Our financial statements
as of March 31, 2018 and 2017 and for the fiscal years ended March 31, 2018 and 2017 have been audited by GBH CPAs, PC, independent
registered public accounting firms, 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.
The 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 gas company engaged in the development and acquisition of onshore properties in Texas and Oklahoma. The
Company’s main operations are primarily located in the Hunton formation in Lincoln, Logan and Payne and Okfuskee Counties,
in central Oklahoma, the Cline shale and upper Wolfberry shale in Glasscock County, Texas; and Hutchinson County, Texas.
During August 2017, the
Company relocated its corporate headquarters from Houston, Texas to San Antonio, Texas.
Effective on January 10,
2018, 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
200,000,000 shares to 500,000,000 shares (the “Amendment”). The Amendment was previously approved by the Company’s
stockholders at the 2018 annual meeting of stockholders held on January 9, 2018.
On March 1, 2018, we filed a Certificate of Amendment
to the Company’s Articles of Incorporation with the Secretary of State of Nevada to effect a 1-for-25 reverse stock split
of all outstanding common stock shares of the Company (the “Amendment”). The reverse stock split was effective on
March 5, 2018. The effect of the reverse stock split was to combine each 25 shares of outstanding common stock into one new share,
with no change in authorized shares or par value per share, and to reduce the number of common stock shares outstanding from approximately
103.5 million shares to approximately 4.1 million shares (prior to rounding). 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. The reverse stock split did not affect any shareholder’s
ownership percentage of the Company’s common stock, except to the limited extent that the reverse stock split resulted in
any shareholder 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 SAB TOPIC 4C, have been retroactively adjusted to reflect the reverse split for all periods presented.
NOTE 2 – LIQUIDITY AND GOING CONCERN
CONSIDERATIONS
At March 31, 2018, the
Company’s total current liabilities of $40 million exceeded its total current assets of approximately $1.7 million, resulting
in a working capital deficit of $38.3 million, while at March 31, 2017, the Company’s total current liabilities of $48.2
million exceeded its total current assets of $3.9 million, resulting in a working capital deficit of $44.3 million. The $6 million
decrease in the working capital deficit is primarily the result of the settlement of the debt related to the Rogers Loan default
and foreclosure (see below).
On December 30, 2015, the
Company entered into an Asset Purchase Agreement (as amended from time to time, the “Asset Purchase Agreement”) to
acquire, from twenty-three different entities and individuals (the “Sellers”), working interests in producing properties
and undeveloped acreage (the “Acquisition”), which acquisition transaction was completed on August 25, 2016. The assets
acquired include varied interests in two largely contiguous acreage blocks in the liquids-rich Mid-Continent region. In connection
with the closing of the acquisition, we assumed approximately $30.6 million of commercial bank debt, issued 520,387 shares of common
stock to certain of the Sellers, issued 552,000 shares of Series B Preferred Stock to one of the Sellers and its affiliate, and
paid $4,975,000 in cash to certain of the Sellers. The effective date of the Acquisition was April 1, 2016.
Pursuant to a Letter Agreement
we entered into, at the closing of the Acquisition, with RAD2, one of the Sellers, which is owned and controlled by Richard N.
Azar II, our prior Chief Executive Officer and prior director. RAD2 agreed to accept full financial liability for any and all deficiencies
between the “Agreed Assets Value” set forth in the Asset Purchase Agreement of $80,697,710, and the mutually agreed
upon value of the assets delivered by the Sellers at the closing of the Acquisition, up to an aggregate of $1,030,941 (as applicable,
the “Deficiency”). The Company accepted additional oil and gas producing properties and two salt water disposal facilities
from the Sellers with an approximate value of $1.0 million to resolve this Deficiency.
The Asset Purchase Agreement
between the Sellers and the Company relating to the Acquisition included the requirement that, following the closing, the parties
undertake an accounting/true-up of expenses attributable to the assets acquired by the Company and revenue generated from such
assets. A dispute arose between the Sellers and the Company as to the time period which the Company was to be responsible for the
payment of expenses and was to receive the revenue from such assets prior to the closing of the transaction. Specifically, the
Company believed that the agreements provided for it to be responsible for all expenses associated with the assets, and to receive
all revenue generated from the assets, from April 1, 2016, the effective date of the Asset Purchase Agreement, through the closing
date, August 25, 2016. The Sellers on the other hand, which include entities owned by Richard N. Azar, II, the Company’s
then interim Chief Executive Officer, argued that the Company was only responsible for expenses, and was only due to receive revenue
from the assets, beginning on the closing date, August 25, 2016. The difference in the amounts claimed due to the Company from
the parties currently varied from a high of $1,121,718, which the Company alleged it is due, to a low of $342,298, which the Sellers
alleged that the Company is due.
As discussed in “Note
6 – Notes Payable and Debenture”, the Company borrowed $40 million from IBC
effective August 25, 2016. The proceeds of the loan were used to repay and refinance approximately $30.6 million of indebtedness
owed by certain of the Sellers to IBC as part of the closing of the Acquisition. As of March 31, 2018, the Company was not in compliance
with certain covenants of the loan agreement, including requiring the Company to maintain a net worth of $30 million, the Company
is in default of the terms of the loan, and the balance of the loan due to IBC of $36.9 million (less unamortized debt issuance
costs of approximately $1.3 million), was recognized as a short-term liability on the Company’s balance sheet as of March
31, 2018. The Company also recognized approximately $39,000 in accrued interest as of March 31, 2018 related to this note.
On April 6, 2016, the Company
entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited institutional
investor (the “Investor”), pursuant to which we sold and issued a redeemable convertible subordinated debenture, with
a face amount of $530,000, initially convertible into 6,523 shares of common stock (subject to certain conversion premiums) at
a conversion price equal to $81.25 per share and a warrant to initially purchase 55,385 shares of common stock (subject to adjustment
thereunder) at an exercise price equal to $81.25 per share (the “First Warrant”). The Investor purchased the debenture
at a 5.0% original issue discount in the amount of $500,000 and has exercised the First Warrant in full as described below for
the sum of $4.5 million.
Also on April 6, 2016,
the Company entered into a Stock Purchase Agreement with the Investor, pursuant to which we agreed, subject to certain conditions,
to issue up to 527 shares of Series C redeemable convertible preferred stock (the “Series C Preferred Stock”) at a
5% original issue discount, convertible into 64,738 shares of common stock (subject to certain conversion premiums) at a conversion
price of $81.25 per share, and a warrant to initially purchase 44,444 shares of common stock at an exercise price of $112.50 per
share (the “Second Warrant”). Under the terms of the Stock Purchase Agreement, the Second Warrant and 53 shares of
Series C Preferred Stock were sold and issued for $500,000 on September 2, 2016, and the remaining 474 shares of Series C Preferred
Stock were sold and issued for $4.5 million on November 17, 2016.
In July and August 2016,
RAD2 advanced the Company an aggregate of $350,000. Also, in August 2016, two other Sellers advanced the Company an aggregate of
$200,000 ($100,000 each). These advances did not accrue interest and had no stated maturity date. Additionally, in August 2016,
RAD2 loaned us $1.5 million pursuant to a promissory note. The promissory note did not accrue interest for the first month it was
outstanding and accrued interest at the rate of 5% per annum thereafter until paid in full. The Company repaid the promissory note
in full and all amounts advanced by RAD2 and the two other Sellers in October 2016.
On October 7, 2016, the
Investor exercised the First Warrant in full and was due 55,385 shares of common stock upon exercise thereof and an additional
101,709 shares of common stock in consideration for the conversion premium due thereon. A total of 32,400 shares were issued to
the Investor on October 7, 2016, with the remaining shares being held in abeyance until such time as it would not result in the
Investor exceeding its beneficial ownership limitation (4.99% of the Company’s outstanding common stock). The Company received
gross proceeds of $4,500,000 from the exercise of the First Warrant and paid placement agent fees of $427,500 for services rendered
in connection with the First Warrant. Pursuant to the terms of the First Warrant, the number of shares due in consideration for
the conversion premium increases as the annual rate of return under the First Warrant increases, including by 10% upon the occurrence
of certain triggering events (which had occurred by the October 7, 2016 date of exercise), to 17% per annum upon the exercise of
the First Warrant. Additionally, as the conversion rate for the conversion premium is currently 85% of the lowest daily volume
weighted average price during the measuring period, less $0.10 per share of common stock not to exceed 85% of the lowest sales
prices on the last day of such period less $0.10 per share, the number of shares issuable in connection with the conversion premium
increases as the trading price of our common stock decreases, and the trading price of our common stock has decreased since the
date the First Warrant was exercised, triggering a further reduction in the conversion price of the conversion premium and an increase
in the number of shares due to the Investor in connection with the conversion of the amount owed in connection with the conversion
premium. Additionally, pursuant to the interpretation of the Investor, the measurement period for the calculation of the lowest
daily volume weighted average price currently continues indefinitely.
On August 13, 2013, the
Company entered into a $7.5 million Letter Loan Agreement with Louise H. Rogers (“Rogers” and such loan, as amended
from time to time, the “Rogers Loan”). As a result of various extensions and amendments thereto the Rogers Loan was
due and payable on July 31, 2017. The loan was not paid when due and the cure period on the Rogers Loan expired on September 11,
2017. On such date, all principal, interest and unpaid costs thereunder were immediately due and payable (which totaled approximately
$9.4 million as of the date of acceleration which amount included $2.1 million of default interest). Prior to the default, CATI
Operating, LLC (“CATI”), the Company’s wholly-owned subsidiary and obligor under the loan, had not recorded
interest due on the note based on its earlier agreements. As a result of the default, demand and acceleration, CATI recorded the
default interest demand of $2.1 million in the three month period ended December 31, 2017. In September 2017, Rogers foreclosed
on the assets of CATI which secured the note. On October 3, 2017, the trustee of those assets, for the benefit of the lender,
sold these assets in public auction foreclosure sales which took place in Gonzales County and Karnes County, Texas. The proceeds
from the foreclosure sales of approximately $3.5 million were applied against the outstanding indebtedness.
On December 15, 2017,
CATI entered into a Release of Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing
(the “Release”) with Rogers. Pursuant to the Release, the Company completed a transaction in which CATI provided Rogers,
pursuant to an Assignment of Overriding Royalty Interest (the “Royalty Assignment”), with an overriding royalty (equal
to 0.01 of 8/8ths of all oil and gas) on CATI’s remaining leasehold and Rogers released CATI from all remaining indebtedness
owed. The Release, which was filed in various counties in Texas on January 22, 2018 and January 23, 2018, discharged approximately
$5.8 million in principal and interest outstanding and owed to Rogers, according to Rogers. The effective date of the Release
was December 15, 2017. Additionally, the remaining leasehold and ownership of CATI was assigned to Arkose Lease Partners, LLC,
a third party (“Arkose”), pursuant to an Assignment of Membership Interest (the “Assignment”), dated November
1, 2017, in exchange for Arkose’s assumption of all plugging and abandonment liabilities of CATI of approximately $1.8 million.
Effective
January 31, 2017, the Company borrowed $1,000,000 from Alan Dreeben, then one of the Company’s directors, pursuant to a
short-term promissory note. The short-term promissory note had a principal balance of $1,050,000 (the $1,000,000 principal amount
borrowed plus a $50,000 original issue discount), accrues interest at 6% per annum and a maturity date of January 31, 2018, with
standard and customary events of default. As additional consideration for Mr. Dreeben agreeing to make the loan, we agreed to
issue Mr. Dreeben 1,600 shares of restricted common stock. On November 9, 2017, in connection with the sale of the Jackrabbit
Acreage, the Company repaid Mr. Dreeben the full amount due on the short-term promissory note of $1,050,000. See Note 4 “Property
and Equipment” for further details.
On March 9, 2017, the Company borrowed $250,000 from a non-related individual pursuant to a short-term promissory
note. The short-term promissory note has a principal balance of $263,158 (the $250,000 principal amount borrowed plus a $13,158
original issue discount), accrues interest at 6% per annum and has a maturity date of March 9, 2018 and contains standard and
customary events of default. As additional consideration for agreeing to make the loan, we agreed to issue the lender 400 restricted
shares of common stock. On November 9, 2017, in connection with the sale of the Jackrabbit Acreage, the Company paid the non-related
individual the full amount due on the short-term promissory note of $263,158. See Note 4 “Property and Equipment”
for further details.
On August 2, 2017,
and effective June 13, 2017, the Company entered into an agreement with Vantage Fund, LLC (“Vantage” and the
“Vantage Agreement”), pursuant to which Vantage agreed to provide up to $6 million of funding to the Company, in
the sole discretion of Vantage, with $400,000 provided in the initial tranche (the “Initial Tranche”). The
consideration for the Initial Tranche of funding was the assignment to Vantage of all of the Company’s rights and
ownership in its then wholly-owned subsidiary Camber Permian II, LLC (“Camber Permian”), which included
leaseholds and potential participation rights in undeveloped oil and gas property known as Arrowhead. The Vantage Agreement contained
customary indemnification requirements. On July 17, 2017, Vantage provided $120,000 to the Company under the Vantage Note and
on July 20, 2017, Vantage provided $30,000 to the Company under the Vantage Note. Vantage was granted a second lien on the
Jackrabbit property in connection with the financing. On November 9, 2017, in connection with the sale of the Jackrabbit
Acreage, the Company paid Vantage the full amount due on the Vantage Note of $150,000.
In addition to the transactions noted above,
the Company is currently discussing potential financing transactions in order to fulfill our current capital requirements as well
as our planned asset acquisition, which we believe, if finalized and completed, will ensure the future viability of the Company.
However, due to our current capital structure and the nature of oil and gas interests, i.e., that rates of production generally
decline over time as oil and gas reserves are depleted, if the Company is unable to obtain the necessary financing to finalize
the asset purchase or drill additional wells and develop its proved undeveloped reserves (“PUDs”); coupled with the
continued substantial drop in commodity prices over the last twelve months, the Company believe that its revenues will continue
to decline over time. Therefore, the Company may be forced to scale back our business plan, sell assets to satisfy outstanding
debts or take other remedial steps which may include seeking bankruptcy protection.
These conditions raise
substantial doubt about the Company’s ability to continue as a going concern for the next twelve months following the issuance
of these financial statements. The accompanying financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments
relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable
to continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements
of Camber Energy include the accounts of its wholly-owned subsidiaries, CATI Operating, LLC, a Texas limited liability company
(“CATI”), CEI Operating LLC, a Texas limited liability company, Camber Permian LLC, a Texas limited liability company,
Camber Permian II LLC, a Texas limited liability company, which was wholly-owned until it was divested on November 9, 2017, and
CE Operating, LLC, an Oklahoma limited liability company. Per an amendment to the Rogers Loan, dated December 14, 2015, we transferred
all of our oil and gas interests and equipment to CATI (see “Note 6 – Notes Payable” below). All intercompany
accounts and transactions have been eliminated.
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 we believe that our 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, 2018 and 2017, the Company’s cash in excess of the federally insured limit were $490,460 and $199,435,
respectively. Historically, the Company has not experienced any losses in such accounts. The Company had no cash equivalents at
March 31, 2018 or 2017.
Accounts Receivable
Accounts receivable consist
of uncollateralized oil and natural gas revenues due under normal trade terms. Management reviews receivables periodically and
reduces the carrying amount by a valuation allowance that reflects management’s best estimate of the amount that may not
be collectible. At March 31, 2018 and 2017, the Company’s allowance for doubtful accounts was $1,038,015 and $779,421, respectively.
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, 2018, the Company's consolidated revenues were from the sale of oil, gas and natural gas liquids under
marketing contracts primarily with Superior Pipeline Company and Scissortail Energy, LLC. The Company is not dependent
upon any one purchaser and have 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 our production.
During the year ended
March 31, 2018, two customers accounted for 72.3% of the Company’s total revenues and during the year ended March
31, 2017, no one customer accounted for more than 20% of its 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.
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 $5.74 and $10.98 per barrel of oil equivalent for the years ended March 31, 2018 and 2017,
respectively.
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, 2018, the Company recorded impairments totaling $8.1 million that were primarily related to unproved properties due
to expirations of leaseholds. During the year ended March 31, 2017, the Company recorded impairments totaling $79.1
million, which represented $10.9 million related to proved properties, $18.7 million related to unproved properties, and
$49.5 million in conjunction with the Acquisition, primarily due to continued low commodity prices during the fiscal
year.
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, 2018 and 2017. 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 net income
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. 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.
Stock options to purchase
78 shares of common stock at an average exercise price of $1,293.75 per share and warrants to purchase 72,608 shares of common
stock at an average exercise price of $18.15 per share were outstanding at March 31, 2018. Stock options to purchase 798 shares
of common stock at a weighted average exercise price of $885.23 per share and warrants to purchase 10,261 shares of common stock
at a weighted average exercise price of $321.01 per share were outstanding at March 31, 2017.
Using the treasury stock
method, had the Company had net income, no common shares attributable to our outstanding stock options would have been included
in the fully diluted earnings per share calculation for the years ended March 31, 2018 and 2017.
Fair Value of Financial Instruments
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, 2018, the
significant inputs to the Company’s derivative liability calculation were Level 3 inputs.
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.
Revenue and Cost Recognition
Camber recognizes oil and
natural gas revenue under the sales method of accounting for its interests in producing wells as crude oil and natural gas is produced
and sold from those wells. Costs associated with production are expensed in the period incurred. Crude oil produced but remaining
as inventory in field tanks is not recorded as revenue in Camber’s financial statements because it is not material.
Reclassifications
Certain reclassifications
have been made to the prior year financial statements to conform with the current year presentation.
Recently Issued Accounting Pronouncements
There were various accounting
standards and interpretations issued during fiscal 2018 and 2017, none of which are expected to have a material impact on the Company’s
financial position, operations or cash flows.
In May 2014, the Financial
Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”),
which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize
revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an
entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle
and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing
GAAP. The guidance is effective for annual and interim periods beginning after December 15, 2017. The standard is required to
be adopted using either the full retrospective approach, with all prior periods presented adjusted, or the modified retrospective
approach, with a cumulative adjustment to retained earnings on the opening balance sheet. The Company will adopt the new standard
utilizing the modified retrospective approach. The Company does not expect the adoption of this ASU to have a material impact
on its financial statements. However, we anticipate the new standard will result in more robust footnote disclosures.
In August
2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.
The new standard requires management to assess the Company’s ability to continue as a going concern. Disclosures are required
if there is substantial doubt as to the Company’s continuation as a going concern within one year after the issue date of
financial statements. The standard provides guidance for making the assessment, including consideration of management’s
plans which may alleviate doubt regarding the Company’s ability to continue as a going concern.
ASU
2014-15 is effective for years ending after December 15, 2016. The Company adopted this standard for the year ending March 31,
2017, and management has concluded that there is substantial doubt as to the Company’s continuation as a going concern within
one year after the issue date of the financial statements.
In February 2016, the FASB
issued ASU 2016-02, a new lease standard requiring lessees to recognize lease assets and lease liabilities for most leases classified
as operating leases under previous U.S. GAAP. The guidance is effective for fiscal years beginning after December 15, 2018, with
early adoption permitted. The Company will be required to use a modified retrospective approach for leases that exist or are entered
into after the beginning of the earliest comparative period in the financial statements. The Company is currently evaluating the
impact of adopting this standard on its consolidated financial statements.
In August 2016, the FASB
issued Accounting Standards Update (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, including interim periods within those fiscal years,
with early adoption permitted. The Company is currently evaluating the provisions of ASU 2016-15 and assessing the impact, if
any, it may have on its statement of consolidated cash flows.
In January 2017, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standard Update (“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 is currently evaluating the effects of ASU 2017-01.
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 is currently evaluating the
impact of adopting this standard on its consolidated financial statements.
NOTE 4 – PROPERTY AND EQUIPMENT
Oil and Natural Gas Properties
All of Camber’s oil and natural gas properties
are located in the United States. Costs being amortized at March 31, 2018 and 2017 are as follows:
|
|
At March 31,
|
|
|
2018
|
|
2017
|
Oil and gas properties subject to amortization
|
|
$
|
60,760,056
|
|
|
$
|
72,318,163
|
|
Oil and gas properties not subject to amortization
|
|
|
28,016,989
|
|
|
|
28,947,400
|
|
Capitalized asset retirement costs
|
|
|
322,470
|
|
|
|
1,473,199
|
|
Total oil & natural gas properties
|
|
|
89,099,515
|
|
|
|
102,738,762
|
|
Accumulated depreciation, depletion, and impairment
|
|
|
(76,555,320
|
)
|
|
|
(67,036,915
|
)
|
Net Capitalized Costs
|
|
$
|
12,544,195
|
|
|
$
|
35,701,847
|
|
Impairment
During the year ended
March 31, 2018, the Company recorded impairments totaling $8.1 million that were primarily related to unproved properties due
to expirations of leaseholds. During the year ended March 31, 2017, the Company recorded impairments totaling $79.1
million, which represented $10.9 million related to proved properties, $18.7 million related to unproved properties, and
$49.5 million in conjunction with the Acquisition, primarily due to continued low commodity prices during the fiscal
year.
Disposition of
Oil and Natural Gas Properties
On August 2, 2017, the Company entered
into an agreement with Vantage pursuant to which Vantage agreed to provide up to $6 million of funding to the Company, at the
sole discretion of Vantage. On June 12, 2017, the Company received the initial tranche of $400,000. In exchange for the cash
received, the Company assigned its interest in the undeveloped Arrowhead oil and gas property, with a book value of $114,500,
to Vantage and granted warrants to purchase 64,000 shares of the Company's common stock (see further discussion of these
warrants in Note 10). The Company recorded a gain of $1,195 as a result of this assignment that was recorded in loss on sale
of property and equipment for the year ended March 31, 2018.
On June 12, 2017, the Company received the initial tranche of $400,000
in connection with the Vantage Agreement. In exchange for the cash received, the Company assigned its interest held in Camber Permian
in the undeveloped Arrowhead oil and gas property, with a book value of $114,500, to Vantage and granted warrants to purchase 64,000
shares of the Company’s common stock (see further discussion of these warrants in Note 10). The Company recorded a gain of
$1,195 as a result of this assignment that was recorded in loss on sale of property and equipment as of March 31, 2018.
The cure period on the Rogers Loan expired on September 11, 2017, and as of such date, all principal, interest and unpaid costs thereunder were immediately due and payable (which totaled approximately $9.4 million as of the date of acceleration which amount included $2.1 million of default interest). Prior to the default, CATI had not recorded interest due on the note based on its earlier agreements. As a result of the default, demand and acceleration, CATI recorded the default interest demand of $2.1 million in the three-month period ended December 31, 2017. In September 2017, Rogers foreclosed on the assets of CATI which secured the note. On October 3, 2017, the trustee of those assets, for the benefit of the lender, sold these assets in public auction foreclosure sales which took place in Gonzales County and Karnes County, Texas. The proceeds from the foreclosure sales of approximately $3.5 million were applied against the outstanding indebtedness. The Company recorded an approximate loss on sale of property of approximately $4.1 million in conjunction with the settlement of the approximate $9.4 million of debt and accrued interest and the removal of approximately $1.3 million of remaining ARO.
On December 15, 2017,
CATI entered into a Release of Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing
(the “Release”) with Rogers. Pursuant to the Release, the Company completed a transaction in which CATI provided Rogers,
pursuant to an Assignment of Overriding Royalty Interest (the “Royalty Assignment”), with an overriding royalty (equal
to 0.01 of 8/8ths of all oil and gas) on CATI’s remaining leasehold and Rogers released CATI from all remaining indebtedness
owed. The Release, which was filed in various counties in Texas on January 22, 2018 and January 23, 2018, discharged approximately
$5.8 million in principal and interest outstanding and owed to Rogers, according to Rogers. The effective date of the Release was
December 15, 2017. Additionally, the remaining leasehold and ownership of CATI was assigned to Arkose Lease Partners, LLC, a
third party (“Arkose”), pursuant to an Assignment of Membership Interest (the “Assignment”), dated November
1, 2017, in exchange for Arkose’s assumption of all plugging and abandonment liabilities of CATI. See Note 6 “Notes
Payable and Debenture” for further details.
Effective
November 1, 2017, the Company and NFP Energy LLC (“NFP”) its joint venture partner, sold its 90% ownership
position in oil and gas properties totaling approximately 2,452 acres in Gaines County, Texas, to Fortuna Resources
Permian (“Fortuna”), for $1,000 per acre or an aggregate of $2,206,718 payable to the Company. The Company paid
NFP $662,072 to terminate the joint venture agreement and the property sold had a net book value of $817,110. The transaction
resulted in a $727,732 gain which is included in Loss on Sale of Property and Equipment on the statement of operations.
This acreage, part of the Company’s “Jackrabbit” acreage, targeted the San Andres formation in the Permian
Basin. Additionally, the Company and NFP jointly terminated their venture. With the proceeds from the sale, the
Company paid the first lien holders including Alan Dreeben (a former director of the Company) and second lien holder Vantage.
The Company maintains a 90% ownership position in the remaining approximately 1,200 acres in the area.
Acquisition of
Oil and Natural Gas Properties
On August 25, 2016, the
Company completed the Acquisition and acquired working interests in producing properties and undeveloped acreage from the Sellers
(see “Note 2 – Liquidity and Going Concern Considerations”). The assets acquired include varied interests in
two largely contiguous acreage blocks in the liquids-rich Mid-Continent region.
As consideration for the
Acquisition of the acquired assets, the Company assumed approximately $30.6 million of commercial bank debt, issued 520,387 shares
of common stock to certain of the Sellers valued at the grant date fair value, issued 552,000 shares of Series B Preferred Stock
to one of the Sellers and its affiliate (see “Note 7 – Stockholders’ Equity”) valued at the grant date
fair value, and paid $4,975,000 in cash to certain of the Sellers. The effective date of the Acquisition was April 1, 2016.
The following tables summarize
the purchase price and allocation of the purchase price to the net assets acquired in connection with the Acquisition:
Purchase Price on August 25, 2016:
|
|
Consideration Given
|
Fair value of common stock issued
|
|
$
|
49,176,530
|
|
Fair value of Series B Preferred Stock issued
|
|
|
14,898,038
|
|
Assumption of debt
|
|
|
30,595,256
|
|
Cash paid at closing
|
|
|
4,975,000
|
|
Total purchase price
|
|
$
|
99,644,824
|
|
|
|
|
|
|
|
|
|
Net Assets Acquired
|
|
Accounts receivable
|
|
$
|
635,482
|
|
Total current assets acquired
|
|
|
635,482
|
|
|
|
|
|
|
Oil and gas properties
|
|
|
50,774,684
|
|
Total assets acquired
|
|
|
51,410,166
|
|
|
|
|
|
|
Asset retirement obligations
|
|
|
(755,862
|
)
|
Total liabilities acquired
|
|
|
(755,862
|
)
|
|
|
|
|
|
Net assets acquired
|
|
|
50,654,304
|
|
|
|
|
|
|
Impairment of oil and gas properties
|
|
|
48,990,520
|
|
|
|
|
|
|
Total Purchase Price
|
|
$
|
99,644,824
|
|
The proceeds from the $40 million loan from
IBC were as follows:
|
|
Use of Proceeds
|
Assumption of debt
|
|
$
|
30,595,256
|
|
Cash funding (paid at closing)
|
|
|
4,975,000
|
|
Loan Commitment fee (paid at closing)
|
|
|
200,000
|
|
Lien Payoff (paid at closing)
|
|
|
72,657
|
|
Restricted cash (received at closing)
|
|
|
3,360,000
|
|
Cash (received at closing)
|
|
|
797,087
|
|
Debt payable after closing
|
|
$
|
40,000,000
|
|
In January 2018, the Company acquired approximately 3,000 leasehold acres in Okfuskee County, Oklahoma, including two producing wells and 7 non-producing well bores, in consideration for cash paid of $210,000. The acquisition included three salt water disposal wells, to support existing and potential future hydrocarbon production.
In March 2018,
the Company completed an acquisition of working interest in certain leases, wells and equipment located in the Texas
panhandle, for a purchase price of $250,000, payable in three tranches. A payment of $85,000 was due at closing; $85,000 was
due thirty days after closing and $80,000 was due sixty days after closing these remaining payments have been accrued as of
March 31, 2018 and are included in accrued expenses on the balance sheet. Camber earned 25% of the working interest at the
closing and earned an additional 25% of the working interest at each of the two subsequent closings. The seller retained a
25% carried working interest in the assets. The acquisition includes 49 non-producing well bores, 5 saltwater disposal wells
and the required infrastructure and equipment necessary to support future hydrocarbon production, as well as approximately
500 net leasehold acres in Hutchinson County, Texas.
Capital
Leases
In March 2018, the
Company purchased certain equipment pursuant to capital leases. The effective value of the equipment was approximately
$278,000 and such amount is included in Oil and Gas Properties and the corresponding liability of approximately $278,000 is
included in Accrued Expenses. The effective borrowing rate is approximately 35% and all obligations are due by December
2018.
Other Property and Equipment
In
February 2014, the Company purchased a field office for approximately $50,000 which is used to provide local operational support
for its properties in the Eagleford and Austin Chalk areas. The land upon which the field office resides was initially leased by
the Company over a three-year term beginning in January 2014 through December 2016, for a yearly lease amounts of $7,200 and $7,800,
and $8,400 over the three-year term, respectively. In January 2017, the Company renewed the lease on a year-to-year basis for $7,200.
The field office was transferred as a part of the Release with Rogers. See Note 6 “Notes Payable and Debenture” for
further details.
Office Lease
On
April 1, 2016, the Company entered into a lease agreement pursuant to which the Company agreed to lease 4,439 square feet of office
space at 450 Gears Road, Houston, Harris County, Texas 77067 (Suite 860, versus Suite 780 as was leased previously). The lease
had a 65-month term (through August 2021), and commenced on April 1, 2016. The monthly rental cost under the lease was -$0- for
the month of April 2016, and $7,676 for the months of May 2016 through April 2017, plus as applicable, its pro rata share of operating
expenses and taxes which exceed the total operating expenses and taxes of the property for the first year of the lease. On March
31, 2017, the Company amended its lease at 450 Gears Road to expand to a total of 6,839 square feet, commencing on May 1, 2017.
The amendment extended the lease period to November 2021.
In
August 2017, the Company ceased its use of this office space and moved its headquarters to San Antonio, Texas. The Company
is committed to the remaining lease payments for the Houston office space for approximately $346,000 assuming an
early termination of the lease on July 31, 2019. The Company recorded monthly rent expense associated with the Houston
lease through August 2017. In accordance with the accounting guidance in ASC 420-10-25-13 regarding exit or disposal
cost obligations, as of August 2017, the Company recorded rent expense, within general and administrative expense, and
accrued a liability of $302,289, which represents the fair value of costs that will continue to be incurred during the
remaining term of the Houston lease without economic benefit to the Company. As of March 31, 2018, the remaining carrying
amount of the liability of $226,972 was included in accrued expenses on the Company’s balance sheet. In addition, the
Company wrote-off $189,533 of mostly fully depreciated property and equipment that was not re-located to the San Antonio
headquarters resulting in a loss of $3,368 which was included in loss on sale of property and equipment on the income
statement as of March 31, 2018.
Effective October 1, 2017,
the Company entered into an agreement to sublease space on a month to month basis in San Antonio, Texas at
4040
Broadway, Suite 425
from RAD2 Minerals, Ltd., an entity owned and controlled by Mr. Azar, the Company’s former Interim
Chief Executive Officer, who resigned as Interim CEO effective May 25, 2018 and resigned as a member of the Board of Directors
on June 21, 2018. Monthly rent for October through December 2017 was $5,000 per month, increasing to $7,500 per month effective
January 2018. The lease agreement was terminated effective June 30, 2018. The Company agreed under a verbal contract to
lease the same space on a month-to-month basis for $2,500 per month beginning effective July 1, 2018.
NOTE 5 – ASSET RETIREMENT OBLIGATIONS
The following table presents
the reconciliation of the beginning and ending aggregate carrying amounts of long-term legal obligations associated with the future
retirement of oil and natural gas properties for the years ended March 31, 2018 and 2017:
|
|
2018
|
|
2017
|
Carrying amount at beginning of year
|
|
$
|
2,045,847
|
|
|
$
|
1,179,170
|
|
Acquisition of oil and gas properties
|
|
|
437,071
|
|
|
|
755,862
|
|
Accretion
|
|
|
92,620
|
|
|
|
199,960
|
|
Disposition due to Rogers foreclosure
|
|
|
(1,328,260
|
)
|
|
|
—
|
|
Revisions of previous estimates
|
|
|
(268,119
|
)
|
|
|
(89,145
|
)
|
Carrying amount at end of year
|
|
$
|
979,159
|
|
|
$
|
2,045,847
|
|
NOTE 6 – NOTES PAYABLE AND DEBENTURE
The Company’s notes payable and
debenture consisted of the following:
|
|
March 31,
|
|
March 31,
|
|
|
2018
|
|
2017
|
Note Payable - Rogers
|
|
$
|
—
|
|
|
$
|
6,883,697
|
|
Note Payable - Dreeben
|
|
|
—
|
|
|
|
1,050,000
|
|
Note Payable - Stewart
|
|
|
—
|
|
|
|
263,158
|
|
Debenture
|
|
|
495,000
|
|
|
|
530,000
|
|
Note Payable - IBC
|
|
|
36,943,617
|
|
|
|
38,324,527
|
|
|
|
|
37,438,617
|
|
|
|
47,051,382
|
|
Unamortized debt discount
|
|
|
(1,499,647
|
)
|
|
|
(2,624,038
|
)
|
Total Notes Payable and Debenture
|
|
|
35,938,970
|
|
|
|
44,427,344
|
|
Less current portion
|
|
|
(35,691,567
|
)
|
|
|
(44,281,649
|
)
|
Long-term portion
|
|
$
|
247,403
|
|
|
$
|
145,695
|
|
Rogers Loan and Promissory Note
Letter Loan Agreement
At March 31, 2017, the
Company had $6,883,697 due under the $7.5 million Letter Loan Agreement originally entered into with Rogers on August 13, 2013.
Additionally, per a prior
amendment, the Company transferred all of its oil and gas interests and equipment to our then newly formed wholly-owned Texas subsidiary,
CATI which clarified that following the transfer, Rogers had no right to foreclose upon the Company (at the Nevada corporate parent
level) upon the occurrence of an event of default under the Rogers Loan, and that instead Rogers would only take action against
CATI and its assets and required Rogers to release all UCC and other security filings on the Company (provided that Rogers is allowed
to file the same filings on CATI and its assets). Subsequently, the Company assigned all of its oil and gas interests and equipment
to CATI pursuant to an Assignment and Bill of Sale dated December 16, 2015.
On February 1, 2017, the
Company agreed to extend the maturity date of the Rogers Loan from January 31, 2017 to April 30, 2017. As consideration, the Company
paid $9,000 to Rogers and $9,000 to Robertson Global Credit, LLC (“Robertson”), the servicer of the loan. In April
2017, the maturity date was extended again until July 31, 2017. As consideration, the Company paid $9,000 to Ms. Rogers and $9,000
to Robertson. The Company failed to pay the amount due to Rogers on July 31, 2017.
On August 25, 2017, the
Company received a notice that its wholly-owned subsidiary CATI had defaulted on the maturity payment of its loan with Rogers,
which matured on July 31, 2017. The letter stated that CATI was indebted to Rogers in an amount of $8.9 million, which includes
all principal and interest (of which $2.1 million was default interest) through August 25, 2017. The letter further asserted additional
interest of $3,577 per day as well as other unpaid fees totaling $18,162 plus interest on those fees. The default notice further
stated that the default in failing to pay the fees must be cured by September 5, 2017 and the default on the principal and interest
payment must be cured by September 11, 2017.
The cure period on the Rogers Loan expired on September 11, 2017, and as of such date, all principal, interest and unpaid costs thereunder were immediately due and payable (which totaled approximately $9.4 million as of the date of acceleration which amount included $2.1 million of default interest). Prior to the default, CATI had not recorded interest due on the note based on its earlier agreements. As a result of the default, demand and acceleration, CATI recorded the default interest demand of $2.1 million in the three-month period ended December 31, 2017. In September 2017, Rogers foreclosed on the assets of CATI which secured the note. On October 3, 2017, the trustee of those assets, for the benefit of the lender, sold these assets in public auction foreclosure sales which took place in Gonzales County and Karnes County, Texas. The proceeds from the foreclosure sales of approximately $3.5 million were applied against the outstanding indebtedness. The Company recorded an approximate loss on sale of property of approximately $4.1 million in conjunction with the settlement of the approximate $9.4 million of debt and accrued interest and the removal of approximately $1.3 million of remaining ARO.
On December 15, 2017, CATI
entered into a Release of Mortgage, Deed of Trust, Assignment, Security Agreement, Financing Statement and Fixture Filing (the
“Release”) with Rogers. Pursuant to the Release, the Company completed a transaction in which CATI provided Rogers,
pursuant to an Assignment of Overriding Royalty Interest (the “Royalty Assignment”), with an overriding royalty (equal
to 0.01 of 8/8ths of all oil and gas) on CATI’s remaining leasehold and Rogers released CATI from all remaining indebtedness
owed. The Release, which was filed in various counties in Texas on January 22, 2018 and January 23, 2018, discharged approximately
$9.4 million in principal and interest outstanding and owed to Rogers, according to Rogers. The effective date of the Release was
December 15, 2017. Additionally, the remaining leasehold and ownership of CATI was assigned to Arkose Lease Partners, LLC, a
third party (“Arkose”), pursuant to an Assignment of Membership Interest (the “Assignment”), dated November
1, 2017, in exchange for Arkose’s assumption of all plugging and abandonment liabilities of CATI.
Promissory Note
On August 25, 2016, and
effective on August 15, 2016, our wholly-owned subsidiary, CATI borrowed $1 million from the Company’s senior lender, Rogers.
The amount borrowed accrued interest at the rate of 12% per annum (18% upon the occurrence of an event of default) and was due
and payable on or before November 9, 2016. The note is secured by the assets of CATI and nine of our other assets, including those
acquired in the Acquisition.
Pursuant to the terms of
the note, a total of 80% of all cash flow generated by CATI was required to first be paid to satisfy amounts owed under the August
2016 Note, and then to amounts owed under the Letter Loan, with the remaining 20% of such cash flow used by CATI for lease and
other operating expenses and capital expenditures approved by Rogers’ designated representatives. In connection with the
Company’s entry into the August 2016 note, it paid a loan origination fee of $50,000 and agreed to pay all fees of Rogers’
counsel in connection with the preparation and negotiation of the note. The $50,000 loan origination fee was recorded as a debt
discount and was amortized through interest expense using the effective interest method over the term of the note.
As additional consideration,
CATI issued Robertson Global Credit, LLC, the administrator of the Rogers Loan, a 2% overriding royalty interest in the wellbores
of the Cyclone #9H and Cyclone #10H wells.
On October 11, 2016, the
Company paid Rogers the full amount of principal due on the promissory note of $1.0 million and also paid the full amount of interest
due of $15,667 on October 13, 2016. As such, the promissory note was no longer outstanding as of March 31, 2017.
Silver Star Line of Credit
On August 30, 2015, the
Company entered into a Non-Revolving Line of Credit Agreement with Silver Star Oil Company (“Silver Star”). The line
of credit provided the Company the right to issue up to $2.4 million in convertible promissory notes to Silver Star. To date, Camber
has drawn $1,000,000 under the line of credit for the months of October, November, December 2015 and January and February 2016.
The convertible notes contained a beneficial conversion feature with a combined intrinsic value of $687,987 for the five notes,
which was recognized as a debt discount and is being amortized through interest expense using the effective interest method over
the term of the notes.
Convertible notes totaling
$800,000 had been assigned by Silver Star to Rockwell Capital Partners (“Rockwell”), of which Rockwell has fully converted
a total of $830,562 of the principal and interest due on such convertible notes outstanding into shares of our common stock at
a conversion price of $37.50 per share, for an aggregate of 22,148 shares.
On July 15, 2016, pursuant
to an assignment of convertible promissory note agreement, the Company was advised that the last $200,000 convertible promissory
note issued to Silver Star on February 20, 2016 was assigned by Silver Star to Texas Capital & Assets LLC. On September 28,
2016, Texas Capital & Assets LLC converted $207,566 of principal and interest due on such convertible note into shares of our
common stock at a conversion price of $37.50 per share, for an aggregate of 5,535 shares.
As of March 31, 2017, the
Company had no remaining Silver Star convertible notes outstanding as all outstanding notes had been converted into shares of the
Company’s common stock.
HFT Convertible Promissory Note Purchase
Agreement and Convertible Promissory Notes
On March 29, 2016, Camber
entered into a Convertible Promissory Note Purchase Agreement with HFT Enterprises, LLC (“HFT”). Pursuant to the Note
Purchase Agreement, Camber agreed to sell an aggregate of $600,000 in convertible notes, including $450,000 in convertible notes
purchased on the date of the parties’ entry into the agreement, and $150,000 in convertible notes purchased by Debra Herman,
the wife of Michael Herman, the principal of HFT, on April 26, 2016. Camber also granted Mrs. Herman warrants to purchase 4,971
shares of common stock with an exercise price of $37.50 per share on April 26, 2016, when the final loan was made pursuant to the
terms of the agreement. The fair value of these warrants of $470,467 and the relative fair value of $113,737 was recorded as additional
debt discount.
Each of the convertible
notes are due and payable twelve months from their issuance date, accrue interest at the rate of 6% per annum (15% upon the occurrence
of an event of default), and allow the holder thereof the right to convert the principal and interest due thereunder into common
stock of the Company at a conversion price of $37.50 per share, provided that the total number of shares of common stock issuable
upon conversion of the convertible notes could not exceed 19.9% of our outstanding shares of common stock on March 29, 2016, until
shareholder approval for such issuances was received, which approval was received on August 23, 2016. The convertible notes contained
a beneficial conversion feature with a combined intrinsic value of $600,000 for the three notes, which is recognized as a discount
and is being amortized through interest expense using the effective interest method over the term of the notes.
On October 4, 2016, HFT,
converted $464,800 of the principal and interest due on such convertible notes held by HFT into shares of Camber common stock at
a conversion price of $37.50 per share, for an aggregate of 12,395 shares. Additionally, on November 18, 2016, Mrs. Herman converted
$155,110 of the principal and interest due on the convertible note which she held into shares of our common stock at a conversion
price of $37.50 per share, for an aggregate of 4,136 shares.
As of March 31, 2018 and
2017, the Company had no remaining HFT convertible notes outstanding and does not recognize any corresponding liability on the
Company’s balance sheet as all outstanding notes had been converted into shares of the Company’s common stock.
Dreeben Note
On
March 28, 2016, the Company borrowed $250,000 from Alan Dreeben, one of the Sellers and one of the Company’s then directors,
pursuant to a short-term promissory note. The short-term promissory note has a principal balance of $275,000 (the $250,000 borrowed
plus a $25,000 original issue discount). As additional consideration for Mr. Dreeben agreeing to make the loan, the Company agreed
to issue Mr. Dreeben 600 shares of restricted common stock, which were issued in September 2016. The Company recognized a $48,000
discount to the short-term promissory note which was based on the closing price of the Company’s common stock ($80.00 per
share) on March 28, 2016 in addition to the original discount of $25,000, for a total discount of $73,000.
On June 27, 2016, the Company
entered into an amended and restated short-term promissory note, amending and restating the note originally entered into with Mr.
Dreeben on March 28, 2016; evidencing an additional $100,000 borrowed on June 13, 2016, plus a $10,000 original issue discount
on such loan amount and extending the maturity date of the note to August 31, 2016.
On August 31, 2016, the
Company paid Mr. Dreeben the full amount due on the short-term promissory note of $385,000.
Effective January
31, 2017, the Company borrowed $1,000,000 from Alan Dreeben, one of the Company’s then directors, pursuant to a short-term
promissory note. The short-term promissory note had a principal balance of $1,050,000 (the $1,000,000 principal amount borrowed
plus a $50,000 original issue discount), accrues interest at 6% per annum and a maturity date of January 31, 2018, with standard
and customary events of default. As additional consideration for Mr. Dreeben agreeing to make the loan, we agreed to issue Mr.
Dreeben 1,600 shares of restricted common stock. At March 31, 2017, the Company owed $1,050,000 to Alan Dreeben. The fair
value of the restricted shares was $30,000 based on the closing price of the Company’s common stock on the issuance date.
The fair value of the shares was recorded as additional debt discount. At March 31, 2017, the Company owed $1,050,000 to Alan
Dreeben. The Company also recognized $10,500 in accrued interest as of March 31, 2017.
On November 9,
2017, in connection with the sale of the Jackrabbit Acreage, the Company repaid Mr. Dreeben the full amount due on the short-term
promissory note of $1,050,000. See Note 4 “Property and Equipment” for further details.
Non-Related Individual Note
On March 9, 2017,
the Company borrowed $250,000 from a non-related individual pursuant to a short-term promissory note. The short-term promissory
note has a principal balance of $263,158 (the $250,000 principal amount borrowed plus a $13,158 original issue discount), accrues
interest at 6% per annum and has a maturity date of March 9, 2018 and contains standard and customary events of default.
As additional consideration for agreeing to make the loan, the Company agreed to issue the lender 400 restricted shares of common
stock. The fair value of the restricted shares was $5,900 based on the closing price of the Company’s common stock on the
issuance date. The fair value of the shares was recorded as additional debt discount. The note is secured by a deed of trust on
certain of our properties. At March 31, 2017, the Company owed $263,158 to the non-related individual. The Company also recognized
$1,316 in accrued interest as of March 31, 2017. On November 9, 2017, in connection with the sale of the Jackrabbit Acreage, the
Company paid the non-related individual the full amount due on the short-term promissory note of $263,158. See Note 4 “Property
and Equipment” for further details.
Debenture
On April 6, 2016, the
Company entered into a Securities Purchase Agreement with the Investor, pursuant to which the Company issued a redeemable convertible
subordinated debenture, with a face value of $530,000, initially convertible into 6,523 shares of common stock at a conversion
price equal to $81.25 per share and warrants to initially purchase 55,385 shares of common stock (subject to adjustment thereunder)
at an exercise price equal to $81.25 per share (the “First Warrant”). The Investor purchased the debenture at a $30,000
original issue discount for the sum of $500,000 and agreed that it would exercise the First Warrant, upon satisfaction of certain
conditions, for the sum of $4.5 million, which warrant was exercised in October 2016. The debenture matures in seven years and
accrues interest at a rate of 6.0% per annum. Due to the recent decline in the price of our common stock and that a trigger event
occurred on June 30, 2016 as a result of the delay in filing our Annual Report on Form 10-K for the year ended March 31,
2016, the premium rate on the debenture increased from 6% to 34% and the conversion discount became 85% of the lowest daily volume
weighted average price during the measuring period (60 days prior to and 60 days after the last date that the Investor receives
the last of the shares due), less $0.10 per share of common stock not to exceed 85% of the lowest sales price on the last day
of such period less $0.10 per share. On August 23, 2017, the Investor converted $35,000 of the principal amount of the Debenture
into an aggregate of 70,189 shares of common stock, which included 431 shares for conversion of principal (at $81.25 per share)
and 69,758 shares for premiums.
As the fair value of the warrants issued in connection with the debenture exceeds the $530,000
value of the debenture, we fully discounted the entire debenture and will amortize the discount over the term of the debenture.
The discount is being amortized through interest expense using the effective interest method over the term of the debenture.
As of March 31, 2018
and 2017, the Company had a convertible subordinated debenture with a balance of $247,403 and $145,695, respectively (net of
unamortized discount of $247,597 and $384,305, respectively) which is recognized as a long-term liability on the
Company’s balance sheet as of March 31, 2018 and 2017. The Company also recognized $338,183 and $180,200 in accrued
interest as of March 31, 2018 and 2017, respectively.
Loan Agreement with International Bank
of Commerce (“IBC”)
On August 25, 2016, the
Company, as borrower, and Richard N. Azar II, our former Chief Executive Officer and former director, and who also received the
largest number of securities and cash in connection with the closing of the Acquisition (“Azar”), Donnie B. Seay, our
current director, Richard E. Menchaca, RAD2, DBS Investments, Ltd. (“DBS”, controlled by Mr. Seay) and Saxum Energy,
LLC (“Saxum”, which is controlled by Mr. Menchaca), as guarantors (collectively, the “Guarantors”, all
of which were directly or indirectly Sellers), and IBC, as Lender (“Lender”), entered into a Loan Agreement.
Pursuant to the Loan Agreement,
the Lender loaned the Company $40 million, evidenced by a Real Estate Lien Note in the amount of $40 million. The Company is required
to make monthly payments under the note equal to the greater of (i) $425,000; and (ii) fifty percent (50%) of our monthly net income.
The note accrues annual interest at 2% above the prime rate then in effect, subject to a minimum interest rate of 5.5% per annum.
The note is due and payable on August 25, 2019. Payments under the note are subject to change as the interest rate changes in order
to sufficiently amortize the note in 120 monthly installments. The Company has the right, from time to time and without penalty
to prepay the note in whole or in part, subject to the terms thereof.
The proceeds of the loan
were used to repay and refinance approximately $30.6 million of indebtedness owed by certain of the Sellers, to the Lender (including
an aggregate of $18.3 million owed by RAD2 and another entity controlled by Mr. Azar, $9.8 million owed by DBS, and $2.1 million
owed by Mr. Menchaca), as well as to pay the $4.975 million due to the Sellers at closing. Another $3.36 million was used to fund
a sinking fund required by the Lender, as discussed below, to pay principal on the note.
The amount owed under the
note is secured by a Security Interest in substantially all of our assets and properties, pursuant to three Security Agreements.
Also, each of the Guarantors guaranteed the repayment of a portion of the Loan Agreement pursuant to a Limited Guaranty Agreement.
Additionally, in connection with the parties’ entry into the Loan Agreement and to further secure amounts due thereunder,
certain of the Guarantors pledged shares of common stock which they received at the closing to the Lender, with RAD2 pledging 124,824
shares of common stock; DBS pledging 37,437 shares of common stock; and Saxum pledging 26,936 shares of common stock.
The Loan Agreement also
provides that with respect to the properties located in Glasscock County, Texas, which the Company obtained ownership of at the
closing of the Acquisition (collectively, the “West Texas Properties”), the Company has the right to sell the West
Texas Properties after (i) the Lender approves the purchase and sale agreement in its sole discretion, (ii) the Lender receives
as a prepayment of the loan, 50% of the sales proceeds of the West Texas Properties, but in no event less than $2,000,000, and
(iii) the balance of the sales proceeds of the West Texas Properties are deposited in the bank account that we are required to
maintain with the Lender, to be used to pay certain principal payments of the note as approved by Lender in its sole discretion.
The Company agreed to pay
the Lender a loan finance charge of $400,000 in connection with its entry into the Loan Agreement, with half due on the date the
Company entered into the Loan Agreement and half due on or before the 180th day following the date of the Loan Agreement. As further
consideration for agreeing to the terms of the Loan, the Company agreed to issue the Lender 15,612 shares of common stock. The
Company recognized a $2.8 million note discount related to these transactions and other debt issuance costs and will amortize the
discount and debt issuance costs over the term of the note.
As of March 31, 2017, the
Company was not in compliance with certain covenants of the loan agreement, including requiring the Company to maintain a net worth
of $30 million, and the balance of the loan due to IBC of $38.3 million (less unamortized debt issuance costs of approximately
$2.2 million), was recognized as a short-term liability on the Company’s balance sheet as of March 31, 2017. The Company
has also recognized approximately $30,000 in accrued interest as of March 31, 2017.
On September 8, 2017, the
Company received a Notice of Default and Opportunity to Cure (the “Notice”) from IBC, stating that the Company was
in default under its loan due to failing to make a required $425,000 loan payment on August 25, 2017 (the “Payment Default”).
The Notice was also sent to the guarantors under the Loan Agreement. The Notice also cited the Company for several covenant defaults
including exceeding a cap on monthly general and administrative expenses; falling below $30 million of net worth; failing to comply
with certain post-closing covenants regarding the assignment of certain oil and gas interests, the execution of certain supplemental
mortgages and the completion of certain curative title requirements; failing to pay costs and expenses required pursuant to the
terms of the Loan Agreement; failing to meet the requirements of a cash flow test as described in greater detail in the Loan Agreement;
and exceeding the loan to value determination provided for in the Loan Agreement. In order to cure the Payment Default described
in the Notice, the Company was required to pay $425,000, as well as any attorney’s fees and/or late fees as determined by
IBC, on or before September 18, 2017, which amount was not paid and to cure the covenant defaults, which covenant defaults were
not cured.
Pursuant to extension agreements
entered into with IBC, in or around December 2017 and January 2018, (a) IBC agreed to waive the Company’s obligation to make
the August 30, 2017, $425,000 monthly principal payment originally due under the IBC loan; (b) the Company confirmed the amount
outstanding under the IBC loan ($37,443,308 as of each extension); (c) IBC agreed that interest only payments would be due on September
30, 2017, October 30, 2017, November 30, 2017 and December 31, 2017, with principal payments of $425,000 per month to begin thereafter,
which principal payments were not made; (d) the parties agreed that the amounts owed to IBC were payable on demand, provided that
if no demand was made, such amounts would be payable by way of monthly payments of $425,000 of principal, plus accrued interest,
with the remaining amount owed to IBC due at maturity (August 25, 2019); (e) that the amount owed to IBC will accrue interest at
the rate of 2% per annum above the prime rate, subject to a floor of 5.5% (currently 6.25% per annum); (f) if the Company fails
to make any payment due to IBC within 10 days of its due date, IBC is due a late payment of 5% of the amount past due (subject
to a minimum of $10 and a maximum of $1,500 per late payment); and (g) the Company and the guarantors of the IBC loan released
IBC from any claims against IBC as of the date of each of such extensions.
Notwithstanding the above
extensions, the Company is still in default under the IBC loan, the entire amount of the IBC loan may be accelerated and IBC may
take action to enforce its remedies under the loan agreement. The IBC loan is secured by substantially all of the Company’s
assets and if IBC were to foreclose on our assets it would have a material adverse effect on our operations and may force us to
seek bankruptcy protection.
As of March 31, 2018, the
Company was not in compliance with certain covenants of the loan agreement, including requiring the Company to maintain a net worth
of $30 million, the Company is in default of the terms of the loan, and the balance of the loan due to IBC of $36.9 million (less
unamortized debt issuance costs of approximately $1.3 million), was recognized as a short-term liability on the Company’s
balance sheet as of March 31, 2018. The Company also recognized approximately $39,000 in accrued interest as of March 31, 2018
related to this note.
NOTE 7 – 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.
Activities for derivative
warrant instruments during the years ended March 31, 2017 and 2018 were as follows:
|
|
Fair Value
|
Balance, March 31, 2016
|
|
$
|
126,960
|
|
|
|
|
|
|
Change in fair value
|
|
|
(105,298
|
)
|
Balance, March 31, 2017
|
|
|
21,662
|
|
Change in fair value
|
|
|
(21,657
|
)
|
Balance, March 31, 2018
|
|
$
|
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, 2018 include
(1) discount rate of 2.09%, (2) expected term of 1 year, (3) expected volatility of 145.70%, and (4) zero expected dividends.
Variables used in the Black-Scholes pricing model as of March 31, 2017 include (1) discount rate of 1.28, (2) expected term of
2 years, (3) expected volatility of 168.75%, and (4) zero expected dividends.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
In August 2017,
the Company ceased its use of this office space and moved its headquarters to 4040 Broadway, Suite 425, San Antonio, Texas. The
Company is committed to the remaining lease payments for the Houston office space for approximately $346,000, assuming an early
termination of the lease on July 31, 2019. The Company recorded monthly rent expense associated with the Houston lease through
August 2017. In accordance with the accounting guidance in ASC 420-10-25-13 regarding exit or disposal cost obligations, as of
August 2017, the Company recorded rent expense, within general and administrative expense, and accrued a liability of $302,289,
which represents the fair value of costs that will continue to be incurred during the remaining term of the Houston lease without
economic benefit to the Company. As of March 31, 2018, the carrying amount of the liability of $226,972 was included in accrued
expenses on the Company’s balance sheet. In addition, the Company wrote-off $189,533 of mostly fully depreciated property
and equipment that was not re-located to the San Antonio headquarters resulting in a loss of $3,368.
The Company’s oil and gas lease acreage is subject to expiration
if the Company does not drill and hold such acreage by production or exercise options to extend such leases. As of March 31, 2018,
the Company has 423 acres of unproved lease acreage that is set to expire during fiscal year 2019 unless drilled or otherwise extended
by the Company.
Effective October
1, 2017, the Company entered into an agreement to sublease space in San Antonio, Texas from RAD2 Minerals, Ltd., an entity owned
and controlled by Mr. Azar, the Company’s former Chief Executive Officer. Rent for 2017 was $5,000 per month and rent for
2018 is $7,500 per month. The agreement has been modified to month to month at $2,500 per month, effective July 1, 2018.
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. We have filed a denial to the claims.
Rubenstein Matter
On September 28, 2017,
Aaron Rubenstein, a purported shareholder of the Company’s common stock, filed a lawsuit against the Company (as nominal
defendant) and Richard N. Azar II, it’s then Chief Executive Officer and director (who has since resigned from both positions),
RAD2 Management, LLC, RAD2 Minerals, Ltd. and Segundo Resources, LLC, each an entity owned and controlled by Mr. Azar, in the United
States District Court, Western District of Texas (Case No. 5:17-cv-962-FB). The suit seeks the recovery (for the benefit
of the Company) of alleged short-swing profits from Mr. Azar and his related entities under Section 16(b) of the Exchange Act relating
to various transactions involving Series B Preferred Stock of the Company in November 2016 and January 2017. Mr. Azar denies the
existence of any short-swing profits and filed a denial with the court. The Company also filed a denial with the court.
Petroflow Matter
In October 2017, the Company
agreed to pay directly and reimburse entities owned in part by Alan Dreeben, a former director of the Company, for legal fees and
settlement payments expended in connection with the defense of
Petroflow Energy Corporation v. Sezar Energy, L.P. and Brittany
Energy, LLC
, Case No. 16-CV-700-TCK;TLW, In the United States District Court – N.D. OK. The Company was the beneficiary
through the release of interest in disputed lease interests from Petroflow to the Company that provides the Company with complete
control over those properties to renew expired leases and to have 100% of the drilling rights related to those properties. Sezar
Energy and Brittany Energy have assigned any interests they may have had in conjunction with litigation in exchange for the Company
making the agreed settlement payments of $475,000 plus direct payments and reimbursement of the legal costs paid on behalf of the
defendants by Mr. Dreeben. Total legal fees expended by such entities totaled $392,043, and the Company reimbursed such fees by
issuing Mr. Dreeben 78,409 shares of common stock with a value of $0.20 per share in November 2017. In addition, the Company
directly paid legal fees and settlement payments totaling $567,633. The total expense related to the Petroflow matter of $959,676
is included in General and Administrative expense on the statement of operations.
Employment
Agreement.
Effective November 1, 2012, the Company entered into an Employment Agreement with Anthony C. Schnur to serve as
the Chief Financial Officer of the Company, which agreement was amended and restated effective December 12, 2012, in connection
with his appointment as Chief Executive Officer. The agreement had a term of two years, expiring on October 31, 2014, provided
that the agreement was automatically extended for additional one year terms, unless either party provided notice of their intent
not to renew within the 30-day period prior to any automatic renewal date, and as neither party provided notice of their intent
to terminate in fiscal 2015 or 2016, the agreement automatically extended for an additional one year term until October 31, 2016
and October 31, 2017, respectively, notwithstanding the termination of the agreement in connection with Mr. Schnur’s resignation
on June 2, 2017, as discussed below. The Company agreed to pay Mr. Schnur a base annual salary of $310,000 during the term of the
agreement, of which $290,000 is payable in cash and $20,000 is payable in shares of the Company’s common stock. The stock
consideration due under the agreement is payable in quarterly installments at the end of each quarter, based on the stock price
on the last day of each quarter. Mr. Schnur is also eligible for an annual bonus of up to 30% of his base salary in cash or stock.
The
Employment Agreement was terminated in connection with Mr. Schnur’s resignation as Chief Executive Officer and director
of the Company effective on June 2, 2017. In connection with the departure of Mr. Anthony C. Schnur as Chief Executive
Officer and director of the Company effective June 2, 2017, the Company entered into a Severance Agreement and Release with
Mr. Schnur (the “Release”), whereby (i) his employment agreement with the Company was terminated, (ii) he entered
into a mutual release with the Company; (iii) the Company agreed to issue him 4,800 shares of unregistered common stock (to
be issued in installments of 400 per month)(the “Settlement Shares”) and a monthly cash payment of $14,000
for twelve months; and (iv) he was granted reimbursement of the payment of his COBRA premiums through (a) the one
year anniversary of the termination or (b) until he is eligible to participate in the health insurance plan of another
employer, whichever is sooner, and provided that the amount of such health benefits shall reduce his monthly cash payment. On
January 11, 2018, and effective as of the original date of the Release, the Company and Mr. Schnur entered into a First
Amendment to Severance Agreement and Release (the “Release Amendment”), whereby the terms of the Release were
changed to provide for among other things, the payment of $49,000 on or before January 12, 2018; $15,000 on or before the
15th of each month from February 2018 to July 2018; and $19,000 on or before August 15, 2018, and further provided for the
issuance of the entire amount of the Settlement Shares within five days of the later of the date the Company’s
stockholders approved the issuance of the Settlement Shares and the date the NYSE American approved the issuance of such
shares. The payments owed as of March 31, 2018 of $79,025 have been accrued and included in Accrued Expenses on the
balance sheet. The Settlement Shares were issued in February 2018.
NOTE 9 – INCOME TAXES
The Company recorded
a benefit for income taxes of $0 and $15,000 for the years ended March 31, 2018 and 2017, respectively, as a result of
the losses and change in valuation allowances for each year.
|
|
2018
|
|
2017
|
Current taxes:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
|
(15,000
|
)
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
(15,000
|
)
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
|
(15,000
|
)
|
The following is a reconciliation
between actual tax expense (benefit) and income taxes computed by applying the U.S. federal income tax rate (31.5% for 2018 and
34% for 2017) to income from continuing operations before income taxes for the years ended March 31, 2018 and 2017:
|
|
2018
|
|
2017
|
Computed at expected tax rates
|
|
$
|
(7,805,048
|
)
|
|
$
|
(30,307,001
|
)
|
Nondeductible expenses
|
|
|
91,439
|
|
|
|
237,099
|
|
Return to accrual true-up
|
|
|
—
|
|
|
|
(15,000
|
)
|
NOLs limitation resulting from change in control
|
|
|
—
|
|
|
|
15,134,586
|
|
Change in effective tax rates
|
|
|
(11,470,220
|
)
|
|
|
—
|
|
Change in valuation allowance
|
|
|
19,183,829
|
|
|
|
14,935,316
|
|
Total
|
|
$
|
—
|
|
|
$
|
(15,000
|
)
|
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,
|
|
|
2018
|
|
2017
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating tax loss carryforwards
|
|
$
|
12,310,895
|
|
|
$
|
3,912,500
|
|
Depreciation, depletion and amortization
|
|
|
2,522,833
|
|
|
|
30,082,039
|
|
Unrealized loss in investments
|
|
|
—
|
|
|
|
123,955
|
|
Share-based compensation
|
|
|
245,944
|
|
|
|
402,388
|
|
Accrued compensation
|
|
|
37,998
|
|
|
|
—
|
|
Bad Debt expense
|
|
|
217,983
|
|
|
|
—
|
|
Other
|
|
|
110,502
|
|
|
|
109,102
|
|
Total deferred tax assets (liabilities)
|
|
|
15,446,155
|
|
|
|
34,629,984
|
|
|
|
|
|
|
|
|
|
|
Less: valuation allowance
|
|
|
(15,446,155
|
)
|
|
|
(34,629,984
|
)
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
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 $43 million of its pre-ownership change net operating loss which 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, 2018,
the Company had estimated net operating loss carryforwards for federal income tax purposes of approximately $59 million,
adjusted for the ownership change limitation discussed above, which will begin to expire, if not previously used, beginning
in the fiscal year 2030. A valuation allowance has been established for the entire amount of the deferred tax assets for
years ended March 31, 2018 and March 31, 2017.
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 revises 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 our 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.
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
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 2014.
NOTE 10 – STOCKHOLDERS’
EQUITY (DEFICIT)
Common Stock
On January 10, 2018, the Company amended its Articles of Incorporation
to increase the number of authorized shares of common stock from 200,000,000 shares to 500,000,000 shares.
On April 4, 2017, the Company
paid the required quarterly dividend on the Series B Preferred Stock by way of the issuance of 2,366 shares of our common stock
to the preferred shareholders at a fair market value of $34,896, based on the closing price of the Company’s common stock
($14.75 per share) on March 31, 2017. The beneficial owners of the Series B Preferred Stock were Richard N. Azar, II, our then
Interim Chief Executive Officer and then director, and Alan Dreeben, our then director.
On June 19, 2017, a holder
of the Company’s Series B Convertible Preferred Stock converted 143,492 shares of Series B Convertible Preferred Stock into
40,998 shares of common stock of the Company.
On August 23, 2017, the
Investor converted $35,000 of the principal amount of the Debenture into an aggregate of 70,189 shares of common stock, which included
431 shares for conversion of principal (at $81.25 per share) and 69,758 shares for premiums.
On October 4, 2017, the
Company entered into an agreement with a digital marketing advisor pursuant to which the advisor agreed to create original content
with the goal of increasing public awareness about the Company and the Company agreed to pay the advisor (a) $20,000 per month
beginning in October 2017 and ending on February 28, 2018, (b) $50,000 per month thereafter through October 4, 2018, the end of
the term of the agreement, and (c) 150,000 shares of restricted common stock, with 100,000 million shares payable within 15 days
of the parties’ entry into the agreement and the remainder due on May 1, 2018 (the “Advisory Shares”).
On October 4, 2017, the
Company entered into a consulting agreement with a third party consultant which consultant agreed to provide investor relations
and public relations services to the Company. As consideration pursuant to the agreement, the Company agreed to issue the consultant
40,000 shares of restricted common stock (the “Consulting Shares”), with piggy-back registration rights.
In October 2017, the Company
agreed to reimburse entities owned in part by Alan Dreeben, a former director of the Company, for legal fees expended by such entities
in connection with the defense of
Petroflow Energy Corporation v. Sezar Energy, L.P. and Brittany Energy, LLC
, Case
No. 16-CV-700-TCK;TLW, In the United States District Court – N.D. OK. The Company was the beneficiary through the release
of interest in disputed lease interests from Petroflow to the Company, that provides the Company with complete control over those
properties to renew expired leases and to have 100% of the drilling rights related to those properties. Sezar Energy and Brittany
Energy have assigned any interests they may have had in conjunction with litigation in exchange for the Company making the agreed
settlement payments of $475,000 plus reimbursement of the legal costs paid on behalf of the defendants by Mr. Dreeben. Total legal
fees expended by such entities totaled $392,043, and the Company reimbursed such fees by issuing Mr. Dreeben 78,409 shares of common
stock with an agreed value of $5.00 per share in November 2017.
As of December 31, 2017,
the 408,508 outstanding shares of Series B Preferred Stock had accrued an aggregate of $453,573 in quarterly dividends ($153,191
each for the quarters ended June 30, 2017, September 30, 2017 and December 30, 2017). The Company paid the accrued dividends on
February 5, 2018, by way of the issuance of an aggregate of 5,253 shares of our common stock to the preferred shareholders pursuant
to the terms of the designation (which provides that the Shares shall be based on a value of $87.50 per share). The beneficial owners
of the Series B Preferred Stock are Richard N. Azar, II, our former Chief Executive Officer and former director, and Alan Dreeben,
our former director.
In connection with
the departure of Mr. Anthony C. Schnur as Chief Executive Officer and director of the Company effective June 2, 2017, the
Company entered into a Severance Agreement and Release with Mr. Schnur (the “Release”), whereby (i) his
employment agreement with the Company was terminated, (ii) he entered into a mutual release with the Company; (iii) the
Company agreed to issue him 4,800 shares of unregistered common stock (to be issued in installments of 480 per month) (the
“Settlement Shares”) and a monthly cash payment of $14,000 for twelve months; and (iv) he was granted
reimbursement of the payment of his COBRA premiums through (a) the one year anniversary of the termination or (b) until he is
eligible to participate in the health insurance plan of another employer, whichever is sooner, and provided that the amount
of such health benefits shall reduce his monthly cash payment. On January 11, 2018, and effective as of the original date of
the Release, the Company and Mr. Schnur entered into a First Amendment to Severance Agreement and Release (the “Release
Amendment”), whereby the terms of the Release were changed to provide for among other things, the payment of $49,000 on
or before January 12, 2018; $15,000 on or before the 15th of each month from February 2018 to July 2018; and $19,000 on or
before August 15, 2018, and further provided for the issuance of the entire amount of the Settlement Shares within five days
of the later of the date the Company’s stockholders approved the issuance of the Settlement Shares and the date the
NYSE American approved the issuance of such shares. The Settlement Shares were issued on January 30, 2018.
On October 7, 2016, the
Investor exercised the First Warrant in full and was due 55,385 shares of common stock upon exercise thereof and an additional
101,710 shares of common stock in consideration for the conversion premium due thereon. A total of 32,400 shares were issued to
the Investor on October 7, 2016, with the remaining shares being held in abeyance until such time as it would not result in the
Investor exceeding its beneficial ownership limitation (4.99% of the Company’s outstanding common stock). The Company received
gross proceeds of $4,500,000 from the exercise of the First Warrant and paid placement agent fees of $427,500 for services rendered
in connection with the First Warrant. Pursuant to the terms of the First Warrant, the number of shares due in consideration for
the conversion premium increases as the annual rate of return under the First Warrant increases, including by 10% upon the occurrence
of certain triggering events (which had occurred by the October 7, 2016 date of exercise), to 17% per annum upon the exercise
of the First Warrant. Additionally, as the conversion rate for the conversion premium is currently 85% of the lowest daily volume
weighted average price during the measuring period, less $0.10 per share of common stock not to exceed 85% of the lowest sales
prices on the last day of such period less $0.10 per share, the number of shares issuable in connection with the conversion premium
increases as the trading price of our common stock decreases, and the trading price of our common stock has decreased since the
date the First Warrant was exercised, triggering a further reduction in the conversion price of the conversion premium and an
increase in the number of shares due to the Investor in connection with the conversion of the amount owed in connection with the
conversion premium. During the year ended March 31, 2018, the Investor received 2,851,694 shares of common stock in connection
with the exercise of the First Warrant and adjustments thereon.
Series A Convertible Preferred Stock
On April 19, 2016,
the holder of our Series A Convertible Preferred Stock, agreed to convert all 500 shares of our outstanding Series A
Convertible Preferred Stock into 800 shares of our common stock (a conversion ratio of 1.6:1 as provided in the original
designation of the Series A Convertible Preferred Stock adjusted for the Company’s 1:25 reverse stock split effective
on July 25, 2015 and the Company’s 1:25 reverse stock split effective March 5, 2018), which conversion was completed on
April 25, 2016. We paid the holder $20,000 in connection with such conversion in order to comply with the terms of the Asset
Purchase Agreement that required that no shares of Series A Convertible Preferred Stock be outstanding at the closing. As of
March 31,2018 and 2017, respectively, the Company had no Series A Convertible Preferred Stock issued or outstanding.
Series B Redeemable Convertible Preferred Stock
On September 1, 2016, as
consideration for the closing of the Acquisition, the Company issued an aggregate of 552,000 shares of Redeemable Convertible Preferred
Stock, which had a total value of $13,800,000 based on the $25 per Series B Preferred Stock share par value. The preferred shares
were issued to RAD2 (200,000 shares) and Segundo Resources, LLC (an affiliate of RAD2)(352,000 shares) on behalf of and for the
benefit of RAD2.
The Series B Preferred
Stock has a liquidation preference of $25 per share. The Series B Preferred Stock is convertible, at the option of the holder at
any time following the original issuance date, into common stock at a rate of approximately 0.2857:1 (originally issuable into
an aggregate of 157,714 shares of common stock if fully converted), at the option of the holder thereof, or automatically as to
25% of the Series B Preferred Stock shares if our common stock trades above $153.13 per share for at least 20 consecutive trading
days, and trades with at least 3,000 shares of average volume per day during such period; an additional 50% of the Series B Preferred
Stock shares if our common stock trades above $175.00 per share for at least 20 consecutive trading days, and trades with at least
3,000 shares of average volume per day during such period; and as to the remaining Series B Preferred Stock shares, if our common
stock trades above $196.88 per share for at least 20 consecutive trading days, and trades with at least 3,000 shares of average
volume per day during such period. Each outstanding share of Series B Preferred Stock will be entitled to one vote per share on
all stockholder matters. The Series B Preferred Stock is redeemable at any time by the Company upon the payment by the Company
of the face amount of the Series B Preferred Stock ($25 per share) plus any and all accrued and unpaid dividends thereon.
The Company has the option,
exercisable from time to time after the original issue date, to redeem all or any portion of the outstanding shares of Series B
Preferred Stock by paying each applicable holder, an amount equal to the original issue price multiplied by the number of Series
B Preferred shares held by each applicable holder plus the accrued dividends.
As of March 31, 2018, there
were 408,508 shares of Series B Preferred Stock outstanding, 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 vote.
|
As the Series B Preferred
Stock is convertible at any time following the original issuance date into common stock at a rate of approximately 0.2857:1, the
Company recognized a fair value measurement of $14,898,038 for the Series B Preferred Stock, which is based on the 552,000 preferred
shares originally issued times the conversion rate of approximately 0.2857, times the price of the Company’s common stock
of $94.50 per share at the date of the closing of the Acquisition on August 25, 2016.
During the year ended
March 31, 2017, the Company issued a stock dividend on the Series B Preferred Stock consisting of 3,307 shares 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 $83 based on the par value of the common stock issued. As of March 31, 2017, the Company recognized additional
stock dividends on the Series B Preferred Stock consisting of 2,366 shares of our common stock, which was recognized as a charge
to additional paid in-capital and stock dividends distributable but not issued of $34,837 based on the closing price of the Company’s
common stock of $14.75 per share on March 31, 2017. The common stock dividends were subsequently issued to the preferred shareholders
on April 4, 2017.
During the year ended
March 31, 2018, the Company issued a stock dividend on the Series B Preferred Stock consisting of 5,740 shares 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 $143, based on the par value of the common stock issued. As of March 31, 2018, the Company recognized additional
stock dividends on the Series B Preferred Stock consisting of 583 shares of our common stock, which was recognized as a charge
to additional paid in-capital and stock dividends distributable but not issued of $449, based on the closing price of the Company’s
common stock of $0.77 per share on March 31, 2018, which shares have not been issued as of the date of this report.
Series C Redeemable Convertible Preferred Stock
On April 6, 2016, the Company
entered into a Stock Purchase Agreement with the Investor, pursuant to which it agreed, subject to certain conditions, to sell
527 shares of Series C redeemable convertible preferred stock (with a face value of $5.26 million) at a 5% original issue discount
of $263,000, convertible into 64,738 shares of common stock at a conversion price of $81.25 per share, and a warrant to purchase
44,444 shares of common stock at an exercise price of $112.50 per share (the “Second Warrant”).
On September 2, 2016, the
Second Warrant and 53 shares of Series C Preferred Stock were issued for $526,450 ($500,000, net cash proceeds to Camber) after
the Acquisition (as defined and described in “Note 2 – Liquidity and Going Concern Considerations”) closed. The
prorated share of the $263,000 discount ($26,450) was recorded as reduction to additional paid in capital. On November 17, 2016,
the remaining 474 shares of Series C Preferred Stock were issued for $4,736,550 ($4,500,000, net cash proceeds to Camber) and the
Company paid placement agent and legal fees of $514,000 for services rendered in connection with the issuance. The Company also
recognized $236,550 of the remaining 5% original issue discount, which was recorded as reduction to additional paid in capital.
On October 5, 2017, the
Company and the Investor entered into the October 2017 Purchase Agreement, pursuant to which (1) the Investor purchased 212 shares
of Series C Preferred Stock on the closing date of the agreement, October 4, 2017 (the “Initial Closing”), for $2 million,
and agreed, subject to certain closing conditions set forth in the agreement, agreed to purchase (2) 106 shares of Series C Preferred
Stock for $1,000,000, 10 days after the Initial Closing (which closing occurred on November 21, 2017); (3) 105 shares of Series
C Preferred Stock for $1,000,000, 10 days after the second closing (which closing occurred on December 27, 2017); (4) 105 shares
of Series C Preferred Stock for $1,000,000, 10 days after the third closing (which closing occurred on January 30, 2018); (5) 105
shares of Series C Preferred Stock for $1,000,000, 10 days after the fourth closing; (6) 525 shares of Series C Preferred Stock
for $5,000,000, 30 days after the fifth closing; and (7) 525 shares of Series C Preferred Stock for $5,000,000, 30 days after the
sixth Closing.
On October 5, 2017, in
connection with the entry into the October 2017 Purchase Agreement, the Investor purchased 212 shares of Series C Preferred Stock
for $2 million (the “Initial Closing”); on November 21, 2017, pursuant to the terms of the October 2017 Purchase Agreement,
we sold the Investor an additional 106 shares of Series C Preferred Stock for $1 million (the “Second Closing”); on
December 27, 2017, pursuant to the terms of the October 2017 Purchase Agreement, we sold the Investor an additional 105 shares
of Series C Preferred Stock for $1 million (the “Third Closing”); on January 31, 2018, pursuant to the terms of the
October 2017 Purchase Agreement, we sold the Investor an additional 105 shares of Series C Preferred Stock for $1 million (the
“Fourth Closing”); on February 22, 2018, pursuant to the terms of the October 2017 Purchase Agreement, we sold the
Investor an additional 105 shares of Series C Preferred Stock for $1 million (the “Fifth Closing”); on March 9, 2018,
the Company sold the Investor an additional 105 shares of Series C Preferred Stock for $1 million (the “Sixth Closing”);
on April 10, 2018, the Company sold the Investor an additional 105 shares of Series C Preferred Stock for $1 million (the “Seventh
Closing”); and on May 22, 2018, the Company sold the Investor an additional 105 shares of Series C Preferred Stock for $1
million (the “Eighth Closing”).
The Sixth Closing, Seventh
Closing and Eighth Closing occurred notwithstanding the terms of the October 2017 Purchase Agreement which required the sixth closing
to be for a total of $5 million (the “$5 Million Closing”), as the parties mutually agreed to the sales of only $1
million of Series C Preferred Stock to be sold pursuant to the $5 Million Closing, at the Sixth Closing, Seventh Closing and Eighth
Closing.
On March 2, 2018, the Company
and the Investor entered into an amendment to the October 2017 Purchase Agreement (the “Amendment”), pursuant to which
the Investor (a) waived any and all Trigger Events (as defined in the certificate of designation of the Series C Preferred Stock
(the “Designation”)) that had occurred prior to March 2, 2018, (b) agreed that all calculations provided for in the
Designation would be made as if no such Trigger Event had occurred, and (c) waived any right to receive any additional shares of
common stock based upon any such Trigger Event, with respect to all shares of Series C Preferred Stock, other than any which have
already been converted.
The Investor also agreed,
pursuant to the Amendment, that the conversion rate of conversion premiums pursuant to the Designation would remain 95% of the
average of the lowest 5 individual daily volume weighted average prices during the applicable Measuring Period (as defined in the
Designation), not to exceed 100% of the lowest sales prices on the last day of the Measuring Period, less $0.05 per share of common
stock, unless a triggering event has occurred, and that such $0.05 per share discount would not be adjusted in connection with
the Company’s previously reported 1-for-25 reverse stock split affected on March 5, 2018.
The holder of the Series
C Preferred Stock is entitled to cumulative dividends through maturity, which initially totaled 6% per annum, and are adjustable
to up to 34.95% per annum, per annum, based on certain triggering events and the trading price of our common stock, and which currently
total 34.95% per annum, payable in full through maturity upon redemption, conversion, or maturity, and when, as and if declared
by our Board of Directors in its discretion. The Series C Preferred Stock ranks senior to the common stock and pari passu with
respect to our Series B Redeemable Convertible Preferred Stock.
The Series C Preferred
Stock may be converted into shares of common stock at any time at the option of the holder, or at our option if certain equity
conditions (as defined in the Certificate of Designation) are met. Upon conversion, we will pay the holder of the Series C Preferred
Stock being converted an amount, in cash or stock at our sole discretion, equal to the dividends that such shares would have otherwise
earned if they had been held through the maturity date (7 years), and issue to the holder such number of shares of common stock
equal to $10,000 per share of Series C Preferred Stock (the “Face Value”) multiplied by the number of such shares of
Series C Preferred Stock divided by the conversion rate ($81.25 per share).
The conversion premium
under the Series C Preferred Stock is payable and the dividend rate under the Series C Preferred Stock is adjustable on the same
terms and conditions as accrued interest is payable and adjustable under the Debenture. The Series C Preferred Stock has a maturity
date that is seven years after the date of issuance and, if the Series C Preferred Stock has not been wholly converted into shares
of common stock prior to such date, we may redeem the Series C Preferred Stock on such date by repaying to the holder in cash 100%
of the Face Value plus an amount equal to any accrued but unpaid dividends thereon. 100% of the Face Value, plus an amount equal
to any accrued but unpaid dividends thereon, automatically becomes payable in the event of a liquidation, dissolution or winding
up by us.
During the year ended
March 31, 2017, the Investor converted shares of the Series C Preferred stock and was due shares of common stock and an additional
shares of common stock in dividend premium shares. Due to the recent decline in the price of our common stock and the trigger
event that occurred on June 30, 2016 as a result of the delay in filing our Annual Report on Form 10-K for the year ended March
31, 2016, the dividend premium rate for the Series C Preferred Stock sold in 2016 increased from 6% to 30% and the conversion
discount became 85% of the lowest daily volume weighted average price during the measuring period, less $0.10 per share of common
stock not to exceed 85% of the lowest sales prices on the last day of such period less $0.10 per share.
During the year ended
March 31, 2018, the Company issued 738 shares of Series C Preferred Stock pursuant to the terms of the October 2017 Purchase Agreement,
for total consideration of $7 million. As of March 31, 2018, there were 1,132 share of Series C Preferred Stock outstanding.
The
following summarizes the Series C Preferred Stock converted during the years ended March 31, 2018 and 2017:
|
|
Number of
Shares
|
|
Face
|
|
Common Stock
|
|
Additional
Dividend
Premium
|
|
Total Common
|
Date
|
|
Converted
|
|
Value
|
|
Due
|
|
Shares
|
|
Stock
|
|
December 22, 2016
|
|
|
|
32
|
|
|
$
|
320,000
|
|
|
|
3,939
|
|
|
|
38,766
|
|
|
|
42,705
|
|
|
January 9, 2017
|
|
|
|
21
|
|
|
|
210,000
|
|
|
|
2,585
|
|
|
|
26,288
|
|
|
|
28,873
|
|
|
January 25, 2017
|
|
|
|
21
|
|
|
|
210,000
|
|
|
|
2,585
|
|
|
|
31,228
|
|
|
|
33,813
|
|
|
February 24, 2017
|
|
|
|
21
|
|
|
|
210,000
|
|
|
|
2,585
|
|
|
|
45,527
|
|
|
|
48,112
|
|
|
March 2, 2017
|
|
|
|
15
|
|
|
|
150,000
|
|
|
|
1,847
|
|
|
|
32,519
|
|
|
|
34,366
|
|
|
March 29, 2017
|
|
|
|
13
|
|
|
|
130,000
|
|
|
|
1,600
|
|
|
|
49,890
|
|
|
|
51,490
|
|
|
|
|
|
|
123
|
|
|
$
|
1,230,000
|
|
|
|
15,141
|
|
|
|
224,218
|
|
|
|
239,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 11, 2017
|
|
|
|
10
|
|
|
$
|
100,000
|
|
|
|
1,231
|
|
|
|
199,308
|
|
|
|
886,318
|
*
|
|
|
|
|
|
10
|
|
|
$
|
100,000
|
|
|
|
1,231
|
|
|
|
199,308
|
|
|
|
886,318
|
*
|
* Includes 685,779 shares of common stock issued as a true up pursuant to the terms of the Series C Preferred Stock.
As of March 31,
2018 and 2017, the Company accrued common stock dividends on the Series C Preferred Stock based on the then 34.95%
premium dividend rate described above. The Company recognized a total charge to additional paid-in capital and stock
dividends distributable but not issued of $1,928,084 and $598,650 related to the stock dividend declared but not
issued for the years ended March 31, 2018 and 2017, respectively.
Warrants
The following summarizes
Camber’s warrant activity for each of the years ended March 31, 2018 and 2017:
|
|
2018
|
|
2017
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
Number of
|
|
Exercise
|
|
Number of
|
|
Exercise
|
|
|
Warrants
|
|
Price
|
|
Warrants
|
|
Price
|
Outstanding at Beginning of Year
|
|
|
10,261
|
|
|
$
|
321.01
|
|
|
|
9,306
|
|
|
$
|
1,191.00
|
|
Issued
|
|
|
64,000
|
|
|
|
6.25
|
|
|
|
104,801
|
|
|
|
92.50
|
|
Expired
|
|
|
(1,653
|
)
|
|
|
1,437.50
|
|
|
|
(48,461
|
)
|
|
|
251.25
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
(55,385
|
)
|
|
|
81.25
|
|
Outstanding at End of Year
|
|
|
72,608
|
|
|
$
|
18.15
|
|
|
|
10,261
|
|
|
$
|
321.01
|
|
During the year ended
March 31, 2017, warrants to purchase 55,385 shares of common stock were granted in connection with the Company’s sale of
the debenture noted in “Note 6 – Note Payables and Debenture” and warrants to purchase 44,444 shares of common
stock at an exercise price of $112.50 per share were granted in connection with our sale of 53 shares of Series C Preferred Stock
noted above. The Company also granted warrants to purchase 4,971 shares of common stock in connection with the HFT Convertible
Promissory Notes (see “Note 6 – Note Payables and Debenture”). No warrants were cancelled during the year ended
March 31, 2017, other than warrants to purchase 4,017 shares of common stock at an exercise price of $1,787.50 per share
expired unexercised on July 4, 2016.
In June 2017,
the Company issued 64,000 warrants to purchase shares of the Company’s common stock which were valued at the grant
date under the Black-Scholes Option pricing model at $288,592. The exercise price of the warrants is $6.25 per share of
common stock. The warrants expire five years from the grant date. The volatility utilized in the model was 135.42%. The
discount rate was 1.78%.
On October 7, 2016, the Investor
exercised the First Warrant in full and was due 55,385 shares of common stock upon exercise thereof and an additional 101,709
shares of common stock in consideration for the conversion premium due thereon. A total of 32,400 shares were issued to the Investor
on October 7, 2016, with the remaining shares being held in abeyance until such time as it would not result in the Investor exceeding
its beneficial ownership limitation (4.99% of the Company’s outstanding common stock). The Company received gross proceeds
of $4,500,000 from the exercise of the First Warrant and paid placement agent fees of $427,500 for services rendered in connection
with the First Warrant. Pursuant to the terms of the First Warrant, the number of shares due in consideration for the conversion
premium increases as the annual rate of return under the First Warrant increases, including by 10% upon the occurrence of certain
triggering events (which had occurred by the October 7, 2016 date of exercise), to 17% per annum upon the exercise of the First
Warrant. Additionally, as the conversion rate for the conversion premium is currently 85% of the lowest daily volume weighted
average price during the measuring period, less $0.10 per share of common stock not to exceed 85% of the lowest sales prices on
the last day of such period less $0.10 per share, the number of shares issuable in connection with the conversion premium increases
as the trading price of our common stock decreases, and the trading price of our common stock has decreased since the date the
First Warrant was exercised, triggering a further reduction in the conversion price of the conversion premium and an increase
in the number of shares due to the Investor in connection with the conversion of the amount owed in connection with the conversion
premium. Additionally, pursuant to the interpretation of the Investor, the measurement period for the calculation of the lowest
daily volume weighted average price currently continues indefinitely.
As
of June 28, 2018, a total of 4.9 million shares of common stock had been issued to the Investor in connection with the exercise
of the First Warrant.
Additionally,
warrants to purchase 2,667 shares of common stock issued in connection with an equity raise completed in April 2014 contained
a weighted average anti-dilutive provision in which the exercise price of the warrants are adjusted downward based on any
subsequent issuance or deemed issuance of common stock or convertible securities by the Company for consideration less than
the then exercise price of such warrants. As a result of the anti-dilution rights, the exercise price of the warrants
was adjusted to $89.75 per share, in connection with an automatic adjustment to the exercise price due to the Acquisition. As
of March 31, 2017, the fair value of the derivative liability associated with the 66,668 warrants was $21,662 compared to
$126,960 at March 31, 2016. Therefore, the $105,298 change in the derivative liability fair value was recorded as other
income on the consolidated statement of operations.
At March 31, 2018, 448
outstanding warrants had an intrinsic value of $232. 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. These warrants were initially
issued in connection with the Rogers Loan on August 13, 2013, and the exercise price was lowered from $843.75 to $0.25 per share
on August 12, 2015.
The following is a summary of the Company’s
outstanding warrants at March 31, 2018:
Warrants Outstanding
|
|
Exercise Price ($)
|
|
Expiration Date
|
|
Intrinsic Value at
March 31, 2018
|
|
440
|
(1)
|
|
|
937.50
|
|
|
April 4, 2018
|
|
|
—
|
|
|
80
|
(2)
|
|
|
937.50
|
|
|
May 31, 2018
|
|
|
—
|
|
|
448
|
(3)
|
|
|
0.25
|
|
|
April 21, 2019
|
|
|
232
|
|
|
4,971
|
(4)
|
|
|
37.50
|
|
|
April 21, 2021
|
|
|
—
|
|
|
2,668
|
(5)
|
|
|
91.30
|
|
|
April 21, 2019
|
|
|
—
|
|
|
64,000
|
(6)
|
|
|
6.25
|
|
|
June 12, 2022
|
|
|
—
|
|
|
72,608
|
|
|
|
|
|
|
|
|
$
|
232
|
|
(1) Warrants issued in connection with the
issuance of certain notes in April 2013, of which the outstanding principal and interest was paid in full on August 16, 2013. The
warrants were exercisable on the grant date (April 4, 2013) and remain exercisable until April 4, 2018. These warrants expired
unexercised.
(2) Warrants issued in connection with the
issuance of certain notes in May 2013, of which the outstanding principal and interest was paid in full on August 16, 2013. The
warrants were exercisable on the grant date (May 31, 2013) and remain exercisable until May 31, 2018. These warrants expired unexercised.
(3) Warrants issued in connection with the
Rogers Loan. The warrants were exercisable on the grant date (August 13, 2013) and remain exercisable until August 13, 2018. The
exercise price was lowered to $0.25 per share on August 12, 2015.
(4) Warrants issued in connection with the
HFT Convertible Promissory Notes. The warrants were exercisable on the grant date (April 26, 2016) and remain exercisable until
April 26, 2021.
(5) Warrants issued in connection
with the sale of units in the Company’s unit offering in April 2014. The warrants became exercisable on April 21, 2014
and will remain exercisable thereafter until April 21, 2019.
(6) Warrants issued in connection
with the Vantage Agreement and were exercisable at the date of grant (June 12, 2017) and remain exercisable thereafter until
June 12, 2022.