NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
Incorporated in Nevada in
December 2003 under the name Panorama Investments Corp., the Company changed its name to Lucas Energy, Inc. effective June 9,
2006 and effective January 4, 2017, the Company changed its name to Camber Energy, Inc.
The accompanying unaudited
interim consolidated financial statements of Camber Energy, Inc. (“Camber” or the “Company”) have been
prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange
Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in Camber’s
annual report filed with the SEC on Form 10-K for the year ended March 31, 2016. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations
for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially
duplicate the disclosures contained in the audited financial statements for the most recent fiscal year 2016 as reported in the
Form 10-K have been omitted.
Our fiscal year ends on the
last day of March of each year. We refer to the twelve-month periods ended March 31, 2017 and 2016 as our 2017 and 2016 fiscal
years, respectively.
On July 15, 2015, the
Company effected a 1-for-25 reverse stock split of all of the outstanding shares of the Company’s common stock. Proportional
adjustments were also 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. 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 have been retroactively adjusted to reflect the reverse split for all
periods presented.
NOTE 2 – LIQUIDITY AND GOING CONCERN
CONSIDERATIONS
At December 31, 2016, the
Company’s total current liabilities of $13.4 million exceeded its total current assets of $6.8 million, resulting in a working
capital deficit of $6.6 million, while at March 31, 2016, the Company’s total current liabilities of $11.1 million exceeded
its total current assets of $0.6 million, resulting in a working capital deficit of $10.5 million. The $3.9 million decrease in
the working capital deficit is primarily related to $6.2 million in cash and restricted cash received subsequent to March 31, 2016,
together with additional receivables, each relating to the closing of the transactions contemplated by the Asset Purchase Agreement
described below, which was completed in August 2016, offset by $2.3 million in additional net borrowings and payables.
On December 30, 2015, we
entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) as amended from time to time to
acquire from twenty-three different entities and individuals (the “Sellers”), working interests in producing
properties and undeveloped acreage (the “Acquisition”), which acquisition transaction was completed on August 25,
2016. The assets acquired include varied interests in two largely contiguous acreage blocks in the liquids-rich Mid-Continent
region. In connection with the closing of the acquisition, we assumed approximately $30.6 million of commercial bank debt,
issued 13,009,664 shares of common stock to certain of the Sellers, issued 552,000 shares of Series B Preferred Stock to one
of the Sellers and its affiliate, and paid $4,975,000 in cash to certain of the Sellers. The effective date of the
Acquisition was April 1, 2016.
Pursuant to a Letter
Agreement we entered into, at the closing of the Acquisition, with RAD2 Minerals, Ltd. (“RAD2”), one of the
Sellers, which is owned and controlled by Richard N. Azar II, who was appointed as our Chairman on August 26, 2016, RAD2
agreed to accept full financial liability for any and all deficiencies between the “Agreed Assets Value” set
forth in the Asset Purchase Agreement of $80,697,710, and the mutually agreed upon value of the assets delivered by the
Sellers at the closing of the Acquisition, up to an aggregate of $1,030,941 (as applicable, the “Deficiency”).
The Company accepted additional oil and gas producing properties and two salt water disposal facilities from the Sellers with
an approximate value of $1.0 million to resolve this Deficiency.
As discussed in “Note
6 – Notes Payable and Debenture”, we borrowed $40 million from International Bank of Commerce (“IBC”) effective August
25, 2016. The proceeds of the loan were used to repay and refinance approximately $30.6 million of indebtedness owed by certain
of the Sellers to IBC as part of the closing of the Acquisition.
On April 6, 2016, we
entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited
institutional investor (the “Investor”), pursuant to which we sold and issued a redeemable convertible
subordinated debenture, with a face amount of $530,000, initially convertible into 163,077 shares of common stock (subject to
certain conversion premiums) at a conversion price equal to $3.25 per share and a warrant to initially purchase
1,384,616 shares of common stock (subject to adjustment thereunder) at an exercise price equal to $3.25 per share (the
“First Warrant”). The Investor purchased the debenture at a 5.0% original issue discount for the sum of $500,000
and has exercised the First Warrant in full as described below for the sum of $4.5 million.
Also on April 6, 2016,
we entered into a Stock Purchase Agreement with the Investor, pursuant to which we agreed, subject to certain conditions,
to issue up to 527 shares of Series C redeemable convertible preferred stock (the “Series C Preferred Stock”) at
a 5% original issue discount, convertible into 1,618,462 shares of common stock (subject to
certain conversion premiums) at a conversion price of $3.25 per share, and
a warrant to initially purchase 1,111,112 shares of common stock at an exercise price of $4.50 per share (the
“Second Warrant”). Under the terms of the Stock Purchase Agreement, the Second Warrant and 53 shares of Series C
Preferred Stock were sold and issued for $500,000 on September 2, 2016, and the remaining 474 shares of Series C Preferred
Stock were sold and issued for $4.5 million on November 17, 2016.
In July and August 2016, RAD2
advanced the Company an aggregate of $350,000. Also, in August 2016, two other Sellers advanced the Company an aggregate of $200,000
($100,000 each). These advances did not accrue interest and had no stated maturity date. Additionally, in August 2016, RAD2 loaned
us $1.5 million pursuant to a promissory note. The promissory note did not accrue interest for the first month it was outstanding
and accrued interest at the rate of 5% per annum thereafter until paid in full. The Company repaid the promissory note in full
and all amounts advanced by RAD2 and the two other Sellers in October 2016.
On October 7, 2016, the Investor
exercised the First Warrant in full and was due 1,384,616 shares of common stock upon exercise thereof and an additional 2,252,735
shares of common stock in consideration for the conversion premium due thereon. A total of 810,000 shares were issued to the Investor
on October 7, 2016, with the remaining shares being held in abeyance until such time as it would not result in the Investor exceeding
its beneficial ownership limitation (4.99% of the Company’s outstanding common stock). The Company received gross proceeds
of $4,500,000 from the exercise of the First Warrant and paid placement agent fees of $427,500 for services rendered in connection
with the First Warrant. Pursuant to the terms of the First Warrant, the number of shares due in consideration for the conversion
premium increases as the annual rate of return under the First Warrant increases, including by 10% upon the occurrence of certain
triggering events (which had occurred by the October 7, 2016 date of exercise), to 17% per annum upon the exercise of the First
Warrant. Additionally, as the conversion rate for the conversion premium is currently 85% of the lowest daily volume weighted average
price during the measuring period, less $0.10 per share of common stock not to exceed 85% of the lowest sales prices on the last
day of such period less $0.10 per share, the number of shares issuable in connection with the conversion premium increases as the
trading price of our common stock decreases, and the trading price of our common stock has decreased since the date the First Warrant
was exercised, triggering a further reduction in the conversion price of the conversion premium and an increase in the number of
shares due the Investor in connection with the conversion of the amount owed in connection with the conversion premium. In total,
an aggregate of 7,476,680 shares of common stock were due as of December 31, 2016 (and an aggregate of approximately 7.7 million
shares of common stock were due as of the date of this filing) in connection with the conversion premium associated with the First
Warrant, of which an aggregate of 3,615,384 shares had been issued to the Investor as of December 31, 2016 (and as of the date
of this filing), in connection with various requests from the Investor for the issuance of additional shares of common stock out
of the total shares held in abeyance for such aggregate exercise, with the remaining shares being held in abeyance until such time
as it would not result in the Investor exceeding its beneficial ownership limitation (4.99% of the Company’s outstanding
common stock) and until such time as a sufficient number of shares have been registered to allow for the issuance of registered
shares to the Investor. Additionally, due to the above, the total number of shares issued or held in abeyance for issuance for
the exercise and payment of conversion premium under the First Warrant may further increase during the measuring period. The measuring
period continues until the date ending 60 days after we deliver to the Investor the last of the total shares due under the First
Warrant.
At December 31, 2016,
the Company had $6,959,025 due under the $7.5 million Letter Loan Agreement (as amended, modified, restated and revised to
date, the “Rogers Loan”) originally entered into with Louise H. Rogers (“Rogers”) on August 13, 2013,
the maturity date of which Rogers Loan was amended effective January 31, 2017, from January 31, 2017 to April 30, 2017. We
also paid $9,000 to Ms. Rogers and $9,000 to Robertson Global Credit, LLC, the servicer of the Rogers Loan, in connection
with the amendment. During the remainder of the quarter ended March 31, 2017, the Company intends to negotiate new financing
extension terms prior to the new maturity date of April 30, 2017.
Effective January 31,
2017, the Company borrowed $1,000,000 from Alan Dreeben, one of the Company’s directors, pursuant to a short-term
promissory note. The short-term promissory note has a principal balance of $1,050,000 (the $1,000,000 principal amount
borrowed plus a $50,000 original issue discount), accrues interest at 6% per annum and has a maturity date of January 31, 2018
and contains standard and customary events of default. As additional consideration for Mr. Dreeben agreeing to make the loan,
we agreed to issue Mr. Dreeben 40,000 restricted shares of common stock (which had not been issued as of the date of this
report or included in the number of issued and outstanding shares disclosed herein). The Company used the proceeds from the
loan to pay the majority of the leasehold cost associated with our entry into a Lease Acquisition and Participation Agreement
with a privately-held, Houston, Texas-based oil and gas holding company (see discussion below under “Note 12 –
Subsequent Events”).
In addition to the transactions
noted above, Camber is currently discussing potential financing transactions, which we plan to raise through the sale of debt
or equity in order to fulfill our current capital requirements, which we believe, if finalized and completed, will ensure the
future viability of the Company. Additionally, due to our current capital structure and the nature of oil and gas interests, i.e.,
that rates of production generally decline over time as oil and gas reserves are depleted, if we are unable to obtain the necessary
financing to drill additional wells and develop our proved undeveloped reserves (“PUDs”); coupled with the low commodity prices over the last twelve months, we believe that our revenues will continue to decline over time.
Therefore, we may be forced to scale back our business plan, sell assets to satisfy outstanding debts or take other remedial steps
which may include seeking bankruptcy protection.
If the Company is required
to seek financing, we may be prohibited from undertaking certain types of funding transactions by our prior funding agreements,
such financings may not be available or, if available, may not be on terms acceptable to the Company. Accordingly, the financial
statements do not include any adjustments related to the recoverability of assets or classification of liabilities that might be
necessary should the Company be unable to continue as a going concern. The ability of the Company to continue as a going concern
is dependent upon its ability to raise capital to meet its obligations and develop its oil and gas properties to attain profitable
operations.
These conditions raise substantial
doubt about our ability to continue as a going concern for the next twelve months. The accompanying financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The Company has provided a
discussion of significant accounting policies, estimates and judgments in its 2016 Annual Report. There have been no changes to
the Company’s significant accounting policies since March 31, 2016.
NOTE 4 – PROPERTY AND EQUIPMENT
Oil and Gas Properties
Camber uses the full cost method
of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and 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. Properties not subject to amortization consist of acquisition, exploration
and development costs, which 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 and the corresponding costs are added to the capitalized costs
subject to amortization. Costs of oil and gas properties are amortized using the units of production method. Amortization expense
calculated per equivalent physical unit of production amounted to $13.01 per barrel of oil equivalent (“BOE”) for the
three months ended December 31, 2016, and was $31.78 per BOE for the three months ended December 31, 2015. Amortization expense
calculated per equivalent physical unit of production amounted to $13.81 per BOE for the nine months ended December 31, 2016, and
was $31.85 per BOE for the nine months ended December 31, 2015.
In applying the full cost
method, Camber performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of property and
equipment is compared to the “estimated present value,” of its proved reserves discounted at a 10-percent
interest rate of future net revenues, based on current economic and operating conditions at the end of the period, plus the
cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs
being amortized, less the income tax effects related to book and tax basis differences of the properties. The price used in
the ceiling test is the simple average first of the month price for the prior 12 months. If capitalized costs exceed this
limit, the excess is charged as an impairment expense. As of December 31, 2016, no impairment of oil and gas properties was
indicated, aside from the impairment of $49.0 million recognized in conjunction with the Acquisition.
All of Camber’s oil and
gas properties are located in the United States. Below are the components of Camber’s oil and gas properties recorded at:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2016
|
|
Proved leasehold costs
|
|
$
|
37,356,943
|
|
|
$
|
10,266,551
|
|
Costs of wells and development
|
|
|
61,725,817
|
|
|
|
37,534,624
|
|
Capitalized asset retirement costs
|
|
|
1,473,199
|
|
|
|
717,337
|
|
Total oil and gas properties
|
|
|
100,555,959
|
|
|
|
48,518,512
|
|
Accumulated depreciation and depletion
|
|
|
(36,204,667
|
)
|
|
|
(34,416,407
|
)
|
Net capitalized costs
|
|
$
|
64,351,292
|
|
|
$
|
14,102,105
|
|
In August 2016, our wholly-owned
subsidiary, CATI Operating, LLC (“CATI”), entered into an agreement to participate in the drilling and completion of
certain Eagle Ford wells under a joint operating agreement with Lonestar Resources US, Inc. (“Lonestar”) to conduct
improvement maintenance operations on the existing assets of CATI. The agreement with Lonestar covers over 1,450 gross acres and
Camber’s participation will vary from an 8% to a 14% working interest in the units. The Company capitalized approximately
$800,000 in development costs associated with the Cyclone #9H and #10H wells during the nine months ended December 31, 2016.
On August 25, 2016, the Company
completed the Acquisition and acquired working interests in producing properties and undeveloped acreage from the Sellers (see
“Note 2 – Liquidity and Going Concern Considerations”). The assets acquired include varied interests in two largely
contiguous acreage blocks in the liquids-rich Mid-Continent region.
As consideration for the
Acquisition of the acquired assets, the Company assumed approximately $30.6 million of commercial bank debt, issued
13,009,664 shares of common stock to certain of the Sellers valued at the grant date fair value, issued 552,000 shares of Series
B Preferred Stock to one of the Sellers and its affiliate (see “Note 7 –
Stockholders’ Equity”) valued at the grant date fair value, and paid $4,975,000 in cash to certain of the Sellers. The effective date of the
Acquisition was April 1, 2016.
The following tables summarize
the purchase price and allocation of the purchase price to the net assets acquired in connection with the Acquisition:
|
|
Consideration Given
|
|
Purchase Price on August 25, 2016:
|
|
|
|
|
Fair value of common stock issued
|
|
$
|
49,176,530
|
|
Fair value of Series B Preferred Stock issued
|
|
|
14,898,038
|
|
Assumption of debt
|
|
|
30,595,256
|
|
Cash at Closing
|
|
|
4,975,000
|
|
Total purchase price
|
|
$
|
99,644,824
|
|
|
|
|
Net Assets Acquired
|
|
Accounts receivable
|
|
$
|
635,482
|
|
Total current assets acquired
|
|
|
635,482
|
|
|
|
|
|
|
Oil and gas properties
|
|
|
50,774,684
|
|
Total assets acquired
|
|
|
51,410,166
|
|
|
|
|
|
|
Asset retirement obligations
|
|
|
(755,862
|
)
|
Total liabilities acquired
|
|
|
(755,862
|
)
|
|
|
|
|
|
Net assets acquired
|
|
|
50,654,304
|
|
|
|
|
|
|
Impairment of oil and gas properties
|
|
|
48,990,520
|
|
|
|
|
|
|
Total Purchase Price
|
|
$
|
99,644,824
|
|
The proceeds from the $40 million loan from IBC were as follows:
|
|
Use of Proceeds
|
|
Assumption of debt
|
|
$
|
30,595,256
|
|
Cash funding (due at closing)
|
|
|
4,975,000
|
|
Loan Commitment fee (due at closing)
|
|
|
200,000
|
|
Lien Payoff (due at closing)
|
|
|
72,657
|
|
Restricted cash (received at closing)
|
|
|
3,360,000
|
|
Cash (received at closing)
|
|
|
797,087
|
|
Debt payable after closing
|
|
$
|
40,000,000
|
|
NOTE 5 – 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 retirement of oil and gas property and equipment for the nine-month period ended December 31, 2016 and 2015,
respectively. Camber does not have any short-term asset retirement obligations as of December 31, 2016 and 2015, respectively.
|
|
2016
|
|
|
2015
|
|
Carrying amount at beginning of period - March 31, 2016
|
|
$
|
1,179,170
|
|
|
$
|
1,051,694
|
|
Acquisition of oil and gas properties
|
|
|
755,862
|
|
|
|
—
|
|
Accretion
|
|
|
70,714
|
|
|
|
95,484
|
|
Carrying amount at end of period – December 31, 2016
|
|
$
|
2,005,746
|
|
|
$
|
1,147,148
|
|
NOTE 6 – NOTES PAYABLE AND DEBENTURE
The Company’s notes payable and debenture
consisted of the following:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2016
|
|
Note Payable - Rogers
|
|
$
|
6,959,025
|
|
|
$
|
7,153,734
|
|
Note Payable - Dreeben
|
|
|
—
|
|
|
|
275,000
|
|
Convertible Notes Payable - Silver Star
|
|
|
—
|
|
|
|
800,000
|
|
Convertible Notes Payable - HFT
|
|
|
—
|
|
|
|
450,000
|
|
Debenture
|
|
|
530,000
|
|
|
|
—
|
|
Note Payable - IBC
|
|
|
39,038,929
|
|
|
|
—
|
|
|
|
|
46,527,954
|
|
|
|
8,678,734
|
|
Unamortized debt discount
|
|
|
(2,950,459
|
)
|
|
|
(583,183
|
)
|
Total Notes Payable and Debenture
|
|
|
43,577,495
|
|
|
|
8,095,551
|
|
Less current portion of long-term debt
|
|
|
(9,958,110
|
)
|
|
|
(8,095,551
|
)
|
Long-term portion
|
|
$
|
33,619,385
|
|
|
$
|
—
|
|
Rogers Loan and Promissory Note
Letter Loan Agreement
At December 31, 2016, the Company
had $6,959,025 due under the $7.5 million Letter Loan Agreement originally entered into with Rogers on August 13, 2013. Amortization
of debt discount of $21,323 was recorded during the year ended March 31, 2016 while no unamortized discount remained as of December
31, 2016.
Currently, the Rogers Loan
has a maturity date of April 30, 2017, and we have agreed to pay all professional fees incurred by Rogers and to pay Rogers $39,000
in lieu of interest on the Rogers Loan as well as all operating income of collateralized assets (beginning October 1, 2015). Also,
we agreed to make principal payments to Rogers from certain insurance proceeds to be received, which we have not received to date.
For the months of January, February, March, June and July 2016, the Company did not make the required monthly principal payments
due pursuant to the terms of the Rogers loan as amended. Instead, the Company and the loan administrator agreed to settle any outstanding
administration and legal fees in lieu of the principal payments. The Company paid approximately $98,000 related to the fees and
effective July 5, 2016 and obtained a waiver for the nonpayment of the principal amounts through July 2016. We have also
not made the $39,000 required monthly fee payments on the Rogers Loan since August 2016, however, we have made all required principal
payments, and Rogers has not sent any notice of default or taken any action in connection therewith.
Additionally, per a prior amendment,
we transferred all of our oil and gas interests and equipment to our then newly formed wholly-owned Texas subsidiary, CATI Operating
LLC, which clarified that following the transfer, Rogers had no right to foreclose upon the Company (at the Nevada corporate parent
level) upon the occurrence of an event of default under the Rogers Loan, and that instead Rogers would only take action against
CATI and its assets and required Rogers to release all UCC and other security filings on the Company (provided that Rogers is allowed
to file the same filings on CATI and its assets). Subsequently, we formally assigned all of our oil and gas interests and equipment
to CATI pursuant to an Assignment and Bill of Sale dated December 16, 2015.
On February 1, 2017,
the Company agreed to extend the maturity date of the Rogers Loan from January 31, 2017 to April 30, 2017. As
consideration, the Company paid $9,000 to Ms. Rogers and $9,000 to Robertson Global Credit, LLC, the servicer of the
Amended Note. During the remainder of the quarter ended March 31, 2017, the Company intends to negotiate new financing and extension terms prior to the new maturity
date of April 30, 2017.
Promissory Note
On August 25, 2016,
and effective on August 15, 2016, our wholly-owned subsidiary, CATI borrowed $1 million from the Company’s senior
lender, Rogers. The amount borrowed accrued interest at the rate of 12% per annum (18% upon the occurrence of an event of
default) and was due and payable on or before November 9, 2016. The note is secured by the assets of CATI and none of our
other assets, including those acquired in the Acquisition.
Pursuant to the terms of
the note, a total of 80% of all cash flow generated by CATI was required to first be paid to satisfy amounts owed under the
August 2016 Note, and then to amounts owed under the Letter Loan, with the remaining 20% of such cash flow used by CATI for
lease and other operating expenses and capital expenditures approved by Rogers’ designated representatives. In
connection with our entry into the August 2016 note, we paid a loan origination fee of $50,000 and agreed to pay all fees of
Rogers’ counsel in connection with the preparation and negotiation of the note. The $50,000 loan origination fee was
recorded as a debt discount and was amortized through interest expense using the effective interest method over the term of
the note.
As
additional consideration, CATI issued Robertson Global Credit, LLC, the administrator of the Rogers
Loan, a 2% overriding royalty interest in the wellbores of the Cyclone #9H and Cyclone #10H wells.
On
October 11, 2016, we paid Rogers the full amount of principal due on the promissory note of $1.0 million and also paid
the full amount of interest due of $15,667 on October 13, 2016. As such, the promissory note was no longer outstanding as of December 31, 2016.
Silver
Star Line of Credit
On
August 30, 2015, we entered into a Non-Revolving Line of Credit Agreement with Silver Star Oil Company
(“Silver Star”). The line of credit provided us the right to issue up to $2.4 million in convertible promissory
notes to Silver Star. To date, Camber has drawn $1,000,000 under the line of credit for the months of October, November,
December 2015 and January and February 2016. The convertible notes contained a beneficial conversion feature with a combined
intrinsic value of $687,987 for the five notes, which was recognized as a debt discount and is being amortized through
interest expense using the effective interest method over the term of the notes.
Convertible
notes totaling $800,000 had been assigned by Silver Star to Rockwell Capital Partners (“Rockwell”), of which Rockwell
has fully converted a total of $830,562 of the principal and interest due on such convertible notes outstanding into shares of
our common stock at a conversion price of $1.50 per share, for an aggregate of 553,708 shares.
On
July 15, 2016, pursuant to an assignment of convertible promissory note agreement, the Company was advised that the last $200,000
convertible promissory note sold to Silver Star on February 20, 2016 was assigned by Silver Star to Texas Capital & Assets
LLC. On September 28, 2016, Texas Capital & Assets LLC converted $207,566 of principal and interest due on such convertible
note into shares of our common stock at a conversion price of $1.50 per share, for an aggregate of 138,377 shares.
As
of December 31, 2016, the Company had no remaining Silver Star convertible notes outstanding as all outstanding notes had been converted into shares of the Company’s
common stock.
HFT
Convertible Promissory Note Purchase Agreement and Convertible Promissory Notes
On
March 29, 2016, Camber entered into a Convertible Promissory Note Purchase Agreement with HFT Enterprises, LLC (“HFT”).
Pursuant to the Note Purchase Agreement, we agreed to sell an aggregate of $600,000 in convertible notes, including $450,000 in
convertible notes purchased on the date of the parties’ entry into the agreement, and $150,000 in convertible notes purchased
by Debra Herman, the wife of Michael Herman, the principal of HFT, on April 26, 2016. We also granted Mrs. Herman warrants to
purchase 124,285 shares of common stock with an exercise price of $1.50 per share on April 26, 2016, when the final loan was made
pursuant to the terms of the agreement.
Each
of the convertible notes are due and payable twelve months from their issuance date, accrue interest at the rate of 6% per annum
(15% upon the occurrence of an event of default), and allow the holder thereof the right to convert the principal and interest
due thereunder into common stock of the Company at a conversion price of $1.50 per share, provided that the total number of shares
of common stock issuable upon conversion of the convertible notes could not exceed 19.9% of our outstanding shares of common stock
on March 29, 2016, until shareholder approval for such issuances was received, which approval was received on August 23, 2016.
The convertible notes contained a beneficial conversion feature with a combined intrinsic value of $600,000 for the three notes,
which is recognized as a discount and is being amortized through interest expense using the effective interest method over the
term of the notes.
On
October 4, 2016, HFT, converted $464,800 of the principal and interest due on such convertible notes held by HFT into shares of
our common stock at a conversion price of $1.50 per share, for an aggregate of 309,866 shares. Additionally on November 18, 2016,
Mrs. Herman converted $155,110 of the principal and interest due on the convertible note which she held into shares of our common
stock at a conversion price of $1.50 per share, for an aggregate of 103,400 shares.
As
of December 31, 2016, the Company had no remaining HFT convertible notes outstanding as all outstanding notes had been converted into shares of the Company’s
common stock.
Dreeben
Note
On
March 28, 2016, we borrowed $250,000 from Alan Dreeben, one of the Sellers and one of our directors, pursuant to a short-term
promissory note. The short-term promissory note has a principal balance of $275,000 (the $250,000 borrowed plus a $25,000
original issue discount). As additional consideration for Mr. Dreeben agreeing to make the loan, we agreed to issue Mr.
Dreeben 15,000 shares of restricted common stock which were issued in September 2016. The Company recognized a $48,000
discount to the short-term promissory note which was based on the closing price of the Company’s common stock ($3.20
per share) on March 28, 2016 in addition to the original discount of $25,000, for a total discount of $73,000.
On
June 27, 2016, we entered into an amended and restated short-term promissory note, amending and restating the note originally
entered into with Mr. Dreeben on March 28, 2016
; evidencing an additional $100,000 borrowed on June
13, 2016, plus a $10,000 original issue discount on such loan amount and extending the maturity date of the note to August 31,
2016.
On
August 31, 2016, the Company paid Mr. Dreeben the full amount due on the short-term promissory note of $385,000.
Debenture
On
April 6, 2016, we entered into a Securities Purchase Agreement with the Investor, pursuant to which we issued a redeemable convertible
subordinated debenture, with a face value of $530,000, initially convertible into 163,077 shares of common stock at a conversion
price equal to $3.25 per share and warrants to initially purchase 1,384,616 shares of common stock (subject to adjustment thereunder)
at an exercise price equal to $3.25 per share (the “First Warrant”). The Investor purchased the debenture at a $30,000
original issue discount for the sum of $500,000 and agreed that it would exercise the First Warrant, upon satisfaction of certain
conditions, for the sum of $4.5 million, which warrant was exercised in October 2016. The debenture matures in seven years and
accrues interest at a rate of 6.0% per annum. Due to the recent decline in the price of our common stock and that a trigger event
occurred on June 30, 2016 as a result of the delay in filing our Annual Report on Form 10-K for the year ended March 31, 2016,
the premium rate on the debenture increased from 6% to 34% and the conversion discount became 85% of the lowest daily volume weighted
average price during the measuring period (60 days prior to and 60 days after the last date that the Investor receives the last
of the shares due), less $0.10 per share of common stock not to exceed 85% of the lowest sales price on the last day of such period
less $0.10 per share.
As
the fair value of the warrants issued in connection with the debenture exceeds the $530,000 value of the debenture, we fully discounted
the entire debenture and will amortize the discount over the term of the debenture. The discount is being amortized through interest
expense using the effective interest method over the term of the debenture.
As
of December 31, 2016, the Company had a convertible subordinated debenture of $56,786 (net of the unamortized discount of
$473,214) which was recognized as a long-term liability on the Company’s balance sheet as of December 31, 2016. The
Company also recognized $135,000 in accrued interest as of December 31, 2016.
Loan
Agreement with RAD2
Effective
on August 25, 2016, RAD2, which was one of the Sellers and which is owned and controlled by Richard N. Azar II, who was appointed
as our Chairman on August 26, 2016, loaned us $1.5 million pursuant to a promissory note. The promissory note does not accrue
interest for the first month it is outstanding and accrues interest at the rate of 5% per annum thereafter until paid in full.
On
October 13, 2016, the Company paid RAD2 the full amount due on the promissory note of $1.5 million and recognized $3,750 in accrued
interest, which has yet to be paid.
Loan
Agreement with International Bank of Commerce (“IBC”)
On
August 25, 2016, we, as borrower, and Richard N. Azar II, who was appointed as our Chairman on August 26, 2016 and who also received
the largest number of securities and cash in connection with the closing of the Acquisition (“Azar”), Donnie B. Seay,
Richard E. Menchaca, RAD2, DBS Investments, Ltd. (“DBS”, controlled by Mr. Seay) and Saxum Energy, LLC (“Saxum”,
which is controlled by Mr. Menchaca), as guarantors (collectively, the “Guarantors”, all of which were directly or
indirectly Sellers), and IBC as Lender (“Lender”), entered into a Loan Agreement.
Pursuant
to the Loan Agreement, the Lender loaned us $40 million, evidenced by a Real Estate Lien Note in the amount of $40 million. We
are required to make monthly payments under the note equal to the greater of (i) $425,000; and (ii) fifty percent (50%) of our
monthly net income. The note accrues annual interest at 2% above the prime rate then in effect, subject to a minimum interest
rate of 5.5% per annum. The note is due and payable on August 25, 2019. Payments under the note are subject to change as the interest
rate changes in order to sufficiently amortize the note in 120 monthly installments. We have the right, from time to time and
without penalty to prepay the note in whole or in part, subject to the terms thereof.
The
proceeds of the loan were used to repay and refinance approximately $30.6 million of indebtedness owed by certain of the Sellers,
to the Lender (including an aggregate of $18.3 million owed by RAD2 and another entity controlled by Mr. Azar, $9.8 million owed
by DBS, and $2.1 million owed by Mr. Menchaca), as well as to pay the $4.975 million due to the Sellers at closing. Another $3.36
million was used to fund a sinking fund required by the Lender, as discussed below, to pay principal on the note.
The
amount owed under the note is secured by a Security Interest in substantially all of our assets and properties, pursuant to three
Security Agreements. Also, each of the Guarantors guaranteed the repayment of a portion of the Loan Agreement pursuant to a Limited
Guaranty Agreement. Additionally, in connection with the parties’ entry into the Loan Agreement and to further secure amounts
due thereunder, certain of the Guarantors pledged shares of common stock which they received at the closing to the Lender, with
RAD2 pledging 3,120,606 shares of common stock; DBS pledging 935,934 shares of common stock; and Saxum pledging 673,392 shares
of common stock.
The
Loan Agreement also provides that with respect to the properties located in Glasscock County, Texas, which we obtained ownership
of at the closing of the Acquisition (collectively, the “West Texas Properties”), we have the right to sell the West
Texas Properties after (i) the Lender approves the purchase and sale agreement in its sole discretion, (ii) the Lender receives
as a prepayment of the loan, 50% of the sales proceeds of the West Texas Properties, but in no event less than $2,000,000, and
(iii) the balance of the sales proceeds of the West Texas Properties are deposited in the bank account that we are required to
maintain with the Lender, to be used to pay certain principal payments of the note as approved by Lender in its sole discretion.
We
agreed to pay the Lender a loan finance charge of $400,000 in connection with our entry into the Loan Agreement, with half due
on the date we entered into the Loan Agreement and half due on or before the 180th day following the date of the Loan Agreement.
As further consideration for agreeing to the terms of the Loan, we agreed to issue the Lender 390,290 shares of common stock.
We recognized a $2.8 million note discount related to these transactions and other debt issuance costs and will amortize the discount
and debt issuance costs over the term of the note.
As
of December 31, 2016, the balance of the loan due to IBC was $39.0 million, of which $3.0 million is recognized as short-term
liability and $36.0 million (less unamortized debt issuance costs of approximately $2.4 million) is recognized as a long-term
liability on the Company’s balance sheet as of December 31, 2016. The Company has also recognized approximately $30,000
in accrued interest as of December 31, 2016.
NOTE
7 – STOCKHOLDERS’ EQUITY
Series
A Convertible Preferred Stock
On
April 19, 2016, the holder of our Series A Convertible Preferred Stock, agreed to convert all 500 shares of our outstanding Series
A Convertible Preferred Stock into 20,000 shares of our common stock (a conversion ratio of 40:1 as provided in the original designation
of the Series A Convertible Preferred Stock adjusted for the Company’s 1:25 reverse stock split effective on July 25, 2015),
which conversion was completed on April 25, 2016. We paid the holder $20,000 in connection with such conversion
in order to comply with the terms of the Asset Purchase Agreement that required that no shares of Series A Convertible Preferred
Stock be outstanding at the closing. As of December 31, 2016, we had no Series A Convertible Preferred Stock issued or outstanding.
Series
B Redeemable Convertible Preferred Stock
On
September 1, 2016, as consideration for the closing of the Acquisition, the Company issued an aggregate of 552,000 shares of Redeemable
Convertible Preferred Stock, which had a total value of $13,800,000 based on the $25 per
Series B Preferred Stock share par value. The preferred shares were issued to RAD2 (200,000 shares) and Segundo Resources, LLC
(an affiliate of RAD2)(352,000 shares) on behalf of and for the benefit of RAD2.
The
Series B Preferred Stock has a liquidation preference of $25 per share. The Series B Preferred Stock is convertible, at the option
of the holder at any time following the original issuance date, into common stock at a rate of approximately 7.14:1 (issuable
into an aggregate of 3,942,857 shares of common stock if fully converted), at the option of the holder thereof, or automatically
as to 25% of the Series B Preferred Stock shares if our common stock trades above $6.125 per share for at least 20 consecutive
trading days, and trades with at least 75,000 shares of average volume per day during such period; an additional 50% of the Series
B Preferred Stock shares if our common stock trades above $7.00 per share for at least 20 consecutive trading days, and trades
with at least 75,000 shares of average volume per day during such period; and as to the remaining Series B Preferred Stock shares,
if our common stock trades above $7.875 per share for at least 20 consecutive trading days, and trades with at least 75,000 shares
of average volume per day during such period. Each outstanding share of Series B Preferred Stock will be entitled to one vote
per share on all stockholder matters. The Series B Preferred Stock is redeemable at any time by the Company upon the payment by
the Company of the face amount of the Series B Preferred Stock ($25 per share) plus any and all accrued and unpaid dividends thereon.
The
Company has the option, exercisable from time to time after the original issue date, to redeem all or any portion of the outstanding
shares of Series B Preferred Stock by paying each applicable holder, an amount equal to the original issue price multiplied by
the number of Series B Preferred shares held by each applicable holder plus the accrued dividends.
The
552,000 shares of Series B Preferred Stock have the following features:
|
●
|
a liquidation
preference senior to all of the Company’s common stock;
|
|
●
|
a dividend, payable
quarterly, at an annual rate of six percent (6%) of the original issue price until such Series B Preferred Stock is no longer
outstanding either due to conversion, redemption or otherwise; and
|
|
●
|
voting rights on all
matters, with each share having 1 vote.
|
As
the Series B Preferred Stock is convertible at any time following the original issuance date into common stock at a rate of approximately
7.14:1, the Company recognized a fair value measurement of $14,898,038 for the Series B Preferred Stock, which is based on the
552,000 preferred shares issued times the conversion rate of approximately 7.14, times the price of the Company’s common
stock of $3.78 per share at the date of the closing of the Acquisition on August 25, 2016.
As
of December 31, 2016, the Company recognized a stock dividend on the Series B Preferred Stock consisting of 82,674 shares
of our common stock, which was recognized as a charge to additional paid in-capital and stock dividends distributable but not
issued of $102,516 based on the closing price of the Company’s common stock of $1.24 per share on December 30, 2016. The common stock dividends were subsequently issued to the preferred shareholders on January 9,
2017 (see “Note 12 - Subsequent Events”).
Series
C Redeemable Convertible Preferred Stock
On
April 6, 2016, we entered into a Stock Purchase Agreement with the Investor, pursuant to which we agreed, subject to certain conditions,
to sell 527 shares of Series C redeemable convertible preferred stock (with a face value of $5.26 million) at a 5% original issue
discount of $263,000, convertible into 1,618,462 shares of common stock at a conversion price of $3.25 per share, and a warrant
to purchase 1,111,112 shares of common stock at an exercise price of $4.50 per share (the “Second Warrant”).
On September 2, 2016,
the Second Warrant and 53 shares of Series C Preferred Stock were issued for $526,450 ($500,000, net cash proceeds to
Camber) after the Acquisition (as defined and described in “Note 2 – Liquidity and Going Concern
Considerations”) closed. The prorated share of the $263,000 discount ($26,450) was recorded to interest expense. On
November 17, 2016, the remaining 474 shares of Series C Preferred Stock were issued for $4,736,550 ($4,500,000, net cash
proceeds to Camber) and the Company paid placement agent and legal fees of $514,000 for services rendered in connection with
the issuance. The Company also recognized $236,550 of the remaining 5% original issue discount, which was recorded to
interest expense in the current period.
The
holder of the Series C Preferred Stock is entitled to cumulative dividends through maturity, which initially totaled 6% per
annum, and are adjustable to up to 35% per annum, based on certain triggering events and the trading price of our common stock,
and which totaled 30% per annum as of December 31, 2016, and currently total 34% per annum, payable upon redemption, conversion,
or maturity, and when, as and if declared by our Board of Directors in its discretion. The Series C Preferred Stock ranks senior
to the common stock and pari passu with respect to our Series B Redeemable Convertible Preferred Stock.
The
Series C Preferred Stock may be converted into shares of common stock at any time at the option of the holder, or at our option
if certain equity conditions (as defined in the Certificate of Designation) are met. Upon conversion, we will pay the holder of
the Series C Preferred Stock being converted an amount, in cash or stock at our sole discretion, equal to the dividends that such
shares would have otherwise earned if they had been held through the maturity date (7 years), and issue to the holder such number
of shares of common stock equal to $10,000 per share of Series C Preferred Stock (the “Face Value”) multiplied by
the number of such shares of Series C Preferred Stock divided by the conversion rate ($3.25 per share).
The
conversion premium under the Series C Preferred Stock is payable and the dividend rate under the Series C Preferred Stock is adjustable
on the same terms and conditions as accrued interest is payable and adjustable under the Debenture. The Series C Preferred Stock
has a maturity date that is seven years after the date of issuance and, if the Series C Preferred Stock has not been wholly converted
into shares of common stock prior to such date, we may redeem the Series C Preferred Stock on such date by repaying to the holder
in cash 100% of the Face Value plus an amount equal to any accrued but unpaid dividends thereon. 100% of the Face Value, plus
an amount equal to any accrued but unpaid dividends thereon, automatically becomes payable in the event of a liquidation, dissolution
or winding up by us.
On
December 22, 2016, the Investor converted 32 shares of the Series C Preferred stock (equal to a face value of $320,000), and was
due 98,462 shares of common stock and an additional 969,138 shares of common stock in dividend premium shares. Due to the recent
decline in the price of our common stock and the trigger event that occurred on June 30, 2016 as a result of the delay in filing
our Annual Report on Form 10-K for the year ended March 31, 2016, the dividend premium rate increased from 6% to 30% and the conversion
discount became 85% of the lowest daily volume weighted average price during the measuring period, less $0.10 per share of common
stock not to exceed 85% of the lowest sales prices on the last day of such period less $0.10 per share. A total of 1,067,600 shares
were issued to the Investor on December 23, 2016.
As
of December 31, 2016, the Company accrued common stock dividends on the Series C Preferred Stock based on the then 30%
premium dividend rate described above. The Company recognized a charge to additional paid-in capital and stock dividends
distributable but not issued of $750,000 related to the stock dividend declared but not issued.
On
January 5, 2017, the Investor converted 21 shares of the Series C Preferred stock (equal to a face value of $210,000), and was
due 64,146 shares of common stock and an additional 657,196 shares of common stock in dividend premium shares. On January 23,
2017, the Investor converted 21 shares of the Series C Preferred stock (equal to a face value of $210,000), and was due 64,146
shares of common stock and an additional 780,694 shares of common stock in dividend premium shares (see “Note 12 - Subsequent
Events”).
Common
Stock
The
following summarizes the Company’s common stock activity during the nine-month period ended December 31, 2016:
|
|
|
|
Common Shares
|
|
|
|
|
|
|
|
|
|
Issued and
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
Amount (a)
|
|
|
Per Share
|
|
|
Shares
|
|
Balance at March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
1,605,224
|
|
Conversion of Debt
|
|
$
|
1,452,029
|
|
|
$
|
1.50
|
|
|
|
968,018
|
|
Preferred Stock Series A Conversion
|
|
|
773,900
|
|
|
|
38.70
|
|
|
|
20,000
|
|
Preferred Stock Series C Conversion
|
|
|
320,000
|
|
|
|
0.30
|
|
|
|
1,067,600
|
|
Warrant Conversion
|
|
|
4,072,500
|
|
|
|
0.81
|
|
|
|
5,000,000
|
|
Acquisition Shares
|
|
|
49,176,530
|
|
|
|
3.78
|
|
|
|
13,009,664
|
|
Lender Shares
|
|
|
1,455,782
|
|
|
|
3.73
|
|
|
|
390,290
|
|
Dreeben Note Shares
|
|
|
48,000
|
|
|
|
3.20
|
|
|
|
15,000
|
|
Share-Based Compensation
|
|
|
72,035
|
|
|
|
3.25
|
|
|
|
22,131
|
|
Balance at December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
22,097,927
|
|
|
(a)
|
Net
proceeds or fair value on grant date, as applicable.
|
See
“Note 9 – Share-Based Compensation”, for information on common stock activity related to Share-Based Compensation,
including shares granted to the board of directors, officers, employees and consultants.
Warrants
During
the nine months ended December 31, 2016, warrants to purchase 1,384,616 shares of common stock were granted in connection with
our sale of the debenture noted in “Note 6 – Note Payables and Debenture” and warrants to purchase 1,111,112
shares of common stock at an exercise price of $4.50 per share were granted in connection with our sale of 53 shares of Series
C Preferred Stock noted above. We also granted warrants to purchase 124,285 shares of common stock in connection with the HFT
Convertible Promissory Notes (see “Note 6 – Note Payables and Debenture”). No warrants were cancelled during
the nine months ended December 31, 2016, other than warrants to purchase 100,420 shares of common stock at an exercise price
of $71.50 per share expired unexercised on July 4, 2016.
On
October 7, 2016, the Investor exercised the First Warrant in full and was due 1,384,616 shares of common stock upon exercise thereof
and an additional 2,252,735 shares of common stock in consideration for the conversion premium due thereon. A total of 810,000
shares were issued to the Investor on October 7, 2016, with the remaining shares being held in abeyance until such time as it
would not result in the Investor exceeding its beneficial ownership limitation (4.99% of the Company’s outstanding common
stock). The Company received gross proceeds of $4,500,000 from the exercise of the First Warrant and paid placement agent fees
of $427,500 for services rendered in connection with the First Warrant. Pursuant to the terms of the First Warrant, the number
of shares due in consideration for the conversion premium increases as the annual rate of return under the First Warrant increases,
including by 10% upon the occurrence of certain triggering events (which had occurred by the October 7, 2016 date of exercise),
to 17% per annum upon the exercise of the First Warrant. Additionally, as the conversion rate for the conversion premium is currently
85% of the lowest daily volume weighted average price during the measuring period, less $0.10 per share of common stock not to
exceed 85% of the lowest sales prices on the last day of such period less $0.10 per share, the number of shares issuable in connection
with the conversion premium increases as the trading price of our common stock decreases, and the trading price of our common
stock has decreased since the date the First Warrant was exercised, triggering a further reduction in the conversion price of
the conversion premium and an increase in the number of shares due the Investor in connection with the conversion of the amount
owed in connection with the conversion premium. In total, an aggregate of 7,476,680 shares of common stock were due as of December
31, 2016 (and an aggregate of approximately 7.7 million shares of common stock were due as of the date of this filing) in connection
with the conversion premium associated with the First Warrant, of which an aggregate of 3,615,384 shares had been issued to the
Investor as of December 31, 2016 (and as of the date of this filing), in connection with various requests from the Investor for
the issuance of additional shares of common stock out of the total shares held in abeyance for such aggregate exercise, with the
remaining shares being held in abeyance until such time as it would not result in the Investor exceeding its beneficial ownership
limitation (4.99% of the Company’s outstanding common stock) and until such time as a sufficient number of shares have been
registered to allow for the issuance of registered shares to the Investor. Additionally, due to the above, the total number of
shares issued or held in abeyance for issuance for the exercise and payment of conversion premium under the First Warrant may
further increase during the measuring period. The measuring period continues until the date ending 60 days after we deliver to
the Investor the last of the total shares due under the First Warrant.
Additionally,
warrants to purchase 66,668 shares of common stock issued in connection with an equity raise completed in April 2014,
contained a weighted average anti-dilutive provision in which the exercise price of the warrants are adjusted downward based
on any subsequent issuance or deemed issuance of common stock or convertible securities by the Company for consideration less
than the then exercise price of such warrants. As a result of the anti-dilution rights, the exercise price of the warrants
was adjusted to $3.59 per share, in connection with an automatic adjustment to the exercise price due to the Acquisition. As of December 31, 2016, the fair value of the derivative liability associated with the 66,668 warrants was
$62,732 compared to $160,040 at September 30, 2016. Therefore, the $97,308 change in the derivative liability fair value was
recorded as other income on the consolidated statement of operations.
The
following is a summary of the Company’s outstanding warrants at December 31, 2016:
|
Warrants
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Intrinsic Value at
|
|
|
Outstanding
|
|
|
Price ($)
|
|
|
Date
|
|
|
December 31, 2016
|
|
|
41,300
|
(1)
|
|
|
57.50
|
|
|
|
October 18, 2017
|
|
|
$
|
—
|
|
|
11,000
|
(2)
|
|
|
37.50
|
|
|
|
April 4, 2018
|
|
|
|
—
|
|
|
2,000
|
(3)
|
|
|
37.50
|
|
|
|
May 31, 2018
|
|
|
|
—
|
|
|
11,195
|
(4)
|
|
|
0.01
|
|
|
|
August 13, 2018
|
|
|
|
13,770
|
|
|
66,668
|
(5)
|
|
|
3.59
|
|
|
|
April 21, 2019
|
|
|
|
—
|
|
|
124,285
|
(6)
|
|
|
1.50
|
|
|
|
April 21, 2021
|
|
|
|
—
|
|
|
1,111,112
|
(7)
|
|
|
4.50
|
|
|
|
March 31, 2017
|
|
|
|
—
|
|
|
1,367,560
|
|
|
|
|
|
|
|
|
|
|
$
|
13,770
|
|
|
(1)
|
Warrants
issued in connection with the sale of units in the Company’s unit offering in April
2012. The warrants became exercisable on October 18, 2012, and will remain exercisable
thereafter until October 18, 2017.
|
|
(2)
|
Warrants
issued in connection with the issuance of certain notes in April 2013, of which the outstanding
principal and interest was paid in full on August 16, 2013. The warrants were exercisable
on the grant date (April 4, 2013) and remain exercisable until April 4, 2018.
|
|
(3)
|
Warrants
issued in connection with the issuance of certain notes in May 2013, of which the outstanding
principal and interest was paid in full on August 16, 2013. The warrants were exercisable
on the grant date (May 31, 2013) and remain exercisable until May 31, 2018.
|
|
(4)
|
Warrants
issued in connection with the Rogers Loan. The warrants were exercisable on the grant
date (August 13, 2013) and remain exercisable until August 13, 2018. The exercise price
was lowered to $0.01 per share on August 12, 2015.
|
|
(5)
|
Warrants
issued in connection with the sale of units in the Company’s unit offering in April
2014. The Warrants became exercisable on April 21, 2014 and will remain exercisable thereafter
until April 21, 2019.
|
|
(6)
|
Warrants
issued in connection with the HFT Convertible Promissory Notes. The warrants were exercisable
on the grant date (April 26, 2016) and remain exercisable until April 26, 2021.
|
|
(7)
|
Warrants
issued in connection with the sale of Series C Preferred Stock. The warrants were exercisable
on the grant date (September 2, 2016) and remain exercisable until March 31, 2017.
|
NOTE
8 – INCOME TAXES
The
Company has estimated that its effective tax rate for U.S. purposes will be zero for the 2017 fiscal year and consequently, recorded
no provision or benefit for income taxes for the nine months ended December 31, 2016.
NOTE
9 – 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.
Common
Stock
Camber
issued 22,131 shares of its common stock with an aggregate grant date fair value of $72,035 during the nine-month period ended
December 31, 2016, which were valued based on the trading value of Camber’s common stock on the date of grant. Also, on
December 31, 2016, the Company agreed to award an additional 19,010 shares of its common stock with an aggregate grant fair value
of $23,572, which were valued based on the trading value of Camber’s common stock on the date of grant. Those common stock
awards had yet to be physically issued as of December 31, 2016, and therefore, were recognized as accrued common stock payable
on the balance sheet. The shares were awarded according to the employment agreement with an officer and as additional compensation
for other officers and managerial personnel.
Stock
Options
As
of December 31, 2016 and 2015, the Company had 19,920 and 22,920 stock options outstanding with a weighted average exercise price
of $35.38 and $33.96, respectively.
Of
the Company’s outstanding options, no options were exercised or forfeited while 3,000 options expired during the nine months
ended December 31, 2016. Additionally, no stock options were granted during the nine months ended December 31, 2016. Compensation
expense related to stock options during the nine-month period ended December 31, 2016 was $14,449.
Options
outstanding and exercisable at December 31, 2016 and 2015 had no intrinsic value, respectively. The intrinsic value is based upon
the difference between the market price of Camber’s common stock on the date of exercise and the grant price of the stock
options.
The
following tabulation summarizes the remaining terms of the options outstanding:
Exercise
|
|
Remaining
|
|
Options
|
|
Options
|
Price
($)
|
|
Life
(Yrs.)
|
|
Outstanding
|
|
Exercisable
|
40.75
|
|
0.8
|
|
4,000
|
|
4,000
|
43.50
|
|
0.8
|
|
6,000
|
|
6,000
|
39.50
|
|
0.8
|
|
2,000
|
|
2,000
|
40.25
|
|
1.0
|
|
2,000
|
|
2,000
|
5.50
|
|
1.2
|
|
4,000
|
|
4,000
|
51.75
|
|
3.8
|
|
1,920
|
|
1,920
|
|
|
Total
|
|
19,920
|
|
19,920
|
As of December 31, 2016,
total unrecognized stock-based compensation expense related to all non-vested stock options was $16,055, which is being recognized
over a remaining weighted average period of approximately 0.7 years.
In prior periods, the shareholders
of the Company approved the Company’s 2014 (as amended), 2012 and 2010 Stock Incentive Plans (the “Plans”). The
Plans are intended to secure for the Company the benefits arising from ownership of the Company’s common stock by the employees,
officers, directors and consultants of the Company, all of whom are and will be responsible for the Company’s future growth.
The Plans provide an opportunity for any employee, officer, director or consultant of the Company to receive incentive stock options
(to eligible employees only), nonqualified stock options, restricted stock, stock awards and shares in performance of services.
There are 56,987 shares available for issuance under the Plans as of December 31, 2016.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Office Lease.
In June 2016,
we moved our corporate headquarters from Suite 780 to Suite 860 at our same physical address location of 450 Gears Road, Houston,
Texas 77067. The new office space is approximately 4,400 square feet and has a base monthly rent of approximately $7,700 for the
first year and approximately $7,900, $8,000, $8,200 and $8,400 for subsequent years. We also paid an $8,400 deposit and received
proceeds from our prior security deposit of $5,000.
Legal Proceedings
. From
time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course
of our business. We are not currently involved in any legal proceedings that we believe could reasonably be expected to have a
material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material
legal proceedings in the future.
NOTE 11 – SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid for interest and income taxes was as follows
for the periods indicated:
|
|
Nine Months Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Interest
|
|
$
|
755,903
|
|
|
$
|
74,152
|
|
Income taxes
|
|
|
—
|
|
|
|
—
|
|
Non-cash investing and financing activities for
the periods indicated included the following:
|
|
Nine Months Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Reduction in Accounts Payable for Payments Made on Previously Accrued Capital Expenditures
|
|
$
|
242,957
|
|
|
$
|
76,899
|
|
Forgiveness of Debt in Transaction Settlement
|
|
$
|
—
|
|
|
$
|
600,000
|
|
Common Stock Issued in Transaction Settlement
|
|
$
|
—
|
|
|
$
|
234,777
|
|
Discount from Beneficial Conversion Feature on Convertible Notes
|
|
$
|
—
|
|
|
$
|
227,910
|
|
Return and Cancellation of Common Stock Issued in Victory Settlement
|
|
$
|
—
|
|
|
$
|
(110,616
|
)
|
Increase in Asset Retirement Obligations
|
|
$
|
755,862
|
|
|
$
|
—
|
|
Issuance of Common Stock for Segundo Acquisition
|
|
$
|
49,176,530
|
|
|
$
|
—
|
|
Issuance of Series B Preferred Stock for Segundo Acquisition
|
|
$
|
14,898,038
|
|
|
$
|
—
|
|
Notes Payable Assumed for Segundo Acquisition
|
|
$
|
30,595,256
|
|
|
$
|
—
|
|
Accounts Receivable Assumed for Segundo Acquisition
|
|
$
|
635,482
|
|
|
$
|
—
|
|
Debt discounts on Notes Payable, Long-Term Notes Payable and Convertible Notes Payable
|
|
$
|
3,376,900
|
|
|
$
|
—
|
|
Issuance of Restricted Common Stock for Dreeben Loan
|
|
$
|
48,000
|
|
|
$
|
—
|
|
Conversion of Convertible Notes in Common Stock
|
|
$
|
1,445,669
|
|
|
$
|
—
|
|
Conversion of Preferred Stock to Common Stock
|
|
$
|
1,093,900
|
|
|
$
|
—
|
|
Stock Dividends
Distributable but not Issued
|
|
$
|
852,516
|
|
|
$
|
—
|
|
NOTE 12 – SUBSEQUENT EVENTS
On January 3, 2017, we filed an
amendment to our Articles of Incorporation with the Secretary of State of Nevada to change our name to “Camber Energy, Inc.”
The name change was previously approved by our majority shareholders via a written consent to action without a meeting on December
16, 2016.
On January 3, 2017, Camber entered
into a Lease Acquisition and Participation Agreement with a privately-held, Houston, Texas-based oil and gas holding company (“Partner”)
to acquire a leasehold position in the Permian Basin in Texas, where we agreed to acquire an initial leasehold comprised of 16,300
gross, 3,600 net, mineral acres in consideration for $1.43 million, and have agreed to form an area of mutual interest on the Central Basin Platform of the Permian Basin covering approximately seventy thousand (70,000) acres. The Company will operate
the properties and own a 90% working interest and the Partner will hold a 10% working interest in acquired leases. The Company
intends to target development in the oil producing San Andres formation. The transaction closed on January 31, 2017.
On January 5, 2017, the Investor
converted 21 shares of Series C Preferred Stock (equal to a face value of $210,000), and was due 64,616 shares of common stock
and an additional 657,196 shares of common stock in dividend premium shares for a total of 721,821 shares of common stock. Due
to the recent decline in the price of our common stock and the trigger event that occurred on June 30, 2016 as a result of the
delay in filing our Annual Report on Form 10-K for the year ended March 31, 2016, the dividend premium rate of our Series C Preferred
Stock increased from 6% to 31% and the conversion discount became 85% of the lowest daily volume weighted average price during
the measuring period, less $0.10 per share of common stock not to exceed 85% of the lowest sales prices on the last day of such
period less $0.10 per share. The measuring period continues until the date ending 60 days after the shares described in the initial
conversion notice are received into the Investors brokerage account. A total of 1,067,600 shares were issued to the Investor on
December 23, 2016.
On January 9, 2017, the Company
paid the required dividend on the Series B Preferred Stock by way of the issuance of 82,674 shares of our common stock to the preferred
shareholders at a fair market value of $102,516, based on the closing price of the Company’s common stock ($1.24 per share)
on December 30, 2016.
On January 23, 2017, the Investor
converted an additional 21 shares of the Series C Preferred stock (equal to a face value of $210,000), and was due 64,616 shares
of common stock and an additional 780,694 shares of common stock in dividend premium shares for a total of 845,310 shares. Due
to the continued decline in the price of our common stock the dividend premium rate increased further to 34%.
On January 24, 2017, we
entered into a Third Amendment to Asset Purchase Agreement (the “Third Amendment”) amending that certain Asset Purchase
Agreement dated December 31, 2015. Pursuant to the Third Amendment, the parties agreed to amend a post-closing covenant under the
original Asset Purchase Agreement to remove the requirement that one of the directors serving on the Company’s board of directors
resign within six months of the closing of the Acquisition.
On January 31, 2017,
we entered into an amendment to the Rogers Loan, pursuant to which the parties agreed to extend the maturity date from
January 31, 2017 to April 30, 2017. We also agreed to pay $9,000 to Ms. Rogers and $9,000 to Robertson Global Credit, LLC,
the servicer of the Rogers Loan, in connection with our entry into the amendment.
On
January 31, 2017, we borrowed $1,000,000 from Alan Dreeben, one of the Company’s directors, pursuant to a short-term
promissory note. The short-term promissory note has a principal balance of $1,050,000 (the $1,000,000 principal amount
borrowed plus a $50,000 original issue discount), accrues interest at 6% per annum and has a maturity date of January 31, 2018
and contains standard and customary events of default. As additional consideration for Mr. Dreeben agreeing to make the loan,
we agreed to issue Mr. Dreeben 40,000 restricted shares of common stock (which had not been issued as of the date of this
report or included in the number of issued and outstanding shares disclosed herein).