.

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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.

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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 $(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;

(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 Company’s condensed 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 $(26,351,568) for the three months ended March 31, 2024, as compared to a net loss of $(1,632,327) for the three months ended March 31, 2023.

The loss for the three months ended March 31, 2024, was comprised of, among other things, certain non-cash items, including:

(i) change in fair value of derivative liability of $22,117,007;

(ii) amortization of debt discount of $883,277;

(iii) loss on disposal of membership interests of $755,506;

and (iv) depreciation, depletion and amortization of $228,799.

As of March 31, 2024, the Company had a stockholders’ equity of $20,156,132, long-term debt, net of current, of $40,854,502 and a working capital deficiency of $14,246,826.

The largest components of current liabilities creating this working capital deficiency is drawings by Simson-Maxwell against its bank credit facility of $3,927,188, accrued interest on notes payable to Discover of $5,431,823 and a derivative liability of $4,077,500.

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

These consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.

These condensed consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.

RESULTS OF CONTINUING OPERATIONS

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.

The following discussion of the financial condition and results of operation of the Company for the three months ended March 31, 2024 and 2023, 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, 2023, filed with the SEC on March 25, 2024.

Liquidity and Capital Resources

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 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.

Working Capital:

Three Months Ended March 31,

Current assets

Current liabilities

Working capital deficit

$ (14,246,826 )

$ (9,318,767 )

Three Months Ended March 31,

Net Cash Used in Operating Activities

$ (1,185,014 )

Net Cash Provided by Investing Activities

Net Cash Provided by (Used in) Financing Activities

Decrease in Cash during the Period

$ (1,321,494 )

Cash and Cash Equivalents, end of Period

Net cash used in operating activities increased to $(1,185,014) during the three months ended March 31, 2024, as compared to $(948,129) in the comparable period in 2023.

This increase is primarily the result of a higher negative cash loss.

Net cash flows from investing activities increased to $162,596 during the three months ended March 31, 2024, as compared to $(25,726) in the comparable period in 2023.

This increase is due to proceeds from the sale of oil and gas properties in 2024.

Net cash used in financing activities increased to $524,063 during the three months ended March 31, 2024, as compared to $(347,639) in the comparable period in 2023.

This increase is mainly due to lower debt repayments and an increase in the bank credit facility.

Three months ended March 31, 2024, compared to the three months ended March 31, 2023

The Company had gross revenues of $8,292,532 for the three months ended March 31, 2024, as compared to $7,244,189 for the three months ended March 31, 2023, an increase of $1,048,343 or 14%.

The increase is driven primarily by higher power generation unit sales revenues, partially offset by lower service and repair revenues and oil and gas revenues.

The Company’s operating expenses increased by $2,059,601 to $10,284,446 for the three-month period ended March 31, 2024, from $8,224,845 in the corresponding prior year three-month period.

Cost of goods sold for the three months ended March 31, 2024 were $5,907,762, as compared to $4,786,631 for the three-month period ended March 31, 2023 due to increased power segment sales.

Lease operating costs decreased to $22,349 for the three-month period ended March 31, 2024, as compared to $125,363 for the three-month period ended March 31, 2023.

Depreciation, depletion and amortization (“DD&A”) expense of $228,799 was flat as compared to $231,148 in the prior period.

Stock based compensation was $304,999 as compared to zero in the prior period.

General and administrative expenses increased by $769,680 to $3,820,001 compared to $3,050,321 in the corresponding prior period due primarily to the merger.

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.

The Company generated a loss from operations for the three months ended March 31, 2024, of $(1,991,914), compared to $(980,656) for the three months ended March 31, 2023.

Other Income (Expense)

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.

The Company had other expense, net, of $(24,359,654) for the three months ended March 31, 2024, as compared to other expense of $(651,671) for the three months ended March 31, 2023, an increase of $23,707,983.

The increase was due primarily to a loss on the change in fair value of derivative liability of $22,117,007, amortization of debt discount of $883,277, a loss on disposal of membership interests of $755,506 and higher interest expenses.

The Company had a net loss of $(26,351,568) during the three-month period ended March 31, 2024, compared with a net loss of $(1,632,327) for the three-month period ended March 31, 2023.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

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

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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 consolidated 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.

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

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

We also describe the most significant estimates and assumptions we make in applying these policies.

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

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

Consolidation of Variable Interest Entities

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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.

Revenue is measured as the amount of consideration the Company expects to be entitled to 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.

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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.

Revenue is measured as the amount of consideration the Company expects to be entitled to 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.

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

Goodwill is the excess of cost of an acquired entity over the fair value of amounts assigned to assets acquired and liabilities assumed in a business combination.

Goodwill is subject to impairment testing at least annually and will be tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired.

An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If, after completing the assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company will proceed to a quantitative test.

The Company may also elect to perform a quantitative test instead of a qualitative test for any or all of our reporting units.

The test compares the fair value of an entity’s reporting units to the carrying value of those reporting units.

This quantitative test requires various judgments and estimates.

The Company estimates the fair value of the reporting unit using a market approach in combination with a discounted operating cash flow approach.

Impairment of goodwill is measured as the excess of the carrying amount of goodwill over the fair values of recognized and unrecognized assets and liabilities of the reporting unit.

Intangible Assets

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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.

In evaluating the future benefit of its intangible assets, the Company estimates the anticipated discounted 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

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The fair value of the derivative liability relating to the Conversion Premium for any outstanding Series C Shares is equal to the cash required to settle the Conversion Premium.

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 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

As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information under this item.

The Company, as a smaller reporting company (as defined by Rule 12b-2 of the Exchange Act), is not required to furnish the information required by this item.

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