10-Q 1 cei_10q.htm FORM 10-Q cei_10q.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023 

 

OR

 

TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _______.

 

Commission file number: 000-29219

 

Camber Energy, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada

 

20-2660243

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

15915 Katy Freeway, Suite 450

Houston, TX 77094

(Address of principal executive offices)

 

(281) 404 4387

(Registrant’s telephone number, including area code)

 

______________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act: 

 

Title of each class

Trading Symbol(s) 

Name of each exchange on which registered 

Common Stock, $0.001 Par Value Per Share 

CEI

NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

 

 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of November 14, 2023, the registrant had 107,531,250 shares of common stock outstanding.

 

 

 

 

CAMBER ENERGY, INC.

 

 

Part I – Financial Information

 

 

Item 1

Financial Statements

 

3

 

 

Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (unaudited)

 

3

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 (unaudited)

 

4

 

 

Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022 (unaudited)

 

5

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2023, and 2022 (unaudited)

 

6

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2023 and 2022 (unaudited)

 

7

 

 

Notes to Consolidated Financial Statements (unaudited)

 

9

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

41

 

Item 3

Quantitative and Qualitative Disclosures about Market Risk

 

50

 

Item 4

Controls and Procedures

 

50

 

 

 

 

 

 

 

Part II – Other Information

 

 

 

 

 

 

 

 

Item 1

Legal Proceedings

 

52

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

53

 

Item 3

Defaults Upon Senior Securities

 

53

 

Item 4

Mine Safety Disclosures

 

53

 

Item 5

Other Information

 

53

 

Item 6

Exhibits

 

54

 

 

 
2

Table of Contents

  

PART I—FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CAMBER ENERGY, INC.

Consolidated Balance Sheets

 

 

September 30,

2023

 

 

December 31,

2022

 

 

 

(unaudited)

 

 

 (unaudited)

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$1,432,599

 

 

$3,239,349

 

Accounts receivable, net

 

 

6,496,069

 

 

 

5,276,622

 

Inventory

 

 

9,533,284

 

 

 

10,276,662

 

Prepaids and other current assets

 

 

482,902

 

 

 

158,107

 

Total current assets

 

 

17,944,854

 

 

 

18,950,740

 

 

 

 

 

 

 

 

 

 

Oil and gas properties, full cost method

 

 

 

 

 

 

 

 

Proved oil and gas properties, net

 

 

2,595,847

 

 

 

1,285,918

 

Total oil and gas properties, net

 

 

2,595,847

 

 

 

1,285,918

 

 

 

 

 

 

 

 

 

 

Fixed assets, net

 

 

1,604,257

 

 

 

1,716,200

 

Right of use assets, net

 

 

3,411,385

 

 

 

4,357,328

 

ESG Clean Energy license, net

 

 

4,346,245

 

 

 

4,577,131

 

Other intangibles - Simson Maxwell, net

 

 

3,129,136

 

 

 

3,254,600

 

Other intangibles - Variable Interest Entities

 

 

15,433,340

 

 

 

15,433,340

 

Goodwill

 

 

52,970,485

 

 

 

-

 

Due from related parties

 

 

326,053

 

 

 

327,132

 

Deposits and other assets

 

 

10,300

 

 

 

10,300

 

TOTAL ASSETS

 

$101,771,902

 

 

$49,912,689

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$5,288,498

 

 

$3,905,247

 

Accrued expenses and other current liabilities

 

 

6,785,089

 

 

 

1,248,301

 

Customer deposits

 

 

3,156,514

 

 

 

5,447,025

 

Due to Parent

 

 

-

 

 

 

6,572,300

 

Undistributed revenues and royalties

 

 

2,295,259

 

 

 

2,378,739

 

Current portion of operating lease liability

 

 

1,201,563

 

 

 

1,304,047

 

Due to related parties

 

 

627,001

 

 

 

629,073

 

Current portion of notes payable - related parties

 

 

395,964

 

 

 

56,916

 

Bank indebtedness - credit facility

 

 

4,324,791

 

 

 

3,111,350

 

Derivative liability

 

 

3,319,210

 

 

 

-

 

Current portion of long-term debt - net of discount

 

 

2,743

 

 

 

637,335

 

Total current liabilities

 

 

27,396,632

 

 

 

25,290,333

 

Long term debt - net of current portion and debt discount

 

 

38,849,855

 

 

 

2,106,281

 

Notes payable - related parties - net of current portion

 

 

579,780

 

 

 

627,153

 

Operating lease liability, net of current portion

 

 

2,260,844

 

 

 

3,160,654

 

Contingent obligations

 

 

1,435,757

 

 

 

1,435,757

 

Asset retirement obligation

 

 

2,059,842

 

 

 

1,927,196

 

TOTAL LIABILITIES

 

 

72,582,710

 

 

 

34,547,374

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Preferred stock Series A, $0.001 par value, 50,000 shares authorized, 28,092 shares issued and outstanding as of September 30, 2023 and December 31, 2022

 

 

28

 

 

 

28

 

Preferred stock Series C, $0.001 per value, 5,200 shares authorized, 30 shares issued and outstanding as of September 30, 2023. Liquidation preference of $1,033,950.

 

 

1

 

 

 

-

 

Preferred stock Series G, $0.001 par value, 25,000 authorized, 5,272 shares issued and outstanding as of September 30, 2023. Liquidation preference of nil.

 

 

5

 

 

 

-

 

Preferred stock Series H, $0.001 par value, 2,075 shares authorized, 275 and 475 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

 

 

3

 

 

 

5

 

Common stock, $0.001 par value, 500,000,000 shares authorized, 107,531,250 and 44,852,611 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

 

 

107,531

 

 

 

44,853

 

Additional paid-in capital

 

 

166,669,397

 

 

 

127,757,269

 

Accumulated other comprehensive loss

 

 

(304,182 )

 

 

(425,677 )

Accumulated deficit

 

 

(147,393,746 )

 

 

(122,187,673 )

Parent’s stockholders’ equity in Camber

 

 

19,079,037

 

 

 

5,188,805

 

Non-controlling interest

 

 

10,110,155

 

 

 

10,176,510

 

TOTAL STOCKHOLDERS’ EQUITY

 

 

29,189,192

 

 

 

15,365,315

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$101,771,902

 

 

$49,912,689

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 
3

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CAMBER ENERGY, INC.

Consolidated Statements of Operations (Unaudited)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Power generation units and parts

 

$6,742,182

 

 

$3,278,966

 

 

$14,502,388

 

 

$6,913,093

 

Service and repairs

 

 

3,155,064

 

 

 

2,763,886

 

 

 

9,199,965

 

 

 

8,086,449

 

Oil and gas sales

 

 

233,824

 

 

 

117,854

 

 

 

705,230

 

 

 

3,666,726

 

 

 

 

10,131,070

 

 

 

6,160,706

 

 

 

24,407,583

 

 

 

18,666,268

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

6,653,715

 

 

 

4,817,640

 

 

 

16,256,686

 

 

 

9,871,239

 

Lease operating costs

 

 

207,931

 

 

 

243,679

 

 

 

534,123

 

 

 

1,429,847

 

General and administrative

 

 

3,557,486

 

 

 

2,727,655

 

 

 

10,064,707

 

 

 

11,208,417

 

Stock based compensation

 

 

-

 

 

 

1,025,464

 

 

 

-

 

 

 

1,614,334

 

Depreciation, depletion and amortization

 

 

237,361

 

 

 

313,191

 

 

 

698,061

 

 

 

1,326,661

 

Accretion – Asset Retirement Obligation

 

 

17,961

 

 

 

26,238

 

 

 

67,599

 

 

 

107,869

 

Total operating expenses

 

 

10,674,454

 

 

 

9,153,867

 

 

 

27,621,176

 

 

 

25,558,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(543,384)

 

 

(2,993,161)

 

 

(3,213,593)

 

 

(6,892,099)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(421,348)

 

 

(154,022)

 

 

(757,503)

 

 

(507,067)

Amortization of debt discount

 

 

(608,002)

 

 

(2,400)

 

 

(873,776)

 

 

(97,296)

Change in fair value of derivative liability

 

 

(5,986,536)

 

 

-

 

 

 

(5,803,791)

 

 

-

 

Net loss on sale of oil and gas properties and fixed assets

 

 

-r

 

 

 

(7,744,680)

 

 

-

 

 

 

(7,744,680)

Loss on extinguishment of debt

 

 

(442,203)

 

 

-

 

 

 

(605,507)

 

 

-

 

Goodwill impairment

 

 

(14,486,745)

 

 

-

 

 

 

(14,486,745)

 

 

-

 

Other income

 

 

124,130

 

 

 

33,576

 

 

 

468,487

 

 

 

545,431

 

Total other expense, net

 

 

(21,820,704)

 

 

(7,867,526)

 

 

(22,058,835)

 

 

(7,803,612)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss before income taxes

 

 

(22,364,088)

 

 

(10,860,687)

 

 

(25,272,428)

 

 

(14,695,711)

Income tax benefit (expense)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

(22,364,088)

 

 

(10,680,687)

 

 

(25,272,428)

 

 

(14,695,711)

Net income (loss) attributable to non-controlling interest

 

 

298,220

 

 

 

(583,774)

 

 

(66,355)

 

 

(1,132,628)

Net loss attributable to Camber Energy, Inc.

 

$(22,662,308)

 

$(10,276,913)

 

$(25,206,073)

 

$(13,563,083)

Loss per share of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

$(0.28)

 

$(0.23)

 

$(0.43)

 

$(0.30)

Weighted average number of shares of common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

81,321,320

 

 

 

44,852,609

 

 

 

58,140,435

 

 

 

44,575,342

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 
4

Table of Contents

  

CAMBER ENERGY, INC.

Consolidated Statements of Comprehensive Loss (Unaudited)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$(22,364,088 )

 

$(10,860,687 )

 

$(25,272,428 )

 

$(14,695,711 )

Foreign currency translation adjustment

 

 

11,387

 

 

 

(372,130 )

 

 

121,495

 

 

 

(306,835 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss

 

 

(22,352,701 )

 

 

(11,232,817 )

 

 

(25,150,933 )

 

 

(15,002,546 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less comprehensive income (loss) attributable to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) attributable to non-controlling interest

 

 

298,220

 

 

 

(583,774 )

 

 

(66,355 )

 

 

(1,132,628 )

Foreign currency translation adjustment attributable to non-controlling interest

 

 

4,498

 

 

 

(146,991 )

 

 

47,990

 

 

 

(121,200 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to non-controlling interest

 

 

302,718

 

 

 

(730,765 )

 

 

(18,365 )

 

 

(1,253,828 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss attributable to Camber

 

$(22,655,419 )

 

$(10,502,052 )

 

$(25,132,568 )

 

$(13,748,718 )

 

 
5

Table of Contents

  

CAMBER ENERGY, INC.

Consolidated Statements of Cash Flows (Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$(25,272,428 )

 

$(14,695,711 )

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

 

 

 

Change in fair value of derivative liability

 

 

5,803,791

 

 

 

-

 

Stock based compensation

 

 

-

 

 

 

1,614,334

 

Depreciation, depletion and amortization

 

 

698,061

 

 

 

1,326,661

 

Amortization of operational right-of-use assets

 

 

12,326

 

 

 

16,443

 

Accretion – asset retirement obligation

 

 

67,599

 

 

 

107,869

 

Amortization of debt discount

 

 

873,776

 

 

 

97,296

 

Loss on extinguishment of debt

 

 

605,507

 

 

 

-

 

Goodwill impairment

 

 

14,486,745

 

 

 

-

 

Net loss on sale of oil and gas properties and fixed assets

 

 

-

 

 

 

8,944,680

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,219,447 )

 

 

3,506,863

 

Prepaids and other current assets

 

 

(76,879 )

 

 

297,915

 

Inventory

 

 

743,378

 

 

 

(2,947,729 )

Accounts payable

 

 

(245,418 )

 

 

(4,723,140 )

Accrued expenses and other current liabilities

 

 

936,099

 

 

 

(1,051,080 )

Due to related parties

 

 

(993 )

 

 

143,631

 

Customer deposits

 

 

(2,290,511 )

 

 

3,776,570

 

Undistributed revenues and royalties

 

 

(83,480 )

 

 

1,476,856

 

Net cash used in operating activities

 

 

(4,961,874 )

 

 

(2,108,542 )

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of oil and gas properties

 

 

-

 

 

 

3,590,000

 

Investment in and acquisition of oil and gas properties

 

 

-

 

 

 

(9,813 )

Proceeds from sale of fixed assets

 

 

-

 

 

 

76,310

 

Acquisition of fixed assets

 

 

(133,373 )

 

 

(46,554 )

Cash acquired on Merger

 

 

154,955

 

 

 

-

 

Collection of notes receivable

 

 

-

 

 

 

3,000,000

 

Net cash provided by investing activities

 

 

21,582

 

 

 

6,609,943

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayment of long-term debt

 

 

(373,069 )

 

 

(8,477,664 )

Proceeds of long-term debt

 

 

4,000,000

 

 

 

-

 

Proceeds from (repayment of) non-interest-bearing advances from Camber

 

 

(2,120,000 )

 

 

2,722,300

 

Advances from bank credit facility

 

 

1,213,441

 

 

 

2,995,017

 

Issuance of promissory notes

 

 

291,675

 

 

 

-

 

Net cash provided by (used in) financing activities

 

 

3,012,047

 

 

 

(2,760,347 )

 

 

 

 

 

 

 

 

 

Effect of exchange rates on cash

 

 

121,495

 

 

 

(306,835 )

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

(1,806,750 )

 

 

1,434,219

 

Cash, beginning of period

 

 

3,239,349

 

 

 

3,467,938

 

 

 

 

 

 

 

 

 

 

Cash, end of period

 

$1,432,599

 

 

$4,902,157

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$421,754

 

 

$494,862

 

Income taxes

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Issuance of shares on conversion of debt

 

$3,832,273

 

 

$-

 

Amortization of right-of-use asset and lease liability

 

$945,943

 

 

$948,870

 

Issuance of shares for purchase of VIE interests

 

$-

 

 

$2,250,000

 

Issuance of preferred shares for purchase of VIE interest

 

$-

 

 

$4,750,000

 

Contingent obligation associated with acquisition of VIE interests

 

$-

 

 

$1,435,757

 

Issuance of warrants for services

 

 

-

 

 

$778,204

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 
6

Table of Contents

  

CAMBER ENERGY, INC.

Consolidated Statements of Changes in Stockholders Equity (Unaudited)

 

For the nine months ended September 30, 2023

 

 

 

 Preferred Stock

 

 

 Preferred Stock

 

 

 Preferred Stock

 

 

 Preferred Stock

 

 

 

 

 

 

 

 

 Additional

 

 

 Accumulated

Other

 

 

 

 

 

 

 

 

 Total

 

 

 

 Series A

 

 

 Series C

 

 

 Series G

 

 

 Series H

 

 

 Common Stock

 

 

 Paid-in

 

 

 Comprehensive

 

 

 (Accumulated  

 

 

 Noncontrolling

 

 

 

 

 

 

Number

 

 

Amount

 

 

Number

 

 

Amount

 

 

Number

 

 

Amount

 

 

Number

 

 

Amount

 

 

Number

 

 

Amount

 

 

Capital

 

 

(Loss)

 

 

Deficit)

 

 

Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2022

 

 

28,092

 

 

$28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

475

 

 

$5

 

 

 

44,852,611

 

 

$44,853

 

 

$127,757,269

 

 

$(425,677)

 

$(122,187,673)

 

$10,176,510

 

 

$15,365,315

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued on exercise of warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,849,306

 

 

 

3,849

 

 

 

(3,849)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Reverse merger adjustment

 

 

 

 

 

 

 

 

 

 

49

 

 

 

1

 

 

 

5,272

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

32,876,514

 

 

 

32,876

 

 

 

28,167,903

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,200,785

 

Common shares issued on conversion of debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,625,905

 

 

 

9,626

 

 

 

6,506,430

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,516,056

 

Common shares issued on conversion of Series H preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(200)

 

 

(2)

 

 

3,333,333

 

 

 

3,333

 

 

 

(3,331)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Common shares issued on conversion of Series C preferred stock

 

 

 

 

 

 

 

 

 

 

(19)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,093,358

 

 

 

1,094

 

 

 

(1,094)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Common shares issued on true-up of Series C preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,900,223

 

 

 

11,900

 

 

 

4,246,069

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,257,969

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

121,495

 

 

 

 

 

 

 

 

 

 

 

121,495

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,206,073)

 

 

(66,355)

 

 

(25,272,428)

Balances at September 30, 2023

 

 

28,092

 

 

$28

 

 

 

30

 

 

$1

 

 

 

5,272

 

 

$5

 

 

 

275

 

 

$3

 

 

 

107,531,250

 

 

$107,531

 

 

$166,669,397

 

 

$(304,182)

 

$(147,393,746)

 

$10,110,155

 

 

$29,189,192

 

 

 
7

Table of Contents

 

For the nine months ended September 30, 2022

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

 

 

 

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Series A

 

 

Series C

 

 

Series G

 

 

Series H

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

(Accumulated

 

 

Noncontrolling

 

 

 

 

 

 

Number

 

 

Amount

 

 

Number

 

 

Amount

 

 

Number

 

 

Amount

 

 

Number

 

 

Amount

 

 

Number

 

 

Amount

 

 

Capital

 

 

(Loss)

 

 

Deficit)

 

 

Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2021

 

 

28,092

 

 

$28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41,102,609

 

 

$41,103

 

 

$120,316,152

 

 

$(177,981)

 

$(106,760,344)

 

$4,609,271

 

 

$18,028,229

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rounding difference

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued in acquisition of membership interest in Viking Ozone, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,333,333

 

 

 

3,333

 

 

 

1,996,667

 

 

 

 

 

 

 

 

 

 

 

2,420,189

 

 

 

4,420,189

 

Shares issued in acquisition of membership interest in Viking Sentinel, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

416,667

 

 

 

417

 

 

 

232,917

 

 

 

 

 

 

 

 

 

 

 

224,184

 

 

 

457,518

 

Shares issued in acquisition of membership interest in Viking Protection, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

475

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

4,433,329

 

 

 

 

 

 

 

 

 

 

 

4,686,542

 

 

 

9,119,876

 

Adjustment to acquisition of Simson-Maxwell

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

167,254

 

 

 

167,254

 

Warrants issued for services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

778,204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

778,204

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(306,835)

 

 

 

 

 

 

 

 

 

 

(306,835)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,563,083)

 

 

(1,132,628)

 

 

(14,695,711)

Balances at September 30, 2022

 

 

28,092

 

 

$28

 

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

 

 

475

 

 

$5

 

 

 

44,852,611

 

 

$44,853

 

 

$127,757,269

 

 

$(484,816)

 

$(120,323,427)

 

$10,974,812

 

 

$17,968,724

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 
8

Table of Contents

  

CAMBER ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

 

Note 1. 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.

 

Upon the terms and conditions in the Merger Agreement, each share: (i) of common stock, par value $0.001 per share, of Viking (the “Viking Common Stock”) issued and outstanding, other than shares owned by Camber, was converted into the right to receive one share of common stock of Camber (the “Camber Common Stock”); (ii) of Series C Preferred Stock of Viking (the “Viking Series C Preferred Stock”) issued and outstanding was converted into the right to receive one share of Series A Convertible Preferred Stock of Camber (the “New Camber Series A Preferred Stock”) and (iii) of Series E Convertible Preferred Stock of Viking (the “Viking Series E Preferred Stock,” and, together with the Viking Series C Preferred Stock, the “Viking Preferred Stock”) issued and outstanding was converted into the right to receive one share of Series H Preferred Stock of Camber (the “New Camber Series H Preferred Stock,” and, together with the New Camber Series A Preferred Stock, the “New Camber Preferred”).

 

Each share of New Camber Series A Preferred Stock is convertible into 890 shares of Camber Common Stock (subject to a beneficial ownership limitation preventing conversion into Camber Common Stock if the holder would be deemed to beneficially own more than 9.99% of Camber Common Stock), is treated equally with Camber Common Stock with respect to dividends and liquidation, and only has voting rights with respect to voting: (a) on a proposal to increase or reduce Camber’s share capital; (b) on a resolution to approve the terms of a buy-back agreement; (c) on a proposal to wind up Camber; (d) on a proposal for the disposal of all or substantially all of Camber’s property, business and undertaking; (f) during the winding-up of Camber; and/or (g) with respect to a proposed merger or consolidation in which Camber is a party or a subsidiary of Camber is a party.

 

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

 

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

 

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

 

 
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Table of Contents

 

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. 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.

 

James A. 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.

 

Note 2. Company Overview and Operations 

 

Camber is a growth-oriented diversified energy company. Through Viking’s majority-owned subsidiaries we provide custom energy and power solutions to commercial and industrial clients in North America, and have a majority interest in: (i) an entity with intellectual property rights to a fully developed, patented, proprietary Medical and Bio-Hazard Waste Treatment system using Ozone Technology; and (ii) entities with the intellectual property rights to fully developed, patented and patent pending, proprietary Electric Transmission and Distribution Open Conductor Detection Systems. Also through Viking, we hold a license to a patented clean energy and carbon-capture system with exclusivity in Canada and for multiple locations in the United States. Viking’s other subsidiaries own interests in oil properties in the United States. The Company is also exploring other renewable energy-related opportunities and/or technologies, which are currently generating revenue, or have a reasonable prospect of generating revenue within a reasonable period of time.

 

Custom Energy and Power Solutions:

 

Simson-Maxwell Acquisition

 

On August 6, 2021, Viking, acquired approximately 60.5% of the issued and outstanding shares of Simson-Maxwell Ltd. (“Simson-Maxwell”), a Canadian federal corporation, for $7,958,159 in cash. Simson-Maxwell manufactures and supplies power generation products, services and custom energy solutions. Simson-Maxwell provides commercial and industrial clients with efficient, flexible, environmentally responsible and clean-tech energy systems involving a wide variety of products, including CHP (combined heat and power), tier 4 final diesel and natural gas industrial engines, solar, wind and storage. Simson-Maxwell also designs and assembles a complete line of electrical control equipment including switch gear, synchronization and paralleling gear, distribution, Bi-Fuel and complete power generation production controls. Operating for over 80 years, Simson-Maxwell’s seven branches assist with servicing a large number of existing maintenance arrangements and meeting the energy and power-solution demands of the Company’s other customers.

 

Clean Energy and Carbon-Capture System:

 

In August 2021, Viking entered into a license agreement with ESG Clean Energy, LLC (“ESG”), to utilize ESG’s patent rights and know-how related to stationary electric power generation and heat and carbon dioxide capture (the “ESG Clean Energy System”). The intellectual property licensed by Viking includes certain patents and/or patent applications, including: (i) U.S. Patent No.: 10,774,733, File date: October 24, 2018, Issue date: September 15, 2020, Titled: “Bottoming Cycle Power System”; (ii) U.S. Patent No.: 17/661,382, Issue date: August 8, 2023, Titled: ‘Systems and Methods Associated With Bottoming Cycle Power Systems for Generating Power, Capturing Carbon Dioxide and Producing Products’; (iii) U.S. Patent No.: 11624307, Issue date: April 22, 2023, Titled: ‘Systems and Methods Associated With Bottoming Cycle Power Systems for Generating Power and Capturing Carbon Dioxide’ (iv) European (validated in the United Kingdom, France and Germany) Patent No.: EP3728891, Issue date: April 12, 2023, Titled: “Bottoming Cycle Power System”; (v) U.S. Patent Application No.: 17/224,200, File date: April 7, 2021, Titled: “Bottoming Cycle Power System” (which was subsequently approved by the U.S. Patent & Trademark Office in March, 2022 (No. 11,286,832); (vi) U.S. Patent Application No.: 17/358,197, File date: June 25, 2021, Titled: “Bottoming Cycle Power System”; (vii) U.S. Patent Application No.: 17/448,943, File date: September 27, 2021, Titled: “Systems and Methods Associated With Bottoming Cycle Power Systems for Generating Power and Capturing Carbon Dioxide”; and (viii) U.S. Patent Application No.: 17/448,938, File date: September 27, 2021, Titled: “Systems and Methods Associated With Bottoming Cycle Power Systems for Generating Power, Capturing Carbon Dioxide and Producing Products.

 

 
10

Table of Contents

 

The ESG Clean Energy System is designed to, among other things, generate clean electricity from internal combustion engines and utilize waste heat to capture approximately 100% of the carbon dioxide (CO2) emitted from the engine without loss of efficiency, and in a manner to facilitate the production of certain commodities. Patent No. 11,286,832, for example, covers the invention of an “exhaust-gas-to-exhaust-gas heat exchanger” that efficiently cools – and then reheats – exhaust from a primary power generator so greater energy output can be achieved by a secondary power source with safe ventilation. Another key aspect of this patent is the development of a carbon dioxide capture system that utilizes the waste heat of the carbon dioxide pump to heat and regenerate the adsorber that enables carbon dioxide to be safely contained and packaged.

 

The Company intends to sell, lease and/or sub-license the ESG Clean Energy System to third parties using, among other things, Simson-Maxwell’s existing distribution channels. The Company may also utilize the ESG Clean Energy System for its own account, whether in connection with its petroleum operations, Simson-Maxwell’s power generation operations, or otherwise.

 

Medical Waste Disposal System Using Ozone Technology:

 

In January 2022, Viking acquired a 51% interest in Viking Ozone Technology, LLC (“Viking Ozone”), which owns the intellectual property rights to a patented (i.e., US Utility Patent No. 11,565,289), proprietary medical and biohazard waste treatment system using ozone technology. Simson-Maxwell has been designated the exclusive worldwide manufacturer and vendor of this system. The technology is designed to be a sustainable alternative to incineration, chemical, autoclave and heat treatment of bio-hazardous waste, and for the treated waste to be classified as renewable fuel for waste-to-energy (“WTE”) facilities in many locations around the world.

 

Open Conductor Detection Technologies:

 

In February 2022, Viking acquired a 51% interest in two entities, Viking Sentinel Technology, LLC (“Viking Sentinel”) and Viking Protection Systems, LLC (“Viking Protection”), that own the intellectual property rights to patented (i.e. 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. The systems are designed to detect a break in a transmission line, distribution line, or coupling failure, and to immediately terminate the power to the line before it reaches the ground. The technology is intended to increase public safety and reduce the risk of causing an incendiary event, and to be an integral component within grid hardening and stability initiatives by electric utilities to improve the resiliency and reliability of existing infrastructure.

 

Oil and Gas Properties

 

Existing Assets:

 

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

 

Divestitures in 2022:

 

On July 8, 2022, four of the wholly owned subsidiaries of Petrodome Energy, LLC (“Petrodome”), a wholly owned subsidiary of the Company, entered into Purchase and Sale Agreements to sell all of their interests in the oil and gas assets owned by those Petrodome subsidiaries, including in the aggregate, interests in 8 producing wells, 8 shut-in wells, 2 saltwater disposal wells and 1 inactive well, to third parties for $3,590,000 in cash. The proceeds from the sale were used to fully repay Petrodome’s indebtedness to CrossFirst Bank under the June 13, 2018 revolving line of credit loan.

 

 
11

Table of Contents

 

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

 

$3,590,000

 

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

 

 

(12,791,680 )

ARO recovered

 

 

239,975

 

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.

 

Note 3. Going Concern

 

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

 

These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to utilize the resources in place to generate future profitable operations, to develop additional acquisition opportunities, and to obtain the necessary financing to meet its obligations and repay its liabilities arising from business operations when they come due. Management believes the Company may be able to continue to develop new opportunities and may be able to obtain additional funds through debt and / or equity financings to facilitate its business strategy; however, there is no assurance of additional funding being available. 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.

 

Note 4. Summary of Significant Accounting Policies

 

a) Basis of Presentation

 

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the interim reporting rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Camber’s latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments (unless otherwise indicated), necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. 

 

 
12

Table of Contents

 

b) Basis of Consolidation

 

The consolidated financial statements presented herein reflect the consolidated financial results of the Company, its wholly owned subsidiaries, Viking Energy Group, Inc. (“Viking”), Camber Permian LLC, CE Operating LLC and CE Operating LLC, the wholly owned subsidiaries of Viking (Mid-Con Petroleum, LLC, Mid-Con Drilling, LLC, Mid-Con Development, LLC, and Petrodome Energy, LLC.), and Simson-Maxwell (a majority owned subsidiary of Viking).

 

In January 2022, Viking acquired a 51% ownership interest in Viking Ozone, and in February 2022, Viking acquired a 51% ownership interest in both Viking Sentinel and Viking Protection. These entities were formed to facilitate the monetization of acquired intellectual properties (see Note 7). These entities are variable interest entities in which the Company owns a controlling financial interest; consequently, these entities are also consolidated.

 

All significant intercompany transactions and balances have been eliminated.

 

c) Foreign Currency

 

Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the balance sheet date. Results of operations and cash flows of businesses conducted in foreign currency are translated using the average exchange rates throughout the period. The effect of exchange rate fluctuations on translation of assets and liabilities is included as a component of stockholders’ equity in accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions have been insignificant.

 

d) Use of Estimates in the Preparation of Consolidated Financial Statements

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts and timing of revenues and expenses, the reported amounts and classification of assets and liabilities, and disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates relate to the determination of the fair value of the Company’s various series of preferred stock, impairment of long-lived assets, goodwill, fair value of commodity derivatives, stock-based compensation, asset retirement obligations, and the determination of expected tax rates for future income tax recoveries.

 

The estimates of proved, probable and possible oil and gas reserves are used as significant inputs in determining the depletion of oil and gas properties and the impairment of proved and unproved oil and gas properties. There are numerous uncertainties inherent in the estimation of quantities of proved, probable and possible reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks. Actual results could differ from the estimates and assumptions utilized.

 

e) Financial Instruments

 

Accounting Standards Codification, “ASC” Topic 820-10, “Fair Value Measurement” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 820-10, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measurement. The carrying amounts reported in the consolidated balance sheets for deposits, accrued expenses and other current liabilities, accounts payable, derivative liabilities, amount due to director, and convertible notes each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 

 

·

Level 1: inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

 
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·

Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

 

·

Level 3: inputs to the valuation methodology are unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.

 

As of September 30, 2023, the significant inputs to the Company’s derivative liability relative to the Company’s Series C Redeemable Convertible Preferred Stock (the “Series C Preferred Stock”) were Level 3 inputs.

 

Assets and liabilities measured at fair value as of and for the nine months ended September 30, 2023 are classified below based on the three fair value hierarchy described above:

 

Description

 

Quoted

Prices in

Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant Unobservable

Inputs

(Level 3)

 

 

Total Gains (Losses) (nine months ended Sept. 30, 2023)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability - Series C Preferred Stock

 

$-

 

 

$-

 

 

$3,319,210

 

 

$(4,037,143)

Derivative liability – Convertible Debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,766,648)

 

 

$-

 

 

$-

 

 

$3,319,210

 

 

$(5,803,791)

 

f) Cash and Cash Equivalents

 

Cash and cash equivalents include cash in banks and highly liquid investment securities that have original maturities of three months or less. Accounts at banks in the United States are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000, while accounts at banks in Canada are insured by the Canada Deposit Insurance Corporation (“CDIC”) up to CAD $100,000. The Company’s cash balances may at times exceed the FDIC or CDIC insured limits.

 

g) Accounts Receivable

 

Accounts receivable for the Company’s oil and gas operations consist of purchaser receivables and joint interest billing receivables. The Company evaluates these accounts receivable for collectability and, when necessary, records allowances for expected unrecoverable amounts. During the three months ended March 31, 2022, the Company determined that the collectability of certain accounts receivable balances associated with the disposals of Ichor Energy, LLC, and Elysium Energy, LLC were not collectable and a reserve of $1,800,000 was recorded. These amounts were written off during the year ended December 31, 2022. At September 30, 2023 and December 31, 2022, the Company has not recorded an allowance for doubtful accounts related to oil and gas.

 

The Company extends credit to its power generation customers in the normal course of business. The Company performs ongoing credit evaluations and generally does not require collateral. Payment terms are generally 30 days. The Company carries its trade accounts receivable at invoice amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based upon management’s estimates that include a review of the history of past write-offs and collections and an analysis of current credit conditions. At September 30, 2023 and December 31, 2022, the Company had a reserve for doubtful accounts on power generation accounts receivable of $19,330 and $19,393, respectively. The Company does not accrue interest on past due accounts receivable.

 

 
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h) Inventory

 

Inventories are stated at the lower of cost or net realizable value, and consist of parts, equipment and work in process. Work-in-process and finished goods included the cost of materials, direct labor and overhead. At the closing of each reporting period, the Company evaluates its inventory in order to adjust the inventory balance for obsolete and slow-moving items.

 

Inventory consisted of the following at September 30, 2023 and December 31, 2022:

 

 

 

September 30,

2023

 

 

December 31,

2022

 

Units and work in process

 

$7,803,096

 

 

$8,749,903

 

Parts

 

 

2,899,579

 

 

 

2,791,626

 

 

 

 

10,702,675

 

 

 

11,541,529

 

Reserve for obsolescence

 

 

(1,169,391 )

 

 

(1,264,867 )

 

 

$9,533,284

 

 

$10,276,662

 

 

i) Oil and Gas Properties

 

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 associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs, are capitalized. General and administrative costs related to production and general overhead are expensed as incurred.

 

All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit of production method using estimates of proved reserves. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in operations. Unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is included in loss from operations before income taxes.

 

j) Limitation on Capitalized Costs

 

Under the full-cost method of accounting, we are required, at the end of each reporting date, to perform a test to determine the limit on the book value of our oil and natural gas properties (the “Ceiling” test). If the capitalized costs of our oil and natural gas properties, net of accumulated amortization and related deferred income taxes, exceed the Ceiling, this excess or impairment is charged to expense. The expense may not be reversed in future periods, even though higher oil and natural gas prices may subsequently increase the Ceiling. The Ceiling is defined as the sum of:

 

 

(a)

the present value, discounted at 10 percent, and assuming continuation of existing economic conditions, of 1) estimated future gross revenues from proved reserves, which is computed using oil and natural gas prices determined as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month hedging arrangements pursuant to SAB 103, less 2) estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, plus

 

 

 

 

(b)

the cost of properties not being amortized; plus

 

 
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(c)

the lower of cost or estimated fair value of unproven properties included in the costs being amortized, net of

 

 

 

 

(d)

the related tax effects related to the difference between the book and tax basis of our oil and natural gas properties.

 

k) Oil and Gas Reserves

 

Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary, sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using recent prices of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.

 

l) Accounting for Leases

 

The Company uses the right-of-use (“ROU”) model to account for leases where the Company is the lessee, which requires an entity to recognize a lease liability and ROU asset on the lease commencement date. A lease liability is measured equal to the present value of the remaining lease payments over the lease term and is discounted using the incremental borrowing rate, as the rate implicit in the Company’s leases is not readily determinable. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease payments include payments made before the commencement date and any residual value guarantees, if applicable. When determining the lease term, the Company includes option periods that it is reasonably certain to exercise as failure to renew the lease would impose a significant economic detriment.

 

For operating leases, minimum lease payments or receipts, including minimum scheduled rent increases, are recognized as rent expense where the Company is a lessee on a straight-line basis (“Straight-Line Rent”) over the applicable lease terms. The excess of the Straight-Line Rent over the minimum rents paid is included in the ROU asset where the Company is a lessee. Short-term lease cost for operating leases includes rental expense for leases with a term of less than 12 months.

 

The Company elected the package of practical expedients permitted under the transition guidance for the revised lease standard, which allowed Viking to carry forward the historical lease classification, retain the initial direct costs for any leases that existed prior to the adoption of the standard and not reassess whether any contracts entered into prior to the adoption are leases. The Company also elected to account for lease and non-lease components in lease agreements as a single lease component in determining lease assets and liabilities. In addition, the Company elected not to recognize the right-of-use assets and liabilities for leases with lease terms of one year or less.

 

m) Business Combinations

 

The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer lists, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

 

 
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n) Intangible Assets

 

Intangible assets include amounts related to the Company’s license agreement with ESG Clean Energy, LLC, and its investments in Viking Ozone, LLC, Viking Protection Systems, LLC and Viking Sentinel, LLC. Additionally, as part of the acquisition of Simson-Maxwell, Viking identified intangible assets consisting of Simson-Maxwell’s customer relationships and its brand. These intangible assets are described in detail in Note 7.

 

The intangible assets related to the ESG Clean Energy license and the Simson-Maxwell customer relationships are being amortized on a straight-line basis over 16 years (the remaining life of the related patents) and 10 years, respectively. The other intangible assets are not amortized.

 

The Company reviews these intangible assets, at least annually, for possible impairment when events or changes in circumstances that the assets carrying amount may not be recoverable. In evaluating the future benefit of its intangible assets, the Company estimates the anticipated undiscounted future net cash flows of the intangible assets over the remaining estimated useful life. If the carrying amount is not recoverable, an impairment loss is recorded for the excess of the carrying value of the asset over its fair value.

 

o) Income (Loss) per Share

 

Basic and diluted income (loss) per share calculations are calculated on the basis of the weighted average number of shares of the Company’s common stock outstanding during the year. Diluted earnings per share give effect to all dilutive potential shares of common stock outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted earnings per share, the average stock price for the period is used to determine the number of shares assumed to be purchased from the exercise price of the options and warrants. Purchases of treasury stock reduce the outstanding shares commencing on the date that the stock is purchased. Common stock equivalents are excluded from the calculation when a loss is incurred as their effect would be anti-dilutive.

 

For the nine months ended September 30, 2023 and 2022, there were approximately 15,092,983 and 17,204,020 common stock equivalents, respectively, that were omitted from the calculation of diluted income per share as they were anti-dilutive.

 

p) 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.

 

The following table disaggregates the Company’s oil and gas revenue by source for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Oil

 

$213,609

 

 

$337,665

 

 

$604,870

 

 

$1,956,461

 

Natural gas and natural gas liquids

 

 

14,615

 

 

 

(235,479)

 

 

14,615

 

 

 

978,971

 

Well operations

 

 

5,600

 

 

 

15,668

 

 

 

85,745

 

 

 

731,294

 

 

 

$233,824

 

 

$117,854

 

 

$705,230

 

 

$3,666,726

 

 

 
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Power Generation Revenues

 

Through its 60.5% ownership in Simson-Maxwell, the Company manufactures and sells power generation products, services and custom energy solutions. Simson-Maxwell provides commercial and industrial clients with emergency power generation capabilities. Simson Maxwell’s derives its revenues as follows:

 

1.

Sale of power generation units. Simson-Maxwell manufactures and assembles power generation solutions. The solutions may consist of one or more units and are generally customized for each customer. Contracts are required to be executed for each customized solution. The contracts generally require customers to submit non-refundable progress payments for measurable milestones delineated in the contract. 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. Sales, use, value add and other similar taxes assessed by governmental authorities and collected concurrent with revenue-producing activities are excluded from revenue. Progress payments are recognized as contract liabilities until the completed unit is delivered. Revenue is measured as the amount of consideration the Company expects to be entitled in exchange for the transfer of the units, which is generally the price stated in the contract. The Company does not allow returns because of the customized nature of the units and does not offer discounts, rebates, or other promotional incentives or allowances to customers. Simson-Maxwell has elected to recognize the cost for freight activities when control of the product has transferred to the customer as an expense within cost of goods.

 

At the request of certain customers, the Company will warehouse inventory billed to the customer but not delivered. Unless all revenue recognition criteria have been met, the Company does not recognize revenue on these transactions until the customer takes possession of the product.

 

2.

Parts revenue- Simson-Maxwell sells spare parts and replacement parts to its customers. Simson-Maxwell is an authorized parts distributor for a number of national and international power generation manufacturers. The Company considers the purchase orders for parts, which in some cases are governed by master sales agreements, to be the contracts with the customers. For each contract, the Company considers the commitment to transfer products, each of which is distinct, to be the identified performance obligations. Revenue is measured as the amount of consideration the Company expects to be entitled in exchange for the transfer of product, which is generally the price stated in the contract specific for each item sold, adjusted for the value of expected returns. Sales, use, value add and other similar taxes assessed by governmental authorities and collected concurrent with revenue-producing activities are excluded from revenue. Simson-Maxwell has elected to recognize the cost for freight activities when control of the product has transferred to the customer as an expense within cost of goods sold in the consolidated statements of comprehensive income. Parts revenues are recognized at the point in time when control of the product is transferred to the customer, which typically occurs upon shipment or delivery to the customer.

 

 

3.

Service and repairs- Simson-Maxwell offers service and repair of various types of power generation systems. Service and repairs are generally performed on customer owned equipment and billed based on labor hours incurred. Each repair is considered a performance obligation. As a result of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Simson-Maxwell generally uses the cost-to-cost measure of progress for its service work because the customer controls the asset as it is being serviced. Most service and repairs are completed within one or two days.

 

The following table disaggregates Simson-Maxwell’s revenue by source for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Power generation units

 

$4,849,415

 

 

$2,082,218

 

 

$10,416,808

 

 

$3,591,365

 

Parts

 

 

1,892,767

 

 

 

1,196,748

 

 

 

4,085,580

 

 

 

3,321,728

 

Total units and parts

 

 

6,742,182

 

 

 

3,278,966

 

 

 

14,502,388

 

 

 

6,913,093

 

Service and repairs

 

 

3,155,064

 

 

 

2,763,886

 

 

 

9,199,965

 

 

 

8,086,449

 

 

 

$9,897,246

 

 

$6,042,852

 

 

$23,702,353

 

 

$14,999,542

 

 

 
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q) Income Taxes

 

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the consolidated financial statements and the tax basis of assets and liabilities by using estimated tax rates for the year in which the differences are expected to reverse.

 

The Company recognizes deferred tax assets and liabilities to the extent that we believe that these assets and/or liabilities are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If we determine that the Company would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

 

In assessing the realizability of its deferred tax assets, management evaluated whether it is more likely than not that some portion, or all of its deferred tax assets, will be realized. The realization of its deferred tax assets relates directly to the Company’s ability to generate taxable income. The valuation allowance is then adjusted accordingly.

 

r) Stock-Based Compensation

 

The Company may issue stock options to employees and stock options or warrants to non-employees in non-capital raising transactions for services and for financing costs. The cost of stock options and warrants issued to employees and non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.

 

The fair value of stock options and warrants is determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate, and dividend yield. The expected term represents the period of time that stock-based compensation awards granted are expected to be outstanding and is estimated based on considerations including the vesting period, contractual term and anticipated employee exercise patterns. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of stock-based compensation instrument. The dividend yield assumption is based on historical patterns and future expectations for the Company dividends.

 

s) Impairment of Long-lived Assets 

 

The Company, at least annually, is required to review its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

 

Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally determined by using the asset’s expected future discounted cash flows or market value. The Company estimates fair value of the assets based on certain assumptions such as budgets, internal projections, and other available information as considered necessary. There is no impairment of long-lived assets during the nine months ended September 30, 2023 and 2022.

 

 
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t) Accounting for Asset Retirement Obligations

 

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

 

The following table describes the changes in the Company’s asset retirement obligations for the nine months ended September 30, 2023 and 2022: 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

Asset retirement obligation – beginning

 

$1,927,196

 

 

$2,111,650

 

ARO recovered on sale of assets

 

 

-

 

 

 

(239,975)

ARO acquired on the Merger

 

 

65,047

 

 

 

 

 

Accretion expense

 

 

67,599

 

 

 

107,869

 

Asset retirement obligation – ending

 

$2,059,842

 

 

$1,979,544

 

 

u) Derivative Liabilities

 

Convertible Preferred Shares

 

The Series C Preferred Stock and the Company’s Series G Redeemable Convertible Preferred Stock (the “Series G Preferred Stock”) contain provisions that could result in modification of the conversion price that is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40, “Derivatives and Hedging”.

 

The Series C Preferred Stock are convertible into shares of common stock at a fixed $162.50 conversion rate. Upon conversion, the holder is entitled to dividends as if the shares had been held to maturity, which is referred to as the Conversion Premium. The conversion ratio is based on a volume weighted average price (“VWAP”) calculation based on the lowest stock price over the Measurement Period. The Measurement Period is 30 trading days (or 60 trading days if there is a Triggering Event) prior to the conversion date and 30 trading days (or 60 trading days if there is a Triggering Event) after the conversion date. The VWAP calculation is subject to adjustment if there is a Triggering Event and the Measurement Period is subject to adjustment in the event that the Company is in default of one or more Equity Conditions provided in the Certificate of Designation (“COD”). For example, the Measurement Period may be extended one day for every day the Company is not in compliance with one or more of the Equity Conditions. Trigger events are described in the designation of the Series C Preferred Stock, but include items which would typically be events of default under a debt security, including filing of reports late with the SEC.

 

At the conversion date, the number of shares due for the Conversion Premium is estimated based on the previous 30-day VWAP (or 60 trading days if there is a Triggering Event). If the VWAP calculation for the portion of the Measurement Period following the date of conversion is lower than the VWAP for the portion of the Measurement Period prior to the date of conversion, the holder will be issued additional shares of common stock, referred to as True-Up shares. If the VWAP calculation is higher, no True-Up shares are issued.

 

The Company has determined that the Series C Preferred Stock contains an embedded derivative liability relating to the Conversion Premium and, upon conversion, a derivative liability for the potential obligation to issue True-Up Shares relating to shares of Series C Preferred Stock that have been converted and the Measurement Period has not expired, if applicable.

 

 
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The fair value of the derivative liability relating to the Conversion Premium for any outstanding shares of Series C Preferred Stock 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 lowest closing price of the Company’s stock subsequent to the conversion date, and the historical volatility of the Company’s common stock.

 

The Series G Convertible Preferred stock is redeemable or convertible into a variable number of shares of common stock, at the option of the Company. The conversion rate is determined at the time of conversion using a VWAP calculation similar to the Series C Preferred Stock described above. As a result, the Series G Preferred Stock contains an embedded derivative that is required to be recorded at fair value. The Company has determined that the fair value of the embedded derivative is negligible due to the restrictions on conversion.

 

Capitalized terms used but not defined herein with respect to the Series C Preferred Stock or the Series G Preferred Stock have the meaning assigned to them in the Fifth Amended and Restated Certificate of Designations of Preferences, Powers, Rights and Limitations of Series C Redeemable Convertible Preferred Stock filed by the Company with the Secretary of State of Nevada on November 8, 2021, as amended on October 28, 2022 (as amended, the “Series C COD”) or the Certificate of Designations of Preferences, Powers, Rights and Limitations of Series G Redeemable Convertible Preferred Stock filed by the Company with the Secretary of State of Nevada on December 30, 2021 (the “Series G COD”), as applicable.

Convertible Debt

 

We review the terms of convertible debt issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

 

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense.

 

The Company has adopted a sequencing approach to allocating its authorized and unissued shares when the number of such shares is insufficient to satisfy all convertible instruments or option type contracts that may be settled in shares. Specifically, the Company allocates it authorized and unissued shares based on the inception date of each instrument, with shares allocated first to those instruments with the earliest inception dates. Instruments with later inception dates for which no shares remain to be allocated are reclassified to asset or liability.

 

v) Undistributed Revenues and Royalties

 

The Company records a liability for cash collected from oil and gas sales that have not been distributed. The amounts are distributed in accordance with the working interests of the respective owners.

 

w) Subsequent events

 

The Company has evaluated all subsequent events from September 30, 2023 through the date of filing of this report (see Note 16).

 

 
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Note 5. Merger of Camber Energy, Inc. and Viking Energy Group, Inc.

 

As discussed in Note 1, the Merger has been accounted for as a reverse acquisition with Viking treated as the acquiror of Camber for financial accounting purposes.

 

The transaction consideration transferred by the accounting acquirer for its interest in the accounting acquiree is based on the number of equity interests the legal subsidiary would have had to issue to give the owners of the legal parent the same percentage equity interest in the combined entity that results from the reverse acquisition. This was determined as follows:

 

Number of Viking shares of common stock outstanding at merger date

 

 

119,218,508

 

Viking shareholder ownership interest in the merged entity

 

 

64.9%

Grossed up number of shares

 

 

183,699,488

 

Number of shares theoretically issued to Camber shareholders

 

 

64,480,980

 

Viking share price at date of merger

 

$0.807

 

Consideration transferred

 

$52,036,151

 

 

The consideration transferred was allocated to the assets acquired and liabilities assumed of Camber based upon their estimated fair values as of the merger closing date, and any excess value of the consideration transferred over the net assets will be recognized as goodwill, as follows:

 

Consideration transferred

 

$52,036,151

 

 

 

 

 

 

Net Assets Acquired and Liabilities Assumed (Camber):

 

 

 

 

Cash

 

$154,955

 

Prepaids

 

 

247,917

 

Oil and gas properties

 

 

1,475,000

 

Advances due from Viking

 

 

4,452,300

 

Investment in Viking

 

 

23,835,365

 

Goodwill

 

 

67,457,229

 

Total net assets acquired

 

 

97,622,766

 

 

 

 

 

 

Accounts payable

 

$1,628,669

 

Accrued expenses and other current liabilities

 

 

253,353

 

Derivative liability

 

 

3,540,036

 

Long term debt

 

 

40,099,510

 

Asset retirement obligations

 

 

65,047

 

Total net liabilities assumed

 

 

45,586,615

 

 

 

 

 

 

Total Net Assets Acquired and Liabilities Assumed

 

$52,036,151

 

 

At September 30, 2023, the Company concluded that the significant decline in the Company’s share price between the date of the Merger and September 30, 2023 was an indicator of impairment and therefore performed an impairment assessment at that date. Based upon this assessment, the Company recorded an impairment charge of $14,486,745 during the three months ended September 30, 2023.

 

 
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Note 6. Oil and Gas Properties 

 

The following table summarizes the Company’s oil and gas activities by classification and geographical cost center for the nine months ended September 30, 2023:

 

 

 

December 31,

 

 

 

 

 

 

September 30,

 

 

 

2022

 

 

Adjustments

 

 

Impairments

 

 

2023

 

Proved developed producing oil and gas properties

 

 

 

 

 

 

 

 

 

 

 

 

United States cost center

 

$3,872,488

 

 

$1,475,000

 

 

$-

 

 

$5,347,488

 

Accumulated depreciation, depletion and amortization

 

 

(2,803,375 )

 

 

(134,368 )

 

 

-

 

 

 

(2,937,743 )

Proved developed producing oil and gas properties, net

 

$1,069,113

 

 

$1,340,632

 

 

$-

 

 

$2,409,745

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undeveloped and non-producing oil and gas properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States cost center

 

 

785,302

 

 

 

-

 

 

 

-

 

 

 

785,302

 

Accumulated depreciation, depletion and amortization

 

 

(568,497 )

 

 

(30,703 )

 

 

-

 

 

 

(599,200 )

Undeveloped and non-producing oil and gas properties, net

 

$216,805

 

 

$(30,703 )

 

$-

 

 

$186,102

 

Total Oil and Gas Properties, Net

 

$1,285,918

 

 

$1,309,929

 

 

$-

 

 

$2,595,847

 

 

During the three months ended September 30, 2023, the Company recorded an addition to oil and gas properties of $1,475,000 related to the merger with Camber (see Note 5).

 

Note 7. Intangible Assets

 

ESG Clean Energy License

 

The Company’s intangible assets include costs associated with securing in August 2021 an Exclusive Intellectual Property License Agreement with ESG, pursuant to which Viking received (i) an exclusive license to ESG’s patent rights and know-how related to stationary electric power generation (not in connection with vehicles), including methods to utilize heat and capture carbon dioxide in Canada, and (ii) a non-exclusive license to the intellectual property in up to 25 sites in the United States that are operated by the Company or its affiliates.

 

In consideration of the licenses, Viking paid an up-front royalty of $1,500,000 and Viking was obligated to make additional royalty payments as follows: (i) an additional $1,500,000 on or before January 31, 2022, which may be paid in whole or in part in the form of Viking’s common stock based on the price of Viking’s common stock on August 18, 2021, at ESG’s election; (ii) an additional $2,000,000 on or before April 20, 2022, which may be paid in whole or in part in the form of Viking’s common stock based on the price of Viking’s common stock on August 18, 2021, at ESG’s election; and (iii) continuing royalties of not more than 15% of the Company’s net revenues generated using the intellectual property, with the continuing royalty percentage to be jointly determined by the parties collaboratively based on the parties’ development of realistic cashflow models resulting from initial projects utilizing the intellectual property, and with the parties utilizing mediation if they cannot jointly agree to the continuing royalty percentage.

 

With respect to the payments noted in (i) and (ii) above, totaling $3,500,000, on or about November 22, 2021, the Company paid $500,000 to or on behalf of ESG and ESG elected to accept $2,750,000 in shares of Viking’s common stock at the applicable conversion price, resulting in 6,942,691 shares, leaving a balance owing of $250,000 which was paid in January 2022.

 

 
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The Company’s exclusivity with respect to Canada shall terminate if minimum continuing royalty payments to ESG are not at least equal to the following minimum payments based on the date that ESG first begins capturing carbon dioxide and selling for commercial purposes one or more commodities from a system installed and operated by ESG using the intellectual property (the “Trigger Date”):

 

 

 

Minimum Payments

 

Years from the Trigger Date:

 

For Year Ended

 

Year two

 

$500,000

 

Year three

 

 

750,000

 

Year four

 

 

1,250,000

 

Year five

 

 

1,750,000

 

Year six

 

 

2,250,000

 

Year seven

 

 

2,750,000

 

Year eight

 

 

3,250,000

 

Year nine and after

 

 

3,250,000

 

 

The Company’s management believes that the Trigger Date could occur as early as the first quarter of 2024 but there is no assurance that it will occur at that or any time.

 

If the continuing royalty percentage is adjusted jointly by the parties downward from the maximum of 15%, then the minimum continuing royalty payments for any given year from the Trigger Date shall also be adjusted downward proportionally.

 

The Company recognized amortization expense of $230,886 for the nine months ended September 30, 2023. The estimated future amortization expense for each of the next five years is $304,465 per year.

 

The ESG intangible asset consisted of the following at September 30, 2023 and December 31, 2022:

 

 

 

September 30,

2023

 

 

December 31,

2022

 

ESG Clean Energy License

 

$5,000,000

 

 

$5,000,000

 

Accumulated amortization

 

 

(653,755 )

 

 

(422,869 )

 

 

$4,346,245

 

 

$4,577,131

 

 

Other intangibles – Simson-Maxwell – Customer Relationships and Brand

 

The Company allocated a portion of the purchase price of Simson-Maxwell to Customer Relationships with a fair value of $1,677,453 and an estimated useful life of 10 years, and the Simson-Maxwell Brand with a fair value of $2,230,673 and an indefinite useful life.

 

The Company recognized amortization expense for the Customer Relationship intangible of $125,464 for the nine months ended September 30, 2022. The estimated future amortization expense for each of the next five years is $167,745 per year.

 

The Company periodically reviews the fair value of the Customer Relationships and Brand to determine if an impairment charge should be recognized. The Company did not record any impairment for the nine-month period ended September 30, 2023. For the year ended December 31, 2022 the Company recorded an impairment charge of $83,865 and $367,907, respectively, related to these assets.

 

The Other intangibles – Simson-Maxwell consisted of the following at September 30, 2023 and December 31, 2022:

 

 

 

September 30,

2023

 

 

December 31,

2022

 

Simson-Maxwell Brand

 

$2,230,673

 

 

$2,230,673

 

Customer Relationships

 

 

1,677,453

 

 

 

1,677,453

 

Impairment of intangible assets

 

 

(451,772 )

 

 

(451,772 )

Accumulated amortization

 

 

(327,218 )

 

 

(201,754 )

 

 

$3,129,136

 

 

$3,254,600

 

 

 
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Note 8. Intangible Assets - Variable Interest Entity Acquisitions (VIE’s)

 

Medical Waste Disposal System

 

Choppy

 

On January 18, 2022, Viking entered into a Securities Purchase Agreement to purchase 51 units, representing 51%, of Viking Ozone , from Choppy Group LLC, a Wyoming limited liability company (“Choppy”), in consideration of the issuance of 8,333,333 shares of Viking common stock to Choppy, 3,333,333 of which shares were issued at closing, 3,333,333 of which shares are to be issued to Choppy after 5 units of the System (as defined below) have been sold, and 1,666,667 of which shares are to be issued to Choppy after 10 units of the System have been sold. Viking Ozone was organized on or about January 14, 2022, for the purpose of developing and distributing a medical and biohazard waste treatment system using ozone technology (the “System”), and on or about January 14, 2022, Choppy was issued all 100 units of Viking Ozone in consideration of Choppy’s assignment to Viking Ozone of all of Choppy’s intellectual property and intangible assets, including patent rights, know-how, procedures, methodologies, and contract rights in connection with the System, and specifically the invention entitled “Multi-Chamber Medical Waste Ozone-Based Treatment Systems and Methods (Docket No. RAS-101A) and related patent application. On January 18, 2022 Viking acquired 51 units (51%) of Viking Ozone from Choppy with Choppy retaining the remaining 49 units (49%) of Viking Ozone, and Viking issued 3,333,333 shares of Viking common stock to Choppy. Viking and Choppy then entered into an Operating Agreement on January 18, 2022 governing the operation of Viking Ozone. Based on the closing price of the Company’s stock on January 18, 2022, the fair value was approximately $2,000,000. The Company determined the acquisition of a 51% interest in Viking Ozone was the acquisition of and initial consolidation of a VIE that is not a business. The acquisition was recorded as follows:

 

Purchase Price:

 

 

 

Fair value of stock at closing

 

$2,000,000

 

Fair value of contingent consideration

 

 

495,868

 

Total consideration

 

$2,495,868

 

 

 

 

 

 

Purchase Price Allocation:

 

 

 

 

Intangible asset - IP

 

$4,916,057

 

Non-controlling interest

 

 

(2,420,189 )

Camber ownership interest

 

$2,495,868

 

 

Open Conductor Detection Technologies

 

Virga

 

On February 9, 2022, Viking entered into a Securities Purchase Agreement to purchase 51 units, representing 51% of Viking Sentinel, from Virga Systems LLC, a Wyoming limited liability company (“Virga”), in consideration of the issuance of 416,667 shares of Viking common stock to Virga. Viking Sentinel was formed on or about January 31, 2022, and Virga was issued all 100 units of Viking Sentinel in consideration of Virga’s assignment to Viking Sentinel of all of Virga’s intellectual property and intangible assets, including patent rights, know-how, procedures, methodologies, and contract rights in connection with an end of line protection with trip signal engaging for distribution system, and related patent application(s). On February 9, 2022 Viking acquired 51 units (51%) of Viking Sentinel from Virga with Virga retaining the remaining 49 units (49%) of Viking Sentinel, and Viking issued 416,667 shares of Viking common stock to Virga. Viking and Virga then entered into an Operating Agreement on February 9, 2022 governing the operation of Viking Sentinel. The Company determined the acquisition of a 51% interest in Viking Sentinel was the acquisition and initial consolidation of a VIE that is not a business. The acquisition was recorded as follows:

 

Purchase Price:

 

 

 

Fair value of stock at closing

 

$233,334

 

Total consideration

 

$233,334

 

 

 

 

 

 

Purchase Price Allocation:

 

 

 

 

Intangible asset - IP

 

$457,518

 

Non-controlling interest

 

 

(224,184)

Camber ownership interest

 

$233,334

 

 

 
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Jedda

 

On February 9, 2022, Viking entered into a Securities Purchase Agreement to purchase (the “Purchase”) 51 units (the “Units”), representing a 51% ownership interest in Viking Protection Systems, LLC (“Viking Protection”), from Jedda Holdings LLC (“Jedda”). In consideration for the Units, Viking agreed to issue to Jedda, shares of a new class of Convertible Preferred Stock of Viking with a face value of $10,000 per share (the “Viking Series E Preferred Stock”), or pay cash to Jedda, if applicable, as follows:

 

No.

 

 

Purchase Price*

 

 

When Due

 

No. of  Pref. Shares

 

 

Conversion Price

 

 

No. of Underlying Common Shares

 

 

Estimated Revenues if Sales Target Achieved**

 

 

1

 

 

$250,000

 

 

On closing

 

 

N/A

 

 

$0.60

 

 

 

416,667

 

 

 

N/A

 

 

2

 

 

$4,750,000

 

 

On closing

 

 

475

 

 

$0.60

 

 

 

7,916,667

 

 

 

N/A

 

 

3

 

 

$1,000,000

 

 

Upon the sale of 10k units

 

 

100

 

 

$0.75

 

 

 

1,333,333

 

 

$50,000,000

 

 

4

 

 

$2,000,000

 

 

Upon the sale of 20k units

 

 

200

 

 

$1.00

 

 

 

2,000,000

 

 

$100,000,000

 

 

5

 

 

$3,000,000

 

 

Upon the sale of 30k units

 

 

300

 

 

$1.25

 

 

 

2,400,000

 

 

$150,000,000

 

 

6

 

 

$4,000,000

 

 

Upon the sale of 50k units

 

 

400

 

 

$1.50

 

 

 

2,666,667

 

 

$250,000,000

 

 

7

 

 

$6,000,000

 

 

Upon the sale of 100k units

 

 

600

 

 

$2.00

 

 

 

3,000,000

 

 

$500,000,000

 

Total

 

 

$21,000,000

 

 

 

 

 

2,075

 

 

$1.06(avg.)

 

 

19,733,334

 

 

$500,000,000

 

___________ 

*

The $5 million due on closing was payable solely in stock of Viking. All other payments, if the subject sales targets are met, are payable in cash or in shares of convertible preferred stock of the Company, at the seller’s option.

**

These are estimates only. There is no guarantee any sales targets will be reached.

 

Notwithstanding the above, the Company shall not effect any conversion of any shares of Viking Series E Preferred Stock, and Jedda shall not have the right to convert any shares of Viking Series E Preferred Stock, to the extent that after giving effect to the conversion, Jedda (together with Jedda’s affiliates, and any persons acting as a group together with Jedda or any of Jedda’s affiliates) would beneficially own in excess of 4.99% of the number of shares of the Camber Common Stock outstanding immediately after giving effect to the issuance of shares of Camber Common Stock issuable upon conversion of the shares of Viking Series E Preferred Stock by Jedda. Jedda, upon not less than 61 days’ prior notice to Camber, may increase or decrease the beneficial ownership limitation, provided that the beneficial ownership limitation in no event exceeds 9.99% of the number of shares of Camber Common Stock outstanding immediately after giving effect to the issuance of shares of Camber Common Stock upon conversion of the Preferred Share(s) held by Jedda and the beneficial ownership limitation provisions of this Section shall continue to apply. Any such increase or decrease will not be effective until the 61st day after such notice is delivered to Camber.

 

Viking Protection was formed on or about January 31, 2022, and Jedda was issued all 100 units of Viking Protection in consideration of Jedda’s assignment to Viking Protection of all of Jedda’s intellectual property and intangible assets, including patent rights, know-how, procedures, methodologies, and contract rights in connection with an electric transmission ground fault prevention trip signal engaging system, and related patent application(s). On February 9, 2022 Viking acquired 51 units (51%) of Viking Protection from Jedda with Jedda retaining the remaining 49 units (49%) of Viking Protection, and Viking issued the 475 shares of Viking Series E Preferred Stock to Jedda. Viking and Jedda then entered into an Operating Agreement on February 9, 2022 governing the operation of Viking Protection. The Company determined the acquisition of a 51% interest in Viking Protection was the acquisition and initial consolidation of a VIE that is not a business. The acquisition was recorded as follows:

 

Purchase Price:

 

 

 

Fair value of stock at closing

 

$4,433,334

 

Fair value of contingent consideration

 

 

939,889

 

Total consideration

 

$5,373,223

 

 

 

 

 

 

Purchase Price Allocation:

 

 

 

 

Intangible asset - IP

 

$10,059,765

 

Non-controlling interest

 

 

(4,686,542 )

Camber ownership interest

 

$5,373,223

 

 

 
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The Company consolidates any VIEs in which it holds a variable interest and is the primary beneficiary. Generally, a VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make decisions about an entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of a VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

 

The Company has determined that it is the primary beneficiary of three VIEs, Viking Ozone, Viking Sentinel and Viking Protection, and consolidates the financial results of these entities, as follows:

 

 

 

Viking

 

 

Viking

 

 

Viking

 

 

 

 

 

 

Ozone

 

 

Sentinel

 

 

Protection

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible asset - IP

 

$4,916,057

 

 

$457,518

 

 

$10,059,765

 

 

$15,433,340

 

Non-controlling interest

 

 

(2,420,189 )

 

 

(224,184 )

 

 

(4,686,542 )

 

 

(7,330,915 )

Camber ownership interest

 

$2,495,868

 

 

$233,334

 

 

$5,373,223

 

 

$8,102,425

 

 

Upon consummation of the Merger between Viking and Camber, all shares of Viking Series E Preferred Stock were exchanged for Camber Series H Preferred Stock, with substantially the same rights and terms with respect to Camber.

 

Note 9. Related Party Transactions

 

The Company’s CEO and Director, James Doris, renders professional services to the Company through AGD Advisory Group, Inc., an affiliate of Mr. Doris’s. During the nine months ended September 30, 2023 and 2022, the Company paid or accrued $310,000 and $270,000, respectively, in fees to AGD Advisory Group, Inc. As of  September 30, 2023 and December 31, 2022, the total amount due to AGD Advisory Group, Inc. was $540,000 and $370,000, respectively, and is included in accounts payable.

 

The Company’s CFO, John McVicar, renders professional services to the Company through 1508586 Alberta Ltd., an affiliate of Mr. McVicar’s. During the nine months ended September 30, 2023 and 2022, the Company paid or accrued $190,000 and $80,000, respectively, in fees to 1508586 Alberta Ltd.

 

The Company’s previous CFO, Frank W. Barker, Jr., rendered professional services to the Company through FWB Consulting, Inc. an affiliate of Mr. Barker’s. During the nine months ended September 30, 2023 and 2022, the Company paid or accrued $