VIKING ENERGY GROUP, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K)

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 STATEMENTSThis 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 ContentsThe 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 OPERATIONSCompany OverviewViking 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 SolutionsSimson-Maxwell AcquisitionOn 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 SystemIn 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 ContentsThe 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 TechnologyIn 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 TechnologiesIn 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 PropertiesExisting AssetsThe 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 2022On 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 £ 3,590,000Reduction in oil & gas full cost pool (based on % of reservesdisposed) (12,791,680 )ARO recovered 239,975Loss on disposal £ (8,961,705 ) 32 Table of ContentsIn 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 2021On 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 ContentsThe 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 QualificationThe 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 ContentsAs 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 2021Current assets £ 18,950,740 £ 21,805,426Current liabilities £ 25,290,333 £ 30,070,453Working capital deficit £ (6,339,593 ) £ (8,265,027 ) Years Ended December 31,Cash Flows: 2022 2021Net 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 £ 3,467,938Net 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 ContentsNet 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 OPERATIONSThe 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 ResultsThe 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 TotalLoss from Operations is as follows:Revenue £ 3,984,122 £ 20,054,038 £ 24,038,160Operating expensesCost of goods – 13,627,457 13,627,457Lease operating costs 1,633,765 – 1,633,765General and administrative 4,245,434 10,584,883 14,830,317Stock based compensation 1,614,334 – 1,614,334Impairment of intangible assets 451,772 451,772Depreciation, depletion andamortization 1,104,240 394,926 1,499,166Accretion – ARO 55,521 – 55,521Total operating expenses 8,653,294 25,059,038 33,712,332Loss from operations £ (4,669,172 ) £ (5,005,000 ) £ (9,674,172 ) 36 Table of Contents Year Ended December 31, 2021 Power Oil and Gas Generation TotalIncome (Loss) from Operations is asfollows:Revenue £ 33,679,679 £ 4,308,285 £ 37,987,964Operating expensesCost of goods – 3,003,044 3,003,044Lease operating costs 15,878,437 – 15,878,437General and administrative 5,997,211 2,124,308 8,121,519Stock based compensation 1,738,145 – 1,738,145Depreciation, depletion and amortization 7,236,809 70,348 7,307,157Accretion – ARO 608,691 – 608,691Total operating expenses 31,459,293 5,197,700 36,656,993Income (loss) from operations £ 2,220,386 £ (889,415 ) £ 1,330,971 Year Ended December 31, 2022 Power Oil and Gas Generation TotalOther 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 unconsolidatedsubsidiary – – -Loss on financing settlements – – -Gain (loss) on disposal of membershipinterests and assets (7,747,347 ) – (7,747,347 )Interest and other income 875,143 (73,842 ) 801,301Total other income (expense) £ (7,326,253 ) £ (357,834 ) £ (7,684,087 ) Year Ended December 31, 2021 Power Oil and Gas Generation TotalOther 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 unconsolidatedsubsidiary – (178,942 ) (178,942 )Loss on financing settlements (4,774,628 ) – (4,774,628 )Gain (loss) on disposal of membershipinterests and assets 19,457,104 – 19,457,104Interest and other income 458,028 12,464 470,492Total other income (expense) £ (15,955,343 ) £ (166,478 ) £ (16,121,821 ) 37 Table of ContentsRevenueThe 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.ExpensesThe 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 OperationsThe 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 ExpenseThe 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 ArrangementsThe 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.SeasonalityThe Company’s operating results are not affected by seasonality.InflationThe 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 PoliciesWe 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 ContentsConsolidation of Variable Interest EntitiesThe 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 itsactivities 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 AccountingThe 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 ReservesEstimates 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; andiv. 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 ContentsAsset Retirement ObligationAsset 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 RecognitionOil and Gas RevenuesSales 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 RevenuesThrough its 60.5% ownership in Simson-Maxwell, the Company manufactures and sells power generation products, services and custom energy solutions.Sale of Power Generation UnitsThe 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 RevenueThe 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 ContentsService and RepairsService 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 AssetsIntangible 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.(C) Edgar Online, source Glimpses