UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended:
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission File Number:
(Formerly Viking Investments Group, Inc.) |
(Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
(Address of principal executive offices)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Not applicable. | Note applicable. | Not applicable. |
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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.
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).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | 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 Act). Yes
As of March 24, 2023, the aggregate market value of the shares of the registrant’s common equity held by non-affiliates was approximately $
The number of shares of the Registrant’s common stock outstanding as of March 24, 2023 was
NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements that constitute “forward-looking statements.” These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology like “believes,” “anticipates,” “expects,” “estimates,” “may,” or similar terms. These statements appear in a number of places in this annual report and include statements regarding the Company’s intent, belief or current expectations and those of its directors or officers with respect to, among other things:(i) trends affecting its financial condition or results of operations, (ii) its business and growth strategies, and (iii) its financing plans. You are cautioned that forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Factors that could adversely affect actual results and performance include, among others, the Company’s need for additional capital, its history of losses, the intense competition the Company faces in its business, the fact that its stock is a “penny stock” and the other material risks described under “Risk Factors”. The accompanying information contained in this annual report, including, without limitation, the information set forth under the heading “Item 1. Business” identifies important additional factors that could materially adversely affect actual results and performance. You are urged to carefully consider these factors. All forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement.
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Table of Contents
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PART I
Item 1. Business
Viking Energy Group, Inc. (“Viking”, the “Company”, “we”, “us” or “our”) is a growth-oriented diversified energy company. Through various majority-owned subsidiaries, Viking provides custom energy and power solutions to commercial and industrial clients in North America and owns interests in producing oil assets in Kansas. The Company also (i) holds an exclusive license in Canada to a patented carbon-capture system; and (ii) owns a majority interest in (a) an entity with intellectual property rights to a fully developed, patented, proprietary medical & biohazard waste treatment system using ozone technology; and (b) entities with intellectual property rights to fully developed, patent pending, proprietary electric transmission and open conductor detection systems. 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 & Power Solutions
Simson-Maxwell Acquisition
On August 6, 2021, the Company 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, the Company 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) European Patent Application No.: EP18870699.8, International File date: October 24, 2018, Titled: “Bottoming Cycle Power System”; (iii) 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); (iv) U.S. Patent Application No.: 17/358,197, File date: June 25, 2021, Titled: “Bottoming Cycle Power System”; (v) 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 (vi) 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.
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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, the Company 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, the Company 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 patent pending (i.e., US Applications 16/974,086, 17/672,422 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 & Gas Properties
Existing Assets
The Company, through its wholly owned subsidiaries, Mid-Con Petroleum, LLC and Mid-Con Drilling, LLC (collectively, the “Mid-Con Entities”), 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 Viking, 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 salt water disposal wells and 1 inactive well, to third parties for $3,590,000 in cash. The proceeds from the sale were used to fully repay Petrodome’s indebtedness to CrossFirst Bank under the June 13, 2018 revolving line of credit loan.
This transaction resulted in the disposition of most of the Company’s total oil and gas reserves (see Note 6 to the Company’s financial statements). 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 & gas full cost pool (based on % of reserves disposed) |
|
| (12,791,680 | ) |
ARO recovered |
|
| 239,975 |
|
Loss on disposal |
| $ | (8,961,705 | ) |
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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 has been included in the “loss on disposal of membership interests and assets” in the Consolidated Statement of Operations.
Divestitures in 2021
On October 5, 2021, the Company disposed of all of membership interests of Ichor Energy Holdings, LLC (“Ichor”). The third-party purchaser assumed all of the rights and obligations associated with such membership interests, including the debt and derivatives associated with Ichor and/or its subsidiaries. The Company originally acquired the assets owned by Ichor on December 28, 2018, which at the time included interests in approximately 58 producing wells and approximately 31 saltwater disposal wells in Texas and Louisiana.
On October 12, 2021, the Company disposed of all of the membership interests of Elysium Energy Holdings, LLC (“Elysium”). The third-party purchaser assumed all of the rights and obligations associated with such membership interests, including the debt and derivatives associated with Elysium Energy Holdings and/or its subsidiaries. The Company originally acquired the assets owned by Elysium on February 3, 2020, which included interests in approximately 127 wells, along with associated equipment in Texas and Louisiana.
Potential Merger with Camber Energy, Inc.
On February 15, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Camber Energy, Inc. (“Camber”), the majority owner of the Company’s common stock. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, a newly formed wholly owned subsidiary of Camber (“Merger Sub”) will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly- owned subsidiary of Camber.
Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share: (i) of common stock, par value $0.001 per share, of the Company (the “Viking Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares owned by Camber, the Company and Merger Sub, will be converted into the right to receive one share of common stock of Camber; and (ii) of Series C Convertible Preferred Stock of the Company (the “Viking Preferred Stock”) issued and outstanding immediately prior to the Effective Time will be converted into the right to receive one share of Series A Convertible Preferred Stock of Camber (the “Camber Series A Preferred Stock”). Each share of Camber Series A Preferred Stock will convert into 890 shares of common stock of Camber (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’s common stock), will be treated equally with Camber’s common stock with respect to dividends and liquidation, and will only have 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. Holders of Viking Common Stock and Viking Preferred Stock will have any fractional shares of Camber common stock or preferred stock after the Merger rounded up to the nearest whole share.
At the Effective Time, each outstanding Company equity award, will be converted into the right to receive the merger consideration in respect of each share of Viking Common Stock underlying such equity award and, in the case of Company stock options, be converted into vested Camber stock options based on the merger exchange ratio calculated as provided above (the “Exchange Ratio”).
The Merger Agreement provides, among other things, that effective as of the Effective Time, James A. Doris, the current Chief Executive Officer of both the Company and Camber, shall serve as President and Chief Executive Officer of the resulting merged entity (the “Combined Company”) following the Effective Time. The Merger Agreement provides that, as of the Effective Time, the Combined Company will have its headquarters in Houston, Texas.
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The Merger Agreement also provides that, during the period from the date of the Merger Agreement until the Effective Time, each of Camber and Company will be subject to certain restrictions on its ability to solicit alternative acquisition proposals from third parties, to provide non-public information to third parties and to engage in discussions with third parties regarding alternative acquisition proposals, subject to customary exceptions. The Company is required to hold a meeting of its stockholders to vote upon the adoption of the Merger Agreement and, subject to certain exceptions, to recommend that its stockholders vote to adopt the Merger Agreement. Camber is required to hold a meeting of its stockholders to approve the issuance of Viking Common Stock and Viking Preferred Stock in connection with the Merger (the “Share Issuance”).
The completion of the Merger is subject to customary conditions, including (i) adoption of the Merger Agreement by Camber’s stockholders and approval of the Share Issuance by Camber’s stockholders, (ii) receipt of required regulatory approvals, (iii) effectiveness of a registration statement on Form S-4 for the Camber common stock to be issued in the Merger (the “Form S-4”), and (iv) the absence of any law, order, injunction, decree or other legal restraint preventing the completion of the Merger or making the completion of the Merger illegal. Each party’s obligation to complete the Merger is also subject to certain additional customary conditions, including (i) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (ii) subject to certain exceptions, performance by the other party of its obligations under the Merger Agreement and (iii) the absence of any material adverse effect on the other party, as defined in the Merger Agreement.
Additional closing conditions to the Merger include that in the event the NYSE American determines that the Merger constitutes, or will constitute, a “back-door listing” / “reverse merger”, Camber (and its common stock) is required to qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE as of the Effective Time.
The Merger Agreement can be terminated (i) at any time with the mutual consent of the parties; (ii) by either Camber or Company if any governmental consent or approval required for closing is not obtained, or any governmental entity issues a final non-appealable order or similar decree preventing the Merger; (iii) by either Company or Camber if the Merger shall not have been consummated on or before August 1, 2021; (iv) by Camber or Company, upon the breach by the other of a term of the Merger, which is not cured within 30 days of the date of written notice thereof by the other; (v) by Camber if Company is unable to obtain the affirmative vote of its stockholders for approval of the Merger; (vi) by Company if Camber is unable to obtain the affirmative vote of its stockholders required pursuant to the terms of the Merger Agreement; and (vii) by Company or Camber if there is a willful breach of the Merger Agreement by the other party thereto. The Merger Agreement contains customary obligations of the parties and representations and warranties.
As of March 24, 2023, neither the Company nor Camber has advised of its intention to terminate the Merger Agreement. However, given the lapse of time since the date of the Merger Agreement, the Company believes it is reasonably likely that certain terms would need to be modified by the parties in order for the parties to proceed with the Merger.
On or about March 14, 2023, the Company’s Board of Directors resolved to enter into negotiations with Camber to modify certain terms of the Merger and to re-engage a valuation firm in connection with securing a fairness opinion or any other valuation report, analyses or presentations that might be necessary or appropriate regarding the Merger. As of March 24, 2023, the Company had not determined the revised terms upon which it would be prepared to proceed with the Merger. Any modifications to the terms and conditions of the Merger Agreement would be subject to the written agreement of both the Company and Camber, and there is no assurance that the Company and Camber will agree on any such proposed modifications. Moreover, the satisfaction of conditions, whether existing or new, may be outside of the Company’s control.
Other Information
Neither the Company nor any of its subsidiaries engaged in any research and development activities during 2021. The Company does not manufacture any products or engage in any activity that requires compliance with environmental laws except as described elsewhere herein.
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Employees
The Company now has 2 fulltime employees working at the Company’s office in Houston, Texas. Outside of the Houston operation, the Company continues to retain outside consultants as needed, involved in business development, business analysis, financial consulting, web programming and designing, execution and support of the Company’s business.
Through Simson-Maxwell, the Company has approximately 116 employees in 7 branch locations in western Canada.
Reports to Securities Holders
The Company provides its annual report that includes its audited financial information to its shareholders upon written request. The Company also makes its financial information equally available to any interested parties or investors through compliance with the disclosure rules of the Exchange Act. The Company is subject to disclosure filing requirements including filing Form 10-K’s annually and Form 10-Q’s quarterly. In addition, the Company files Form 8-K and other proxy and information statements from time to time as required.
The public may read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Item 1A. Risk Factors
The Company, as a smaller reporting company (as defined by Rule 12b-2 of the Exchange Act), is not required to furnish information required by this item. However, the following important factors among others, could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-K or presented elsewhere by management from time to time.
There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of our common stock could decline and investors could lose all or part of their investment.
Risk Factors Related to the Power Generation Industry
Decreases in the availability and quality, or increases in the cost, of raw materials, key components and labor we use to make our products could materially reduce our earnings.
The principal raw materials that we use to produce our products are steel, copper and aluminum as well as batteries and advanced electronic components. We also source a significant number of component parts from third parties that we utilize to manufacture our products. The prices of those raw materials and components are susceptible to significant fluctuations due to trends in supply and demand, commodity prices, currencies, transportation costs, government regulations and tariffs, price controls, interest rates, economic conditions and other unforeseen circumstances beyond our control. In fact, we have recently seen such trends significantly impact our business resulting in higher costs and shortages in materials, components and labor, and such impacts may continue for the foreseeable future. We typically do not have long-term supply contracts in place to ensure the raw materials and components we use are available in necessary amounts or at fixed prices. In the short term, we have been unable to fully mitigate raw material or component price increases through product design improvements, price increases to our customers, manufacturing productivity improvements, or hedging transactions, and if our mitigation efforts continue to not be fully effective in the short or long term, our profitability could be adversely affected. Also, our ability to continue to obtain quality materials and components is subject to the continued reliability and viability of our suppliers, including in some cases, suppliers who are the sole source of certain important components. It has been challenging to consistently obtain adequate, cost efficient or timely deliveries of certain required raw materials and components, or sufficient labor resources while we ramp up production to meet higher levels of demand, and if this trend continues, we may be unable to manufacture sufficient quantities of products on a timely basis. This could cause us to lose additional sales, incur additional costs, delay new product introductions or suffer harm to our reputation.
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Our business could be negatively impacted if we fail to adequately protect our intellectual property rights or if third parties claim that we are in violation of their intellectual property rights.
We consider our intellectual property rights to be important assets and seek to protect them through a combination of patent, trademark, copyright and trade secret laws, as well as licensing and confidentiality agreements. These protections may not be adequate to prevent third parties from using our intellectual property without our authorization, breaching any confidentiality agreements with us, copying or reverse engineering our products, or developing and marketing products that are substantially equivalent to or superior to our own. The unauthorized use of our intellectual property by others could reduce our competitive advantage and harm our business. Not only are intellectual property-related proceedings burdensome and costly, but they could span years to resolve and we might not ultimately prevail. We cannot guarantee that any patents, issued or pending, will provide us with any competitive advantage or will not be challenged by third parties. Moreover, the expiration of our patents may lead to increased competition with respect to certain products.
In addition, we cannot be certain that we do not or will not infringe third parties’ intellectual property rights. We currently are, and have previously been, subject to such third-party infringement claims, and may continue to be in the future. Any such claim, even if it is believed to be without merit, may be expensive and time-consuming to defend, subject us to damages, cause us to cease making, using or selling certain products that incorporate the disputed intellectual property, require us to redesign our products, divert management time and attention, and/or require us to enter into costly royalty or licensing arrangements.
We may incur costs and liabilities as a result of product liability claims.
We face a risk of exposure to current and future product liability claims alleging to arise from the use of our products and that may purportedly result in injury or other damage. Although we currently maintain product liability insurance coverage, we may not be able to obtain such insurance on acceptable terms in the future, if at all, or obtain insurance that will provide adequate coverage against potential claims. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome. A significant unsuccessful product liability defense could have a material adverse effect on our financial condition and results of operations. In addition, we believe our business depends on the strong brand reputation we have developed. If our reputation is damaged, we may face difficulty in maintaining our market share and pricing with respect to some of our products, which could reduce our sales and profitability.
Demand for our products is significantly affected by durable goods spending by consumers and businesses, and other macroeconomic conditions.
Our business is affected by general economic conditions, and uncertainty or adverse changes, such as the prolonged downturn in U.S. residential investment and the impact of more stringent credit standards, have previously led and could lead again to a decline in demand for our products and pressure to reduce our prices. Our sales of light-commercial and industrial generators are affected by conditions in the non-residential construction sector and by the capital investment trends for small and large businesses and municipalities. If these businesses and municipalities cannot access credit markets or do not utilize discretionary funds to purchase our products as a result of the economy or other factors, our business could suffer and our ability to realize benefits from our strategy of increasing sales in the light-commercial and industrial sectors through, among other things, our focus on innovation and product development, including natural gas engine and modular technology, could be adversely affected. In addition, consumer confidence and home remodeling expenditures have a significant impact on sales of our residential products, and prolonged periods of weakness in consumer durable goods spending has previously had, and could again have, a material impact on our business. We currently do not have any material contracts with our customers which call for committed volume, and we cannot guarantee that our current customers will continue to purchase our products at the same level, if at all. If general economic conditions or consumer confidence were to worsen, or if the non-residential construction sector or rate of capital investments were to decline, our net sales and profits would likely be adversely affected. Changes in government monetary or fiscal policies may negatively impact our results, including increases in interest rates which could negatively affect overall growth and impact sales of our products. Additionally, timing of capital spending by our national account customers can vary from quarter-to-quarter based on capital availability and internal capital spending budgets. Also, the availability of renewable energy mandates and investment tax credits and other subsidies can have an impact on the demand for energy storage systems. Our global operations are exposed to political and economic risks, commercial instability and events beyond our control in the countries in which we operate. Such risks or events may disrupt our supply chain and not enable us to produce products to meet customer demand.
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The industry in which we compete is highly competitive, and our failure to compete successfully could adversely affect our results of operations and financial condition.
We operate in markets that are highly competitive. Some of our competitors have established brands and are larger in size or are divisions of large diversified companies which have substantially greater financial resources than we do. Some of our competitors may be willing to reduce prices and accept lower margins in order to compete with us. In addition, we could face new competition from large international or domestic companies with established brands that enter our end markets. Demand for our products may also be affected by our ability to respond to changes in design and functionality, to respond to downward pricing pressure, and to provide shorter lead times for our products than our competitors. If we are unable to respond successfully to these competitive pressures, we could lose market share, which could have an adverse impact on our results.
Our industry is subject to technological change, and our failure to continue developing new and improved products and to bring these products rapidly to market could have an adverse impact on our business.
New products, or refinements and improvements to our existing products, may have technical failures, delayed introductions, higher than expected production costs or may not be well accepted by our customers. If we are not able to anticipate, identify, develop and market high quality products in line with technological advancements that respond to changes in customer preferences, demand for our products could decline and our operating results could be adversely affected.
We rely on independent dealers and distribution partners, and the loss of these dealers and distribution partners, or of any of our sales arrangements with significant private label, national, retail or equipment rental customers, would adversely affect our business.
We depend on the services of independent distributors and dealers to sell our products and provide service and aftermarket support to our end customers. We also rely on our distribution channels to drive awareness for our product categories and our brands. In addition, we sell our products to end users through private label arrangements with leading home equipment, electrical equipment and construction machinery companies; arrangements with top retailers and equipment rental companies; and our direct national accounts with telecommunications and industrial customers. Our distribution agreements and any contracts we have with large national, retail and other customers are typically not exclusive, and many of the distributors with whom we do business offer competitors’ products and services. Impairment of our relationships with our distributors, dealers or large customers, loss of a substantial number of these distributors or dealers or of one or more large customers, or an increase in our distributors’ or dealers’ sales of our competitors’ products to our customers or of our large customers’ purchases of our competitors’ products could materially reduce our sales and profits. Also, our ability to successfully realize our growth strategy is dependent in part on our ability to identify, attract and retain new distributors at all layers of our distribution platform, including increasing the number of energy storage distributors, and we cannot be certain that we will be successful in these efforts.
We are unable to determine the specific impact of changes in selling prices or changes in volumes or mix of our products on our net sales.
Because of the wide range of products that we sell, the level of customization for many of our products, the frequent rollout of new products, the different accounting systems utilized, and the fact that we do not apply pricing changes uniformly across our entire portfolio of products, we are unable to determine with specificity the effect of volume or mix changes or changes in selling prices on our net sales.
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Policy changes affecting international trade could adversely impact the demand for our products and our competitive position.
Changes in government policies on foreign trade and investment can affect the demand for our products, impact the competitive position of our products or prevent us from being able to sell products in certain countries. Our business benefits from free trade agreements, and efforts to withdraw from, or substantially modify such agreements, in addition to the implementation of more restrictive trade policies, such as more detailed inspections, higher tariffs, import or export licensing requirements, exchange controls or new barriers to entry, could have a material adverse effect on our results of operations, financial condition or cash flows. For example, we are experiencing increased tariffs on certain of our products and product components. However, these tariffs have not ultimately had a material adverse effect on our results due to the implementation of various mitigation efforts in conjunction with our supply chain and end market partners.
Risk Factors Related to the Oil and Gas Industry
Oil and gas price fluctuations in the market may adversely affect the results of our operations.
Our profitability, cash flows and the carrying value of our oil and natural gas properties are highly dependent upon the market prices of oil and natural gas. A significant portion of our sales of oil and natural gas, if any, are made in the spot market, or pursuant to contracts based on spot market prices, and not pursuant to long-term, fixed-price contracts. Accordingly, the prices received for our oil and natural gas production are dependent upon numerous factors beyond our control. These factors include the level of consumer product demand, governmental regulations and taxes, the price and availability of alternative fuels, the level of foreign imports of oil and natural gas and the overall economic environment.
Historically, the oil and natural gas markets have proven cyclical and volatile as a result of factors that are beyond our control. Any additional declines in oil and natural gas prices or any other unfavorable market conditions could have a material adverse effect on our financial condition.
Actual quantities of recoverable oil and gas reserves and future cash flows from those reserves most likely will vary from our estimates.
Estimating accumulations of oil and gas is complex. The process relies on interpretations of available geological, geophysical, engineering and production data. The extent, quality and reliability of this data can vary. The process also requires certain economic assumptions, some of which are mandated by the SEC, such as oil and gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. The accuracy of a reserve estimate is a function of:
· | the quality and quantity of available data; | |
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· | the interpretation of that data; | |
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· | the accuracy of various mandated economic assumptions; and | |
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· | the judgment of the persons preparing the estimate. |
Estimates of proved reserves prepared by others might differ materially from our estimates. Actual quantities of recoverable oil and gas reserves, future production, oil and gas prices, revenues, taxes, development expenditures and operating expenses most likely will vary from our estimates. Any significant variance could materially affect the quantities and net present value of our reserves. In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development and prevailing oil and gas prices. Our reserves also may be susceptible to drainage by operators on adjacent properties.
Our operations will require significant expenditures of capital that may not be recovered.
We require significant expenditures of capital to locate and develop producing properties and to drill exploratory and exploitation wells. In conducting exploration, exploitation and development activities for a particular well, the presence of unanticipated pressure or irregularities in formations, miscalculations or accidents may cause our exploration, exploitation, development and production activities to be unsuccessful, potentially resulting in abandonment of the well. This could result in a total loss of our investment. In addition, the cost and timing of drilling, completing and operating wells is difficult to predict.
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Compliance with, or breach of, environmental laws can be costly and could limit our operations.
Our operations will be subject to numerous and frequently changing laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Any properties we might own for the exploration and production of oil and gas and the wastes disposed on these properties may be subject to the Comprehensive Environmental Response, Compensation and Liability Act, the Oil Pollution Act of 1990, the Resource Conservation and Recovery Act, the Federal Water Pollution Control Act, similar state laws, and similar Canadian laws. Under such laws, we could be required to remove or remediate previously released wastes or property contamination. Laws and regulations protecting the environment have generally become more stringent and may, in some cases, impose “strict liability” for environmental damage. Strict liability means that we may be held liable for damage without regard to whether we were negligent or otherwise at fault. Environmental laws and regulations may expose us to liability for the conduct of or conditions caused by others or for acts that were in compliance with all applicable laws at the time they were performed. Failure to comply with these laws and regulations may result in the imposition of administrative, civil and criminal penalties.
Although we believe that our operations are in substantial compliance with existing requirements of governmental bodies, our ability to conduct continued operations is subject to satisfying applicable regulatory and permitting controls. Our current permits and authorizations and ability to get future permits and authorizations may be susceptible on a going forward basis, to increased scrutiny, greater complexity resulting in increased costs, or delays in receiving appropriate authorizations.
We are subject to changing laws and regulations and other governmental actions that can significantly and adversely affect our business.
Federal, state, local, territorial and foreign laws and regulations relating to tax increases and retroactive tax claims, disallowance of tax credits and deductions, expropriation or nationalization of property, mandatory government participation, cancellation or amendment of contract rights, and changes in import and export regulations, limitations on access to exploration and development opportunities, as well as other political developments may adversely affect our operations.
The oil and gas we produce may not be readily marketable at the time of production.
Crude oil, natural gas, condensate and other oil and gas products are generally sold to other oil and gas companies, government agencies and other industries. The availability of ready markets for oil and gas that we might discover and the prices obtained for such oil and gas depend on many factors beyond our control, including:
| · | the extent of local production and imports of oil and gas, |
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| · | the proximity and capacity of pipelines and other transportation facilities, |
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| · | fluctuating demand for oil and gas, |
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| · | the marketing of competitive fuels, and |
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| · | the effects of governmental regulation of oil and gas production and sales. |
Natural gas associated with oil production is often not marketable due to demand or transportation limitations and is often flared at the producing well site. Pipeline facilities do not exist in certain areas of exploration and, therefore, we intend on utilizing trucks to transport any oil that is discovered.
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The price of oil and natural gas has historically been volatile. If it were to decrease substantially, our projections, budgets and revenues would be adversely affected, potentially forcing us to make changes in our operations.
Our future financial condition, results of operations and the carrying value of any oil and natural gas interests we acquire will depend primarily upon the prices paid for oil and natural gas production. Oil and natural gas prices historically have been volatile, during calendar 2020 significantly decreased, and likely will continue to be volatile in the future, especially given current world geopolitical and economic conditions. Our cash flows from operations are highly dependent on the prices that we receive for oil and natural gas. This price volatility also affects the amount of our cash flows available for capital expenditures and our ability to borrow money or raise additional capital. The prices for oil and natural gas are subject to a variety of additional factors that are beyond our control. These factors include:
| · | the level of consumer demand for oil and natural gas; |
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| · | the domestic and foreign supply of oil and natural gas; |
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| · | the ability of the members of the Organization of Petroleum Exporting Countries (“OPEC”) to agree to and maintain oil price and production controls; |
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| · | the price of foreign oil and natural gas; |
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| · | domestic governmental regulations and taxes; |
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| · | the price and availability of alternative fuel sources; |
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| · | market uncertainty due to political conditions in oil and natural gas producing regions, including the Middle East; and |
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| · | interest rates and worldwide geopolitical and economic conditions. |
These factors as well as the volatility of the energy markets generally make it extremely difficult to predict future oil and natural gas price movements with any certainty. Declines in oil and natural gas prices affect our revenues and could reduce the amount of oil and natural gas that we can produce economically. Accordingly, such declines could have a material adverse effect on our financial condition, results of operations, oil and natural gas reserves and the carrying values of our oil and natural gas properties. If the oil and natural gas industry experiences significant price declines, we may be unable to make planned expenditures, among other things. If this were to happen, we may be forced to abandon or curtail our business operations, which would cause the value of an investment in us to decline in value or become worthless.
Downturns and volatility in global economies and commodity and credit markets may materially adversely affect our business, results of operations and financial condition.
Viking’s results of operations are materially adversely affected by the conditions of the global economies and the credit, commodities and stock markets. Among other things, Viking has recently been adversely impacted, and anticipates continuing to be adversely impacted, due to a global reduction in consumer demand for oil and gas, and consumer lack of access to sufficient capital to continue to operate their businesses or to operate them at prior levels. In addition, a decline in consumer confidence or changing patterns in the availability and use of disposable income by consumers can negatively affect the demand for oil and gas and as a result Viking’s results of operations.
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Because of the inherent dangers involved in oil and gas operations, there is a risk that we may incur liability or damages as we conduct our business operations, which could force us to expend a substantial amount of money in connection with litigation and/or a settlement.
The oil and natural gas business involve a variety of operating hazards and risks such as well blowouts, pipe failures, casing collapse, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, spills, pollution, releases of toxic gas and other environmental hazards and risks. These hazards and risks could result in substantial losses to us from, among other things, injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. In addition, we may be liable for environmental damages caused by previous owners of property purchased and leased by us. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could reduce or eliminate the funds available for exploration, development or acquisitions or result in the loss of our properties and/or force us to expend substantial monies in connection with litigation or settlements. We currently have no insurance to cover such losses and liabilities, and even if insurance is obtained, there can be no assurance that it will be adequate to cover any losses or liabilities. We cannot predict the availability of insurance or the availability of insurance at premium levels that justify our purchase. The occurrence of a significant event not fully insured or indemnified against could materially and adversely affect our financial condition and operations. We may elect to self-insure if management believes that the cost of insurance, although available, is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event not fully covered by insurance could have a material adverse effect on our financial condition and results of operations, which could lead to any investment in us becoming worthless.
We may encounter operating hazards that may result in substantial losses.
We will be subject to operating hazards normally associated with the exploration and production of oil and gas, including hurricanes, blowouts, explosions, oil spills, cratering, pollution, earthquakes, labor disruptions and fires. The occurrence of any such operating hazards could result in substantial losses to us due to injury or loss of life and damage to or destruction of oil and gas wells, formations, production facilities or other properties. We do not maintain insurance coverage for matters that may adversely affect our operations, including war, terrorism, nuclear reactions, government fines, treatment of waste, blowout expenses, wind damage and business interruptions. Losses and liabilities arising from uninsured or underinsured events could reduce our revenues or increase our costs. There can be no assurance that any insurance we do obtain will be adequate to cover losses or liabilities associated with operational hazards. We cannot predict the continued availability of insurance, or its availability at premium levels that justify its purchase.
We face strong competition from larger oil and gas companies, which could result in adverse effects on our business.
The petroleum exploration and production business is highly competitive. Many of our competitors have substantially larger financial resources, staffs and facilities. Our competitors in the United States and Canada include numerous major oil and gas exploration and production companies. Additionally, other companies engaged in our line of business may compete with us from time to time in obtaining capital from investors. Competitors include larger companies which, in particular, may have access to greater resources, may be more successful in the recruitment and retention of qualified employees and may conduct their own refining and petroleum marketing operations, which may give them a competitive advantage. Actual or potential competitors may be strengthened through the acquisition of additional assets and interests. Additionally, there are numerous companies focusing their resources on creating fuels and/or materials which serve the same purpose as oil and gas but are manufactured from renewable resources.
Our estimates of the volume of reserves could have flaws, or such reserves could turn out not to be commercially extractable. as a result, our future revenues and projections could be incorrect.
Estimates of reserves and of future net revenues prepared by different petroleum engineers may vary substantially depending, in part, on the assumptions made and may be subject to adjustment either up or down in the future. Our actual amounts of production, revenue, taxes, development expenditures, operating expenses, and quantities of recoverable oil and gas reserves may vary substantially from the estimates. Oil and gas reserve estimates are necessarily inexact and involve matters of subjective engineering judgment. In addition, any estimates of our future net revenues and the present value thereof are based on assumptions derived in part from historical price and cost information, which may not reflect current and future values, and/or other assumptions made by us that only represent our best estimates. If these estimates of quantities, prices and costs prove inaccurate, we may be unsuccessful in expanding our oil and gas reserves base with our acquisitions. Additionally, if declines in and instability of oil and gas prices occur, then write downs in the capitalized costs associated with any oil and gas assets we obtain may be required. Because of the nature of the estimates of our reserves and estimates in general, we can provide no assurance that reductions to our estimated proved oil and gas reserves and estimated future net revenues will not be required in the future, and/or that our estimated reserves will be present and/or commercially extractable. If our reserve estimates are incorrect, the value of our common stock could decrease and we may be forced to write down the capitalized costs of our oil and gas properties.
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Our business will suffer if we cannot obtain or maintain necessary licenses.
Our operations will require licenses, permits and in some cases renewals of licenses and permits from various governmental authorities. Our, or our partners’, ability to obtain, sustain or renew such licenses and permits on acceptable terms is subject to change in regulations and policies and to the discretion of the applicable governments, among other factors. Our inability to obtain, or our loss of or denial of extension of, any of these licenses or permits could hamper our ability to produce revenues from our operations.
Our operations may be subject to various litigation matters in the future that could have an adverse effect on our business.
From time to time, we may become a defendant in various litigation matters. The nature of our operations exposes us to further possible litigation claims, including litigation relating to climate change in the future. There is risk that any matter in litigation could be adversely decided against us regardless of our belief, opinion and position, which could have a material adverse effect on our financial condition and results of operations. Litigation is highly costly and the costs associated with defending litigation could also have a material adverse effect on our financial condition.
We may be affected by global climate change or by legal, regulatory, or market responses to such change.
The growing political and scientific sentiment is that increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere are influencing global weather patterns. Changing weather patterns, along with the increased frequency or duration of extreme weather conditions, could impact the availability or increase the cost to produce our products. Additionally, the sale of our products can be impacted by weather conditions.
Concern over climate change, including global warming, has led to legislative and regulatory initiatives directed at limiting greenhouse gas emissions. For example, proposals that would impose mandatory requirements on greenhouse gas emissions continue to be considered by policy makers in the provinces, states or territories where we operate. Laws enacted that directly or indirectly affect our oil and gas production could impact our business and financial results.
If oil or natural gas prices decrease or drilling efforts are unsuccessful, we may be required to record write-downs of our oil and natural gas properties.
We could be required to write down the carrying value of certain of our oil and natural gas properties. Write-downs may occur when oil and natural gas prices are low, or if we have downward adjustments to our estimated proved reserves, increases in our estimates of operating or development costs, deterioration in drilling results or mechanical problems with wells where the cost to re-drill or repair is not supported by the expected economics.
Accounting rules require that the carrying value of oil and natural gas properties be periodically reviewed for possible impairment. Under the full cost method of accounting, capitalized oil and natural gas property costs less accumulated depletion, net of deferred income taxes, may not exceed a ceiling amount equal to the present value, discounted at 10%, of estimated future net revenues from proved oil and natural gas reserves plus the cost of unproved properties not subject to amortization (without regard to estimates of fair value), or estimated fair value, if lower, of unproved properties that are subject to amortization. Should capitalized costs exceed this ceiling, which is tested on a quarterly basis, an impairment is recognized. While an impairment charge reflects our long-term ability to recover an investment, reduces our reported earnings and increases our leverage ratios, it does not impact cash or cash flow from operating activities.
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Our future success depends on our ability to replace reserves that are produced.
Because the rate of production from oil and natural gas properties generally declines as reserves are depleted, our future success depends upon our ability to economically find or acquire and produce additional oil and natural gas reserves. Except to the extent that we acquire additional properties containing proved reserves, conduct successful exploration and development activities, or, through engineering studies, identify additional behind-pipe zones or secondary recovery reserves, our proved reserves will decline as our reserves are produced. Future oil and natural gas production, therefore, is highly dependent upon our level of success in acquiring or finding additional reserves that are economically recoverable. We cannot assure you that we will be able to find or acquire and develop additional reserves at an acceptable cost.
We may acquire significant amounts of unproved property to further our development efforts. Development and exploratory drilling and production activities are subject to many risks, including the risk that no commercially productive reservoirs will be discovered. We may acquire both proved and producing properties as well as undeveloped acreage that we believe will enhance growth potential and increase our earnings over time. However, we cannot assure you that all of these properties will contain economically viable reserves or that we will not abandon our initial investments. Additionally, we cannot assure you that unproved reserves or undeveloped acreage that we acquire will be profitably developed, that new wells drilled on our properties will be productive or that we will recover all or any portion of our investments in our properties and reserves.
Our lack of industry and geographical diversification may increase the risk of an investment in our company.
We operate in the oil and gas sector, and our current leases are located in North America in Kansas. This lack of geographic diversification may make our holdings more sensitive to economic developments within a regional area, which may result in reduced rates of return or higher rates of default than might be incurred with a company that is more geographically diverse.
Our business depends on oil and natural gas transportation and processing facilities and other assets that are owned by third parties.
The marketability of our oil and natural gas depends in part on the availability, proximity and capacity of pipeline systems, processing facilities, oil trucking fleets and rail transportation assets owned by third parties. The lack of available capacity on these systems and facilities, whether as a result of proration, physical damage, scheduled maintenance or other reasons, could result in the delay or discontinuance of development plans for our properties. The curtailments arising from these and similar circumstances may last from a few days to several months.
Our leasehold acreage is subject to leases that will expire over the next several years unless production is established or maintained or the leases are extended.
Some of our acreage is currently held by production or held by operations, but some is not. Unless production in paying quantities is established or operations are commenced on units containing these latter leases during their terms, those leases may expire. Likewise, if we are unable to maintain production on acreage held by production or operations, those leases may expire. If our leases expire and we are unable to renew the leases, we will lose our right to develop or utilize the related properties.
Deficiencies of title to our leased interests could significantly affect our financial condition.
We, or our partners, often incur the expense of a title examination prior to acquiring oil and natural gas leases or undivided interests in oil and natural gas leases or other developed rights. If an examination of the title history of a property reveals that an oil or natural gas lease or other developed rights have been purchased in error from a person who is not the owner of the mineral interest desired, our interest would substantially decline in value or be eliminated. In such cases, the amount paid for such oil or natural gas lease or leases or other developed rights may be lost.
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Risk Factors Related to our Operations
We have not established an effective system of internal control over our financial reporting, and if we fail to maintain such internal control, we may not be able to accurately report our financial results, and current and potential stockholders may lose confidence in our financial reporting.
We have not established and maintained adequate and effective internal control over financial reporting that would provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. We are, however, required to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses in those internal controls.
Any failure to maintain adequate internal controls could adversely impact our ability to report our financial results on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis as required by the SEC and the Capital Market, we could face severe consequences from those authorities. In either case, there could result a material adverse effect on our business. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
Need for Additional Financing
The Company currently has limited funds and the lack of additional funds may negatively impact the Company’s ability to pursue its business strategy to conduct operations in the oil and gas industry and to acquire, invest in and/or provide professional advisory and consulting services to companies undergoing or anticipating periods of rapid growth. Even if the Company’s funds prove to be sufficient to provide such services or to acquire an interest in, or complete a transaction with, an entity, the Company may not have enough capital to exploit the opportunity. The ultimate success of the Company may depend upon its ability to raise additional capital. The Company may investigate the availability, source, or terms that might govern the acquisition of additional capital but will not do so until it determines a need for additional financing. If additional capital is needed, there is no assurance that funds will be available from any source or, if available, that they can be obtained on terms acceptable to the Company. If not available, the Company’s operations will be limited to those that can be financed with its modest capital.
Regulation of Penny Stocks
The Company’s securities may be subject to a SEC rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited investors. For purposes of the rule, the phrase “accredited investors” means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth, or joint net worth with spouse, in excess of $1,000,000 excluding the value of the person’s primary residence or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell the Company’s securities and also may affect the ability of purchasers in an offering to sell their securities in any market that might develop.
In addition, the SEC has adopted a number of rules to regulate “penny stocks.” Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities Exchange Act of 1934, as amended or the Exchange Act. Because the securities of the Company may constitute “penny stocks” within the meaning of the rules, the rules would apply to the Company and to its securities. The rules may further affect the ability of owners of shares to sell the securities of the Company in any market that might develop for them.
Shareholders should be aware that, according to SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses.
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Lack of Operating History
Due to the numerous risks inherent in the implementation of a new business emphasis and plan, the Company must be regarded as a new or start-up venture with all of the unforeseen costs, expenses, problems, and difficulties to which such ventures are subject.
No Assurance of Success or Profitability
There is no assurance that the Company will be able to successfully implement its business plan and provide the contemplated services to its client companies. Even if the Company is successful in providing its services to its client companies, there is a risk that it will not generate revenues or profits, or that the market price of the Company’s common stock will increase.
Impracticality of Exhaustive Investigation
The Company has limited operating funds, and this makes it impracticable for the Company to conduct a complete and exhaustive investigation and analysis of its opportunities. Decisions will therefore likely be made without detailed geotechnical reports, feasibility studies, independent analysis, market surveys and the like, which, if the Company had more funds available to it, would be desirable. The Company will be particularly dependent in making decisions upon information provided by third parties with interests in the transaction. A significant portion of the Company’s available funds could be expended for investigative expenses and other preliminary expenses, and potential profits could therefore be lessened.
Reliance upon Financial Statements
The Company generally will require audited financial statements from companies with which it seeks to enter into a contractual arrangement. In cases where no audited financials are available, the Company will have to rely upon interim period unaudited information received from a prospective client company’s management that has not been verified by outside auditors. The lack of the type of independent verification which audited financial statements would provide increases the risk that the Company, in evaluating a contractual arrangement with such a company, will not have the benefit of full and accurate information about the financial condition and recent interim operating history of that company. This risk increases the prospect that the contractual arrangement with such a company might prove to be an unfavorable one for the Company or the holders of the Company’s securities.
Moreover, the Company will be subject to the reporting provisions of the Exchange Act, and thus will be required to furnish certain information about significant contractual arrangements, including audited financial statements for any business with which it enters into a contractual arrangement for control. Consequently, prospects that do not typically have, or are unable to provide reasonable assurances that they will be able to obtain, the required audited statements would not be considered by the Company to be appropriate acquisition targets so long as the reporting requirements of the Exchange Act are applicable. Should the Company, during the time it remains subject to the reporting provisions of the Exchange Act, acquire control of an entity for which audited financial statements prove to be unobtainable, the Company would be exposed to enforcement actions by the SEC and to corresponding administrative sanctions, including permanent injunctions against the Company and its management. The legal and other costs of defending an SEC enforcement action would have material, adverse consequences for the Company and its business. The imposition of administrative sanctions would subject the Company to further adverse consequences. In addition, the lack of audited financial statements would prevent the securities of the Company from becoming eligible for listing on NASDAQ, or on any existing stock exchange.
Moreover, the lack of such financial statements is likely to discourage broker-dealers from becoming or continuing to serve as market makers in the securities of the Company. Without audited financial statements, the Company would almost certainly be unable to offer securities under a registration statement pursuant to the Securities Act of 1933 or the Securities Act, and the ability of the Company to raise capital would be significantly limited until such financial statements were to become available.
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Other Regulation
A contractual arrangement for acquisition of equity ownership of or control may be of a company that is subject to rules and regulation by federal, state, local or foreign authorities. Compliance with such rules and regulations can be expected to be a time-consuming, expensive process and may limit other opportunities of the Company.
Lack of Continuity in Management
The Company does not currently have employment agreements with its Chief Executive Officer and President, Mr. Doris, and its Chief Financial Officer, Mr. McVicar. As a result, there is no assurance that Mr. Doris or Mr. McVicar will continue to be associated with the Company in the future. In connection with future business opportunities, it is possible that Mr. Doris or Mr. McVicar may resign as an officer and director of the Company subject to compliance with Section 14f of the Exchange Act. Any decision to resign would occur without the vote or consent of the stockholders of the Company.
The Company is required to indemnify its Officers and Directors
Nevada law provides for the indemnification of the Company’s directors, officers, employees, and agents, under certain circumstances, against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of the Company. If the Company were called upon to indemnify an officer or director, then the portion of its available funds expended for such purpose would reduce the amount otherwise available for the Company’s business. This indemnification obligation and the resultant costs associated with indemnification may also discourage our Company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and shareholders.
The Company would bear the expenses of such litigation for any of its directors, officers, employees, or agents, upon such person’s promise to repay the Company if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by the Company which it may be unable to recoup.
We may be dependent upon outside advisors.
To supplement the Company’s officers, directors and principal shareholders, the Company may be required to employ accountants, technical experts, appraisers, attorneys, or other outside consultants or advisors. The selection of any such advisors will be made by the Company without any input from stockholders. Furthermore, it is anticipated that such persons may be engaged on an “as needed” basis without a continuing fiduciary or other obligation to the Company. In the event the Company considers it necessary to hire outside advisors, such persons may be affiliates of the Company.
We do not anticipate paying any cash dividends to our common shareholders.
We presently do not anticipate that we will pay dividends on any of our common stock in the foreseeable future. If payment of dividends does occur at some point in the future, it would be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. The payment of any common stock dividends will be within the discretion of our Board of Directors. We presently intend to deploy available capital to execute our business plan; accordingly, we do not anticipate the declaration of any dividends for common stock in the foreseeable future.
The Company’s CEO, James Doris, holds preferred stock which could afford him enough shareholder votes to control the Company.
The Company’s CEO and director, James Doris, holds 28,092 shares of the Company’s Series C Preferred Stock, with each share of preferred stock entitling the holder, after July 1, 2022, to 37,500 votes on all matters submitted to the vote of the Company’s security holders. By virtue of such preferred stock ownership, following July 1, 2022, Mr. Doris could control the election of the members of the Company’s Board of Directors and generally exercise control over the affairs of the Company. Such concentration of ownership could have the effect of delaying, deterring or preventing a change in control of the Company that might otherwise be beneficial to stockholders. There can be no assurance that conflicts of interest will not arise with respect to Mr. Doris’s ownership of the preferred stock, or that such conflicts will be resolved in a manner favorable to the Company.
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Our outstanding securities may become freely tradable pursuant to Rule 144 and may have a depressive effect on the price of the shares of our common stock.
We have, outstanding, a large number of shares of common stock. Many of these securities are currently issued with a “restrictive legend” and characterized as “restricted securities” within the meaning of Rule 144 (“Rule 144”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”). As restricted securities, these securities may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that once restricted securities have been held for a period of at least six months and the other requirements in the rule have been satisfied, holders of the securities may resell their securities without registration or restriction on transfer. As many of our outstanding shares of common stock have been held by their holders in excess of six months, such holders may be able to resell their shares of common stock into the market without restriction pursuant to Rule 144. Those resales could have a depressive effect upon our stock price.
COVID-19 may negatively impact demand for oil and natural gas and our business, results of operations and financial condition.
COVID-19 has had a significant impact around the world, prompting governments and businesses to take unprecedented measures in response. Such measures have included restrictions on travel and business operations, temporary closures of businesses, and quarantine and shelter-in-place orders. The COVID-19 pandemic has at times significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets.
The COVID-19 pandemic and the measures taken by many countries in response have adversely affected and could in the future materially adversely impact the Company’s business, results of operations, financial condition and stock price. During the course of the pandemic, certain of the Company’s component suppliers and manufacturing and logistical service providers have experienced disruptions, resulting in supply shortages that affected our operations, and similar disruptions could occur in the future. Public safety measures can also adversely impact consumer demand for the Company’s products and services in affected areas.
The Company continues to monitor the situation and take appropriate actions in accordance with the recommendations and requirements of relevant authorities. The extent to which the COVID-19 pandemic may impact the Company’s operational and financial performance remains uncertain and will depend on many factors outside the Company’s control, including the timing, extent, trajectory and duration of the pandemic, the emergence of new variants, the development, availability, distribution and effectiveness of vaccines and treatments, the imposition of protective public safety measures, and the impact of the pandemic on the global economy and demand for consumer products and services. Additional future impacts on the Company may include material adverse effects on demand for the Company’s products and services, the Company’s supply chain and sales and distribution channels, the Company’s ability to execute its strategic plans, and the Company’s profitability and cost structure.
To the extent the COVID-19 pandemic adversely affects the Company’s business, results of operations, financial condition and stock price, it may also have the effect of heightening many of the other risks described in this Annual Report on Form 10-K..
The staff of the SEC’s Division of Enforcement notified Viking that the Staff had made a preliminary determination to recommend that the SEC file an enforcement action against Viking, as well as against its CEO and its former CFO, for alleged violation so securities laws.
In April of 2019, the staff (the “Staff”) of the SEC’s Division of Enforcement notified Viking that the Staff had made a preliminary determination to recommend that the SEC file an enforcement action against Viking, as well as against its CEO and its former CFO, for alleged violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder during the period from early 2014 through late 2016. The Staff’s notice was not a formal allegation or a finding of wrongdoing by Viking, and Viking has communicated with the Staff regarding its preliminary determination. Viking believes it has adequate defenses and intends to vigorously defend any enforcement action that may be initiated by the SEC. However, the defense of an action filed by the SEC against Viking, its CEO and/or former CFO, could take resources away from the operations of Viking, divert management attention, or potential result in penalties, fines or sanctions, which could materially adversely affect Viking or the value of its securities.
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If we lose the services of our Chief Executive Officer, our operations could be disrupted, and our business could be harmed.
We rely heavily on the day-to-day involvement of our CEO, James Doris, in managing the Company’s affairs. Mr. Doris is an integral part of all material elements of our existing operations and immediate growth initiatives. We do not have a long-term employment or other agreement with Mr. Doris. If he ceases to be involved with us for any reason, our operations would likely be disrupted, and our business would likely be harmed.
We only own approximately 60.5% of Simson-Maxwell, and other Simson-Maxwell stakeholders are able to exercise some control over its operations.
We do not own 100% of Simson-Maxwell, but rather we own approximately 60.5% of Simson-Maxwell’s issued and outstanding shares. We are a party to a Shareholders’ Agreement regarding the ownership and governance of Simson-Maxwell, and although we are entitled to elect the majority of the directors of Simson-Maxwell, we have to obtain approval from at least one other shareholder of Simson-Maxwell in connection with the following matters:
| · | any fundamental change to the corporate structure of the Simson-Maxwell and/or any subsidiary of Simson-Maxwell if such fundamental change is dilutive to the existing shareholders, including without limitation, in respect of each such entity: any amendment, modification, repeal or other variation to its articles, any amendment to its authorized share capital, or any proposal to create, reclassify, re-designate, subdivide, consolidate, or otherwise change any shares (whether issued or unissued) or partnership units, as the case may be; |
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| · | the issuance of any shares in the capital of the Simson-Maxwell and/or any subsidiary of Simson-Maxwell or any securities, warrants, options or rights convertible into, exchangeable for, or carrying the right to subscribe for or purchase, shares in the capital of the Simson-Maxwell and/or any subsidiary of Simson-Maxwell, as the case may be, if such issuance is dilutive to the existing shareholders; |
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| · | the redemption or purchase for cancellation of any shares in the capital of the Simson-Maxwell and/or any subsidiary of Simson-Maxwell, or any other return of capital by the Simson-Maxwell and/or any subsidiary of Simson-Maxwell, other than any purchase of shares in accordance with the Shareholders’ Agreement; |
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| · | the conversion, exchange, reclassification, re-designation, subdivision, consolidation, or other change of or to any shares in the capital of the Simson-Maxwell and/or any subsidiary of Simson-Maxwell if any such action is dilutive to the existing shareholders; |
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| · | the acquisition or commencement of any business other than Simson-Maxwell’s current business or the entering into of any amalgamation, merger, partnership, joint venture, or other combination, or any agreement with respect to any of the foregoing, with any person or business by the Simson-Maxwell and/or any subsidiary of Simson-Maxwell if any such action is dilutive to the existing shareholders; |
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| · | any dissolution, liquidation, or winding-up of the Simson-Maxwell and/or any subsidiary of Simson-Maxwell or other distribution of the assets of the Simson-Maxwell and/or any subsidiary of Simson-Maxwell for the purpose of winding-up its affairs, whether voluntary or involuntary, except where such dissolution, liquidation, or winding-up or other distribution is done voluntarily by the Simson-Maxwell and/or any subsidiary of Simson-Maxwell in order to reorganize its corporate structure, provided that the board of directors of Simson-Maxwell determines (without inquiring into or giving effect to the personal circumstances of any individual shareholder) that the interests of no one shareholder shall be disproportionately adversely affected vis-à-vis the interests of any other shareholder by such reorganization; |
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| · | any declaration or payment of dividends by the Simson-Maxwell or other similar payment or distribution by the Simson-Maxwell to all of the shareholders, except for payment or distribution to all common shareholders or the payment of dividends on any issued preferred shares as required under their terms; |
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| · | any sale, proposed sale, lease, exchange, or other disposition of all or a substantial portion of the property, assets, or business of the Simson-Maxwell and/or any subsidiary of Simson-Maxwell, other than in the ordinary course of business; |
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| · | any provision of any guarantee, indemnity, or other financial support by the Simson-Maxwell and/or any subsidiary of Simson-Maxwell; |
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| · | any transaction not in the ordinary course of business between the Simson-Maxwell and/or any subsidiary of Simson-Maxwell and any person not dealing at arm’s length with the Simson-Maxwell and/or any subsidiary of Simson-Maxwell or any of the shareholders. For the avoidance of doubt, entering into employment agreements with employees, hiring decisions, and compensation arrangements are excluded from this provision; or |
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| · | any change in the registered office of the Simson-Maxwell and/or any subsidiary of Simson-Maxwell. |
Profitability & Expansion initiatives at Simson-Maxwell are not guaranteed.
The Company’s majority-owned subsidiary, Simson-Maxwell, provides power generation products, services and custom energy solutions to commercial and industrial clients, primarily in Canada. Simson-Maxwell is not currently operating at a profit and the Company’s objective is to assist Simson-Maxwell with becoming profitable and expanding Simson-Maxwell’s business throughout North America. There can be no assurance either will occur as both initiatives are subject to a number of risks and influences, including several beyond the Company’s control.
The Camber Energy merger may not ever be consummated.
There is no guaranty we will complete the Merger with Camber Energy. If the Merger is not consummated, we intend to up-list directly to a national stock exchange, but there is no guaranty any such up-listing will occur.
As at the date hereof, Camber Energy owns approximately 60.9% of our outstanding shares of common stock, and as such has significant influence over matters requiring the approval of our stockholders.
Changes to the management, ownership and/or capitalization of Camber Energy may influence how Camber Energy manages or otherwise deals with its ownership of shares of common stock of the Company. Camber Energy’s interests may not always be aligned with the interests of the Company.
We have guaranteed Camber Energy’s indebtedness to Camber Energy’s senior secured lender, and we have executed security agreements to secure such guaranty. If there is a default under any of the promissory notes issued by Camber Energy in favor of its senior secured lender, we may be forced to pay amounts due to the lender pursuant to those Camber Energy promissory notes, and we may not have sufficient resources on hand to satisfy those obligations.
Because of the unique difficulties and uncertainties inherent in technology development, we face a risk of not being able to capitalize on our license or ownership of intellectual property.
Potential investors should be aware of the difficulties normally encountered by companies developing new technology and the high rate of failure of such enterprises. The likelihood of our successful ability to commercialize intellectual property we own or license must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the development of new technology with limited personnel and financial means. These potential problems include, but are not limited to, unanticipated technical problems that extend the time and cost of product development, or unanticipated problems with the operation of the technology.
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Technology development involves significant time and expense and can be uncertain.
The development of technology associated with our licensed or owned intellectual property will be costly, complex and time-consuming. Any investment into technology development and commercialization often involves a long wait until a return, if any, is achieved on such investment. We plan to make investments in research and development relating to our owned and licensed intellectual property and technology. Investments in new technology and processes are inherently speculative.
Successful technical development of technologies associated with intellectual property does not guarantee successful commercialization.
We may successfully complete the technical development of technologies associated with our owned or licensed intellectual property, but we may still fail to commercialize that technology at scale or at a cost attractive to the target industries. Our success will depend largely on our ability to prove the capabilities and cost-effectiveness of the developed technology. Upon demonstration, the technology may not have the capabilities they were designed to have or that we believed they would have, or they may be more expensive than anticipated. Furthermore, even if we do successfully demonstrate the technology’s capabilities, potential customers may be more comfortable doing business with a larger, more established, more proven company than us. Moreover, competing technologies may prevent us from gaining wide market acceptance of the technology. Significant revenue from new technology investments may not be achieved for a number of years, if at all.
If we fail to protect our intellectual property rights, we could lose our ability to compete in the market.
Our intellectual property and proprietary rights are important to our ability to remain competitive and for the success of our products and our business. Our intellectual property rights may be challenged, invalidated or circumvented by third parties. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by employees or competitors. Furthermore, our competitors may independently develop technologies and products that are substantially equivalent or superior to our technologies and/or products, which could result in decreased revenues. Moreover, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S. Litigation may be necessary to enforce our intellectual property rights which could result in substantial costs to us and substantial diversion of management attention. If we do not adequately protect our intellectual property, our competitors could use it to enhance their products. Our inability to adequately protect our intellectual property rights could adversely affect our business and financial condition, and the value of our brand and other intangible assets.
Other companies may claim that we infringe their intellectual property, which could materially increase our costs and harm our ability to generate future revenue and profit.
We do not believe that we infringe the proprietary rights of any third party, but claims of infringement are becoming increasingly common, and third parties may assert infringement claims against us. It may be difficult or impossible to identify, prior to receipt of notice from a third party, the trade secrets, patent position or other intellectual property rights of a third party, either in the United States or in foreign jurisdictions. Any such assertion may result in litigation or may require us to obtain a license for the intellectual property rights of third parties. If we are required to obtain licenses to use any third-party technology, we would have to pay royalties, which may significantly reduce any profit on our products. In addition, any such litigation could be expensive and disruptive to our ability to generate revenue or enter into new market opportunities. If any of our products were found to infringe other parties’ proprietary rights and we are unable to come to terms regarding a license with such parties, we may be forced to modify our products to make them non-infringing or to cease production of such products altogether.
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Renewable energy investments may be linked to government subsidies.
Profitability of any investments we make in renewable and/or clean energy opportunities may depend on the availability of government subsidies, tax credits or other types of incentives, and there is no guaranty such subsidies, tax credits or incentives will be available in the future.
We are currently operating in a period of economic uncertainty and capital markets disruption, which has been impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine. Our business may be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. We are continuing to monitor the situation in Ukraine and globally and assessing its potential impact on our business.
Additionally, Russia’s prior annexation of Crimea, recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military interventions in Ukraine have led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic, including agreement to remove certain Russian financial institutions from the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) payment system, expansive ban on imports and exports of products to and from Russia and ban on exportation of U.S denominated banknotes to Russia or persons located there. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in this Annual Report on Form 10-K.
Item 1B. Unresolved Staff Comments
The Company, as a smaller reporting company (as defined by Rule 12b-2 of the Exchange Act), is not required to furnish information required by this item.
Item 2. Properties
The Company’s headquarters are located at 15915 Katy Freeway, Suite 450, Houston, Texas 77094. Through Simson-Maxwell, the Company has 7 branch locations in Western Canada, consisting of (i) Port Coquitlam, British Columbia; (ii) Edmonton, Alberta; (iii) Calgary, Alberta; (iv) Nanaimo, British Columbia; (v) Prince George, British Columbia; (vi) Fort St. John, British Columbia; and (vii) Terrace, British Columbia.
Oil and Natural Gas Properties
Kansas
On February 23, 2016, the Company closed on the acquisition of working interests in four leases with access to the mineral rights (oil and gas) concerning approximately 281 acres of property in Miami and Franklin Counties in eastern Kansas. On October 4, 2016, the Company completed an acquisition whereby the Company (i) increased its working interest in three existing oil and gas leases in Miami and Franklin Counties in Eastern Kansas, and (ii) acquired a working interest in four new oil and gas leases in the same region, comprising approximately 660 acres of property. On September 11, 2017, the Company through its wholly owned subsidiary, Mid-Con Drilling, LLC (“Mid-Con Drilling”) acquired a 90% working interest in four new oil and gas leases in Anderson County in Eastern Kansas, comprising approximately 980 acres of property. On October 2, 2017, the Company, through Mid-Con Drilling, closed on an acquisition, effective October 1, 2017, of a 100% working interest in six new oil and gas leases in Miami and Franklin Counties in Eastern Kansas. On October 4, 2017, the Company, through Mid-Con Drilling, closed on an acquisition, effective September 1, 2017, of an 80% working interest in six new oil and gas leases in Riley, Geary and Wabaunsee Counties in Kansas. On December 29, 2017, the Company through its wholly owned subsidiary, Mid-Con Development, LLC (“Mid-Con Development”) completed an acquisition of working interests in approximately 41 oil and gas leases in Ellis and Rooks Counties in Kansas, comprising several thousand acres. On January 12, 2018, the Company, through Mid-Con Drilling, completed an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Eastern Kansas. Effective February 1, 2018, the Company, through Mid-Con Drilling, closed on the acquisition of a working interest in a lease with access to the mineral rights (oil and gas) concerning approximately 80 acres of property in Douglas County in eastern Kansas. As of December 31, 2021, these central United States oil and gas properties consist of interests in approximately 377 producing wells and 135 injector wells.
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On January 12, 2018, the Company, through its subsidiary Mid-Con Drilling, LLC (“Mid-Con Drilling”) completed an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Eastern Kansas.
Effective February 1, 2018, the Company, through Mid-Con Drilling, closed on the acquisition of a working interest in a lease with access to the mineral rights (oil and gas) concerning approximately 80 acres of property in Douglas County in eastern Kansas.
On May 1, 2019, the Company’s subsidiary, Mid-Con Development, LLC sold all of its interests in the oil and gas assets of Mid-Con Development, LLC owned in Ellis and Rooks Counties, Kansas, consisting of working interests in approximately 41 oil leases comprising several thousand acres.
Petrodome Energy, LLC & Subsidiaries
On December 22, 2017, the Company closed on the acquisition of 100% of the membership interests in Petrodome Energy, LLC, a Texas limited liability company based in Houston, Texas, with multiple subsidiaries (described in Exhibit 21.1 hereto) having working interests in multiple oil and gas leases in Texas, Louisiana and Mississippi, then comprising approximately 11,700 acres. As of December 31, 2021, these properties consist of interests in 7 producing wells, 17 non-producing wells and two salt water disposal wells.
On May 10, 2019, Petrodome Louisiana Pipeline LLC (“Petrodome LA”), a subsidiary of the Company’s subsidiary, Petrodome Energy, LLC, acquired a majority working interest in 6 gas wells (including 2 producing gas wells), 1 producing oil well and 1 salt water disposal well located in the East Mud Lake Field in Cameron Parish, Louisiana, with leases to mineral rights (oil and gas) concerning approximately 765 acres.
On July 8, 2022, four of the wholly owned subsidiaries of Petrodome, a wholly owned subsidiary of Viking, 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 salt water disposal wells and 1 inactive well.
Ichor Energy LLC
On December 28, 2018, the Company, through its then subsidiary Ichor Energy, LLC (“Ichor Energy”) completed an acquisition (the “Ichor Energy Acquisition”) of working interests in certain oil and gas leases in Texas (primarily in Orange and Jefferson Counties) and Louisiana (primarily in Calcasiue Parish), which include 58 producing wells, 31 salt water disposal wells, 46 shut in wells and 4 non-producing wells. The properties produce hydrocarbons from known reservoirs/sands in the on-shore Gulf Coast region, with an average well depth in excess of 10,600 feet. On October 5, 2021, the Company disposed of all of membership interests of Ichor Energy Holdings, LLC, the owner of Ichor. The third-party purchaser assumed all of the rights and obligations associated with such membership interests, including the debt associated with Ichor and/or its subsidiaries.
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Elysium Energy LLC
On February 3, 2020, Elysium Energy, LLC, (“Elysium”), the subsidiary of the Company’s then partially owned subsidiary, Elysium Energy Holdings, LLC (“Elysium Holdings”), acquired interests in oil and gas properties located in Texas and Louisiana, which included leases, working interests, and over-riding royalty interests in oil and gas properties in Texas (approximately 72 wells in 11 counties) and Louisiana (approximately 55 wells in 6 parishes), along with associated equipment. On October 12, 2021, the Company disposed of all of the membership interests of Elysium Holdings. The third-party purchaser assumed all of the rights and obligations associated with such membership interests, including the debt associated with Elysium.
Oil and Natural Gas Reserves at December 31, 2022 and 2021
As of December 31, 2022, all of our proved oil and natural gas reserves were located in the United States, in the States of Texas and Kansas.
The following tables set forth summary information with respect to our proved reserves as of December 31, 2022 and 2021. For additional information see Supplemental Information “Oil and Natural Gas Producing Activities (Unaudited)” to our consolidated financial statements in “Item 8-Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Under SEC reporting requirements, proved undeveloped reserves include only those reserves in which the Company has current plans to develop, generally within five years. During 2021 and 2022, the Company made several strategic dispositions and acquisitions which has modified its capital expenditure plans. The Company currently has no firm commitments to drill or otherwise develop its proved undeveloped reserves. As of December 31, 2022, the Company has reclassified all of its proved undeveloped properties to unproved reserves.
|
| Proved Reserves at December 31, 2022 |
| |||||||||
Reserves Category |
| Crude Oil (MBBLs) |
|
| Natural Gas (MMCF) |
|
| Total Proved (BOE) (1) |
| |||
|
|
|
|
|
|
|
|
|
| |||
Proved Reserves |
|
|
|
|
|
|
|
|
| |||
Developed |
|
| 105,375 |
|
|
| - |
|
|
| 105,375 |
|
Developed Non-Producing |
|
| 21,369 |
|
|
| - |
|
|
| 21,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proved Reserves |
|
| 126,744 |
|
|
| - |
|
|
| 126,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Net Cash Flows |
|
| 4,503,786 |
|
|
| - |
|
| $ | 4,503,786 |
|
10% annual discount for estimated timing of cash flows |
|
|
|
|
|
|
|
|
|
| (1,532,187 | ) |
Discounted Future Net Cash Flows - (PV10) (2) |
|
|
|
|
|
|
|
|
| $ | 2,971,599 |
|
|
| Proved Reserves at December 31, 2021 |
| |||||||||
Reserves Category |
| Crude Oil (MBBLs) |
|
| Natural Gas (MMCF) |
|
| Total Proved (BOE) (1) |
| |||
|
|
|
|
|
|
|
|
|
| |||
Proved Reserves |
|
|
|
|
|
|
|
|
| |||
Developed |
|
| 322,478 |
|
|
| 5,052,600 |
|
|
| 1,164,578 |
|
Developed Non-Producing |
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| 260,802 |
|
|
| 921,700 |
|
|
| 414,418 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proved Reserves |
|
| 583,280 |
|
|
| 5,974,300 |
|
|
| 1,578,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Net Cash Flows |
|
|
|
|
|
|
|
|
| $ | 26,837,237 |
|
10% annual discount for estimated timing of cash flows |
|
|
|
|
|
|
|
|
|
| (11,822,285 | ) |
Discounted Future Net Cash Flows - (PV10) (2) |
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|
|
|
|
|
|
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| $ | 15,014,952 |
|
(1) BOE (barrels of oil equivalent) is calculated by a ratio of 6 MCF to 1 BBL of Oil
(2) PV-10 represents the discounted future net cash flows attributable to our proved oil and natural gas reserves discounted at 10%. PV-10 of our total year-end proved reserves is considered a non-US GAAP financial measure as defined by the SEC. We believe that the presentation of the PV-10 is relevant and useful to our investors because it presents the discounted future net cash flows attributable to our proved reserves without consideration of income tax affects. We further believe investors and creditors use our PV-10 as a basis for comparison of the relative size and value of our reserves to other companies.
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Net Production, Unit Prices and Costs
The following table presents certain information with respect to oil and natural gas production attributable to our interests in all of our properties in the United States, the revenue derived from the sale of such production, average sales prices received and average production costs during the years ended December 31, 2022 and 2021. All production and expense data includes the results of Ichor through October 5, 2021, Elysium through October 12, 2021, and Petrodome through July 8, 2022, the respective dates of disposition.
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| Unit of |
| December 31, |
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| Measure |
| 2022 |
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| 2021 |
| ||
|
|
|
|
|
|
|
|
| ||
Production |
|
|
|
|
|
|
|
| ||
Oil |
| Barrels |
|
| 24,510 |
|
|
| 407,093 |
|
Natural Gas |
| Mcf |
|
| 205,374 |
|
|
| 3,652,409 |
|
BOE |
|
|
|
| 58,739 |
|
|
| 1,015,828 |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
|
|
|
|
Oil |
| Barrels |
|
| 2,254,134 |
|
|
| 25,182,558 |
|
Natural Gas |
| Mcf |
|
| 978,971 |
|
|
| 13,494,609 |
|
|
|
|
|
|
|
|
|
|
|
|
Average Sales Prices |
|
|
|
|
|
|
|
|
|
|
Oil |
| Barrels |
|
| 91.97 |
|
|
| 61.86 |
|
Natural Gas |
| Mcf |
|
| 4.77 |
|
|
| 3.69 |
|
|
|
|
|
|
|
|
|
|
|
|
Production - Lease operating expenses |
|
|
|
| 1,633,765 |
|
|
| 15,878,437 |
|
|
|
|
|
|
|
|
|
|
|
|
Average Cost of Production per BOE |
|
|
|
| 27.81 |
|
|
| 15.63 |
|
Drilling and Other Exploratory and Development Activities
During the year ended December 31, 2022 the Company did not drill any new wells. The Company focused primarily on preserving and maintaining existing assets and selling certain assets to pay down debt. Maintenance included, among other things, replacing tubing and pumps, replacing heater treaters, changing compressors, repressurizing wells, repairing water line leaks, replacing chokes and other items.
Present Activities
The Company is not presently drilling any new wells.
Delivery Commitments
The Company is not currently committed to provide a fixed and determinable quantity of oil or gas in the near future under existing contracts or agreements.
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| Table of Contents |
Productive Wells
The following table sets forth the number wells in our inventory, in which we maintained ownership interests as of December 31, 2022 and 2021. At December 31, 2022, all wells are located in the United States, in the States of Texas and Kansas.
|
| December 31, 2022 |
|
| December 31, 2021 |
| ||||||||||
Well Category |
| Oil |
|
| Gas |
|
| Oil |
|
| Gas |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Producers |
|
| 169 |
|
|
|
|
|
| 203 |
|
|
| 38 |
| |
Producer - P&A’d |
|
| - |
|
|
| - |
|
|
| 6 |
|
|
| - |
|
Non-Producing |
|
| 29 |
|
|
| - |
|
|
| 9 |
|
|
| - |
|
Injector |
|
| 94 |
|
|
| - |
|
|
| 89 |
|
|
| - |
|
Salt Water Disposal |
|
| 2 |
|
|
| - |
|
|
| 5 |
|
|
| - |
|
Shut In |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
ORRI |
|
| 1 |
|
|
| - |
|
|
| 1 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 295 |
|
|
| - |
|
|
| 313 |
|
|
| 38 |
|
Item 3. Legal Proceedings
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of December 31, 2022, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the Company’s results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
There is no “established trading market” for shares of the Company’s common stock. As of December 31, 2022, the Company’s common stock was quoted on the OTC Link LLC alternative trading system operated by OTC Markets Group, Inc. under the symbol “VKIN.” No assurance can be given that any “established trading market” for the Company’s common stock will develop or be maintained.
The range of high and low closing bid quotations for the Company’s common stock during each quarter of the calendar years ended December 31, 2022 and 2021 adjusted for the effect of the 1-for-9 reverse split, is shown below, as quoted by http://finance.yahoo.com. Prices are inter-dealer quotations, without retail mark-up, markdown or commissions and may not represent actual transactions.
Stock Quotations
Quarter Ended |
| High |
|
| Low |
| ||
March 31, 2021 |
|
| 2.85 |
|
|
| 0.51 |
|
June 30, 2021 |
|
| 1.10 |
|
|
| 0.39 |
|
September 30, 2021 |
|
| 3.78 |
|
|
| 0.24 |
|
December 31, 2021 |
|
| 2.48 |
|
|
| 0.55 |
|
March 31, 2022 |
|
| 1.24 |
|
|
| 0.39 |
|
June 30, 2022 |
|
| 0.95 |
|
|
| 0.34 |
|
September 30, 2022 |
|
| 0.48 |
|
|
| 0.25 |
|
December 31, 2022 |
|
| 0.54 |
|
|
| 0.25 |
|
| 28 |
| Table of Contents |
The future sale of the Company’s presently outstanding “unregistered” and “restricted” common stock by present members of management and persons who own more than five percent of the Company’s outstanding voting securities may have an adverse effect on any “established trading market” that may develop in the shares of the Company’s common stock.
Holders
As of December 31, 2022, the Company had approximately 581 shareholders of record of common stock, including shares held in “street name” by banks, brokerage clearing houses, depositories or otherwise in unregistered form. The Company does not know the beneficial owners of such shares, or the number of beneficial holders of such shares.
Dividend Distributions
We have not historically distributed dividends to stockholders, nor do we intend to do so in the foreseeable future.
Securities authorized for issuance under equity compensation plans
The Company does not have any securities authorized for issuance under equity compensation plans.
Penny Stock
Our common stock is considered “penny stock” under the rules the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market System, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that:
· | contains a description of the nature and level of risks in the market for penny stocks in both public offerings and secondary trading; |
|
|
· | contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of Securities’ laws; contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; |
|
|
· | contains a toll-free telephone number for inquiries on disciplinary actions; |
|
|
· | defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and |
|
|
· | contains such other information and is in such form, including language, type, size and format, as the Commission shall require by rule or regulation. |
| 29 |
| Table of Contents |
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with:
· | bid and offer quotations for the penny stock; |
· | the compensation of the broker-dealer and its salesperson in the transaction; |
· | the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the marker for such stock; and |
· | monthly account statements showing the market value of each penny stock held in the customer’s account. |
In addition, the penny stock rules that require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.
These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.
Related Stockholder Matters
None.
Purchase of Equity Securities
None.
Recent Sales of Unregistered Securities
During the three months ended December 31, 2022, the Company did not issue any unregistered equity securities.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report on Form 10-K.
In preparing the management’s discussion and analysis, the registrant presumes that you have read or have access to the discussion and analysis for the preceding fiscal year.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended or the Reform Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earning, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions of performance; and statements of belief; and any statements of assumptions underlying any of the foregoing. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: The Company’s ability to raise capital and the terms thereof; and other factors referenced in the Form 10-K.
| 30 |
| Table of Contents |
The use in this Form 10-K of such words as “believes”, “plans”, “anticipates”, “expects”, “intends”, and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These forward-looking statements present the Company’s estimates and assumptions only as of the date of this report. Except for the Company’s ongoing obligation to disclose material information as required by the federal securities laws, the Company does not intend, and undertakes no obligation, to update any forward-looking statements.
Although the Company believes that the expectations reflected in any of the forward-looking statements are reasonable, actual results could differ materially from those projected or assumed or any of the Company’s forward-looking statements. The Company’s future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.
PLAN OF OPERATIONS
Company Overview
Viking Energy Group, Inc. (“Viking”, the “Company”, “we”, “us” or “our”) is a growth-oriented diversified energy company. Through various majority-owned subsidiaries, Viking provides custom energy and power solutions to commercial and industrial clients in North America and owns interests in producing oil assets in Kansas. The Company also (i) holds an exclusive license in Canada to a patented carbon-capture system; and (ii) owns a majority interest in (a) an entity with intellectual property rights to a fully developed, patented, proprietary medical & biohazard waste treatment system using ozone technology; and (b) entities with intellectual property rights to fully developed, patent pending, proprietary electric transmission and open conductor detection systems. 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 & Power Solutions
Simson-Maxwell Acquisition
On August 6, 2021, the Company 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, the Company 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) European Patent Application No.: EP18870699.8, International File date: October 24, 2018, Titled: “Bottoming Cycle Power System”; (iii) 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); (iv) U.S. Patent Application No.: 17/358,197, File date: June 25, 2021, Titled: “Bottoming Cycle Power System”; (v) 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 (vi) 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.
| 31 |
| 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, the Company acquired a 51% interest in Viking Ozone Technology, LLC (“Viking Ozone”), which owns the intellectual property rights to a fully developed, patented (i.e., US Utility Patent No. 11,565,289), proprietary medical and biohazard waste treatment system using ozone technology. Simson-Maxwell, another majority-owned subsidiary of the Company, 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, the Company 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 fully developed, patent pending (i.e., US Applications 16/974,086, 17/672,422 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 & Gas Properties
Existing Assets
The Company, through its wholly owned subsidiaries, Mid-Con Petroleum, LLC and Mid-Con Drilling, LLC (collectively, the “Mid-Con Entities”), 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, a wholly owned subsidiary of Viking, 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 salt water disposal wells and 1 inactive well, to third parties for $3,590,000 in cash. The proceeds from the sale were used to fully repay Petrodome’s indebtedness to CrossFirst Bank under the June 13, 2018 revolving line of credit loan.
This transaction resulted 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 & gas full cost pool (based on % of reserves disposed) |
|
| (12,791,680 | ) |
ARO recovered |
|
| 239,975 |
|
Loss on disposal |
| $ | (8,961,705 | ) |
| 32 |
| Table of Contents |
In 2017, the Company recorded a bargain purchase gain of approximately $27 million related to the acquisition of Petrodome.
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 has been included in the “loss on disposal of membership interests and assets” in the Consolidated Statement of Operations.
Divestitures in 2021
On October 5, 2021, the Company disposed of all of membership interests of Ichor Energy Holdings, LLC (“Ichor”). The third-party purchaser assumed all of the rights and obligations associated with such membership interests, including the debt and derivatives associated with Ichor and/or its subsidiaries. The Company originally acquired the assets owned by Ichor on December 28, 2018, which at the time included interests in approximately 58 producing wells and approximately 31 saltwater disposal wells in Texas and Louisiana.
On October 12, 2021, the Company disposed of all of the membership interests of Elysium Energy Holdings, LLC (“Elysium”). The third-party purchaser assumed all of the rights and obligations associated with such membership interests, including the debt and derivatives associated with Elysium and/or its subsidiaries. The Company originally acquired the assets owned by Elysium on February 3, 2020, which included interests in approximately 127 wells, along with associated equipment in Texas and Louisiana.
Potential Merger with Camber Energy, Inc.
On February 15, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Camber Energy, Inc. (“Camber”), the majority owner of the Company’s common stock. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, a newly formed wholly owned subsidiary of Camber (“Merger Sub”) will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly- owned subsidiary of Camber.
Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share: (i) of common stock, par value $0.001 per share, of the Company (the “Viking Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares owned by Camber, the Company and Merger Sub, will be converted into the right to receive one share of common stock of Camber; and (ii) of Series C Convertible Preferred Stock of the Company (the “Viking Preferred Stock”) issued and outstanding immediately prior to the Effective Time will be converted into the right to receive one share of Series A Convertible Preferred Stock of Camber (the “Camber Series A Preferred Stock”). Each share of Camber Series A Preferred Stock will convert into 890 shares of common stock of Camber (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’s common stock), will be treated equally with Camber’s common stock with respect to dividends and liquidation, and will only have 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. Holders of Viking Common Stock and Viking Preferred Stock will have any fractional shares of Camber common stock or preferred stock after the Merger rounded up to the nearest whole share.
At the Effective Time, each outstanding Company equity award, will be converted into the right to receive the merger consideration in respect of each share of Viking Common Stock underlying such equity award and, in the case of Company stock options, be converted into vested Camber stock options based on the merger exchange ratio calculated as provided above (the “Exchange Ratio”).
| 33 |
| Table of Contents |
The Merger Agreement provides, among other things, that effective as of the Effective Time, James A. Doris, the current Chief Executive Officer of both the Company and Camber, shall serve as President and Chief Executive Officer of the resulting merged entity (the “Combined Company”) following the Effective Time. The Merger Agreement provides that, as of the Effective Time, the Combined Company will have its headquarters in Houston, Texas.
The Merger Agreement also provides that, during the period from the date of the Merger Agreement until the Effective Time, each of Camber and Company will be subject to certain restrictions on its ability to solicit alternative acquisition proposals from third parties, to provide non-public information to third parties and to engage in discussions with third parties regarding alternative acquisition proposals, subject to customary exceptions. The Company is required to hold a meeting of its stockholders to vote upon the adoption of the Merger Agreement and, subject to certain exceptions, to recommend that its stockholders vote to adopt the Merger Agreement. Camber is required to hold a meeting of its stockholders to approve the issuance of Viking Common Stock and Viking Preferred Stock in connection with the Merger (the “Share Issuance”).
The completion of the Merger is subject to customary conditions, including (i) adoption of the Merger Agreement by Camber’s stockholders and approval of the Share Issuance by Camber’s stockholders, (ii) receipt of required regulatory approvals, (iii) effectiveness of a registration statement on Form S-4 for the Camber common stock to be issued in the Merger (the “Form S-4”), and (iv) the absence of any law, order, injunction, decree or other legal restraint preventing the completion of the Merger or making the completion of the Merger illegal. Each party’s obligation to complete the Merger is also subject to certain additional customary conditions, including (i) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (ii) subject to certain exceptions, performance by the other party of its obligations under the Merger Agreement and (iii) the absence of any material adverse effect on the other party, as defined in the Merger Agreement.
Additional closing conditions to the Merger include that in the event the NYSE American determines that the Merger constitutes, or will constitute, a “back-door listing” / “reverse merger”, Camber (and its common stock) is required to qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE as of the Effective Time.
The Merger Agreement can be terminated (i) at any time with the mutual consent of the parties; (ii) by either Camber or Company if any governmental consent or approval required for closing is not obtained, or any governmental entity issues a final non-appealable order or similar decree preventing the Merger; (iii) by either Company or Camber if the Merger shall not have been consummated on or before August 1, 2021; (iv) by Camber or Company, upon the breach by the other of a term of the Merger, which is not cured within 30 days of the date of written notice thereof by the other; (v) by Camber if Company is unable to obtain the affirmative vote of its stockholders for approval of the Merger; (vi) by Company if Camber is unable to obtain the affirmative vote of its stockholders required pursuant to the terms of the Merger Agreement; and (vii) by Company or Camber if there is a willful breach of the Merger Agreement by the other party thereto. The Merger Agreement contains customary obligations of the parties and representations and warranties.
As of March 24, 2023, neither the Company nor Camber has advised of its intention to terminate the Merger Agreement. However, given the lapse of time since the date of the Merger Agreement, the Company believes it is reasonably likely that certain terms would need to be modified by the parties in order for the parties to proceed with the Merger.
On or about March 14, 2023, the Company’s Board of Directors resolved to enter into negotiations with Camber to modify certain terms of the Merger and to re-engage a valuation firm in connection with securing a fairness opinion or any other valuation report, analyses or presentations that might be necessary or appropriate regarding the Merger. As of March 24, 2023, the Company had not determined the revised terms upon which it would be prepared to proceed with the Merger. Any modifications to the terms and conditions of the Merger Agreement would be subject to the written agreement of both the Company and Camber, and there is no assurance that the Company and Camber will agree on any such proposed modifications. Moreover, the satisfaction of conditions, whether existing or new, may be outside of the Company’s control.
Going Concern Qualification
The Company’s consolidated financial statements included herein have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company generated a net loss of $(15,427,329) for the year ended December 31, 2022, as compared to a net loss of $(14,485,847) for the year ended December 31, 2021. The loss for the year ended December 31, 2022 was comprised of, among other things, certain non-cash items, including: (i) stock-based compensation of $1,614,334; (ii) accretion of asset retirement obligation of $55,521; (iii) depreciation, depletion & amortization of $1,499,166; (iv) bad debt expense of $1,133,685; (v) amortization of debt discount of $99,695; (vi) impairment of intangible assets of $451,772; and, (vii) loss on sale of oil and gas assets of $8,961,705.
| 34 |
| Table of Contents |
As of December 31, 2022, the Company has a stockholders’ equity of $15,365,315 and total long-term debt of $2,743,616 As of December 31, 2022, the Company has a working capital deficiency of approximately $6,339,593. The largest components of current liabilities creating this working capital deficiency are (i) accounts payable of approximately $4.0 million; (ii) a revolving credit facility with a balance of approximately $3.1 million; (iii) customer deposits of $5.4 million; and (iv) an amount due for non-interest-bearing loans from Camber Energy, Inc. in the amount of $6.6 million with no stipulated repayment terms.
As further described in Note 1, to Viking’s consolidated financial statements, Viking has guaranteed Camber’s indebtedness to Discover, as well as entered into a Security Agreement in favor of Discover granting Discover a first-priority security interest in any assets purchased by Viking with funds advanced to Viking by Camber that were loaned by Discover. The Company believes the likelihood that it will be required to perform under the guarantee to be remote and has not recognized a liability associated with any performance obligations of the guarantee.
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.
Liquidity and Capital Resources
|
| Years Ended December 31, |
| |||||
Working Capital: |
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Current assets |
| $ | 18,950,740 |
|
| $ | 21,805,426 |
|
Current liabilities |
| $ | 25,290,333 |
|
| $ | 30,070,453 |
|
Working capital deficit |
| $ | (6,339,593 | ) |
| $ | (8,265,027 | ) |
|
| Years Ended December 31, |
| |||||
Cash Flows: |
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Net Cash Used in Operating Activities |
| $ | (3,760,376 | ) |
| $ | (1,999,477 | ) |
Net Cash Provided by (Used in) Investing Activities |
| $ | 6,580,575 |
|
| $ | (7,920,996 | ) |
Net Cash Provided by (Used in) Financing Activities |
| $ | (3,048,788 | ) |
| $ | 5,548,872 |
|
Decrease in Cash during the Period |
| $ | (228,589 | ) |
| $ | (4,371,601 | ) |
Cash and Cash Equivalents, end of Period |
| $ | 3,239,349 |
|
| $ | 3,467,938 |
|
Net cash provided by operating activities decreased to $(3,760,376) during the fiscal year ended December 31, 2012, as compared to cash provided by operating activities of $(1,999,477) in the comparable period in 2021. This decrease is primarily the result of increased inventory and lower accounts payable, partially offset by an increase in customer deposits.
| 35 |
| Table of Contents |
Net cash flows from investing activities increased to $6,580,575 during the fiscal year ended December 31, 2022, as compared to $(7,920,996) in the comparable period in 2021. This increase is mainly due to proceeds from the sale of oil and gas properties and the sale of notes receivable.
Net cash used in financing activities decreased to $(3,048,788) during the fiscal year ended December 31, 2022, as compared to $5,548,872 in the comparable period in 2021. This decrease is mainly due to repayment of debt during the year.
RESULTS OF OPERATIONS
The following discussion of the consolidated financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements and the related Notes included elsewhere in this Report.
Segment and Consolidated Results
The Company has two reportable segments: Oil and Gas Production and Power Generation. The power generation segment provides custom energy and power solutions to commercial and industrial clients in North America and the oil and gas segment is involved in exploration and production with properties in central and southern United States. We evaluate segment performance based on revenue and operating income (loss).
Information related to our reportable segments and our consolidated results for the years ended December 31, 2022 and 2021 is presented below.
|
| Year Ended December 31, 2022 |
| |||||||||
|
| Oil and Gas |
|
| Power Generation |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
Loss from Operations is as follows: |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
Revenue |
| $ | 3,984,122 |
|
| $ | 20,054,038 |
|
| $ | 24,038,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods |
|
| - |
|
|
| 13,627,457 |
|
|
| 13,627,457 |
|
Lease operating costs |
|
| 1,633,765 |
|
|
| - |
|
|
| 1,633,765 |
|
General and administrative |
|
| 4,245,434 |
|
|
| 10,584,883 |
|
|
| 14,830,317 |
|
Stock based compensation |
|
| 1,614,334 |
|
|
| - |
|
|
| 1,614,334 |
|
Impairment of intangible assets |
|
|
|
|
|
| 451,772 |
|
|
| 451,772 |
|
Depreciation, depletion and amortization |
|
| 1,104,240 |
|
|
| 394,926 |
|
|
| 1,499,166 |
|
Accretion - ARO |
|
| 55,521 |
|
|
| - |
|
|
| 55,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
| 8,653,294 |
|
|
| 25,059,038 |
|
|
| 33,712,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
| $ | (4,669,172 | ) |
| $ | (5,005,000 | ) |
| $ | (9,674,172 | ) |
| 36 |
| Table of Contents |
|
| Year Ended December 31, 2021 |
| |||||||||
|
| Oil and Gas |
|
| Power Generation |
|
| Total |
| |||
|
|
|
|
|
|
|
|
|
| |||
Income (Loss) from Operations is as follows: |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
Revenue |
| $ | 33,679,679 |
|
| $ | 4,308,285 |
|
| $ | 37,987,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods |
|
| - |
|
|
| 3,003,044 |
|
|
| 3,003,044 |
|
Lease operating costs |
|
| 15,878,437 |
|
|
| - |
|
|
| 15,878,437 |
|
General and administrative |
|
| 5,997,211 |
|
|
| 2,124,308 |
|
|
| 8,121,519 |
|
Stock based compensation |
|
| 1,738,145 |
|
|
| - |
|
|
| 1,738,145 |
|
Depreciation, depletion and amortization |
|
| 7,236,809 |
|
|
| 70,348 |
|
|
| 7,307,157 |
|
Accretion - ARO |
|
| 608,691 |
|
|
| - |
|
|
| 608,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
| 31,459,293 |
|
|
| 5,197,700 |
|
|
| 36,656,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
| $ | 2,220,386 |
|
| $ | (889,415 | ) |
| $ | 1,330,971 |
|
|
| Year Ended December 31, 2022 |
| |||||||||
|
| Oil and Gas |
|
| Power Generation |
|
| Total |
| |||
Other Income (Expense) is as follows: |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
Interest expense |
| $ | (354,354 | ) |
| $ | (283,992 | ) |
| $ | (638,346 | ) |
Amortization of debt discount |
|
| (99,695 | ) |
|
| - |
|
|
| (99,695 | ) |
Change in fair value of derivatives |
|
| - |
|
|
| - |
|
|
| - |
|
Equity in earnings of unconsolidated subsidiary |
|
| - |
|
|
| - |
|
|
| - |
|
Loss on financing settlements |
|
| - |
|
|
| - |
|
|
| - |
|
Gain (loss) on disposal of membership interests and assets |
|
| (7,747,347 | ) |
|
| - |
|
|
| (7,747,347 | ) |
Interest and other income |
|
| 875,143 |
|
|
| (73,842 | ) |
|
| 801,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
| $ | (7,326,253 | ) |
| $ | (357,834 | ) |
| $ | (7,684,087 | ) |
|
| Year Ended December 31, 2021 |
| |||||||||
|
| Oil and Gas |
|
| Power Generation |
|
| Total |
| |||
Other Income (Expense) is as follows: |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
Interest expense |
| $ | (10,053,014 | ) |
| $ | - |
|
| $ | (10,053,014 | ) |
Amortization of debt discount |
|
| (3,704,049 | ) |
|
| - |
|
|
| (3,704,049 | ) |
Change in fair value of derivatives |
|
| (17,338,784 | ) |
|
| - |
|
|
| (17,338,784 | ) |
Equity in earnings of unconsolidated subsidiary |
|
| - |
|
|
| (178,942 | ) |
|
| (178,942 | ) |
Loss on financing settlements |
|
| (4,774,628 | ) |
|
| - |
|
|
| (4,774,628 | ) |
Gain (loss) on disposal of membership interests and assets |
|
| 19,457,104 |
|
|
| - |
|
|
| 19,457,104 |
|
Interest and other income |
|
| 458,028 |
|
|
| 12,464 |
|
|
| 470,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
| $ | (15,955,343 | ) |
| $ | (166,478 | ) |
| $ | (16,121,821 | ) |
| 37 |
| Table of Contents |
Revenue
The Company had gross revenues of $24,038,160 for the year ended December 31, 2022 as compared to $37,987,964 for the year ended December 31, 2021. The mix of revenues shifted significantly, from mainly oil and gas revenue in 2021 to primarily power generation revenues in 2022, reflecting the impact of oil and gas divestitures in late 2021 and 2022 and the inclusion of a full year of Simson-Maxwell revenue.
Expenses
The Company’s operating expenses decreased by $2,944,661 to $33,712,332 for the year ended December 31, 2022 from $36,656,993 for the year ended December 31, 2021. Lease operating costs, depreciation depletion and amortization, and accretion expense decreased significantly as a result of dispositions of oil and gas interests. This decrease was partially offset by increased cost of goods sold and general and administrative expenses, reflecting a full year of Simson-Maxwell results.
Income (Loss) from Operations
The Company generated a loss from operations of $(9,674,172) for the year ended December 31, 2022, as compared to income from operations of $1,330,971 for the year ended December 31, 2021, due to the reasons explained above.
Other Income and Expense
The Company recorded other income (expense) of $(7,684,087) for the year ended December 31, 2022 as compared to $(16,121,821) for the year ended December 31, 2021, a decrease of $8,437,734. This decrease was driven by lower interest expense, debt discount, loss on financing settlements and changes in fair value of derivatives, all of which were associated with the Company’s interests in Ichor and Elysium which were sold in October 2021. This was partially offset by a net loss on the disposition of Petrodome assets of $7.7M in 2022 as compared to a gain on the disposal of Ichor and Elysium of $19.5 million in 2021.
Off Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in the Company’s securities.
Seasonality
The Company’s operating results are not affected by seasonality.
Inflation
The Company’s business and operating results are not currently affected in any material way by inflation although they could be adversely affected in the future were inflation to increase, resulting in cost increases.
Critical Accounting Policies
We prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared and actual results could differ from our estimates and such differences could be material. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical accounting policies and how they are applied in the preparation of our financial statements, as well as the sufficiency of the disclosures pertaining to our accounting policies in the footnotes accompanying our financial statements. Described below are the most significant policies we apply in preparing our consolidated financial statements, some of which are subject to alternative treatments under GAAP. We also describe the most significant estimates and assumptions we make in applying these policies. See “Note 2 - Summary of Significant Accounting Policies” to our consolidated financial statements.
| 38 |
| Table of Contents |
Consolidation of Variable Interest Entities
The Company consolidates the financial results of its subsidiaries, defined as entities in which the Company holds a controlling financial interest.
Several of the Company’s subsidiaries are considered to be Variable Interest Entities (“VIE’s”) which are defined as an entity for which any of the following conditions exist:
1. | The total equity is not sufficient to permit the entity to finance its activities without additional subordinated financial support. |
|
|
2. | The equity holders as a group have one of the following four characteristics: |
| i. | Lack the power to direct activities that most significantly impact the entity’s economic performance. |
|
|
|
| ii. | Possess non-substantive voting rights. |
|
|
|
| iii. | Lack the obligation to absorb the entity’s expected losses. |
|
|
|
| iv. | Lack the right to receive the entity expected residual returns. |
The Company consolidates the financial results of a VIE when it is determined that the Company is the primary beneficiary of the VIE.
Oil and Gas Property Accounting
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas properties (including such costs as leasehold acquisition costs, geological expenditures, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred.
The full cost method requires the Company to calculate quarterly, by cost center, a “ceiling,” or limitation on the amount of properties that can be capitalized on the balance sheet. To the extent capitalized costs of oil and natural gas properties, less accumulated depletion and related deferred taxes exceed the sum of the discounted future net revenues of proved oil and natural gas reserves, the lower of cost or estimated fair value of unproved properties subject to amortization, the cost of properties not being amortized, and the related tax amounts, such excess capitalized costs are charged to expense.
Proved Reserves
Estimates of our proved reserves included in this report are prepared in accordance with U.S. SEC guidelines for reporting corporate reserves and future net revenue. The accuracy of a reserve estimate is a function of:
i. | the quality and quantity of available data; |
ii. | the interpretation of that data; |
iii. | the accuracy of various mandated economic assumptions; and |
iv. | the judgment of the persons preparing the estimate. |
Our proved reserve information included in this report was predominately based on estimates. Because these estimates depend on many assumptions, all of which may substantially differ from future actual results, reserve estimates will be different from the quantities of oil and gas that are ultimately recovered. In addition, results of drilling, testing and production after the date of an estimate may justify material revisions to the estimate.
In accordance with SEC requirements, we based the estimated discounted future net cash flows from proved reserves on the unweighted arithmetic average of the prior 12-month commodity prices as of the first day of each of the months constituting the period and costs on the date of the estimate.
The estimates of proved reserves materially impact depreciation, depletion, amortization and accretion (“DD&A”) expense. If the estimates of proved reserves decline, the rate at which we record DD&A expense will increase, reducing future net income. Such a decline may result from lower market prices, which may make it uneconomic to drill for and produce from higher-cost fields.
| 39 |
| Table of Contents |
Asset Retirement Obligation
Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount we will incur to plug, abandon and remediate our producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. We determined our ARO by calculating the present value of estimated cash flows related to the obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation’s inception, with an offsetting increase to proved properties. Periodic accretion of discount of the estimated liability is recorded as accretion expense in the accompanying consolidated statements of operations and comprehensive income.
ARO liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated ARO.
Revenue Recognition
Oil and Gas Revenues
Sales of crude oil, natural gas, and natural gas liquids (NGLs) are included in revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts. Performance obligations primarily comprise delivery of oil, gas, or NGLs at a delivery point, as negotiated within each contract. Each barrel of oil, million BTU (MMBtu) of natural gas, or other unit of measure is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated. Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title. In each case, the time between delivery and when payments are due is not significant.
Power Generation Revenues
Through its 60.5% ownership in Simson-Maxwell, the Company manufactures and sells power generation products, services and custom energy solutions.
Sale of Power Generation Units
The Company considers the completed unit or units to be a single performance obligation for purposes of revenue recognition and recognizes revenue when control of the product is transferred to the customer, which typically occurs upon shipment or delivery to the customer. Progress payments are recognized as contract liabilities until the completed unit is delivered. Revenue is measured as the amount of consideration the Company expects to be entitled in exchange for the transfer of the units, which is generally the price stated in the contract. The Company does not allow returns because of the customized nature of the units and does not offer discounts, rebates, or other promotional incentives or allowances to customers. Simson-Maxwell has elected to recognize the cost for freight activities when control of the product has transferred to the customer as an expense within cost of goods.
Parts Revenue
The Company considers the purchase orders for parts, which in some cases are governed by master sales agreements, to be the contracts with the customers. For each contract, the Company considers the commitment to transfer products, each of which is distinct, to be the identified performance obligations. Revenue is measured as the amount of consideration the Company expects to be entitled in exchange for the transfer of product, which is generally the price stated in the contract specific for each item sold, adjusted for the value of expected returns. Simson Maxwell has elected to recognize the cost for freight activities when control of the product has transferred to the customer as an expense within cost of goods sold in the consolidated statements of comprehensive income. Parts revenues are recognized at the point in time when control of the product is transferred to the customer, which typically occurs upon shipment or delivery to the customer.
| 40 |
| Table of Contents |
Service and Repairs
Service and repairs are generally performed on customer owned equipment and billed based on labor hours incurred. Each repair is considered a performance obligation. As a result of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Simson-Maxwell generally uses the cost-to-cost measure of progress for its service work because the customer controls the asset as it is being serviced. Most service and repairs are completed in one or two days.
Intangible Assets
Intangible assets include amounts capitalized for the Company’s license agreement with ESG as described in Note 2. This asset is amortized on a straight-line basis over the remaining life of the related patents being licensed, which is approximately 16 years.
Additionally, with the acquisition of Simson-Maxwell, the Company identified other intangible assets consisting of customer relationships (which is being amortized on a straight-line basis over 10 years) and Simson-Maxwell brand (which is not being amortized) with an aggregate appraised fair value $3,908,126.
With the acquisition of a 51% interest in Viking Ozone, Viking Sentinel and Viking Protection, as described in Note 7, the Company has aggregate intangible assets of $15,433,340. These assets have an indefinite life and are not being amortized.
The Company reviews these intangible assets, at least annually, for possible impairment when events or changes in circumstances that the assets carrying amount may not be recoverable. In evaluating the future benefit of its intangible assets, the Company estimates the anticipated undiscounted future net cash flows of the intangible assets over the remaining estimated useful life. If the carrying amount is not recoverable, an impairment loss is recorded for the excess of the carrying value of the asset over its fair value.
For the year ended December 31, 2022, the Company determined that the value of the Simson-Maxwell brand and customer relationships were impaired and recorded an impairment charge of $367,907 and $83,865, respectively.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company, as a smaller reporting company (as defined by Rule 12b-2 of the Exchange Act), is not required to furnish information required by this item.
| 41 |
| Table of Contents |
Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements and Notes thereto, for the years ended December 31, 2022 and 2021 and the report of Turner, Stone & Company, L.L.P. (“Turner”), our independent registered public accounting firm, are set forth on pages F-1 through F-39 of this Annual Report. The PCAOB ID for Turner, Stone & Company, L.L.P. is #76.
| 42 |
| Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Viking Energy Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Viking Energy Group, Inc. as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Viking Energy Group, Inc. as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 3 to the financial statements, the entity has suffered recurring losses from operations and has a working capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to Viking Energy Group, Inc. in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Viking Energy Group, Inc. is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| F-1 |
| Table of Contents |
Impairment of Intangible Assets
Critical Audit Matter Description
The impairment evaluation of long-lived assets is an assessment that begins with the Company’s monitoring of indicators of impairment on an individual asset basis, which the Company believes is the lowest level for which there are identifiable cash flows. The Company reviews long-lived assets for impairment indicators on a quarterly basis or whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. The Company performed a full quantitative impairment assessment as of December 31, 2022, for all intangible assets. When performing a quantitative impairment assessment, the Company estimates undiscounted cash flows at the asset level from continuing use through the remainder of the asset’s estimated useful life. If the estimated undiscounted cash flows are not sufficient to recover a long-lived asset’s carrying value, the Company then compares the carrying value of the asset with its estimated fair value. The Company applies significant judgment in estimating the fair value of its intangible assets, based on expected revenues, industry and business growth and expected residual cash flows at net present value. When the estimated fair value is determined to be lower than the carrying value of the asset group, the asset group is written down to its estimated fair value.
We identified the impairment of long-lived assets as a critical audit matter because of the significant judgment required by management to determine estimated expected revenues, growth and discounted cash flows. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s judgements and estimates.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s model which included projected revenues based on forecasted growth rates and discounted cash flow analysis included the following, among others:
| - | We evaluated management’s ability to forecast future theatre cash flows by evaluating management’s 2023 forecast of estimated future cash flows (“forecast”) assumptions including, but not limited to, the forecasted performance driven by expected industry receptivity, existing sales orders or outstanding bids, market share, and expected operating costs. |
|
|
|
| - | We reviewed the completeness and accuracy of the underlying data used in management’s forecast. |
|
|
|
| - | We tested the underlying source information where available and mathematical accuracy of the calculations. |
/s/
We have served as Viking Energy Group, Inc.'s auditor since 2016.
Dallas,
March 24, 2023
| F-2 |
| Table of Contents |
VIKING ENERGY GROUP, INC.
Consolidated Balance Sheets
|
| December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
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|
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|
| ||
ASSETS |
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| ||
Current assets: |
|
|
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|
|
| ||
Cash |
| $ |
|
| $ |
| ||
Accounts receivable, net |
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|
| ||
Inventory |
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|
| ||
Notes receivable |
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|
| ||
Prepaids and other current assets |
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|
| ||
Total current assets |
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|
| ||
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|
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Oil and gas properties, full cost method |
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Proved oil and gas properties, net |
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|
| ||
Total oil and gas properties, net |
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|
| ||
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Fixed assets, net |
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|
| ||
Right of use assets, net |
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|
| ||
ESG Clean Energy license, net |
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|
|
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|
| ||
Other intangibles - Simson Maxwell, net |
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|
|
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|
| ||
Other intangibles - Variable Interest Entities |
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|
| ||
Due from related parties |
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| ||
Goodwill |
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|
| ||
Deposits and other assets |
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|
| ||
TOTAL ASSETS |
| $ |
|
| $ |
| ||
|
|
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|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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|
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Current liabilities: |
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|
|
|
|
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|
|
Accounts payable |
| $ |
|
| $ |
| ||
Accrued expenses and other current liabilities |
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|
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|
| ||
Customer deposits |
|
|
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|
| ||
Due to Camber Energy, Inc. |
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| ||
Undistributed revenues and royalties |
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| ||
Current portion of operating lease liability |
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| ||
Due to related parties |
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| ||
Current portion of notes payable - related parties |
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| ||
Bank indebtedness - credit facility |
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| ||
Current portion of long-term debt - net of discount |
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| ||
Total current liabilities |
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|
| ||
Long term debt - net of current portion and debt discount |
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| ||
Notes payable - related parties - net of current portion |
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|
| ||
Operating lease liability, net of current portion |
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|
| ||
Contingent obligations |
|
|
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|
| ||
Asset retirement obligation |
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| ||
TOTAL LIABILITIES |
|
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| ||
|
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Commitments and contingencies (Note 12) |
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|
|
STOCKHOLDERS’ EQUITY |
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|
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|
|
|
|
Preferred stock Series C, $ |
|
|
|
|
|
| ||
Preferred stock Series E, $ |
|
|
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|
|
| ||
|
|
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|
|
Common stock, $ |
|
|
|
|
|
| ||
Additional paid-in capital |
|
|
|
|
|
| ||
Accumulated other comprehensive loss |
|
| ( | ) |
|
| ( | ) |
Accumulated deficit |
|
| ( | ) |
|
| ( | ) |
Parent’s stockholders’ equity in Viking |
|
|
|
|
|
| ||
Non-controlling interest |
|
|
|
|
|
| ||
TOTAL STOCKHOLDERS’ EQUITY |
|
|
|
|
|
| ||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
| Table of Contents |
VIKING ENERGY GROUP, INC.
Consolidated Statements of Operations
|
| Years Ended December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Revenue |
|
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| ||
Power generation units and parts |
| $ |
|
| $ |
| ||
Service and repairs |
|
|
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|
| ||
Oil and gas |
|
|
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|
| ||
Total revenue |
|
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| ||
|
|
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Operating expenses |
|
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Cost of goods sold |
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| ||
Lease operating costs |
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| ||
General and administrative |
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|
| ||
Stock based compensation |
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|
| ||
Impairment of intangible assets |
|
|
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|
| ||
Depreciation, depletion & amortization |
|
|
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|
| ||
Accretion - asset retirement obligation |
|
|
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|
|
| ||
Total operating expenses |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
Interest expense |
|
| ( | ) |
|
| ( | ) |
Amortization of debt discount |
|
| ( | ) |
|
| ( | ) |
Change in fair value of derivatives |
|
|
|
|
| ( | ) | |
Equity in earnings of unconsolidated subsidiary |
|
|
|
|
| ( | ) | |
Loss on financing settlements |
|
|
|
|
| ( | ) | |
(Loss) gain on disposal of membership interests and assets |
|
| ( | ) |
|
|
| |
Interest and other income |
|
|
|
|
|
| ||
Total other expense, net |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Net loss before income taxes |
|
| ( | ) |
|
| ( | ) |
Income tax benefit (expense) |
|
|
|
|
|
| ||
Net loss |
|
| ( | ) |
|
| ( | ) |
Net loss attributable to non-controlling interest |
|
| ( | ) |
|
|
| |
Net loss attributable to Viking Energy Group, Inc. |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
Loss per common share, basic and diluted |
| $ | ( | ) |
| $ | ( | ) |
Weighted average number of common shares outstanding, basic and diluted |
|
|
|
|
|
| ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
| Table of Contents |
VIKING ENERGY GROUP, INC.
Consolidated Statements of Comprehensive Loss
|
| Years Ended December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Foreign currency translation adjustment |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Less comprehensive loss attributable to non-controlling interest |
|
|
|
|
|
|
|
|
Loss attributable to non-controlling interest |
|
| ( | ) |
|
| ( | ) |
Foreign currency translation adjustment attributable to non-controlling interest |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to non-controlling interest |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to Viking |
| $ | ( | ) |
| $ | ( | ) |
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
| Table of Contents |
VIKING ENERGY GROUP, INC.
Consolidated Statements of Cash Flows
|
| Years Ended |
| |||||
|
| December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to cash used in operating activities: |
|
|
|
|
|
|
|
|
Change in fair value of derivative liability |
|
|
|
|
|
| ||
Stock-based compensation |
|
|
|
|
|
| ||
Impairment of intangible assets |
|
|
|
|
|
| ||
Depreciation, depletion and amortization |
|
|
|
|
|
| ||
Accretion - asset retirement obligation |
|
|
|
|
|
| ||
Amortization of right-of-use assets |
|
|
|
|
|
| ||
Loss on financing settlement |
|
|
|
|
|
| ||
PPP loan forgiveness |
|
|
|
|
| ( | ) | |
Equity in earnings of unconsolidated entity |
|
|
|
|
|
| ||
Loss (gain) on disposal of membership interests and assets |
|
|
|
|
| ( | ) | |
Foreign currency translation adjustment |
|
| ( | ) |
|
| ( | ) |
Amortization of debt discount |
|
|
|
|
|
| ||
Changes in operating assets and liabilities, net of effects of business combination during the year |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
| ( | ) | |
Prepaid expenses and other assets |
|
|
|
|
|
| ||
Inventory |
|
| ( | ) |
|
|
| |
Accounts payable |
|
| ( | ) |
|
|
| |
Accrued expenses and other current liabilities |
|
| ( | ) |
|
|
| |
Related party payables |
|
|
|
|
| ( | ) | |
Customer deposits |
|
|
|
| - |
| ||
Undistributed revenues and royalties |
|
|
|
|
|
| ||
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sale of oil and gas properties |
|
|
|
|
|
| ||
Investment in and acquisition of oil and gas properties |
|
| ( | ) |
|
| ( | ) |
Acquisition of fixed assets |
|
| ( | ) |
|
| ( | ) |
Proceeds from sale of fixed assets |
|
|
|
|
|
| ||
Payments for ESG Clean Energy license |
|
|
|
|
| ( | ) | |
Acquisition of Simson-Maxwell |
|
|
|
|
| ( | ) | |
Repayment (purchase) of notes receivable |
|
|
|
|
| ( | ) | |
Cash received from acquisition of Simson-Maxwell |
|
|
|
|
|
| ||
Net cash provided by (used in) investing activities |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repayment of long-term debt |
|
| ( | ) |
|
| ( | ) |
Proceeds from sale of stock to Camber Energy, Inc. |
|
|
|
|
|
| ||
Proceeds from non-interest bearing advances from Camber |
|
|
|
|
|
| ||
Advances (repayments) of Simson Maxwell bank credit facility |
|
|
|
|
| ( | ) | |
Net cash provided by (used in) financing activities |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
| ( | ) |
|
| ( | ) |
Cash, beginning of year |
|
|
|
|
|
| ||
Cash, end of year |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
Cash paid for taxes |
| $ |
|
| $ |
| ||
Supplemental Disclosure of Non-Cash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
Recognition of right-of-use asset and lease liability |
|
|
|
|
|
| ||
Amortization of right-of-use asset and lease liability |
|
|
|
|
|
| ||
Issuance of shares for purchase of ESG License |
|
|
|
|
|
| ||
Issuance of shares for purchase of VIE interests |
|
|
|
|
|
| ||
Issuance of preferred shares for purchase of VIE interests |
|
|
|
|
|
| ||
Contingent obligation associated with acquisition of VIE interests |
|
|
|
|
|
|
| |
Issuance of shares for services |
|
|
|
|
|
| ||
Issuance of warrants for services |
|
|
|
|
|
| ||
Issuance of shares in debt conversion |
|
|
|
|
|
| ||
Issuance of shares as discount on debt |
|
|
|
|
|
|
| |
Issuance of shares as reduction of debt and accrued expenses |
|
|
|
|
|
| ||
Issuance of shares for prepaid services |
|
|
|
|
|
| ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
| Table of Contents |
VIKING ENERGY GROUP, INC.
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
|
| Preferred Stock |
|
| Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Series C |
|
| Series E |
|
| Common Stock |
|
| Additional Paid-in |
|
| Accumulated Other Comprehensive |
|
| (Accumulated |
|
| Noncontrolling |
|
|
Total Stockholders' |
| ||||||||||||||||||||
|
| Number |
|
| Amount |
|
| Number |
|
| Amount |
|
| Number |
|
| Amount |
|
| Capital |
|
| (Loss) |
|
| Deficit) |
|
| Interest |
|
| Equity |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Balances at December 31, 2020 |
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
|
| $ | ( | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rounding due to reverse split |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| 1,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Shares issued for services |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Shares issued as payment for ESG Clean Energy license |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Warrants issued for services |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Shares issued as debt discount |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Shares issued for sale of stock to Camber Energy, Inc. |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Shares issued as reduction of debt and accrued expenses |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Shares issued in conversion of debt |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Shares issued for prepaid services |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Shares issued to purchase notes receivable |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Foreign currency translation adjustment |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | ||||||
Acquisition of Simson-Maxwell Ltd. |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31 2021 |
|
|
|
| $ |
|
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
|
| $ |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rounding difference |
|
| - |
|
|
| ||||||||||||||||||||||||||||||||||||||