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 FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – GENERAL
Incorporated in Nevada
in December 2003 under the name Panorama Investments Corp., the Company changed its name to Lucas Energy, Inc. effective June 9,
2006 and effective January 4, 2017, the Company changed its name to Camber Energy, Inc.
The accompanying unaudited
interim consolidated financial statements of Camber Energy, Inc. (“Camber” or the “Company”) have been
prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange
Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in Camber’s
annual report filed with the SEC on Form 10-K for the year ended March 31, 2017. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations
for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially
duplicate the disclosures contained in the audited financial statements for the most recent fiscal year 2017 as reported in the
Form 10-K have been omitted.
During August 2017,
the Company relocated its corporate headquarters from Houston, Texas to San Antonio, Texas.
The Company received
notice on August 22, 2017, by the NYSE American (the “Exchange”) that the Company was not in compliance with
certain of the Exchange’s continued listing standards as set forth in Section 1007 of the NYSE American Company Guide (the
“Company Guide”) for failing to timely file its Form 10-Q for the period ended June 30, 2017, which filing was
subsequently made, and which delinquency was cured, on November 6, 2017.
The Company is also
currently not in compliance with certain other of the NYSE American’s Listing Standards. The Company’s common stock
will continue to be listed on the NYSE American while it attempts to regain compliance with the Listing Standards, subject to the
Company’s compliance with other continued listing requirements, as described in prior filings. The NYSE American notification
does not affect the Company’s business operations or its reporting obligations under the Securities and Exchange Commission
regulations and rules and does not conflict with or cause an event of default under any of the Company’s material agreements.
NOTE 2 – LIQUIDITY AND GOING
CONCERN CONSIDERATIONS
At September 30, 2017,
the Company’s total current liabilities of $51.6 million exceeded its total current assets of $1.5 million, resulting in
a working capital deficit of $50.1 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 $5.9 million increase
in the working capital deficit is primarily due to our loss from operations, interest payments of $1.3 million and a reduction
of restricted cash of $1.5 million.
The Company has entered
into the following transactions to address liquidity and going concern issues:
Vantage Agreement
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 wholly-owned subsidiary
Camber Permian II, LLC (“Camber Permian”) which included leaseholds and potential participation rights. The Vantage
Agreement contained customary indemnification requirements.
Vantage also had the
right pursuant to the Vantage Agreement to fund up to $300,000 of additional funding in the form of a convertible promissory note,
secured by a second lien on the Company’s Jackrabbit project (the “Vantage Note”). The Vantage Note was to be
subject to mutually acceptable terms, provided that such note would have a term of no more than 2 years, an annual interest rate
of no less than 6% per annum, and a conversion price equal to the closing price of the Company’s common stock on the day
prior to funding. If funded, an additional condition to the Vantage Note was that Vantage or its assigns would have the right to
acquire the Jackrabbit project at market price and a right of first refusal to purchase the Jackrabbit project upon any sale thereof.
The Company agreed
to grant Vantage three-year warrants to purchase shares of common stock in connection with any funding, equal to the equivalent
value of warrants (i.e., equal to the amount of funding provided), plus 20%, with an exercise price equal to the closing price
of the Company’s common stock on the day immediately prior to funding. In connection with the funding of the Initial Tranche,
which occurred on August 2, 2017, the Company granted Vantage warrants to purchase 1,600,000 shares of common stock with an exercise
price of $0.25 per share (the “Vantage Warrants”). The Company also agreed to register any of the shares issued upon
exercise of the Vantage Warrants under the Securities Act of 1933, as amended, within 30 days from the date of exercise thereof.
On August 2, 2017,
and effective June 13, 2017, Vantage provided the Company the Initial Tranche funding, in exchange, the Company assigned all of
our rights in Camber Permian to Vantage pursuant to an Assignment, and granted Vantage the warrants to purchase 1,600,000 shares
of common stock effective June 13, 2017.
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.
Stock and Securities Purchase Agreements with Institutional
Investor
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 163,077 shares of common stock (subject to certain conversion premiums) at
a conversion price equal to $3.25 per share and a warrant to initially purchase 1,384,616 shares of common stock (subject to adjustment
thereunder) at an exercise price equal to $3.25 per share (the “First Warrant”). The Investor purchased the debenture
at a 5.0% original issue discount 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 the Company agreed, subject
to certain conditions, to issue up to 527 shares of Series C redeemable convertible preferred stock (the “Series
C Preferred Stock”) at a 5% original issue discount, convertible into 1,618,462 shares of common stock (subject
to certain conversion premiums) at a conversion price of $3.25 per share, and a warrant to initially purchase 1,111,112
shares of common stock at an exercise price of $4.50 per share (the “Second Warrant”). Under the terms of the
Stock Purchase Agreement, the Second Warrant and 53 shares of Series C Preferred Stock were sold and issued for $500,000
on September 2, 2016, and the remaining 474 shares of Series C Preferred Stock were sold and issued for $4.5 million on
November 17, 2016.
On October 7, 2016,
the Investor exercised the First Warrant in full and was due 1,384,616 shares of common stock upon exercise thereof and an additional
2,542,735 shares of common stock in consideration for the conversion premium due thereon. A total of 810,000 shares were issued
to the Investor on October 7, 2016, with the remaining shares being held in abeyance until such time as it would not result in
the Investor exceeding its beneficial ownership limitation (4.99% of the Company’s outstanding common stock). The Company
received gross proceeds of $4,500,000 from the exercise of the First Warrant and paid placement agent fees of $427,500 for services
rendered in connection with the First Warrant. Pursuant to the terms of the First Warrant, the number of shares due in consideration
for the conversion premium increases as the annual rate of return under the First Warrant increases, including by 10% upon the
occurrence of certain triggering events (which had occurred by the October 7, 2016 date of exercise), to 17% per annum upon the
exercise of the First Warrant. Additionally, as the conversion rate for the conversion premium is currently 85% of the lowest daily
volume weighted average price during the measuring period, less $0.10 per share of common stock not to exceed 85% of the lowest
sales prices on the last day of such period less $0.10 per share, the number of shares issuable in connection with the conversion
premium increases as the trading price of our common stock decreases, and the trading price of our common stock has decreased since
the date the First Warrant was exercised, triggering a further reduction in the conversion price of the conversion premium and
an increase in the number of shares due 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 October 5, 2017,
the Company and the Investor entered into a Stock Purchase Agreement (the “October 2017 Purchase Agreement”), pursuant
to which the Company may receive aggregate consideration of $16 million, subject to certain conditions set forth therein.
Under the terms of
the October 2017 Purchase Agreement, (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, to purchase (2) 106 shares of Series C Preferred Stock for $1,000,000, 10 days after the Initial Closing;
(3) 105 shares of Series C Preferred Stock for $1,000,000, 10 days after the second closing; (4) 105 shares of Series C Preferred
Stock for $1,000,000, 10 days after the third closing; (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. Conditions to closing the sale of the additional shares
of Series C Preferred Stock described above include, that except with regard to the first four closings described above, the Company’s
common stock is required to be listed for and currently trading on the NYSE American market or a higher trading market; the Company
is required to be in compliance with all requirements to maintain such listing and there cannot be any notice of any suspension
or delisting with respect to the trading of the shares of common stock on such trading market; except with regard to the first
four closings only, the Company is required to have duly authorized shares of common stock reserved for issuance to Investor in
an amount equal to three times the number of shares sufficient to immediately issue all shares of common stock potentially issuable
upon conversion of the Series C Preferred Stock sold to Investor under the October 2017 Purchase Agreement (collectively, the “Conversion
Shares”) and any other agreements with Investor; except with regard to the initial closing only, the Company is required
to obtain approval and listing of all Conversion Shares on the NYSE American; for the second through fifth closings only, (i) an
aggregate dollar trading volume of at least $10 million must have traded on NYSE American during regular trading hours, from the
trading day after the immediately prior closing until the trading day immediately before the relevant closing, but expressly excluding
all volume traded on any days that the Investor is prevented or delayed from reselling shares of common stock (“Excluded
Days”); and (ii) the Company’s common stock is required to have a volume weighted average price on the NYSE American
for the prior trading day of at least $0.15 per share of common stock; and with respect to the final two closings, an aggregate
dollar trading volume of at least $50 million must have traded on NYSE American during regular trading hours, from the trading
day after the immediately prior closing until the trading day immediately before the relevant closing, but expressly excluding
all volume traded on any Excluded Days, and if any such conditions are not met on the date initially set for such closing, each
closing will occur as soon thereafter as they are met, if ever. The closing of the additional sales of Series C Preferred Stock
as described above are subject to closing conditions which may not be met timely, if at all, and as such, we may not ever sell
any additional shares of Series C Preferred Stock under the October 2017 Purchase Agreement after the Initial Closing.
The Company plans to
use the proceeds from the sale of the Series C Preferred Stock for working capital, workovers on existing wells, drilling and completion
of additional wells, repayment of vendor balances and payments to International Bank of Commerce (“IBC”), in anticipation
of regaining compliance.
Pursuant to the October
2017 Purchase Agreement, as long as the Investor holds any shares of Series C Preferred Stock, the Company agreed that it would
not issue or enter into or amend an agreement pursuant to which it may issue any shares of common stock, other than (a) for restricted
securities with no registration rights, (b) in connection with a strategic acquisition, (c) in an underwritten public offering,
or (d) at a fixed price; or issue or amend any debt or equity securities convertible into, exchangeable or exercisable for, or
including the right to receive, shares of common stock (a) at a conversion price, exercise price or exchange rate or other price
that is based upon or varies with, the trading prices of or quotations for the shares of common stock at any time after the initial
issuance of the security or (b) with a conversion, exercise or exchange price that is subject to being reset at some future date
after the initial issuance of the security or upon the occurrence of specified or contingent events directly or indirectly related
to the business of the Company or the market for the common stock.
Additionally, provided
that the Company has not materially breached the terms of the October 2017 Purchase Agreement, it may at any time, in its sole
and absolute discretion, repurchase from Investor all, but not less than all, of the then outstanding shares of Series C Preferred
Stock sold pursuant to the agreement by paying to Investor 110% of the aggregate face value of all such shares.
The Company also agreed
to provide the Investor a right of first offer to match any offer for financing we receive from any person while the shares of
Series C Preferred Stock sold pursuant to the October 2017 Purchase Agreement are outstanding, except for debt financings not convertible
into common stock, which are excluded from such right to match.
The conversion
premium under the Series C Preferred Stock is payable and the dividend rate under the Series C Preferred Stock is adjustable.
Specifically, the conversion rate of such premiums and dividends equals 95% of the average of the lowest 5 individual daily
volume weighted average prices during the Measuring Period, 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, in which case the
conversion rate equals 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 the Measuring Period, less $0.10
per share. The “Measuring Period” is the period beginning, if no trigger event has occurred, 30 trading days, and
if a trigger event has occurred, 60 trading days, before the applicable notice has been provided regarding the exercise or
conversion of the applicable security, and ending, if no trigger event has occurred, 30 trading days, and if a trigger event
has occurred, 60 trading days, after the applicable number of shares stated in the initial exercise/conversion notice have
actually been received into the Investor’s designated brokerage account in electronic form and fully cleared for
trading (subject to certain extensions described in the applicable securities, which have been triggered to date). Triggering
events are described in the designation of the Series C Preferred Stock, but include items which would typically be events of
default under a debt security, including filing of reports late with the Commission.
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 investor 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.
The Company is currently
restricted from issuing any other preferred stock (other than the Series B Preferred Stock) that is pari passu or senior to the
Series C Preferred Stock with respect to any rights for a period of one year after the earlier of such date (i) a registration
statement is effective and available for the resale of all shares of common stock issuable upon conversion of the Series C Preferred
Stock, or (ii) Rule 144 under the Securities Act is available for the immediate unrestricted resale of all shares of common stock
issuable upon conversion of the Series C Preferred Stock.
Even with the Company
entering into the October 2017 Purchase Agreement, the Company’s current financial situation raises 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.
Asset Purchase Agreement
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, the Company assumed approximately $30.6
million of commercial bank debt, issued 13,009,664 shares of common stock to certain of the Sellers, issued 552,000 shares of
Series B Preferred Stock to one of the Sellers and its affiliate, and paid $4,975,000 in cash to certain of the Sellers. The
effective date of the Acquisition was April 1, 2016.
Pursuant to a Letter
Agreement the Company entered into, at the closing of the Acquisition, RAD2 Minerals, Ltd. (“RAD2”), one of the Sellers,
which is owned and controlled by Richard N. Azar II, who was appointed as the Company’s Chairman on August 26, 2016, serving
as the Company’s Chairman until May 16, 2017, provided that Mr. Azar continues to serve as a member of the Board of Directors
and who was appointed as interim Chief Executive Officer of the Company on June 2, 2017, 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. RAD2
is one of the Sellers, which is owned and controlled by Richard N. Azar II, who was appointed as our Chairman on August 26, 2016,
serving as Chairman until May 16, 2017, provided that Mr. Azar continues to serve as a member of the Board of Directors and who
was appointed as interim Chief Executive Officer of the Company on June 2, 2017.
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 has arisen 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 believes that the agreements provide 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
interim Chief Executive Officer, have 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 varies from a high of $1,121,718, which the Company alleges it is due, to a low of $342,298, which the Sellers
allege that the Company is due. The parties continue to discuss the issues raised and to work towards a mutually acceptable settlement;
however, due to the continuing dispute, for the purposes of the attached financial statements, the Company has recorded a receivable
of $1,121,718 with an allowance of $779,420 for a net balance of $342,298.
Rogers Loan and Promissory Note
At September
30, 2017, the Company had $6,866,371 of principal due under the $7.5 million Letter Loan Agreement originally entered into
with Louise H. Rogers (“Rogers”) on August 13, 2013 (the “Rogers Loan”). No amortization of debt
discount was recorded during the six-month periods ending September 30, 2017 and 2016.
The Rogers Loan
had a maturity date of July 31, 2017, and the Company agreed to pay all professional fees incurred by Rogers and to pay
Rogers $39,000 in lieu of interest on the Rogers Loan as well as all operating income of collateralized assets (beginning
October 1, 2015). Also, the Company agreed to make principal payments to Rogers from certain insurance proceeds to be
received, which the Company has not received to date. For the months of January, February, March, June and July 2016, the
Company did not make the required monthly principal payments due pursuant to the terms of the Rogers loan as amended.
Instead, the Company and the loan administrator agreed to settle any outstanding administration and legal fees in lieu of the
principal payments. The Company paid approximately $98,000 related to the fees and effective July 5, 2016, and obtained a
waiver for the nonpayment of the principal amounts through July 2016. The Company has not made the $39,000 required monthly
fee payments on the Rogers Loan since August 2016.
Additionally, per a
prior amendment, the Company transferred all of its oil and gas interests and equipment to its then newly formed wholly-owned Texas
subsidiary, CATI Operating LLC, which clarified that following the transfer, Rogers had no right to foreclose upon the Company
(at the Nevada corporate parent level) upon the occurrence of an event of default under the Rogers Loan, and that instead Rogers
would only take action against CATI and its assets and required Rogers to release all UCC and other security filings on the Company
(provided that Rogers is allowed to file the same filings on CATI and its assets). Subsequently, 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.
In February 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, 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 Global
Credit, LLC, the servicer of the loan. 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. We dispute certain of the
allegations in the August 2017 letter, namely that the amount due had accrued interest at the default rate from January 2016
onward, due to among other reasons, the fact that Rogers previously waived our failure to pay amounts due under the Rogers
Loan from January through July 2016.
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 $8.8 million as of the date of acceleration and approximately $8.9 million as of
September 30, 2017 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 September 30, 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 proceeds from the foreclosure
sales of approximately $3.5 million were applied against the outstanding indebtedness. The remaining unpaid indebtedness owed
by CATI is approximately $5.4 million. The Company is still in process of determining the net book value of these assets remaining.
CATI is exploring strategic alternatives related to the remaining owned properties and indebtedness which is non-recourse to the
Company and CATI except to the extent of the assets.
Loan Agreement with International Bank
of Commerce (“IBC”)
As discussed in “Note
6 – Notes Payable and Debenture”, the Company borrowed $40 million from International Bank of Commerce (“IBC”)
effective August 25, 2016. The proceeds of the loan were used to repay and refinance approximately $30.6 million of indebtedness
owed by certain of the Sellers to IBC as part of the closing of the Acquisition. As of March 31, 2017 and September 30, 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 $37.6 million (less unamortized debt issuance costs of approximately
$2.0 million), was recognized as a short-term liability on the Company’s balance sheet as of March 31, 2017 and September
30, 2017. The Company also recognized approximately $30,000 in accrued interest as of September 30, 2017 related to this note.
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 with IBC 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 is 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. The Company has a 30-day cure period under its loan agreement
with respect to the covenant defaults. The Company has not cured the defaults and 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. The Company is in discussions with IBC evaluating its strategic alternatives concerning the defaults.
Dreeben Loan
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 15,000 shares of restricted common stock, which were issued in September 2016. The Company recognized a $48,000
discount to the short-term promissory note which was based on the closing price of the Company’s common stock ($3.20 per
share) on March 28, 2016 in addition to the original discount of $25,000, for a total discount of $73,000.
On June 27, 2016, 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.
On 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, the Company agreed to issue Mr. Dreeben
40,000 shares of restricted common stock. The 40,000 shares were issued in August 2017. At September 30, 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. The Company also recognized
$42,000 in accrued interest as of September 30, 2017.
Loan from Non-Related Individual
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 10,000 restricted
shares of common stock, which shares were issued in August 2017.
NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The Company has provided
a discussion of significant accounting policies, estimates and judgments in its March 31, 2017 Annual Report on Form 10-K. There
have been no changes to the Company’s significant accounting policies since March 31, 2017.
Recently Adopted Accounting Pronouncements
In August 2014, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 has 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.
Recently Issued Accounting Pronouncements
In May 2014, the FASB
issued ASU 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. We cannot currently determine the extent of the new footnote
disclosures as further clarification is needed for certain practices common to the industry. We will continue to evaluate the impacts
that future contracts may have.
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 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 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 Gas Properties
Camber uses the full
cost method of accounting for oil and natural gas producing activities. Costs to acquire mineral interests in oil and natural gas
properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development wells including
directly related overhead costs and related asset retirement costs are capitalized.
Under this method,
all costs, including internal costs directly related to acquisition, exploration and development activities are capitalized as
oil and natural gas property costs on a country-by-country basis. Costs not subject to amortization consist of unproved properties
that are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become
proved or their values become impaired. Camber assesses overall values of unproved properties, if any, on at least an annual basis
or when there has been an indication that impairment in value may have occurred. Impairment of unproved properties is assessed
based on management’s intention with regard to future development of individually significant properties and the ability
of Camber to obtain funds to finance 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 $5.75 and $14.62 per barrel of oil equivalent for the six months ended September 30, 2017 and 2016, respectively.
All of Camber’s
oil and gas properties are located in the United States. Below are the components of Camber’s oil and gas properties recorded
at:
|
|
September 30,
2017
|
|
|
March 31,
2017
|
|
Oil and gas properties subject to amortization
|
|
$
|
72,983,748
|
|
|
$
|
72,318,163
|
|
Oil and gas properties not subject to amortization
|
|
|
26,371,596
|
|
|
|
28,947,400
|
|
Capitalized asset retirement costs
|
|
|
1,473,199
|
|
|
|
1,473,199
|
|
Total oil and gas properties
|
|
|
100,828,543
|
|
|
|
102,738,762
|
|
Accumulated depreciation, depletion and amortization
|
|
|
(68,252,100
|
)
|
|
|
(67,036,915
|
)
|
Net capitalized costs
|
|
$
|
32,576,443
|
|
|
$
|
35,701,847
|
|
For the six
months ended September 30, 2017, the Company recorded impairments totaling $2,150,374, which represented $2,050,000 due to
lease expirations and $100,374 related to an impairment of proved properties based on the quarterly ceiling test. We wrote
off an additional $412,000 of leasehold costs related to leases that were not renewed.
On September 12,
2017, the cure period on the note of the Company’s wholly-owned subsidiary CATI 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 $8.8 million as of the date of acceleration and approximately $8.9 million as of September 30, 2017).
As stated previously, the loan was non-recourse to the public Company itself, but was recourse to CATI. Prior to the loan
coming due, Rogers sent us a demand letter and notice of defaults in August 2017, which alleged that various events of default
had occurred under the Rogers Loan since January 2016, and that due to such events of default, default interest at 18% per
annum had accrued on the Rogers Loan from January 2016 onward. We dispute the allegations in the August 2017 letter, due to
among other reasons, the fact that Rogers previously waived our failure to pay amounts due under the Rogers Loan from January
through July 2016. On October 3, 2017, the trustee of those assets, for the benefit of
the lender, sold some of the 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 proceeds from the foreclosure sales of approximately $3.5 million were applied against the outstanding indebtedness. The
remaining unpaid indebtedness owed by CATI is approximately $5.4 million. The Company is still in process of determining the
net book value of these assets remaining. CATI is exploring strategic alternatives related to the remaining owned properties
and indebtedness which is non-recourse to the Company and CATI except to the extent of the assets.
On August 2, 2017 and
effective June 13, 2017, Vantage provided us the Initial Tranche funding, we assigned all of our rights in Camber Permian to Vantage
pursuant to an Assignment (the “Assignment”), and we granted Vantage the Vantage Warrant. See Note 2 “Liquidity
and Going Concern Considerations” for further details. The book value of the Camber Permian rights was $114,500.
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 13,009,664
shares of common stock to certain of the Sellers valued at the grant date fair value, issued 552,000 shares of Series B Preferred
Stock to one of the Sellers and its affiliate (see “Note 10 – 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 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
|
|
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 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.
Office
Lease
On
July 27, 2015, the Company moved its corporate headquarters from 3555 Timmons Lane, Suite 1550, Houston, Texas 77027 to 450
Gears Road, Suite 780, Houston, Texas 77067 in connection with the expiration of the Company’s prior office space lease. The
Company entered into a sublease on approximately 3,300 square feet of office space that expired on January 31, 2016 and had a
base monthly rent of approximately $5,000 of which it had paid four months in advance as well as a $5,000 security deposit.
For the proceeding months, the Company paid month-to-month rent until it was able to move into its new office suite. 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 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 September 30, 2017, the carrying amount of the liability of $302,289 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 $12,738.
NOTE 5 – ASSET RETIREMENT OBLIGATIONS
The following table presents
the reconciliation of the beginning and ending aggregate carrying amounts of long-term legal obligations associated with the retirement
of oil and gas property and equipment for the six-month periods ended September 30, 2017 and 2016, respectively.
|
|
2017
|
|
|
2016
|
|
Carrying amount at beginning of period
|
|
$
|
2,045,847
|
|
|
$
|
1,179,170
|
|
Accretion
|
|
|
70,200
|
|
|
|
755,862
|
|
Change in estimate
|
|
|
(9,945
|
)
|
|
|
35,645
|
|
Carrying amount at end of period
|
|
$
|
2,106,102
|
|
|
$
|
1,970,677
|
|
Camber does not have any short-term asset retirement obligations as
of September 30, 2017 and March 31, 2017.
NOTE 6 – NOTES PAYABLE AND DEBENTURE
The Company’s notes payable and debenture
consisted of the following:
|
|
September 30,
2017
|
|
|
March 31,
2017
|
|
Note Payable - Rogers
|
|
$
|
6,866,371
|
|
|
$
|
6,883,697
|
|
Note Payable - Dreeben
|
|
|
1,050,000
|
|
|
|
1,050,000
|
|
Note Payable - Non-Related Individual
|
|
|
263,158
|
|
|
|
263,158
|
|
Debenture
|
|
|
530,000
|
|
|
|
530,000
|
|
Note Payable -Vantage
|
|
|
150,000
|
|
|
|
—
|
|
Note Payable - IBC
|
|
|
36,981,765
|
|
|
|
38,324,527
|
|
|
|
|
45,841,294
|
|
|
|
47,051,382
|
|
Unamortized debt discount
|
|
|
(2,087,082
|
)
|
|
|
(2,624,038
|
)
|
Total Notes Payable and Debenture
|
|
|
47,928,376
|
|
|
|
44,427,344
|
|
Less current portion of long-term debt
|
|
|
(47,729,910
|
)
|
|
|
(44,281,649
|
)
|
Long-term portion
|
|
$
|
198,466
|
|
|
$
|
145,695
|
|
Rogers Loan and Promissory Note
At September 30, 2017, the
Company had $6,866,371 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, 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 Global Credit, LLC,
the servicer of the loan. 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.
On September 11,
2017, the cure period on the Rogers Loan expired, and as of such date, all principal, interest and unpaid costs thereunder
were immediately due and payable (which totaled approximately $8.8 million as of the date of acceleration and approximately
$8.9 million as of September 30, 2017). As stated previously, the loan was non-recourse to the public Company itself, but
was recourse to CATI. Prior to the loan coming due, Rogers sent us a demand letter and notice of defaults in August 2017,
which alleged that various events of default had occurred under the Rogers Loan since January 2016, and that due to such
events of default, default interest at 18% per annum had accrued on the Rogers Loan from January 2016 onward. We dispute
the allegations in the August 2017 letter, due to among other reasons, the fact that Rogers previously waived our failure to
pay amounts due under the Rogers Loan from January through July 2016. 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 proceeds from the foreclosure sales of approximately $3.5 million were applied against the
outstanding indebtedness. The remaining unpaid indebtedness owed by CATI is approximately $5.4 million. The Company is still
in process of determining the net book value of these assets remaining. CATI is exploring strategic alternatives related to
the remaining owned properties and indebtedness which is non-recourse to the Company and CATI except to the extent of the
assets. The Company has accrued $2.1 million of default interest as of September 30, 2017.
Dreeben Note
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.
On 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 40,000 shares of
restricted common stock. The 40,000 shares were issued in August 2017. At September 30, 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 September 30, 2017, the Company owed
$1,050,000 to Alan Dreeben. The Company also recognized $42,000 in accrued interest as of September 30, 2017.
Vantage Funding
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. See Note 2 “Liquidity
and Going Concern Considerations” 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. See Note 2 “Liquidity
and Going Concern Considerations.”
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 (the “Debenture”), with a face value of $530,000, initially convertible into 163,077 shares of common stock
at a conversion price equal to $3.25 per share and warrants to initially purchase 1,384,616 shares of common stock (subject to
adjustment thereunder) at an exercise price equal to $3.25 per share (the “First Warrant”). The Investor purchased
the debenture at a $30,000 original issue discount for the sum of $500,000 and agreed that it would exercise the First Warrant,
upon satisfaction of certain conditions, for the sum of $4.5 million, which warrant was exercised in October 2016. The debenture
matures in seven years and accrues interest at a rate of 6.0% per annum. Due to the recent decline in the price of our common stock
and that a trigger event occurred on June 30, 2016 as a result of the delay in filing our Annual Report on Form 10-K for the year
ended March 31, 2016, the premium rate on the debenture increased from 6% to 34% and the conversion discount became 85% of the
lowest daily volume weighted average price during the measuring period (60 days prior to and 60 days after the last date that the
Investor receives the last of the shares due), less $0.10 per share of common stock not to exceed 85% of the lowest sales price
on the last day of such period less $0.10 per share.
As the fair value of the warrants
issued in connection with the debenture exceeds the $530,000 value of the debenture, the Company 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.
On August 23, 2017, the Investor
converted $35,000 of the principal amount of the Debenture into an aggregate of 1,754,711 shares of common stock, which included
10,770 shares for conversion of principal (at $3.25 per share) and 1,743,941 shares for premiums.
Loan Agreement with IBC
As of September 30, 2017, the
Company was not in compliance with certain covenants of the loan agreement with IBC, including requiring the Company to maintain
a net worth of $30 million, and the balance of the loan due to IBC of $37.6 million (less unamortized debt issuance costs of approximately
$2.0 million), was recognized as a short-term liability on the Company’s balance sheet as of September 30, 2017. The Company
has also recognized approximately $230,080 in accrued interest as of September 30, 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 is 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. The
Company had a 30-day cure period under its loan agreement with respect to the covenant defaults. The Company was unable to
cure the defaults and 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. The Company is evaluating its strategic alternatives concerning the defaults and is in continuing discussions
with IBC regarding the defaults.
NOTE 7 – DERIVATIVES
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 in April 2014 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 six months ended September 30, 2017 and 2016 were as follows:
|
|
2017
|
|
|
2016
|
|
Carrying amount at beginning of period
|
|
$
|
21,662
|
|
|
$
|
126,960
|
|
Change in fair value
|
|
|
(20,891
|
)
|
|
|
33,080
|
|
Carrying amount at end of period
|
|
$
|
771
|
|
|
$
|
160,040
|
|
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 September
30, 2017 include (1) discount rate of 1.47%, (2) expected term of 2 years, (3) expected volatility of 162.52%, and (4) zero expected
dividends. Variables used in the Black-Scholes pricing model as of September 30, 2017 include (1) discount rate of 0.87%-1.74%,
(2) expected term of 2 years, (3) expected volatility of 97.84%-149.62%, and (4) zero expected dividends.
As of September 30, 2017, the
significant inputs to the Company’s derivative liability calculation were Level 3 inputs.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Office Lease.
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 September 30, 2017, the carrying amount of the liability of $302,289 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 $9,595.
Legal Proceedings
. From
time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course
of our business. We are not currently involved in any legal proceedings that we believe could reasonably be expected to have a
material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material
legal proceedings in the future.
On May 9, 2017, the Company
filed a Petition and Request for Temporary Restraining Order, Preliminary Injunction and Permanent Injunction (the “Petition”),
against Discover Growth Fund (otherwise defined as the Investor herein)(“Discover”) and Fifth Third Securities, Inc.,
in the United States District Court for the Southern District of Texas Houston Division (Civil Action 4:17-cv-1436). The Petition
alleged causes of actions against Discover in connection with the Debenture, First Warrant and Series C Preferred Stock (the “Convertible
Securities”) and alleged causes of action against Discover and Fifth Third in connection with conversions and sales of our
common stock under the Convertible Securities. The Petition also sought declaratory relief in connection with certain terms and
provisions of the Convertible Securities, sought exemplary damages and injunctive relief as well as a temporary restraining order
to prevent Discover from further converting/exercising the Convertible Securities until the parties could reach a further understanding
regarding the terms thereof. On May 11, 2017, the court rejected our motion for hearing in connection with a temporary restraining
order. On May 16, 2017, Discover filed certain counterclaims against us and a request for a temporary restraining order and preliminary
injunction. Discover also filed a motion to dismiss our Petition on the same date. After discussion among the parties, the lawsuit
was subsequently dismissed by the parties on May 22, 2017.
On September 11,
2017, the cure period on the Rogers Loan expired, and as of such date, all principal, interest and unpaid costs thereunder
were immediately due and payable (which totaled approximately $8.8 million as of the date of acceleration and approximately
$8.9 million as of September 30, 2017). As stated previously, the loan was non-recourse to the public Company itself, but
was recourse to CATI. Prior to the loan coming due, Rogers sent us a demand letter and notice of defaults in August 2017,
which alleged that various events of default had occurred under the Rogers Loan since January 2016, and that due to such
events of default, default interest at 18% per annum had accrued on the Rogers Loan from January 2016 onward. We dispute
the allegations in the August 2017 letter, due to among other reasons, the fact that Rogers previously waived our failure to
pay amounts due under the Rogers Loan from January through July 2016. In September 2017, Rogers foreclosed on certain of the
assets of CATI which secured the note and on October 3, 2017, the trustee of those assets, for the benefit of Rogers,
sold these assets in public auction foreclosure sales which took place in Gonzales County and Karnes County, Texas. The
Company has accrued $2.1 million of default interest as of September 30, 2017. The proceeds from the foreclosure sales
of approximately $3.5 million were applied against the outstanding indebtedness. The remaining unpaid indebtedness owed by
CATI is approximately $5.4 million. The Company is still in process of determining the net book value of these assets
remaining. CATI is exploring strategic alternatives related to the remaining owned properties and indebtedness which is
non-recourse to the Company and CATI except to the extent of the assets.
On September 28, 2017,
Aaron Rubenstein, a purported shareholder of our common stock, filed a lawsuit against the Company (as nominal defendant) and
Richard N. Azar II, our Interim Chief Executive Officer and director, 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 intends to file a general denial with the court.
NOTE 9 – INCOME
TAXES
The
Company has estimated that its effective tax rate for U.S. purposes will be zero for the 2018 and 2017 fiscal year and consequently,
recorded no provision or benefit for income taxes for the three months ended September 30, 2017 and 2016.
NOTE 10 – STOCKHOLDERS’ DEFICIT
Series A Convertible Preferred Stock
On April 19, 2016, the holder
of our Series A Convertible Preferred Stock agreed to convert all 500 shares of our outstanding Series A Convertible Preferred
Stock into 20,000 shares of our common stock (a conversion ratio of 40:1 as provided in the original designation of the Series
A Convertible Preferred Stock adjusted for the Company’s 1:25 reverse stock split effective on July 25, 2015), which conversion
was completed on April 25, 2016. The Company 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 September 30, 2017, we had no Series A Convertible Preferred Stock issued or outstanding.
Series B Redeemable Convertible Preferred Stock
On September 1, 2016, as consideration
for the closing of the Acquisition, the Company issued an aggregate of 552,000 shares of Redeemable Convertible Preferred Stock,
which had a total value of $13,800,000 based on the $25 per Series B Preferred Stock share par value. The preferred shares were
issued to RAD2 (200,000 shares) and Segundo Resources, LLC (an affiliate of RAD2) (352,000 shares) on behalf of and for the benefit
of RAD2.
The Series B Preferred Stock
has a liquidation preference of $25 per share. The Series B Preferred Stock is convertible, at the option of the holder at any
time following the original issuance date, into common stock at a rate of approximately 7.14:1 (originally issuable into an aggregate
of 3,942,857 shares of common stock if fully converted), at the option of the holder thereof, or automatically as to 25% of the
Series B Preferred Stock shares if our common stock trades above $6.125 per share for at least 20 consecutive trading days, and
trades with at least 75,000 shares of average volume per day during such period; an additional 50% of the Series B Preferred Stock
shares if our common stock trades above $7.00 per share for at least 20 consecutive trading days, and trades with at least 75,000
shares of average volume per day during such period; and as to the remaining Series B Preferred Stock shares, if our common stock
trades above $7.875 per share for at least 20 consecutive trading days, and trades with at least 75,000 shares of average volume
per day during such period. Each outstanding share of Series B Preferred Stock will be entitled to one vote per share on all stockholder
matters. The Series B Preferred Stock is redeemable at any time by the Company upon the payment by the Company of the face amount
of the Series B Preferred Stock ($25 per share) plus any and all accrued and unpaid dividends thereon.
The Company has the option,
exercisable from time to time after the original issue date, to redeem all or any portion of the outstanding shares of Series B
Preferred Stock by paying each applicable holder, an amount equal to the original issue price multiplied by the number of Series
B Preferred shares held by each applicable holder plus the accrued dividends.
During the year ended March
31, 2017, the Company issued a stock dividend on the Series B Preferred Stock consisting of 82,674 shares of the Company’s
common stock. Due to the fact that the Company is in an accumulated deficit position, the Company recognized a charge to additional
paid in-capital of $83 based on the par value of the common stock issued.
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
1,024,943 shares of common stock of the Company.
As of September 30, 2017, the
408,508 outstanding shares of Series B Preferred Stock had accrued $153,191 in quarterly dividends. The Company plans to pay that
dividend by way of the issuance of 901.124 shares of our common stock to the preferred shareholders at a fair market value of $0.17,
based on the closing price of the Company’s common stock on September 29, 2017, which shares have not been issued to date
and are not included in the number of issued and outstanding shares disclosed throughout this report (or the ownership of the Series
B Preferred Stock holders).
The 408,058 shares of Series
B Preferred Stock have the following features:
|
●
|
a liquidation preference senior to all of the Company’s common stock;
|
|
●
|
a dividend, payable quarterly, at an annual rate of six percent (6%) of the original issue price until such Series B Preferred Stock is no longer outstanding either due to conversion, redemption or otherwise; and
|
|
●
|
voting rights on all matters, with each share having 1 vote.
|
As the Series B Preferred Stock
is convertible at any time following the original issuance date into common stock at a rate of approximately 7.14:1, the Company
recognized a fair value measurement of $14,898,038 for the Series B Preferred Stock, which is based on the 552,000 preferred shares
issued times the conversion rate of approximately 7.14, times the price of the Company’s common stock of $3.78 per share
at the date of the closing of the Acquisition on August 25, 2016.
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 1,618,462 shares of common stock at a conversion price of $3.25 per share, and a warrant to purchase
1,111,112 shares of common stock at an exercise price of $4.50 per share (the “Second Warrant”).
On September 2, 2016, the Second
Warrant and 53 shares of Series C Preferred Stock were issued for $526,450 ($500,000, net cash proceeds to Camber) after the Acquisition
(as defined and described in “Note 2 – Liquidity and Going Concern Considerations”) closed. The prorated share
of the $263,000 discount ($26,450) was recorded to interest expense. On November 17, 2016, the remaining 474 shares of Series C
Preferred Stock were issued for $4,736,550 ($4,500,000, net cash proceeds to the Company) and the Company paid placement agent
and legal fees of $514,000 for services rendered in connection with the issuance. The Company also recognized $236,550 of the remaining
5% original issue discount, which was recorded to interest expense in the third quarter of fiscal 2017.
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, based on certain triggering events and the trading price of the Company’s common stock, and which
totaled 30% per annum as of September 30, 2017 and currently total 35% per annum, payable upon redemption, conversion, or maturity,
and when, as and if declared by our Board of Directors in its discretion. The Series C Preferred Stock ranks senior to the common
stock and pari passu with respect to our Series B Redeemable Convertible Preferred Stock.
The Series C Preferred Stock
may be converted into shares of common stock at any time at the option of the holder, or at our option if certain equity conditions
(as defined in the Certificate of Designation) are met. Upon conversion, we will pay the holder of the Series C Preferred Stock
being converted an amount, in cash or stock at our sole discretion, equal to the dividends that such shares would have otherwise
earned if they had been held through the maturity date (7 years), and issue to the holder such number of shares of common stock
equal to $10,000 per share of Series C Preferred Stock (the “Face Value”) multiplied by the number of such shares of
Series C Preferred Stock divided by the conversion rate ($3.25 per share).
The conversion premium under
the Series C Preferred Stock is payable and the dividend rate under the Series C Preferred Stock is adjustable on the same terms
and conditions as accrued interest is payable and adjustable under the Debenture. The Series C Preferred Stock has a maturity date
that is seven years after the date of issuance and, if the Series C Preferred Stock has not been wholly converted into shares of
common stock prior to such date, we may redeem the Series C Preferred Stock on such date by repaying to the holder in cash 100%
of the Face Value plus an amount equal to any accrued but unpaid dividends thereon. 100% of the Face Value, plus an amount equal
to any accrued but unpaid dividends thereon, automatically becomes payable in the event of a liquidation, dissolution or winding
up by us.
The following summarizes the
Series C Preferred Stock converted during the six months ended September 30, 2017:
Date
|
|
|
Number of Shares Converted
|
|
|
Face Value
|
|
|
Common Stock Due
|
|
|
Additional Dividend Premium Shares
|
|
|
Total Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 11, 2017
|
|
|
|
10
|
|
|
$
|
100,000
|
|
|
|
30,770
|
|
|
|
1,247,235
|
|
|
|
1,274,542
|
|
|
|
|
|
10
|
|
|
$
|
100,000
|
|
|
|
30,770
|
|
|
|
1,247,235
|
|
|
|
1,274,542
|
|
As of September 30, 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 charge to additional paid-in capital and stock dividends distributable but not issued of $1,263,037
related to the stock dividend declared but not issued.
Due to the decline in the
price of the Company’s common stock and the trigger event that occurred on June 30, 2016 as a result of the delay in filing our
Annual Report on Form 10-K for the year ended March 31, 2016, the dividend premium rate increased from 6% to 30% and the
conversion discount became 85% of the lowest daily volume weighted average price during the measuring period, less $0.10 per
share of common stock not to exceed 85% of the lowest sales prices on the last day of such period less $0.10 per share. A
total of 1,067,600 shares were issued to the Investor on December 23, 2016.
As of December 31, 2016, the
Company accrued common stock dividends on the Series C Preferred Stock based on the then 30% premium dividend rate described above.
The Company recognized a charge to additional paid-in capital and stock dividends distributable but not issued of $750,000 related
to the stock dividend declared but not issued.
During the year ended March
31, 2017, the Investor converted 123 shares of the Series C Preferred stock with a face value of $1.2 million and was issued 378,464
shares of common stock and additional shares of common stock in dividend premium shares of 5,605,393 for an aggregate of a total
of 5,693,857 shares issued.
On October 5, 2017, the Company
and the Investor entered into a Stock Purchase Agreement (the “October 2017 Purchase Agreement”), pursuant to which
the Company may receive aggregate consideration of $16 million, subject to certain conditions set forth therein. See “Note
2 – Liquidity and Going Concern Considerations – “Stock and Securities Purchase Agreements with Institutional
Investor” for a description of the Series C Preferred Stock purchased or to be purchased by the Investor.
See discussion of the October
2017 Purchase Agreement with the Investor in Note 2.
Common Stock
The following summarizes the
Company’s common stock activity during the six-month period ended September 30, 2017:
|
|
|
|
|
Common Shares
|
|
|
|
Amount (a)
|
|
|
Per Share
|
|
|
Issued and Outstanding Shares
|
|
Balance at March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
27,115,868
|
|
Preferred Stock Series B Conversion
|
|
$
|
399,728
|
|
|
$
|
0.39
|
|
|
|
1,024,943
|
|
Preferred Stock Series C Conversion (b)
|
|
|
—
|
|
|
|
—
|
|
|
|
6,164,542
|
|
Preferred Stock Series B Dividends
|
|
|
34,837
|
|
|
|
0.59
|
|
|
|
59,146
|
|
Warrant Conversion (c)
|
|
|
—
|
|
|
|
—
|
|
|
|
8,495,154
|
|
Note Conversion
|
|
|
35,000
|
|
|
|
0.02
|
|
|
|
1,754,711
|
|
Share-Based Compensation (d)
|
|
|
23,573
|
|
|
|
0.50
|
|
|
|
47,146
|
|
Dreeben Note Shares
|
|
|
30,000
|
|
|
|
0.75
|
|
|
|
40,000
|
|
Third Party Lender Note Shares
|
|
|
5,900
|
|
|
|
0.59
|
|
|
|
10,000
|
|
Balance at September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
44,711,510
|
|
|
(a)
|
Net proceeds or fair value on grant date, as applicable.
|
|
(b)
|
Shares previously 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).
|
|
(c)
|
Shares issued from the October 7, 2016 exercise of warrants resulting from an increase in the conversion premium.
|
|
(d)
|
For the year ended March 31, 2017, Camber issued 22,131 shares of its common stock with an aggregate grant date fair value of $72,035, which were valued based on the trading value of Camber’s common stock on the date of grant. Also, on December 31, 2016, the Company agreed to award an additional 19,010 shares of its common stock with an aggregate grant fair value of $23,572, which were valued based on the trading value of Camber’s common stock on the date of grant. Those common stock awards had yet to be physically issued as of March 31, 2017 and therefore, were recognized as accrued common stock payable on the March 31, 2017 balance sheet. The shares were awarded according to the employment agreement with an officer and as additional compensation for other officers and managerial personnel. These common stock awards were issued during the six-month period ended September 30, 2017.
|
Warrants
On August 2, 2017, and effective
June 13, 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. The initial tranche consisted of $400,000 received on June 12, 2017,
in exchange for the assignment to Vantage of all of the Company’s rights and ownership in its wholly-owned subsidiary Camber
Permian II, LLC (“Camber Permian”) which included leaseholds and potential participation rights and warrants for to
purchase 1,600,000 shares of the Company’s common stock. The fair value of the warrants was determined to be $284,305 as
of the grant date using the Black-Scholes Option Pricing model. Variables used in the Black Scholes model as of June 12, 2017 include
(1) discount rate of 1.78% (2) expected term of 5 years, (3) expected volatility of 135.42%, and (4) zero expected dividends
.
During the three and six
months ended September 30, 2017, no other warrants than the Vantage warrants were issued or were cancelled.
During the year ended March
31, 2017, warrants to purchase 1,384,616 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 1,111,112 shares of
common stock at an exercise price of $4.50 per share were granted in connection with our sale of 53 shares of Series C Preferred
Stock noted above. The Company also granted warrants to purchase 124,285 shares of common stock in connection with the sale of
convertible notes. No warrants were cancelled during the year ended March 31, 2017, other than warrants to purchase 100,420 shares
of common stock at an exercise price of $71.50 per share which expired unexercised on July 4, 2016.
On October 7, 2016, the Investor
exercised the First Warrant in full and was due 1,384,616 shares of common stock upon exercise thereof and an additional 2,542,735
shares of common stock in consideration for the conversion premium due thereon. A total of 810,000 shares were issued to the Investor
on October 7, 2016, with the remaining shares being held in abeyance until such time as it would not result in the Investor exceeding
its beneficial ownership limitation (4.99% of the Company’s outstanding common stock). The Company received gross proceeds
of $4,500,000 from the exercise of the First Warrant and paid placement agent fees of $427,500 for services rendered in connection
with the First Warrant. Pursuant to the terms of the First Warrant, the number of shares due in consideration for the conversion
premium increases as the annual rate of return under the First Warrant increases, including by 10% upon the occurrence of certain
triggering events (which had occurred by the October 7, 2016 date of exercise), to 17% per annum upon the exercise of the First
Warrant. Additionally, as the conversion rate for the conversion premium is currently 85% of the lowest daily volume weighted average
price during the measuring period, less $0.10 per share of common stock not to exceed 85% of the lowest sales prices on the last
day of such period less $0.10 per share, the number of shares issuable in connection with the conversion premium increases as the
trading price of our common stock decreases, and the trading price of our common stock has decreased since the date the First Warrant
was exercised, triggering a further reduction in the conversion price of the conversion premium and an increase in the number of
shares due 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 November 15, 2017, a
total of 25,595,154 shares of common stock had been issued to the Investor in connection with the exercise of the First
Warrant of the approximately 110,447,753 shares which are due (84,852,599 shares remain to be issued to the Investor, which
shares are currently 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)) as of November 15, 2017 (subject to increases as
the value of our common stock decreases). In the six months ended September 30, 2017, 8,495,154 shares of common stock were
issued and subsequent to September 30, 2017, 12,100,000 shares of common stock were issued.
Additionally, warrants to purchase
66,668 shares of common stock issued in connection with an equity raise completed in April 2014, contained a weighted average anti-dilutive
provision in which the exercise price of the warrants are adjusted downward based on any subsequent issuance or deemed issuance
of common stock or convertible securities by the Company for consideration less than the then exercise price of such warrants.
As a result of the anti-dilution rights, the exercise price of the warrants was adjusted to $3.59 per share, in connection with
an automatic adjustment to the exercise price due to the Acquisition. As of September 30, 2017, the fair value of the derivative
liability associated with the 66,668 warrants was $771 compared to $21,662 at March 31, 2017. Therefore, the $20,891 change in
the derivative liability fair value was recorded as other income on the consolidated statement of operations.
At September 30, 2017, 11,195
outstanding warrants had an intrinsic value of $1,769. 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 $33.75 to $0.01 per share
on August 12, 2015.
The following is a summary
of the Company’s outstanding warrants at September 30, 2017:
Warrants
Outstanding
|
|
|
Exercise Price
($)
|
|
|
Expiration
Date
|
|
|
Intrinsic Value at
September
30, 2017
|
|
41,300
|
(1)
|
|
|
57.50
|
|
|
|
October 18, 2017
|
|
|
$
|
—
|
|
11,000
|
(2)
|
|
|
37.50
|
|
|
|
April 4, 2018
|
|
|
|
—
|
|
2,000
|
(3)
|
|
|
37.50
|
|
|
|
May 31, 2018
|
|
|
|
—
|
|
11,195
|
(4)
|
|
|
0.01
|
|
|
|
August 13, 2018
|
|
|
|
1,769
|
|
66,668
|
(5)
|
|
|
3.59
|
|
|
|
April 21, 2019
|
|
|
|
—
|
|
124,285
|
(6)
|
|
|
1.50
|
|
|
|
April 21, 2021
|
|
|
|
—
|
|
1,600,000
|
(7)
|
|
|
0.25
|
|
|
|
June 12, 2022
|
|
|
|
—
|
|
1,856,448
|
|
|
|
|
|
|
|
|
|
|
$
|
1,769
|
|
|
(1)
|
Warrants issued in connection with the sale of units in the Company’s unit offering in April 2012. The warrants became exercisable on October 18, 2012, and will remain exercisable thereafter until October 18, 2017.
|
|
(2)
|
Warrants issued in connection with the issuance of certain notes in April 2013, of which the outstanding principal and interest was paid in full on August 16, 2013. The warrants were exercisable on the grant date (April 4, 2013) and remain exercisable until April 4, 2018.
|
|
(3)
|
Warrants issued in connection with the issuance of certain notes in May 2013, of which the outstanding principal and interest was paid in full on August 16, 2013. The warrants were exercisable on the grant date (May 31, 2013) and remain exercisable until May 31, 2018.
|
|
(4)
|
Warrants issued in connection with the Rogers Loan. The warrants were exercisable on the grant date (August 13, 2013) and remain exercisable until August 13, 2018. The exercise price was lowered to $0.01 per share on August 12, 2015.
|
|
(5)
|
Warrants issued in connection with the sale of units in the Company’s unit offering in April 2014. The Warrants became exercisable on April 21, 2014 and will remain exercisable thereafter until April 21, 2019.
|
|
(6)
|
Warrants issued in connection with the sale of convertible notes. The warrants were exercisable on the grant date (April 26, 2016) and remain exercisable until April 26, 2021.
|
|
(7)
|
Warrants issued in connection with the Initial Tranche of the funding from Vantage. The warrants were exercisable on the grant date (June 12, 2017) and remain exercisable until June 12, 2022.
|
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 from
October 2017 through February 28, 2018, (b) $50,000 per month thereafter through October 4, 2018, the end of the term of the
agreement, and (c) 3,750,000 shares of restricted common stock, with 2.5 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 1,000,000
shares of restricted common stock (the “Consulting Shares”), with piggy-back registration rights.
Stock Purchase Agreement
On October 5, 2017, the Company
and the Investor entered into a Stock Purchase Agreement described in greater detail above under Note 2 “Liquidity and Going
Concern Considerations” – “Stock and Securities Purchase Agreements with Institutional Investor”.
Under the terms of the October
2017 Purchase Agreement, (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, to purchase (2) 106 shares of Series C Preferred Stock for $1,000,000, 10 days after the Initial Closing; (3)
105 shares of Series C Preferred Stock for $1,000,000, 10 days after the second closing; (4) 105 shares of Series C Preferred
Stock for $1,000,000, 10 days after the third closing; (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, none of which closings, other than the Initial Closing
have occurred to date.
NOTE 11 – SHARE-BASED
COMPENSATION
Camber measures the cost of
employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award over
the vesting period.
Stock Options
As of September 30, 2017, and
2016, the Company had 19,920 and 22,920 stock options outstanding with a weighted average exercise price of $35.38 and $33.96,
respectively.
Of the Company’s
outstanding options, no options were exercised or forfeited. Additionally, no stock options were granted during the three and
six months ended September 30, 2017. Compensation expense related to stock options during the three-month periods ended
September 30, 2017 and 2016 was $4,816 in both periods. Compensation expense related to stock options during the six-month
periods ended September 30, 2017 and 2016 was $9,632 in both periods.
Options outstanding and exercisable
at September 30, 2017 and 2016 had no intrinsic value, respectively. The intrinsic value is based upon the difference between the
market price of Camber’s common stock on the date of exercise and the grant price of the stock options.
As of September 30, 2017, total
unrecognized share-based compensation expense related to all non-vested stock options was $1,605, which is being recognized over
a remaining weighted average period of approximately 0.1 years.
The following tabulation summarizes
the remaining terms of the options outstanding:
Exercise
Price ($)
|
|
|
Remaining
Life (Yrs.)
|
|
|
Options Outstanding
|
|
|
Options
Exercisable
|
|
40.75
|
|
|
|
0.1
|
|
|
|
4,000
|
|
|
|
4,000
|
|
43.50
|
|
|
|
0.1
|
|
|
|
6,000
|
|
|
|
6,000
|
|
39.50
|
|
|
|
0.2
|
|
|
|
2,000
|
|
|
|
2,000
|
|
40.25
|
|
|
|
0.2
|
|
|
|
2,000
|
|
|
|
2,000
|
|
5.50
|
|
|
|
0.5
|
|
|
|
4,000
|
|
|
|
4,000
|
|
51.75
|
|
|
|
3.0
|
|
|
|
1,920
|
|
|
|
1,920
|
|
|
|
|
|
Total
|
|
|
|
19,920
|
|
|
|
19,920
|
|
NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid for interest and income taxes was
as follows:
|
|
Six Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Interest
|
|
$
|
1,115,528
|
|
|
$
|
193,106
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-cash investing and financing activities
included the following:
|
|
|
Six Months Ended
September 30,
|
|
|
|
Six Months Ended
September 30,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
Reduction in Accounts Payable for Payments Made on Previously Accrued Capital Expenditures
|
|
$
|
4,395
|
|
|
$
|
79,197
|
|
Asset Retirement Obligations from Segundo Acquisition
|
|
$
|
—
|
|
|
$
|
755,862
|
|
Issuance of Common Stock for Segundo Acquisition
|
|
$
|
—
|
|
|
$
|
49,176,530
|
|
Issuance of Series B Preferred Stock for Segundo Acquisition
|
|
$
|
—
|
|
|
$
|
14,898,038
|
|
Notes Payable Assumed for Segundo Acquisition
|
|
$
|
—
|
|
|
$
|
30,595,256
|
|
Accounts Receivable Assumed for Segundo Acquisition
|
|
$
|
—
|
|
|
$
|
635,482
|
|
Debt discounts on Notes Payable
|
|
$
|
49,529
|
|
|
$
|
48,000
|
|
Debt discounts on Notes Payable, Long-Term Notes Payable
|
|
$
|
502,341
|
|
|
$
|
3,526,900
|
|
Issuance of Restricted Common Stock for Dreeben Loan
|
|
$
|
35,900
|
|
|
$
|
48,000
|
|
Stock Dividends Distributable but not Issued
|
|
$
|
717,958
|
|
|
$
|
—
|
|
Conversion of Convertible Notes to Common Stock
|
|
$
|
35,000
|
|
|
$
|
832,129
|
|
Conversion of Preferred Stock to Common Stock
|
|
$
|
1,025
|
|
|
$
|
733,900
|
|
Issuance of common stock for common stock payable
|
|
$
|
59,473
|
|
|
$
|
—
|
|
Change in Estimate for Asset Retirement Obligation
|
|
$
|
9,945
|
|
|
$
|
—
|
|
Reversal of oil and gas property
|
|
$
|
412,708
|
|
|
$
|
—
|
|
Issuance of stock dividends
|
|
$
|
34,837
|
|
|
$
|
—
|
|
Issuance of Common Stock for Dividends
|
|
$
|
358,723
|
|
|
$
|
—
|
|
NOTE 13 – SUBSEQUENT EVENTS
See various subsequent
events disclosed in Note 2 “Liquidity and Going Concern Considerations”, Note 6 “Notes Payable and Debenture”
and Note 10 “Stockholders’ Deficit.”
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 has agreed to reimburse such fees by issuing such entities shares
of common stock with an agreed value of $0.20 per share, or an aggregate of 1,960,218 shares of common stock.
On November 9, 2017 and 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. 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,
thus reducing its liabilities by approximately $1,525,000. The Company maintains a 90% ownership position in the remaining approximately
1,200 acres in the area.
The Company entered into a nonbinding letter of intent in November 2017, to acquire a 95% net working interest position in
3,220 net acres in Yoakum County, Texas, within a 6,000 acre area of mutual interest (“AMI”) in the Permian basin. The Company
intends to enter into an agreement with a joint venture partner within the AMI with the plan to initiate a drilling program
on this acreage, targeting the San Andres formation, during the first half of 2018, subject to the transaction closing by
year end.