The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – GENERAL
Camber Energy, Inc.
(“Camber” or the “Company”) is an independent oil and natural gas company engaged in
the acquisition, development, and sale of crude oil, natural gas, and natural gas liquids from various known productive geological
formations in Louisiana and Texas. Additionally, from the July 8, 2019 acquisition of Lineal Star Holdings, LLC (“Lineal”),
until the divestiture of Lineal effective on December 31, 2019, each as discussed below, the Company, through Lineal, was
involved in the oil and gas services industry.
On July 8, 2019, the
Company acquired Lineal pursuant to the terms of an Agreement and Plan of Merger dated as of the same date (the “Lineal
Plan of Merger” and the merger contemplated therein, the “Lineal Merger” or the “Lineal Acquisition”),
by and between Lineal, Camber, Camber Energy Merger Sub 2, Inc., Camber’s wholly-owned subsidiary, and the Members of Lineal
(the “Lineal Members”). Lineal is a specialty construction and oil and gas services enterprise providing services
to the energy industry. Pursuant to the Lineal Plan of Merger, Camber acquired 100% of the ownership of Lineal from the Lineal
Members in consideration for newly issued shares of Series E Redeemable Convertible Preferred Stock (“Series E Preferred
Stock”) and Series F Redeemable Preferred Stock (“Series F Preferred Stock”). See also “Note
11 – Lineal Merger Agreement and Divestiture”. On October 8, 2019, Lineal acquired an 80% interest in Evercon Energy
LLC (“Evercon”). The acquisition required Lineal to assume certain liabilities and provide working capital for
six months in the amount of $50,000 per month to Evercon. As part of the Lineal Divestiture, described below, Evercon was divested
effective December 31, 2019.
On December 31, 2019,
the Company entered into a Preferred Stock Redemption Agreement (the “Redemption Agreement”) by and between
the Company and the prior owners of Lineal, whereby the Company redeemed the Company’s Series E and F Preferred Stock (the
holders of such preferred stock, collectively, the “Preferred Holders”) issued in connection with the Lineal
Merger. Pursuant to the Redemption Agreement, effective as of December 31, 2019, ownership of 100% of Lineal was transferred back
to the Preferred Holders, and, all of the Series E Preferred Stock and Series F Preferred Stock of the Company outstanding were
canceled through the redemption (the “Lineal Divestiture”). See also “Note 11 –
Lineal Merger Agreement and Divestiture”.
Prior to the acquisition
of Lineal, the Company sold a significant portion of its oil and gas production assets in Oklahoma to N&B Energy, LLC (“N&B
Energy”) effective August 1, 2018. As part of the sale of its assets to N&B Energy, the Company also retained
a 12.5% production payment (effective until a total of $2.5 million has been received) and a 3% overriding royalty interest,
in its then existing Okfuskee County, Oklahoma assets; and an overriding royalty interest on certain other undeveloped leasehold
interests, pursuant to an Assignment of Production Payment and Assignments of Overriding Royalty Interests. No payments were received
in regard to any of the retained items noted above through September 30, 2020, and the filing date of these financial statements.
Camber retained its
assets in Glasscock County and operated wells in Hutchinson County, Texas following the N&B Energy transaction until completion
of the Settlement Agreement discussed below.
On January
31, 2020, the Company entered into a Compromise Settlement Agreement (the “Settlement Agreement”) with
PetroGlobe Energy Holdings, LLC (“PetroGlobe”), Signal Drilling, LLC (“Signal”), Petrolia
Oil, LLC (“Petrolia”), Prairie Gas Company of Oklahoma, LLC (“PGCO”), and Canadian River
Trading Company, LLC (“CRTC”). Pursuant to the Settlement Agreement, the Company agreed to pay PetroGlobe $250,000,
of which $100,000 was due upon execution of the Settlement Agreement, which payment has been made, and $150,000 was paid to an
escrow account, which was released by the Company upon the successful transfer of all wells and partnership interests of the Company’s
prior wholly-owned subsidiary C E Energy LLC (“CE”) to PetroGlobe, which was completed on July 16, 2020.
CE operates all of the wells and leases which we held prior to such transfer which are located in Hutchinson County, Texas. See
also “Note 9 – Commitments and Contingencies” – “Legal
Proceedings”.
On
February 3, 2020, the Company entered into an Agreement and Plan of Merger with Viking Energy Group, Inc. (“Viking”),
which was amended and restated by an Amended and Restated Agreement and Plan of Merger entered into with Viking on August 31, 2020
(as amended to date, the “Merger Agreement”, and the merger contemplated therein, the “Merger”). Pursuant
to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), (a) each share of
common stock of Viking (the “Viking Common Stock”) issued and outstanding, other than certain shares owned
by the Company, Viking and the subsidiary of the Company formed as part of the Merger (“Merger Sub”), will be
converted into the right to receive the pro rata share (when including the Viking preferred stock conversion rights (defined
below)) of 80% of the Company’s post-closing (excluding shares issuable upon conversion
of the Series C Preferred Stock of the Company)(the “exchange ratio”); and (b) each share of Viking
preferred stock outstanding immediately prior to the effective time will be converted into one share of Camber Series A Preferred
Stock, which preferred stock will have the right to vote, and convert into, that number of shares of Camber common stock that its
holder would have received in the Merger, had such holder fully converted the Viking preferred stock into Viking common stock immediately
prior to the Effective Time (the “Viking preferred stock conversion rights”).
Holders
of Viking Common Stock will have any fractional shares of Company common stock after the Merger rounded up to the nearest whole
share. The completion of the Merger is subject to certain closing conditions. A further requirement to the closing
of the Merger was that the Company was required to have acquired 30% of Viking’s subsidiary Elysium Energy Holdings, LLC
(“Elysium”) as part of a $9,200,000 investment in Viking’s Rule 506(c) offering, which transaction
was completed on February 3, 2020 (25% and a $5 million investment) and June 22, 2020 (5% and a $4.2 million investment). See
also “Note 5 – Plan of Merger and Investment In Unconsolidated
Entity”.
On March 1, 2018, the
Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada
to effect a 1-for-25 reverse stock split of all outstanding common stock shares of the Company. The reverse stock split was effective
on March 5, 2018. The effect of the reverse stock split was to combine every 25 shares of outstanding common stock into one new
share, with no change in authorized shares or par value per share. On December 20, 2018, the Company filed a Certificate of Change
with the Secretary of State of Nevada to effect another 1-for-25 reverse stock split of the Company’s (a) authorized
shares of common stock (from 500,000,000 shares to 20,000,000 shares); and (b) issued and outstanding shares of common stock.
The reverse stock split was effective on December 24, 2018. The effect of the reverse stock split was to combine every 25 shares
of outstanding common stock into one new share, with a proportionate 1-for-25 reduction in the Company’s authorized shares
of common stock, but no change in the par value per share of the common stock. Effective on April 10, 2019, the Company filed,
with the Secretary of State of Nevada, a Certificate of Amendment to the Company’s Articles of Incorporation to increase
the number of the Company’s authorized shares of common stock, $0.001 par value per share, from 20,000,000 shares to 250,000,000
shares. On July 3, 2019, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the
Secretary of State of Nevada to effect another 1-for-25 reverse stock split of all outstanding common stock shares of the Company.
The reverse stock split was effective on July 8, 2019. The effect of the reverse stock split was to combine every 25 shares of
outstanding common stock into one new share, with no change in authorized shares (250,000,000 shares of common stock) or par
value per share. On October 28, 2019, the Company filed a Certificate of Change with the Secretary of State of Nevada to effect
a 1-for-50 reverse stock split of the Company’s (a) authorized shares of common stock (from 250,000,000 shares to 5,000,000
shares); and (b) issued and outstanding shares of common stock. The reverse stock split was effective on October 29, 2019.
The effect of the reverse stock split was to combine every 50 shares of outstanding common stock into one new share, with a proportionate
1-for-50 reduction in the Company’s authorized shares of common stock, but with no change in the par value per share of the
common stock. The result of the reverse stock split was to reduce, as of the effective date of the reverse stock split, the number
of common stock shares outstanding from approximately 74.5 million shares to approximately 1.5 million shares (before rounding).
Effective on April 16, 2020, Camber filed a Certificate of Amendment to its Articles of Incorporation to increase its authorized
shares of common stock to 25 million shares of common stock.
Proportional adjustments
were made to the conversion and exercise prices of the Company’s outstanding convertible preferred stock, warrants, and stock
options, and to the number of shares issued and issuable under the Company’s stock incentive plans in connection with each
of the reverse splits described above. The reverse stock splits did not affect any stockholder’s ownership percentage of
the Company’s common stock, except to the limited extent that the reverse stock splits resulted in any stockholder owning
a fractional share. Fractional shares of common stock were rounded up to the nearest whole share based on each holder’s aggregate
ownership of the Company. All issued and outstanding shares of common stock, conversion terms of preferred stock, options and warrants
to purchase common stock and per share amounts contained in the financial statements, in accordance with Staff Accounting Bulletin
(SAB) TOPIC 4C, have been retroactively adjusted to reflect the reverse splits for all periods presented.
A novel strain of coronavirus
(“COVID-19”) was first identified in December 2019, and subsequently declared a global pandemic by the
World Health Organization on March 11, 2020. As a result of the outbreak, many companies have experienced disruptions in their
operations, workforce and markets served, including a significant reduction in the demand for petroleum-based products. The market
for the Company’s oil and gas assets began being adversely impacted by the effects of COVID-19 in March of 2020 when circumstances
surrounding, and responses to, the pandemic, including stay-at-home orders, began to materialize in North America. Due to the Company’s
limited oil and gas production and the fact that all of the Company’s current properties are non-operated, the Company has
yet to experience a significant adverse impact from COVID-19. However, the full extent of the COVID-19 outbreak and changes in
demand for oil and the impact on the Company’s operations is uncertain. A prolonged disruption could have a material adverse
impact on the financial results, assets (including requiring write-downs or impairments), and business operations of the Company.
NOTE
2 – LIQUIDITY AND GOING CONCERN CONSIDERATIONS
At September 30, 2020,
the Company’s total current assets of $1.5 million were less than its total current liabilities of approximately $1.6 million,
resulting in a working capital deficit of $0.1 million, while at March 31, 2020, the Company’s total current assets of $1.1
million were less than its total current liabilities of approximately $2.0 million, resulting in a working capital deficit of $0.9
million. The decrease in working capital deficit of $0.8 million is the result of the sale of the Series C Preferred Stock shares
in June 2020.
Recent oil and gas
price volatility as a result of geopolitical conditions and the global COVID-19 pandemic may have a negative impact on the Company’s
financial position and results of operations. Negative impacts could include, but are not limited to, the Company’s inability
to sell its oil and gas production, reduction in the selling price of the Company’s oil and gas, failure of a counterparty
to make required payments, possible disruption of production as a result of worker illness or mandated production shutdowns or
‘stay-at-home’ orders, and access to new capital and financing.
The factors above raise substantial doubt about the Company’s
ability to continue to operate as a going concern for the twelve months following the issuance of these financial statements. The
Company believes that it may not have sufficient liquidity to meet its operating costs unless it can raise new funding, which may
be through the sale of debt or equity or unless it closes the Viking Merger, which is the Company’s current plan, which Merger
is anticipated to close in the first calendar quarter of 2021, and which required closing date is currently December 31, 2020.
There is no guarantee though that the Viking Merger will be completed or other sources of funding will be available. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company has provided
a discussion of significant accounting policies, estimates, and judgments in its March 31, 2020, Annual Report on Form 10-K. There
have been no changes to the Company’s significant accounting policies since March 31, 2020, which are expected to have a
material impact on the Company’s financial position, operations, or cash flows.
Principles of Consolidation
The consolidated financial
statements include the accounts of Camber and all of its wholly-owned and majority-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
Accounts Receivable
Accounts receivable, net, include amounts due for oil and gas revenues
from prior month production, accrued interest on the notes receivable due from Lineal and Viking and an estimate of amounts due
from N&B Energy related to the September 2018 Asset Purchase Agreement entered into with N&B Energy. The allowance for
doubtful accounts is the Company’s best estimate of the probable amount of credit losses in the Company’s existing
accounts receivable. At September 30, 2020, and March 31, 2020, there were allowances for doubtful accounts of approximately $171,000
and $208,000, included in accounts receivable, and there were bad debts of $170,660 and $17,694, recognized for the six months
ended September 30, 2020, and 2019, respectively.
Notes Receivable
Notes receivable includes
the $9,200,000, excluding adjustment for excess loss from equity method investment of $1,182,952, of notes from Viking as described
in “Note 6 – Long-Term Notes Receivable” and “Note
5 – Plan of Merger and Investment In Unconsolidated Entity”, and two notes due from Lineal in the amounts of $1,539,719
and $800,000, respectively, net of reserves of $115,719 as more fully discussed in “Note 6 –
Long-Term Notes Receivable” and “Note 11 – Lineal Merger Agreement and Divestiture”.
Property and Equipment
Property and equipment
are recorded at cost and depreciated using the straight-line method over their useful lives. Amortization of the equipment under
capital leases related to the Lineal operations was computed using the straight-line method over lives ranging from 3 to 5 years
and is included in depreciation expense. Costs of maintenance and repairs were charged to expense when incurred.
Long-lived assets including
intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the
asset are compared to the assets carrying amount to determine if an impairment of such asset is necessary. This evaluation, as
well as an evaluation of our intangible assets, requires the Company to make long-term forecasts of the future revenues and costs
related to the assets subject to review. Forecasts require assumptions about demand for the Company’s services and future
market conditions. Estimating future cash flows requires significant judgment, and the Company’s projections may vary from
the cash flows eventually realized. Future events and unanticipated changes to assumptions could require a provision for impairment
in a future period. The effect of any impairment would be to expense the difference between the fair value (less selling costs) of
such asset and its carrying value. Such an expense would be reflected in earnings. No impairments were deemed necessary for the
three and six months ended September 30, 2020, and 2019, respectively.
Investment in Unconsolidated
Entities
The Company accounts
for its investment in unconsolidated entities under the equity method of accounting when it owns less than 50% of a controlling
interest and cannot exercise significant influence over the operating and financial policies of the entity. The investment is adjusted
accordingly for dividends or distributions it receives and its proportionate share of earnings or losses of the entity. The current
investment in unconsolidated entities is a 30% (25% from February 3, 2020, to June 25, 2020) interest in Elysium Energy Holdings,
LLC, which, through its wholly-owned subsidiary, Elysium Energy, LLC, is involved in oil and gas exploration and production in
the United States. The balance sheet of Elysium Holdings, LLC at September 30, 2020, included current assets of $2.3 million, total
assets of $30.8 million, total liabilities of $34.9 million, and net liabilities of $(4.1) million. The balance sheet of Elysium
Energy Holdings, LLC at March 31, 2020, included current assets of $4.0 million, total assets of $37.7 million, total liabilities
of $34.0 million, and net assets of $3.7 million. The income statement of Elysium Energy Holdings, LLC for the three and six months
ended September 30, 2020, included total revenues of $4.0 million and $7.8 million and a net loss of $3.2 million and $7.5 million,
respectively. See also “Note 5 – Plan of Merger and Investment
In Unconsolidated Entity”.
Revenue Recognition
Exploration and Production Revenue
The Company’s
revenue for its exploration and production operations are comprised entirely of revenue from exploration and production activities.
The Company’s oil is sold primarily to marketers, gatherers, and refiners. Natural gas is sold primarily to interstate and
intrastate natural gas pipelines, direct end-users, industrial users, local distribution companies, and natural gas marketers.
Natural gas liquids (“NGLs”) are sold primarily to direct end-users, refiners, and marketers. Payment is
generally received from the customer in the month following delivery.
Contracts with customers
have varying terms, including month-to-month contracts, and contracts with a finite term. The Company recognizes sales revenues
for oil, natural gas, and NGLs based on the amount of each product sold to a customer when control transfers to the customer. Generally,
control transfers at the time of delivery to the customer at a pipeline interconnect, the tailgate of a processing facility, or
as a tanker lifting is completed. Revenue is measured based on the contract price, which may be index-based or fixed, and may include
adjustments for market differentials and downstream costs incurred by the customer, including gathering, transportation, and fuel
costs.
Revenues are recognized
for the sale of the Company’s net share of production volumes. Sales on behalf of other working interest owners and royalty
interest owners are not recognized as revenues.
Fair Value of Financial Instruments
Accounting Standards
Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value, and enhances
disclosures about fair value measurements. It defines fair value as the exchange price that would be received for an asset or paid
to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard
describes three levels of inputs that may be used to measure fair value:
|
●
|
Level 1 – Quoted prices in active markets for identical assets or liabilities.
|
|
●
|
Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from or corroborated by, third-party pricing services.
|
|
●
|
Level 3 – Unobservable inputs to measure the fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.
|
As of September 30,
2020, and March 31, 2020, the significant inputs to the Company’s derivative liability and mezzanine equity calculations
were Level 3 inputs.
Recently Issued Accounting Pronouncements
The Company does not
believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have
a material effect on the accompanying consolidated financial statements.
Subsequent Events
The Company has evaluated
all transactions through the date the consolidated financial statements were issued for subsequent event disclosure consideration.
NOTE
4 – PROPERTY AND EQUIPMENT
Oil and Gas Properties
Camber uses the full
cost method of accounting for oil and natural gas producing activities. Costs to acquire mineral interests in oil and natural gas
properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development wells including
directly related overhead costs and related asset retirement costs are capitalized.
Under this method,
all costs, including internal costs directly related to acquisition, exploration, and development activities are capitalized as
oil and natural gas property costs on a country-by-country basis. Costs not subject to amortization consist of unproved properties
that are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become
proved or their values become impaired. Camber assesses overall values of unproved properties, if any, on at least an annual basis
or when there has been an indication that impairment in value may have occurred. Impairment of unproved properties is assessed
based on management’s intention with regard to the future development of individually significant properties and the ability
of Camber to obtain funds to finance its programs. If the results of an assessment indicate that the properties are impaired, the
amount of the impairment is added to the capitalized costs to be amortized.
Sales of oil and natural
gas properties are accounted for as adjustments to the net full cost pool with no gain or loss recognized unless the adjustment
would significantly alter the relationship between capitalized costs and proved reserves. If it is determined that the relationship
is significantly altered, the corresponding gain or loss will be recognized in the statements of operations.
Costs of oil and natural
gas properties are amortized using the units of production method. Amortization expense calculated per equivalent physical unit
of production amounted to $0.57 and $0.95 per barrel of oil equivalent for the six months ended September 30, 2020, and 2019, respectively.
All of Camber’s
oil and natural gas properties are located in the United States. Costs being amortized at September 30, 2020, and March 31, 2020,
are as follows:
|
|
September 30,
2020
|
|
|
March 31,
2020
|
|
Oil and gas properties subject to amortization
|
|
$
|
50,413,792
|
|
|
$
|
50,443,883
|
|
Oil and gas properties not subject to amortization
|
|
|
28,016,989
|
|
|
|
28,016,989
|
|
Capitalized asset retirement costs
|
|
|
1,570
|
|
|
|
1,570
|
|
Total oil & natural gas properties
|
|
|
78,432,351
|
|
|
|
78,462,442
|
|
Accumulated depreciation, depletion, and impairment
|
|
|
(78,356,957
|
)
|
|
|
(78,351,825
|
)
|
Net Capitalized Costs
|
|
$
|
75,394
|
|
|
$
|
110,617
|
|
Impairments
For the three and six
month periods ended September 30, 2020, and 2019, the Company recorded no impairment.
Additions and Depletion
During the six months ended September 30, 2020, and 2019, the Company
incurred no costs for technical and other capital enhancements to extend the lives of the Company’s wells. Additionally,
the Company recorded $4,871 and $6,572 of depletion for the six months ended September 30, 2020, and 2019, respectively. The Company
recorded $2,164 and $2,572 of depletion for the three months ended September 30, 2020, and 2019, respectively.
Leases
As part of the Lineal
Acquisition, the Company acquired various operating and finance leases for sales and administrative offices, motor vehicles, and
machinery and equipment. Due to the Redemption Agreement discussed in – “Note 1 – General”
and below in “Note 11 – Lineal Merger Agreement and Divestiture”, the
Company no longer owns the operating and finance leases that it had acquired in connection with the Lineal Acquisition.
Effective August 1,
2018, the Company entered into a month-to-month lease at 1415 Louisiana, Suite 3500, Houston, Texas 77002. The entity providing
use of the space without charge is affiliated with the Company’s Chief Financial Officer.
NOTE
5 – PLAN OF MERGER AND INVESTMENT IN UNCONSOLIDATED ENTITY
Viking Plan of Merger and Related Transactions
On February 3, 2020,
the Company and Viking entered into a Merger Agreement, which was amended and restated by an Amended and Restated Agreement and
Plan of Merger entered into with Viking on August 31, 2020 (the Merger Agreement). Pursuant to the Merger Agreement, at the effective
time of the Merger, (a) each share of common stock of Viking issued and outstanding, other
than certain shares owned by the Company, Viking and the Company’s merger sub which will be merged with and into Viking,
with Viking being the surviving entity in the merger (“Merger Sub”), will be converted into the right to receive
the pro-rata share (when including the Viking preferred stock conversion rights) of 80% of the Company’s post-closing
capitalization (excluding shares issuable upon conversion of the Series C Preferred Stock of the Company); and (b) each share
of Viking preferred stock outstanding immediately prior to the effective time will be converted into one share of Camber Series
A Preferred Stock, which preferred stock will have the right to vote, and convert into, that number of shares of Camber common
stock that its holder would have received in the Merger, had such holder fully converted the Viking preferred stock into Viking
common stock immediately prior to the Effective Time. Holders of Viking common stock will have any fractional shares of Company
common stock after the Merger rounded up to the nearest whole share. The Merger Agreement can be terminated under certain circumstances,
including by either Viking or the Company if the Merger has not been consummated on or before December 31, 2020, subject to certain
exceptions.
A further requirement
to the closing of the Merger was that the Company was required to have acquired 30% of Elysium as part of a $9,200,000 investment
in Viking’s Rule 506(c) offering, which transaction was completed on February 3, 2020 (25% of Elysium and $5 million
investment) and June 25, 2020 (5% of Elysium and $4.2 million investment), as discussed below. In the event of termination
of the Merger Agreement, Camber is required, under certain circumstances described below, to return a portion of the Elysium interests
to Viking:
Reason for Termination
|
|
Percentage of Elysium
Retained by Camber
|
|
Termination of the Merger Agreement by mutual agreement of the parties because the conditions to closing the Merger relating to the receipt of exchange listing and regulatory approvals and the Registration Statement on Form S-4, being declared effective, have a reasonable likelihood of not being satisfied through no fault of Camber or Viking
|
|
|
20
|
%*
|
Termination of the Merger Agreement due to either (i) Camber’s determination not to proceed with the Merger even though Viking has substantially performed its obligations pursuant to the Merger Agreement (except as discussed below), or (ii) a matter raised in Camber’s Merger Agreement disclosure schedule which was (A) not disclosed by Camber in its SEC reports, (B) could reasonably result in a material adverse effect on Camber in excess of $500,000, and (c) which Viking objected to within 5 business days of disclosure by Camber to Viking
|
|
|
0
|
%*
|
Termination of the Merger Agreement due to the failure of Camber’s shareholders to approve the terms of the Merger
|
|
|
15
|
%*
|
Termination of the Merger Agreement by either party due to any other reason not set forth above through no fault of Camber
|
|
|
25
|
%*
|
In the event the Secured Notes are not repaid within 90 days of the date of termination and the Additional Payment (defined above) is not made
|
|
|
30
|
%
|
*Assumes
the payment of Secured Notes (defined below) within 90 days of the date of termination of the Merger Agreement and the Additional
Payment (defined below) is made.
The Merger Agreement
provides that the Secured Notes (defined below) will be forgiven in the event the Merger closes, and the Secured Notes will
be due 90 days after the date that the Merger Agreement is terminated by any party for any reason, at which time an additional
payment shall also be due to the Company and payable by Viking in an amount equal to (i) 115.5% of the original principal
amount of the Secured Notes, minus (ii) the amount due to the Company pursuant to the terms of the Secured Notes upon repayment
thereof (the “Additional Payment”) is due.
A required condition
to the entry into the Merger was that the Company loan Viking $5 million, pursuant to the terms of a Securities Purchase Agreement,
which was entered into on February 3, 2020 (the “1st SPA”). On February 3, 2020, the Company and
Discover Growth Fund, an institutional investor (“Discover”), entered into a Stock Purchase Agreement pursuant
to which Discover purchased 525 shares of Series C Preferred Stock of the Company, for $5 million, at a 5% original issue discount
to the $10,000 face value of such preferred stock. Pursuant to the 1st SPA, the Company made a $5 million loan to Viking
(using funds raised from the sale of the Series C Preferred Stock shares to Discover), which was evidenced by a 10.5% Secured Promissory
Note (the “1st Secured Note”). On June 25, 2020, the Company advanced an additional $4.2 million
to Viking in consideration for, among other things, an additional 10.5% Secured Promissory Note in the principal amount of $4.2
million (the “2nd Secured Note” and together with the 1st Secured Note, the “Secured
Notes”).
The Secured Notes accrue
interest at the rate of 10.5% per annum, payable quarterly, and are due and payable on February 3, 2022. The notes include standard
events of default, including certain defaults relating to the trading status of Viking’s common stock and change of control
transactions involving Viking. The Secured Notes can be prepaid at any time with prior notice as provided therein, and together
with a pre-payment penalty equal to 10.5% of the original amount of the Secured Notes. The Secured Notes are secured by a security
interest, pari passu with the other investors in Viking’s Secured Note offering (subject to certain pre-requisites) in
Viking’s 70% ownership of Elysium and 100% of Ichor Energy Holdings, LLC. Additionally, pursuant to a separate Security and
Pledge Agreement, Viking provided Camber a security interest in the membership, common stock, and/or ownership interests of all
of Viking’s existing and future, directly owned or majority-owned subsidiaries, to secure the repayment of the Secured Notes.
The Secured Notes are
convertible into common shares of Viking at a conversion price of $0.24 per share at any time after March 4, 2020, and before the
15th day after Viking’s common stock has traded at an average daily price of at least $0.55 for 15 consecutive business days
(at which point the Secured Notes are no longer convertible), provided that the Company is restricted from converting any portion
of the Secured Notes into Viking’s common stock if upon such conversion the Company would beneficially own more than 4.99%
of Viking’s common stock (which percentage may be increased or decreased, with 61 days prior written notice to Viking, provided
that such percentage cannot under any circumstances be increased to greater than 9.99%).
On and effective June
22, 2020, the Company and Discover entered into a Stock Purchase Agreement (the “June 2020 Purchase Agreement”),
pursuant to which Discover purchased 630 shares of Series C Preferred Stock for $6 million, at a 5% original issue discount to
the $10,000 face value of such preferred stock (the “Face Value”). Provided that the Company has not materially
breached the terms of the June 2020 Purchase Agreement, the Company may at any time, in its sole and absolute discretion, repurchase
from Discover all, but not less than all, of the then outstanding shares of Series C Preferred Stock sold pursuant to the agreement
by paying to Discover 110% of the aggregate face value of all such shares.
The Company agreed pursuant to the June 2020 Purchase Agreement
that if the Merger does not close by the required date approved by the parties thereto (as such may be extended from time to time),
the Company is required, at Discover’s option, in its sole and absolute discretion, to immediately repurchase from Discover
all then outstanding Series C Preferred Stock shares acquired by Discover pursuant to the June 2020 Purchase Agreement, by paying
to Discover 110% of the aggregate Face Value of all such shares (the “Repurchase Requirement”), which totals
$6,930,000. The Repurchase Requirement was terminated in connection with the parties’ entry into the Exchange Agreement in
December 2020, discussed below under “Note 18—Subsequent Events”.
On June 22, 2020, the
Company and Discover entered into an Amendment to Stock Purchase Agreement (the “SPA Amendment”), pursuant to
which Discover agreed to terminate the obligation set forth in the February 2020 Stock Purchase Agreement previously entered into
between the Company and Discover on February 3, 2020, which contained a Repurchase Requirement substantially similar to the one
contained in the June 2020 Purchase Agreement (as to the 525 shares of Series C Preferred Stock sold to Discover on February 3,
2020), which would have required that the Company pay Discover an aggregate of $5,775,000 in connection with the redemption of
the 525 shares of Series C Preferred Stock the Company sold to Discover in the event the Merger was terminated.
Investment in Unconsolidated Entity
The Company accounts
for its investment in unconsolidated entities under the equity method of accounting when it owns less than 50% of a controlling
interest and does not have the ability to exercise significant influence over the operating and financial policies of the entity.
The Company owns 30% of Elysium as of September 30, 2020 (25% from February 3, 2020, to June 25, 2020), as discussed above, and
accounts for such ownership under the equity method of accounting. The investment is adjusted accordingly for dividends or distributions
it receives and its proportionate share of earnings or losses of the entity. Elysium is involved in oil and gas exploration and
production in the United States. The balance sheet of Elysium at September 30, 2020, included current assets of $2.3 million, total
assets of $30.8 million, total liabilities of $34.9 million, and net liabilities of $(4.1) million. The balance sheet of Elysium
at March 31, 2020, included current assets of $4.0 million, total assets of $37.7 million, total liabilities of $34.0 million,
and net assets of $3.7 million. Additionally, the income statement for Elysium for the three and six months ended September 30,
2020, included total revenues of $4.0 million and $7.8 million and a net loss of $3.2 million and $7.5 million, respectively.
The carrying value
of the notes receivable was reduced by $1,182,952, as the Company’s share of losses from Elysium for the six months ended
September 30, 2020. In accordance with ASC 323-10-35, the losses from Elysium exceeded the equity investment of the Company which
was used to reduce the related notes receivable balance. If the losses were to exceed the notes receivable balance, no additional
losses would be recorded for the equity investment.
The table below shows
the changes in the investment in the unconsolidated entity for the six-month periods ended September 30, 2020 and 2019, respectively.
|
|
2020
|
|
|
2019
|
|
Carrying amount at beginning of period
|
|
$
|
957,169
|
|
|
$
|
—
|
|
Investment in Elysium
|
|
|
—
|
|
|
|
—
|
|
Equity change in net loss of unconsolidated entity applied to Long-Term Notes Receivable
|
|
|
1,182,952
|
|
|
|
—
|
|
Proportionate Share of Elysium Loss
|
|
|
(2,140,121
|
)
|
|
|
—
|
|
Carrying amount at end of period
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTE
6 – LONG-TERM NOTES RECEIVABLE
Long-term notes receivable as of September
30, 2020, and March 31, 2020, are comprised of:
|
|
September 30,
2020
|
|
|
March 31,
2020
|
|
Notes receivable from Viking Energy Group, Inc. pursuant to 10.5% Secured Promissory Notes dated February 3, 2020 ($5,000,000) and June 25, 2020 ($4,200,000) in the original principal amount of $9,200,000, having an annual interest rate of 10.5%, with interest due quarterly beginning on May 1, 2020, maturing February 3, 2022. Accrued and unpaid interest of $132,329 and $83,425 is included in accounts receivable at September 30, 2020, and March 31, 2020, respectively. The Note is secured by secured interests in six Viking Energy Group, Inc. subsidiaries. See also “Note 5 – Plan of Merger and Investment In Unconsolidated Entity”.
|
|
$
|
9,200,000
|
|
|
$
|
5,000,000
|
|
Note receivable from Lineal Star Holdings, LLC pursuant to a Promissory Note dated effective December 31, 2019, in the original principal amount of $1,539,719, accruing annual interest of 10.5%, due quarterly beginning on March 31, 2020, maturing December 31, 2021, with accrued and unpaid interest of $16,132 and $37,966 included in accounts receivable at September 30, 2020, and March 31, 2020, respectively. The Company recognized a partial allowance of $76,152 and the related accrued interest has been fully reserved as of September 30, 2020. See also “Note 1 – General” and “Note 11 – Lineal Merger Agreement and Divestiture”.
|
|
|
1,539,719
|
|
|
|
1,539,719
|
|
Note receivable from Lineal Star Holdings, LLC pursuant to a Promissory Note No. 2 dated effective December 31, 2019, in the original principal amount of $800,000, accruing annual interest of 8%, due quarterly beginning on March 31, 2020, maturing December 31, 2021, with accrued and unpaid interest of $38,809 and $15,781 included in accounts receivable at September 30, 2020, and March 31, 2020, respectively. The Company recognized a partial allowance of $39,567 and the related accrued interest has been fully reserved as of September 30, 2020. See also “Note 1 – General” and “Note 11 – Lineal Merger Agreement and Divestiture”.
|
|
|
800,000
|
|
|
|
800,000
|
|
Equity loss of unconsolidated entity applied to notes receivable. See also “Note 5 – Plan of Merger and Investment In Unconsolidated Entity”
|
|
|
(1,182,952)
|
|
|
|
—
|
|
Less allowance for notes receivable
|
|
|
(115,719)
|
|
|
|
—
|
|
Less: current maturities
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
10,241,048
|
|
|
$
|
7,339,719
|
|
As discussed in
Note 11, the Lineal notes are unsecured. Due to the impact of COVID-19 on its operations, Lineal notified the Company that it currently
has insufficient liquidity to make scheduled interest payments due under the notes. The Company is in negotiations with Lineal
to restructure the notes receivable and an allowance has been applied to the principle and accrued interest of these notes (discussed
further below) subject to completion of the negotiations. The Company performed an analysis of Lineal notes to estimate their value
as of September 30, 2020. The Company analyzed information received from Lineal including Lineal’s financial statements,
which calculated the value of the notes and discounted the expected future payments due thereunder using a standard discounted
cash flow model for the principal and accrued interest to the maturity date from September 30, 2020. The Company applied a discount
of 15% based on factors in the Lineal notes to determine a valuation as of September 30, 2020.
Based on this analysis,
the Company recorded a total allowance of $170,660 to reduce the reported value of the Lineal notes and accrued interest, fully
reserving the current interest due of $54,941 with the remainder of $115,719 applied as an allowance to the principal value of
the notes as of September 30, 2020.
NOTE
7 – ASSET RETIREMENT OBLIGATIONS
The following table
presents the reconciliation of the beginning and ending aggregate carrying amounts of long-term legal obligations associated with
the future retirement of oil and natural gas properties for the six-month periods ended September 30, 2020, and 2019, respectively.
|
|
2020
|
|
|
2019
|
|
Carrying amount at beginning of period
|
|
$
|
71,750
|
|
|
$
|
303,809
|
|
Panhandle Settlement
|
|
|
(30,227
|
)
|
|
|
—
|
|
Payments
|
|
|
—
|
|
|
|
—
|
|
Accretion
|
|
|
—
|
|
|
|
2
|
|
Revisions of previous estimates
|
|
|
4,260
|
|
|
|
8,258
|
|
Carrying amount at end of period
|
|
$
|
45,783
|
|
|
$
|
312,069
|
|
Camber has short-term obligations of $25,766
and $30,277 related to the plugging liabilities at September 30, 2020, and March 31, 2020, respectively.
NOTE
8 – DERIVATIVE LIABILITY
The Company has determined
that certain warrants the Company has issued contain provisions that protect holders from future issuances of the Company’s
common stock at prices below such warrants’ respective exercise prices and these provisions could result in modification
of the warrants’ exercise price based on a variable that is not an input to the fair value of a “fixed-for-fixed”
option as defined under FASB ASC Topic No. 815 - 40. The warrants granted to Ironman PI Fund II, LP contain anti-dilution provisions
that provide for a reduction in the exercise price of such warrants in the event that future common stock (or securities convertible
into or exercisable for common stock) is issued (or becomes contractually issuable) at a price per share (a “Lower
Price”) that is less than the exercise price of such warrant at the time. The amount of any such adjustment is determined
in accordance with the provisions of the warrant agreement and depends upon the number of shares of common stock issued (or deemed
issued) at the Lower Price and the extent to which the Lower Price is less than the exercise price of the warrant at the time.
The warrants expired on April 21, 2019.
Activities for derivative
warrant instruments during the six months ended September 30, 2020, and 2019 were as follows:
|
|
2020
|
|
|
2019
|
|
Carrying amount at beginning of period
|
|
$
|
—
|
|
|
$
|
5
|
|
Change in fair value
|
|
|
—
|
|
|
|
(5
|
)
|
Carrying amount at end of period
|
|
$
|
—
|
|
|
$
|
—
|
|
As of September 30, 2020, the Company had 2,693 shares of Series
C Preferred Stock issued and outstanding, which shares of preferred stock are convertible into common stock of the Company pursuant
to their terms. Such preferred stock is convertible into more shares of common stock than the Company currently has authorized.
Typically this would require the common stock equivalents to be considered tainted derivative instruments, and the Company to record
a derivative liability for the aggregate fair value of the tainted securities; However, the Series C Preferred Stock designation
provides that the Company will not be required to settle any conversion in cash, and requires the company to use its best efforts
to obtain shareholder approval to increase the authorized common shares to a sufficient number to allow for share settlement of
the conversion. If the Company is unable to obtain shareholder approval to increase the authorized common shares, the Series C
Preferred Stockholder would be required to wait until approval is obtained and has no other recourse under the terms of the corrected
designation. See “Note 13 – Stockholders’ Equity (Deficit)” for further discussion.
Additionally, as
of September 30, 2020, the Company had 2 outstanding stock options and warrants to purchase 36 shares outstanding which were
exercisable for shares of the Company’s commons stock. As of September 30, 2020, the Company did not have sufficient
authorized shares of common stock to satisfy any exercise requests and the common stock equivalents are considered to be
tainted derivative instruments. The Company evaluated the fair value of these tainted options and warrants and noted that the
related fair values are de minimus based, primarily, on the exercise prices.
NOTE
9 – COMMITMENTS AND CONTINGENCIES
Office Lease.
Information regarding the Company’s office space is disclosed in greater detail above under “Note
4 - Property and Equipment –Leases”, above.
Lineal (which as of
December 31, 2019, has been completely divested in connection with the Lineal Divestiture discussed in “Note
1 – General” and “Note 11 – Lineal Merger Agreement and Divestiture”) has
the usual liability of contractors for the completion of contracts and the warranty of its work. In addition, Lineal acts as the
prime contractor on a majority of the projects it undertakes and is normally responsible for the performance of the entire project,
including subcontract work. Management is not aware of any material exposure related thereto which has not been provided for in
the accompanying consolidated financial statements.
Legal
Proceedings. From time to time suits and claims against Camber arise in the ordinary course of Camber’s business,
including contract disputes and title disputes. Camber records reserves for contingencies when information available indicates
that a loss is probable, and the amount of the loss can be reasonably estimated.
Maranatha Oil Matter
In November 2015, Randy
L. Robinson, d/b/a Maranatha Oil Co. sued the Company in Gonzales County, Texas (Cause No. 26160). The plaintiff alleged that it
assigned oil and gas leases to the Company in April 2010, retaining a 4% overriding royalty interest and 50% working interest and
that the Company failed to pay such overriding royalty interest or royalty interest. The interests relate to certain oil and gas
properties which the Company subsequently sold to Nordic Oil USA in April 2013. The petition alleges causes of actions for breach
of contract, failure to pay royalties, non-payment of working interest, fraud, fraud in the inducement of contract, money had and
received, constructive trust, violation of theft liability act, continuing tort, and fraudulent concealment. The suit seeks approximately
$100,000 in amounts alleged owed, plus pre-and post-judgment interest. The Company has filed a denial to the claims and intends
to vehemently defend itself against the allegations.
PetroGlobe Energy
Holdings, LLC and Signal Drilling, LLC
In March 2019, PetroGlobe
and Signal sued the Company in the 316th Judicial District of Hutchinson County, Texas (Cause No. 43781). The plaintiffs
alleged causes of action relating to negligent misrepresentation; fraud and willful misconduct; gross negligence; statutory fraud;
breach of contract; and specific performance, in connection with a purchase and sale agreement entered into between the parties
in March 2018, relating to the purchase by plaintiffs of certain oil and gas assets from the Company, and a related joint venture
agreement. The lawsuit seeks in excess of $600,000 in damages, as well as pre- and post-judgment interest, court costs and attorneys’
fees, and punitive and exemplary damages. Additionally, a portion of the revenues from the properties in contention are being held
in suspense as a result of the lawsuit. On October 31, 2019, the Company brought counterclaims against PetroGlobe and Signal, and
Petrolia Oil, LLC, and Ian Acrey, including bringing claims for causes of actions including declaratory judgment (that PetroGlobe
and certain other plaintiffs represented that a lease and related wells were free of all agreements and rights in favor of third
parties and provided a special warranty of title pursuant to the purchase and sale agreement); breach of contract (in connection
with the purchase and sale agreement); statutory fraud; common law fraud (against Mr. Acrey and other plaintiffs); fraud by non-disclosure
(against Mr. Acrey and other plaintiffs); negligent misrepresentation (against Mr. Acrey and other plaintiffs); breach of fiduciary
duty (against Mr. Acrey and other plaintiffs) and seeking attorney’s fees and pre- and post-judgment interest.
On May 30, 2019, the
Company received a Severance Order from the Texas Railroad Commission (the “TRC”) for noncompliance with
TRC rules, suspending the Company’s ability to produce or sell oil and gas from its Panhandle leases in Hutchinson County,
Texas, until certain well performance criteria were met. Subsequent to that date, the Company followed TRC procedures in order
to regain TRC compliance for the Panhandle wells.
On January 31, 2020,
the Company entered into a Compromise Settlement Agreement (the “Settlement Agreement”) with PetroGlobe
Energy Holdings, LLC (“PetroGlobe”), Signal Drilling, LLC (“Signal”), Petrolia Oil, LLC (“Petrolia”),
Prairie Gas Company of Oklahoma, LLC (“PGCO”), and Canadian River Trading Company, LLC (“CRTC”).
Pursuant to the Settlement Agreement, the Company agreed to pay PetroGlobe $250,000, of which $100,000 was due upon execution of
the Settlement Agreement, which payment has been made, and $150,000 was paid to an escrow account, which release was subject to
approval by the Company upon the successful transfer of all wells and partnership interests of the Company’s current wholly-owned
subsidiary CE to PetroGlobe, which occurred on July 16, 2020.
On July 16, 2020, the
Company completed all of the requirements of the Settlement Agreement and assigned PetroGlobe all of its right, title, and interest
in all wells, leases, royalties, minerals, equipment, and other tangible assets associated with specified wells and properties,
located in Hutchinson County, Texas, the $150,000 held in escrow was released to PetroGlobe and the Settlement Agreement transactions
closed. As a result of the transfers, the Company no longer owns CE, and no longer has any interest in or any liabilities related
to the Hutchinson County, Texas wells.
The Company recognized
a net settlement cost of $204,842 included on the statement of operations for the year ended March 31, 2020, in connection with
the settlement. All provisions of the settlement were finalized, and the $150,000, held in escrow pending final approvals, was
released on July 16, 2020.
The Company released
the parties to the Settlement Agreement, including Ian Acrey, individually, as well as their officers, directors, or members from
any claims asserted in the lawsuit, and the parties to the Settlement Agreement along with Ian Acrey, individually, released the
Company, its officers, directors, shareholders and affiliate corporations from any claims asserted in the lawsuit. The Company
did not release any claims or causes of action against N&B Energy, LLC, Sezar Energy, LLP related to Richard Azar, or any of
their affiliates, or predecessors, or successors.
The parties filed a
motion and order to dismiss the lawsuit with prejudice shortly after the execution of the Settlement Agreement.
Apache Corporation
In December 2018, Apache
Corporation (“Apache”) sued Camber, Sezar Energy, L.P., and Texokcan Energy Management Inc., in the 129th
Judicial District Court of Harris County, Texas (Cause 2018-89515). Apache alleged causes of action for Breach of Contract, Money
Had & Received and Conversion, relating to amounts Apache alleged it was owed under a joint operating agreement. Apache is
seeking $656,908 in actual damages, exemplary damages, pre- and post-judgment interest, court costs, and other amounts to which
it may be entitled. Camber filed a general denial to the claims and asserted the affirmative defense of failure to mitigate. On
July 13, 2020, Apache filed a Second Amended Petition against Camber, Sezar, Texokcan, N&B Energy, LLC, and Richard N. Azar,
II alleging Breach of Contract, Defaults under a Joint Operating Agreement, Money Had & Received and Conversion, relating to
amounts Apache allegedly overpaid Sezar and Azar and Unjust Enrichment. On October 26, 2020, the Company entered into an agreement
with Apache to obtain a release of all liability (both parties provided mutual releases) for $20,000 and dismissed the litigation
against the Company, which was recorded in accrued liabilities as of September 30, 2020.
N&B Energy
On September 12, 2019,
N&B Energy filed a petition in the District Court for the 285th Judicial District of Bexar County, Texas (Case
#2019CI11816). Pursuant to the petition, N&B Energy raises claims against the Company for breach of contract, unjust enrichment,
money had and received and disgorgement, in connection with $706,000 which it alleges it is owed under the July 2018 Asset Purchase
Agreement between the Company and N&B Energy (the “Sale Agreement”), for true-ups and post-closing adjustments
associated therewith. The petition seeks amounts owed, pre- and post-judgment interest, and attorney’s fees. On October 21,
2020, the arbitrator issued an Interim Stage II Order granting an award that acknowledged the claims of both parties that resulted
in an arbitration award in favor of N&B Energy of approximately $52,000, which was recorded in accrued liabilities as of September
30, 2020.
Service Agreements
In connection with
the entry into the Amended and Restated Agreement and Plan of Merger with Viking, on August 31, 2020, the Company’s Board
of Directors entered into Past Service Payment and Success Bonus Agreements with each non-executive member of the Board of Directors,
and each of Louis G. Schott, our Interim Chief Executive Officer and Robert Schleizer, our Chief Financial Officer (collectively,
the “Merger Compensation Agreements”). Pursuant to such agreements: each non-executive director, and each officer,
of the Company, is to receive, contingent upon closing the Merger, a payment of $100,000 in consideration for past services provided
to the Company through the date of the Merger as a member of the Board of Directors/officer, and $50,000 as a success bonus for
the Company’s successful completion of the Merger, contingent on such non-executive director/officer’s, continued service
to the Company at the same level of service he is currently performing, through the effective date of the Merger.
Additionally on August
31, 2020, the Company entered into first amendments to the letter agreements the Company had previously entered into with Fides
Energy LLC, an entity owned and controlled by Mr. Schott (“Fides”) and BlackBriar Advisors LLC, an entity
owned and controlled by Mr. Schleizer (“BlackBriar”), to provide that (a) Mr. Schott, through Fides, will
continue to provide services to the Company for a period of six months following the closing of the Merger, on similar terms as
set forth in such original letter agreement, except in a non-executive capacity and that the Company will reimburse Mr. Schott
for the costs of his and his family’s health insurance through such six month term; and (b) Mr. Schleizer, through BlackBriar,
will continue to provide services to the Company for a period of three months following the closing of the Merger, on similar terms
as set forth in such original letter agreement, except in a non-executive capacity and for total consideration of $30,000 per month
(compared to $40,000 per month currently).
NOTE
10 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue from Contracts with Customers
Oil and Gas Contracts
The following table
disaggregates revenue by significant product type for the three and six months ended September 30, 2020, and 2019, respectively:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil sales
|
|
$
|
45,846
|
|
|
$
|
66,786
|
|
|
$
|
67,635
|
|
|
$
|
160,485
|
|
Natural gas sales
|
|
|
4,643
|
|
|
|
12,343
|
|
|
|
8,807
|
|
|
|
19,547
|
|
Natural gas liquids sales
|
|
|
6,969
|
|
|
|
13,624
|
|
|
|
14,705
|
|
|
|
34,072
|
|
Total oil and gas revenue from customers
|
|
$
|
57,458
|
|
|
$
|
92,753
|
|
|
$
|
91,147
|
|
|
$
|
214,104
|
|
NOTE
11 – LINEAL MERGER AGREEMENT AND DIVESTITURE
Merger Agreement
On July 8, 2019 (the
“Closing Date”), the Company entered into and closed the transactions contemplated by, the Lineal Plan of Merger,
by and between the Company, Camber Energy Merger Sub 2, Inc., the Company’s then newly formed wholly-owned subsidiary, Lineal,
and the Lineal Members. Pursuant to the Lineal Plan of Merger, the Company acquired 100% of the ownership of Lineal from the Lineal
Members in consideration for newly issued shares of Series E Redeemable Convertible Preferred Stock and Series F Redeemable Preferred
Stock.
Divestiture
On December 31, 2019,
the Company entered into and closed the transactions contemplated by the Preferred Stock Redemption Agreement (the “Redemption
Agreement”), by and between the Company, Lineal, and the holders of the Company’s Series E Preferred Stock and
Series F Preferred Stock (the “Preferred Holders”), pursuant to which, the Company redeemed the Company’s
Series E and F Preferred Stock issued in connection with the Lineal Merger and ownership of 100% of Lineal was transferred back
to the Preferred Holders, and all of the Series E Preferred Stock and Series F Preferred Stock of the Company outstanding were
canceled through the redemption (the “Lineal Divestiture”).
The Redemption Agreement
also provided for (a) the entry by Lineal and the Company into a new unsecured promissory note in the amount of $1,539,719,
the outstanding amount of the July 2019 Lineal Note together with additional amounts loaned by Camber to Lineal through December
31, 2019 (the “December 2019 Lineal Note”); (b) the unsecured loan by the Company to Lineal on December
31, 2019, of an additional $800,000, entered into by Lineal in favor of the Company on December 31, 2019 (“Lineal Note
No. 2”); and (c) the termination of the prior Lineal Plan of Merger and Funding Agreement entered into in connection
therewith (pursuant to which all funds previously held in a segregated account for future Lineal acquisitions, less amounts loaned
pursuant to Lineal Note No. 2, were released back to the Company). The December 2019 Lineal Note and Lineal Note No. 2, accrue
interest, payable quarterly in arrears, beginning on March 31, 2020, and continuing until December 31, 2021, when all interest
and principal is due, at 8% and 10% per annum (18% upon the occurrence of an event of default), respectively. As of September 30,
2020, and March 31, 2020, $54,941 and $53,747, respectively, of interest related to the December 2019 Lineal Note and Lineal Note
No. 2 was accrued and included in the consolidated balance sheets in Accounts Receivable. The $54,941 of accrued interest has been
fully reserved as of September 30, 2020.
The divestiture resulting
from the Redemption Agreement qualified as a discontinued operation in accordance with U.S. generally accepted accounting principles
(“GAAP”). As a result, operating results and cash flows related to the Lineal operations have been reflected
as discontinued operations in the Company’s consolidated statements of operations and consolidated statements of cash flows
for the three and six months ended September 30, 2019.
The net consideration
received for the divestiture was as follows:
Return of Series E Preferred Shares
|
|
$
|
14,666,000
|
|
Return of Series F Preferred Shares
|
|
|
2,434,000
|
|
Total net consideration
|
|
$
|
17,100,000
|
|
The fair value of the
instruments immediately prior to the divestiture was determined using an income valuation approach to estimate cash flows of the
acquired business, analysis of the terms and rights of each class of equity instrument issued by the Company, and an assessment
of the probability of the various scenarios that could occur depending on the outcome of the required stockholder vote to approve
the Lineal Merger, which did not move forward, and the impact each scenario would have on the capital structure of the Company.
Immediately prior to the Lineal Disposition, the Company recognized a gain on the change in fair value of the Series E and F Preferred
Shares of $3,018,000, included within net loss from discontinued operations.
The following table
summarizes the assets and liabilities of Lineal which were transferred from the Company to the Preferred Holders, together with
Lineal, as part of the Redemption agreement:
Cash
|
|
$
|
2,101,879
|
|
Accounts receivable
|
|
|
1,673,538
|
|
Deferred tax assets
|
|
|
34,000
|
|
Cost in excess of billings
|
|
|
497,340
|
|
Property and equipment
|
|
|
1,996,229
|
|
Right of use asset – operating leases
|
|
|
710,898
|
|
Other current assets and deposits
|
|
|
49,275
|
|
Goodwill
|
|
|
18,314,222
|
|
Accounts payable – trade
|
|
|
(260,882
|
)
|
Accrued and other liabilities
|
|
|
(369,448
|
)
|
Billings in excess of costs
|
|
|
(445,759
|
)
|
Operating lease liabilities
|
|
|
(710,898
|
)
|
Finance lease liabilities
|
|
|
(237,925
|
)
|
Notes payable
|
|
|
(3,545,841
|
)
|
Net assets divested
|
|
$
|
19,806,628
|
|
As a result of the
above, the Company recognized a loss on the disposal of the Lineal operations of $2,706,628 included within net loss from discontinued
operations.
Components of amounts
reflected in the Company’s consolidated statements of operations related to discontinued operations are presented in the
following table for the three and six months ended September 30, 2019.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30, 2019
|
|
|
September 30, 2019
|
|
Contract revenue
|
|
$
|
6,285,535
|
|
|
$
|
6,285,535
|
|
Contract costs
|
|
|
(4,897,196
|
)
|
|
|
(4,897,196
|
)
|
Depreciation and amortization
|
|
|
(64,868
|
)
|
|
|
(64,868
|
)
|
Selling, general and administrative
|
|
|
(791,312
|
)
|
|
|
(791,312
|
)
|
Operating income
|
|
|
532,159
|
|
|
|
532,159
|
|
Other income
|
|
|
263,113
|
|
|
|
263,113
|
|
Interest expense
|
|
|
(33,504
|
)
|
|
|
(33,504
|
)
|
Net income from discontinued operations
|
|
$
|
761,768
|
|
|
$
|
761,768
|
|
NOTE 12 -
INCOME TAXES
The
Company has estimated that its effective tax rate for U.S. purposes will be zero percent for the 2020 and 2019 fiscal years as
a result of net losses and a full valuation allowance against the net deferred tax assets. Consequently, the Company has recorded
no provision or benefit for income taxes for the three and six months ended September 30, 2020, and 2019, respectively. The tax
liability of $3,000 as shown on the balance sheet as of September 30, 2020, relates to the Company’s potential Oklahoma franchise
tax liability and is not related to income tax.
NOTE
13 – STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock
During the six months
ended September 30, 2020, the Company issued 176,514 shares of restricted common stock to service providers in consideration for
investor relations and marketing services. The Company recognized $209,502, based on the grant date fair value of the Company’s
common stock, in share-based compensation expense in current and prior periods corresponding to the issuance of these shares, of
which $36,502, was recognized during the three and six months ended September 30, 2020.
Included in such 176,514
shares of common stock were 175,000 shares issued to Sylva International LLC d/b/a SylvaCap Media (“SylvaCap”).
On February 15, 2020, the Company entered into a letter agreement with SylvaCap, pursuant to which SylvaCap agreed to act as the
Company’s non-exclusive digital marketing service provider in consideration for an aggregate of 100,000 shares of restricted
common stock, which are fully-earned upon their issuance, and $50,000 per month during the term of the agreement, which was to
end on June 15, 2020. On May 19, 2020, the Company entered into a first amendment to the SylvaCap agreement. Pursuant to the amendment,
the Company and SylvaCap extended the term of the letter agreement to October 19, 2020. The 100,000 shares were issued on May 15,
2020. On August 31, 2020, the parties entered into a second amendment to the agreement. Pursuant to the amendment, the parties
agreed to amend the engagement agreement to increase the stock fee payable thereunder to 175,000 shares of common stock of the
Company and to provide for the agreement to remain in place until the earlier of (a) October 19, 2020; and (b) the closing
of the Company’s currently contemplated merger with Viking. SylvaCap also made representations regarding its financial condition
and investing knowledge pursuant to the amendment in order for the Company to confirm that an exemption from registration exists
for the issuance of the shares.
Series A Convertible Preferred Stock
On August 31, 2020,
the Board of Directors approved the designation of 28,092 shares of Series A Convertible Preferred Stock (the “Series
A Preferred Stock”), which were designated with the Secretary of State of Nevada on August 31, 2020 (the “Series
A Designation”).
The Series A Preferred
Stock has substantially similar rights as the Series C Preferred Stock of Viking (as amended), as adjusted for the exchange ratio
of the Merger. Specifically, each outstanding share of Series A Preferred Stock will vote an aggregate of (a) 4,900 voting
shares, multiplied by (b) the exchange ratio of the Merger, on all stockholder matters, voting together with the Company’s
common stock as a single class (which voting rights will equal the same voting rights that would have applied had the Series C
Preferred Stock of Viking been fully converted into Viking common stock immediately prior to the effective time of the Merger)(described
herein as the “voting shares”); will receive, upon the occurrence of a liquidation of the Company, the same
amount of consideration that would have been due if such shares of Series A Preferred Stock had been converted into common stock
of the Company immediately prior to such liquidation; and provide rights for such shares of Series A Preferred Stock to convert,
at the option of the holder thereof, into a number of shares of Company common stock equal to (a) 4,900 shares, multiplied
by (b) the exchange ratio of the Merger (which will equal the number of shares of Company common stock which would have been
issuable to the holders of the Series C Preferred Stock of Viking in the Merger, had such Series C Preferred Stock been converted
into common stock of Viking immediately prior to the effective time of the Merger)(described herein as the “conversion
shares”).
Such Series A Preferred
Stock does not have any redemption rights and shares equally in any dividends authorized by the Board of Directors for distribution
to common stockholders, on an as-converted basis.
The Series A Designation
also provides that such number of voting shares and conversion shares as calculated as discussed above, shall be updated by the
Company following the Merger, without any required approval of the holders of such Series A Preferred Stock, to include the actual
numerical value of such voting shares and conversion shares, upon closing of the Merger.
No shares of Series
A Preferred Stock will be issued by the Company until or unless the Merger closes.
Series C Redeemable Convertible Preferred
Stock
On February 3, 2020,
the Company sold 525 shares of Series C Preferred Stock for total proceeds of $5 million. In the event the Merger Agreement entered
into with Viking in February 2020 is terminated for any reason, we (until June 22, 2020, when such terms were amended) were
required to redeem the 525 shares of Series C Preferred Stock at a 110% premium, in an aggregate amount equal to $5,775,000. Because
of the requirement to redeem such 525 shares of Series C Preferred Stock in the event the Merger Agreement is terminated, which
termination is partially outside the control of the Company, such 525 shares of Series C Preferred Stock is classified as temporary
equity on the March 31, 2020 balance sheet. Temporary equity is a security with redemption features that are outside the control
of the issuer, is not classified as an asset or liability in conformity with GAAP, and is not mandatorily redeemable. Subsequent
to March 31, 2020, on June 22, 2020, the Company and Discover terminated the obligation for Camber to redeem the 525 shares of
Series C Preferred Stock upon termination of the Merger Agreement; and provided that a new obligation exists in connection with
the required redemption of 630 shares of Series C Preferred Stock sold on June 22, 2020, for total proceeds of $6 million, which
have a redemption value of $6,930,000. As such, while the prior redemption obligation for the 525 Series C Preferred Stock shares
in connection with the February 2020 sale of Series C Preferred Stock was removed from temporary equity on the September 30, 2020
balance sheet, the $6,000,000 of total proceeds received on June 22, 2020, in connection with the sale of the 630 shares of Series
C Preferred Stock, is included in temporary equity on the September 30, 2020 balance sheet.
During the six months
ended September 30, 2020, the Company sold 630 shares of Series C Preferred Stock to Discover in consideration for $6 million.
During the six months ended September 30, 2019, the Company sold no shares of Series C Preferred Stock.
During the six months
ended September 30, 2020, Discover converted 756 shares of the Series C Preferred Stock with a face value of $7,560,000, and a
total of 19,823,486 shares of common stock were issued, which includes additional shares for conversion premiums and true-ups in
connection with those conversions through September 30, 2020. During the six months ended September 30, 2019, Discover converted
2 shares of the Series C Preferred Stock and Discover Growth Fund LLC, which purchased shares of Series C Preferred Stock from
the Company in December 2018 and subsequently transferred all its remaining shares to Discover who also converted 1 share of Series
C Preferred Stock, with an aggregate face value of $30,000, and a total of 1,472,517 shares of common stock were issued, which
includes additional shares for conversion premiums and true-ups in connection with those conversions through September 30, 2019.
As of September 30,
2020, and March 31, 2020, the Company accrued common stock dividends on the Series C Preferred Stock based on the then 24.95% premium
dividend rate. The Company recognized a total charge to additional paid-in capital and stock dividends distributable but not issued
of $3,331,975 and $3,771,941 related to the stock dividend declared but not issued for the six months ended September 30, 2020,
and 2019, respectively.
As of September 30,
2020, a total of 15,348 shares of common stock related to prior conversions of Series C Preferred Stock are held in abeyance subject
to the Company increasing its authorized and unissued shares of common stock.
On
December 14, 2020, the Company, with the approval of the Board of Directors of the Company, and the sole holder of the
Company’s Series C Preferred Stock, filed certificate of corrections with the Secretary of State of Nevada to correct
the original designation of the Series C Preferred Stock and the first amended and restated designation thereof, to correct
certain errors which were identified in such designations, which failed to clarify, in error, that (A) the failure of any
holder of Series C Preferred Stock to receive the number of shares of common stock due upon conversion of Series C Preferred
Stock within five trading days of any conversion notice, and any halt or suspension of trading of the Company’s common
stock on its then applicable trading market or by any U.S. governmental agency, for 10 or more consecutive trading days,
should not have been ‘deemed liquidation events’ under the Series C Preferred Stock designation, unless such
events were due to the occurrence of an event that is solely within the control of the Company; (B) the Company was not
required to redeem any shares of Series C Preferred Stock for cash solely because the Company does not have sufficient
authorized but unissued shares of common stock to issue upon receipt of a notice of conversion or upon a maturity conversion
(where the remaining shares of Series C Preferred Stock convert into common stock of the Company automatically on the seven
year anniversary date of the Series C Preferred Stock)(a “Maturity Conversion”); and (C) that a Maturity
Conversion is only required to occur to the extent that the Company has sufficient authorized but unissued shares of common
stock available for issuance upon conversion in connection therewith. The corrections were made solely to match the
agreements to the original intent of the parties. The parties determined the corrections were needed because without such
corrections, under ASC480-10- S99-3A5 and ASC 480-10-S99-3A3(f), the non-corrected designations could have required the
Series C Preferred Stock to be classified as temporary equity due to the foregoing events being outside the Company’s
control. The embedded conversion meets the requirements to be considered permanent equity as stipulated under ASC 815-40-25,
under an assessment of the option as a freestanding instrument, as the option requires net share settlement and the issuer
has the choice to settle in cash if it wishes.
The
corrections were effective as of the original filing dates with the Secretary of State of Nevada of the Company’s original
Series C Preferred Stock designation (August 25, 2016) and the Company’s first amended and restated Series C Preferred Stock
designation (July 8, 2019), subject to certain exceptions set forth in the Nevada Revised Statutes. The corrections corrected
the designations to reflect the original intentions of the parties and to conform such designations to the way the Series C Preferred
Stock had been accounted for in practice since its original designation/issuance.
Also
on December 14, 2020, the Company, with the approval of the Board of Directors of the Company, and the sole holder of the Company’s
Series C Preferred Stock, filed a second amended and restated designation of the Series C Preferred Stock with the Secretary of
State of Nevada, which was effective upon filing (the “Second Amended and Restated Designation”), which amended
the first amended and restated designation of the Series C Preferred Stock (as corrected), to include the right of the Company
to redeem all (but not less than all) of the outstanding shares of Series C Preferred Stock at a redemption price equal to 110%
of the face value of such preferred stock ($10,000 per share), at the Company’s option, at any time, in the event the Company
is not in default of any of the terms of any Stock Purchase Agreement pursuant to which such applicable shares of Series C Preferred
Stock were sold; (b) update the conversion price of the face amount ($10,000 per share) of the Series C Preferred Stock in connection
with the Company’s prior 1-for-50 reverse stock split (i.e., to confirm the change in such conversion price from $3.25 per
share to $165.50 per share), which had no effect on the conversion rate of conversion premiums due under the terms of the Series
C Preferred Stock, and which conversion price was already being reflected in prior conversion notices after the date of such reverse
split; (c) formally amend the measurement period for the calculation of the conversion of conversion premiums due under the terms
of the Series C Preferred Stock to begin on the later of February 3, 2020 or, if no trigger event (as described in the designation
of the Series C Preferred Stock) has occurred, 30 trading days, and if a trigger event has occurred 60 trading days, before the
date of an applicable conversion notice, which had previously been agreed to contractually by the parties (i.e., the beginning
of each future measurement period for conversions made after February 3, 2020, will extend back to February 3, 2020); and (d)
update the references in the designation to the “Merger” which had previously referred to the Company’s
combination with Lineal Star Holdings, LLC, which transaction was rescinded and terminated effective December 31, 2019, to refer
to the planned merger with Viking Energy Group, Inc., which has the effect of the Viking merger being approved by the holder of
the Series C Preferred Stock and not being a ‘deemed liquidation event’ under the Second Amended and Restated Designation.
Warrants
The following is a summary of the Company’s
outstanding warrants at September 30, 2020:
Warrants
|
|
|
Exercise
|
|
|
|
Expiration
|
|
|
|
Intrinsic Value at
|
|
Outstanding
|
|
|
Price ($)
|
|
|
|
Date
|
|
|
|
September 30, 2020
|
|
1
|
(1)
|
|
1,171,875.00
|
|
|
|
April 26, 2021
|
|
|
$
|
—
|
|
3
|
(2)
|
|
195,312.50
|
|
|
|
September 12, 2022
|
|
|
|
—
|
|
32
|
(3)
|
|
12,187.50
|
|
|
|
May 24, 2023
|
|
|
|
—
|
|
36
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
(1)
|
Warrants issued in connection with the sale of convertible notes. The warrants were exercisable on the grant date (April 26, 2016) and remain exercisable until April 26, 2021.
|
(2)
|
Warrants issued in connection with funding. The warrants were exercisable on the grant date (September 12, 2017) and remain exercisable until September 12, 2022.
|
(3)
|
Warrants issued in connection with a Severance Agreement with Richard N. Azar II, the Company’s former Chief Executive Officer. The warrants were exercisable on the grant date (May 25, 2018) and remain exercisable until May 24, 2023.
|
NOTE 14 –
SHARE-BASED COMPENSATION
Camber measures the
cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award
over the vesting period.
Stock Options
As of September 30,
2020, and March 31, 2020, the Company had 2 stock options outstanding with a weighted average exercise price of $40,429,700. The
options expire in October 2020.
Of the Company’s
outstanding options, no options were exercised or forfeited during the six months ended September 30, 2020. Additionally, no stock
options were granted during the six months ended September 30, 2020. Compensation expense related to stock options during the six-month
periods ended September 30, 2020, and 2019 was $0.
Options outstanding
and exercisable at September 30, 2020, and March 31, 2020, had no intrinsic value. The intrinsic value is based upon the difference
between the market price of Camber’s common stock on the date of exercise and the grant price of the stock options.
As of September 30,
2020, and March 31, 2020, there was no remaining unrecognized share-based compensation expense related to all non-vested stock
options.
Options outstanding and exercisable as
of September 30, 2020:
Exercise
|
|
Remaining
|
|
|
Options
|
|
|
Options
|
|
Price ($)
|
|
Life (Yrs.)
|
|
|
Outstanding
|
|
|
Exercisable
|
|
40,429,700
|
|
|
0.02
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
Total
|
|
|
|
2
|
|
|
|
2
|
|
NOTE 15 –
INCOME (LOSS) PER COMMON SHARE
The calculation of income (loss) per
share for the three and six months ended September 30, 2020, and 2019 was as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) before Discontinued Operations
|
|
$
|
(2,056,508
|
)
|
|
$
|
(1,038,732
|
)
|
|
$
|
(3,651,140
|
)
|
|
$
|
(2,326,330
|
)
|
Discontinued Operations
|
|
|
—
|
|
|
|
761,768
|
|
|
|
—
|
|
|
|
761,768
|
|
Net (Loss)
|
|
|
(2,056,508
|
)
|
|
|
(276,964
|
)
|
|
|
(3,651,140
|
)
|
|
|
(1,564,562
|
)
|
Less preferred dividends
|
|
|
(1,651,219
|
)
|
|
|
(1,893,886
|
)
|
|
|
(3,331,975
|
)
|
|
|
(3,771,941
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(3,707,727
|
)
|
|
$
|
(2,170,850
|
)
|
|
$
|
(6,983,115
|
)
|
|
$
|
(5,336,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Weighted average share – basic
|
|
|
19,815,872
|
|
|
|
493,300
|
|
|
|
13,705,461
|
|
|
|
259,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options/warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Preferred C shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Weighted average shares – diluted
|
|
|
19,815,872
|
|
|
|
493,300
|
|
|
|
13,705,461
|
|
|
|
259,432
|
|
Income (loss) per share – basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.19
|
)
|
|
$
|
(5.94
|
)
|
|
$
|
(0.51
|
)
|
|
$
|
(23.51
|
)
|
Discontinued Operations
|
|
|
—
|
|
|
|
1.54
|
|
|
|
—
|
|
|
|
2.94
|
|
Total
|
|
|
(0.19
|
)
|
|
|
(4.40
|
)
|
|
|
(0.51
|
)
|
|
|
(20.57
|
)
|
Income (loss) per share – diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
(0.19
|
)
|
|
$
|
(5.94
|
)
|
|
$
|
(0.51
|
)
|
|
$
|
(23.51
|
)
|
Discontinued Operations
|
|
|
—
|
|
|
|
1.54
|
|
|
|
—
|
|
|
|
2.94
|
|
Total
|
|
|
(0.19)
|
|
|
|
(4.40
|
)
|
|
|
(0.51
|
)
|
|
|
(20.57
|
)
|
For the three and six
months ended September 30, 2020, and 2019, the following share equivalents related to convertible debt and warrants to purchase
shares of common stock were excluded from the computation of diluted net income (loss) per share as the inclusion of such
shares would be anti-dilutive.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Common Shares Issuable for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Debt
|
|
|
276
|
|
|
|
276
|
|
|
|
276
|
|
|
|
276
|
|
Options and Warrants
|
|
|
38
|
|
|
|
38
|
|
|
|
38
|
|
|
|
38
|
|
Series C Preferred Shares(1)
|
|
|
47,033,410,723
|
|
|
|
1,130,378,205
|
|
|
|
47,033,410,723
|
|
|
|
1,130,378,205
|
|
Total
|
|
|
47,033,411,037
|
|
|
|
1,130,378,519
|
|
|
|
47,033,411,037
|
|
|
|
1,130,378,519
|
|
|
(1)
|
Based on the lowest possible conversion rate of the Series C Preferred Stock ($0.001 per share, the par value of the common
stock).
|
NOTE 16 –
SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid for interest
and income taxes was as follows for the six months ended September 30, 2020, and 2019:
|
|
2020
|
|
|
2019
|
|
Interest
|
|
$
|
—
|
|
|
$
|
5,021
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-cash investing
and financing activities included the following:
|
|
Six
Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Settlement of Common Stock Payable
|
|
$
|
173,000
|
|
|
$
|
331,060
|
|
Change in Estimate for Asset Retirement Obligations
|
|
$
|
4,260
|
|
|
$
|
41,017
|
|
Stock Dividends Distributable but not Issued
|
|
$
|
3,331,975
|
|
|
$
|
3,771,941
|
|
Issuance of Stock Dividends
|
|
$
|
—
|
|
|
$
|
3
|
|
Conversion of Preferred C Stock to Common Stock
|
|
$
|
19,823
|
|
|
$
|
1,049
|
|
Common Stock Issued in Abeyance
|
|
$
|
—
|
|
|
$
|
29
|
|
Reclassification of Preferred C Stock to Permanent Equity
|
|
$
|
5,000,000
|
|
|
$
|
—
|
|
NOTE 17 –
FAIR VALUE MEASUREMENTS
When applying fair
value principles in the valuation of assets and liabilities, the Company is required to maximize the use of quoted market prices
and minimize the use of unobservable inputs. The Company has not changed its valuation techniques used in measuring the fair value
of any financial assets or liabilities during the fiscal years presented. The fair value estimates take into consideration the
credit risk of both the Company and its counterparties.
When active market
quotes are not available for financial assets and liabilities, the Company uses industry-standard valuation models. Where applicable,
these models project future cash flows and discount the future amounts to a present value using market-based observable inputs
including credit risk, interest rate curves, foreign currency rates, and forward and spot prices for currencies. In circumstances
where market-based observable inputs are not available, management judgment is used to develop assumptions to estimate fair value.
Generally, the fair value of our Level 3 instruments are estimated as the net present value of expected future cash flows
based on internal and external inputs.
Fair Value Measurements
There were no liabilities carried at fair
value as of September 30, 2020, and March 31, 2020.
Assets and Liabilities Measured at Fair Value on a Non-recurring
Basis
In addition to the
financial instruments that are recorded at fair value on a recurring basis, the Company records assets and liabilities at fair
value on a non-recurring basis as required by U.S. GAAP. Generally, assets are recorded at fair value on a non-recurring basis
as a result of impairment charges or as part of a business combination. There were no liabilities carried at fair value as of September
30, 2020, and March 31, 2020.
NOTE
18 – SUBSEQUENT EVENTS
On October
9, 2020, Viking and Camber entered into the First Amendment to Amended and Restated Agreement and Plan of Merger (the “First
Amendment”) to amend the Merger Agreement to (a) fix the percentage of the post-Merger capitalization of the
combined company which would be held by stockholders of Camber (on a fully-diluted basis, but without taking into account the shares
of common stock of Camber issuable upon conversion of Camber’s outstanding Series C Preferred Stock)(the “Camber
Percentage”) at 20% (previously such Camber Percentage was adjustable between 15% to 25%, depending on the amount
of cash and/or other unencumbered assets Camber and Viking had at the time of the closing of the Merger which was available to
the combined company); (b) extend the date that the Merger Agreement could be terminated by either party until December 31,
2020, provided that the right to terminate the Merger Agreement thereafter is not available to a party if the failure of the closing
of the Merger to occur by such date is principally due to the failure of such party to perform or observe the obligations, covenants
and agreements of such party set forth in the Merger Agreement; and (c) remove the requirement that Viking obtain the consent
of its lender, ABC Funding, LLC, for the Merger.
On December
11, 2020, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with Discover (the
“Investor”), the sole shareholder of the Company’s Series C Preferred Stock. The transactions contemplated
by the Exchange Agreement closed on December 11, 2020. Pursuant to the Exchange Agreement, as an accommodation to the Company,
and in order to reduce the potential dilutive impact of the Series C Preferred Stock, by reducing the number of outstanding shares
of Series C Preferred Stock, the Investor exchanged 600 shares of Series C Preferred Stock (the “Exchanged Shares”),
which had an aggregate face value of $6,000,000 (600 shares each with a face value of $10,000 per share), for a $6,000,000 secured
Promissory Note (the “Investor Note”). The Company is in the process of obtaining the Exchanged Shares from
the Investor and plans to cancel such shares once transferred. The 600 Exchanged Shares were outstanding as of September 30, 2020,
and included in temporary equity on the balance sheet.
Pursuant
to the Exchange Agreement (a) the Investor waived all prior breaches and defaults that occurred prior to the date of the Exchange
Agreement or that may continue or occur for 90 days thereafter, under any agreements entered into with the Investor relating to
the acquisition of shares of Series C Preferred Stock (the “90 Day Period”), and waived all rights and remedies
with respect to any such breaches and defaults; (b) we agreed to timely file all reports required by the Securities and Exchange
Commission (the “SEC”) for so long as the Investor holds any Series C Preferred Stock (provided the Company
was provided until December 31, 2020, to file its Quarterly Report on Form 10-Q for the quarter ended September 30, 2020); (c) we
agreed to indemnify and hold the Investor, its affiliates, managers and advisors, and their related parties, harmless from any
losses related to any breach of the Exchange Agreement (or other transaction documents), and from any action by the Company or
a creditor or stockholder of the Company, challenging the transactions contemplated by the Exchange Agreement and related agreements,
except to the extent finally adjudicated to be caused solely by such indemnified party’s unexcused material breach of an
express provision of the Exchange Agreement or related agreements; (d) we agreed to reserve from our outstanding common stock,
shares of common stock to allow for the conversion of the outstanding Series C Preferred Stock (subject to the 90 Day Period);
(e) the Investor agreed to vote all shares of common stock which it holds as of the record date for any shareholder meeting
in favor of the Company’s previously announced pending plan of merger with Viking (the “Merger”), and
the other proposals that are recommended for approval by the Board of Directors of the Company in the proxy statement filed in
connection with such Merger; (f) the Investor agreed to the Merger and agreed to waive any rights it may have (including favored
nations, anti-dilution and/or reset rights) in connection therewith; (g) we acknowledged that the Investor had previously
provided notice to the Company of its intent to increase the beneficial ownership limitation set forth in the designation of the
Series C Preferred Stock to 9.99%, and that such limitation will continue to apply moving forward; and (h) we provided the
Investor and its related parties a general release.
The Exchange Agreement also amended the June 22, 2020 Stock Purchase
Agreement previously entered into with the Investor, pursuant to which the Investor purchased 630 shares of Series C Preferred
Stock, to remove from such June 22, 2020 agreement (i) the prohibition on the Investor transferring and/or selling shares
of Series C Preferred Stock; and (ii) the repurchase obligation, which required the Company to redeem for cash, at 110% of
the face value thereof ($10,000 per share), all 630 shares of Series C Preferred Stock sold by the Company in June 2020, in the
event the Merger did not close by the required date set forth in the plan of merger relating thereto (as amended from time to time),
and all similar provisions in any prior agreements entered into between the Company and the Investor. As a result of such amendment,
the remaining 30 shares of Series C Preferred Stock sold in June 2020, that were included in temporary equity as of September 30,
2020 and which were not part of the Exchanged Shares, became permanent equity.
The Investor Note
(which has no conversion features) has a balance of $6,000,000 and accrues interest at the rate of 10% per annum, which
increases to the highest non-usurious rate of interest allowed under applicable law upon the occurrence of an event of
default, which interest is due on the maturity date, which maturity date is the earlier of (a) December 11, 2022 (which
may be extended with the mutual consent of the parties and a written amendment to the Investor Note signed by the Investor);
(b) March 11, 2021, in the event the Merger does not close or is not fully consummated by such date; and (c) the
date a change of control of the Company occurs, which includes any person becoming the beneficial owner of more than 50% of
the combined voting power of the Company (a “Change in Ownership”), or the approval of (1) a plan of
complete liquidation, (2) an agreement for the sale or disposition of all or substantially all the Company’s
assets, or (3) a merger (other than a merger for purposes of redomiciling the Company), consolidation, or reorganization
of the Company, which would result in a Change in Ownership, provided that the closing of the Merger will not trigger a
change of control (or Change in Ownership). The Investor Note includes customary events of default. Upon the occurrence of an
event of default, the Investor has the right to accelerate the full amount of the Investor Note and all interest thereon, to
enforce its rights under the Security Agreement, and take other actions allowed under applicable law.
Payment
of the Investor Note and performance of the Company’s obligations thereunder is required to be guaranteed by all subsidiaries
or entities controlled or owned by the Company, or which may be owned after the date of the Investor Note, provided that no guarantees
have been entered into to date. The Investor Note may be assigned by the Investor subject to compliance with applicable securities
laws. The Company may prepay the Investor Note at any time.
The payment
of amounts due under the Investor Note is secured by the terms of a Security Agreement entered into by the Company in favor of
the Investor, which provides the Investor a first priority security interest in substantially all of our assets (the “Security
Agreement”). If an event of default occurs under the Investor Note, the Investor can enforce its rights under the Security
Agreement and foreclose on our assets in order to satisfy amounts owed thereunder.