Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes that are included elsewhere in this report and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2024. Some of the information contained in this discussion and analysis constitutes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this report, particularly under the section titled "Cautionary Statement Concerning Forward-Looking Statements."

Executive Summary

We were incorporated in Nevada on August 31, 2021, as OilCo Holdings, Inc. and changed our name to Next Bridge Hydrocarbons, Inc. pursuant to our Amended and Restated Articles of Incorporation filed on June 30, 2022. We are an energy company engaged in the acquisition, exploration, exploitation and development of oil and natural gas properties in the United States. Our primary focus was previously the development of interests in an oil and natural gas project we held in the Orogrande Basin in West Texas in Hudspeth County, Texas. The mineral leases underlying the Orogrande Project expired on December 31, 2024.

We have minor interests in the Eastern edge of the Midland Basin in Sterling, Tom Green and Irion Counties, Texas, two minor well interests located in Oklahoma, and undeveloped mineral lease interests in LaFourche Parish and Acadia Parish, Louisiana.

We operate our business through nine wholly owned subsidiaries: Torchlight Energy, Inc. (TEI), Hudspeth Oil Corporation, Torchlight Hazel, LLC, Wolfbone Investments LLC, Hudspeth Operating LLC (Hudspeth), Wildcat Panther LLC, Wildcat Valentine LLC, Wildcat Cowboy LLC, and Wildcat Packer LLC.

Market Conditions, Commodity Prices and Interest Rates

U.S. and global markets have experienced heightened volatility following impactful geopolitical events, consistent evidence of widespread inflation, as well as increased fears of an economic recession. Recent measures have been taken by the U.S. Federal Reserve to combat persistent inflation by increasing interest rates throughout 2023 and 2024. The global banking sector has experienced material disruptions which has also contributed to market volatility. Further, the full-scale military invasion of Ukraine by Russian troops has continued unabated since February 2022 coupled with related economic sanctions imposed on Russia further exacerbating supply shortages, leading to disruptions in the credit and capital markets, including significant uncertainty in commodity prices, during 2022 and into 2025. Prices for oil and natural gas are determined primarily by prevailing market conditions, which have been and could continue to be volatile.

The combination of geopolitical events, inflation and the rising rate environment has led to increasing forecasts of a U.S. or global recession. Any such recession could prolong market volatility or cause a decline in commodity prices, among other potential impacts.

We cannot estimate the length or gravity of the future impact these events will have on our results of operations, financial position, liquidity and the value of oil and natural gas reserves.

Results of Operations

Results for the three and six month periods ending June 30, 2025 and 2024

Revenue and Gross Profit

		Three Months Ended June 30								Six Months Ended June 30,
		2025				2024				2025				2024
Product Sales BOE			99				121				230				283
Total Revenue		$	1,963			$	1,639			$	5,027			$	5,206
Cost of revenue		($	14,087	)		($	75,479	)		($	23,685	)		$	(112,547	)
Gross Profit (Loss)		($	12,124	)		($	73,840	)		($	18,658	)		($	107,341	)
Gross profit percentage			(617.63	)%			(4505.19	)%			(371.16	)%			(2061.87	)%

Production Revenues and Cost of Revenue

For the three months ended June 30, 2025, we had production revenue of $1,963 compared to $1,639 of production revenue for the prior year period. The change in revenue was primarily due to revenue from production sold from the Oklahoma wells. Our cost of revenue, consisting of lease operating expenses and production taxes, was $14,087 and $75,479 for the three months ended June 30, 2025, and 2024, respectively.

For the six months ended June 30, 2025, we had production revenue of $5,027 compared to $5,206 of production revenue for the prior year period. The change in revenue was primarily due to revenue from production sold from the Oklahoma wells. Our cost of revenue, consisting of lease operating expenses and production taxes, was $23,685 and $112,547 for the six months ended June 30, 2025, and 2024, respectively.

Refer to the table of production and revenue included below for changes in revenue:

				Oil		Gas
				Production		Production		Oil				Gas				Total
Property		Quarter		{BBLS}		{MCF}		Revenue				Revenue				Revenue
Oklahoma		Q1 - 2024		28		809			2,002				1,565				3,567
Hazel (TX)		Q1 - 2024		0		0			-				-				-
Total Q1-2024				28		809		$	2,002			$	1,565			$	3,567
Oklahoma		Q2 - 2024		14		639			945				694				1,639
Hazel (TX)		Q2 - 2024		0		0			-				-				-
Total Q2-2024				14		639		$	945			$	694			$	1,639
Oklahoma		Q3 - 2024		14		668			1,076				979				2,055
Hazel (TX)		Q3 - 2024		0		0			-				-				-
Total Q3-2024				14		668		$	1,076			$	979			$	2,055
Oklahoma		Q4 - 2024		44		1384			3,111				2,213				5,324
Hazel (TX)		Q4 - 2024		0		0			-				-				-
Total Q4-2024				44		1384			3,111				2,213				5,324
Total 2024				100		3,500		$	7,134			$	5,451			$	12,585
Average Commodity Price								$	71.34			$	1.56
Oklahoma		Q1 - 2025		30		604			1,986				1,078				3,064
Hazel (TX)		Q1 - 2025		0		0			0				0				0
Total Q1-2025				30		604			1,986				1,078				3,064
Oklahoma		Q2 - 2025		14		510			816				1147				1963
Hazel (TX)		Q2 - 2025		0		0			0				0				0
Total Q2-2025				14		510			816				1147				1963
Total 2025 to Date				44		1114			2,802				2,225				5,027
Average Commodity Price								$	63.68			$	2.00

Expenses for the six months ended June 30, 2025 and 2024

We did not record any depreciation, depletion and amortization expense for either of the six months ended June 30, 2025 or 2024.

General and Administrative Expenses

		Three Months								Six Months
		Ended June 30,								Ended June 30
		2025				2024				2025				2024
General & Administrative		$	1,191,142			$	456,053			$	2,338,280			$	1,207,555
Total general and administrative expenses		$	1,191,142			$	456,053			$	2,338,280			$	1,207,555

General and Administrative Expenses

Our general and administrative expense for the three month period ended June 30, 2025, was $1,191,142 compared with $456,053 for the same period from the prior year.

Our general and administrative expense for the six month period ended June 30, 2025, was $2,338,280 compared with $1,207,555 for the same period from the prior year.

Our general and administrative expenses consisted of accounting and administrative costs, legal and other professional consulting fees, and other general corporate expenses.

Liquidity and Capital Resources

The business of exploring for, developing and producing oil and natural gas is capital intensive. Because oil, natural gas and NGL reserves are a depleting resource, like all upstream operators, we must make capital investments to grow and even sustain production. Our principal liquidity requirements are to finance operations, fund capital expenditures and acquisitions and satisfy any indebtedness obligations. Cash flows are subject to a number of variables, including the level of oil and natural gas production and prices, and the significant capital expenditures required to more fully develop our oil and natural gas properties. Historically, our primary sources of capital funding and liquidity have been from borrowings. At times and as needed, we may also issue debt or equity securities. We estimate the combination of the sources of capital discussed above will continue to be adequate to meet our short and long-term liquidity needs but there can be no assurances that any such sources will be available if needed.

Cash on hand and operating cash flow can be subject to fluctuations due to trends and uncertainties that are beyond our control. Our ability to issue equity and obtain credit on favorable terms may be impacted by a variety of market factors as well as fluctuations in our results of operations.

2021 Note and Loan Agreement

On August 7, 2023, Mr. McCabe and Meta entered into a Loan Sale Agreement whereby Mr. McCabe purchased from Meta (i) the 2021 Note and (ii) all outstanding loans made to the Company by Meta pursuant to the Loan Agreement (the "Loan Purchase"). As a result of the Loan Purchase, Mr. McCabe replaced Meta as the lender and secured party under the 2021 Note and the Loan Agreement. Additionally, as part of the Loan Purchase, Meta assigned to Mr. McCabe its lien on 25% of the Orogrande Prospect. The Company's obligations and responsibilities under the 2021 Note and the Loan Agreement remain unchanged.

On October 1, 2023, we entered into an amendment to the 2021 Note and an amendment to the Loan Agreement with Mr. McCabe as successor in interest to Meta extending the 2021 Note maturity date. Amendments to the 2021 Note and Loan Agreement entered into on June 30, 2025 include automatic renewal provisions, and the maturity dates of both are presently extended to December 31, 2025.

The 2021 Note is fully drawn with a principal balance outstanding of $15 million, bears interest at 8% per annum, computed on the basis of a 360-day year, and matures on January 3, 2024. If an event of default occurred and is continuing, interest on the 2021 Note may accrue at the default rate of 12% per annum. Additionally, we have an aggregate principal balance of $6.59 million outstanding under the Loan Agreement which bears interest at a fixed rate of 8% per annum if no event of default exists, and at a fixed rate of 12% per annum if an event of default exists.

The combined balance on the 2021 Note and the Loan Agreement as of June 30, 2025, was $21.22 million. As of June 30, 2025, the combined total accrued and unpaid interest under the 2021 Note and the Loan Agreement was $5.61 million.

December 2022 Note

On December 22, 2022 we issued an unsecured promissory note in the principal amount of up to $20 million in favor of Mr. McCabe (the "2022 Note"), which bears interest at 5% per annum, computed on the basis of a 365-day year. As of June 30, 2025, the Company had a balance of $22.76 million and accrued and unpaid interest of $2.36 million due under the 2022 Note. An amendment to the 2022 Note entered into on June 30, 2025 includes an automatic renewal provision, and the maturity date of the 2022 Note is presently extended to December 31, 2025.

As of June 30, 2025, Notes Payable - related party includes balances of the 2021 Note and Loan Agreement and the December 2022 Note, as detailed above, totaling $43.98 million, with additional borrowing and adjustment to the December 2022 note during the six months ended June 30, 2025 totaling $788,000.

A portion of the advances from Mr. McCabe are not interest bearing. Imputed interest of $25,000 has been recorded on the -0-% portion of the note for the six months ended June 30, 2025.

CAPCO Note February 2024

On February 29, 2024, CAPCO Holding, Inc., a Texas corporation ("Capco"), loaned us $2,000,000 under a 12% Secured Promissory Note (the "Capco Note"), which provides, among other things, that the loan will be due in one year, with us having the option to extend the loan by one additional year. The loan will bear interest at the rate of 12% per annum and will be payable in one balloon payment of principal and interest on the maturity date. If we elect to extend the loan for one year, we must pay all accrued interest for that first year, and thereafter, the loan will bear interest at a rate that is mutually agreeable to us and Capco, which rate will not exceed 18% per annum, and will be payable in one balloon payment of principal and interest on the extended maturity date. As part of the transaction, Gregory McCabe, our Chairman and Chief Executive Officer, entered into a Stock Pledge and Security Agreement with Capco under which he pledged 250,000 of his shares of common stock of the Company to secure our obligations under the Capco Note. Further, Mr. McCabe entered into a Subordination Agreement (the "Subordination Agreement") with Capco and us under which Mr. McCabe agreed to subordinate all of the Company's indebtedness and obligations owed to Mr. McCabe to the Capco Note, under the terms and conditions of the Subordination Agreement. Accrued and unpaid interest as of June 30, 2025 was $$502 after interest payments of $240,000 during the quarter ended June 30, 2025. The Note was paid in full in August 2025.

As of June 30, 2025, we had $4,601 of liquidity, comprised of cash and cash equivalents on hand. Our short and long-term capital requirements consist primarily of funding our development and drilling activities, payment of contractual obligations and debt service.

At June 30, 2025, we had working capital deficit of $53,768,052 and total assets of $1,354,530. Stockholders' equity (deficit) was $(54,175,265). The negative working capital is principally due to notes payable which were payable within one year.

Management believes that our currently available resources may not provide sufficient funds to enable us to meet our financing and drilling obligations for the 2025 fiscal year. We anticipate that we will continue to incur operating losses and generate negative cash flows from operations for the foreseeable future. As a result, we will need additional capital resources to fund our operations both in the short term and in the long term, prior to achieving break even or positive operating cash flow. While we do not have any committed sources of capital, we expect to continue to opportunistically seek access to additional funds through public or private equity offerings or debt financings, through partnering or other strategic arrangements, including credit application arrangements with our third party servicers, or a combination of the foregoing. Despite our efforts, we may face obstacles in continuing to attract new financing due to industry conditions and our history and current record of net losses. We can provide no assurance that we will be able to obtain the financing required to meet our stated objectives or even to continue as a going concern.

We do not expect to pay cash dividends on our common stock in the foreseeable future.

The following table summarizes sources and uses of cash and cash equivalents:

		Six Months Ended June 30,
		2025				2024
Net (loss)			(2,356,938	)			(998,342	)
Net cash (used in) operating activities			(1,183,550	)			(4,333,317	)
Net cash provided by (used in) investing activities			(20,966	)			1,109,373
Net cash provided by financing activities			1,018,000				2,688,719
Net increase (decrease) in cash		$	(186,516	)		$	(535,225	)
Cash-beginning of period		$	191,117			$	1,668,847
Cash-end of period		$	4,601			$	1,133,622

Cash Flow Used in Operating Activities

Cash flow used in operating activities for the six months ended June 30, 2025 was $1,183,550 compared to $4,333,317 for the six months ended June 30, 2024. Cash flows used in operating activities for the six months ended June 30, 2025 can be primarily attributed to the net loss from operations and changes in accrued liabilities. Cash flows used in operating activities for the six months ended June 30, 2024, can be primarily attributed to the net loss from operations and a decrease in accounts payable. We expect to continue to use cash flow in operating activities until such time as we achieve sufficient commercial oil and gas production to cover all of our cash costs.

Cash Flow Used in Investing Activities

Cash flow from (used in) investing activities for the six months ended June 30, 2025 was $(20,966) compared to $1,109,373 for the six months ended June 30, 2024. Cash flow used in investing activities principally consists of investment in oil and natural gas properties in Texas.

Cash Flows from Financing Activities

Cash flows from financing activities for the six months ended June 30, 2025 was $1,018,000 compared to $2,688,719 for the six months ended June 30, 2024. Cash flows from financing activities consists of proceeds from additional borrowings from a related party. For the six months ended June 30, 2025, we incurred aggregate interest on the 2022 Note, the 2021 Note and under the Loan Agreement of $1,361,586.

Capital Expenditures

Our capital expenditures are summarized in the following table:

		Six Months Ended June 30,
		2025				2024
Acquisitions:
Proved property		$	-			$	-
Unproved property working interest			-				1,243,565
Exploration and development:
Developmental leasehold costs			-				-
Exploratory drilling and completion costs			-				-
Development drilling and completion costs			20,966				31,769
Other development costs			-
Capitalized interest			-				1,438,571
Asset retirement obligations			-				-
Total exploration and development			20,966				2,682,136
Other property			-				-
Total capital expenditures		$	20,966			$	2,682,136
Change in accrued capital expenditures and other			142,823				3,382,288
Proceeds from sale of property			-				(1,141,142	)
Capitalized interest			-				(1,438,571	)
Common stock issued in mineral lease acquisition			-				(1,243,565	)
Asset retirement obligations			-				-
Total cash capital expenditures		$	163,789			$	2,241,146

Critical Accounting Estimates

See Note 3-Significant Accounting Policies to the unaudited consolidated financial statements included elsewhere in this report for a description of the material changes to the Company's critical accounting policies and estimates from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024.

Recent Accounting Pronouncements

Our unaudited financial statements and the accompanying notes thereto found elsewhere in this report contain a description of recent accounting pronouncements.