UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 10-Q/A

(Amendment No. 1)

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2020

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 001-32508

 

CAMBER ENERGY, INC.

(Exact name of registrant as specified in its charter)

  

Nevada

 

20-2660243

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer 
Identification No.) 

 

15915 Katy Freeway, Suite 450, Houston, Texas 77094

(Address of principal executive offices) (Zip Code)

 

(210) 998-4035

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 Par Value Per Share

CEI

NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐   No ☒

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐   No ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Title of each class

 

Number of Shares

Common Stock, par value
$0.001 per share

250,000,000
(as of November 19, 2021)

 

 

 

 

Explanatory Note

 

Camber Energy, Inc (the “Company”) is filing this Quarterly Report on Form 10-Q/A (“Form 10-Q/A”) to amend our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, originally filed with the Securities and Exchange Commission (the “SEC”) on August 24, 2020 (“Original Report”) to restate our financial statements and related notes (collectively, the “financial statements” or “Financial Statements”) for the three month periods ended June 30, 2020 and 2019.  This Form 10-Q/A also amends certain other Items in the Original Report, as listed in “Items Amended in this Form 10-Q/A” below.

 

Restatement Background

 

On October 31, 2020, the Company received a comment letter from the SEC ("SEC Comment Letter") with respect to Amendment No. 2 to the Registration Statement on Form S-4 filed on October 14, 2020. Among other things, the SEC Comment Letter questioned the Company’s historical accounting treatment regarding the sale of our Series C Redeemable Convertible Preferred Stock (the “Series C Stock”).  The Company recorded such sales as “permanent equity,” and the SEC Comment Letter suggested the appropriate accounting classification was something other than permanent equity given certain provisions within the Certificate of Designation for the Series C Stock  (“COD”). After considering the SEC Comment Letter and reviewing the COD, the Company and the holder of the Series C Stock determined there were several errors made in the drafting of the COD that could result in unintended consequences. Both parties agreed to subsequently correct the COD, and Certificates of Correction to the COD were filed on December 9, 2020, and on April 20, 2021, to correct the errors.  Both parties agreed the corrections would be applied retroactive to the original filing date of the COD, being August 25, 2016; however, US GAAP requires a transaction to be accounted for in accordance with the terms of an agreement in effect during the period of the financial statements, and, consequently, the Company determined that in accordance with the terms of the original COD, the Series C Stock should have been recorded as temporary equity instead of permanent equity. In addition, certain provisions of the original COD required the Company to recognize a derivative liability for certain conversions of the Series C Stock into common stock. After consultations with the SEC staff and the Company’s accounting advisors, the Company determined: (i) the impact of the error(s) is material for the fiscal years ended March 31, 2019 and 2020;  and (ii) to restate its Annual Report on Form 10-K for the year ended March 31, 2020, inclusive of comparative financial statements for the year ended March 31, 2019, the previously filed quarterly report on Form 10-Q for the three months ended June 30, 2020, and the previously filed quarterly report on Form 10-Q for the three and six month periods ended September 30, 2020.   See Note 4 to the Consolidated Financial Statements included in Item 1 for additional information and a reconciliation of the previously reported amounts to the restated amounts.

  

Items Amended in this Form 10-Q/A

 

This Form 10-Q/A presents the Original Report in its entirety, as amended and restated with modifications as necessary to reflect the restatements. The following items have been amended to reflect the restatements:

 

Part I, Item. Financial Statements

 

Part II, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

In addition, the Company’s Chief Executive Officers and Principal Accounting Officer have provided new certifications dated as of the date of this filing in connection with this Form

  

 
2

Table of Contents

  

CAMBER ENERGY, INC.

 

TABLE OF CONTENTS

 

PART 1. FINANCIAL INFORMATION

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

4

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

4

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

5

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (UNAUDITED)

6

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

7

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

8

 

 

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

36

 

 

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

51

 

 

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

51

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

52

 

 

 

 

 

ITEM 1A.

RISK FACTORS

52

 

 

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

58

 

 

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

59

 

 

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

59

 

 

 

 

 

ITEM 5.

OTHER INFORMATION

59

 

 

 

 

 

ITEM 6.

EXHIBITS

59

 

 

 
3

Table of Contents

 

PART 1. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CAMBER ENERGY, INC.

CONSOLIDATED BALANCE SHEETS (Restated)

(Unaudited)

 

 

 

June 30,
2020

 

 

March 31,
2020

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash

 

$ 1,705,374

 

 

$ 656,615

 

Accounts Receivable, Net of Allowance

 

 

279,904

 

 

 

255,363

 

Other Current Assets

 

 

247,973

 

 

 

220,682

 

Total Current Assets

 

 

2,233,251

 

 

 

1,132,660

 

 

 

 

 

 

 

 

 

 

Property and Equipment

 

 

 

 

 

 

 

 

Oil and Gas Properties - Subject to Amortization

 

 

50,443,883

 

 

 

50,443,883

 

Oil and Gas Properties - Not Subject to Amortization

 

 

28,016,989

 

 

 

28,016,989

 

Other Property and Equipment

 

 

1,570

 

 

 

1,570

 

Total Property and Equipment

 

 

78,462,442

 

 

 

78,462,442

 

Accumulated Depletion, Depreciation, Amortization and Impairment

 

 

(78,354,120 )

 

 

(78,351,825 )

Total Property and Equipment, Net

 

 

108,322

 

 

 

110,617

 

Equity Method Investment – Elysium Energy, LLC

 

 

 

 

 

957,169

 

Notes Receivable

 

 

11,413,533

 

 

 

7,339,719

 

Other Assets

 

 

155,053

 

 

 

155,053

 

Total Assets

 

$ 13,910,159

 

 

$ 9,695,218

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts Payable

 

$ 1,439,641

 

 

$ 1,474,221

 

Common Stock Payable

 

 

 

 

 

173,000

 

Accrued Expenses

 

 

192,613

 

 

 

348,460

 

Current Asset Retirement Obligation

 

 

52,402

 

 

 

30,227

 

Current Income Taxes Payable

 

 

3,000

 

 

 

3,000

 

Derivative Liability

 

 

14,370,827

 

 

 

8,669,831

 

Total Current Liabilities

 

 

16,058,483

 

 

 

10,698,739

 

 

 

 

 

 

 

 

 

 

Asset Retirement Obligation

 

 

19,348

 

 

 

41,523

 

Total Liabilities

 

 

16,077,831

 

 

 

10,740,262

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (see Note 10)

 

 

 

 

 

 

 

 

 Temporary Equity

 

 

 

 

 

 

 

 

Preferred Stock Series C, 2,951 and 2,819 Issued and Outstanding Respectively, Liquidation Preference of $81,049,215 and $77,423,835, respectively

 

 

40,080,571

 

 

 

39,389,202

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

Preferred Stock Series A, 2,000 Shares Authorized of $0.001 Par Value, -0- Shares issued and Outstanding

 

 

 

 

 

 

Preferred Stock Series B, 600,000 Shares Authorized of $0.001 Par Value, 0 and 0 Shares issued and Outstanding, respectively

 

 

 

 

 

 

Common Stock, 25,000,000 shares Authorized of $0.001 Par Value, 13,160,530 and 5,000,000 Shares Issued and Outstanding, respectively

 

 

13,161

 

 

 

5,000

 

Additional Paid-in Capital

 

 

155,298,998

 

 

 

149,825,528

 

Accumulated Deficit

 

 

(197,560,402 )

 

 

(190,264,774 )

Total Stockholders’ Deficit

 

 

(42,248,243 )

 

 

(40,434,246 )

Total Liabilities and Stockholders’ Deficit

 

$ 13,910,159

 

 

$ 9,695,218

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
4

Table of Contents

  

CAMBER ENERGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Restated)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

Operating Revenues

 

 

 

 

 

 

Crude Oil

 

$ 21,789

 

 

$ 93,699

 

Natural Gas

 

 

4,164

 

 

 

7,204

 

Natural Gas Liquids

 

 

7,736

 

 

 

20,448

 

Total Revenues

 

 

33,689

 

 

 

121,351

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

Lease Operating Expenses

 

 

69,291

 

 

 

123,557

 

Severance and Property Taxes

 

 

1,349

 

 

 

2,574

 

Depreciation, Depletion, Amortization, and Accretion

 

 

2,295

 

 

 

4,242

 

General and Administrative

 

 

686,663

 

 

 

1,331,991

 

Total Operating Expenses

 

 

759,598

 

 

 

1,462,364

 

 

 

 

 

 

 

 

 

 

Operating Loss

 

 

(725,909 )

 

 

(1,341,013 )

 

 

 

 

 

 

 

 

 

Other Expense (Income)

 

 

 

 

 

 

 

 

Interest Expense

 

 

 

 

 

847

 

Loss from Equity Method Investment

 

 

1,083,355

 

 

 

 

Other Expense (Income), Net

 

 

(214,632 )

 

 

(54,262 )

Loss on Derivative liability

 

 

5,700,996

 

 

 

2,163,891

 

Total Other Expenses (Income)

 

 

6,569,719

 

 

 

2,110,476

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (7,295,628 )

 

$ (3,451,489 )

 

 

 

 

 

 

 

 

 

Less Preferred Dividends

 

 

1,680,756

 

 

 

1,453,718

 

 

Net loss attributable to common shareholders

 

 

 

(8,976,384

)

 

 

(4,905,207

)

 

 

 

 

 

 

 

 

 

Net Loss Per Common Share

 

 

 

 

 

 

 

 

Basic and Diluted

 

$ (1.19 )

 

$ (319.60 )

Weighted Average Number of Common Shares Outstanding

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

7,527,903

 

 

 

15,348

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
5

Table of Contents

  

CAMBER ENERGY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED JUNE 30, 2020 AND 2019 (Restated)

 

 

 

Series C
Preferred Stock

 

 

Series E
Preferred Stock

 

 

Series F
Preferred Stock

 

 

Series B
Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

Total

 

 

 

Number of Shares

 

 

Amount

 

 

Number
of Shares

 

 

Amount

 

 

Number
of Shares

 

 

Amount

 

 

 Number
of Shares

 

 

Amount

 

 

Number
of Shares

 

 

Amount

 

 

Additional Paid-In Capital

 

 

Stock Divided

Distributable

 

 

Accumulated Deficit

 

 

Stockholders’
Deficit
 

 

Balances, March 31, 2019 (as restated)

 

2,305

 

 

$ 28,248,946

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

44,000

 

 

$ 44

 

 

 

662,324

 

 

$ 13

 

 

$ 155,664,694

 

 

$ 3

 

 

$ (181,650,293 )

 

$ (25,985,539 )

Common Shares issued for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Series B Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,000 )

 

 

(44 )

 

 

 

 

 

 

 

 

44

 

 

 

 

 

 

 

 

 

 

Payment of Series B Dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

(3 )

 

 

 

 

 

 

Conversion of Debenture - Abeyance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,008

 

 

 

25

 

 

 

(25 )

 

 

 

 

 

 

 

 

 

Payment for Consulting Fees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

600

 

 

 

1

 

 

 

303,339

 

 

 

 

 

 

 

 

 

303,340

 

Rounding Adjustment for Split

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Dividends to be Issued

 

 

 

 

 

1,453,718

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,453,718 )

 

 

 

 

 

 

 

 

 

(1,453,718 )

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,451,489 )

 

 

(3,451,489 )

Balances, June 30, 2019

 

 

2,305

 

 

$ 29,702,664

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

701,182

 

 

$ 39

 

 

$ 154,514,337

 

 

$ --

 

 

$ (185,101,782 )

 

$ (30,587,406 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, March 31, 2020 (as restated)

 

 

2,819

 

 

$ 39,389,202

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

5,000,000

 

 

$ 5,000

 

 

$ 149,825,528

 

 

$ --

 

 

$ (190,264,774 ))

 

$ (40,434,246 )

Common Shares issued for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Series C Preferred Stock

 

 

(498 )

 

 

(7,289,387 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,059,016

 

 

 

8,059

 

 

 

7,281,328

 

 

 

 

 

 

 

 

 

7,289,387

 

Payment of Consulting Fees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101,514

 

 

 

102

 

 

 

172,898

 

 

 

 

 

 

 

 

 

173,000

 

Issuance of Series C Preferred Stock

 

 

630

 

 

 

6,300,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(300,000 )

 

 

 

 

 

 

 

 

(300,000 )

Stock Dividends to be Issued

 

 

 

 

 

1,680,756

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,680,756 )

 

 

 

 

 

 

 

 

 

(1,680,756

)

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,295,628 )

 

 

(7,295,628 )

Balances, June 30, 2020

 

 

2,951

 

 

$ 40,080,571

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

13,160,530

 

 

$ 13,161

 

 

$ 155,298,998

 

 

$ --

 

 

$ (197,560,402 )

 

$ (42,248,243 )

 

See accompanying notes are an integral part of these consolidated financial statements.

 

 
6

Table of Contents

 

CAMBER ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED)

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

 

2020

 

 

2019

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net Loss

 

$ (7,295,628 )

 

$ (3,451,489 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation, Depletion, Amortization and Accretion

 

 

2,295

 

 

 

4,242

 

Bad debt Expense

 

 

 

 

 

17,694

 

Share-Based Compensation

 

 

 

 

 

27,690

 

Loss from Equity Method Investment

 

 

1,083,355

 

 

 

 

Change in Fair Value of Derivative Liability

 

 

5,700,996

 

 

2,163,886

 

Changes in Components of Working Capital and Other Assets:

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

(24,541 )

 

 

(12,995 )

Other Current Assets

 

 

(27,291 )

 

 

117,073

 

Accounts Payable and Accrued Expenses

 

 

(190,427 )

 

 

(165,007 )

Net Cash Used in Operating Activities

 

 

(751,241 )

 

 

(1,298,906 )

 

 

 

 

 

 

 

 

 

Investing Cash Flows

 

 

 

 

 

 

 

 

Cash Paid for Issuance of Notes Receivable

 

 

(4,200,000 )

 

 

 

Cash Paid for Deposits

 

 

 

 

 

(75,000 )

Net Cash Used in Investing Activities

 

 

(4,200,000 )

 

 

(75,000 )

 

 

 

 

 

 

 

 

 

Financing Cash Flows

 

 

 

 

 

 

 

 

Proceeds from Issuance of Series C Preferred Stock

 

 

6,000,000

 

 

 

 

Net Cash Provided by Financing Activities

 

 

6,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (Decrease) in Cash

 

 

1,048,759

 

 

 

(1,373,906 )

Cash at Beginning of the Period

 

 

656,615

 

 

 

7,778,723

 

Cash at End of the Period

 

$ 1,705,374

 

 

$ 6,404,817

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 
7

Table of Contents

  

CAMBER ENERGY, INC.

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 February 3, 2020, the Company entered into an Agreement and Plan of Merger (as amended to date, the “Merger Agreement”, and the merger contemplated therein, the “Merger”) with Viking Energy Group, Inc. (“Viking”). Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock of Viking (the “Viking Common Stock”)  issued and outstanding, other than certain shares owned by the Company, Viking and 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 of 80% of the Company’s post-closing capitalization, subject to certain adjustment mechanisms discussed in the Merger Agreement (and excluding shares issuable upon conversion of the Series C Preferred Stock of the Company)(the “exchange ratio”). 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 6 – Plan of Merger and Investment In Unconsolidated Entity”.

  

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 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 June 30, 2020, the Company’s total current assets of $2.2 million were greater than its total current liabilities of approximately $16.0 million, resulting in working capital deficit of $13.8 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 $10.7 million, resulting in a working capital deficit of $9.6 million. The increase in the working capital deficit of of $3.2 million is due primarily to an increase in the recognized loss on the Series C Derivative Liability.

 

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.

 

The Company had no secured debt outstanding as of June 30, 2020.

 

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/A. 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.

  

 
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Table of Contents

 

Amounts presented in the consolidated balance sheet as of March 31, 2020 are derived from our audited consolidated financial statements as of that date. The unaudited consolidated financial statements as of and for the period ended June 30, 2020 and 2019 have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information on a basis consistent with the annual audited consolidated financial statements and with the instructions to Form 10-Q. The consolidated financial statements presented herein reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position of the Company as of June 30, 2020 and March 31, 2020, and the results of operations for the three month periods ended June 30, 2020 and 2019, the consolidated statements of changes in equity for the three month periods ended June 30, 2020 and 2019 and cash flows for the three month periods ended June 30, 2020 and 2019. All of these adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results expected for a full year. The statements should be read in conjunction with the audited consolidated financial statements and the notes thereto which are included in our Annual Report on Form 10-K/A (amendment No. 1) for the year ended March 31, 2020.

 

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 June 30, 2020 and March 31, 2020, there were allowances for doubtful accounts of approximately $208,000, included in accounts receivable, and there were bad debts of $0 and $17,694, recognized for the three months ended June 30, 2020 and 2019, respectively.

 

Notes Receivable

 

Notes receivable includes the $9,200,000, excluding adjustment for excess loss from equity method investment of $126,186, of notes from Viking as described in “Note 7 – Long-Term Notes Receivable” and “Note 5 – Plan of Merger and Investment In Unconsolidated Entity”, and two notes due from Lineal in the amounts of $1,539,719 and $800,000, respectively, as more fully discussed in “Note 7 – Long-Term Notes Receivable” and “Note 12 – Lineal Merger Agreement and Divestiture”. As of June 30, 2020, the Company had no allowance for uncollectible amounts related to the notes receivable.

 

Property and Equipment

 

Property and equipment are recorded at cost and depreciated using the straight-line method over their useful lives. Amortization of the equipment under capital leases related to the Lineal operations was computed using the straight-line method over lives ranging from 3 to 5 years and is included in depreciation expense. Costs of maintenance and repairs were charged to expense when incurred.

 

Long-lived assets including intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the assets carrying amount to determine if an impairment of such asset is necessary. This evaluation, as well as an evaluation of our intangible assets, requires the Company to make long-term forecasts of the future revenues and costs related to the assets subject to review. Forecasts require assumptions about demand for the Company’s services and future market conditions. Estimating future cash flows requires significant judgment, and the Company’s projections may vary from the cash flows eventually realized. Future events and unanticipated changes to assumptions could require a provision for impairment in a future period. The effect of any impairment would be to expense the difference between the fair value (less selling costs) of such asset and its carrying value. Such expense would be reflected in earnings. No impairments were deemed necessary for the three months ended June 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 51% of a controlling interest and does not have the ability to exercise significant influence over the operating and financial policies of the entity. The investment is adjusted accordingly for dividends or distributions it receives and its proportionate share of earnings or losses of the entity. The current investment in unconsolidated entities is a 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 June 30, 2020 included current assets of $2.2 million, total assets of $32.4 million, total liabilities of $33.2 million and net assets of $(0.8) 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 months ended June 30, 2020 included total revenues of $3.8 million and a net loss of $4.3 million. See also “Note 6 – Plan of Merger and Investment In Unconsolidated Entity”.

 

 
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Table of Contents

  

Goodwill

 

Goodwill is tested for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred. Goodwill is reviewed for impairment at the reporting unit level, which is defined as operating segments or groupings of businesses one level below the operating segment level. The Company’s operating segments are the same as the reporting units used in its goodwill impairment test. Goodwill is tested for impairment by comparing the estimated fair value of a reporting unit, determined using a market approach, if market prices are available, or alternatively, a discounted cash flow model, with its carrying value. The annual evaluation of goodwill requires the use of estimates about future operating results, valuation multiples and discount rates of each reporting unit to determine their estimated fair value. Changes in these assumptions can materially affect these estimates. Once an impairment of goodwill has been recorded, it cannot be reversed.

 

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 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.

 

 
10

Table of Contents

 

As of June 30, 2020 and March 31, 2020, the significant inputs to the Company’s derivative liability calculations was 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 – Restatement of previously issued financial statements

 

On October 31, 2020, the Company received a SEC Comment Letter with respect to Amendment No. 2 to the Registration Statement on Form S-4 filed on October 14, 2020. Among other things, the SEC Comment Letter questioned the Company’s historical accounting treatment regarding the accounting treatment for our Series C Stock. The Company recorded such sales as permanent equity and the SEC Comment Letter suggested the appropriate accounting classification was something other than permanent equity given certain provisions within the Certificate of Designation for the Series C Stock (“COD”). After considering the SEC Comment letter and reviewing the COD, the Company and the holder of the Series C Stock determined there were several errors made in the drafting of the COD that could result in unintended consequences.

 

Both parties agreed to subsequently correct the COD, and Certificates of Correction to the COD were filed on December 9, 2020 and on April 20, 2021 to correct the errors.  Both parties agreed the corrections would be applied retroactive to the original filing date of the COD, being August 25, 2016. However, US GAAP requires a transaction to be accounted for in accordance with the terms of an agreement in effect during the period of the financial statements and, consequently, the Company determined that in accordance with the terms of the original COD, the Series C Stock should have been recorded as temporary equity instead of permanent equity. In addition, certain provisions of the original COD required the Company to recognize a derivative liability for certain conversions of the Series C Stock into common stock. After consultations with the SEC staff and the Company’s accounting advisors, the Company determined: (i) the impact of the error(s) is material for the three months ended June 30, 2020; and (ii) to restate its Quarterly Report on Form 10-Q for the period ended June 30, 2020, inclusive of comparative financial statements for the period ended June 30, 2019.

 

As a result of the errors described above, we are restating our financial statements to reclassify the Series C Stock from permanent equity to temporary equity and to recognize a derivative liability for the potential obligation to issue additional shares after the Series C shares have been converted to common shares. We have estimated the fair value of the derivative liability at June 30, 2020 and March 31, 2020 using a binomial pricing model and applying the conversion price (or the lowest trading price for the Company’s common stock subsequent to the conversion, if lower than the conversion price) and the historical volatility of the Company’s common stock.

 

 
11

Table of Contents

 

The table below sets forth changes to the consolidated balance sheet as of June 30, 2020:

 

 

 

 As Previously

 

 

 

 

 

 

 

 

 Reported

 

 

Adjustments

 

 

 As Restated

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

13,910,159

 

 

 

-

 

 

 

13,910,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES  AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

1,439,641

 

 

 

 

 

 

 

1,439,641

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued expenses

 

 

192,613

 

 

 

 

 

 

 

192,613

 

Derivative liability - Series C

 

 

-

 

 

 

14,370,827

 

 

 

14,370,827

 

Current ARO

 

 

52,402

 

 

 

 

 

 

 

52,402

 

Current income taxes payable

 

 

3,000

 

 

 

 

 

 

 

3,000

 

Total current liabilities

 

 

1,687,656

 

 

 

14,370,827

 

 

 

16,058,483

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset retirement obligations

 

 

19,348

 

 

 

 

 

 

 

19,348

 

TOTAL LIABILITIES

 

 

1,707,004

 

 

 

14,370,827

 

 

 

16,077,831

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TEMPORARY EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock Series C

 

 

6,000,000

 

 

 

34,080,571

 

 

 

40,080,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock Series A

 

 

-

 

 

 

 

 

 

 

-

 

Preferred Stock Series B

 

 

-

 

 

 

 

 

 

 

-

 

Preferred Stock Series C

 

 

2

 

 

 

(2 )

 

 

-

 

Common Stock

 

 

13,161

 

 

 

 

 

 

 

13,161

 

Additional paid in capital

 

 

148,299,710

 

 

 

6,999,288

 

 

 

155,298,998

 

Stock dividends distributable

 

 

17,559,682

 

 

 

(17,559,682 )

 

 

-

 

Accumulated Deficit

 

 

(159,669,400 )

 

 

(37,891,002 )

 

 

(197,560,402 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Stockholders’ Deficit

 

 

6,203,155

 

 

 

(48,451,398 )

 

 

(42,248,243 )

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

13,910,159

 

 

 

 

 

 

 

13,910,159

 

 

 
12

Table of Contents

 

The table below sets forth changes to the consolidated balance sheet as of March 31, 2020:

 

 

 

 As Previously

 

 

 

 

 

 

 

 

 

 Reported

 

 

Adjustments

 

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

9,695,218

 

 

 

 

 

 

9,695,218

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

1,474,221

 

 

 

-

 

 

 

1,474,221

 

Common stock payable

 

 

173,000

 

 

 

-

 

 

 

173,000

 

Accrued expenses

 

 

348,460

 

 

 

-

 

 

 

348,460

 

Derivative liability - Series C

 

 

-

 

 

 

8,669,831

 

 

 

8,669,831

 

Current ARO

 

 

30,227

 

 

 

-

 

 

 

30,227

 

Current income taxes payable

 

 

3,000

 

 

 

-

 

 

 

3,000

 

Total current liabilities

 

 

2,028,908

 

 

 

8,669,831

 

 

 

10,698,739

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset retirement obligations

 

 

41,523

 

 

 

-

 

 

 

41,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

2,070,431

 

 

 

8,669,831

 

 

 

10,740,262

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

-

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TEMPORARY EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock Series C

 

 

5,000,000

 

 

 

34,389,202

 

 

 

39,389,202

 

STOCKHOLDERS EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock Series C

 

 

2

 

 

 

(2 )

 

 

-

 

Common Stock

 

 

5,000

 

 

 

-

 

 

 

5,000

 

Additional paid in capital

 

 

144,815,627

 

 

 

5,009,901

 

 

 

149,825,528

 

Stock dividends distributable

 

 

15,878,926

 

 

 

(15,878,926 )

 

 

--

 

Retained earnings (deficit)

 

 

(158,074,768 )

 

 

(32,190,006 )

 

 

(190,264,774 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders equity (Deficit)

 

 

2,624,787

 

 

 

(43,059,033 )

 

 

(40,434,246 )

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

 

9,695,218

 

 

 

--

 

 

 

9,695,218

 

 

 
13

Table of Contents

 

The table below sets forth changes to the consolidated statement of operations for the three month period ended June 30, 2020:

 

Three Months Ended June 30, 2020

 

As reported

 

 

Adjustments

 

 

Restated

 

 

 

 

 

 

 

 

 

 

 

Total Revenues

 

 

33,689

 

 

 

 

 

 

33,689

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Lease Operating Expenses

 

 

69,291

 

 

 

 

 

 

69,291

 

Severance and Property Taxes

 

 

1,349

 

 

 

 

 

 

1,349

 

Depreciation, Depletion, Amortization, and Accretion

 

 

2,295

 

 

 

 

 

 

2,295

 

General and Administrative

 

 

686,663

 

 

 

 

 

 

686,663

 

Total Operating Expenses

 

 

759,598

 

 

 

 

 

 

759,598

 

Operating Loss

 

 

(725,909 )

 

 

 

 

 

(725,909 )

 

 

 

 

 

 

 

 

 

 

 

 

Other Expense (Income)

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

 

 

 

 

 

 

 

Loss from Unconsolidated Entity

 

 

1,083,355

 

 

 

 

 

 

1,083,355

 

Other Expense (Income), Net

 

 

(214,632

)

 

 

 

 

 

(214,632

)

Loss on Derivative Liability

 

 

--

 

 

 

5,700,996

 

 

 

5,700,996 )

Total Other Expenses

 

 

868,723

 

 

 

5,700,996

 

 

 

6,569,719

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (1,594,632 )

 

$ (5,700,996 )

 

$ (7,295,628 )

Less Preferred Dividends

 

 

1,680,756

 

 

 

 

 

 

 

1,680,756

 

Net Loss Attributable to Common Shareholders

 

 

(3,275,388 )

 

 

(5,700,996 )

 

 

(8,976,384 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

(0.44 )

 

 

(0.75 )

 

 

(1.19 )

 

 
14

Table of Contents

 

The table below sets forth changes to the consolidated statement of operations for the three month period ended June 30, 2019:

 

Three Months Ended June 30, 2019

 

As reported

 

 

Adjustments

 

 

Restated

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenues

 

 

121,351

 

 

 

 

 

 

121,351

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Lease Operating Expenses

 

 

123,557

 

 

 

 

 

 

123,557

 

Severance and Property Taxes

 

 

2,574

 

 

 

 

 

 

2,574

 

Depreciation, Depletion, Amortization, and Accretion

 

 

4,242

 

 

 

 

 

 

4,242

 

General and Administrative

 

 

1,331,991

 

 

 

 

 

 

1,331,991

 

Total Operating Expenses

 

 

1,462,364

 

 

 

 

 

 

1,462,364

 

Operating Loss

 

 

(1,341,013 )

 

 

 

 

 

(1,341,013 )

 

 

 

 

 

 

 

 

 

 

 

 

Other Expense (Income)

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

847

 

 

 

 

 

 

847

 

Loss from Unconsolidated Entity

 

 

 

 

 

 

 

 

 

Other Expense (Income), Net

 

 

(54,262

 

 

 

 

 

 

(54,262

 

Loss on Derivative Liability

 

 

--

 

 

 

2,163,891

 

 

 

2,163,891

 

Total Other Expenses (Income)

 

 

(53,415 )

 

 

2,163,891

 

 

 

2,110,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (1,287,598 )

 

$ (2,163,891 )

 

$ (3,451,489 )

Less Preferred Dividends

 

 

1,878,055

 

 

 

(424,337 )

 

 

1,453,718

 

Net Loss Attributable to Common Shareholders

 

 

(3,165,653 )

 

 

(1,739,554 )

 

 

(4,905,207 ))

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

(206.26 )

 

 

(113.34 )

 

 

(319.60 )

 

 
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The table below sets forth changes to the consolidated statements of cash flows for the three month period ended June 30, 2020:

 

Three Months Ended June 30, 2020

 

As previously reported

 

 

 Adjustments

 

 

Restated

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (1,594,632 )

 

 

(5,700,996 )

 

$ (7,295,628 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, Depletion, Amortization and Accretion

 

 

2,295

 

 

 

 

 

 

 

2,295

 

Bad debt Expense

 

 

 

 

 

 

 

 

 

 

Share-Based Compensation

 

 

 

 

 

 

 

 

 

 

Loss from Equity Method Investment

 

 

1,083,355

 

 

 

 

 

 

 

1,083,355

 

Change in Fair Value of Derivative Liability

 

 

--

 

 

 

5,700,996

 

 

 

5,700,996

 

Changes in Components of Working Capital and Other Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

(24,541 )

 

 

 

 

 

 

(24,541 )

Other Current Assets

 

 

(27,291 )

 

 

 

 

 

 

(27,291

 

Accounts Payable and Accrued Expenses

 

 

(190,427 )

 

 

 

 

 

 

(190,427 )

Net Cash Used in Operating Activities

 

 

(751,241 )

 

 

--

 

 

 

(751,241 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

Cash Paid for Issuance of Notes Receivable

 

 

(4,200,000 )

 

 

 

 

 

 

(4,200,000 ))

Cash Paid for Deposits

 

 

 

 

 

 

 

 

 

 

Net Cash Used in Investing Activities

 

 

(4,200,000 )

 

 

 

 

 

 

(4,200,000 ))

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from Issuance of Series C Preferred Stock

 

 

6,000,000

 

 

 

 

 

 

 

6,000,000

 

Net Cash Provided by Financing Activities

 

 

6,000,000

 

 

 

 

 

 

 

6,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (Decrease) in Cash

 

 

1,048,759

 

 

 

 

 

 

 

1,048,759

 

Cash at Beginning of the Period

 

 

656,615

 

 

 

 

 

 

 

656,615

 

Cash at End of the Period

 

$ 1,705,374

 

 

 

 

 

 

$ 1,705,374

 

 

 
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The table below sets forth changes to the consolidated statements of cash flows for the three month period ended June 30, 2019:

 

Three months ended June 30, 2019

 

As previously reported

 

 

Adjustments

 

 

Restated

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (1,287,598 )

 

 

(2,163,891 )

 

$ (3,451,489 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, Depletion, Amortization and Accretion

 

 

4,242

 

 

 

 

 

 

 

4,242

 

Bad debt Expense

 

 

17,694

 

 

 

 

 

 

 

17,694

 

Share-Based Compensation

 

 

27,690

 

 

 

 

 

 

 

27,690

 

Loss from Equity Method Investment

 

 

 

 

 

 

 

 

 

 

Change in Fair Value of Derivative Liability

 

 

(5

 

 

2,163,891

 

 

 

2,163,886

 

Changes in Components of Working Capital and Other Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

(12,995 )

 

 

 

 

 

 

(12,995 )

Other Current Assets

 

 

117,073 )

 

 

 

 

 

 

117,073

 

Accounts Payable and Accrued Expenses

 

 

(165,007 )

 

 

 

 

 

 

(165,007 )

Net Cash Used in Operating Activities

 

 

(1,298,906 )

 

 

 

 

 

 

(1,298,906 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

Cash Paid for Issuance of Notes Receivable

 

 

 

 

 

 

 

 

 

 

Cash Paid for Deposits

 

 

(75,000

 

 

 

 

 

 

 

(75,000 )

Net Cash Used in Investing Activities

 

 

(75,000 )

 

 

 

 

 

 

(75,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from Issuance of Series C Preferred Stock

 

 

 

 

 

 

 

 

 

 

Net Cash Provided by Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (Decrease) in Cash

 

 

(1,373,906

 

 

 

 

 

 

 

(1,373,906 )

Cash at Beginning of the Period

 

 

7,778,723

 

 

 

 

 

 

 

7,778,723

 

Cash at End of the Period

 

$ 6,404,817

 

 

 

 

 

 

$ 6,404,817

 

 

 
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NOTE 5 – PROPERTY AND EQUIPMENT

 

Oil and Gas Properties

 

Camber uses the full cost method of accounting for oil and natural gas producing activities. Costs to acquire mineral interests in oil and natural gas properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development wells including directly related overhead costs and related asset retirement costs are capitalized.

 

Under this method, all costs, including internal costs directly related to acquisition, exploration and development activities are capitalized as oil and natural gas property costs on a country-by-country basis. Costs not subject to amortization consist of unproved properties that are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become proved or their values become impaired. Camber assesses overall values of unproved properties, if any, on at least an annual basis or when there has been an indication that impairment in value may have occurred. Impairment of unproved properties is assessed based on management’s intention with regard to future development of individually significant properties and the ability of Camber to obtain funds to finance its programs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized.

 

Sales of oil and natural gas properties are accounted for as adjustments to the net full cost pool with no gain or loss recognized unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves. If it is determined that the relationship is significantly altered, the corresponding gain or loss will be recognized in the statements of operations.

 

Costs of oil and natural gas properties are amortized using the units of production method. Amortization expense calculated per equivalent physical unit of production amounted to $0.80 and $1.21 per barrel of oil equivalent for the three months ended June 30, 2020 and 2019, respectively.

 

All of Camber’s oil and natural gas properties are located in the United States. Costs being amortized at June 30, 2020 and March 31, 2020 are as follows:

 

 

 

June 30,

2020

 

 

March 31,

2020

 

Oil and gas properties subject to amortization

 

$ 50,352,033

 

 

$ 50,352,033

 

Oil and gas properties not subject to amortization

 

 

28,016,989

 

 

 

28,016,989

 

Capitalized asset retirement costs

 

 

91,850

 

 

 

91,850

 

Total oil & natural gas properties

 

 

78,460,872

 

 

 

78,460,872

 

Accumulated depreciation, depletion, and impairment

 

 

(78,352,769 )

 

 

(78,350,605 )

Net Capitalized Costs

 

$ 108,103

 

 

$ 110,267

 

 

 
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Impairments

 

For the three-month periods ended June 30, 2020 and 2019, the Company recorded no impairment.

 

Additions and Depletion

 

During the three months ended June 30, 2020 and 2019, the Company incurred no costs of for technical and other capital enhancements to extend the lives of the Company’s wells. Additionally, the Company recorded approximately $2,164 and $4,000 for depletion for the three months ended June 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 12 – 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 6 – 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 (as amended to date, the “Merger Agreement”). Pursuant to the Merger Agreement, at the effective time of the Merger, each share of common stock of Viking issued and outstanding, other than certain shares owned by the Company, Viking and the Company’s merger sub which will be merged with and into Viking, with Viking being the surviving entity in the merger (“Merger Sub”), will be converted into the right to receive the pro rata share of 80% of the Company’s post-closing capitalization, subject to certain adjustment mechanisms discussed in the Merger Agreement (and excluding shares issuable upon conversion of the Series C Preferred Stock of the Company). Holders of Viking Common Stock will have any fractional shares of Company common stock after the Merger rounded up to the nearest whole share. The Merger Agreement can be terminated under certain circumstances, including by either Viking or the Company if the Merger has not been consummated on or before September 30, 2020, provided that the Company or Viking shall have the right to extend such date from time to time, until up to December 31, 2020, in the event that the Company has not fully resolved SEC comments on the Form S-4 (a preliminary draft of which has previously been filed) or other SEC filings related to the Merger, and Camber is responding to such comments in a reasonable fashion, subject to certain exceptions.

 

 
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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 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, or (ii) a matter raised in Camber’s Merger Agreement disclosure schedule which was (A) not disclosed by Camber in its Securities and Exchange Commission (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

 

 

25 %*

Termination of the Merger Agreement due to a material breach of the Merger Agreement by Camber or its disclosure schedules

 

 

0 %*

In the event the Secured Notes (defined below) are not repaid within 90 days of the date of termination and the Additional Payment (defined below) is not made

 

 

30 %

 

*Assumes the payment of Secured Notes within 90 days of the date of termination of the Merger Agreement and the Additional Payment (defined below) is made.

 

The Merger Agreement provides that the Secured Notes (defined below) will be forgiven in the event the Merger closes, and the Secured Notes will be due 90 days after the date that the Merger Agreement is terminated by any party for any reason, at which time an additional payment shall also be due to the Company and payable by Viking in an amount equal to (i) 115.5% of the original principal amount of the Secured Notes, minus (ii) the amount due to the Company pursuant to the terms of the Secured Notes upon repayment thereof (the “Additional Payment”) is due.

 

A required condition to the entry into the Merger was that the Company loan Viking $5 million, pursuant to the terms of a Securities Purchase Agreement, which was entered into on February 3, 2020 (the “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”).

 

 
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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.

 

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 51% of a controlling interest and does not have the ability to exercise significant influence over the operating and financial policies of the entity. The Company owns 30% of Elysium as of June 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 June 30, 2020 included current assets of $2.2 million, total assets of $32.4 million, total liabilities of $33.2 million and net assets of $(0.8) 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 months ended June 30, 2020 included total revenues of $3.8 million and net loss of $4.3 million.

 

The carrying value of the notes receivable was reduced by $126,186 as the Company’s share of losses from Elysium for the three months ended June 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. 

 

 
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Table below shows the changes in the investment in unconsolidated entity for the three-month periods ended June 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

 

 

126,186

 

 

 

 

Proportionate Share of Elysium Loss

 

 

(1,083,355 )

 

 

 

Carrying amount at end of period

 

$

 

 

$

 

 

NOTE 7 – LONG-TERM NOTES RECEIVABLE

 

Long-term notes receivable as of June 30, 2020 and March 31, 2020 are comprised of:

 

 

 

June 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 $89,466 and $83,425 is included in accounts receivable at June 30, 2020 and March 31, 2020, respectively. The Note is secured by secured interests in six Viking Energy Group, Inc. subsidiaries. See also “Note 6 – 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 $38,388 and $37,966 included in accounts receivable at June 30, 2020 and March 31, 2020, respectively. See also “Note 1 – General” and “Note 12 – 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 $15,956 and $15,781 included in accounts receivable at June 30, 2020 and March 31, 2020, respectively. See also “Note 1 – General” and “Note 12 – Lineal Merger Agreement and Divestiture”.

 

 

800,000

 

 

 

800,000

 

Equity loss of unconsolidated entity applied to notes receivable. See also “Note 6– Plan of Merger and Investment In Unconsolidated Entity”

 

 

(126,186 )

 

 

 

Less: current maturities

 

 

 

 

 

 

Total

 

$ 11,413,533

 

 

$ 7,339,719

 

 

 
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NOTE 8 – 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 three-month periods ended June 30, 2020 and 2019, respectively.

 

 

 

2020

 

 

2019

 

Carrying amount at beginning of period

 

$ 71,750

 

 

$ 303,809

 

Payments

 

 

 

 

 

 

Accretion

 

 

 

 

 

2

 

Revisions of previous estimates

 

 

 

 

 

8,258

 

Carrying amount at end of period

 

$ 71,750

 

 

$ 312,069

 

 

Camber has short-term obligations of $52,402 and $30,277 related to the plugging liabilities at June 30, 2020 and March 31, 2020, respectively.

 

NOTE 9 – DERIVATIVE LIABILITY

 

The Company has determined that certain warrants and certain obligations to issue additional shares relating to conversions of the Series C Preferred Stock contain provisions could result in modification of the warrants’ exercise price or the Series C Preferred Stock conversion price that is 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 contain provisions that protect holders from future issuances of the Company’s common stock at prices below such warrants’ respective exercise prices.  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. 

 

The Series C Preferred Stock are convertible into shares of common stock at a fixed $3.25 conversion rate.  Upon conversion, the holder is entitled to dividends as if the shares had been held to maturity, which is referred to as the Conversion Premium.  The Conversion Premium may be paid in shares or cash, at the option of the Company.  If the Conversion Premium is paid in cash, the amount is fixed and not subject to adjustment.  If the Conversion Premium is paid in shares, the conversion ratio is based on a VWAP calculation based on the lowest stock price over the Measurement Period.  The Measurement Period is 30 days (or 60 days if there is a Triggering Event) prior to the conversion date and 30 days (or 60 days if there is a Triggering Event) after the conversion date.  The VWAP calculation is subject to adjustment if there is a Triggering Event and the Measurement Period is subject to adjustment in the event that the Company is in default of one or more Equity Conditions provided in the COD.  For example, the Measurement period may be extended one day for every day the Company is not in compliance with one or more of the Equity Conditions. 

 

At the conversion date, the number of shares due for the Conversion Premium is estimated based on the previous 30-day VWAP. If the Company does not elect to pay the Conversion Premium in cash, the Company will issue all shares due for the conversion and the estimated shares due for the conversion premium. If the VWAP calculation for the portion of the Measurement Period following the date of conversion is lower than the VWAP for the portion of the Measurement Period prior to the date of conversion, the holder will be issued additional common shares, referred to as “true-up” shares. If the VWAP calculation is higher, no true-up shares are issued.

  

Management has determined that the obligation to issue additional shares under the Conversion Premium creates a derivative liability.  The determination of the number of true-up shares due, if any, is based on the lowest VWAP calculation over the Measurement Period that extends beyond the conversion date. In addition, if the Company has not complied with certain provisions of the COD, the Measurement Period does not end until the Company is in compliance.  The obligation to issue true-up shares  is a derivative liability.

 

The derivative liability for the True-Up Shares at the end of each period represents Series C Preferred Stock conversions in respect of which the Measurement Period had not expired as of the period end.  The fair value of the derivative liability has been estimated using a binomial model and applying the conversion price (or the lowest trading price for the Company’s common stock subsequent to the conversion, if lower than the conversion price) and the historical volatility of the Company’s common stock.

 

 
23

Table of Contents

 

Activities for derivative warrant instruments during the three months ended June 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

 

$

 

 

$

 

 

Activities for derivative Series C Preferred Stock derivative liability during the three months ended June 30, 2020 and 2019 were as follows: 

 

 

 

2020

 

 

2019

 

Carrying amount at beginning of period

 

$ 8,669,831

 

 

$ 3,911,649

 

Change in fair value

 

 

5,700,996

 

 

 

2,163,891

 

Carrying amount at end of period

 

$ 14,370,827

 

 

$ 6,075,540

 

  

The fair value of the derivative liability has been estimated using a binomial model and applying the conversion price (or the lowest trading price for the Company’s common stock subsequent to the conversion, if lower than the conversion price) and the historical volatility of the Company’s common stock.

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

Office Lease. Information regarding the Company’s office space is disclosed in greater detail above under “Note 5 - Property and Equipment –Leases”, above.

   

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.

 

 
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Table of Contents

 

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.

 

 
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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 execution of the Settlement Agreement.

 

Apache Corporation

 

In December 2018, Apache Corporation (“Apache”) sued the Company, Sezar Energy, L.P., and Texokcan Energy Management Inc., in the 129th Judicial District Court of Harris County, Texas (Cause 2018-89515). Apache alleged causes of action for Breach of Contract, Money Had & Received and Conversion, relating to amounts Apache alleged it was owed under a joint operating agreement. Apache is seeking $586,438 in actual damages, exemplary damages, pre- and post-judgment interest, court costs and other amounts which it may be entitled. The Company filed a general denial to the claims and asserted the affirmative defense of failure to mitigate. Apache subsequently filed an amended petition on July 13, 2020.

 

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 which the Company paid in October 2020, which is included in general and administrative expenses on the statement of operations for the nine months ended December 31, 2020.  The litigation was dismissed against the Company.

 

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. The Company denies N&B Energy’s claims, believes it is owed approximately $400,000 related to the Sale Agreement and intends to vehemently defend itself against the allegations and claims and seek counterclaims.

 

On October 21, 2020, litigation was settled through binding arbitration and an arbitration award in favor of N&B Energy was granted in the amount of approximately $52,000, which is included in general and administrative expenses on the statement of operations for the nine months ended December 31, 2020.  The Company paid all amounts due in December 2020 and the litigation was dismissed.

  

 
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NOTE 11 – REVENUE FROM CONTRACTS WITH CUSTOMERS

 

Oil and Gas Contracts

 

The following table disaggregates revenue by significant product type for the three months ended June 30, 2020 and 2019, respectively:

 

 

 

2020

 

 

2019

 

Oil sales

 

$ 21,789

 

 

$ 93,699

 

Natural gas sales

 

 

4,164

 

 

 

7,204

 

Natural gas liquids sales

 

 

7,736

 

 

 

20,448

 

Total oil and gas revenue from customers

 

$ 33,689

 

 

$ 121,351

 

 

NOTE 12 – 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 a 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 cancelled through the redemption.

 

The Redemption Agreement also provided for (a) the entry by Lineal and the Company into a new unsecured promissory note in the amount of $1,539,719, the outstanding amount of the July 2019 Lineal Note together with additional amounts loaned by Camber to Lineal through December 31, 2019 (the “December 2019 Lineal Note”); (b) the unsecured loan by the Company to Lineal on December 31, 2019 of an additional $800,000, entered into by Lineal in favor of the Company on December 31, 2019 (“Lineal Note No. 2”); and (c) the termination of the prior Lineal Plan of Merger and Funding Agreement entered into in connection therewith (pursuant to which all funds previously held in a segregated account for future Lineal acquisitions, less amounts loaned pursuant to Lineal Note No. 2, were released back to the Company). The December 2019 Lineal Note and Lineal Note No. 2, accrue interest, payable quarterly in arrears, beginning on March 31, 2020 and continuing until December 31, 2021, when all interest and principal is due, at 8% and 10% per annum (18% upon the occurrence of an event of default), respectively. As of June 30, 2020 and March 31, 2020, $54,344 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.

 

NOTE 13 - 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 months ended June 30, 2020 and 2019, respectively. The tax liability of $3,000 as shown on the balance sheet as of June 30, 2020, relates to the Company’s potential Oklahoma franchise tax liability and is not related to income tax.

 

 
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NOTE 14 – STOCKHOLDERS’ DEFICIT

 

Common Stock

 

During the three months ended June 30, 2020, the Company issued 101,514 shares of restricted common stock to service providers in consideration for investor relations and marketing services. The Company recognized $173,000, based on the grant date fair value of the Company’s common stock, in stock-based compensation expense in prior periods related to the issuance of these shares.

 

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. In addition, certain provisions of the Series C Preferred Stock may require the Company to redeem the stock, including the requirement to redeem 525 shares of Series C Preferred Stock in the event the Merger Agreement is terminated, are outside the control of the Company, the Series C Preferred Stock is classified as temporary equity. 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.

 

During the three months ended June 30, 2020, the Company sold 630 shares of Series C Preferred Stock to Discover in consideration for $6 million. During the three months ended June 30, 2019, the Company sold no shares of Series C Preferred Stock.

 

During the three months ended June 30, 2020, Discover converted 498 shares of the Series C Preferred Stock with a face value of $4,980,000 (recorded value of $7,289,387, including accrued and unpaid dividends) and a total of 8,059,016 shares of common stock were issued, which includes additional shares for conversion premiums.   .   No conversion occurred during the three months ended June 30, 2019.

 

As of June 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 Series C Preferred Stock of $1,680,756 and $1,453,718 related to the stock dividend declared but not issued for the three months ended June 30, 2020 and 2019, respectively.

 

Subsequent to June 30, 2020, the Company issued 4,794,192 shares of common stock (true- up shares) related to prior conversions of Series C Preferred Stock. 

 

Warrants

 

The following is a summary of the Company’s outstanding warrants at June 30, 2020:

 

Warrants

 

 

Exercise

 

 

Expiration

 

Intrinsic Value at

 

Outstanding

 

 

Price ($)

 

 

Date

 

June 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.

 

 
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NOTE 15 – 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 June 30, 2020 and March 31, 2020, the Company had 2 stock options outstanding with a weighted average exercise price of $40,429,700.

 

Of the Company’s outstanding options, no options were exercised or forfeited during the three months ended June 30, 2020. Additionally, no stock options were granted during the three months ended June 30, 2020. Compensation expense related to stock options during the three-month periods ended June 30, 2020 and 2019 was $0.

 

Options outstanding and exercisable at June 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 June 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 June 30, 2020:

 

Exercise

 

 

Remaining

 

 

Options

 

 

Options

 

Price ($)

 

 

Life (Yrs.)

 

 

Outstanding

 

 

Exercisable

 

 

40,429,700

 

 

 

0.25

 

 

 

2

 

 

 

2

 

 

 

 

 

Total

 

 

 

2

 

 

 

2

 

 

 
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NOTE 16 – INCOME (LOSS) PER COMMON SHARE 

 

The calculation of earnings (loss) per share for the three months ended June 30, 2020 and 2019 was as follows:

 

 

 

Three Months Ended

 

 

 

June 30, (as restated)

 

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

Net loss

 

$ (7,295,628 )

 

$ (3,451,489 )

Less preferred dividends

 

 

1,680,756

 

 

1,453,718

Net loss attributable to common stockholders

 

$ (8,976,384 )

 

$ (4,905,207 )

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

Weighted average share – basic

 

 

7,527,903

 

 

 

15,348

 

 

 

 

 

 

 

 

 

 

Dilutive effect of common stock equivalents

 

 

 

 

 

 

 

 

Options/warrants

 

 

 

 

 

 

Preferred C shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

Total Weighted average shares – diluted

 

 

7,527,903

 

 

 

15,348

 

Income (loss) per share – basic

 

 

 

 

 

 

 

 

Continuing operations

 

$ (1.19 )

 

$ (319.60 )

Income (loss) per share – diluted

 

 

 

 

 

 

 

 

Continuing Operations

 

$ (1.19 )

 

$ (319.6 )

 

 
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For the three months ended June 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.

 

 

 

2020

 

 

2019

 

Common Shares Issuable for:

 

 

 

 

 

 

Convertible Debt

 

 

276

 

 

 

276

 

Options and Warrants

 

 

38

 

 

 

38

 

Series C Preferred Shares(1)

 

 

82,602,418

 

 

 

7,295,638

 

Total

 

 

82,602,732

 

 

 

7,295,972

 

 

(1) Based on the lowest possible conversion rate of the Series C Preferred Stock during the period for the conversion premium.

  

NOTE 17 – SUPPLEMENTAL CASH FLOW INFORMATION

 

Net cash paid for interest and income taxes was as follows for the three months ended June 30, 2020 and 2019:

 

 

 

2020

 

 

2019

 

Interest

 

$

 

 

$ 847

 

Income taxes

 

$

 

 

$

 

 

Non-cash investing and financing activities included the following:

 

 

 

Three Months Ended

June 30,

 

 

 

2020

 

 

2019

 

Issuance of Common Stock of Prior Conversions of Convertible Notes

 

$

 

 

$ 1,250

 

Settlement of Common Stock Payable

 

$ 173,000

 

 

$ 303,340

 

Change in Estimate for Asset Retirement Obligations

 

$

 

 

$ 8,260

 

Stock Dividends Distributable but not Issued

 

$ 1,680,756

 

 

$ 1,453,718

 

Issuance of Stock Dividends

 

$

 

 

$ 3

 

 

NOTE 18 – FAIR VALUE MEASUREMENTS

 

When applying fair value principles in the valuation of assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company has not changed its valuation techniques used in measuring the fair value of any financial assets or liabilities during the fiscal years presented. The fair value estimates take into consideration the credit risk of both the Company and its counterparties.

 

When active market quotes are not available for financial assets and liabilities, the Company uses industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including credit risk, interest rate curves, foreign currency rates and forward and spot prices for currencies. In circumstances where market-based observable inputs are not available, management judgment is used to develop assumptions to estimate fair value. Generally, the fair value of our Level 3 instruments are estimated as the net present value of expected future cash flows based on internal and external inputs.

 

 
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Fair Value Measurements

 

The liabilities carried at fair value as of June 30, 2020 and March 31, 2020 were as follows:

 

 

 

June 30, 2020

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability

 

$ 14,370,827

 

 

$

 

 

$

 

 

$ 14,370,827

 

Total liabilities at fair value

 

$ 14,370,827

 

 

$

 

 

$

 

 

$ 14,370,827

 

 

 

 

March 31, 2020

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability

 

$

 

 

$

 

 

$

 

 

$ 8,669,831

 

Total liabilities at fair value

 

$

 

 

$

 

 

$

 

 

$ 8,669,831

 

 

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 June 30, 2020 and March 31, 2020.

 

NOTE 19 – SUBSEQUENT EVENTS

 

Since July 1, 2020, and through November 23, 2021, Discover and EMC converted 1,930 shares of Series C Preferred Stock into 235,264,378 shares of common stock, of which all 235,264,378 shares of common stock had been issued as of November 23, 2021.   

 

December 23, 2020 Transaction

 

On December 23, 2020, the Company entered into a Securities Purchase Agreement with Viking, pursuant to which Camber acquired (“Camber’s Acquisition”) 26,274,510 shares of Viking common stock (“Camber’s Viking Shares”), which constituted 51% of the total outstanding common stock of Viking, in consideration of (i) Camber’s payment of $10,900,000 to Viking (the “Cash Purchase Price”), and (ii) cancellation of $9,200,000 in promissory notes issued by Viking to Camber (“Camber’s Viking Notes”). Pursuant to the purchase agreement, Viking is obligated to issue additional shares of Viking common stock to Camber to ensure that Camber shall own at least 51% of the common stock of Viking through July 1, 2022.

 

In connection with Camber’s Acquisition, the Company and Viking terminated their previous merger agreement, dated August 31, 2020, as amended, and the Company assigned its membership interests in one of Viking’s subsidiaries, Elysium Energy Holdings, LLC, to Viking. Also in connection with Camber’s Acquisition, effective December 23, 2020, the Company (i) borrowed $12,000,000 from an institutional investor; (ii) issued the investor a promissory note in the principal amount of $12,000,000, accruing interest at the rate of 10% per annum and maturing December 11, 2022 (the “Camber Investor Note”); (iii) granted the Investor a first-priority security interest in Camber’s Viking Shares and Camber’s other assets pursuant to a pledge agreement and a general security agreement, respectively; and (iv) entered into an amendment to the Company’s $6,000,000 promissory note previously issued to the investor dated December 11, 2020 (the “Additional Camber Investor Note”), amending the acceleration provision of the note to provide that the note repayment obligations would not accelerate if the Company increased its authorized capital stock by March 11, 2021 (and the Company increased its authorized capital stock in February 2021 as required). In order to close Camber’s Acquisition, effective December 23, 2020, Viking entered into a Guaranty Agreement, guaranteeing repayment of the Camber Investor Note and the Additional Camber Investor Note.

 

 
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On December 23, 2020, the Camber Investor Note was funded, and the Company and Viking closed Camber’s Acquisition, with the Company paying the Cash Purchase Price to Viking and cancelling Camber’s Viking Notes, as additional consideration. In exchange, Viking issued 26,274,510 shares of its common stock to Camber, representing 51% of Viking’s total outstanding common shares, the Viking Shares. At the closing, James Doris and Frank Barker, Jr., Viking’s CEO and CFO, were appointed the CEO and CFO of Camber, and Mr. Doris was appointed a member of the Board of Directors of Camber.

 

Extinguishment of $18.9 million promissory note

 

On January 8, 2021, the Company entered into another purchase agreement with Viking pursuant to which the Company agreed to acquire an additional 16,153,846 shares of Viking common stock (the “Shares”) in consideration of (i) the Company issuing 1,890 shares of Camber’s Series C Redeemable Convertible Preferred Stock to EMC Capital Partners, LLC (“EMC”), one of the Viking’s lenders which held a secured promissory note issued by Viking to EMC in the original principal amount of $20,869,218 in connection with the purchase of oil and gas assets on or about February 3, 2020 (the “EMC Note”); and (ii) EMC considering the EMC Note paid in full and cancelled pursuant to the Cancellation Agreement described below.

 

Simultaneously, on January 8, 2021, Viking entered into a Cancellation Agreement with EMC (the “Cancellation Agreement”) pursuant to which Viking agreed to pay $325,000 to EMC, and EMC agreed to cancel and terminate in the EMC Note and all other liabilities, claims, amounts owing and other obligations under the Note. At the same time, the Company entered into a purchase agreement with EMC pursuant to which (i) the Company agreed to issue 1,890 shares of Camber’s Series C Redeemable Convertible Preferred Stock to EMC, and (ii) EMC agreed to enter into the Cancellation Agreement with Viking to cancel the EMC Note.

 

February 2021 Merger Agreement with Viking

 

On February 15, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Viking. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, a newly-formed wholly-owned subsidiary of Camber (“Merger Sub”) will merge with and into Viking (the “Merger”), with Viking surviving the Merger as a wholly-owned subsidiary of the Company.

 

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share: (i) of common stock, of Viking (the “Viking Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares owned by Camber, Viking and Merger Sub, will be converted into the right to receive one share of common stock of the Company; and (ii) of Series C Convertible Preferred Stock of Viking (the “Viking Preferred Stock”) issued and outstanding immediately prior to the Effective Time will be converted into the right to receive one share of Series A Convertible Preferred Stock of the Company (the “Camber Series A Preferred Stock”). Each share of Camber Series A Preferred Stock will convert into 890 shares of common stock of Camber (subject to a beneficial ownership limitation preventing conversion into Camber common stock if the holder would be deemed to beneficially own more than 9.99% of the Company’s common stock), will be treated equally with the Company’s common stock with respect to dividends and liquidation, and will only have voting rights with respect to voting: (a) on a proposal to increase or reduce the Company’s share capital; (b) on a resolution to approve the terms of a buy-back agreement; (c) on a proposal to wind up Camber; (d) on a proposal for the disposal of all or substantially all of Camber’s property, business and undertaking; (f) during the winding-up of Camber; and/or (g) with respect to a proposed merger or consolidation in which Camber is a party or a subsidiary of Camber is a party. Holders of Viking Common Stock and Viking Preferred Stock will have any fractional shares of Camber common stock or preferred stock after the Merger rounded up to the nearest whole share.

 

At the Effective Time, each outstanding Viking equity award, will be converted into the right to receive the merger consideration in respect of each share of Viking Common Stock underlying such equity award and, in the case of Viking stock options, be converted into vested Camber stock options based on the merger exchange ratio calculated as provided above (the “Exchange Ratio”).

 

 
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The Merger Agreement provides, among other things, that effective as of the Effective Time, James A. Doris, the current Chief Executive Officer of both the Company and Viking, shall continue to serve as President and Chief Executive Officer following the Effective Time. The Merger Agreement provides that, as of the Effective Time, the Combined Company will have its headquarters in Houston, Texas.

 

The Merger Agreement also provides that, during the period from the date of the Merger Agreement until the Effective Time, each of Viking and the Company will be subject to certain restrictions on its ability to solicit alternative acquisition proposals from third parties, to provide non-public information to third parties and to engage in discussions with third parties regarding alternative acquisition proposals, subject to customary exceptions. Viking is required to hold a meeting of its stockholders to vote upon the adoption of the Merger Agreement and, subject to certain exceptions, to recommend that its stockholders vote to adopt the Merger Agreement. The Company is required to hold a meeting of its stockholders to approve the issuance of Viking Common Stock and Viking Preferred Stock in connection with the Merger (the “Merger Share Issuances”).

 

The completion of the Merger is subject to customary conditions, including (i) adoption of the Merger Agreement by the Company’s stockholders and approval of the Merger Share Issuances by the Company’s stockholders, (ii) receipt of required regulatory approvals, (iii) effectiveness of a registration statement on Form S-4 for the Company’s common stock to be issued in the Merger (the “Form S-4”), and (iv) the absence of any law, order, injunction, decree or other legal restraint preventing the completion of the Merger or making the completion of the Merger illegal. Each party’s obligation to complete the Merger is also subject to certain additional customary conditions, including (i) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (ii) subject to certain exceptions, performance by the other party of its obligations under the Merger Agreement, and (iii) the absence of any material adverse effect on the other party, as defined in the Merger Agreement.

 

Additional closing conditions to the Merger include that in the event the NYSE American determines that the Merger constitutes, or will constitute, a “back-door listing” or “reverse merger”, the Company (and its common stock) would be required to qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE as of the Effective Time.

 

The Merger Agreement can be terminated (i) at any time with the mutual consent of the parties; (ii) by either the Company or Viking if any governmental consent or approval required for closing is not obtained, or any governmental entity issues a final non-appealable order or similar decree preventing the Merger; (iii) by either Company or Viking if the Merger shall not have been consummated on or before August 1, 2021; (iv) by the Company or Viking, upon the breach by the other of a term of the Merger, which is not cured within 30 days of the date of written notice thereof by the other; (v) by Company or Viking is unable to obtain the affirmative vote of its stockholders for approval of the Merger; (vi) by Viking if Company is unable to obtain the affirmative vote of its stockholders required pursuant to the terms of the Merger Agreement; and (vii) by Company or Viking if there is a willful breach of the Merger Agreement by the other party thereto.

 

The Merger Agreement contains customary indemnification obligations of the parties and representations and warranties.

 

As of the date hereof, neither Viking nor Camber has advised of its intention to terminate the Merger Agreement.

 

July, 2021 Transaction

 

On July 29, 2021, the Company entered into a Securities Purchase Agreement with Viking to acquire an additional 27,500,000 shares of Viking common stock for an aggregate purchase price of $11,000,000.  The proceeds from the transaction were used by Viking to (i) acquire an approximate 60.5% interest Simson-Maxwell, Ltd, a Canadian company engaged in the manufacture and supply of industrial engines, power generation products, services and custom energy solutions; (ii) acquire a license of a patented carbon-capture system for exclusive use in Canada and for a specified number of locations in the United States; and (iii) for general working capital purposes.

 

 
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Amendments to the Series C Preferred 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 a 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.

 

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”).

 

On April 15, 2021, the Company, with the approval of the Board of Directors and holders 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 Company’s Series C Redeemable Convertible Preferred Stock and the subsequent amended and restated designations thereof, to correct certain errors which were identified in such designations, and to clearly state the original intent of the parties, as follows:

 

Section I.D.2(e) of the prior Certificates of Designation implicitly excluded as a “Deemed Liquidation Event”, an event or proposal that was initiated by or voted upon by the holder of the Series C Preferred Stock, and the Designations have been clarified to expressly exclude such occurrence. Section I.F.4 of the Designations failed to include language to clarify that the Company is not obligated to redeem the Preferred Shares for cash for any reason that is not solely within the control of the Company. Section I.G.1 of the Designations mistakenly included two subsection b.’s where only one was intended, and the unintended subsection b. has been removed. Section I.G.1(e) of the Designations failed to include language to clarify that the Company not having sufficient authorized but unissued shares, solely within the control of the Company and excluding any event that is not solely within the control of the Company, is not a reason that would otherwise trigger the obligations in such section. Sections I.G.1(f) and (g) of the Designations failed to include language to clarify the particular obligations apply only if the Company has sufficient authorized and unissued shares. Section I.G.7(e) of the Designations mistakenly referenced the incorrect Conversion Price. Section I.G.9 of the Designations failed to include language to clarify the maximum number of common shares that could be potentially issuable with respect to all conversions and other events that are not solely within the control of the Company, that the Dividend Maturity Date is to be indefinitely extended and suspended until sufficient authorized and unissued shares become available, the number of shares required to settle the excess obligation is fixed on the date that net share settlement occurs and that all provisions of the Designations are to be interpreted so that net share settlement is within the control of the Company.

 

NOTE 20 – RELATED PARTY TRANSACTIONS

 

Effective August 1, 2018, the Company entered into a month-to-month lease at 1415 Louisiana, Suite 3500 Houston, Texas 77002 with BlackBriar Advisors LLC (“BlackBriar”). Pursuant to the sublease, BlackBriar is providing us, without charge, use of the office space in Houston, Texas. BlackBriar is affiliated with the Company’s former Chief Financial Officer.

 

During the three months ended June 30, 2020 and 2019, the Company paid Louis G. Schott, the interim chief executive officer consulting and other fees of $85,479 and $81,138 respectively.

 

During the three months ended June 30, 2020 and 2019, the Company paid Robert Schleizer, the former chief financial officer, consulting and directors fees of $133,333 and $193,333 respectively, either directly or through owned or controlled by him.

 

During the three months ended June 30, 2020 and 2019 the Company paid Fred Zeidman directors fees of $13,333.

 

During the three months ended June 30, 2020 the Company paid James Miller directors fees of $13,333  

 

 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally located in the material set forth below under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” but may be found in other locations as well. For a more detailed description of the risks and uncertainties involved, the following discussion and analysis should be read in conjunction with management’s discussion and analysis contained in Camber’s Annual Report on Form 10-K/A (amendment No. 1) for the fiscal year ended March 31, 2020, as filed with the SEC on November 19 , 2021, and related discussion of our business and properties contained therein.

 

These forward-looking statements are subject to risks and uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. You should not unduly rely on these statements. Factors, risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements include, among others:

 

 

the availability of funding and the terms of such funding;

 

 

 

 

our ability to integrate and realize the benefits from future acquisitions that we may complete, including our pending Merger with Viking Energy Group, Inc. (“Viking”) and the costs of such integrations;

 

 

our ability to close the announced Merger with Viking on the terms disclosed, if at all;

 

 

consideration we may be required to pay under certain circumstances upon termination of the Merger with Viking;

 

 

● 

our ability to timely collect amounts owed to us under secured and unsecured notes payable; 

 

 

● 

costs associated with the Viking Merger; 

 

 

● 

significant dilution caused by the conversion of Series C Preferred Stock into common stock, as well as downward pressure on our stock price as a result of the sale of such shares; 

 

 

● 

our growth strategies; 

 

 

● 

anticipated trends in our business; 

 

 

● 

our ability to repay outstanding loans and satisfy our outstanding liabilities; 

 

 

● 

our liquidity and ability to finance our exploration, acquisition and development strategies; 

 

 

● 

market conditions in the oil and gas and pipeline services industries; 

 

 

● 

the timing, cost and procedure for future acquisitions; 

 

 

● 

the impact of government regulation; 

 

 

● 

estimates regarding future net revenues from oil and natural gas reserves and the present value thereof; 

 

 
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● 

legal proceedings and/or the outcome of and/or negative perceptions associated therewith; 

 

 

● 

planned capital expenditures (including the amount and nature thereof); 

 

 

● 

increases in oil and gas production; 

 

 

● 

changes in the market price of oil and gas; 

 

 

● 

changes in the number of drilling rigs available; 

 

 

● 

the number of wells we anticipate drilling in the future; 

 

 

● 

estimates, plans and projections relating to acquired properties; 

 

 

● 

the number of potential drilling locations; 

 

 

● 

our ability to maintain our NYSE listing; 

 

 

● 

the voting and conversion rights of our preferred stock; 

 

 

● 

the effects of global pandemics, such as COVID-19 on our operations, properties, the market for oil and gas and the demand for oil and gas; and 

 

 

● 

our financial position, business strategy and other plans and objectives for future operations. 

 

We identify forward-looking statements by use of terms such as “may,” “will,” “expect,” “anticipate,” “estimate,” “hope,” “plan,” “believe,” “predict,” “envision,” “intend,” “continue,” “potential,” “should,” “confident,” “could” and similar words and expressions, although some forward-looking statements may be expressed differently. You should be aware that our actual results could differ materially from those contained in the forward-looking statements. You should consider carefully the statements under the “Risk Factors” section of this report and other sections of this report which describe factors that could cause our actual results to differ from those set forth in the forward-looking statements, and the following factors:

  

 

● 

the availability of funding and the terms of such funding; 

 

 

● 

our ability to integrate and realize the benefits from future acquisitions that we may complete, including the pending Merger with Viking; 

 

 

● 

our ability to timely close the Viking Merger on the terms disclosed and closing conditions associated therewith; 

 

 

 

 

● 

significant dilution caused by the conversion of Series C Preferred Stock into common stock, as well as downward pressure on our stock price as a result of the sale of such shares; 

 

 

 

 

● 

our growth strategies; 

 

 

● 

anticipated trends in our businesses; 

 

 

● 

our ability to repay outstanding loans and satisfy our outstanding liabilities; 

 

 

● 

our liquidity and ability to finance our acquisition and development strategies; 

 

 

● 

market conditions in the oil and gas and pipeline services industries; 

 

 
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● 

the timing, cost and procedure for future acquisitions; 

 

 

● 

the impact of operational hazards; 

 

 

 

 

● 

the outcome of competitive bids; 

 

 

● 

customer defaults; 

 

 

● 

estimates regarding future net revenues from oil and natural gas reserves and the present value thereof; 

 

 

● 

legal proceedings and/or the outcome of and/or negative perceptions associated therewith; 

 

 

● 

planned capital expenditures (including the amount and nature thereof); 

 

 

● 

increases in oil and gas production; 

 

 

● 

changes in the market price of oil and gas; 

 

 

● 

changes in the number of drilling rigs available; 

 

 

● 

the number of wells we anticipate drilling in the future; 

 

 

● 

estimates, plans and projections relating to acquired properties, businesses and operations; 

 

 

● 

the number of potential drilling locations; 

 

 

● 

our ability to maintain our NYSE American listing; and 

 

 

● 

our financial position, business strategy and other plans and objectives for future operations. 

 

Forward-looking statements speak only as of the date of this report or the date of any document incorporated by reference in this report. Except to the extent required by applicable law or regulation, we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

 

Review of Information and Definitions

 

This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the consolidated financial statements and notes thereto and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K/A (amendment No. 1) for the year ended March 31, 2020.

 

Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our consolidated financial statements included above under “Part I – Financial Information – Item 1. Financial Statements”.

 

Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “Camber”, and “Camber Energy, Inc.” refer specifically to Camber Energy, Inc. and its consolidated subsidiaries.

 

In addition, unless the context otherwise requires and for the purposes of this report only:

 

 

Exchange Act” refers to the Securities Exchange Act of 1934, as amended;

 

 

Bbl” refers to one stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons;

 

 
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SEC” or the “Commission” refers to the United States Securities and Exchange Commission;

 

 

Boe” barrels of oil equivalent, determined using the ratio of one Bbl of crude oil, condensate or natural gas liquids, to six Mcf of natural gas;

 

 

Mcf” refers to a thousand cubic feet of natural gas; and

 

 

Securities Act” refers to the Securities Act of 1933, as amended. 

 

Overview

 

Corporate History and Operations

 

Camber Energy, Inc., a Nevada corporation, is based in Houston, Texas. We are currently primarily 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. Incorporated in Nevada in December 2003 under the name Panorama Investments Corp., the Company changed its name to Lucas Energy, Inc., effective June 9, 2006, and effective January 4, 2017, the Company changed its name to Camber Energy, Inc. After the divestiture of our South Texas properties during fiscal 2019, we initiated discussions with several potential acquisition and merger candidates to diversify our operations.

 

Pursuant to those discussions on July 8, 2019, we acquired Lineal Star Holdings, LLC (“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 (“Merger Sub”), 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”), as discussed in greater detail under “Note 1 – General” and “Note 12 – Lineal Merger Agreement and Divestiture”, to the consolidated unaudited financial statements included under “Part I. – Item 1. Financial Statements”.

 

On December 31, 2019, the Company entered into, and closed the transactions contemplated by a Preferred Stock 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 “Redemption Agreement” and the “Preferred Holders”). Pursuant to the Redemption Agreement, effective as of December 31, 2019, each holder of Series E Preferred Stock transferred such Series E Preferred Stock to Camber in consideration for their pro rata share (except as discussed below in connection with the Series F Preferred Stock holder, who was also a holder of Series E Preferred Stock) of 100% of the Common Shares of Lineal and the holder of the Series F Preferred Stock transferred such Series F Preferred Stock (and such Series E Preferred Stock shares held by such holder) to Camber in consideration for 100% of the Preferred Shares of Lineal and as a result, ownership of 100% of Lineal was transferred back to the Preferred Holders, the original owners of Lineal prior to the Lineal Merger. Additionally, all of the Series E Preferred Stock and Series F Preferred Stock of the Company were automatically cancelled and deemed redeemed by the Company and the Series F Holder waived and forgave any and all accrued dividends on the Series F Preferred Stock. See also – “Note 1 – General” and “Note 12– Lineal Merger Agreement and Divestiture”, to the consolidated unaudited financial statements included under “Part I. – Item 1. Financial Statements”.

 

On February 3, 2020, the Company entered into an Agreement and Plan of Merger (as amended to date, the “Merger Agreement”) with Viking Energy Group, Inc. (“Viking”). The Merger Agreement provides that a newly-formed wholly-owned subsidiary of the Company (“Merger Sub”) will merge with and into Viking (the “Merger”), with Viking surviving the Merger as a wholly-owned subsidiary of the Company, as described in greater detail below.

 

 
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Moving forward, the Company plans to complete the Merger with Viking and then focus on growing through the development of Viking’s properties while also seeking new acquisitions to grow its oil and gas production and revenues through the combined entity. The Company anticipates raising additional financing to complete acquisitions following the closing of the Merger, which may be through the sale of debt or equity. As described below, the Merger is subject to various closing conditions which may not be met pursuant to the contemplated timeline, if at all.

 

Recent Events

 

Viking Plan of Merger

 

On February 3, 2020, the Company and Viking entered into the Merger Agreement. Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock of Viking (the “Viking Common Stock”) issued and outstanding, other than certain shares owned by the Company, Viking and Merger Sub, will be converted into the right to receive the pro rata share of 80% of the Company’s post-closing capitalization, subject to certain adjustment mechanisms discussed in the Merger Agreement (and excluding shares issuable upon conversion of the Series C Preferred Stock of the Company). Holders of Viking Common Stock will have any fractional shares of Company common stock after the Merger rounded up to the nearest whole share. Specifically, the percentage of shares retained by Camber shareholders (initially 80%, the “Camber Percentage”) is adjusted as follows: (i) for each (A) $500,000 in Camber unencumbered cash (without any associated debt) available for use by the combined company (the “Combined Company”) after the Effective Time, with a permitted use being to, among other things, pay debt obligations of Viking outside of Viking’s Ichor division or Elysium division, which comes from equity sold by Camber for cash from February 3, 2020, through the Effective Time, which is not contingent or conditional upon the closing of the Merger (the “Camber Surplus Cash”), or (B) $500,000 in other unencumbered assets acquired by Camber after February 3, 2020 and prior to closing without increasing Camber’s liabilities (the “Other Camber Surplus Assets”), the Camber Percentage will increase by an incremental 0.5% (a “Camber Percentage Increase”); and (ii) for each additional $500,000 in Viking unencumbered cash (without any associated debt) for use by the Combined Company after the Effective Time which is not contingent or conditional upon the closing of the Plan of Merger, with a permitted use being to, among other things, pay debt obligations of Viking outside of Viking’s Ichor division or Elysium division in excess of $500,000 at Closing, which comes from equity sold by Viking for cash from February 3, 2020 through the Effective Time, the Camber Percentage will decrease by an incremental 0.5% (a “Camber Percentage Decrease”). The aggregate Camber Percentage Increase or Camber Percentage Decrease shall not exceed 5% pursuant to this particular section of the Merger Agreement, and neither party will raise capital from the other party’s existing shareholders without the prior written consent of such other party. Finally, any funds advanced to Viking by Camber prior to the Effective Time will not result in an adjustment of the Camber Percentage. The completion of the Merger is subject to certain closing conditions.

 

The Merger Agreement can be terminated (i) at any time with the mutual consent of the parties; (ii) by either the Company or Viking if any governmental consent or approval required for closing is not obtained, or any governmental entity issues a final non-appealable order or similar decree preventing the Merger; (iii) by either Viking or the Company if the Merger shall not have been consummated on or before September 30, 2020, provided that the Company or Viking shall have the right to extend such date from time to time, until up to December 31, 2020, in the event that the Company has not fully resolved SEC comments on the Form S-4 (which the Company and Viking are in the process of addressing) or other SEC filings related to the Merger, and the Company is responding to such comments in a reasonable fashion, subject to certain exceptions; (iv) by the Company or Viking, upon the breach by the other of a term of the Merger, which is not cured within 30 days of the date of written notice thereof by the other; (v) by the Company if Viking is unable to obtain the affirmative vote of its stockholders for approval of the Merger; (vi) by Viking if the Company is unable to obtain the affirmative vote of its stockholders required pursuant to the terms of the Merger Agreement; and (vii) by Viking or the Company if the other party’s directors change their recommendation to their stockholders to approve the Merger, subject to certain exceptions set forth in the Merger Agreement, or if there is a willful breach of the Merger Agreement by the other party thereto.

 

 
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A further requirement to the closing of the Merger was that the Company was required to have acquired 25% of Viking’s subsidiary Elysium Energy Holdings, LLC (“Elysium”) as part of a $5,000,000 investment in Viking’s Rule 506(c) offering, which transaction was completed on February 3, 2020, and have acquired an additional 5% of Elysium as part of a subsequent $4,200,000 investment in Viking’s Rule 506(c) offering, which transaction was completed on June 25, 2020, as discussed above under “Note 6 – Plan of Merger and Investment In Unconsolidated Entity”, to the consolidated unaudited financial statements included under “Part I. – Item 1. Financial Statements”.

 

In the event of termination of the Merger Agreement, we are required, under certain circumstances described under “Note 6 – Plan of Merger and Investment In Unconsolidated Entity”, to the consolidated unaudited financial statements included under “Part I. – Item 1. Financial Statements”, above to redeem 630 shares of Series C Preferred Stock sold on June 22, 2020, which have a redemption value of $6,930,000.

 

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 equal to (i) 115.5% of the original principal amount of the Secured Notes (defined above under “Note 6 – Plan of Merger and Investment In Unconsolidated Entity”, to the consolidated unaudited financial statements included under “Part I. – Item 1. Financial Statements”), minus (ii) the amount due to the Company pursuant to the terms of the Secured Notes upon repayment thereof (the “Additional Payment”) is due.

 

The Company obtained the funds for the Viking loans through the sale of Series C Preferred Stock to Discover as discussed above under “Note 6 – Plan of Merger and Investment In Unconsolidated Entity”, to the consolidated unaudited financial statements included under “Part I. – Item 1. Financial Statements”.

 

As of the date of the filing, the Company holds a 30% interest in Elysium, which through its wholly-owned subsidiary, holds certain working interests and over-riding royalty interests in oil and gas properties in Texas (approximately 71 wells in 11 counties) and Louisiana (approximately 52 wells in 6 parishes), along with associated wells and equipment, and was producing an average of approximately 2,700 Boe per day at June 30, 2020.

 

December 23, 2020 Transaction

 

On December 23, 2020, the Company entered into a Securities Purchase Agreement with Viking, pursuant to which Camber acquired (“Camber’s Acquisition”) 26,274,510 shares of Viking common stock (“Camber’s Viking Shares”), which constituted 51% of the total outstanding common stock of Viking, in consideration of (i) Camber’s payment of $10,900,000 to Viking (the “Cash Purchase Price”), and (ii) cancellation of $9,200,000 in promissory notes issued by Viking to Camber (“Camber’s Viking Notes”). Pursuant to the purchase agreement, Viking is obligated to issue additional shares of Viking common stock to Camber to ensure that Camber shall own at least 51% of the common stock of Viking through July 1, 2022.

 

In connection with Camber’s Acquisition, the Company and Viking terminated their previous merger agreement, dated August 31, 2020, as amended, and the Company assigned its membership interests in one of Viking’s subsidiaries, Elysium Energy Holdings, LLC, to Viking. Also in connection with Camber’s Acquisition, effective December 23, 2020, the Company (i) borrowed $12,000,000 from an institutional investor; (ii) issued the investor a promissory note in the principal amount of $12,000,000, accruing interest at the rate of 10% per annum and maturing December 11, 2022 (the “Camber Investor Note”); (iii) granted the Investor a first-priority security interest in Camber’s Viking Shares and Camber’s other assets pursuant to a pledge agreement and a general security agreement, respectively; and (iv) entered into an amendment to the Company’s $6,000,000 promissory note previously issued to the investor dated December 11, 2020 (the “Additional Camber Investor Note”), amending the acceleration provision of the note to provide that the note repayment obligations would not accelerate if the Company increased its authorized capital stock by March 11, 2021 (and the Company increased its authorized capital stock in February 2021 as required). In order to close Camber’s Acquisition, effective December 23, 2020, Viking entered into a Guaranty Agreement, guaranteeing repayment of the Camber Investor Note and the Additional Camber Investor Note.

 

On December 23, 2020, the Camber Investor Note was funded, and the Company and Viking closed Camber’s Acquisition, with the Company paying the Cash Purchase Price to Viking and cancelling Camber’s Viking Notes, as additional consideration. In exchange, Viking issued 26,274,510 shares of its common stock to Camber, representing 51% of Viking’s total outstanding common shares, the Viking Shares. At the closing, James Doris and Frank Barker, Jr., Viking’s CEO and CFO, were appointed the CEO and CFO of Camber, and Mr. Doris was appointed a member of the Board of Directors of Camber.

 

 
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Extinguishment of $18.9 million promissory note

 

On January 8, 2021, the Company entered into another purchase agreement with Viking pursuant to which the Company agreed to acquire an additional 16,153,846 shares of Viking common stock (the “Shares”) in consideration of (i) the Company issuing 1,890 shares of Camber’s Series C Redeemable Convertible Preferred Stock to EMC Capital Partners, LLC (“EMC”), one of the Viking’s lenders which held a secured promissory note issued by Viking to EMC in the original principal amount of $20,869,218 in connection with the purchase of oil and gas assets on or about February 3, 2020 (the “EMC Note”); and (ii) EMC considering the EMC Note paid in full and cancelled pursuant to the Cancellation Agreement described below.

 

Simultaneously, on January 8, 2021, Viking entered into a Cancellation Agreement with EMC (the “Cancellation Agreement”) pursuant to which Viking agreed to pay $325,000 to EMC, and EMC agreed to cancel and terminate in the EMC Note and all other liabilities, claims, amounts owing and other obligations under the Note. At the same time, the Company entered into a purchase agreement with EMC pursuant to which (i) the Company agreed to issue 1,890 shares of Camber’s Series C Redeemable Convertible Preferred Stock to EMC, and (ii) EMC agreed to enter into the Cancellation Agreement with Viking to cancel the EMC Note.

 

February 2021 Merger Agreement with Viking

 

On February 15, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Viking. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, a newly-formed wholly-owned subsidiary of Camber (“Merger Sub”) will merge with and into Viking (the “Merger”), with Viking surviving the Merger as a wholly-owned subsidiary of the Company.

 

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share: (i) of common stock, of Viking (the “Viking Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares owned by Camber, Viking and Merger Sub, will be converted into the right to receive one share of common stock of the Company; and (ii) of Series C Convertible Preferred Stock of Viking (the “Viking Preferred Stock”) issued and outstanding immediately prior to the Effective Time will be converted into the right to receive one share of Series A Convertible Preferred Stock of the Company (the “Camber Series A Preferred Stock”). Each share of Camber Series A Preferred Stock will convert into 890 shares of common stock of Camber (subject to a beneficial ownership limitation preventing conversion into Camber common stock if the holder would be deemed to beneficially own more than 9.99% of the Company’s common stock), will be treated equally with the Company’s common stock with respect to dividends and liquidation, and will only have voting rights with respect to voting: (a) on a proposal to increase or reduce the Company’s share capital; (b) on a resolution to approve the terms of a buy-back agreement; (c) on a proposal to wind up Camber; (d) on a proposal for the disposal of all or substantially all of Camber’s property, business and undertaking; (f) during the winding-up of Camber; and/or (g) with respect to a proposed merger or consolidation in which Camber is a party or a subsidiary of Camber is a party. Holders of Viking Common Stock and Viking Preferred Stock will have any fractional shares of Camber common stock or preferred stock after the Merger rounded up to the nearest whole share.

 

At the Effective Time, each outstanding Viking equity award, will be converted into the right to receive the merger consideration in respect of each share of Viking Common Stock underlying such equity award and, in the case of Viking stock options, be converted into vested Camber stock options based on the merger exchange ratio calculated as provided above (the “Exchange Ratio”).

 

The Merger Agreement provides, among other things, that effective as of the Effective Time, James A. Doris, the current Chief Executive Officer of both the Company and Viking, shall continue to serve as President and Chief Executive Officer following the Effective Time. The Merger Agreement provides that, as of the Effective Time, the Combined Company will have its headquarters in Houston, Texas.

 

 
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The Merger Agreement also provides that, during the period from the date of the Merger Agreement until the Effective Time, each of Viking and the Company will be subject to certain restrictions on its ability to solicit alternative acquisition proposals from third parties, to provide non-public information to third parties and to engage in discussions with third parties regarding alternative acquisition proposals, subject to customary exceptions. Viking is required to hold a meeting of its stockholders to vote upon the adoption of the Merger Agreement and, subject to certain exceptions, to recommend that its stockholders vote to adopt the Merger Agreement. The Company is required to hold a meeting of its stockholders to approve the issuance of Viking Common Stock and Viking Preferred Stock in connection with the Merger (the “Merger Share Issuances”).

 

The completion of the Merger is subject to customary conditions, including (i) adoption of the Merger Agreement by the Company’s stockholders and approval of the Merger Share Issuances by the Company’s stockholders, (ii) receipt of required regulatory approvals, (iii) effectiveness of a registration statement on Form S-4 for the Company’s common stock to be issued in the Merger (the “Form S-4”), and (iv) the absence of any law, order, injunction, decree or other legal restraint preventing the completion of the Merger or making the completion of the Merger illegal. Each party’s obligation to complete the Merger is also subject to certain additional customary conditions, including (i) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (ii) subject to certain exceptions, performance by the other party of its obligations under the Merger Agreement, and (iii) the absence of any material adverse effect on the other party, as defined in the Merger Agreement.

 

Additional closing conditions to the Merger include that in the event the NYSE American determines that the Merger constitutes, or will constitute, a “back-door listing” or “reverse merger”, the Company (and its common stock) would be required to qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE as of the Effective Time.

 

The Merger Agreement can be terminated (i) at any time with the mutual consent of the parties; (ii) by either the Company or Viking if any governmental consent or approval required for closing is not obtained, or any governmental entity issues a final non-appealable order or similar decree preventing the Merger; (iii) by either Company or Viking if the Merger shall not have been consummated on or before August 1, 2021; (iv) by the Company or Viking, upon the breach by the other of a term of the Merger, which is not cured within 30 days of the date of written notice thereof by the other; (v) by Company or Viking is unable to obtain the affirmative vote of its stockholders for approval of the Merger; (vi) by Viking if Company is unable to obtain the affirmative vote of its stockholders required pursuant to the terms of the Merger Agreement; and (vii) by Company or Viking if there is a willful breach of the Merger Agreement by the other party thereto.

 

The Merger Agreement contains customary indemnification obligations of the parties and representations and warranties.

 

As of the date hereof, neither Viking nor Camber has advised of its intention to terminate the Merger Agreement.

 

July, 2021 Transaction

 

On July 29, 2021, the Company entered into a Securities Purchase Agreement with Viking to acquire an additional 27,500,000 shares of Viking common stock for an aggregate purchase price of $11,000,000.  The proceeds from the transaction were used by Viking to (i) acquire an approximate 60.5% interest Simson-Maxwell, Ltd, a Canadian company engaged in the manufacture and supply of industrial engines, power generation products, services and custom energy solutions; (ii) acquire a license of a patented carbon-capture system for exclusive use in Canada and for a specified number of locations in the United States; and (iii) for general working capital purposes.

 

Corporate Information and Summary of Current Operations

 

Our website address is http://www.camber.energy. Our fiscal year ends on the last day of March of each year. The information on, or that may be accessed through, our website is not incorporated by reference into this report and should not be considered a part of this report. We refer to the twelve-month periods ended March 31, 2021, 2020 and March 31, 2019 as our 2021 Fiscal Year, 2020 Fiscal Year and 2019 Fiscal Year, respectively.

 

As of June 30, 2020, the Company had leasehold interests (working interests) covering approximately 221 / 3,500 (net / gross) acres, producing from the Cline and Wolfberry formations. The remaining Texas acreage as of March 31, 2020 consisted of leasehold covering approximately 555 / 638 (net / gross) acres and wellbores located in the Panhandle in Hutchinson County, Texas, which was acquired by the Company in March 2018, and which was transferred as part of the PetroGlobe settlement discussed in “Part I. Financial InformationItem 1. Financial Statements” – “Note 10 – Commitments and Contingencies” – “Legal Proceedings”, in July 2020. 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 are met. The Company subsequently followed TRC procedures in order to regain TRC compliance for the Panhandle wells. Additionally, as a result of a notice from its working interest partner, PetroGlobe Energy, and related litigation, all prior production on the Panhandle wells was held in suspense for the past several fiscal quarters. The Company cured the issues raised by the TRC transferred its ownership of its Hutchinson County, Texas properties and wells to PetroGlobe on July 16, 2020. As a result of such transfer, the Company no longer holds any interests in such Hutchinson County, Texas wells or assets.

 

 
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As of June 30, 2020, Camber was producing an average of approximately 29.8 net barrels of oil equivalent per day (“Boepd”) from 25 active well bores. The ratio between the gross and net production varies due to varied working interests and net revenue interests in each well. Our production sales totaled 2,707 Boe, net to our interest, for the three months ended June 30, 2020. At June 30, 2020, Camber’s total estimated proved producing reserves were 133,442 Boe, of which 98,600 Bbls were crude oil and NGL reserves, and 207,823 Mcf were natural gas reserves. None of these reserves relate to the Company’s Panhandle properties, which has since been divested.

 

Camber holds an interest in 25 producing wells in Glascock County.

 

On July 12, 2018, we entered into an Asset Purchase Agreement, which closed on September 26, 2018, with N&B Energy. Pursuant to the Asset Purchase Agreement and the related Assumption Agreement, the Company transferred a significant portion of its assets to N&B Energy in consideration for N&B Energy assuming all of its debt owed to International Bank of Commerce.

 

Notwithstanding the sale of the Company’s assets to N&B Energy, the Company retained its assets in Glasscock County and Hutchinson County, Texas (which Hutchinson County, Texas assets have now been divested), and also retained a 12.5% production payment (effective until a total of $2.5 million has been received); a 3% overriding royalty interest in its existing Okfuskee County, Oklahoma asset; 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 through June 30, 2020 or through the date of this filing.

 

As of June 30, 2020, Camber had no employees, and utilized independent contractors on an as-needed basis. 

 

Moving forward, the Company plans to complete the Merger with Viking and then focus on growing through the development of Viking’s properties while also seeking new acquisitions to grow its oil and gas production and revenues through the combined entity. The Company anticipates raising additional financing to complete acquisitions following the closing of the Merger, which may be accomplished through the sale of debt or equity. As described above, the Merger is subject to various closing conditions which may not be met pursuant to the contemplated timeline, if at all.

 

Recent Reverse Stock Splits and Amendments to Articles

 

On March 1, 2018, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada to affect a 1-for-25 reverse stock split of all outstanding common stock shares of the Company which was effective on March 5, 2018. On December 20, 2018, the Company filed a Certificate of Change with the Secretary of State of Nevada to affect another 1-for-25 reverse stock split of the Company’s (a) authorized shares of common stock (from 500,000,000 shares to 20,000,000 shares); and (b) issued and outstanding shares of common stock, which was effective on December 24, 2018. Effective on April 10, 2019, the Company amended its Articles of Incorporation to increase the number of the Company’s authorized shares of common stock, $0.001 per value per share, from 20,000,000 shares to 250,000,000 shares. On July 3, 2019, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada to affect another 1-for-25 reverse stock split of all outstanding common stock shares of the Company, which was effective on July 8, 2019. On October 28, 2019, the Company filed a Certificate of Change with the Secretary of State of Nevada to affect a 1-for-50 reverse stock split of the Company’s (a) authorized shares of common stock (from 250,000,000 shares to 5,000,000 shares); and (b) issued and outstanding shares of common stock. The reverse stock split was effective on October 29, 2019. The effect of the reverse stock split was to combine every 50 shares of outstanding common stock into one new share, with a proportionate 1-for-50 reduction in the Company’s authorized shares of common stock, but with no change in the par value per share of the common stock. The result of the reverse stock split was to reduce the number of common stock shares outstanding on the effective date of the reverse, from approximately 74.5 million shares to approximately 1.5 million shares (prior to rounding). Effective on April 16, 2020, with the approval of the Company’s stockholders at its April 16, 2020 special meeting of stockholders, the Company 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, which filing was effective the same date.

 

 
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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 herein have been retroactively adjusted to reflect the reverse splits for all periods presented.

 

Industry Segments

 

Our operations during the three months ended June 30, 2020 and 2019 were all crude oil and natural gas exploration and production related, respectively. During the period from July 8, 2019 to December 31, 2019, we also owned and operated Lineal, which operated as an oil and gas service company and generated oil and gas service revenues. As described above under “Part I. Financial InformationItem 1. Financial Statements” – “Note 1 – General” and “Note 12 – Lineal Merger Agreement and Divestiture”, on December 31, 2019, we divested our entire interest in Lineal, in conjunction with the Lineal Divestiture.

 

Operations

 

Oil and Gas Properties

 

We operate and invest in areas that are known to be productive, with a reasonably established production history, in order to decrease geological and exploratory risk. The Company has certain interests in wells producing from various formations in Louisiana and Texas.

 

Financing

 

A summary of our financing transactions, funding agreements and other material funding and loan transactions can be found under “Part I. Financial InformationItem 1. Financial Statements” – “Note 1 – General”, “Note 6 – Plan of Merger and Investment In Unconsolidated Entity”, “Note 7 – Long-Term Notes Receivable”, “Note 12 – Lineal Merger Agreement and Divestiture” and “Note 13 – Stockholders’ Equity (Deficit)”, above.

 

The Company believes that it will not have sufficient liquidity to operate as a going concern for the next twelve months following the issuance of the financial statements included herein unless it can close the Viking Merger, which is the Company’s current plan, which Merger is anticipated to close in the third or fourth calendar quarter of 2020, and which required closing date is currently September 30, 2020, but can be extended until up to December 31, 2020, pursuant to certain conditions in the Merger Agreement.

 

Market Conditions and Commodity Prices

 

Our financial results depend on many factors, particularly the price of natural gas, natural gas liquids and crude oil and our ability to market our production on economically attractive terms. Commodity prices are affected by many factors outside of our control, including changes in market supply and demand, which are impacted by weather conditions, inventory storage levels, basis differentials and other factors. As a result, we cannot accurately predict future commodity prices and, therefore, we cannot determine with any degree of certainty what effect increases or decreases in these prices will have on our production volumes or revenues. We expect prices to remain volatile for the remainder of the year. For information about the impact of realized commodity prices on our crude oil revenues, refer to “Results of Operations” below.

 

Novel Coronavirus (“COVID-19”)

 

In December 2019, a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported in Wuhan, China. The World Health Organization declared COVID-19 a “Public Health Emergency of International Concern” on January 30, 2020 and a global pandemic on March 11, 2020. In March and April, many U.S. states and local jurisdictions, including Texas, where the Company has its operations, began issuing ‘stay-at-home’ orders, which continue in various forms as of the date of this report. Notwithstanding the above, because all of the Company’s properties are non-operated, the Company’s operations have not been materially affected by COVID-19 to date.

 

However, the oil and gas industry experienced multiple factors which lowered both the demand for, and prices of, oil and gas as a result of the pandemic. First, the COVID-19 pandemic lowered global demand for hydrocarbons, as social distancing and travel restrictions were implemented across the world. Second, the lifting of Organization of the Petroleum Exporting Countries (OPEC)+ supply curtailments, and the associated increase in production of oil, drove the global supply of hydrocarbons higher through the first quarter of calendar 2020. In addition, while global gross domestic product (GDP) growth was impacted by COVID-19 during the first half of calendar 2020, we expect GDP to continue to decline globally throughout the remainder of calendar 2020 and for at least the early part of calendar 2021, as a result of the COVID-19 pandemic. As a result, we expect oil and gas related markets will continue to experience significant volatility in 2020 and 2021.

 

The full extent of the impact of COVID-19 on our business and operations currently cannot be estimated and will depend on a number of factors including the scope and duration of the global pandemic.

 

Currently we believe that we have sufficient cash on hand to support our operations for the foreseeable future, through the closing of the Merger Agreement; however, we will continue to evaluate our business operations based on new information as it becomes available and will make changes that we consider necessary in light of any new developments regarding the pandemic.

 

 
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The pandemic is developing rapidly and the full extent to which COVID-19 will ultimately impact us depends on future developments, including the duration and spread of the virus, as well as potential seasonality of new outbreaks.

 

RESULTS OF OPERATIONS

 

The following discussion and analysis of the results of operations for the three-month periods ended June 30, 2020 and 2019 should be read in conjunction with our consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q/A (amendment No. 1) under “Part I. Financial Information – Item 1. Financial Statements”. The majority of the numbers presented below are rounded numbers and should be considered as approximate. 

 

Three Months Ended June 30, 2020 vs. Three Months Ended June 30, 2019

 

We reported a net loss for the three months ended June 30, 2020 of $7.3 million (net loss attributable to common shareholders of $9.0 million), or $1.19 per share of common stock. We reported a net loss for the three months ended June 30, 2019 of $3.5 million (net loss attributable to common shareholders of $4.2 million), or $319.60 per share of common stock. The increase in net loss of $3.8 million relates primarily to the loss on fair value of derivatives contracts of $5.7 million for the three months ended June 30, 2020 as compared to a loss of $2.2 million for the same period in 2019 and a $1.1 million loss associated with the operations of Elysium, an unconsolidated entity, which we owned 30% of as of June 30, 2020, and held 25% of as of March 31, 2020 (having first acquired such 25% interest on February 3, 2020, and an additional 5% interest on June 25, 2020).

 

Oil and Gas Exploration and Production Segment Information

 

The following table sets forth the operating results and production data for our oil and gas exploration and production segment, for the periods indicated:

 

 

 

Three Months Ended
June 30,

 

 

Increase

 

 

%

Increase

 

 

 

2020

 

 

2019

 

 

(Decrease)

 

 

(Decrease)

 

Sale Volumes:

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil (Bbls)

 

 

1,192

 

 

 

1,561

 

 

 

(369 )

 

 

(24 )%

Natural Gas (Mcf)

 

 

3,671

 

 

 

4,350

 

 

 

(679 )

 

 

(16 )%

NGL (Gallons)

 

 

37,915

 

 

 

46,899

 

 

 

(8,984 )

 

 

(19 )%

Total (Boe)(1)

 

 

2,707

 

 

 

3,402

 

 

 

(695 )

 

 

(20 )%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil (Bbls per day)

 

 

13

 

 

 

17

 

 

 

(4 )

 

 

(24 )%

Natural Gas (Mcf per day)

 

 

40

 

 

 

48

 

 

 

(8 )

 

 

(16 )%

NGL (Gallons per day)

 

 

417

 

 

 

515

 

 

 

(98 )

 

 

(19 )%

Total (Boe per day)(1)

 

 

29

 

 

 

37

 

 

 

(8 )

 

 

(20 )%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Sale Price:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil ($/Bbl)

 

$ 18.28

 

 

$ 60.02

 

 

$ (41.74 )

 

 

(70 )%

Natural Gas ($/Mcf)

 

$ 1.13

 

 

$ 1.66

 

 

$ (0.53 )

 

 

(32 )%

NGL ($/Bbl)

 

$ 8.57

 

 

$ 18.31

 

 

$ (9.74 )

 

 

(53 )%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Operating Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil

 

$ 21,789

 

 

$ 93,699

 

 

$ (71,910 )

 

 

(77 )%

Natural Gas

 

 

4,164

 

 

 

7,204

 

 

 

(3,040 )

 

 

(42 )%

NGL

 

 

7,736

 

 

 

20,448

 

 

 

(12,712 )

 

 

(62 )%

Total Oil and Gas Revenues

 

$ 33,689

 

 

$ 121,351

 

 

$ (87,662 )

 

 

(72 )%

 

 
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Sales volumes decreased by approximately 20% from the three months ended June 30, 2019 to the three months ended June 30, 2020, due to a significant drop in the market price of oil and gas compared to the same period in the prior year, due mainly to decreased demand due to COVID-19, including an approximate 70% decline in the average sales price of crude oil.

 

(1) Assumes 6 Mcf of natural gas equivalents and 42 gallons of NGL to 1 barrel of oil, respectively.

 

Operating and Other Expenses

 

The following table summarizes our production costs and operating expenses for the periods indicated:

 

 

 

Three Months Ended
June 30, (Restated)

 

 

Increase

 

 

%

Increase

 

 

 

2020

 

 

2019

 

 

(Decrease)

 

 

(Decrease)

 

Direct lease operating expense

 

$ 57,549

 

 

$ 98,935

 

 

$ (41,386 )

 

 

(42 )%

Other

 

 

11,742

 

 

 

24,622

 

 

 

(12,880 )

 

 

(52 )%

Lease Operating Expenses

 

$ 69,291

 

 

$ 123,557

 

 

$ (54,266 )

 

 

(44 )%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance and Property Taxes

 

$ 1,349

 

 

$ 2,574

 

 

$ (1,225 )

 

 

(48 )%

Depreciation, Depletion, Amortization and Accretion

 

 

2,295

 

 

 

4,242

 

 

 

(1,947 )

 

 

(46 )%

General and Administrative (“G&A”)

 

 

686,663

 

 

 

1,304,301

 

 

 

(617,638 )

 

 

(47 )%

Share-Based Compensation

 

 

 

 

 

27,690

 

 

 

(27,690 )

 

 

(100 )%

 Total G & A Expense

 

 

686,663

 

 

 

1,331,991

 

 

 

(645,328 )

 

 

(48 )%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

$

 

 

$ 847

 

 

$ (847 )

 

 

(100 )%

Equity in Loss of Unconsolidated Entity

 

$ 1,083,355

 

 

$

 

 

$ 1,083,355

 

 

 

100 %

Loss on Derivative Liability

 

 

5,700,996

 

 

 

2,163,891

 

 

 

3,537,105

 

 

 

163 %

Other Expense (Income), Net

 

$ (214,632 )

 

$ (54,262 )

 

$ (160,370 )

 

 

296 %

 

Lease Operating Expenses

 

There was a decrease in lease operating expense of approximately $54,000 when comparing the current quarter to the prior year’s quarter. The decrease is primarily due to the decline in production due to significant price declines as a result of decreased demand due to COVID-19 and governmental responses thereto.

 

 
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Depreciation, Depletion, Amortization and Accretion (“DD&A”)

 

DD&A decreased for the current quarter as compared to the prior year’s quarter by approximately $2,000 due to the decline in production due to significant price declines.

 

General and Administrative (G&A) Expenses

 

G&A expenses decreased by approximately $0.6 million for the three months ended June 30, 2020, compared to the prior year’s period. The decrease was due primarily to costs incurred in the prior year’s period related to the Lineal merger that were not present in the current period.

 

Interest Expense

 

Interest expense for the three months ended June 30, 2020 decreased by approximately $1,000 when compared to the three-month period ended June 30, 2019, due to the absence of any interest-bearing obligations in the current period.

 

Equity in Loss of Unconsolidated Entity

 

Equity in loss of unconsolidated entity for the three months ended June 30, 2020 increased by approximately $1.1 million when compared to the three-month period ended June 30, 2019, due to the inclusion of the equity loss of Elysium Holdings, LLC, which the Company acquired 25% of on February 3, 2020 and an additional 5% of on June 25, 2020.

 

Loss on derivative liability

 

Loss on derivative liability increase by $3.5 million or 163% as compared to the prior comparative period. The loss on derivative liability relates to the Conversion Premium associates with conversions of our Series C Preferred Stock. Management has determined that the obligation to issue additional shares under the Conversion Premium creates a derivative liability. The increase in the loss on derivative liabilities is due primarily to stock price declines. Such derivative liabilities are described in more detail under “Part I. Financial Information – Item 1. Financial Statements” – “Note 9 – Derivative Liability.”

 

Other Expense (Income), Net

 

Other income, net, for the three months ended June 30, 2020 increased by approximately $0.2 million, compared to the same period ended June 30, 2019, due to the interest earned on the December 2019 Lineal Note and Lineal Note No. 2 and the Secured Notes due from Viking.

 

LIQUIDITY AND CAPITAL RESOURCES 

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Additionally, recent oil and gas price volatility as a result of geopolitical conditions and the global COVID-19 pandemic have already had, and are expected to continue to have, a negative impact on the Company’s financial position and results of operations. Negative impacts could include but are not limited to: the Company’s ability to sell its oil and gas production, reduction in the selling price of the Company’s oil and gas, failure of a counterparty to make required payments, possible disruption of production as a result of worker illness or mandated production shutdowns or ‘stay-at-home’ orders, and access to new capital and financing.

 

Our primary sources of cash for the three months ended June 30, 2019 were from funds generated from the sale of preferred stock, and the primary sources of cash for the three months ended June 30, 2030 were from funds generated from the sale of preferred stock. The primary uses of cash were funds used in operations and funds invested in connection with Viking’s Rule 506(c) convertible note offering, as described above under “Part I. Financial InformationItem 1. Financial Statements” – “Note 6 – Plan of Merger and Investment In Unconsolidated Entity”, and “Note 7 – Long-Term Notes Receivable”. As of June 30, 2020, the Company had working capital of approximately $0.5 million. The Company believes that it will not have sufficient liquidity to operate as a going concern for the next twelve months following the issuance of the financial statements included herein unless it can close the Viking Merger, which is the Company’s current plan, which Merger is anticipated to close in the third calendar quarter of 2020, and which required closing date is currently September 30, 2020, but can be extended until up to December 31, 2020, pursuant to certain conditions in the Merger Agreement.

 

 
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Pursuant to the December 31, 2019 Redemption Agreement, we entered into a new unsecured promissory note in the amount of $1,539,719 with Lineal, evidencing the repayment of the prior July 2019 Lineal Note, together with additional amounts loaned by Camber to Lineal through December 31, 2019; and loaned Lineal an additional $800,000, which was evidenced by an unsecured promissory note in the amount of $800,000, entered into by Lineal in favor of the Company on December 31, 2019. 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. The December 2019 Lineal Note and Lineal Note No. 2 are unsecured. Such loans are described in greater detail above under “Part I. Financial InformationItem 1. Financial Statements” – “Note 1 – General”, “Note 7 – Long-Term Notes Receivable” and “Note 12 – Lineal Merger Agreement and Divestiture”.

 

On February 3, 2020, the Company and Discover entered into a Stock Purchase Agreement pursuant to which Discover purchased 525 shares of Series C Preferred Stock for $5 million, at a 5% original issue discount to the $10,000 face value of such preferred stock.

 

On February 3, 2020, we advanced the $5.0 million raised from the sale of Series C Preferred Stock to Discover to Viking, and Viking provided us, among other things, a $5 million, 10.5% Secured Promissory Note. On June 25, 2020, we 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 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 the Company a security interest in the membership, common stock and/or ownership interests of all of Viking’s existing and future, directly owned or majority owned subsidiaries, to secure the repayment of the Secured Notes. As additional consideration for providing the Secured Notes, Viking assigned us 30% of Elysium, which is fully or partially assignable back to Viking upon termination of the Merger, under certain circumstances as discussed in greater detail above under “Part I. Financial InformationItem 1. Financial Statements” – “Note 6 – Plan of Merger and Investment In Unconsolidated Entity”, and “Note 7 – Long-Term Notes Receivable”.

 

On June 22, 2020, the Company and Discover entered into a Stock Purchase Agreement pursuant to which Discover purchased 630 shares of Series C Preferred Stock for $6 million (of which $4.2 million of such funds were subsequently loaned to Viking as discussed above). In the event the Merger Agreement is terminated in specified circumstances, upon termination thereof, the Company is required to redeem the 630 shares of Series C Preferred Stock held by Discover at an aggregate price of $6,930,000, provided that if the Merger is terminated, Viking has agreed to pay the Company, a break-up fee 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”), which Additional Payment, if timely paid, should enable the Company to redeem the Series C Preferred Stock required to be redeemed upon termination of the Merger.

 

Plan of Operations

 

As described in greater detail above under “Part I. Financial InformationItem 1. Financial Statements” – “Note 6 – Plan of Merger and Investment In Unconsolidated Entity”, on February 3, 2020, the Company entered into a Merger Agreement with Viking, which contemplates Viking merging with and into a newly-formed wholly-owned subsidiary of the Company, with Viking surviving the Merger as a wholly-owned subsidiary of the Company. Moving forward, the Company plans to complete the Merger with Viking and then focus on growing through the development of Viking’s properties while also seeking new acquisitions to grow its oil and gas production and revenues through the combined entity. The Company anticipates raising additional financing to complete acquisitions following the closing of the Merger, which may through the sale of debt or equity. As described above, the Merger is subject to various closing conditions which may not be met pursuant to the contemplated timeline, if at all.

 

 
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Separately, the price Camber receives for its oil heavily influences its revenue and cash flows, and the present value and quality of its reserves. Oil, NGL and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. The price of crude oil has experienced significant volatility over the last five years, with the price per barrel of West Texas Intermediate (“WTI”) crude rising from a low of $27 in February 2016 to a high of $76 in October 2018, then, in 2020, dropping below $20 per barrel due in part to reduced global demand stemming from the recent global COVID-19 outbreak, until more recently increasing back to above $40 a barrel. A prolonged period of low market prices for oil and natural gas, or further declines in the market prices for oil and natural gas, due to the COVID-19 outbreak, governmental responses thereto, decreased demand in connection therewith, or other factors will likely adversely affect Camber’s business, financial condition and liquidity and its ability to meet obligations, targets or financial commitments and could ultimately lead to restructuring or filing for bankruptcy.

 

Working Capital

 

At June 30, 2020, the Company’s total current assets of $2.2 million were less than its total current liabilities of approximately $16.1 million, resulting in a working capital deficit of $13.9 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 $10.7 million, resulting in a working capital deficit of $9.6 million. The increase in the working capital deficit of of $3.2 million is due primarily to an increase in the recognized loss on the Series C Derivative Liability .

 

Cash Flows

 

 

 

Year Ended
June 30,

 

 

 

2020

 

 

2019

 

Cash flows used in operating activities

 

$ (751,241