Annual report pursuant to Section 13 and 15(d)

NOTES PAYABLE AND DEBENTURE

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NOTES PAYABLE AND DEBENTURE
12 Months Ended
Mar. 31, 2017
Debt Disclosure [Abstract]  
NOTES PAYABLE AND DEBENTURE

NOTE 6 – NOTES PAYABLE AND DEBENTURE

 

The Company’s notes payable and debenture consisted of the following:

 

    March 31,     March 31,  
    2017     2016  
Note Payable - Rogers   $ 6,883,697     $ 7,153,734  
Note Payable - Dreeben     1,050,000       275,000  
Note Payable – Non-Related Individual     263,158        
Convertible Notes Payable - Silver Star           800,000  
Convertible Notes Payable - HFT           450,000  
Debenture     530,000        
Note Payable - IBC     38,324,527        
      47,051,382       8,678,734  
Unamortized debt discount     (2,624,038 )     (583,183 )
Total Notes Payable and Debenture     44,427,344       8,095,551  
Less current portion of long-term debt     (44,281,649 )     (8,095,551 )
Long-term portion   $ 145,695     $  

 

Rogers Loan and Promissory Note

 

Letter Loan Agreement

 

At March 31, 2017, the Company had $6,883,697 due under the $7.5 million Letter Loan Agreement originally entered into with Rogers on August 13, 2013. Amortization of debt discount of $21,323 was recorded during the year ended March 31, 2016 while no unamortized discount remained as of March 31, 2017.

 

Currently, the Rogers Loan has a maturity date of July 31, 2017, and the Company agreed to pay all professional fees incurred by Rogers and to pay Rogers $39,000 in lieu of interest on the Rogers Loan as well as all operating income of collateralized assets (beginning October 1, 2015). Also, the Company agreed to make principal payments to Rogers from certain insurance proceeds to be received, which the Company has not received to date. For the months of January, February, March, June and July 2016, the Company did not make the required monthly principal payments due pursuant to the terms of the Rogers loan as amended. Instead, the Company and the loan administrator agreed to settle any outstanding administration and legal fees in lieu of the principal payments. The Company paid approximately $98,000 related to the fees, and effective July 5, 2016, obtained a waiver for the nonpayment of the principal amounts through July 2016. The Company has not made the $39,000 required monthly fee payments on the Rogers Loan since August 2016, however, the Company has made all required principal payments, and Rogers has not sent any notice of default or taken any action in connection therewith.

 

Additionally, per a prior amendment, the Company transferred all of its oil and gas interests and equipment to our then newly formed wholly-owned Texas subsidiary, CATI Operating LLC, which clarified that following the transfer, Rogers had no right to foreclose upon the Company (at the Nevada corporate parent level) upon the occurrence of an event of default under the Rogers Loan, and that instead Rogers would only take action against CATI and its assets and required Rogers to release all UCC and other security filings on the Company (provided that Rogers is allowed to file the same filings on CATI and its assets). Subsequently, the Company assigned all of its oil and gas interests and equipment to CATI pursuant to an Assignment and Bill of Sale dated December 16, 2015.

 

On February 1, 2017, the maturity date of the Rogers Loan was extended from January 31, 2017 to April 30, 2017. As consideration, the Company paid $9,000 to Ms. Rogers and $9,000 to Robertson Global Credit, LLC, the servicer of the Amended Note. In April 2017, the maturity date was extended again until July 31, 2017. As consideration, the Company paid $9,000 to Ms. Rogers and $9,000 to Robertson Global Credit, LLC, the servicer of the Amended Note. 

 

Promissory Note

 

On August 25, 2016, and effective on August 15, 2016, our wholly-owned subsidiary, CATI borrowed $1 million from the Company’s senior lender, Rogers. The amount borrowed accrued interest at the rate of 12% per annum (18% upon the occurrence of an event of default) and was due and payable on or before November 9, 2016. The note is secured by the assets of CATI and nine of our other assets, including those acquired in the Acquisition.

 

Pursuant to the terms of the note, a total of 80% of all cash flow generated by CATI was required to first be paid to satisfy amounts owed under the August 2016 Note, and then to amounts owed under the Letter Loan, with the remaining 20% of such cash flow used by CATI for lease and other operating expenses and capital expenditures approved by Rogers’ designated representatives. In connection with the Company’s entry into the August 2016 note, it paid a loan origination fee of $50,000 and agreed to pay all fees of Rogers’ counsel in connection with the preparation and negotiation of the note. The $50,000 loan origination fee was recorded as a debt discount and was amortized through interest expense using the effective interest method over the term of the note.

 

As additional consideration, CATI issued Robertson Global Credit, LLC, the administrator of the Rogers Loan, a 2% overriding royalty interest in the wellbores of the Cyclone #9H and Cyclone #10H wells.

 

On October 11, 2016, the Company paid Rogers the full amount of principal due on the promissory note of $1.0 million and also paid the full amount of interest due of $15,667 on October 13, 2016. As such, the promissory note was no longer outstanding as of March 31, 2017.

 

Silver Star Line of Credit

 

On August 30, 2015, the Company entered into a Non-Revolving Line of Credit Agreement with Silver Star Oil Company (“Silver Star”). The line of credit provided the Company the right to issue up to $2.4 million in convertible promissory notes to Silver Star. To date, Camber has drawn $1,000,000 under the line of credit for the months of October, November, December 2015 and January and February 2016. The convertible notes contained a beneficial conversion feature with a combined intrinsic value of $687,987 for the five notes, which was recognized as a debt discount and is being amortized through interest expense using the effective interest method over the term of the notes.

 

Convertible notes totaling $800,000 had been assigned by Silver Star to Rockwell Capital Partners (“Rockwell”), of which Rockwell has fully converted a total of $830,562 of the principal and interest due on such convertible notes outstanding into shares of our common stock at a conversion price of $1.50 per share, for an aggregate of 553,708 shares.

 

On July 15, 2016, pursuant to an assignment of convertible promissory note agreement, the Company was advised that the last $200,000 convertible promissory note issued to Silver Star on February 20, 2016 was assigned by Silver Star to Texas Capital & Assets LLC. On September 28, 2016, Texas Capital & Assets LLC converted $207,566 of principal and interest due on such convertible note into shares of our common stock at a conversion price of $1.50 per share, for an aggregate of 138,377 shares.

 

As of March 31, 2017, the Company had no remaining Silver Star convertible notes outstanding as all outstanding notes had been converted into shares of the Company’s common stock.

 

HFT Convertible Promissory Note Purchase Agreement and Convertible Promissory Notes

 

On March 29, 2016, Camber entered into a Convertible Promissory Note Purchase Agreement with HFT Enterprises, LLC (“HFT”). Pursuant to the Note Purchase Agreement, Camber agreed to sell an aggregate of $600,000 in convertible notes, including $450,000 in convertible notes purchased on the date of the parties’ entry into the agreement, and $150,000 in convertible notes purchased by Debra Herman, the wife of Michael Herman, the principal of HFT, on April 26, 2016. Camber also granted Mrs. Herman warrants to purchase 124,285 shares of common stock with an exercise price of $1.50 per share on April 26, 2016, when the final loan was made pursuant to the terms of the agreement. The fair value of these 124,285 warrants was $470,467 and the relative fair value of $113,737 was recorded as additional debt discount.

 

Each of the convertible notes are due and payable twelve months from their issuance date, accrue interest at the rate of 6% per annum (15% upon the occurrence of an event of default), and allow the holder thereof the right to convert the principal and interest due thereunder into common stock of the Company at a conversion price of $1.50 per share, provided that the total number of shares of common stock issuable upon conversion of the convertible notes could not exceed 19.9% of our outstanding shares of common stock on March 29, 2016, until shareholder approval for such issuances was received, which approval was received on August 23, 2016. The convertible notes contained a beneficial conversion feature with a combined intrinsic value of $600,000 for the three notes, which is recognized as a discount and is being amortized through interest expense using the effective interest method over the term of the notes.

On October 4, 2016, HFT, converted $464,800 of the principal and interest due on such convertible notes held by HFT into shares of Camber common stock at a conversion price of $1.50 per share, for an aggregate of 309,866 shares. Additionally on November 18, 2016, Mrs. Herman converted $155,110 of the principal and interest due on the convertible note which she held into shares of our common stock at a conversion price of $1.50 per share, for an aggregate of 103,400 shares.

 

As of March 31, 2017, the Company had no remaining HFT convertible notes outstanding and does not recognize any corresponding liability on the Company’s balance sheet as all outstanding notes had been converted into shares of the Company’s common stock.

 

Dreeben Note

 

On March 28, 2016, the Company borrowed $250,000 from Alan Dreeben, one of the Sellers and one of the Company’s directors, pursuant to a short-term promissory note. The short-term promissory note has a principal balance of $275,000 (the $250,000 borrowed plus a $25,000 original issue discount). As additional consideration for Mr. Dreeben agreeing to make the loan, the Company agreed to issue Mr. Dreeben 15,000 shares of restricted common stock, which were issued in September 2016. The Company recognized a $48,000 discount to the short-term promissory note which was based on the closing price of the Company’s common stock ($3.20 per share) on March 28, 2016 in addition to the original discount of $25,000, for a total discount of $73,000.

 

On June 27, 2016, the Company entered into an amended and restated short-term promissory note, amending and restating the note originally entered into with Mr. Dreeben on March 28, 2016; evidencing an additional $100,000 borrowed on June 13, 2016, plus a $10,000 original issue discount on such loan amount and extending the maturity date of the note to August 31, 2016.

 

On August 31, 2016, the Company paid Mr. Dreeben the full amount due on the short-term promissory note of $385,000.

 

Effective January 31, 2017, the Company borrowed $1,000,000 from Alan Dreeben, one of the Company’s directors, pursuant to a short-term promissory note. The short-term promissory note had a principal balance of $1,050,000 (the $1,000,000 principal amount borrowed plus a $50,000 original issue discount), accrues interest at 6% per annum and a maturity date of January 31, 2018, with standard and customary events of default. As additional consideration for Mr. Dreeben agreeing to make the loan, we agreed to issue Mr. Dreeben 40,000 shares of restricted common stock. At March 31, 2017, the Company owed $1,050,000 to Alan Dreeben. The fair value of the restricted shares was $30,000 based on the closing price of the Company’s common stock on the issuance date. The fair value of the shares was recorded as additional debt discount. At March 31, 2017, the Company owed $1,050,000 to Alan Dreeben. The Company also recognized $10,500 in accrued interest as of March 31, 2017.

 

Non-Related Individual Note

 

On March 9, 2017, the Company borrowed $250,000 from a non-related individual pursuant to a short-term promissory note. The short-term promissory note has a principal balance of $263,158 (the $250,000 principal amount borrowed plus a $13,158 original issue discount), accrues interest at 6% per annum and has a maturity date of March 9, 2018 and contains standard and customary events of default. As additional consideration for agreeing to make the loan, the Company agreed to issue the lender 10,000 restricted shares of common stock. The fair value of the restricted shares was $5,900 based on the closing price of the Company’s common stock on the issuance date. The fair value of the shares was recorded as additional debt discount. The note is secured by a deed of trust on certain of our properties. At March 31, 2017, the Company owed $263,158 to the non-related individual. The Company also recognized $1,316 in accrued interest as of March 31, 2017.

 

Debenture

 

On April 6, 2016, the Company entered into a Securities Purchase Agreement with the Investor, pursuant to which the Company issued a redeemable convertible subordinated debenture, with a face value of $530,000, initially convertible into 163,077 shares of common stock at a conversion price equal to $3.25 per share and warrants to initially purchase 1,384,616 shares of common stock (subject to adjustment thereunder) at an exercise price equal to $3.25 per share (the “First Warrant”). The Investor purchased the debenture at a $30,000 original issue discount for the sum of $500,000 and agreed that it would exercise the First Warrant, upon satisfaction of certain conditions, for the sum of $4.5 million, which warrant was exercised in October 2016. The debenture matures in seven years and accrues interest at a rate of 6.0% per annum. Due to the recent decline in the price of our common stock and that a trigger event occurred on June 30, 2016 as a result of the delay in filing our Annual Report on Form 10-K for the year ended March 31, 2016, the premium rate on the debenture increased from 6% to 34% and the conversion discount became 85% of the lowest daily volume weighted average price during the measuring period (60 days prior to and 60 days after the last date that the Investor receives the last of the shares due), less $0.10 per share of common stock not to exceed 85% of the lowest sales price on the last day of such period less $0.10 per share.

 

As the fair value of the warrants issued in connection with the debenture exceeds the $530,000 value of the debenture, we fully discounted the entire debenture and will amortize the discount over the term of the debenture. The discount is being amortized through interest expense using the effective interest method over the term of the debenture.

 

As of March 31, 2017, the Company had a convertible subordinated debenture of $145,695 (net of the unamortized discount of $384,305) which was recognized as a long-term liability on the Company’s balance sheet as of March 31, 2017. The Company also recognized $180,200 in accrued interest as of March 31, 2017.

 

Loan Agreement with RAD2

 

On August 25, 2016, RAD2, which was one of the Sellers and which is owned and controlled by Richard N. Azar II, who was appointed as our Chairman on August 26, 2016 and subsequently as the Company’s interim Chief Executive Officer, loaned us $1.5 million pursuant to a promissory note. The promissory note did not accrue interest for the first month it was outstanding and accrues interest at the rate of 5% per annum thereafter until paid in full.

 

On October 13, 2016, the Company paid RAD2 the full amount due on the promissory note of $1.5 million.

 

Loan Agreement with International Bank of Commerce (“IBC”)

 

On August 25, 2016, the Company, as borrower, and Richard N. Azar II, who was appointed as our Chairman on August 26, 2016 and subsequently as the Company’s interim Chief Executive Officer, and who also received the largest number of securities and cash in connection with the closing of the Acquisition (“Azar”), Donnie B. Seay, Richard E. Menchaca, RAD2, DBS Investments, Ltd. (“DBS”, controlled by Mr. Seay) and Saxum Energy, LLC (“Saxum”, which is controlled by Mr. Menchaca), as guarantors (collectively, the “Guarantors”, all of which were directly or indirectly Sellers), and IBC, as Lender (“Lender”), entered into a Loan Agreement.

 

Pursuant to the Loan Agreement, the Lender loaned the Company $40 million, evidenced by a Real Estate Lien Note in the amount of $40 million. The Company is required to make monthly payments under the note equal to the greater of (i) $425,000; and (ii) fifty percent (50%) of our monthly net income. The note accrues annual interest at 2% above the prime rate then in effect, subject to a minimum interest rate of 5.5% per annum. The note is due and payable on August 25, 2019. Payments under the note are subject to change as the interest rate changes in order to sufficiently amortize the note in 120 monthly installments. The Company has the right, from time to time and without penalty to prepay the note in whole or in part, subject to the terms thereof.

 

The proceeds of the loan were used to repay and refinance approximately $30.6 million of indebtedness owed by certain of the Sellers, to the Lender (including an aggregate of $18.3 million owed by RAD2 and another entity controlled by Mr. Azar, $9.8 million owed by DBS, and $2.1 million owed by Mr. Menchaca), as well as to pay the $4.975 million due to the Sellers at closing. Another $3.36 million was used to fund a sinking fund required by the Lender, as discussed below, to pay principal on the note.

 

The amount owed under the note is secured by a Security Interest in substantially all of our assets and properties, pursuant to three Security Agreements. Also, each of the Guarantors guaranteed the repayment of a portion of the Loan Agreement pursuant to a Limited Guaranty Agreement. Additionally, in connection with the parties’ entry into the Loan Agreement and to further secure amounts due thereunder, certain of the Guarantors pledged shares of common stock which they received at the closing to the Lender, with RAD2 pledging 3,120,606 shares of common stock; DBS pledging 935,934 shares of common stock; and Saxum pledging 673,392 shares of common stock. 

 

The Loan Agreement also provides that with respect to the properties located in Glasscock County, Texas, which the Company obtained ownership of at the closing of the Acquisition (collectively, the “West Texas Properties”), the Company has the right to sell the West Texas Properties after (i) the Lender approves the purchase and sale agreement in its sole discretion, (ii) the Lender receives as a prepayment of the loan, 50% of the sales proceeds of the West Texas Properties, but in no event less than $2,000,000, and (iii) the balance of the sales proceeds of the West Texas Properties are deposited in the bank account that we are required to maintain with the Lender, to be used to pay certain principal payments of the note as approved by Lender in its sole discretion.

 

The Company agreed to pay the Lender a loan finance charge of $400,000 in connection with its entry into the Loan Agreement, with half due on the date the Company entered into the Loan Agreement and half due on or before the 180th day following the date of the Loan Agreement. As further consideration for agreeing to the terms of the Loan, the Company agreed to issue the Lender 390,290 shares of common stock. The Company recognized a $2.8 million note discount related to these transactions and other debt issuance costs and will amortize the discount and debt issuance costs over the term of the note.

 

As of March 31, 2017, the Company was not in compliance with certain covenants of the loan agreement, including requiring the Company to maintain a net worth of $30 million, and the balance of the loan due to IBC of $38.3 million (less unamortized debt issuance costs of approximately $2.2 million), was recognized as a short-term liability on the Company’s balance sheet as of March 31, 2017. The Company has also recognized approximately $30,000 in accrued interest as of March 31, 2017.