NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – GENERAL
Camber Energy, Inc. (“Camber” or the “Company”) is
an independent oil and natural gas company engaged in the acquisition, development and sale of crude oil, natural gas and natural
gas liquids from various known productive geological formations in Louisiana and Texas. Additionally, from the July 8, 2019 acquisition
of Lineal Star Holdings, LLC (“Lineal”), until the divestiture of Lineal effective on December 31, 2019, each
as discussed below, the Company, through Lineal, was involved in the oil and gas services industry.
On July 8, 2019, the
Company acquired Lineal pursuant to the terms of an Agreement and Plan of Merger dated as of the same date (the “Lineal
Plan of Merger” and the merger contemplated therein, the “Lineal Merger” or the “Lineal Acquisition”),
by and between Lineal, Camber, Camber Energy Merger Sub 2, Inc., Camber’s wholly-owned subsidiary, and the Members of Lineal
(the “Lineal Members”). Lineal is a specialty construction and oil and gas services enterprise providing services
to the energy industry. Pursuant to the Lineal Plan of Merger, Camber acquired 100% of the ownership of Lineal from the Lineal
Members in consideration for newly issued shares of Series E Redeemable Convertible Preferred Stock (“Series E Preferred
Stock”) and Series F Redeemable Preferred Stock (“Series F Preferred Stock”). See also “Note
11 – Lineal Merger Agreement and Divestiture”. On October 8, 2019, Lineal acquired an 80% interest in Evercon Energy
LLC (“Evercon”). The acquisition required Lineal to assume certain liabilities and provide working capital for
a period of six months in the amount of $50,000 per month to Evercon. As part of the Lineal Divestiture, described below, Evercon
was divested effective December 31, 2019.
On December 31, 2019,
the Company entered into a Preferred Stock Redemption Agreement (the “Redemption Agreement”) by and between
the Company and the prior owners of Lineal, whereby the Company redeemed the Company’s Series E and F Preferred Stock (the
holders of such preferred stock, collectively, the “Preferred Holders”) issued in connection with the Lineal
Merger. Pursuant to the Redemption Agreement, effective as of December 31, 2019, ownership of 100% of Lineal was transferred back
to the Preferred Holders, and, all of the Series E Preferred Stock and Series F Preferred Stock of the Company outstanding were
cancelled through the redemption (the “Lineal Divestiture”). See also “Note 11 –
Lineal Merger Agreement and Divestiture”.
Prior to the acquisition
of Lineal, the Company sold a significant portion of its oil and gas production assets in Oklahoma to N&B Energy, LLC (“N&B
Energy”) effective August 1, 2018. As part of the sale of its assets to N&B Energy, the Company also retained a 12.5%
production payment (effective until a total of $2.5 million has been received) and a 3% overriding royalty interest, in its then
existing Okfuskee County, Oklahoma assets; and an overriding royalty interest on certain other undeveloped leasehold interests,
pursuant to an Assignment of Production Payment and Assignments of Overriding Royalty Interests. No payments were received in regard
to any of the retained items noted above through June 30, 2020 and the filing date of these financial statements.
Camber retained its
assets in Glasscock County and operated wells in Hutchinson County, Texas until completion of the Settlement Agreement discussed
below.
On January
31, 2020, the Company entered into a Compromise Settlement Agreement (the “Settlement Agreement”) with PetroGlobe
Energy Holdings, LLC (“PetroGlobe”), Signal Drilling, LLC (“Signal”), Petrolia Oil, LLC (“Petrolia”),
Prairie Gas Company of Oklahoma, LLC (“PGCO”), and Canadian River Trading Company, LLC (“CRTC”).
Pursuant to the Settlement Agreement, the Company agreed to pay PetroGlobe $250,000, of which $100,000 was due upon execution of
the Settlement Agreement, which payment has been made, and $150,000 was paid to an escrow account, which was released by the Company
upon the successful transfer of all wells and partnership interests of the Company’s prior wholly-owned subsidiary C E Energy
LLC (“CE”) to PetroGlobe, which was completed on July 16, 2020. CE operates all of the wells and leases which
we held prior to such transfer which are located in Hutchinson County, Texas. See also “Note 9 –
Commitments and Contingencies” – “Legal Proceedings”.
On
February 3, 2020, the Company entered into an Agreement and Plan of Merger (as amended to date, the “Merger Agreement”,
and the merger contemplated therein, the “Merger”) with Viking Energy Group, Inc. (“Viking”). Pursuant
to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock
of Viking (the “Viking Common Stock”) issued and outstanding, other than certain shares owned by the Company,
Viking and the subsidiary of the Company formed as part of the merger (“Merger Sub”), will be converted into
the right to receive the pro rata share of 80% of the Company’s post-closing capitalization, subject to certain adjustment
mechanisms discussed in the Merger Agreement (and excluding shares issuable upon conversion of the Series C Preferred Stock of
the Company)(the “exchange ratio”). Holders of Viking Common Stock will have any fractional shares of Company common
stock after the Merger rounded up to the nearest whole share. The completion of the Merger is subject to certain closing conditions. A
further requirement to the closing of the Merger was that the Company was required to have acquired 30% of Viking’s subsidiary
Elysium Energy Holdings, LLC (“Elysium”) as part of a $9,200,000 investment in Viking’s Rule 506(c) offering,
which transaction was completed on February 3, 2020 (25% and a $5 million investment) and June 22, 2020 (5% and a $4.2 million
investment). See also “Note 5 – Plan of Merger and
Investment In Unconsolidated Entity”.
On
March 1, 2018, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary
of State of Nevada to affect a 1-for-25 reverse stock split of all outstanding common stock shares of the Company. The reverse
stock split was effective on March 5, 2018. The effect of the reverse stock split was to combine every 25 shares of outstanding
common stock into one new share, with no change in authorized shares or par value per share. On December 20, 2018, the Company
filed a Certificate of Change with the Secretary of State of Nevada to affect another 1-for-25 reverse stock split of the Company’s
(a) authorized shares of common stock (from 500,000,000 shares to 20,000,000 shares); and (b) issued and outstanding shares of
common stock. The reverse stock split was effective on December 24, 2018. The effect of the reverse stock split was to combine
every 25 shares of outstanding common stock into one new share, with a proportionate 1-for-25 reduction in the Company’s
authorized shares of common stock, but no change in the par value per share of the common stock. Effective on April 10, 2019,
the Company filed, with the Secretary of State of Nevada, a Certificate of Amendment to the Company’s Articles of Incorporation
to increase the number of the Company’s authorized shares of common stock, $0.001 per value per share, from 20,000,000 shares
to 250,000,000 shares. On July 3, 2019, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation
with the Secretary of State of Nevada to affect another 1-for-25 reverse stock split of all outstanding common stock shares of
the Company. The reverse stock split was effective on July 8, 2019. The effect of the reverse stock split was to combine every
25 shares of outstanding common stock into one new share, with no change in authorized shares (250,000,000 shares of common stock)
or par value per share. On October 28, 2019, the Company filed a Certificate of Change with the Secretary of State of Nevada to
affect a 1-for-50 reverse stock split of the Company’s (a) authorized shares of common stock (from 250,000,000 shares to
5,000,000 shares); and (b) issued and outstanding shares of common stock. The reverse stock split was effective on October 29,
2019. The effect of the reverse stock split was to combine every 50 shares of outstanding common stock into one new share, with
a proportionate 1-for-50 reduction in the Company’s authorized shares of common stock, but with no change in the par value
per share of the common stock. The result of the reverse stock split was to reduce, as of the effective date of the reverse stock
split, the number of common stock shares outstanding from approximately 74.5 million shares to approximately 1.5 million shares
(prior to rounding). Effective on April 16, 2020, Camber filed a Certificate of Amendment to its Articles of Incorporation to
increase its authorized shares of common stock to 25 million shares of common stock.
Proportional
adjustments were made to the conversion and exercise prices of the Company’s outstanding convertible preferred stock, warrants
and stock options, and to the number of shares issued and issuable under the Company’s stock incentive plans in connection
with each of the reverse splits described above. The reverse stock splits did not affect any stockholder’s ownership percentage
of the Company’s common stock, except to the limited extent that the reverse stock splits resulted in any stockholder owning
a fractional share. Fractional shares of common stock were rounded up to the nearest whole share based on each holder’s
aggregate ownership of the Company. All issued and outstanding shares of common stock, conversion terms of preferred stock, options
and warrants to purchase common stock and per share amounts contained in the financial statements, in accordance with Staff Accounting
Bulletin (SAB) TOPIC 4C, have been retroactively adjusted to reflect the reverse splits for all periods presented.
A
novel strain of coronavirus (“COVID-19”) was first identified in December 2019, and subsequently declared a
global pandemic by the World Health Organization on March 11, 2020. As a result of the outbreak, many companies have experienced
disruptions in their operations, workforce and markets served, including a significant reduction in the demand for petroleum-based
products. The market for the Company’s oil and gas assets began being adversely impacted by effects of COVID-19 in March
of 2020 when circumstances surrounding, and responses to, the pandemic, including stay-at-home orders, began to materialize in
North America. Due to the Company’s limited oil and gas production and the fact that all of the Company’s current
properties are non-operated, the Company has yet to experience a significant adverse impact from COVID-19. However, the full extent
of the COVID-19 outbreak and changes in demand for oil and the impact on the Company’s operations is uncertain. A prolonged
disruption could have a material adverse impact on the financial results, assets (including requiring write-downs or impairments)
and business operations of the Company.
NOTE
2 – LIQUIDITY AND GOING CONCERN CONSIDERATIONS
At
June 30, 2020, the Company’s total current assets of $2.2 million were greater than its total current liabilities of approximately
$1.7 million, resulting in working capital of $0.5 million, while at March 31, 2020, the Company’s total current assets
of $1.1 million were less than its total current liabilities of approximately $2.0 million, resulting in a working capital deficit
of $0.9 million. The increase in working capital of $1.4 million is the result of the sale of the Preferred C Stock shares in
June 2020.
Recent
oil and gas price volatility as a result of geopolitical conditions and the global COVID-19 pandemic may have a negative impact
on the Company’s financial position and results of operations. Negative impacts could include, but are not limited to, the
Company’s inability to sell its oil and gas production, reduction in the selling price of the Company’s oil and gas,
failure of a counterparty to make required payments, possible disruption of production as a result of worker illness or mandated
production shutdowns or ‘stay-at-home’ orders, and access to new capital and financing.
The
factors above raise substantial doubt about the Company’s ability to continue to operate as a going concern for the twelve
months following the issuance of these financial statements. The Company believes that it may not have sufficient liquidity to
meet its operating costs unless it can raise new funding, which may be through the sale of debt or equity or unless it closes
the Viking Merger (discussed below), which is the Company’s current plan, which Merger is anticipated to close in the third
or fourth calendar quarters of 2020, and which required closing date is currently September 30, 2020, but can be extended until
up to December 31, 2020, pursuant to certain conditions in the Merger Agreement. There is no guarantee though that the Viking
merger will be completed or other sources of funding be available. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
The
Company had no secured debt outstanding as of June 30, 2020.
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
Company has provided a discussion of significant accounting policies, estimates and judgments in its March 31, 2020 Annual Report
on Form 10-K. There have been no changes to the Company’s significant accounting policies since March 31, 2020 which are
expected to have a material impact on the Company’s financial position, operations or cash flows.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Camber and all of its wholly-owned and majority-owned subsidiaries.
All material intercompany accounts and transactions have been eliminated in consolidation.
Accounts
Receivable
Accounts
receivable, net, include amounts due for oil and gas revenues from prior month production, accrued interest on the notes receivable
due from Lineal and Viking and an estimate of amounts due from N&B Energy related to the September 2018 Asset Purchase Agreement
entered into with N&B Energy. The allowance for doubtful accounts is the Company’s best estimate of the probable amount
of credit losses in the Company’s existing accounts receivable. At June 30, 2020 and March 31, 2020, there were allowances
for doubtful accounts of approximately $208,000, included in accounts receivable, and there were bad
debts of $0 and $17,694, recognized for the three months ended June 30, 2020 and 2019, respectively.
Notes
Receivable
Notes
receivable includes the $9,200,000, excluding adjustment for excess loss from equity method investment of
$126,186, of notes from Viking as described in “Note 6 – Long-Term Notes
Receivable” and “Note 5 – Plan of Merger
and Investment In Unconsolidated Entity”, and two notes due from Lineal in the amounts of $1,539,719 and $800,000,
respectively, as more fully discussed in “Note 6 – Long-Term Notes
Receivable” and “Note 11 – Lineal Merger Agreement and Divestiture”. As
of June 30, 2020, the Company had no allowance for uncollectible amounts related to the notes receivable.
Property
and Equipment
Property
and equipment are recorded at cost and depreciated using the straight-line method over their useful lives. Amortization of the
equipment under capital leases related to the Lineal operations was computed using the straight-line method over lives ranging
from 3 to 5 years and is included in depreciation expense. Costs of maintenance and repairs were charged to expense when incurred.
Long-lived
assets including intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows
associated with the asset are compared to the assets carrying amount to determine if an impairment of such asset is necessary.
This evaluation, as well as an evaluation of our intangible assets, requires the Company to make long-term forecasts of the future
revenues and costs related to the assets subject to review. Forecasts require assumptions about demand for the Company’s
services and future market conditions. Estimating future cash flows requires significant judgment, and the Company’s projections
may vary from the cash flows eventually realized. Future events and unanticipated changes to assumptions could require a provision
for impairment in a future period. The effect of any impairment would be to expense the difference between the fair value (less
selling costs) of such asset and its carrying value. Such expense would be reflected in earnings. No impairments were deemed necessary
for the three months ended June 30, 2020 and 2019, respectively.
Investment
in Unconsolidated Entities
The Company accounts
for its investment in unconsolidated entities under the equity method of accounting when it owns less than 51% of a controlling
interest and does not have the ability to exercise significant influence over the operating and financial policies of the entity.
The investment is adjusted accordingly for dividends or distributions it receives and its proportionate share of earnings or losses
of the entity. The current investment in unconsolidated entities is a 30% (25% from February 3, 2020 to June 25, 2020) interest
in Elysium Energy Holdings, LLC, which, through its wholly-owned subsidiary, Elysium Energy, LLC, is involved in oil and gas exploration
and production in the United States. The balance sheet of Elysium Holdings, LLC at June 30, 2020 included current assets of $2.2
million, total assets of $32.4 million, total liabilities of $33.2 million and net assets of $(0.8) million. The balance sheet
of Elysium Energy Holdings, LLC at March 31, 2020 included current assets of $4.0 million, total assets of $37.7 million, total
liabilities of $34.0 million and net assets of $3.7 million. The income statement of Elysium Energy Holdings, LLC for the three
months ended June 30, 2020 included total revenues of $3.8 million and a net loss of $4.3 million. See also “Note
5 – Plan of Merger and Investment In Unconsolidated Entity”.
Goodwill
Goodwill
is tested for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have
occurred. Goodwill is reviewed for impairment at the reporting unit level, which is defined as operating segments or groupings
of businesses one level below the operating segment level. The Company’s operating segments are the same as the reporting
units used in its goodwill impairment test. Goodwill is tested for impairment by comparing the estimated fair value of a reporting
unit, determined using a market approach, if market prices are available, or alternatively, a discounted cash flow model, with
its carrying value. The annual evaluation of goodwill requires the use of estimates about future operating results, valuation
multiples and discount rates of each reporting unit to determine their estimated fair value. Changes in these assumptions can
materially affect these estimates. Once an impairment of goodwill has been recorded, it cannot be reversed.
Revenue
Recognition
Exploration
and Production Revenue
The
Company’s revenue for its exploration and production operations are comprised entirely of revenue from exploration and production
activities. The Company’s oil is sold primarily to marketers, gatherers, and refiners. Natural gas is sold primarily to
interstate and intrastate natural-gas pipelines, direct end-users, industrial users, local distribution companies, and natural-gas
marketers. Natural gas liquids (“NGLs”) are sold primarily to direct end-users, refiners, and marketers. Payment
is generally received from the customer in the month following delivery.
Contracts
with customers have varying terms, including month-to-month contracts, and contracts with a finite term. The Company recognizes
sales revenues for oil, natural gas, and NGLs based on the amount of each product sold to a customer when control transfers to
the customer. Generally, control transfers at the time of delivery to the customer at a pipeline interconnect, the tailgate of
a processing facility, or as a tanker lifting is completed. Revenue is measured based on the contract price, which may be index-based
or fixed, and may include adjustments for market differentials and downstream costs incurred by the customer, including gathering,
transportation, and fuel costs.
Revenues
are recognized for the sale of the Company’s net share of production volumes. Sales on behalf of other working interest
owners and royalty interest owners are not recognized as revenues.
Fair
Value of Financial Instruments
Accounting
Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value and
enhances disclosures about fair value measurements. It defines fair value as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy
which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. The standard describes three levels of inputs that may be used to measure fair value:
|
●
|
Level
1 – Quoted prices in active markets for identical assets or liabilities.
|
|
|
|
|
●
|
Level
2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These
include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or
liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers
are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.
|
|
●
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Level
3 – Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity
at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent
that inputs are available without undue cost and effort.
|
As
of June 30, 2020 and March 31, 2020, the significant inputs to the Company’s derivative liability and mezzanine equity calculations
were Level 3 inputs.
Recently
Adopted Accounting Pronouncements
ASC 2014-09, “Revenue
from Contracts with Customers (Topic 606)”, supersedes the revenue recognition requirements and industry-specific
guidance under Revenue Recognition (Topic 605). Topic 606 requires an entity to recognize revenue when it transfers promised goods
or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those
goods or services. The Company adopted Topic 606 on April 1, 2018, using the modified retrospective method applied to contracts
that were not completed as of April 1, 2018. Under the modified retrospective method, prior period financial positions and
results will not be adjusted. The cumulative effect adjustment recognized in the opening balances included no significant changes
as a result of this adoption. While the Company does not expect 2021 net earnings to be materially impacted by revenue recognition
timing changes, Topic 606 requires certain changes to the presentation of revenues and related expenses beginning April 1, 2018.
Refer to “Note 10 – Revenue from Contracts with Customers” for additional information.
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016.02 “Leases (Topic 842)”. The new lease guidance supersedes Topic
840. The core principle of the guidance is that entities should recognize the assets and liabilities that arise from leases. Topic
840 does not apply to leases to explore for, or to use, minerals, oil, natural gas and similar nongenerative resources including
the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained.
In July 2018, the FASB issued “Leases (Topic 842): Targeted Improvements”, which provides entities with an
alternative modified transition method to elect not to recast the comparative periods presented when adopting Topic 842. The Company
adopted Topic 842 as of April 1, 2019, using the alternative modified transition, for which, comparative periods, including the
disclosures related to those periods, are not restated.
In
addition, the Company elected practical expedients provided by the new standard, and the Company has elected to not reassess its
prior conclusions about lease identification, lease classification, and initial direct costs and to retain off-balance sheet treatment
of short-term leases (i.e., 12 months or less which do not contain purchase options that the Company is reasonably likely to exercise).
As a result of the short-term expedient election, the Company does not have leases that require the recording of a net lease asset
and lease liability on the Company’s consolidated balance sheet or have a material impact on consolidated earnings or cash
flows as of April 1, 2019. Moving forward, the Company will evaluate any new lease commitments for application of Topic 842.
In
August 2018, the FASB issued ASU 2018-13, “Disclosure Framework: Changes to the Disclosure Requirements for Fair Value
Measurement,” which changes the disclosure requirements for fair value measurements by removing, adding, and modifying
certain disclosures. The Company adopted ASU 2018-13 effective April 1, 2019. The adoption did not have a material impact on its
consolidated financial statements.
Recently
Issued Accounting Pronouncements
The
Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if
adopted, would have a material effect on the accompanying consolidated financial statements.
Subsequent
Events
The
Company has evaluated all transactions through the date the consolidated financial statements were issued for subsequent event
disclosure consideration.
NOTE
4 – PROPERTY AND EQUIPMENT
Oil
and Gas Properties
Camber
uses the full cost method of accounting for oil and natural gas producing activities. Costs to acquire mineral interests in oil
and natural gas properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development
wells including directly related overhead costs and related asset retirement costs are capitalized.
Under
this method, all costs, including internal costs directly related to acquisition, exploration and development activities are capitalized
as oil and natural gas property costs on a country-by-country basis. Costs not subject to amortization consist of unproved properties
that are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become
proved or their values become impaired. Camber assesses overall values of unproved properties, if any, on at least an annual basis
or when there has been an indication that impairment in value may have occurred. Impairment of unproved properties is assessed
based on management’s intention with regard to future development of individually significant properties and the ability
of Camber to obtain funds to finance its programs. If the results of an assessment indicate that the properties are impaired,
the amount of the impairment is added to the capitalized costs to be amortized.
Sales
of oil and natural gas properties are accounted for as adjustments to the net full cost pool with no gain or loss recognized unless
the adjustment would significantly alter the relationship between capitalized costs and proved reserves. If it is determined that
the relationship is significantly altered, the corresponding gain or loss will be recognized in the statements of operations.
Costs
of oil and natural gas properties are amortized using the units of production method. Amortization expense calculated per equivalent
physical unit of production amounted to $0.80 and $1.21 per barrel of oil equivalent for the three months ended June 30, 2020
and 2019, respectively.
All
of Camber’s oil and natural gas properties are located in the United States. Costs being amortized at June 30, 2020 and
March 31, 2020 are as follows:
|
|
June 30,
2020
|
|
|
March 31,
2020
|
|
Oil and gas properties subject to amortization
|
|
$
|
50,352,033
|
|
|
$
|
50,352,033
|
|
Oil and gas properties not subject to amortization
|
|
|
28,016,989
|
|
|
|
28,016,989
|
|
Capitalized asset retirement costs
|
|
|
91,850
|
|
|
|
91,850
|
|
Total oil & natural gas properties
|
|
|
78,460,872
|
|
|
|
78,460,872
|
|
Accumulated depreciation, depletion, and impairment
|
|
|
(78,352,769
|
)
|
|
|
(78,350,605
|
)
|
Net Capitalized Costs
|
|
$
|
108,103
|
|
|
$
|
110,267
|
|
Impairments
For
the three-month periods ended June 30, 2020 and 2019, the Company recorded no impairment.
Additions
and Depletion
During
the three months ended June 30, 2020 and 2019, the Company incurred no costs of for technical and other capital enhancements to
extend the lives of the Company’s wells. Additionally, the Company recorded approximately $2,164 and $4,000 for depletion
for the three months ended June 30, 2020 and 2019, respectively.
Leases
As part of the Lineal
Acquisition, the Company acquired various operating and finance leases for sales and administrative offices, motor vehicles and
machinery and equipment. Due to the Redemption Agreement discussed in – “Note 1 – General”
and below in “Note 11 – Lineal Merger Agreement and Divestiture”, the
Company no longer owns the operating and finance leases that it had acquired in connection with the Lineal Acquisition.
Effective
August 1, 2018, the Company entered into a month-to-month lease at 1415 Louisiana, Suite 3500, Houston, Texas 77002. The entity
providing use of the space without charge is affiliated with the Company’s Chief Financial Officer.
NOTE
5 – PLAN OF MERGER AND INVESTMENT IN UNCONSOLIDATED ENTITY
Viking
Plan of Merger and Related Transactions
On
February 3, 2020, the Company and Viking entered into a merger agreement (as amended to date, the “Merger Agreement”).
Pursuant to the Merger Agreement, at the effective time of the Merger, each share of common stock of Viking issued and outstanding,
other than certain shares owned by the Company, Viking and the Company’s merger sub which will be merged with and into Viking,
with Viking being the surviving entity in the merger (“Merger Sub”), will be converted into the right to receive
the pro rata share of 80% of the Company’s post-closing capitalization, subject to certain adjustment mechanisms discussed
in the Merger Agreement (and excluding shares issuable upon conversion of the Series C Preferred Stock of the Company). Holders
of Viking Common Stock will have any fractional shares of Company common stock after the Merger rounded up to the nearest whole
share. The Merger Agreement can be terminated under certain circumstances, including by either Viking or the Company if the Merger
has not been consummated on or before September 30, 2020, provided that the Company or Viking shall have the right to extend such
date from time to time, until up to December 31, 2020, in the event that the Company has not fully resolved SEC comments on the
Form S-4 (a preliminary draft of which has previously been filed) or other SEC filings related to the Merger, and Camber is responding
to such comments in a reasonable fashion, subject to certain exceptions.
A
further requirement to the closing of the Merger was that the Company was required to have acquired 30% of Elysium as part of
a $9,200,000 investment in Viking’s Rule 506(c) offering, which transaction was completed on February 3, 2020 (25% of Elysium
and $5 million investment) and June 25, 2020 (5% of Elysium and $4.2 million investment), as discussed below. In the event of
termination of the Merger Agreement, Camber is required, under certain circumstances described below, to return a portion of the
Elysium interests to Viking:
Reason for Termination
|
|
Percentage
of Elysium
Retained by Camber
|
|
Termination of the Merger Agreement by mutual agreement of the parties because the conditions to closing the Merger relating to receipt of exchange listing and regulatory approvals and the Registration Statement on Form S-4, being declared effective, have a reasonable likelihood of not being satisfied through no fault of Camber or Viking
|
|
|
20
|
%*
|
Termination of the Merger Agreement due to either (i) Camber’s determination not to proceed with the Merger even though Viking has substantially performed its obligations pursuant to the Merger Agreement, or (ii) a matter raised in Camber’s Merger Agreement disclosure schedule which was (A) not disclosed by Camber in its Securities and Exchange Commission (SEC) reports, (B) could reasonably result in a material adverse effect on Camber in excess of $500,000, and (c) which Viking objected to within 5 business days of disclosure by Camber to Viking
|
|
|
25
|
%*
|
Termination of the Merger Agreement due to a material breach of the Merger Agreement by Camber or its disclosure schedules
|
|
|
0
|
%*
|
In the event the Secured Notes (defined below) are not repaid within 90 days of the date of termination and the Additional Payment (defined below) is not made
|
|
|
30
|
%
|
*Assumes
the payment of Secured Notes within 90 days of the date of termination of the Merger Agreement and the Additional Payment (defined
below) is made.
The
Merger Agreement provides that the Secured Notes (defined below) will be forgiven in the event the Merger closes, and the Secured
Notes will be due 90 days after the date that the Merger Agreement is terminated by any party for any reason, at which time an
additional payment shall also be due to the Company and payable by Viking in an amount equal to (i) 115.5% of the original principal
amount of the Secured Notes, minus (ii) the amount due to the Company pursuant to the terms of the Secured Notes upon repayment
thereof (the “Additional Payment”) is due.
A
required condition to the entry into the Merger was that the Company loan Viking $5 million, pursuant to the terms of a Securities
Purchase Agreement, which was entered into on February 3, 2020 (the “1st SPA”). On February 3, 2020,
the Company and Discover Growth Fund, an institutional investor (“Discover”), entered into a Stock Purchase
Agreement pursuant to which Discover purchased 525 shares of Series C Preferred Stock of the Company, for $5 million, at a 5%
original issue discount to the $10,000 face value of such preferred stock. Pursuant to the 1st SPA, the Company made
a $5 million loan to Viking (using funds raised from the sale of the Series C Preferred Stock shares to Discover), which was evidenced
by a 10.5% Secured Promissory Note (the “1st Secured Note”). On June 25, 2020, the Company advanced
an additional $4.2 million to Viking in consideration for, among other things, an additional 10.5% Secured Promissory Note in
the principal amount of $4.2 million (the “2nd Secured Note” and together with the 1st
Secured Note, the “Secured Notes”).
The
Secured Notes accrue interest at the rate of 10.5% per annum, payable quarterly and are due and payable on February 3, 2022. The
notes include standard events of default, including certain defaults relating to the trading status of Viking’s common stock
and change of control transactions involving Viking. The Secured Notes can be prepaid at any time with prior notice as provided
therein, and together with a pre-payment penalty equal to 10.5% of the original amount of the Secured Notes. The Secured Notes
are secured by a security interest, pari passu with the other investors in Viking’s Secured Note offering (subject to certain
pre-requisites) in Viking’s 70% ownership of Elysium and 100% of Ichor Energy Holdings, LLC. Additionally, pursuant to a
separate Security and Pledge Agreement, Viking provided Camber a security interest in the membership, common stock and/or ownership
interests of all of Viking’s existing and future, directly owned or majority owned subsidiaries, to secure the repayment
of the Secured Notes.
The
Secured Notes are convertible into common shares of Viking at a conversion price of $0.24 per share at any time after March 4,
2020, and before the 15th day after Viking’s common stock has traded at an average daily price of at least $0.55 for 15
consecutive business days (at which point the Secured Notes are no longer convertible), provided that the Company is restricted
from converting any portion of the Secured Notes into Viking’s common stock if upon such conversion the Company would beneficially
own more than 4.99% of Viking’s common stock (which percentage may be increased or decreased, with 61 days prior written
notice to Viking, provided that such percentage cannot under any circumstances be increased to greater than 9.99%).
On
and effective June 22, 2020, the Company and Discover entered into a Stock Purchase Agreement (the “June 2020 Purchase
Agreement”), pursuant to which Discover purchased 630 shares of Series C Preferred Stock for $6 million, at a 5% original
issue discount to the $10,000 face value of such preferred stock (the “Face Value”). Provided that the Company
has not materially breached the terms of the June 2020 Purchase Agreement, the Company may at any time, in its sole and absolute
discretion, repurchase from Discover all, but not less than all, of the then outstanding shares of Series C Preferred Stock sold
pursuant to the agreement by paying to Discover 110% of the aggregate face value of all such shares.
The
Company agreed pursuant to the June 2020 Purchase Agreement that if the Merger does not close by the required date approved by
the parties thereto (as such may be extended from time to time), the Company is required, at Discover’s option, in its sole
and absolute discretion, to immediately repurchase from Discover all then outstanding Series C Preferred Stock shares acquired
by Discover pursuant to the June 2020 Purchase Agreement, by paying to Discover 110% of the aggregate Face Value of all such shares
(the “Repurchase Requirement”), which totals $6,930,000.
On
June 22, 2020, the Company and Discover entered into an Amendment to Stock Purchase Agreement (the “SPA Amendment”),
pursuant to which Discover agreed to terminate the obligation set forth in the February 2020 Stock Purchase Agreement previously
entered into between the Company and Discover on February 3, 2020, which contained a Repurchase Requirement substantially similar
to the one contained in the June 2020 Purchase Agreement (as to the 525 shares of Series C Preferred Stock sold to Discover on
February 3, 2020), which would have required that the Company pay Discover an aggregate of $5,775,000 in connection with the redemption
of the 525 shares of Series C Preferred Stock the Company sold to Discover in the event the Merger was terminated.
Investment
in Unconsolidated Entity
The
Company accounts for its investment in unconsolidated entities under the equity method of accounting when it owns less than 51%
of a controlling interest and does not have the ability to exercise significant influence over the operating and financial policies
of the entity. The Company owns 30% of Elysium as of June 30, 2020 (25% from February 3, 2020 to June 25, 2020), as discussed
above, and accounts for such ownership under the equity method of accounting. The investment is adjusted accordingly for dividends
or distributions it receives and its proportionate share of earnings or losses of the entity. Elysium is involved in oil and gas
exploration and production in the United States. The balance sheet of Elysium at June 30, 2020 included current assets of $2.2
million, total assets of $32.4 million, total liabilities of $33.2 million and net assets of $(0.8) million. The balance sheet
of Elysium at March 31, 2020 included current assets of $4.0 million, total assets of $37.7 million, total liabilities of $34.0
million and net assets of $3.7 million. Additionally, the income statement for Elysium for the three months ended June 30, 2020
included total revenues of $3.8 million and net loss of $4.3 million.
The carrying value of the notes receivable was reduced by $126,186 as the Company’s share of losses
from Elysium for the three months ended June 30, 2020. In accordance with ASC 323-10-35, the losses from Elysium exceeded the equity
investment of the Company which was used to reduce the related notes receivable balance. If the losses were to exceed the notes
receivable balance, no additional losses would be recorded for the equity investment.
Table
below shows the changes in the investment in unconsolidated entity for the three-month periods ended June 30, 2020 and 2019, respectively.
|
|
2020
|
|
|
2019
|
|
Carrying amount at beginning of period
|
|
$
|
957,169
|
|
|
$
|
—
|
|
Investment in Elysium
|
|
|
—
|
|
|
|
—
|
|
Equity change in net loss of unconsolidated entity applied to Long-Term Notes Receivable
|
|
|
126,186
|
|
|
|
—
|
|
Proportionate Share of Elysium Loss
|
|
|
(1,083,355
|
)
|
|
|
—
|
|
Carrying amount at end of period
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTE
6 – LONG-TERM NOTES RECEIVABLE
Long-term
notes receivable as of June 30, 2020 and March 31, 2020 are comprised of:
|
|
June 30, 2020
|
|
|
March 31, 2020
|
|
Notes receivable from Viking Energy Group, Inc. pursuant to 10.5% Secured Promissory Notes dated February 3, 2020 ($5,000,000) and June 25, 2020 ($4,200,000) in the original principal amount of $9,200,000, having an annual interest rate of 10.5%, with interest due quarterly beginning on May 1, 2020, maturing February 3, 2022. Accrued and unpaid interest of $89,466 and $83,425 is included in accounts receivable at June 30, 2020 and March 31, 2020, respectively. The Note is secured by secured interests in six Viking Energy Group, Inc. subsidiaries. See also “Note 5 – Plan of Merger and Investment In Unconsolidated Entity”.
|
|
$
|
9,200,000
|
|
|
$
|
5,000,000
|
|
Note receivable from Lineal Star Holdings, LLC pursuant to a Promissory Note dated effective December 31, 2019, in the original principal amount of $1,539,719, accruing annual interest of 10.5%, due quarterly beginning on March 31, 2020, maturing December 31, 2021, with accrued and unpaid interest of $38,388 and $37,966 included in accounts receivable at June 30, 2020 and March 31, 2020, respectively. See also “Note 1 – General” and “Note 11 – Lineal Merger Agreement and Divestiture”.
|
|
|
1,539,719
|
|
|
|
1,539,719
|
|
Note receivable from Lineal Star Holdings, LLC pursuant to a Promissory Note No. 2 dated effective December 31, 2019, in the original principal amount of $800,000, accruing annual interest of 8%, due quarterly beginning on March 31, 2020, maturing December 31, 2021, with accrued and unpaid interest of $15,956 and $15,781 included in accounts receivable at June 30, 2020 and March 31, 2020, respectively. See also “Note 1 – General” and “Note 11 – Lineal Merger Agreement and Divestiture”.
|
|
|
800,000
|
|
|
|
800,000
|
|
Equity loss of unconsolidated entity applied to notes receivable. See also “Note
5 – Plan of Merger and Investment In Unconsolidated Entity”
|
|
|
(126,186)
|
|
|
|
—
|
|
Less: current maturities
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
11,413,533
|
|
|
$
|
7,339,719
|
|
NOTE
7 – ASSET RETIREMENT OBLIGATIONS
The
following table presents the reconciliation of the beginning and ending aggregate carrying amounts of long-term legal obligations
associated with the future retirement of oil and natural gas properties for the three-month periods ended June 30, 2020 and 2019,
respectively.
|
|
2020
|
|
|
2019
|
|
Carrying amount at beginning of period
|
|
$
|
71,750
|
|
|
$
|
303,809
|
|
Payments
|
|
|
—
|
|
|
|
—
|
|
Accretion
|
|
|
—
|
|
|
|
2
|
|
Revisions of previous estimates
|
|
|
—
|
|
|
|
8,258
|
|
Carrying amount at end of period
|
|
$
|
71,750
|
|
|
$
|
312,069
|
|
Camber
has short-term obligations of $52,402 and $30,277 related to the plugging liabilities at June 30, 2020 and March 31, 2020, respectively.
NOTE
8 – DERIVATIVE LIABILITY
The
Company has determined that certain warrants the Company has issued contain provisions that protect holders from future issuances
of the Company’s common stock at prices below such warrants’ respective exercise prices and these provisions could
result in modification of the warrants’ exercise price based on a variable that is not an input to the fair value of a “fixed-for-fixed”
option as defined under FASB ASC Topic No. 815 - 40. The warrants granted to Ironman PI Fund II, LP contain anti-dilution provisions
that provide for a reduction in the exercise price of such warrants in the event that future common stock (or securities convertible
into or exercisable for common stock) is issued (or becomes contractually issuable) at a price per share (a “Lower Price”)
that is less than the exercise price of such warrant at the time. The amount of any such adjustment is determined in accordance
with the provisions of the warrant agreement and depends upon the number of shares of common stock issued (or deemed issued) at
the Lower Price and the extent to which the Lower Price is less than the exercise price of the warrant at the time. The warrants
expired on April 21, 2019.
Activities
for derivative warrant instruments during the three months ended June 30, 2020 and 2019 were as follows:
|
|
2020
|
|
|
2019
|
|
Carrying
amount at beginning of period
|
|
$
|
—
|
|
|
$
|
5
|
|
Change in fair
value
|
|
|
—
|
|
|
|
(5
|
)
|
Carrying amount at end of period
|
|
$
|
—
|
|
|
$
|
—
|
|
As
of June 30, 2020, the Company had 2,951 shares of Series C Preferred Stock issued and outstanding, which shares of preferred stock
are convertible into common stock of the Company pursuant to their terms. Such preferred stock is convertible, if converted in
full, into more shares of common stock than the Company currently has authorized. Typically this would require the common stock
equivalents to be considered tainted derivative instruments, and the Company to record a derivative liability for the aggregate
fair value of the tainted securities; however, due to the low probability of the conversion of the Series C Preferred Stock; the
ownership limitation therewith, which prevents the holder of such preferred stock from converting such preferred stock into common
stock, if upon such conversion such holder would own more than 9.99% of the Company’s then outstanding shares of common
stock; and the de minimis value of the tainted securities, the Company has determined that no fair value has to be recorded at
this time.
NOTE
9 – COMMITMENTS AND CONTINGENCIES
Office Lease.
Information regarding the Company’s office space is disclosed in greater detail above under “Note
4 - Property and Equipment –Leases”, above.
Lineal (which as of
December 31, 2019 has been completely divested in connection with the Lineal Divestiture discussed in “Note
1 – General” and “Note 11 – Lineal Merger Agreement and Divestiture”) has
the usual liability of contractors for the completion of contracts and the warranty of its work. In addition, Lineal acts as prime
contractor on a majority of the projects it undertakes and is normally responsible for the performance of the entire project, including
subcontract work. Management is not aware of any material exposure related thereto which has not been provided for in the accompanying
consolidated financial statements.
Legal
Proceedings. From time to time suits and claims against Camber arise in the ordinary course of Camber’s business, including
contract disputes and title disputes. Camber records reserves for contingencies when information available indicates that a loss
is probable, and the amount of the loss can be reasonably estimated.
Maranatha
Oil Matter
In
November 2015, Randy L. Robinson, d/b/a Maranatha Oil Co. sued the Company in Gonzales County, Texas (Cause No. 26160). The plaintiff
alleged that it assigned oil and gas leases to the Company in April 2010, retaining a 4% overriding royalty interest and 50% working
interest and that the Company failed to pay such overriding royalty interest or royalty interest. The interests relate to certain
oil and gas properties which the Company subsequently sold to Nordic Oil USA in April 2013. The petition alleges causes of actions
for breach of contract, failure to pay royalties, non-payment of working interest, fraud, fraud in the inducement of contract,
money had and received, constructive trust, violation of theft liability act, continuing tort and fraudulent concealment. The
suit seeks approximately $100,000 in amounts alleged owed, plus pre-and post-judgment interest. The Company has filed a denial
to the claims and intends to vehemently defend itself against the allegations.
PetroGlobe
Energy Holdings, LLC and Signal Drilling, LLC
In
March 2019, PetroGlobe and Signal sued the Company in the 316th Judicial District of Hutchinson County, Texas (Cause
No. 43781). The plaintiffs alleged causes of action relating to negligent misrepresentation; fraud and willful misconduct; gross
negligence; statutory fraud; breach of contract; and specific performance, in connection with a purchase and sale agreement entered
into between the parties in March 2018, relating to the purchase by plaintiffs of certain oil and gas assets from the Company,
and a related joint venture agreement. The lawsuit seeks in excess of $600,000 in damages, as well as pre- and post-judgment interest,
court costs and attorneys’ fees, and punitive and exemplary damages. Additionally, a portion of the revenues from the properties
in contention are being held in suspense as a result of the lawsuit. On October 31, 2019, the Company brought counterclaims against
PetroGlobe and Signal, and Petrolia Oil, LLC and Ian Acrey, including bringing claims for causes of actions including declaratory
judgment (that PetroGlobe and certain other plaintiffs represented that a lease and related wells were free of all agreements
and rights in favor of third parties and provided a special warranty of title pursuant to the purchase and sale agreement); breach
of contract (in connection with the purchase and sale agreement); statutory fraud; common law fraud (against Mr. Acrey and other
plaintiffs); fraud by non-disclosure (against Mr. Acrey and other plaintiffs); negligent misrepresentation (against Mr. Acrey
and other plaintiffs); breach of fiduciary duty (against Mr. Acrey and other plaintiffs) and seeking attorney’s fees and
pre- and post-judgment interest.
On
May 30, 2019, the Company received a Severance Order from the Texas Railroad Commission (the “TRC”) for noncompliance
with TRC rules, suspending the Company’s ability to produce or sell oil and gas from its Panhandle leases in Hutchinson
County, Texas, until certain well performance criteria were met. Subsequent to that date, the Company followed TRC procedures
in order to regain TRC compliance for the Panhandle wells.
On
January 31, 2020, the Company entered into a Compromise Settlement Agreement (the “Settlement Agreement”) with
PetroGlobe Energy Holdings, LLC (“PetroGlobe”), Signal Drilling, LLC (“Signal”), Petrolia
Oil, LLC (“Petrolia”), Prairie Gas Company of Oklahoma, LLC (“PGCO”), and Canadian River
Trading Company, LLC (“CRTC”). Pursuant to the Settlement Agreement, the Company agreed to pay PetroGlobe $250,000,
of which $100,000 was due upon execution of the Settlement Agreement, which payment has been made, and $150,000 was paid to an
escrow account, which release was subject to approval by the Company upon the successful transfer of all wells and partnership
interests of the Company’s current wholly-owned subsidiary CE to PetroGlobe, which occurred on July 16, 2020.
On
July 16, 2020, the Company completed all of the requirements of the Settlement Agreement and assigned PetroGlobe all of its right,
title and interest in all wells, leases, royalties, minerals, equipment, and other tangible assets associated with specified wells
and properties, located in Hutchinson County, Texas, the $150,000 held in escrow was released to PetroGlobe and the Settlement
Agreement transactions closed. As a result of the transfers, the Company no longer owns CE, and no longer has any interest in
or any liabilities related to the Hutchinson County, Texas wells.
The
Company recognized a net settlement cost of $204,842 included on the statement of operations for the year ended March 31, 2020
in connection with the settlement. All provisions of the settlement were finalized, and the $150,000, held in escrow pending final
approvals, was released on July 16, 2020.
The
Company released the parties to the Settlement Agreement, including Ian Acrey, individually, as well as their officers, directors,
or members from any claims asserted in the lawsuit, and the parties to the Settlement Agreement along with Ian Acrey, individually,
released the Company, its officers, directors, shareholders and affiliate corporations from any claims asserted in the lawsuit.
The Company did not release any claims or causes of action against N&B Energy, LLC, Sezar Energy, LLP related to Richard Azar,
or any of their affiliates, or predecessors, or successors.
The
parties filed a motion and order to dismiss the lawsuit with prejudice shortly after execution of the Settlement Agreement.
Apache
Corporation
In
December 2018, Apache Corporation (“Apache”) sued the Company, Sezar Energy, L.P., and Texokcan Energy Management
Inc., in the 129th Judicial District Court of Harris County, Texas (Cause 2018-89515). Apache alleged causes of action for Breach
of Contract, Money Had & Received and Conversion, relating to amounts Apache alleged it was owed under a joint operating agreement.
Apache is seeking $586,438 in actual damages, exemplary damages, pre- and post-judgment interest, court costs and other amounts
which it may be entitled. The Company filed a general denial to the claims and asserted the affirmative defense of failure to
mitigate. Apache subsequently filed an amended petition on July 13, 2020. The parties are currently in the discovery stage of
the litigation, with trial tentatively scheduled for March 2021. The Company denies Apache’s claims and intends to vehemently
defend itself against the allegations. There is a mediation scheduled for early September 2020.
N&B
Energy
On September 12, 2019, N&B Energy filed a petition in the District Court for the 285th Judicial
District of Bexar County, Texas (Case #2019CI11816). Pursuant to the petition, N&B Energy raises claims against the Company
for breach of contract, unjust enrichment, money had and received and disgorgement, in connection with $706,000 which it alleges
it is owed under the July 2018 Asset Purchase Agreement between the Company and N&B Energy (the “Sale Agreement”),
for true ups and post-closing adjustments associated therewith. The petition seeks amounts owed, pre- and post-judgment interest
and attorney’s fees. The Company denies N&B Energy’s claims, believes it is owed approximately $400,000 related
to the Sale Agreement and intends to vehemently defend itself against the allegations and claims and seek counterclaims. The Company
is currently in negotiations to resolve the matter with N&B Energy through binding arbitration which is scheduled for late
August 2020.
NOTE
10 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Oil
and Gas Contracts
The
following table disaggregates revenue by significant product type for the three months ended June 30, 2020 and 2019, respectively:
|
|
2020
|
|
|
2019
|
|
Oil sales
|
|
$
|
21,789
|
|
|
$
|
93,699
|
|
Natural gas sales
|
|
|
4,164
|
|
|
|
7,204
|
|
Natural gas liquids sales
|
|
|
7,736
|
|
|
|
20,448
|
|
Total oil and gas revenue from customers
|
|
$
|
33,689
|
|
|
$
|
121,351
|
|
NOTE
11 – LINEAL MERGER AGREEMENT AND DIVESTITURE
Merger
Agreement
On
July 8, 2019 (the “Closing Date”), the Company entered into, and closed the transactions contemplated by, the
Lineal Plan of Merger, by and between the Company, Camber Energy Merger Sub 2, Inc., the Company’s then newly formed wholly-owned
subsidiary, Lineal, and the Lineal Members. Pursuant to the Lineal Plan of Merger, the Company acquired 100% of the ownership
of Lineal from the Lineal Members in consideration for newly issued shares of Series E Redeemable Convertible Preferred Stock
and Series F Redeemable Preferred Stock.
Divestiture
On
December 31, 2019, the Company entered into, and closed the transactions contemplated by the a Preferred Stock Redemption Agreement
(the “Redemption Agreement”), by and between the Company, Lineal and the holders of the Company’s Series
E Preferred Stock and Series F Preferred Stock (the “Preferred Holders”), Pursuant to which, the Company redeemed
the Company’s Series E and F Preferred Stock issued in connection with the Lineal Merger and ownership of 100% of Lineal
was transferred back to the Preferred Holders, and all of the Series E Preferred Stock and Series F Preferred Stock of the Company
outstanding were cancelled through the redemption.
The
Redemption Agreement also provided for (a) the entry by Lineal and the Company into a new unsecured promissory note in the amount
of $1,539,719, the outstanding amount of the July 2019 Lineal Note together with additional amounts loaned by Camber to Lineal
through December 31, 2019 (the “December 2019 Lineal Note”); (b) the unsecured loan by the Company to Lineal
on December 31, 2019 of an additional $800,000, entered into by Lineal in favor of the Company on December 31, 2019 (“Lineal
Note No. 2”); and (c) the termination of the prior Lineal Plan of Merger and Funding Agreement entered into in connection
therewith (pursuant to which all funds previously held in a segregated account for future Lineal acquisitions, less amounts loaned
pursuant to Lineal Note No. 2, were released back to the Company). The December 2019 Lineal Note and Lineal Note No. 2, accrue
interest, payable quarterly in arrears, beginning on March 31, 2020 and continuing until December 31, 2021, when all interest
and principal is due, at 8% and 10% per annum (18% upon the occurrence of an event of default), respectively. As of June 30, 2020
and March 31, 2020, $54,344 and $53,747, respectively, of interest related to the December 2019 Lineal Note and Lineal Note No.
2 was accrued and included in the consolidated balance sheets in Accounts Receivable.
NOTE
12 - INCOME TAXES
The
Company has estimated that its effective tax rate for U.S. purposes will be zero percent for the 2020 and 2019 fiscal years as
a result of net losses and a full valuation allowance against the net deferred tax assets. Consequently, the Company has recorded
no provision or benefit for income taxes for the three months ended June 30, 2020 and 2019, respectively. The tax liability of
$3,000 as shown on the balance sheet as of June 30, 2020, relates to the Company’s potential Oklahoma franchise tax liability
and is not related to income tax.
NOTE 13 –
STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock
During the three months ended
June 30, 2020, the Company issued 101,514 shares of restricted common stock to service providers in consideration for investor
relations and marketing services. The Company recognized $173,000, based on the grant date fair value of the Company’s common
stock, in stock-based compensation expense in prior periods related to the issuance of these shares.
Series C Redeemable Convertible Preferred
Stock
On February 3, 2020,
the Company sold 525 shares of Series C Preferred Stock for total proceeds of $5 million. In the event the Merger Agreement entered
into with Viking in February 2020 is terminated for any reason, we (until June 22, 2020, when such terms were amended) were required
to redeem the 525 shares of Series C Preferred Stock at a 110% premium, in an aggregate amount equal to $5,775,000. Because of
the requirement to redeem such 525 shares of Series C Preferred Stock in the event the Merger Agreement is terminated, which termination
is partially outside the control of the Company, such 525 shares of Series C Preferred Stock is classified as temporary equity
on the March 31, 2020 balance sheet. Temporary equity is a security with redemption features that are outside the control of the
issuer, is not classified as an asset or liability in conformity with GAAP, and is not mandatorily redeemable. Subsequent to March
31, 2020, on June 22, 2020, the Company and Discover terminated the obligation for Camber to redeem the 525 shares of Series C
Preferred Stock upon termination of the Merger Agreement; and provided that a new obligation exists in connection with the required
redemption of 630 shares of Series C Preferred Stock sold on June 22, 2020 for total proceeds of $6 million, which have a redemption
value of $6,930,000. As such, while the prior redemption obligation for the 525 Series C Preferred Stock shares in connection with
the February 2020 sale of Series C Preferred Stock was removed from temporary equity on the June 30, 2020 balance sheet, the $6,000,000
of total proceeds received on June 22, 2020, in connection with the sale of the 630 shares of Series C Preferred Stock, is included
in temporary equity on the June 30, 2020 balance sheet.
During the three months
ended June 30, 2020, the Company sold 630 shares of Series C Preferred Stock to Discover in consideration for $6 million. During
the three months ended June 30, 2019, the Company sold no shares of Series C Preferred Stock.
During the three months ended
June 30, 2020 and 2019, Discover converted 498 and 0 shares of the Series C Preferred Stock with a face value of $4,980,000 and
$0, and a total of 8,059,016 and 0 shares of common stock were issued, respectively, which includes additional shares for conversion
premiums and true ups in connection with those conversions through June 30, 2020 and 2019.
As of June 30, 2020
and March 31, 2020, the Company accrued common stock dividends on the Series C Preferred Stock based on the then 24.95% premium
dividend rate. The Company recognized a total charge to additional paid-in capital and stock dividends distributable but not issued
of $1,680,756 and $1,878,055 related to the stock dividend declared but not issued for the three months ended June 30, 2020 and
2019, respectively.
Subsequent to June 30, 2020, the Company issued 4,794,192 shares of common stock related to prior conversions of Series C Preferred Stock
that were held in abeyance.
Warrants
The following is a summary of the Company’s
outstanding warrants at June 30, 2020:
Warrants
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Intrinsic Value at
|
|
Outstanding
|
|
|
Price ($)
|
|
|
Date
|
|
|
June 30, 2020
|
|
|
1
|
(1)
|
|
|
1,171,875.00
|
|
|
|
April 26, 2021
|
|
|
$
|
—
|
|
|
3
|
(2)
|
|
|
195,312.50
|
|
|
|
September 12, 2022
|
|
|
|
—
|
|
|
32
|
(3)
|
|
|
12,187.50
|
|
|
|
May 24, 2023
|
|
|
|
—
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
(1)
|
Warrants issued in connection with the sale of convertible notes. The warrants were exercisable on the grant date (April 26, 2016) and remain exercisable until April 26, 2021.
|
(2)
|
Warrants issued in connection with funding. The warrants were exercisable on the grant date (September 12, 2017) and remain exercisable until September 12, 2022.
|
(3)
|
Warrants issued in connection with a Severance Agreement with Richard N. Azar II, the Company’s former Chief Executive Officer. The warrants were exercisable on the grant date (May 25, 2018) and remain exercisable until May 24, 2023.
|
NOTE 14 –
SHARE-BASED COMPENSATION
Camber measures the
cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award
over the vesting period.
Stock Options
As of June 30, 2020
and March 31, 2020, the Company had 2 stock options outstanding with a weighted average exercise price of $40,429,700.
Of the Company’s
outstanding options, no options were exercised or forfeited during the three months ended June 30, 2020. Additionally, no stock
options were granted during the three months ended June 30, 2020. Compensation expense related to stock options during the three-month
periods ended June 30, 2020 and 2019 was $0.
Options outstanding
and exercisable at June 30, 2020 and March 31, 2020 had no intrinsic value. The intrinsic value is based upon the difference between
the market price of Camber’s common stock on the date of exercise and the grant price of the stock options.
As of June 30, 2020
and March 31, 2020, there was no remaining unrecognized share-based compensation expense related to all non-vested stock options.
Options outstanding and exercisable as
of June 30, 2020:
Exercise
|
|
|
Remaining
|
|
|
Options
|
|
|
Options
|
|
Price ($)
|
|
|
Life (Yrs.)
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
40,429,700
|
|
|
|
0.25
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
Total
|
|
|
|
2
|
|
|
|
2
|
|
NOTE 15 –
INCOME (LOSS) PER COMMON SHARE
The calculation of earnings (loss) per
share for the three months ended June 30, 2020 and 2019 was as follows:
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,594,632
|
)
|
|
$
|
(1,287,598
|
)
|
Less preferred dividends
|
|
|
(1,680,756
|
)
|
|
|
(1,878,055
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(3,275,388
|
)
|
|
$
|
(3,165,653
|
)
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average share – basic
|
|
|
7,527,903
|
|
|
|
15,348
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock equivalents
|
|
|
|
|
|
|
|
|
Options/warrants
|
|
|
—
|
|
|
|
—
|
|
Preferred C shares
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Total Weighted average shares – diluted
|
|
|
7,527,903
|
|
|
|
15,348
|
|
Income (loss) per share – basic
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.44
|
)
|
|
$
|
(206.26
|
)
|
Income (loss) per share – diluted
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
(0.44
|
)
|
|
$
|
(206.26
|
)
|
For the three months
ended June 30, 2020 and 2019, the following share equivalents related to convertible debt and warrants to purchase shares of common
stock were excluded from the computation of diluted net income (loss) per share as the inclusion of such shares would be anti-dilutive.
|
|
2020
|
|
|
2019
|
|
Common Shares Issuable for:
|
|
|
|
|
|
|
|
|
Convertible Debt
|
|
|
276
|
|
|
|
276
|
|
Options and Warrants
|
|
|
38
|
|
|
|
38
|
|
Series C Preferred Shares(1)
|
|
|
51,544,370,792
|
|
|
|
40,256,966,846
|
|
Total
|
|
|
51,544,371,106
|
|
|
|
40,256,967,160
|
|
(1)
Based on the
lowest possible conversion rate of the Series C Preferred Stock ($0.001 per share, the par value of the common stock).
NOTE 16 –
SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid for interest
and income taxes was as follows for the three months ended June 30, 2020 and 2019:
|
|
2020
|
|
|
2019
|
|
Interest
|
|
$
|
—
|
|
|
$
|
847
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-cash investing
and financing activities included the following:
|
|
Three Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Issuance of Common Stock of Prior Conversions of Convertible Notes
|
|
$
|
—
|
|
|
$
|
1,250
|
|
Settlement of Common Stock Payable
|
|
$
|
173,000
|
|
|
$
|
303,340
|
|
Change in Estimate for Asset Retirement Obligations
|
|
$
|
—
|
|
|
$
|
8,260
|
|
Stock Dividends Distributable but not Issued
|
|
$
|
1,680,756
|
|
|
$
|
1,878,598
|
|
Issuance of Stock Dividends
|
|
$
|
—
|
|
|
$
|
3
|
|
Conversion of Preferred B Stock to Common Stock
|
|
$
|
—
|
|
|
$
|
44
|
|
Conversion of Preferred C Stock to Common Stock
|
|
$
|
8,059
|
|
|
$
|
—
|
|
Reclassification of Preferred C Stock to Permanent Equity
|
|
$
|
5,000,000
|
|
|
$
|
—
|
|
NOTE 17 –
FAIR VALUE MEASUREMENTS
When applying fair
value principles in the valuation of assets and liabilities, the Company is required to maximize the use of quoted market prices
and minimize the use of unobservable inputs. The Company has not changed its valuation techniques used in measuring the fair value
of any financial assets or liabilities during the fiscal years presented. The fair value estimates take into consideration the
credit risk of both the Company and its counterparties.
When active market
quotes are not available for financial assets and liabilities, the Company uses industry standard valuation models. Where applicable,
these models project future cash flows and discount the future amounts to a present value using market-based observable inputs
including credit risk, interest rate curves, foreign currency rates and forward and spot prices for currencies. In circumstances
where market-based observable inputs are not available, management judgment is used to develop assumptions to estimate fair value.
Generally, the fair value of our Level 3 instruments are estimated as the net present value of expected future cash flows
based on internal and external inputs.
Fair Value Measurements
There were no liabilities carried at fair
value as of June 30, 2020 and March 31, 2020.
Assets and Liabilities Measured at Fair Value on a Non-recurring
Basis
In addition to the
financial instruments that are recorded at fair value on a recurring basis, the Company records assets and liabilities at fair
value on a non-recurring basis as required by U.S. GAAP. Generally, assets are recorded at fair value on a non-recurring basis
as a result of impairment charges or as part of a business combination. There were no liabilities carried at fair value as of June
30, 2020 and March 31, 2020.
NOTE 18 –
SUBSEQUENT EVENTS
Since
July 1, 2020, and through August 13, 2020, Discover has converted 59 shares of Series C Preferred Stock into 1,544,354 shares
of common stock, of which all 1,544,354 shares of common stock had been issued as of August 13, 2020.