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Item 2. Management’s Discussion and Analysis

2025-04-30 compared with 2024-08-26 · 125 added, 103 removed, 183 unchanged (55% 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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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.

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 absorber 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.

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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.

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.

In February 2022, Viking acquired a 51% interest in two entities, Viking Sentinel and Viking Protection, that own the intellectual property rights to patented and patent pending 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.

A summary of the applicable patents, pending patents and/or patent applications associated with the intellectual property owned by Viking Sentinel and/or Viking Protection as at the date hereof is as follows:

Application #

Application Filed

Notice of Allowance Received

Patent Issued

Electric Transmission Line Ground Fault Prevention Methods Using Dual, High Sensitivity Monitoring

Electric Transmission Line Ground Fault Prevention Systems Using Dual, High Sensitivity Monitoring

Electric Transmission Line Ground Fault Prevention systems using dual parameter monitoring with high sensitivity relay devices in parallel with low sensitivity relay devices

Electric Transmission Line Ground Fault Prevention Methods Using Multi-Parameter High Sensitivity Monitoring

End of Line Protection with Trip-Signal Engaging

End of Line Protection with Blocking

International Application No.

PCT/US2024/010627

Electric Transmission Line Ground Fault Prevention Methods Using Multi-Parameter High Sensitivity Monitoring

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 September 30, 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 sales (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.

(“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.

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.

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:

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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.

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.

Each outstanding promissory note issued by Viking that was 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.

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

For accounting purposes, the Merger was 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.

Recent Development

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 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.

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 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’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 $(64,891,096) 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) change in fair value of derivative liability of $5,803,791;

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

(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) 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 $11,079,118, 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.

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

(v) loss on disposal of oil and gas properties of $755,506;

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

As of September 30, 2024, the Company had stockholders’ deficit of $(32,611,416), long-term debt, net of current, of $39,673,475 and a working capital deficiency of $(15,169,972).

The largest components of current liabilities creating this working capital deficiency are 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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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 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

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

Working Capital:

Nine Months Ended September 30,

Current assets

Current liabilities

Working capital deficit

$ (15,169,972 )

$ (9,451,778 )

Nine Months Ended September 30,

Net Cash Used in Operating Activities

$ (1,454,022 )

$ (4,840,379 )

Net Cash Provided by (Used In) Investing Activities

Net Cash Provided by Financing Activities

Decrease in Cash during the Period

$ (1,806,750 )

Cash and Cash Equivalents, end of Period

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 $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 $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.

The Company had gross revenues of $7,016,725 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 $3,114,345 or 31%.

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 $1,766,300 to $8,908,154 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 $4,962,370, 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 to $3,760,486 compared to $3,557,486 in the corresponding prior period.

Loss from Operations

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Other Income (Expense)

The Company had other expense, net, of $(7,333,959) 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.

Interest expense, debt discount amortization, loss on extinguishment of debt and change in fair value of derivative liability all increased during the quarter, but these increases were offsetby 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 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 $(34,793,590) 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 $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 had gross revenues of $23,214,755 for the nine months ended September 30, 2024, as compared to $24,407,583 for the nine months ended September 30, 2023, a decrease of $1,192,828 or 5%.Lower oil and gas revenues were partially offset by higher power segment revenues.

The Company’s operating expenses increased by $1,930,917 to $29,552,093 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, 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.

Cost of goods sold for the nine months ended September 30, 2024 were $16,637,568, 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 $1,925,503 to $11,990,210 compared to $10,064,707 in the corresponding prior period.

Loss from Operations

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Other Income (Expense)

The Company had other expense, net, of $(7,572,090) 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.

Interest expense, debt discount amortization, loss on extinguishment of debt and change in fair value of derivative liability all increased during the quarter, but these increases were 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 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 $(64,891,096) 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

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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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 uses 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

1 unchanged sentence

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.

The Company considers a completed unit to be a 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.

Commissioning of the unit is considered to be a separate performance obligation for which revenue is recognized when the commissioning is completed.

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 unit and commissioning of the unit, 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.

3 unchanged sentences

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.

6 unchanged sentences

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.

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

5 unchanged sentences

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

15 unchanged sentences

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/A

Item 2. Management’s Discussion and Analysis