Our consolidated financial
statements as of and for the fiscal years ended March 31, 2020 and 2019 have been audited by Marcum LLP, independent registered
public accounting firm, and have been prepared in accordance with generally accepted accounting principles pursuant to Regulation
S-X.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
See accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – Organization and Operations of the Company
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,
including the Cline shale and upper Wolfberry shale in Glasscock County, 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
12 - 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 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 12 - 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 (see further discussion in “Note 2 – Liquidation
and Going Concern Considerations”). Additionally, 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 March 31, 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 will be 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 is expected to occur shortly. 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
10 – Commitments and Contingencies” – “Legal Proceedings”.
On
February 3, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) 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 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 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 25% of Viking’s subsidiary Elysium Energy,
LLC (“Elysium”) as part of a $5,000,000 investment in Viking’s Rule 506(c) offering, which transaction
was completed on February 3, 2020. 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.
Note
2 – Liquidity and Going Concern Considerations
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, while at March 31, 2019, the Company’s total current assets
of $8.2 million exceeded its total current liabilities of approximately $2.1 million, resulting in working capital of $6.1 million.
The reduction from working capital of $6.1 million to a working capital deficit of $0.9 million is due to losses from continuing
operations, costs incurred with the Lineal merger and ultimate divestiture with Lineal as discussed below under “Note
12 - Merger Agreement and Divestiture”, and $7.3 million of advances on long-term notes receivable relating to amounts
loaned to Lineal and advanced to Viking, as discussed in greater detail above under “Note 1 - Organization and Operations of the Company”.
Additionally, recent
oil and gas price volatility as a result of geopolitical conditions and the global COVID-19 pandemic have already had, and are
expected to continue to 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 ability 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 calendar quarter 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 March 31, 2020.
During the years ended
March 31, 2020 and 2019, the Company sold 525 shares and 1,577 shares, respectively, of Series C Preferred Stock pursuant to the
terms of various Stock Purchase Agreements, for total proceeds of $5 million and $15 million, respectively.
N&B Energy Asset Disposition Agreement
On July 12, 2018, the
Company entered into an Asset Purchase Agreement (as amended by the First Amendment to the Sale Agreement dated August 3, 2018
and the Second Amendment to Sale Agreement dated September 24, 2018, the “Sale Agreement”), as seller, with
N&B Energy as purchaser, which entity is affiliated with Richard N. Azar II, the Company’s former Chief Executive Officer
and former director (“Azar”), and Donnie B. Seay, the Company’s former director (“Seay”).
Pursuant to the Sale Agreement, the Company agreed to sell to N&B Energy a substantial portion of its assets, including all
of the assets acquired pursuant to the terms of the December 31, 2015 Asset Purchase Agreement and certain other acquisitions,
other than the production payment and overriding royalty interests discussed below (the “Disposed Assets”).
In consideration for the Disposed Assets, N&B Energy agreed to pay the Company $100 in cash to assume the Company’s liabilities
and contractual obligations in connection with the Disposed Assets (including lease and bonus payments), to assume all of the Company’s
obligations and debt owed under its outstanding loan agreement with International Bank of Commerce (“IBC Bank”),
which had a then outstanding principal balance of approximately $36.9 million and the other parties agreed to enter into a settlement
agreement.
Assumption Agreement
On September 26, 2018,
the Company entered into an Assumption Agreement (the “Assumption Agreement”) with IBC Bank; CE Operating,
LLC, the Company’s wholly-owned subsidiary (“CE Operating”), which became a party to the Sale Agreement
pursuant to the second amendment thereto; N&B Energy; Azar; RAD2 Minerals, Ltd., an entity owned and controlled by Azar (“RAD2”);
Seay; and DBS Investments, Ltd., an entity owned and controlled by Seay. Azar, Seay, RAD2, and DBS are collectively referred to
as the “Guarantors”.
Pursuant to the Assumption
Agreement, N&B Energy agreed to assume all of the Company’s liabilities and obligations owed to IBC Bank and IBC Bank
approved the transactions contemplated by the Sale Agreement and the assumption by N&B Energy of all of the amounts and liabilities
which the Company owed to IBC Bank (collectively, the “IBC Obligations”). Finally, pursuant to the Assumption
Agreement, IBC Bank released and forever discharged the Company and CE Operating and each of their current and former officers,
directors, and stockholders, from all covenants, agreements, obligations, claims and demands of any kind, whether in law or at
equity, which IBC Bank then had, arising out of or related to the amounts which the Company owed to IBC Bank under the Note, Loan
Agreement or mortgages and/or under such documents or agreements, and further agreed to release the lien which IBC Bank then held
on certain of the Company’s properties located in west Texas.
N&B Energy Sale Agreement Closing
On September 26, 2018,
the transactions contemplated by the Sale Agreement closed and N&B Energy assumed all of the IBC Obligations (pursuant to the
Assumption Agreement described above) and paid the Company $100 in cash, and the Company transferred ownership of the Assets
to N&B Energy.
Notwithstanding the
sale of the Assets, the Company retained its assets in Glasscock and Hutchinson Counties, Texas and 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 prior Okfuskee
County, Oklahoma assets; and retained an overriding royalty interest on certain other undeveloped leasehold interests, pursuant
to an Assignment of Production Payment and Assignment of Overriding Royalty Interests.
The effective date
of the Sale Agreement was August 1, 2018. The Assets were assigned “as is” with all faults.
As a result of the
Assumption Agreement and the Sale Agreement, the Company reduced its liabilities by $37.9 million and its assets by approximately
$12.1 million.
The following table
summarizes the net assets sold and gain recognized in connection with the Assumption Agreement and Sale Agreement:
|
|
Transaction
Summary
|
|
Assumption of IBC Bank Loan
|
|
$
|
36,943,617
|
|
Assumption of ARO Liability
|
|
|
699,536
|
|
Assumption of Capital Lease Obligations and Other
|
|
|
287,074
|
|
Cash Received at Closing
|
|
|
100
|
|
Oil and Gas Properties Transferred
|
|
|
(12,122,081
|
)
|
Total Gain on Sale
|
|
$
|
25,808,246
|
|
Note
3 – Summary of Significant Accounting Policies
Principles of Consolidation
The financial statements of Camber Energy include the accounts of
its wholly-owned subsidiaries, Camber Permian LLC, a Texas limited liability company, which is wholly-owned, CE Operating, LLC,
an Oklahoma limited liability company, which is wholly-owned, and C E Energy LLC, a Texas limited liability company, which is wholly-owned,
and which will be assigned to PetroGlobe shortly after the date of this report, as discussed below under “Note
10 – Commitments and Contingencies” – “Legal Proceedings”. All material intercompany accounts and transactions have been eliminated in
consolidation.
Reclassifications
Certain reclassifications
have been made to the prior year financial statements to conform them with the current year presentation. These reclassifications
had no effect on the reported results of operations.
Use of Estimates
The preparation of
financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Camber’s financial
statements are based on a number of significant estimates, including oil and natural gas reserve quantities which are the basis
for the calculation of depreciation, depletion and impairment of oil and natural gas properties, and timing and costs associated
with its asset retirement obligations, as well as those related to the fair value of stock options, stock warrants and stock issued
for services. While the Company believes that its estimates and assumptions used in preparation of the financial statements are
appropriate, actual results could differ from those estimates.
Cash and Cash Equivalents
Cash
and cash equivalents include cash in banks and financial instruments which mature within three months of the date of purchase.
The Company maintains cash and cash equivalents in bank deposit accounts, which at times may exceed federally insured limits of
$250,000. At March 31, 2020 and 2019, the Company’s cash in excess of the federally insured limit was $399,833 and $7,463,944,
respectively. Historically, the Company has not experienced any losses in such accounts. The Company had no cash equivalents at
March 31, 2020 or 2019, respectively.
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 Sale Agreement. 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 March 31, 2020 and March 31, 2019, there were allowances for doubtful accounts of approximately $208,000
and $190,000, respectively, included in accounts receivable, and there were bad debts of $17,694 and $0, recognized for the years
ended March 31, 2020 and 2019, respectively.
Notes Receivable
Notes receivable includes
the $5,000,000 note 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 12 – Merger Agreement and Divestiture”.
As of March 31, 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 years
ended March 31, 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 25% in interest in Elysium Energy, LLC, which is involved
in oil and gas exploration and production in the United States. The balance sheet of Elysium Energy, 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.
Additionally, the income statement for Elysium Energy, LLC for the period from February 3, 2020 (the date of investment) through
March 31, 2020 included total revenues of $4.0 million and net income of $3.8 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. The Company recognized goodwill during the
three months ended September 30, 2019 in conjunction with the Lineal Merger, which was written off during the quarter ended December
31, 2019 as a result of the Lineal Divestiture as discussed in “Note 12 – Merger Agreement
and Divestiture”.
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.
Oil and Gas Services
Revenue
The majority of Lineal’s oil and gas
service revenue is derived from contracts and projects that typically span between 3 to 12 months. The oil and gas service contracts
have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable
from other promises in the contracts and, therefore, not distinct.
Lineal’s construction
contracts are recognized over time because of the continuous transfer of control to the customer as all of the work is performed
at the customer’s site and, therefore, the customer controls the asset as it is being constructed. Contract costs include
labor, material, and indirect costs. Accounting for long-term contracts and programs involves the use of various techniques to
estimate total contract revenue and costs. For long-term contracts, Lineal estimates the profit on a contract as the difference
between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract.
Contract estimates
are based on various assumptions to project the outcome of future events. These assumptions include labor productivity and availability,
the complexity of the work to be performed, the cost and availability of materials, and the performance of subcontractors.
The timing of revenue
recognition, billings and cash collections results in billed accounts receivable and costs and estimated earnings in excess of
billings on uncompleted contracts (contract assets) on the consolidated balance sheet. On Lineal’s construction contracts,
amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly
or monthly) or upon achievement of contractual milestones. Generally, billing occurs prior to revenue recognition, resulting in
contract liabilities. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis
at the end of each reporting period.
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.
|
|
●
|
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
March 31, 2020 and March 31, 2019, the significant inputs to the Company’s derivative liability and mezzanine equity calculations
were Level 3 inputs.
Concentration of Credit Risk
The Company generally
sells a significant portion of its oil and gas production to a relatively small number of customers. For the year ended March
31, 2020, the Company’s consolidated revenues were from the sale of oil, gas and natural gas liquids under marketing contracts
primarily with Apache Corporation. For the year ended March 31, 2019, the Company’s consolidated revenues were from the sale of
oil, gas and natural gas liquids under marketing contracts primarily with Superior Pipeline Company, Scissortail Energy, LLC and
Apache Corporation. The Company has alternative purchasers available at competitive market prices if there is disruption in services
or other events that cause the Company to search for other ways to sell the Company’s production.
During the year ended
March 31, 2020, one customer accounted for 92% of total revenues. During the year ended March 31, 2019, three customers accounted
for 84% of total revenues. The Company does not believe the loss of any customer will have a material effect on the Company because
alternative customers are readily available.
Oil and Natural Gas Properties, Full
Cost Method
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 their 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.
Ceiling Test
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% 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. If capitalized costs exceed this limit, the
excess is charged as an impairment expense.
During the year ended
March 31, 2020, no impairments were recorded. During the year ended March 31, 2019, the Company recorded impairments totaling $1.3
million that were primarily related to unproved properties due to expirations of leaseholds.
Asset Retirement Obligations
The Company records
the fair value of a liability for asset retirement obligations (“ARO”) in the period in which it is incurred
and a corresponding increase in the carrying amount of the related long-lived asset. The present value of the estimated asset retirement
cost is capitalized as part of the carrying amount of the long-lived asset and is depreciated over the useful life of the asset.
Camber accrues an abandonment liability associated with its oil and natural gas wells when those assets are placed in service.
The ARO is recorded at its estimated fair value and accretion is recognized over time as the discounted liability is accreted to
its expected settlement value. Fair value is determined by using the expected future cash outflows discounted at Camber’s
credit-adjusted risk-free interest rate. No market risk premium has been included in Camber’s calculation of the ARO balance.
Other Property and Equipment
Other property and
equipment are stated at cost and consist primarily of furniture and computer equipment. Depreciation is computed on a straight-line
basis over the estimated useful lives.
Income Taxes
Deferred income taxes
are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating
losses and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and accrued tax liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
Camber has evaluated
and concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements
as of March 31, 2020 and 2019. The Company’s policy is to classify assessments, if any, for tax related interest expense
and penalties as interest expense.
Earnings per Common Share
Basic and diluted income
(loss) per share calculations are calculated on the basis of the weighted average number of shares of the Company’s common
stock outstanding during the year. Diluted earnings per share give effect to all dilutive potential common shares outstanding during
the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted
earnings per share, the average stock price for the period is used to determine the number of shares assumed to be purchased from
the exercise price of the options and warrants. Purchases of treasury stock reduce the outstanding shares commencing on the date
that the stock is purchased. Common stock equivalents are excluded from the calculation when a loss is incurred as their effect
would be anti-dilutive.
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.
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 2020 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 11 – Revenue from Contracts with Customers” for additional information.
In November 2016, the
Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) amending
the presentation of restricted cash within the consolidated statements of cash flows. The new guidance requires that restricted
cash be added to cash and cash equivalents on the consolidated statements of cash flows. The Company adopted this ASU on April 1,
2018.
In August 2016, the
FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 seeks to reduce the existing diversity in practice in
how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update is effective
for fiscal years beginning after December 15, 2017. The Company adopted this ASU on April 1, 2018 and the adoption did not have
a significant impact to the Company’s consolidated financial statements.
In January 2017, the
FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which amends the current definition
of a business. Under ASU 2017-01, to be considered a business, an acquisition would have to include an input and a substantive
process that together significantly contributes to the ability to create outputs. ASU 2017-01 further states that when substantially
all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired
would not represent a business. The new guidance also narrows the definition of the term “outputs” to be consistent
with how it is described in Topic 606, Revenue from Contracts with Customers. The changes to the definition of a business
will likely result in more acquisitions being accounted for as asset acquisitions. The guidance is effective for the annual period
beginning after December 15, 2017, with early adoption permitted. The Company adopted this ASU on April 1, 2018 and the adoption
did not have a significant impact to the Company’s consolidated financial statements.
In May 2017, the FASB
issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting”, which provides
guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification
accounting in Topic 718. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, with early adoption permitted,
including adoption in any interim period for which financial statements have not yet been issued. The Company adopted this ASU
on April 1, 2018 and the adoption did not have a significant impact to the Company’s consolidated financial statements.
In February 2016, the
FASB issued 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.
Effective
January 1, 2020, the Company adopted the Financial Accounting Standards Board’s update, Financial Instruments – Credit
Losses (Topic 326), as amended. The standard requires a valuation allowance for credit losses be recognized for certain financial
assets that reflects the current expected credit loss over the asset’s contractual life. The valuation allowance considers
the risk of loss, even if remote, and considers past events, current conditions and expectations of the future. The standard did
not have a material impact on the Company’s 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 $1.30 and $1.18 per barrel of oil equivalent for the year ended March 31, 2020 and 2019, respectively.
All of Camber’s
oil and natural gas properties are located in the United States. Costs being amortized at March 31, 2020 and 2019 are as follows:
|
|
March 31,
2020
|
|
March 31,
2019
|
|
Oil and gas properties subject to amortization
|
|
$
|
50,352,033
|
|
$
|
50,352,306
|
|
Oil and gas properties not subject to amortization
|
|
|
28,016,989
|
|
|
28,016,989
|
|
Capitalized asset retirement costs
|
|
|
91,850
|
|
|
176,649
|
|
Total oil & natural gas properties
|
|
|
78,460,872
|
|
|
78,545,944
|
|
Accumulated depreciation, depletion, and impairment
|
|
|
(78,350,605
|
)
|
|
(78,333,628
|
)
|
Net Capitalized Costs
|
|
$
|
110,267
|
|
$
|
212,316
|
|
Impairments
For the year ended
March 31, 2020, the Company recorded no impairments. For the year ended March 31, 2019, the Company recorded impairments totaling
$1,304,785, which were due to lease expirations.
Additions and Depletion
During the years ended
March 31, 2020 and 2019, the Company incurred costs of approximately $0 and $2.1 million, respectively, for technical and other
capital enhancements to extend the lives of the Company’s wells. Additionally, the Company recorded $16,977 and $473,521
for depletion for the years ended March 31, 2020 and 2019, respectively.
Disposition of Oil and Natural Gas Properties
On July 12, 2018, the
Company entered into the Sale Agreement, as seller, with N&B Energy as purchaser. Pursuant to the Sale Agreement, the Company
agreed to sell to N&B Energy a substantial portion of its assets, including all of the assets acquired pursuant to the terms
of the December 31, 2015 Asset Purchase Agreement and certain other acquisitions, other than a production payment and overriding
royalty interests (the “Disposed Assets”). In consideration for the Disposed Assets, N&B Energy agreed to
pay the Company $100 in cash, to assume all of the Company’s obligations and debt owed under its outstanding loan agreement
with IBC Bank, which had a then outstanding principal balance of approximately $36.9 million, and certain other parties agreed
to enter into a settlement agreement. The transaction closed in September 2018.
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 below in “Note 12 – 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 (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 25% of Viking’s subsidiary Elysium Energy, LLC (“Elysium”) as part
of a $5,000,000 investment in Viking’s Rule 506(c) offering, which transaction was completed on February 3, 2020, as discussed
below and an additional 5% of Elysium as part of a $4,200,000 investment in Viking’s Rule 506(c) offering, which transaction
was completed on June 25, 2020 (as discussed below under “Note 19 – Subsequent Events”.
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
|
The reasonable likelihood that the combined company will not meet the initial listing requirements of the NYSE American, required regulatory approvals will not be obtained, or the registration statement on Form S-4 will not be declared effective, through no fault of Camber or Viking
|
20%*
|
Termination of the Merger Agreement by either party, through no fault of Camber
|
25%*
|
Termination of the Merger Agreement due to a material breach of the Merger Agreement by Camber or its disclosure schedules
|
0%*
|
Termination of the Merger Agreement for any reason and 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 “SPA”). On February 3, 2020, the
Company and Discover entered into a Stock Purchase Agreement pursuant to which Discover purchased 525 shares of Series C
Preferred Stock, for $5 million, at a 5% original issue discount to the $10,000 face value of such preferred stock. Pursuant
to the 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 “Secured Note”). The
Secured Note is secured by a security interest, para passu with the other investors in Viking’s Secured Note offering
(subject to certain pre-requisites) in Viking’s then 75% ownership of Elysium and 100% of Ichor Energy Holdings, LLC,
which is wholly-owned by Viking. Additionally, pursuant to a separate Security and Pledge Agreement entered into on February
3, 2020, Viking provided the Company 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
Note.
The Secured Note
is 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 Note is no longer
convertible), provided that the Company is restricted from converting any portion of the Secured Note 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%).
As additional consideration
for the Company making the loan to Viking, Viking assigned the Company a 25% interest in Elysium pursuant to the terms of an Assignment
of Membership Interests dated February 3, 2020.
Subsequently, on June 25, 2020, as discussed in greater detail below under “Note 19 – Subsequent Events”, the Company loaned an additional $4.2 million to Viking evidenced by another Secured
Note (such $9.2 million in aggregate outstanding Secured Notes, the “Secured Notes”).
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 25% of Elysium as of March 31, 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 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 period from February 3, 2020 (the date acquired) through March 31, 2020 included total revenues
of $4.0 million and net income of $3.8 million.
Table below shows the
changes in the Investment in entities for the years ended March 31, 2020 and 2019, respectively:
|
|
2020
|
|
|
2019
|
|
Carrying amount at beginning of year
|
|
$
|
—
|
|
|
$
|
—
|
|
Investment in Elysium
|
|
|
—
|
|
|
|
—
|
|
Proportionate Share of Elysium Earnings
|
|
|
957,169
|
|
|
|
—
|
|
Carrying amount at end of year
|
|
$
|
957,169
|
|
|
$
|
—
|
|
NOTE
6 – LONG-TERM NOTES RECEIVABLE
Long-term notes receivable as of March 31,
2020 and 2019 are comprised of:
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
Note receivable from Viking Energy Group, Inc. pursuant to a 10.5% Secured Promissory Note dated February 3, 2020 in the original principal amount of $5,000,000, 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 $83,425 is included in accounts receivable at March 31, 2020. The Note is secured by secured interests in 6 Viking Energy Group, Inc. subsidiaries. See also “Note 5 – Plan of Merger and Investment in Unconsolidated Entity”.
|
|
$
|
5,000,0000
|
|
|
$
|
—
|
|
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 $37,966 included in accounts receivable at March 31, 2020. See also “Note 12 - Merger Agreement and Divestiture”.
|
|
|
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 $15,781 included in accounts receivable at March 31, 2020. See also “Note 12 - Merger Agreement and Divestiture”.
|
|
|
800,000
|
|
|
|
—
|
|
Less: current maturities
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
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 years ended March 31, 2020 and 2019:
|
|
2020
|
|
|
2019
|
|
Carrying amount at beginning of year
|
|
$
|
303,809
|
|
|
$
|
979,159
|
|
Payments
|
|
|
(149,910
|
)
|
|
|
—
|
|
Accretion
|
|
|
2,920
|
|
|
|
4,725
|
|
Dispositions
|
|
|
—
|
|
|
|
(699,536
|
)
|
Revisions of previous estimates
|
|
|
(85,069
|
)
|
|
|
19,461
|
|
Carrying amount at end of year
|
|
$
|
71,750
|
|
|
$
|
303,809
|
|
Camber has short-term obligations of $30,227
and $0 related to the plugging liabilities at March 31, 2020 and 2019, respectively.
NOTE
8 – NOTES PAYABLE AND DEBENTURE
The Company had no notes payable or debenture
outstanding as of March 31, 2020 2019.
Debenture
On October 31, 2018,
an accredited institutional investor, Discover Growth Fund LLC (“Discover”) converted the entire $495,000
remaining balance of principal owed under the terms of a convertible debenture which it held, into an aggregate of 642 shares of
common stock, including 5 shares of common stock issuable upon conversion of the principal amount thereof (at a conversion price
of $101,562.50 per share), and 637 shares in connection with conversion premiums due thereon (at an initial conversion price, as
calculated as provided in such debenture, of $1,912.50 per share). A total of 80 of such shares were issued to Discover in connection
with the initial conversion and the remaining shares were held in abeyance subject to Discover’s 9.99% ownership limitation,
to be issued from time to time, at the request of Discover. Subsequent to the October 31, 2018 conversion date, Discover was due
an additional 38,116 shares of common stock in connection with true ups associated with the original issuance, as a result of the
conversion price of the conversion premiums falling to $31.25 per share pursuant to the terms of the convertible debenture. Through
March 31, 2020, all of the shares have been issued.
NOTE
9 – DERIVATIVE LIABILITIES
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 years ended March 31, 2020 and 2019 were as follows:
|
|
2020
|
|
|
2019
|
|
Carrying amount at beginning of period
|
|
$
|
5
|
|
|
$
|
5
|
|
Change in fair value
|
|
|
(5
|
)
|
|
|
—
|
|
Carrying amount at end of period
|
|
$
|
—
|
|
|
$
|
5
|
|
The fair value of the
derivative warrants was calculated using the Black-Scholes pricing model. Variables used in the Black Scholes pricing model as
of March 31, 2019 include (1) discount rate of 2.20%, (2) expected term of 0.10 years, (3) expected volatility of
253.77%, and (4) zero expected dividends.
As of March 31, 2020, the
Company had 2,294 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
10 – 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.
During March and April
2018, the Company purchased certain equipment pursuant to capital leases. The effective borrowing rate was approximately 35%, and
all obligations were due by December 2018. In conjunction with the assignment of the liabilities owed under the IBC Bank loan agreements
to N&B Energy in September 2018, as discussed under “Note 2 – Liquidity and Going Concern
Considerations” – “Assumption Agreement” all of the remaining obligations were assumed by the
purchaser.
Lineal (which as of
December 31, 2019 has been completely divested in connection with the Lineal Divestiture discussed in “Note
12 – 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 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 is 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.
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, which is expected to close shortly after the date of this report.
The Company has since brought the applicable wells into regulatory
compliance to the extent such compliance was required by the Railroad Commission of Texas and the Company is in the process of
assigning to 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, which is expected to be completed shortly after the date of this report.
The Company also plans to assign all of its membership interests in CE to Petrolia shortly after the date of this report.
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 has filed a general denial to the claims and asserted the affirmative defense of failure to mitigate.
The parties are currently moving towards discovery. The Company denies Apache’s claims and intends to vehemently defend itself
against the allegations.
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 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 settle the matter with N&B Energy through binding arbitration.
NOTE
11 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Oil and Gas Contracts
The following table
disaggregates revenue by significant product type for the years ended March 31, 2020 and 2019, respectively:
|
|
2020
|
|
|
2019
|
|
Oil sales
|
|
$
|
296,036
|
|
|
$
|
526,365
|
|
Natural gas sales
|
|
|
37,049
|
|
|
|
772,105
|
|
Natural gas liquids sales
|
|
|
64,033
|
|
|
|
1,443,632
|
|
Total oil and gas revenue from customers
|
|
$
|
397,118
|
|
|
$
|
2,742,102
|
|
NOTE
12 – 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, as described in greater detail below.
In connection with
the Lineal Plan of Merger, the Company entered into several other agreements, including (a) a Security Exchange Agreement
dated July 8, 2019 (the “Exchange Agreement”), by and between the Company and Discover; (b) a Termination
Agreement dated July 8, 2019, by and between the Company and Discover Growth Fund, which purchased shares of Series C Preferred
Stock from us in December 2018 (“Discover Growth”, which subsequently transferred all of its shares of Series
C Preferred Stock to Discover); and (c) a Funding and Loan Agreement dated July 8, 2019, by and among the Company, Lineal,
and certain of the Lineal Members who also acquired shares of the Company’s preferred stock as a result of the Lineal Merger
(the “Funding Agreement”), which provided for the Company to loan $1,050,000 to Lineal, which loan was evidenced
by a Promissory Note entered into by Lineal, as borrower, in favor of the Company, as lender, dated July 8, 2019 (the “July
2019 Lineal Note”).
Also as part of the
Lineal Merger, the Company designated three new series of preferred stock, (1) Series D Convertible Preferred Stock (the “Series
D Preferred Stock” and the certificate of designations setting forth the rights thereof, the “Series D Designation”);
(2) Series E Redeemable Convertible Preferred Stock (the “Series E Preferred Stock” and the certificate
of designation setting forth the rights thereof (the “Series E Designation”); and (3) Series F Redeemable
Preferred Stock (the “Series F Preferred Stock” and the certificate of designation setting forth the rights
thereof, the “Series F Designation”, and the Series E Preferred Stock and the Series F Preferred Stock, collectively,
the “Series E and F Preferred Stock”). Additionally, with the approval of the holders thereof, the Company amended
and restated the designation of its Series C Redeemable Convertible Preferred Stock (the “Series C Preferred Stock”
and the amended and restated designation setting forth the rights thereof, the “Series C Designation”).
The Lineal Plan of
Merger, Series D Designation and Series E Designation, provided that, effective upon the date that the stockholders of the Company
had approved the Lineal Plan of Merger and issuance of shares in connection therewith (the “Stockholder Approval”
and such date of Stockholder Approval, the “Stockholder Approval Date”), and subject to certain closing conditions,
(a) the common stock holders of the Company were to hold between 6% and 6.67% of the Company’s fully-diluted capitalization
(depending on certain factors); (b) Discover was to hold Series D Preferred Stock convertible into 26.67% of the Company’s
fully-diluted capitalization, subject to the terms of the Series D Preferred Stock; and (c) the Lineal Members, who
held the Series E Preferred Stock, were to have the right to convert such Series E Preferred Stock, subject to the terms thereof,
as discussed above, into 66.67% of the Company’s fully-diluted capitalization, or 70%, subject to certain factors.
Pursuant to the Lineal
Plan of Merger, Merger Sub merged with and into Lineal, with Lineal continuing as the surviving entity in the Lineal Merger and
as a wholly-owned subsidiary of the Company.
The Funding Agreement
required the Company to fund $1,050,000 in immediately available funds to Lineal (the “Loan”). The Loan was
documented by the July 2019 Lineal Note and the Loan was made on July 9, 2019.
The consideration paid
for the acquisition was as follows:
Series E Preferred Shares
|
|
$
|
18,701,000
|
|
Series F Preferred Shares
|
|
|
1,417,000
|
|
Total consideration
|
|
$
|
20,118,000
|
|
The Series E Preferred
Shares and the Series F Preferred Shares were determined to be contingently redeemable preferred stock and were accounted for as
mezzanine equity. The fair value of the instruments was determined using an income valuation approach to estimated cash flows of
the acquired business, analysis of the terms and rights of each class of equity instrument issued by the Company and an assessment
of the probability of the various scenarios that could occur depending on the outcome of the Stockholder Approval vote, and the
impact each scenario would have on the capital structure of the Company. Subsequent to the date of the Lineal Merger, the instruments
will be assessed to determine whether it is probable of the instruments being redeemed as a result of contingencies being resolved.
When it is deemed probable, the fair value will be adjusted to the new estimate of fair value in that period.
The allocation of the
preliminary purchase price to the assets and liabilities acquired in connection with the Lineal Merger was based on the current
values of the assets and liabilities of Lineal as of the Lineal Merger date on July 8, 2019 and are as follows:
Cash
|
|
$
|
449,763
|
|
Accounts receivable
|
|
|
2,776,477
|
|
Deferred tax assets
|
|
|
34,000
|
|
Cost in excess of billings
|
|
|
944,250
|
|
Property and equipment
|
|
|
1,436,920
|
|
Right of use asset – operating leases
|
|
|
913,396
|
|
Other current assets and deposits
|
|
|
60,132
|
|
Goodwill
|
|
|
17,992,118
|
|
Accounts payable – trade
|
|
|
(400,889
|
)
|
Accrued and other liabilities
|
|
|
(893,013
|
)
|
Operating lease liabilities
|
|
|
(913,396
|
)
|
Finance lease liabilities
|
|
|
(313,472
|
)
|
Loan Payable – shareholder
|
|
|
(492,337
|
)
|
Notes payable
|
|
|
(1,475,949
|
)
|
Net assets acquired
|
|
$
|
20,118,000
|
|
The total purchase
price was allocated to the acquired tangible and intangible assets and liabilities of Lineal based on their estimated fair values
as of the purchase closing date. The excess of the purchase price over the fair value of assets and liabilities acquired was allocated
to goodwill.
Divestiture
On December 31, 2019,
the Company entered into, and closed the transactions contemplated by the Redemption Agreement, by and between the Company, Lineal
and the Preferred Holders.
Pursuant to the Redemption
Agreement, 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 March 31, 2020,
$53,746 of interest related to the December 2019 Lineal Note and Lineal Note No. 2 was accrued and included in the consolidated
balance sheet in Accounts Receivable.
The divestiture resulting
from the Redemption Agreement qualifies as a discontinued operation in accordance with U.S. generally accepted accounting principles
(“GAAP”). As a result, operating results and cash flows related to the Lineal operations have been reflected
as discontinued operations in the Company’s consolidated statements of operations and consolidated statements of cash flows
for the periods presented.
The net consideration
received for the divestiture was as follows:
Return of Series E Preferred Shares
|
|
$
|
14,666,000
|
|
Return of Series F Preferred Shares
|
|
|
2,434,000
|
|
Total net consideration
|
|
$
|
17,100,000
|
|
The fair value of the
instruments immediately prior to the divestiture was determined using an income valuation approach to estimate cash flows of the
acquired business, analysis of the terms and rights of each class of equity instrument issued by the Company and an assessment
of the probability of the various scenarios that could occur depending on the outcome of the Stockholder Approval vote, and the
impact each scenario would have on the capital structure of the Company. Immediately prior to the Lineal Disposition, the Company
recognized a gain on the change in fair value of the Series E and F Preferred Shares of $3,018,000, included within net loss from
discontinued operations.
The following table
summarizes the assets and liabilities of Lineal which were transferred from the Company to the Preferred Holders, together with
Lineal, as part of the Redemption agreement:
Cash
|
|
$
|
2,101,879
|
|
Accounts receivable
|
|
|
1,673,538
|
|
Deferred tax assets
|
|
|
34,000
|
|
Cost in excess of billings
|
|
|
497,340
|
|
Property and equipment
|
|
|
1,996,229
|
|
Right of use asset – operating leases
|
|
|
710,898
|
|
Other current assets and deposits
|
|
|
49,275
|
|
Goodwill
|
|
|
18,314,222
|
|
Accounts payable – trade
|
|
|
(260,882
|
)
|
Accrued and other liabilities
|
|
|
(369,448
|
)
|
Billings in excess of costs
|
|
|
(445,759)
|
|
Operating lease liabilities
|
|
|
(710,898
|
)
|
Finance lease liabilities
|
|
|
(237,925
|
)
|
Notes payable
|
|
|
(3,545,841
|
)
|
Net assets divested
|
|
$
|
19,806,628
|
|
As a result of the
above, the Company recognized a loss on the disposal of the Lineal operations of $2,706,628 included within net loss from discontinued
operations.
Components of amounts
reflected in the Company’s consolidated statements of operations related to discontinued operations are presented in the
following table for the year ended March 31, 2020.
|
|
Year Ended
|
|
|
|
March 31, 2020
|
|
Contract revenue
|
|
$
|
9,106,764
|
|
Contract costs
|
|
|
(7,772,726
|
)
|
Depreciation and amortization
|
|
|
(155,282
|
)
|
Selling, general and administrative
|
|
|
(1,649,643
|
)
|
Operating loss
|
|
|
(470,887
|
)
|
Other income
|
|
|
273,037
|
|
Interest expense
|
|
|
(113,522
|
)
|
Net (loss) from discontinued operations
|
|
|
(311,372
|
)
|
Loss on disposal of business
|
|
|
(2,706,628
|
)
|
Change in value of preferred stock
|
|
|
3,018,000
|
|
Total loss on discontinued operations
|
|
$
|
—
|
|
NOTE
13 – INCOME TAXES
The Company recorded
a provision for income taxes of approximately $0 and $3,000 for the years ended March 31, 2020 and March 31, 2019, respectively.
|
|
2020
|
|
|
2019
|
|
Current taxes:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
—
|
|
|
|
3,000
|
|
|
|
|
—
|
|
|
|
3,000
|
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
3,000
|
|
The following is a
reconciliation between actual tax expense (benefit) and income taxes computed by applying the U.S. federal income tax rate of 21%
to income from continuing operations before income taxes for the years ended March 31, 2020 and 2019:
|
|
2020
|
|
|
2019
|
|
Tax expense (benefit), computed at expected tax rates
|
|
$
|
(809,941
|
)
|
|
$
|
3,495,692
|
|
Nondeductible expenses
|
|
|
3,298
|
|
|
|
77,473
|
|
State taxes net of FIT benefit
|
|
|
—
|
|
|
|
2,370
|
|
Return to accrual true-up
|
|
|
—
|
|
|
|
1,490,624
|
|
Change in valuation allowance
|
|
|
806,643
|
|
|
|
(5,063,159
|
)
|
Total
|
|
$
|
—
|
|
|
$
|
3,000
|
|
Tax effects of temporary
differences that give rise to significant portions of the deferred tax assets and deferred liabilities are presented below:
|
|
At March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating tax loss carryforwards
|
|
$
|
10,432,878
|
|
|
$
|
9,396,605
|
|
Depreciation, depletion and amortization
|
|
|
611,157
|
|
|
|
643,497
|
|
Income from subsidiary
|
|
|
(201,005
|
)
|
|
|
—
|
|
Share-based compensation
|
|
|
302,916
|
|
|
|
302,916
|
|
Bad debt reserve
|
|
|
43,692
|
|
|
|
39,977
|
|
Other
|
|
|
—
|
|
|
|
1
|
|
Total deferred tax assets (liabilities)
|
|
|
11,189,638
|
|
|
|
10,382,996
|
|
|
|
|
|
|
|
|
|
|
Less: valuation allowance
|
|
|
(11,189,638
|
)
|
|
|
(10,382,996
|
)
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
The above estimates
are based on management’s decisions concerning certain elections which could change the relationship between net income and
taxable income. Management decisions are made annually and could cause the estimates to vary significantly.
The Company experienced
an “ownership change” within the meaning of IRC Section 382 during the year ended March 31, 2017. As a result,
certain limitations apply to the annual amount of net operating losses that can be used to offset post ownership change taxable
income. The Company has estimated that $44.5 million of its pre-ownership change net operating loss could potentially be lost due
to the IRC Section 382 limitation for the year ending March 31, 2017. This amount may increase if the Company experiences another
ownership change(s) since the last ownership change. However, the income tax effect of those ownership change(s) should be nil
as the Company had recorded a full valuation allowance against its deferred assets.
At March 31, 2020,
the Company had estimated net operating loss carryforwards for federal income tax purposes of approximately $50 million, adjusted
for the ownership change limitation discussed above, which will begin to expire, if not previously used, beginning in the fiscal
year 2028. A valuation allowance has been established for the entire amount of the deferred tax assets for the years ended March
31, 2020 and March 31, 2019.
On December 22, 2017,
the U.S. government enacted comprehensive tax legislation commonly referred to as the 2017 Tax Cuts and Jobs Act (“2017
Tax Reform”). The 2017 Tax Reform significantly revised the future ongoing U.S. corporate income tax by, among other
things, lowering U.S. corporate income tax rates and implementing a territorial tax system. The Company has reasonably estimated
the effects of the 2017 Tax Reform and recorded provisional amounts in the consolidated financial statements as of March 31, 2018.
This amount is primarily comprised of the re-measurement of federal net deferred tax liabilities resulting from the permanent reduction
in the U.S. statutory corporate tax rate to 21%, from 34%. The Company will continue to monitor additional guidance issued by the
U.S. Treasury Department, the IRS, and other standard-setting bodies, so we may make adjustments to the provisional amounts (if
any). However, management’s opinion is that future adjustments due to the 2017 Tax Reform should not have a material impact on
the Company’s provision for income taxes.
On March 27, 2020,
President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security Act” (“CARES ACT”).
The CARES Act, among other things, includes provisions relating to net operating loss (“NOL”) carryback periods.
The Company is evaluating the impact, if any, that the CARES Act may have on the Company’s future operations, financial position,
and liquidity in fiscal year 2021. At this time, the Company does not expect to realize the benefits of the NOL carryback provisions.
The Company files income
tax returns for federal and state purposes. Management believes that with few exceptions, the Company is not subject to examination
by United States tax authorities for periods prior to 2016.
NOTE
14 – STOCKHOLDERS’ EQUITY
Common
Stock
On
April 20, 2018, Discover was issued 5 shares of common stock as a result of true-ups in connection with the August 23, 2017 conversion
of $35,000 of the principal amount of the debenture held by Discover.
During
the quarter ended September 30, 2018, the Company issued a stock dividend on the Series B Preferred Stock consisting of 1 share
(with a fair value of $15,625 based on the share price at September 30, 2018) of the Company’s common stock. Due to
the fact that the Company is in a retained deficit position, the Company recognized a charge to additional paid in-capital of
$882 and stock dividends distributable but not issued based on the par value of the common stock issued. During the quarter ended
September 30, 2018, the Company issued 1 share to settle a stock dividend accrued on Series B Preferred Stock.
On
November 15, 2018, the Company entered into a consulting agreement with Regal Consulting (“Regal”), an investor
relations firm, pursuant to which the firm agreed to provide the Company investor relations and consulting services for a period
of six months, for monthly consideration of $28,000 and 7 restricted shares of the Company’s common stock. In January 2019,
the Company issued 13 shares of restricted common stock to Regal Consulting for the months of November and December 2018, which
shares were issued during the year ended March 31, 2019. On February 13, 2019, and effective on January 31, 2019, the Company
entered into a First Amendment to the Consulting Agreement previously entered into with Regal Consulting. Pursuant to the First
Amendment, the parties agreed to expand the investor relations services required to be provided by Regal Consulting under the
agreement in consideration for $50,000 per month and 40 restricted shares of common stock per month (the “Regal Shares”)(which
are fully-earned upon issuance) during the term of the agreement, and agreed to extend the term of the agreement until October
1, 2019 (unless the Company completes an acquisition or combination prior to such date). All of the Regal Shares had been earned
and issued to Regal as of September 30, 2019. On October 15, 2019, the Company entered into a Settlement and Mutual Release Agreement
(the “Release”) with Regal, pursuant to which it agreed to settle and terminate the consulting agreement
with Regal. Pursuant to the Release, the Company agreed to issue Regal 1,514 shares of the Company’s restricted common stock
and to pay Regal $17,500 in consideration for agreeing to terminate the agreement. The Company and Regal also provided each other
mutual releases in connection with the Release. The 1,514 shares of common stock were issued to Regal on June 1, 2020.
On
February 13, 2019, the Company entered into a letter agreement with SylvaCap Media (“SylvaCap”), pursuant to
which SylvaCap agreed to act as the Company’s non-exclusive digital marketing service provider in consideration for an aggregate
of 480 shares of restricted common stock (the “SylvaCap Shares”), which are fully-earned upon their issuance,
and $50,000 per month during the term of the agreement, which ends on November 12, 2019 (unless the Company completes an
acquisition or combination prior to such date) or upon termination by either party for cause. The Company also agreed to
provide SylvaCap piggy-back registration rights in connection with the SylvaCap Shares and to pay SylvaCap $6,250 every three
months as an expense reimbursement. The total value of the restricted shares of common stock due of $261,540 was accrued in common
stock payable as of March 31, 2019. The 480 SylvaCap shares were issued in May 2019 and there are no shares due as of March 31,
2020.
During
the year ended March 31, 2020, Discover and Discover Growth, which purchased shares of Series C Preferred Stock from the
Company in December 2018, and which subsequently transferred all of its shares of Series C Preferred Stock to
Discover, converted 11 shares of the Series C Preferred Stock with a face value of $110,000, and a total of 4,899,442
shares of common stock were issued, which includes additional shares for conversion premiums and true ups in
connection with those conversions through March 31, 2020.
From
April 1, 2019 to March 31, 2020, Discover was issued 29,073 shares of common stock as true-ups in connection with the October
31, 2018 conversion of the $495,000 remaining balance of principal owed under the terms of a convertible debenture. No additional
shares were owed to Discover as of March 31, 2020, pursuant to the debenture.
Series
A Convertible Preferred Stock
As
of March 31, 2020 and 2019, the Company had no Series A Convertible Preferred Stock issued or outstanding.
Series
B Redeemable Convertible Preferred Stock
As
of March 31, 2020 and 2019, there were 0 and 44,000 shares of Series B Preferred Stock outstanding, respectively, which 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 1/781,250 of one vote.
|
During
the quarter ended September 30, 2018, the Company issued a stock dividend on the Series B Preferred Stock consisting of 1 share
of the Company’s common stock as described above.
On
May 15, 2019, the Company entered into a conversion agreement with the then holder of all 44,000 shares of the Company’s
then outstanding Series B Preferred Stock. Pursuant to the Conversion Agreement, all of the Series B Preferred Stock was converted
into 1 share of the Company’s common stock pursuant to the stated terms of such Series B Preferred Stock, in consideration
for $25,000 in cash due at the time of the parties entry into the agreement, which payment was made during the three months ended
September 30, 2019. The holder also provided the Company a release in connection with certain of his rights under the Series B
Preferred Stock (including any and all accrued and unpaid dividends) and certain other matters.
Effective
on May 15, 2020, due to the fact that no shares of Series B Preferred Stock were outstanding, the Board of Directors approved,
and the Company filed, a Certificate of Withdrawal of Certificate of Designation relating to such series of preferred stock with
the Secretary of State of Nevada and terminated the designation of its Series B Preferred Stock effective as of the same date.
Series
C Redeemable Convertible Preferred Stock
During
the year ended March 31, 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 which we sold during the year ended
March 31, 2020, 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, on similar terms of 630
shares of Series C Preferred Stock sold on June 22, 2020.
During
the year ended March 31, 2019, the Company sold and issued 1,577 shares of Series C Preferred Stock pursuant to the terms of a
October 2017 Stock Purchase Agreement, October 2018 Stock Purchase Agreement and November 2018 Stock Purchase Agreement, for total
consideration of $15 million. As of March 31, 2020 and 2019, there were 2,819 and 2,305 shares of Series C Preferred Stock outstanding,
respectively.
During
the year ended March 31, 2019, Discover and Discover Growth converted 404 shares of the Series C Preferred Stock with a
face value of $4.04 million, and a total of 3,794 shares of common stock were
issued, which includes additional shares for conversion premiums and true ups in connection with those conversions
through March 31, 2019.
During
the year ended March 31, 2020, Discover and Discover Growth converted 11 shares of the Series C Preferred Stock with a face
value of $110,000, and a total of 4,899,442 shares of common stock were issued, which includes additional shares for conversion premiums and true ups in connection with those conversions through
March 31, 2020.
As
of March 31, 2020 and March 31, 2019, the Company accrued common stock dividends on the Series C Preferred Stock based on the
then 34.95% premium dividend rate. The Company recognized a total charge to additional paid-in capital and stock dividends distributable
but not issued of $7,737,086 and $5,676,715 related to the stock dividend declared but not issued for the years ended March 31,
2020 and 2019, respectively.
Series
E Redeemable Convertible Preferred Stock and Series F Convertible Preferred Stock
As
described above in “Note 1 – General” and “Note 12
– Merger Agreement and Divestiture”, on the Closing Date, pursuant to the Lineal Plan of Merger, the Company acquired
100% of the ownership of Lineal from the Lineal Members in consideration for 1,000,000 of the newly issued shares of Series E
Preferred Stock and 16,750 of the newly issued shares of Series F Preferred Stock and effective on December 31, 2019, the Company
divested its ownership in Lineal and the Series E Preferred Stock and Series F Preferred Stock were returned to the Company and
cancelled.
Effective
on May 15, 2020, due to the fact that no shares of Series E Preferred Stock and Series F Preferred Stock were outstanding, the
Board of Directors approved, and the Company filed, Certificates of Withdrawal of the Certificate of Designations relating to
such series of preferred stock with the Secretary of State of Nevada and terminated the designation of its Series E Preferred
Stock and Series F Preferred Stock effective as of the same date.
Warrants
The
following is a summary of the Company’s outstanding warrants at March 31, 2020:
Warrants
|
|
|
Exercise
|
|
|
|
Expiration
|
|
|
|
Intrinsic
Value at
|
|
Outstanding
|
|
|
Price
($)
|
|
|
|
Date
|
|
|
|
March
31, 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
15 – SHARE-BASED COMPENSATION
Common
Stock
The
Company stockholders approved the 2014 Stock Incentive Plan (as amended to date, the “2014 Plan”) at the annual
stockholder meeting held on February 13, 2014. The 2014 Plan provides the Company with the ability to offer up to 2.5 million
(i) incentive stock options (to eligible employees only); (ii) nonqualified stock options; (iii) restricted stock; (iv) stock
awards; (v) shares in performance of services; or (vi) any combination of the foregoing, to employees, consultants and contractors
as provided in the 2014 Plan.
The
Company stockholders approved the Lucas Energy, Inc. 2012 Stock Incentive Plan (“2012 Incentive Plan”) at the
annual stockholder meeting held on December 16, 2011. The 2012 Incentive Plan provides the Company with the ability to offer (i)
incentive stock options (to eligible employees only); (ii) nonqualified stock options; (iii) restricted stock; (iv) stock awards;
(v) shares in performance of services; or (vi) any combination of the foregoing, to employees, consultants and contractors as
provided in the 2012 Incentive Plan.
The
Company stockholders approved the Lucas Energy, Inc. 2010 Long Term Incentive Plan (“2010 Incentive Plan” or “2010
Plan”) at the annual stockholder meeting held on March 30, 2010. The 2010 Incentive Plan provides the Company with the
ability to offer (1) incentive stock options, (2) non-qualified stock options, and (3) restricted shares (i.e., shares subject
to such restrictions, if any, as determined by the Compensation Committee or the Board) to employees, consultants and contractors
as performance incentives.
Under
the 2010 Incentive Plan, 58 shares of the Company’s common stock are authorized for initial issuance or grant,
under the 2012 Incentive Plan, 96 shares of the Company’s common stock are authorized for initial issuance or grant, and
under the 2014 Incentive Plan, as amended, 2,500,000 shares of the Company’s common stock are authorized for issuance or
grant. As of March 31, 2020, there was an aggregate of 1 share available for issuance or grant under the 2010 Incentive
Plan, 5 shares were available for issuance or grant under the 2012 Incentive Plan and an aggregate of approximately 1,999
securities were available for issuance or grant under the 2014 Incentive Plan as amended for future issuances and grants, respectively.
The number of securities available under the 2010, 2012 and 2014 Plans is reduced one for one for each security delivered pursuant
to an award under the Plans. Any issued or granted security that becomes available due to expiration, forfeiture, surrender, cancellation,
termination or settlement in cash of an award under the Incentive Plans may be requested and used as part of a new award under
the Plans.
The
Plans are administered by the Compensation Committee and/or the Board in its discretion (the “Committee”).
The Committee interprets the Plans and has broad discretion to select the eligible persons to whom awards will be granted, as
well as the type, size and terms and conditions of each award, including the exercise price of stock options, the number of shares
subject to awards, the expiration date of awards, and the vesting schedule or other restrictions applicable to awards.
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
The
following summarizes Camber’s stock option activity for each of the years ended March 31, 2020 and 2019:
|
|
2020
|
|
|
2019
|
|
|
|
Number of Stock
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number of Stock
Options
|
|
|
Weighted
Average
Exercise Price
|
|
Outstanding at Beginning of Year
|
|
|
2
|
|
|
$
|
40,429,700
|
|
|
|
2
|
|
|
$
|
40,429,700
|
|
Expired/Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding at End of Year
|
|
|
2
|
|
|
$
|
40,429,700
|
|
|
|
2
|
|
|
$
|
40,429,700
|
|
Of
the Company’s outstanding options, no options were exercised or forfeited during the years ended March 31, 2020 and
2019, respectively. Compensation expense related to stock options during the years ended March 31, 2020 and 2019 was $0.
Options
outstanding and exercisable at March 31, 2020 and 2019 had no intrinsic value. The intrinsic value is based upon the difference
between the market price of Camber’s common stock on the date of exercise and the grant price of the stock options.
As
of March 31, 2020 and 2019, there was no remaining unrecognized share-based compensation expense related to all non-vested stock
options, respectively.
Options
outstanding and exercisable as of March 31, 2020:
Exercise
|
|
Remaining
|
|
|
Options
|
|
|
Options
|
|
Price
($)
|
|
Life
(Yrs.)
|
|
|
Outstanding
|
|
|
Exercisable
|
|
40,429,700
|
|
|
0.50
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
Total
|
|
|
|
2
|
|
|
|
2
|
|
NOTE
16– INCOME (LOSS) PER COMMON SHARE
The
calculation of earnings (loss) per share for the years ended March 31, 2020 and 2019 was as follows:
|
|
Year
Ended
|
|
|
|
March
31,
|
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Income
(loss)
|
|
$
|
(3,856,299
|
)
|
|
$
|
16,643,153
|
|
Less
preferred dividends
|
|
|
(7,737,086
|
)
|
|
|
(5,676,715
|
)
|
Net
income (loss) attributable to common stockholders
|
|
$
|
(11,593,385
|
)
|
|
$
|
10,966,438
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted
average share – basic
|
|
|
2,109,622
|
|
|
|
3,951
|
|
|
|
|
|
|
|
|
|
|
Dilutive
effect of common stock equivalents
|
|
|
|
|
|
|
|
|
Options/warrants
|
|
|
—
|
|
|
|
—
|
|
Preferred
C shares
|
|
|
—
|
|
|
|
37,854
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Total
Weighted average shares – diluted
|
|
|
2,109,622
|
|
|
|
41,805
|
|
Income
(loss) per share – basic
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(5.50
|
)
|
|
$
|
2,775.61
|
|
Income
(loss) per share – diluted
|
|
|
|
|
|
|
|
|
Continuing
Operations
|
|
$
|
(5.50
|
)
|
|
$
|
262.32
|
|
For
the years ended March 31, 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
|
|
|
|
—
|
|
Options
and Warrants
|
|
|
38
|
|
|
|
41
|
|
Series
C Preferred Shares
|
|
|
1,218,016,833
|
|
|
|
—
|
|
Total
|
|
|
1,218,017,147
|
|
|
|
41
|
|
NOTE
17 – SUPPLEMENTAL CASH FLOW INFORMATION
Net
cash paid for interest and income taxes was as follows for the years ended March 31, 2020 and 2019:
|
|
2020
|
|
|
2019
|
|
Interest
|
|
$
|
14,771
|
|
|
$
|
842,520
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-cash
investing and financing activities for the years ended March 31, 2020 and 2019 included the following:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Reduction in Accounts Payable for Payments Made on Previously Accrued Capital Expenditures
|
|
$
|
—
|
|
|
$
|
547,033
|
|
Change in Estimate for Asset Retirement Obligations
|
|
$
|
85,069
|
|
|
$
|
19,461
|
|
Issuance of Common Stock for Payment of Consulting Fees
|
|
$
|
—
|
|
|
$
|
234,430
|
|
Settlement of Common Stock Payable
|
|
$
|
331,030
|
|
|
$
|
—
|
|
Conversion of Preferred B Shares to Common Stock
|
|
$
|
44
|
|
|
$
|
365
|
|
Stock Dividends Distributable but not Issued
|
|
$
|
7,737,086
|
|
|
$
|
5,676,715
|
|
Conversion of Notes and Accrued Interest to Common Stock
|
|
$
|
—
|
|
|
$
|
917,104
|
|
Conversion of Preferred Stock to Common Stock
|
|
$
|
4,899
|
|
|
$
|
4
|
|
Warrants Issued in Abeyance
|
|
$
|
29
|
|
|
$
|
—
|
|
Issuance of Common Stock for Dividends
|
|
$
|
3
|
|
|
$
|
2,782
|
|
Note
18 – 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
The
liabilities and mezzanine equity carried at fair value as of March 31, 2020 and March 31, 2019 were as follows:
|
|
March 31,
2020
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
liabilities at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
March 31,
2019
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5
|
|
Total
liabilities at fair value
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5
|
|
There
were no transfers in or out of Level 3 for the year ended 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. As discussed in “Note 12 – Merger
Agreement and Divestiture” , during the year ended March 31, 2020, the Company recorded non-recurring fair value
measurements related to the Lineal Plan of Merger. These fair value measurements were classified as Level 3 within the fair value
hierarchy.
Additionally,
the Series E Preferred Stock and Series F Preferred Stock were considered contingently redeemable preferred stock and were classified
as mezzanine equity during the period. The fair value of these instruments was estimated as part of the accounting for the Lineal
Plan of Merger described in “Note 12 – Merger Agreement and Divestiture”.
Effective December 31, 2019, the Series E and Series F Preferred Stock were returned to the Company and cancelled as part of the
Lineal Divestiture. Immediately prior to the Lineal Divestiture, the estimated fair value of the Series E and Series F Preferred
Stock was determined using an income valuation approach to estimate the future cash flows of the Lineal business as of December
31, 2019, including an analysis of the terms and rights of each class of equity and their current value based on the disposition
of the Lineal business. No Series E and Series F Preferred Stock was outstanding as of March 31, 2020.
NOTE
19– SUBSEQUENT EVENTS
On
April 16, 2020, pursuant to the authorization and approval provided by the stockholders of the Company at the special meeting
of stockholders held on April 16, 2020, the Company filed a Certificate of Amendment to its Articles of Incorporation with the
Secretary of State of Nevada to increase its authorized shares of common stock, $0.001 par value per share, from 5 million shares
to 25 million shares, which filing became effective on the same date.
On
February 15, 2020, the Company entered into a letter agreement with Sylva International LLC d/b/a SylvaCap Media (“SylvaCap”),
pursuant to which SylvaCap agreed to act as the Company’s non-exclusive digital marketing service provider in consideration
for an aggregate of 100,000 shares of restricted common stock (the “SylvaCap Shares”), which are fully-earned
upon their issuance, and $50,000 per month during the term of the agreement, which was to end on June 15, 2020. On May 12, 2020,
the Company entered into the first amendment to the SylvaCap agreement. Pursuant to the amendment, the Company and SylvaCap extended
the term of the letter agreement to October 19, 2020. The SylvaCap Shares were issued on May 15, 2020.
The
Company previously designated (a) 2,000 shares of preferred stock as Series A Convertible Preferred Stock (November 2011);
(b) 600,000 shares of preferred stock as Series B Redeemable Convertible Preferred Stock (Amended and Restated on August
2016); (c) 50,000 shares of preferred stock as Series D Convertible Preferred Stock (July 2019); (d) 1,000,000 shares
of preferred stock as Series E Redeemable Convertible Preferred Stock (July 2019); and (e) 16,750 shares of preferred stock
as Series F Redeemable Preferred Stock (July 2019).
Effective
May 15, 2020, due to the fact that no shares of Series A Convertible Preferred Stock, Series B Redeemable Convertible Preferred
Stock, Series D Convertible Preferred Stock, Series E Redeemable Convertible Preferred Stock or Series F Redeemable Preferred
Stock were outstanding, the Board of Directors approved, and the Company filed, Certificate of Withdrawal of Certificate of Designations
relating to such series of preferred stock with the Secretary of State of Nevada and terminated the designation of its Series
A Convertible Preferred Stock, Series B Redeemable Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E
Redeemable Convertible Preferred Stock and Series F Redeemable Preferred Stock effective as of the same date. As a result, the
only preferred stock which is currently designated by the Company is the Company’s Series C Redeemable Convertible Preferred
Stock.
On
May 27, 2020, Viking and Camber entered into the First Amendment to Agreement and Plan of Merger (the “First Amendment”)
to amend the Merger Agreement to (i) modify the Camber Percentage (as defined below) adjustment mechanism to cap the aggregate
Camber Percentage Increase (as defined below) or Camber Percentage Decrease (as defined below) at 5%; (ii) modify the events resulting
in such adjustments; (iii) correct a prior error with such calculation which discussed Camber being required to have $4 million
in cash at closing; and (iv) agree that neither party will raise capital from the other party’s existing shareholders without
the prior written consent of the other party.
Upon
the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, each share of
Viking Common Stock issued and outstanding immediately prior to the Effective Time, other than certain shares owned by Camber,
Viking and Camber’s merger subsidiary (which will be cancelled), will be converted into the right to receive the pro rata
share of 80% of Camber’s post-Effective Time capitalization, taking into account the number of shares of common stock of
Camber outstanding on a fully-diluted basis and without taking into account any shares of common stock which the holder of Camber’s
Series C Preferred Stock can receive upon conversion of the Series C Preferred Stock, or a separate series of preferred stock
issued in exchange for such Series C Preferred Stock, which has fixed conversion provisions, subject to certain adjustment provisions.
Holders of Viking Common Stock will have any fractional shares of Camber common stock after the Merger rounded up to the nearest
whole share.
The
Merger Agreement, as amended by the First Amendment, provides that the Camber Percentage is to be adjusted as follows: (i) for
each (A) $500,000 in Camber unencumbered cash (without any associated debt) available for use by the combined company (the “Combined
Company”) after the Effective Time, with a permitted use being to, among other things, pay debt obligations of Viking
outside of Viking’s Ichor division or Elysium division, which comes from equity sold by Camber for cash from February 3,
2020, through the Effective Time, which is not contingent or conditional upon the closing of the Merger (the “Camber
Surplus Cash”), or (B) $500,000 in other unencumbered assets acquired by Camber after the date of First Amendment
and prior to closing without increasing Camber’s liabilities (the “Other Camber Surplus Assets”), the
Camber Percentage will increase by an incremental 0.5% (a “Camber Percentage Increase”); and (ii) for each
additional $500,000 in Viking unencumbered cash (without any associated debt) for use by the Combined Company after the Effective
Time which is not contingent or conditional upon the closing of the Plan of Merger, with a permitted use being to, among other
things, pay debt obligations of Viking outside of Viking’s Ichor division or Elysium division in excess of $500,000 at Closing,
which comes from equity sold by Viking for cash from February 3, 2020 through the Effective Time, the Camber Percentage will decrease
by an incremental 0.5% (a “Camber Percentage Decrease”). The aggregate Camber Percentage Increase or Camber
Percentage Decrease shall not exceed 5% pursuant to this particular section of the Merger Agreement, and neither party will raise
capital from the other party’s existing shareholders without the prior written consent of such other party.
Since April
1, 2020, and through June 24, 2020, Discover has converted 498 shares of Series C Preferred Stock into approximately 13,033,208
shares of common stock, of which 7,354,416 shares of common stock had been issued as of June 24, 2020, and a total of approximately
5,678,792 shares of common stock were due to Discover, and are held in abeyance until such issuances are requested by Discover,
subject to the 9.99% ownership limitation set forth in the designation of the Series C Preferred Stock. The number of Series C
Preferred Stock converted by Discover of the Series C Preferred Stock since April 1, 2020, and through June 24, 2020, are summarized
below:
|
●
|
On April 15, 2020, Discover converted 17 shares of Series C Preferred Stock into 442,804 shares
of common stock, all of which have been issued to date;
|
|
●
|
On April 23, 2020, Discover converted 236 shares of Series C Preferred Stock into 6,177,412 shares
of common stock, all of which have been issued to date; and
|
|
●
|
On June 23, 2020, Discover converted 245 shares of Series C Preferred Stock into 6,412,992 shares
of common stock, of which a total of approximately 5,678,792 shares of common stock remain due to Discover as of June 24, 2020,
and are held in abeyance until such issuances are requested by Discover, subject to the 9.99% ownership limitation set forth in
the designation of the Series C Preferred Stock.
|
On
June 15, 2020, Viking and the Company entered into a Second Amendment to Agreement and Plan of Merger (the “Second Amendment”)
to amend the Merger Agreement to extend the date after which the Merger Agreement can be cancelled by either the Company or Viking,
if not completed thereby, from June 30, 2020 to September 30, 2020, provided that either the Company or Viking has the right to
further extend such date from time to time, until up to December 31, 2020, in the event that Camber has not fully resolved SEC
comments on Registration Statement on Form S-4 which the Company filed in connection with the Merger, or other SEC filings related
to the Merger, and the Company is responding to such comments in a reasonable fashion, subject to certain exceptions.
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”). Pursuant to the June 2020
Purchase Agreement, as long as Discover holds any shares of Series C Preferred Stock, the Company agreed that, except as contemplated
in connection with the Merger, the Company would not issue or enter into or amend an agreement pursuant to which the Company may
issue any shares of common stock, other than (a) for restricted securities with no registration rights, (b) in connection with
a strategic acquisition, (c) in an underwritten public offering, or (d) at a fixed price. The Company also agreed that it would
not issue or amend any debt or equity securities convertible into, exchangeable or exercisable for, or including the right to
receive, shares of common stock (i) at a conversion price, exercise price or exchange rate or other price that is based upon or
varies with, the trading prices of or quotations for the shares of common stock at any time after the initial issuance of the
security or (ii) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial
issuance of the security or upon the occurrence of specified or contingent events directly or indirectly related to the business
of the Company or the market for the common stock.
Additionally,
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 also agreed to provide Discover a right of first offer to match any offer for financing the Company receives from any
person while the shares of Series C Preferred Stock sold pursuant to the June 2020 Purchase Agreement are outstanding, except
for debt financings not convertible into common stock, which are excluded from such right to match.
Finally,
the Company agreed that if it issues any security with any term more favorable to the holder of such security or with a term in
favor of the holder of such security that was not similarly provided to Discover, then the Company would notify Discover of such
additional or more favorable term and such term, at Discover’s option, may become a part of the transaction documents with
Discover.
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.
Finally,
the Company agreed to include proposals relating to the approval of the June 2020 Purchase Agreement and the issuance of the shares
of common stock upon conversion of the Series C Preferred Stock sold pursuant to the June 2020 Purchase Agreement, as well as
an increase in authorized common stock to fulfill the Company’s obligations to issue such shares, at the meeting held to
approve the Merger or a separate meeting in the event the Merger is terminated prior to shareholder approval, and to use commercially
reasonable best efforts to obtain such approvals as soon as possible and in any event prior to December 31, 2020.
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 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.
On June 25,
2020, the Company and Viking entered into a Third Amendment to Agreement and Plan of Merger, which (i) provided for the entry into
the June 2020 SPA (defined below) and the loan of the $4.2 million evidenced by the June 2020 Secured Note (discussed below); (ii)
provided for the requirement to pay the Additional Payment (as discussed in “Note 5 – Plan of Merger and Investment in Unconsolidated Entity”) as a break-up fee, in the event the Merger is terminated
prior to closing; (iii) updated the percentages of Elysium which are required to be returned to Viking upon termination of the
Merger (as updated in “Note 5 – Plan of Merger and Investment in Unconsolidated Entity”);
(iv) confirm that none of the funds loaned by the Company to Viking will affect the merger ratios set forth in the Merger Agreement;
and (v) allow for the Company’s Board of Directors to authorize the payment to the officers and directors of the Company,
of consideration of up to $150,000 each ($600,000 in aggregate), for past services rendered and services to be rendered by such
individuals through the closing date of the Merger, which compensation has not been formally authorized by the Board of Directors
to date, but which is expected to be authorized and documented in the coming weeks.
The discussion
of the Merger Agreement included throughout these financial statements (including under “Note 5 – Plan of Merger and Investment in Unconsolidated Entity”) has been updated to take into effect the amendments
affected by the Third Amendment.
On
June 25, 2020, the Company loaned Viking an additional $4.2 million, pursuant to the terms
of a Securities Purchase Agreement, which was entered into on the same date (the “June 2020 SPA”). The $4.2
million loan was evidenced by a 10.5% Secured Promissory Note (the “June 2020 Secured Note” and together with
the February 2020 Secured Note, the “Secured Notes”), the repayment of which was secured by the terms of a Security
and Pledge Agreement. The June 2020 Secured Note has substantially similar terms as the February 3, 2020 10.5% Secured Note discussed
under “Note 5 – Plan of Merger and Investment in Unconsolidated Entity”,
and substantially similar security obligations of Viking in connection therewith.
As
additional consideration for the Company making the loan to Viking, Viking assigned the Company an additional 5% of Elysium pursuant
to the terms of an Assignment of Membership Interests dated June 25, 2020, which brings the Company’s current total ownership
of Elysium up to 30%.
Supplemental
Oil and Gas Disclosures (Unaudited)
The
following disclosures for the Company are made in accordance with authoritative guidance regarding disclosures about oil and natural
gas producing activities. Users of this information should be aware that the process of estimating quantities of “proved,”
“proved developed,” and “proved undeveloped” crude oil, natural gas liquids and natural
gas reserves is complex, requiring significant subjective decisions in the evaluation of all available geological, engineering
and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous
factors including, but not limited to, additional development activity, evolving production history and continual reassessment
of the viability of production under varying economic conditions. Consequently, material revisions (upward or downward) to existing
reserve estimates may occur from time to time. Although reasonable effort is made to ensure that reserve estimates reported represent
the most accurate assessments possible, the significance of the subjective decisions required and variances in available data
for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial
statement disclosures.
Proved
reserves represent estimated quantities of crude oil, natural gas liquids and natural gas that geoscience and engineering data
can estimate, with reasonable certainty, to be economically producible from a given day forward from known reservoirs under economic
conditions, operating methods and government regulation before the time at which contracts providing the right to operate expire,
unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are
used for the estimation.
Proved
developed reserves are proved reserves expected to be recovered under operating methods being utilized at the time the estimates
were made, through wells and equipment in place or if the cost of any required equipment is relatively minor compared to the cost
of a new well.
The
Company reported financial results from its acquisition of 25% of the membership interests of Elysium effective February 3, 2020,
based on information provided by Viking’s management, which was derived from reserve reports prepared by an independent
third party in conjunction with the acquisition due diligence as of September 1, 2019. Those balances were then adjusted for production
reported by the seller through December 31, 2019 and then for actual production from the acquisition date through March 31, 2020.
Elysium reported estimated total net reserves as of March 31, 2020 were 2,988,160 barrels (Bbls) of crude oil and 41,576,500 thousand
cubic feet (Mcf) of natural gas which translates to an equivalent of 9,917,580 barrel of oil equivalents (Boe). Camber’s
25% interest in Elysium equates to ownership of 747,040 Bbls of crude oil and 10,394,130 Mcf of natural gas, which translates
to an equivalent of 2,479,390 Boe.
These
reserves are based on the Oil and Gas Benchmark Prices to Estimate Year-End Petroleum Reserves and Values Using U.S.
Securities and Exchange Commission Guidelines from the Modernization of Oil and Gas Reporting and on the quantities of oil,
natural gas and natural gas liquids (NGLs), which, by analysis of geoscience and engineering data, can be estimated with
reasonable certainty to be economically producible from a given date forward, from known reservoirs, under existing economic
conditions, operating methods and government regulations, prior to the time at which contracts providing the rights to
operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or
probabilistic methods are used for the estimation. Reserves and economic evaluation of all of the Company’s properties
are prepared on a well-by-well basis. The accuracy of the reserve estimates is a function of the quality and quantity of
available data; interpretation of that data; and accuracy of various mandated economic assumptions.
As
of March 31, 2020, Viking had net capitalized costs of $30.2 million and a net operating income from its oil and gas properties
of $1.6 million. Camber’s 25% ownership in Elysium equates to net capitalized costs of $7.6 million and net operating income
from its interest in the Elysium oil and gas properties of $0.4 million.
Viking’s
management used an average monthly crude oil price of $52.048 per Bbl and a natural gas price of $2.74 per Mcf, for the twelve
months ended March 31, 2020, to calculate the estimated discounted future net cash flow (“PV-10”) before tax
expenses for total proved reserves of Elysium of approximately $104.9 million. Camber’s 25% ownership of Elysium equates
to a PV10 before tax expense $26.2 million. Oil, natural gas and NGL prices are market driven and have been historically volatile,
and we expect that future prices will continue to fluctuate due to supply and demand factors, seasonality, and geopolitical and
economic factors, and such volatility can have a significant impact on our estimates of proved reserves and the related PV-10
value.
Proved
undeveloped reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells
where a relatively major expenditure is required. Reserves on undrilled acreage are limited to those directly offsetting development
spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes
reasonable certainty of economic producibility at greater distances. Undrilled locations can be classified as having undeveloped
reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless
the specific circumstances justify a longer time. Estimates for proved undeveloped reserves are not attributed to any acreage
for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have
been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable
technology establishing reasonable certainty.
PROVED
RESERVE SUMMARY
All
of the Company’s reserves are located in the United States. The following tables sets forth the changes in Camber’s
net proved reserves (including developed and undeveloped reserves) for the years ended March 31, 2020 and 2019. Reserves estimates
as of March 31, 2020 and 2019, respectively, were estimated by the independent petroleum consulting firm Graves & Co. Consulting
LLC:
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Crude
Oil (Bbls)
|
|
|
|
|
|
|
|
|
Net
proved reserves at beginning of year
|
|
|
124,524
|
|
|
|
129,573
|
|
Revisions
of previous estimates
|
|
|
(64,275
|
)
|
|
|
(3,868
|
)
|
Purchases
in place
|
|
|
—
|
|
|
|
—
|
|
Extensions,
discoveries and other additions
|
|
|
—
|
|
|
|
—
|
|
Sales
in place
|
|
|
—
|
|
|
|
(75
|
)
|
Production
|
|
|
(5,399
|
)
|
|
|
(8,846
|
)
|
Net
proved reserves at end of year
|
|
|
54,850
|
|
|
|
124,520
|
|
|
|
|
|
|
|
|
|
|
Natural
Gas (Mcf)
|
|
|
|
|
|
|
|
|
Net
proved reserves at beginning of year
|
|
|
208,710
|
|
|
|
8,147,168
|
|
Revisions
of previous estimates
|
|
|
18,005
|
|
|
|
(7,609,052
|
)
|
Purchases
in place
|
|
|
—
|
|
|
|
—
|
|
Extensions,
discoveries and other additions
|
|
|
—
|
|
|
|
—
|
|
Sales
in place
|
|
|
—
|
|
|
|
(7,983
|
)
|
Production
|
|
|
(18,892
|
)
|
|
|
(321,423
|
)
|
Net
proved reserves at end of year
|
|
|
207,823
|
|
|
|
208,710
|
|
|
|
|
|
|
|
|
|
|
NGL
(Bbls)
|
|
|
|
|
|
|
|
|
Net
proved reserves at beginning of year
|
|
|
44,110
|
|
|
|
1,435,703
|
|
Revisions
of previous estimates
|
|
|
4,381
|
|
|
|
(1,338,916
|
)
|
Purchases
in place
|
|
|
—
|
|
|
|
—
|
|
Extensions,
discoveries and other additions
|
|
|
—
|
|
|
|
—
|
|
Sales
in place
|
|
|
—
|
|
|
|
(1,418
|
)
|
Production
|
|
|
(4,536
|
)
|
|
|
(51,269
|
)
|
Net
proved reserves at end of year
|
|
|
43,955
|
|
|
|
44,100
|
|
|
|
|
|
|
|
|
|
|
Oil
Equivalents (Boe)
|
|
|
|
|
|
|
|
|
Net
proved reserves at beginning of year
|
|
|
203,406
|
|
|
|
2,923,138
|
|
Revisions
of previous estimates
|
|
|
(56,880
|
)
|
|
|
(2,603,224
|
)
|
Purchases
in place
|
|
|
—
|
|
|
|
—
|
|
Extensions,
discoveries and other additions
|
|
|
—
|
|
|
|
—
|
|
Sales
in place
|
|
|
—
|
|
|
|
(2,823
|
)
|
Production
|
|
|
(13,084
|
)
|
|
|
(113,685
|
)
|
Net
proved reserves at end of year
|
|
|
133,442
|
|
|
|
203,406
|
|
The
following table sets forth Camber’s proved developed and undeveloped reserves at March 31, 2020 and 2019:
|
|
At March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Proved
Developed Producing Reserves
|
|
|
|
|
|
|
|
|
Crude
Oil (Bbls)
|
|
|
54,850
|
|
|
|
76,490
|
|
Natural
Gas (Mcf)
|
|
|
207,823
|
|
|
|
208,710
|
|
NGL
(Bbls)
|
|
|
43,955
|
|
|
|
44,100
|
|
Oil
Equivalents (Boe)
|
|
|
133,442
|
|
|
|
155,376
|
|
|
|
|
|
|
|
|
|
|
Proved
Developed Non-Producing Reserves
|
|
|
|
|
|
|
|
|
Crude
Oil (Bbls)
|
|
|
—
|
|
|
|
48,030
|
|
Natural
Gas (Mcf)
|
|
|
—
|
|
|
|
—
|
|
NGL
(Bbls)
|
|
|
—
|
|
|
|
—
|
|
Oil
Equivalents (Boe)
|
|
|
—
|
|
|
|
48,030
|
|
|
|
|
|
|
|
|
|
|
Proved
Undeveloped Reserves
|
|
|
|
|
|
|
|
|
Crude
Oil (Bbls)
|
|
|
—
|
|
|
|
—
|
|
Natural
Gas (Mcf)
|
|
|
—
|
|
|
|
—
|
|
NGL
(Bbls)
|
|
|
—
|
|
|
|
—
|
|
Oil
Equivalents (Boe)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Proved
Reserves
|
|
|
|
|
|
|
|
|
Crude
Oil (Bbls)
|
|
|
54,850
|
|
|
|
124,520
|
|
Natural
Gas (Mcf)
|
|
|
207,823
|
|
|
|
208,710
|
|
NGL
(Bbls)
|
|
|
43,955
|
|
|
|
44,100
|
|
Oil
Equivalents (Boe)
|
|
|
133,442
|
|
|
|
203,406
|
|
*The
Company engaged Graves & Co Consulting, LLC, an independent reserve engineering firm, to provide a reserve report on the Company’s
properties as of March 31, 2020.
Proved
Developed Not Producing Reserves
At
March 31, 2020 and 2019, the Company had proved developed not producing reserves of crude oil of 0 Bbls and 48,030, respectively.
Proved
Undeveloped Reserves
At
March 31, 2020 and 2019, the Company had no proved undeveloped reserves.
The
following table sets forth Camber’s net reserves in Boe by reserve category and by formation at March 31, 2020 and
2019:
|
|
Proved
Developed
|
|
Proved
Non-Producing
|
|
Proved
Undeveloped
|
|
Total
Proved
|
|
Hutchinson
Area
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
March 31, 2020
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
At
March 31, 2019
|
|
|
18,200
|
|
|
48,030
|
|
|
—
|
|
|
66,230
|
|
Trend
Area
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
March 31, 2020
|
|
|
133,442
|
|
|
—
|
|
|
—
|
|
|
133,442
|
|
At
March 31, 2019
|
|
|
132,361
|
|
|
—
|
|
|
—
|
|
|
132,361
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
March 31, 2020
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
At
March 31, 2019
|
|
|
4,815
|
|
|
—
|
|
|
—
|
|
|
4,815
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
March 31, 2020
|
|
|
133,442
|
|
|
—
|
|
|
—
|
|
|
133,442
|
|
At
March 31, 2019
|
|
|
155,376
|
|
|
48,030
|
|
|
—
|
|
|
203,406
|
|
Capitalized
Costs Relating to Oil and Natural Gas Producing Activities. The following table sets forth the capitalized costs relating
to Camber’s crude oil and natural gas producing activities at March 31, 2020 and 2019:
|
|
At March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Oil and gas properties subject to amortization
|
|
$
|
50,352,033
|
|
|
$
|
50,352,306
|
|
Oil and gas properties not subject to amortization
|
|
|
28,016,989
|
|
|
|
28,016,989
|
|
Capitalized asset retirement costs
|
|
|
91,850
|
|
|
|
176,649
|
|
Total oil & natural gas properties
|
|
|
78,460,872
|
|
|
|
78,545,944
|
|
Accumulated depreciation, depletion, and impairment
|
|
|
(78,350,605
|
)
|
|
|
(78,333,628
|
)
|
Net Capitalized Costs
|
|
$
|
110,267
|
|
|
$
|
212,316
|
|
Costs
Incurred in Oil and Natural Gas Property Acquisition, Exploration and Development Activities. The following table sets forth
the costs incurred in Camber’s oil and natural gas property acquisition, exploration and development activities for the
years ended March 31, 2020 and 2019:
|
|
2020
|
|
|
2019
|
|
Acquisition of properties
|
|
|
|
|
|
|
|
|
Proved
|
|
$
|
—
|
|
|
$
|
—
|
|
Unproved
|
|
|
—
|
|
|
|
—
|
|
Exploration costs
|
|
|
—
|
|
|
|
—
|
|
Development costs
|
|
|
—
|
|
|
|
1,548,953
|
|
Total
|
|
$
|
—
|
|
|
$
|
1,548,953
|
|
Results
of Operations for Oil and Natural Gas Producing Activities. The following table sets forth the results of operations for oil
and natural gas producing activities for the years ended March 31, 2020 and 2019:
|
|
2020
|
|
|
2019
|
|
Crude oil and natural gas revenues
|
|
$
|
397,118
|
|
|
$
|
2,742,102
|
|
Production costs
|
|
|
(494,096
|
)
|
|
|
(3,003,901
|
)
|
Depreciation and depletion
|
|
|
(16,977
|
)
|
|
|
(473,521
|
)
|
Results of operations for producing activities, excluding corporate overhead and interest costs
|
|
$
|
(113,955
|
)
|
|
$
|
(735,320
|
)
|
Standardized
Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Natural Gas Reserves. The following information has
been developed utilizing procedures prescribed by ASC Topic 932 and based on crude oil and natural gas reserves and production
volumes estimated by the independent petroleum consultants of Camber. The estimates were based on a 12-month average of first-of-the-month
commodity prices for the years ended March 31, 2020 and 2019. The following information may be useful for certain comparison
purposes, but should not be solely relied upon in evaluating Camber or its performance. Further, information contained in the
following table should not be considered as representative of realistic assessments of future cash flows, nor should the Standardized
Measure of Discounted Future Net Cash Flows be viewed as representative of the current value of Camber.
The
future cash flows presented below are based on cost rates and statutory income tax rates in existence as of the date of the projections
and average prices over the preceding twelve months. It is expected that material revisions to some estimates of crude oil and
natural gas reserves may occur in the future, development and production of the reserves may occur in periods other than those
assumed, and actual prices realized and costs incurred may vary significantly from those used.
Management
does not rely upon the following information in making investment and operating decisions. Such decisions are based upon a wide
range of factors, including estimates of probable and possible as well as proved reserves, and varying price and cost assumptions
considered more representative of a range of possible economic conditions that may be anticipated.
The
following table sets forth the standardized measure of discounted future net cash flows from projected production of Camber’s
oil, NGL, and natural gas reserves as of March 31, 2020 and 2019:
|
|
At March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Future cash inflows
|
|
$
|
4,069,441
|
|
|
$
|
9,223,561
|
|
Future production costs
|
|
|
(1,832,098
|
)
|
|
|
(4,073,084
|
)
|
Future development costs
|
|
|
—
|
|
|
|
(595,000
|
)
|
Future income taxes
|
|
|
(469,846
|
)
|
|
|
(956,650
|
)
|
Future net cash flows
|
|
|
1,767,497
|
|
|
|
3,598,827
|
|
Discount to present value at 10% annual rate
|
|
|
(803,608
|
)
|
|
|
(1,520,346
|
)
|
Standardized measure of discounted future net cash flows relating to proved oil and gas reserves
|
|
$
|
963,889
|
|
|
$
|
2,078,481
|
|
Changes
in Standardized Measure of Discounted Future Net Cash Flows. The following table sets forth the changes in the standardized
measure of discounted future net cash flows for each of the years ended March 31, 2020 and 2019:
|
|
2020
|
|
|
2019
|
|
Standardized measure, beginning of year
|
|
$
|
2,078,481
|
|
|
$
|
7,468,115
|
|
Crude oil and natural gas sales, net of production costs
|
|
|
96,978
|
|
|
|
260,928
|
|
Net changes in prices and production costs
|
|
|
(408,944
|
)
|
|
|
1,842,171
|
|
Changes in estimated future development costs
|
|
|
(324,481
|
)
|
|
|
344,759
|
|
Revisions of previous quantity estimates
|
|
|
(145,373
|
)
|
|
|
17,112,424
|
|
Accretion of discount
|
|
|
122,014
|
|
|
|
263,955
|
|
Net change in income taxes
|
|
|
304,877
|
|
|
|
3,460,184
|
|
Purchases of reserves in place
|
|
|
—
|
|
|
|
—
|
|
Sales of reserves in place
|
|
|
—
|
|
|
|
(10,083
|
)
|
Change in timing of estimated future production
|
|
|
(759,663
|
)
|
|
|
(28,663,972
|
)
|
Standardized measure, end of year
|
|
$
|
963,889
|
|
|
$
|
2,078,481
|
|