10-Q/A: Camber Energy Restates Financials After Simson-Maxwell Revenue Recognition Error; Faces Delisting

Camber Energy files an amended 10-Q to restate its financials due to improper revenue recognition at its Simson-Maxwell subsidiary, while also facing potential delisting from the NYSE American.

Summary

• Camber Energy is filing an amended quarterly report on Form 10-Q/A to restate its condensed consolidated financial statements for the three and six months ended June 30, 2024.
• The restatement is due to Simson-Maxwell, a 60.5% majority-owned subsidiary, improperly modifying its revenue recognition policy starting in March 2024.
• Simson-Maxwell incorrectly recognized revenue based on contract milestones that did not meet ASC 606 requirements, and also failed to record the cost of sale associated with one of the revenue entries.
• The restatement resulted in a reduction in power generation unit sales revenues and cost of goods sold, and a higher net loss for the three and six month periods, and an increase in the balances of inventory and customer deposit at June 30, 2024.
• The restatement does not impact the cash flows of the Company.
• The company had gross revenues of $9,507,150 for the three months ended June 30, 2024, as compared to $7,032,324 for the three months ended June 30, 2023, an increase of $2,474,826 or 35%.
• The company had gross revenues of $16,198,030 for the six months ended June 30, 2024, as compared to $14,276,513 for the six months ended June 30, 2023, an increase of $1,921,517 or 13%.
• The Company generated a net loss of $(30,097,506) for the six months ended June 30, 2024, as compared to a net loss of $(2,908,339) for the six months ended June 30, 2023.
• As of June 30, 2024, the Company had stockholders equity of $2,192,394, long-term debt, net of current, of $38,863,179 and a working capital deficiency of $15,906,241.
• The company's stock is trading on the OTC Pink Market under the symbol CEIN after being suspended from the NYSE American due to low selling price.
• The company intends to apply to have its common stock quoted on the OTCQB Venture Market on the OTC Markets.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the restatement of financials, increased net loss, working capital deficiency, potential delisting, and material weaknesses in internal controls.

Positives

• Revenue increased by 35% for the three months ended June 30, 2024, compared to the same period in 2023.
• Revenue increased by 13% for the six months ended June 30, 2024, compared to the same period in 2023.
• Net cash used in operating activities decreased to $(1,409,813) during the six months ended June 30, 2024, as compared to $(2,935,186) in the comparable period in 2023.
• Net cash flows from investing activities increased to $158,984 during the six months ended June 30, 2024, as compared to $(52,393) in the comparable period in 2023.
• Net cash flows from financing activities increased to $952,802 during the six months ended June 30, 2024, as compared to $866,794 in the comparable period in 2023.

Negatives

• The company is restating its financials due to improper revenue recognition at Simson-Maxwell.
• The restatement resulted in a reduction in power generation unit sales revenues and cost of goods sold, and a higher net loss for the three and six month periods.
• The Company generated a net loss of $(30,097,506) for the six months ended June 30, 2024, as compared to a net loss of $(2,908,339) for the six months ended June 30, 2023.
• As of June 30, 2024, the Company had a working capital deficiency of $15,906,241.
• The company's stock is trading on the OTC Pink Market under the symbol CEIN after being suspended from the NYSE American due to low selling price.

Risks

• The company's ability to continue as a going concern is dependent upon its ability 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.
• There is no assurance of additional funding being available.
• The company faces potential delisting from the NYSE American.
• The company does not currently maintain controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified by the Commissions rules and forms.
• Management has identified material weaknesses in the Companys system of internal control over financial reporting.

Future Outlook

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.

Industry Context

The restatement highlights the importance of robust internal controls and accurate revenue recognition practices, particularly for companies with complex business structures and multiple subsidiaries. The potential delisting from the NYSE American reflects the challenges faced by smaller companies in maintaining compliance with listing requirements, especially when experiencing financial difficulties.

Comparison to Industry Standards

• It is difficult to compare Camber Energy's results directly to industry standards due to its diversified business model, which includes both energy and technology ventures.
• However, the revenue recognition issues at Simson-Maxwell are a reminder of the importance of adhering to ASC 606, which is a global benchmark for revenue recognition.
• Companies like General Electric (GE) and Siemens, which also have power generation businesses, are expected to have strong internal controls to ensure accurate financial reporting.
• The potential delisting from the NYSE American is a concern, as it could limit the company's access to capital and reduce its visibility to investors.
• Companies like Chesapeake Energy and Pacific Drilling have faced similar challenges in the past, highlighting the risks associated with financial distress and non-compliance with listing requirements.

Legal Proceedings

• The Company is involved in several legal proceedings, including merger-related litigation, shareholder-related litigation, and other commercial disputes.
• On March 31, 2025, the U.S. District Court for the Southern District of Texas, Houston Division, granted a motion by the Company to dismiss with prejudice Class Action Complaint (i.e. C.A. No.4:24-cv-00489) styled Lawrence Rowe, Individually and on Behalf of All Others Similarly Situated v. James A. Doris and Camber Energy, Inc.
• On or about September 17, 2024, the Court issued a final order and judgement approving the Stipulation and Settlement and awarded fees payable to the Plaintiffs legal counsel in the amount of $1,200,000, which was paid by the Companys insurer.
• In December, 2024, applicable parties entered into a Settlement Agreement pursuant to which Viking paid $50,000 to settle all claims as against Petrodome Energy, LLC, Petrodome Operating, LLC, Viking and James Doris, without any party admitting liability.

Related Party Transactions

• The Companys CEO and Director, James Doris, renders professional services to the Company through AGD Advisory Group, Inc., an affiliate of Mr. Doriss.
• The Companys CFO, John McVicar, renders professional services to the Company through 1508586 Alberta Ltd., an affiliate of Mr. McVicars.
• Simson-Maxwell had several amounts due to/due from related parties and notes payable to certain employees, officers, family members and entities owned or controlled by such individuals.

Stakeholder Impact

• Shareholders face potential dilution from the conversion of preferred stock and convertible notes.
• Shareholders face potential loss of investment value due to the potential delisting from the NYSE American.
• Employees may be affected by the company's financial difficulties and potential restructuring.
• Customers and suppliers may be impacted by the company's ability to continue operations and fulfill its obligations.
• Creditors face increased risk of non-payment due to the company's working capital deficiency and going concern qualification.

Next Steps

• The Company intends to request a review of the staffs determination to delist the Companys common stock by the Listings Qualifications Panel of the Committee for Review of the Board of Directors of the NYSE American.
• The Company intends to apply to have its common stock quoted on the OTCQB Venture Market on the OTC Markets.
• Management of the Company is addressing these material weaknesses by hiring additional staff and seeking the assistance of subject matter experts for accounting advice on complex matters.

Key Dates

Keywords

restatement, Simson-Maxwell, revenue recognition, Camber Energy, financial statements, delisting, OTC Pink Market, NYSE American, going concern, oil and gas, power generation