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Item 2. Management’s Discussion and Analysis

2024-11-13 compared with 2024-08-26 · 51 added, 81 removed, 257 unchanged (34% of the section changed)

102 unchanged sentences

Oil and Gas Properties:

As of June 30, 2024, the Company did not hold any interest in producing oil and gas properties.

As of September 30, 2024, the Company did not hold any interest in producing oil and gas properties.

Divestitures in 2024:

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On August 7, 2024, the Company received notice from the NYSE Regulation that it had suspended trading of the Company’s common stock and determined to commence proceedings to delist the Company’s common stock from the NYSE American as a result of its determination that the Company is no longer suitable for listing pursuant to Section 1003(f)(v) of the NYSE American Company Guide due to the low selling price of the Company’s common stock.

The Company has a right to a review of the staff’s determination to delist the Company’s common stock by the Listings Qualifications Panel of the Committee for Review of the Board of Directors of the NYSE American.

The Company intends to request a review of the staff’s determination and appeal this determination, however, there can be no assurance that the appeal will be successful.

The NYSE will apply to the Securities and Exchange Commission to delist the Company’s common stock pending completion of applicable procedures, including any appeal by the Company of the staff’s determination.

The Company had a right to a review of the staff’s determination to delist the Company’s common stock by the Listings Qualifications Panel of the Committee for Review of the Board of Directors of the NYSE American.

The Company decided not to request a review of the staff’s determination and appeal this determination.

On August 16, 2024, the NYSE filed a Notification of Removal from Listing with the Securities and Exchange Commission to delist the Company’s common stock pending.

The Company’s common stock began trading under the trading symbol “CEIN” on the OTC Pink Market operated on the OTC Markets system effective with the open of the markets on August 8, 2024.

The Company intends to apply to have its common stock quoted on the OTCQB Venture Market on the OTC Markets;

however, there can be no assurances that its common stock will be approved, or will continue, to be traded on such market.

Effective August 27, 2024, the Company received approval to have its common stock quoted on the OTCQB Venture Market on the OTC Markets.

Going Concern Qualification

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 $(29,172,828) for the six months ended June 30, 2024, as compared to a net loss of $(2,908,339) for the six months ended June 30, 2023.

The loss for the six months ended June 30, 2024, was comprised of, among other things, certain non-cash items, including:

(i) change in fair value of derivative liability of $21,242,198;

(ii) amortization of debt discount of $1,727,351;

(iii) loss on extinguishment of debt of $811,132;

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

and (v) depreciation, depletion and amortization of $411,129.

As of June 30, 2024, the Company had a stockholders’ equity of $3,110,322, long-term debt, net of current, of $38,863,179 and a working capital deficiency of $14,988,313.

The largest components of current liabilities creating this working capital deficiency is accrued interest on notes payable to Discover Growth Fund, LLC of $5,811,159, drawings by Simson-Maxwell against its bank credit facility of $4,381,161, and a derivative liability of $3,202,691.

The Company generated a net loss of $(63,944,509) for the nine months ended September 30, 2024, as compared to a net loss of $(10,785,683) for the nine months ended September 30, 2023.

The loss for the nine months ended September 30, 2024, was comprised of, among other things, certain non-cash items, including:

(i) goodwill impairment of $34,860,411;

(ii) change in fair value of derivative liability of $18,573,289;

(iii) amortization of debt discount of $2,538,362;

(iv) loss on extinguishment of debt of $811,132;

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

and (vi) depreciation, depletion and amortization of $596,427.

As of September 30, 2024, the Company had a stockholders’ deficit of $(31,662,829), long-term debt, net of current, of $39,673,475 and a working capital deficiency of $14,221,385.

The largest components of current liabilities creating this working capital deficiency is accrued interest on notes payable to Discover Growth Fund, LLC (“Discover”) of $6,194,664 and drawings by Simson-Maxwell against its bank credit facility of $4,193,122.

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

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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, 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/A for the year ended December 31, 2023, filed with the SEC on August 26, 2024.

The following discussion of the financial condition and results of operation of the Company for the three and nine months ended September 30, 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/A for the year ended December 31, 2023, filed with the SEC on August 26, 2024.

Liquidity and Capital Resources

Working Capital:

Six Months Ended June 30,

Nine Months Ended September 30,

Current assets

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$ (9,451,778 )

Six Months Ended June 30,

Nine Months Ended September 30,

Net Cash Used in Operating Activities

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Cash and Cash Equivalents, end of Period

Net cash used in operating activities decreased to $(1,409,813) during the six months ended June 30, 2024, as compared to $(2,935,186) in the comparable period in 2023.

Net cash used in operating activities was $(1,454,022) during the nine months ended September 30, 2024, as compared to $(4,840,379) in the comparable period in 2023.

This increase is primarily the result of a higher net working capital deficit, partially offset by an increased cash loss.

Net cash flows from investing activities increased to $158,984 during the six months ended June 30, 2024, as compared to $(52,393) in the comparable period in 2023.

This increase is due to proceeds of $205,000 from the sale of oil and gas properties in 2024.

Net cash flows from financing activities increased to $952,802 during the six months ended June 30, 2024, as compared to $866,794 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 June 30, 2024, compared to the three months ended June 30, 2023

The Company had gross revenues of $9,919,961 for the three months ended June 30, 2024, as compared to $7,032,324 for the three months ended June 30, 2023, an increase of $2,887,637 or 41%.

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

The Company’s operating expenses increased by $2,727,401 to $11,449,278 for the three-month period ended June 30, 2024, from $8,721,877 in the corresponding prior year three-month period.

Cost of goods sold for the three months ended June 30, 2024 were $6,857,221, as compared to $4,816,339 for the three-month period ended June 30, 2023 due to increased power segment sales.

Lease operating costs decreased were nil for the three-month period ended June 30, 2024, as compared to $200,829 for the three-month period ended June 30, 2023.

Net cash flows from investing activities increased to $138,546 during the nine months ended September 30, 2024, as compared to $21,582 in the comparable period in 2023.

This increase is due primarily to proceeds of $205,000 from the sale of oil and gas properties in 2024.

Net cash flows from financing activities decreased to $860,831 during the nine months ended September 30, 2024, as compared to $3,012,047 in the comparable period in 2023.

This decrease is mainly due to lower net proceeds on the issuance of debt.

Three months ended September 30, 2024, compared to the three months ended September 30, 2023

The Company had gross revenues of $7,198,012 for the three months ended September 30, 2024, as compared to $10,131,070 for the three months ended September 30, 2023, a decrease of $2,933,058 or 29%.

The reported decrease is driven primarily by an unusually large sale recorded in the three-month period ended September 30, 2023.

The Company’s operating expenses decreased by $1,606,922 to $9,067,532 for the three-month period ended September 30, 2024, from $10,674,454 in the corresponding prior year three-month period.

Cost of goods sold for the three months ended September 30, 2024 were $5,121,748, as compared to $6,653,715 for the three-month period ended September 30, 2023 due to decreased power segment sales.

Lease operating costs decreased were nil for the three-month period ended September 30, 2024, as compared to $207,931 for the three-month period ended September 30, 2023.

Depreciation, depletion and amortization (“DD&A”) expense decreased to $185,298 as compared to $237,361 in the prior period.

General and administrative expenses increased by $952,827 to $4,409,727 compared to $3,456,900 in the corresponding prior period due primarily to the Merger.

General and administrative expenses increased to $3,760,486 compared to $3,557,486 in the corresponding prior period.

Loss from Operations

The Company generated a loss from operations for the three months ended June 30, 2024, of $(1,529,317), compared to $(1,689,553) for the three months ended June 30, 2023.

The Company generated a loss from operations for the three months ended September 30, 2024 of $(1,869,520), compared to $(543,384) for the three months ended September 30, 2023.

Other Income (Expense)

The Company had other expense, net, of $(1,291,943) for the three months ended June 30, 2024, as compared to other income, net of $413,541 for the three months ended June 30, 2023.

The decrease was due primarily to higher interest expense, debt discount amortization and a loss on extinguishment of debt.

The Company had a net loss of $(2,821,260) during the three-month period ended June 30, 2024, compared with a net loss of $(1,276,012) for the three-month period ended June 30, 2023.

Six months ended June 30, 2024, compared to the six months ended June 30, 2023

The Company had gross revenues of $18,212,493 for the six months ended June 30, 2024, as compared to $14,276,513 for the six months ended June 30, 2023, an increase of $3,935,980 or 28%.

The increase is driven primarily by a 56% increase in power generation unit sales revenues to $12,086,013 as compared to $7,760,206 in the prior six-month period.

The Company’s operating expenses increased by $4,787,002 to $21,733,724 for the six-month period ended June 30, 2024, from $16,946,722 in the corresponding prior year six-month period.

Cost of goods sold for the six months ended June 30, 2024 were $12,764,983, as compared to $9,602,970 for the six-month period ended June 30, 2023 due to increased power segment sales.

Lease operating costs decreased to $22,349 for the six-month period ended June 30, 2024, as compared to $326,192 for the six-month period ended June 30, 2023.

Depreciation, depletion and amortization (“DD&A”) expense of $411,129 was marginally lower as compared to $460,701 in the prior period.

The Company had other expense, net, of $(32,902,161) for the three months ended September 30, 2024, as compared to other expense, net of $(7,333,960) for the three months ended September 30, 2023.

The higher expense was due primarily to goodwill impairment of $(34,860,411), partially offset by a gain in fair value of derivative liability of $2,668,909 as compared to a loss in fair value of $(5,986,536) in the prior year.

The Company had a net loss of $(34,771,681) during the three-month period ended September 30, 2024, compared with a net loss of $(7,877,344) for the three-month period ended September 30, 2023.

Nine months ended September 30, 2024, compared to the nine months ended September 30, 2023

The Company had gross revenues of $25,410,505 for the nine months ended September 30, 2024, as compared to $24,407,583 for the nine months ended September 30, 2023, an increase of $1,002,922 or 4%.

Higher power segment revenues were partially offset by lower oil and gas revenues.

The Company’s operating expenses increased by $3,180,080 to $30,801,256 for the nine-month period ended September 30, 2024, from $27,621,176 in the corresponding prior year nine-month period.

Cost of goods sold for the nine months ended September 30, 2024 were $17,886,731, as compared to $16,256,686 for the nine-month period ended September 30, 2023 due to increased power segment sales.

Lease operating costs decreased to $22,352 for the nine-month period ended September 30, 2024, as compared to $534,123 for the nine-month period ended September 30, 2023.

Depreciation, depletion and amortization (“DD&A”) expense was $596,427 as compared to $698,061 in the prior period.

Stock based compensation was $305,000 as compared to zero in the prior period.

General and administrative expenses increased by $1,722,506 to $8,229,727 compared to $6,507,221 in the corresponding prior period due primarily to the merger.

General and administrative expenses increased by $1,925,503 to $11,990,210 compared to $10,064,707 in the corresponding prior period.

Loss from Operations

The Company generated a loss from operations for the six months ended June 30, 2024, of $(3,521,231), compared to $(2,670,209) for the six months ended June 30, 2023.

The Company generated a loss from operations for the nine months ended September 30, 2024, of $(5,390,751), compared to $(3,213,593) for the nine months ended September 30, 2023.

Other Income (Expense)

The Company had other expense, net, of $(25,651,597) for the six months ended June 30, 2024, as compared to other expense of $(238,130) for the six months ended June 30, 2023, an increase of $25,413,467.

The increase was due primarily to a loss on the change in fair value of derivative liability of $21,242,198, a loss on disposal of membership interests of $755,506 and higher interest expense, amortization of debt discount and loss on extinguishment of debt.

The Company had a net loss of $(29,172,828) during the six-month period ended June 30, 2024, compared with a net loss of $(2,908,339) for the six-month period ended June 30, 2023.

The Company had other expense, net, of $(58,553,758) for the nine months ended September 30, 2024, as compared to other expense, net, of $(7,572,090) for the nine months ended September 30, 2023.

The higher expense was due primarily to goodwill impairment of $(34,860,411), a loss on the change in fair value of derivative liability of $(18,573,289), a loss on disposal of membership interests of $(755,506) and higher interest expense, amortization of debt discount and loss on extinguishment of debt.

The Company had a net loss of $(63,944,509) during the nine-month period ended September 30, 2024, compared with a net loss of $(10,785,683) for the nine-month period ended September 30, 2023.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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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

The Company used the full cost method of accounting for its investment in oil and natural gas properties.

Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas properties (including such costs as leasehold acquisition costs, geological expenditures, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred.

The full cost method requires the Company to calculate quarterly, by cost center, a “ceiling,” or limitation on the amount of properties that can be capitalized on the balance sheet.

To the extent capitalized costs of oil and natural gas properties, less accumulated depletion and related deferred taxes, exceed the sum of the discounted future net revenues of proved oil and natural gas reserves, the lower of cost or estimated fair value of unproved not properties subject to amortization, the cost of properties not being amortized, and the related tax amounts, such excess capitalized costs are charged to expense.

Proved Reserves

Estimates of our proved reserves included in this report are prepared in accordance with U.S.

SEC guidelines for reporting corporate reserves and future net revenue.

The accuracy of a reserve estimate is a function of:

the quality and quantity of available data;

the interpretation of that data;

the accuracy of various mandated economic assumptions;

the judgment of the persons preparing the estimate.

Our proved reserve information included in this report was predominately based on estimates.

Because these estimates depend on many assumptions, all of which may substantially differ from future actual results, reserve estimates will be different from the quantities of oil and gas that are ultimately recovered.

In addition, results of drilling, testing and production after the date of an estimate may justify material revisions to the estimate.

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 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.

Such a decline may result from lower market prices, which may make it uneconomic to drill for and produce from higher-cost fields.

Asset Retirement Obligation

Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount we will incur to plug, abandon and remediate our producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws.

We determined our ARO by calculating the present value of estimated cash flows related to the obligation.

The retirement obligation is recorded as a liability at its estimated present value as of the obligation’s inception, with an offsetting increase to proved properties.

Periodic accretion of discount of the estimated liability is recorded as accretion expense in the accompanying consolidated statements of operations.

ARO liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells and a risk-adjusted interest rate.

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

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

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

Oil and Gas Revenues

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

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

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.

38 unchanged sentences

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