UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

(Amendment No. 3)

  

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

 

For the quarterly period ended September 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

 

 

414,290,116 

(as of May 16, 2022)

  

 

 

   

Explanatory Note

    

Camber Energy, Inc (the “Company”) file d its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2020 on December 18, 2020 and filed amendment No. 1 on December 21 , 2020 to include Exhibit 101 with the Form 10-Q in accordance with Rule 405 of Regulation S-T. Due to a technical error, the eXtensible Business Reporting Language (“XBRL”) data associated with the Form 10-Q was inadvertently omitted from that filing (collectively the “Original 1 0-Q ”) .

  

On November 23, 2021 t he Company filed Amendment No . 2 on Form 10-Q/A (the “Second Amendment”) to amend our Original 10-Q to restate our financial statements and related notes (collectively, the “financial statements” or “Financial Statements”) for the three and six month periods ended September 30, 2020 and 2019. 

 

This Amendment No. 3 on Form 10-Q/A (the “Third Amendment”) further amends the Second A mendment. 

 

Restatement Background

 

Second Amendment

  

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 From 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. The Comp an y filed the Second Amendment to correct the accounting for the Series C Stock.

 

 
2

 

Third Amendment

 

After filing the Second Amendment, we had additional consultations with the SEC staff and determined that the accounting for the Series C Stock in the Second Amendment required further adjustment from our previously determined accounting treatment. The Series C Stock are temporary equity and include an embedded derivative due to the potential conversion into a variable number of common shares. The Series C Stock are redeemable or convertible, at the company’s option, upon issuance. The face value of the Series C Stock is convertible into common shares at a fixed rate. As a result, upon issuance a portion of the Series C Stock is recorded as temporary equity with a corresponding amount recorded as a deemed dividend. The carrying value of the portion of the Series C Stock recorded in temporary equity is required to be adjusted based on the fair value of the Company’s common shares required to satisfy a conversion with a corresponding recognition of an additional deemed dividend or an equity contribution. If the Series C Stock are redeemed or converted prior to the stated term, the dividends are required to be paid as if the shares were held to maturity.

 

As a result, the Company should have recorded a deemed dividend upon issuance and a derivative liability. Any differences between the consideration paid for the Series C Stock and the value of the derivative liability less the portion allocated to temporary equity should have been recorded as a loss on derivative liability at issuance. If the shares are converted into common shares with a value in excess of the recorded value of the derivative liability, an additional loss on the derivative is recognized. The Company did not properly apply the accounting requirements and miscalculated the derivative liability, temporary equity, deemed dividends and gain/loss on derivatives relating to the Series C Preferred stock in the Second Amendment.

 

After consultations with the SEC staff and the Company’s accounting advisors, the Company determined that the impact of the errors was material for (i) the fiscal years ended March 31, 20 20 and 20 19 ; the three months periods ended June 30, 2020 and 2019; and the three and six month periods ended Se ptember 30, 2020 and 2019. 

 

This amendment amends the Second Amendment to res t ate the financial statements for the three and six months ended September 30, 2020 and 2019. 

 

See Note 4 to the Consolidated Financial Statements included in Item 1 for additional information and a reconciliation of the previously restated amounts in the Second Amendment to the restated amounts.

 

The Company’s management has concluded that in light of the errors described above and other factors, material weaknesses exist in the Company’s internal control over financial reporting and that the Company’s disclosure controls were not effective. See Item 4 Controls and Procedures.

      

Items Amended in this Form 10-Q/A

 

This Form 10-Q/A presents the Second Amendment 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 1. Financial Statements

 

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

 

Part 1, Item 4 Controls and Procedures

 

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

     

 
3

   

CAMBER ENERGY, INC.

 

TABLE OF CONTENTS

 

PART 1. FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

 

 

5

 

 

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

 

5

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

6

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (UNAUDITED)

 

 

7

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

8

 

 

 

 

 

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

9

 

 

 

 

 

 

 

ITEM 2.

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

 

 

53

 

 

 

 

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

 

72

 

 

 

 

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES.

 

 

72

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS.

 

 

73

 

 

 

 

 

 

 

ITEM 1A.

RISK FACTORS.

 

 

73

 

 

 

 

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

 

80

 

 

 

 

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

 

 

81

 

 

 

 

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES.

 

 

81

 

 

 

 

 

 

 

ITEM 5.

OTHER INFORMATION.

 

 

81

 

 

 

 

 

 

 

ITEM 6.

EXHIBITS.

 

 

84

 

  

 
4

Table of Contents

   

PART 1. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CAMBER ENERGY, INC.

CONSOLIDATED BALANCE SHEETS (RESTATED)

(Unaudited)

 

 

 

September 30,

2020

 

 

March 31,

2020

 

ASSETS

 

Current Assets

 

 

 

 

 

 

Cash

 

$ 1,112,965

 

 

$ 656,615

 

Accounts Receivable, Net of Allowance

 

 

145,362

 

 

 

255,363

 

Other Current Assets

 

 

220,682

 

 

 

220,682

 

Total Current Assets

 

 

1,479,009

 

 

 

1,132,660

 

 

 

 

 

 

 

 

 

 

Property and Equipment

 

 

 

 

 

 

 

 

Oil and Gas Properties - Subject to Amortization

 

 

50,413,792

 

 

 

50,443,883

 

Oil and Gas Properties - Not Subject to Amortization

 

 

28,016,989

 

 

 

28,016,989

 

Other Property and Equipment

 

 

1,570

 

 

 

1,570

 

Total Property and Equipment

 

 

78,432,351

 

 

 

78,462,442

 

Accumulated Depletion, Depreciation, Amortization and Impairment

 

 

(78,356,957 )

 

 

(78,351,825 )

Total Property and Equipment, Net

 

 

75,394

 

 

 

110,617

 

Equity Method Investment – Elysium Energy, LLC

 

 

 

 

 

957,169

 

Notes Receivable

 

 

10,241,048

 

 

 

7,339,719

 

Other Assets

 

 

 

 

 

155,053

 

Total Assets

 

$ 11,795,451

 

 

$ 9,695,218

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

 

 

 

 

 

 

 

 

Accounts Payable

 

$ 1,455,898

 

 

$ 1,474,221

 

Common Stock Payable

 

 

 

 

 

173,000

 

Accrued Expenses

 

 

107,621

 

 

 

348,460

 

Current Asset Retirement Obligation

 

 

25,766

 

 

 

30,227

 

Current Income Taxes Payable

 

 

3,000

 

 

 

3,000

 

Derivative Liability

 

 

96,751,178

 

 

 

77,636,666

 

Total Current Liabilities

 

 

98,343,463

 

 

 

79,665,574

 

 

 

 

 

 

 

 

 

 

Asset Retirement Obligation

 

 

20,017

 

 

 

41,523

 

Total Liabilities

 

 

98,363,480

 

 

 

79,707,097

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (see Note 10)

 

 

 

 

 

 

 

 

Temporary Equity

 

 

 

 

 

 

 

 

Preferred Stock Series C, 2,693 and 2,819 Issued and Outstanding Respectively, Liquidation Preference of $92,816,938 and $97,156,835, respectively

 

 

5,303,138

 

 

 

9,801,446

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity (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, 25,000,000 and 5,000,000 Shares Issued and Outstanding, respectively

 

 

25,000

 

 

 

5,000

 

Additional Paid-in Capital

 

 

201,326,296

 

 

 

179,783,233

 

Accumulated Deficit

 

 

(293,222,463 )

 

 

(259,601,558 )

Total Stockholders’ Deficit

 

 

(91,871,167 )

 

 

(79,813,325 )

Total Liabilities and Stockholders’ Deficit

 

$ 11,795,451

 

 

$ 9,695,218

 

 

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

 

 
5

Table of Contents

   

CAMBER ENERGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (RESTATED)

(Unaudited)

  

 

 

Three Months Ended

September 30,

 

 

Six Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil

 

$ 45,846

 

 

$ 66,786

 

 

$ 67,635

 

 

$ 160,485

 

Natural Gas

 

 

4,643

 

 

 

12,343

 

 

 

8,807

 

 

 

19,547

 

Natural Gas Liquids

 

 

6,969

 

 

 

13,624

 

 

 

14,705

 

 

 

34,072

 

Total Revenues

 

 

57,458

 

 

 

92,753

 

 

 

91,147

 

 

 

214,104

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease Operating Expenses

 

 

27,222

 

 

 

188,483

 

 

 

96,513

 

 

 

312,040

 

Severance and Property Taxes

 

 

2,126

 

 

 

4,031

 

 

 

3,475

 

 

 

6,605

 

Depreciation, Depletion, Amortization, and Accretion

 

 

2,837

 

 

 

3,592

 

 

 

5,132

 

 

 

7,834

 

General and Administrative

 

 

852,915

 

 

 

940,483

 

 

 

1,539,578

 

 

 

2,272,474

 

Total Operating Expenses

 

 

885,100

 

 

 

1,136,589

 

 

 

1,644,698

 

 

 

2,598,953

 

Operating Loss

 

 

(827,642 )

 

 

(1,043,836

)

 

 

(1,553,551 )

 

 

(2,384,849 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Expense (Income)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

 

 

 

4,174

 

 

 

 

 

 

5,021

 

Loss from Unconsolidated Entity

 

 

1,056,766

 

 

 

 

 

 

2,140,121

 

 

 

 

Loss on Derivative Liability

 

 

17,930,335

 

 

 

8,134,112

 

 

 

29,969,765

 

 

 

10,298,003

 

Other Expense (Income), Net

 

 

172,100

 

 

 

(9,278 )

 

 

(42,532 )

 

 

(63,540 )

Total Other Expenses

 

 

19,159,201

 

 

 

8,129,008

 

 

 

32,067,354

 

 

 

10,239,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Before Discontinued Operations

 

 

(19,986,843 )

 

 

(9,172,844 )

 

 

(33,620,905 )

 

 

(12,624,333 )

Income from Discontinued Operations

 

 

 

 

 

761,768

 

 

 

 

 

 

761,768

 

Net Loss

 

$ (19,986,843 )

 

$ (8,411,076 )

 

$ (33,620,905 )

 

$ (11,862,565 )

Less Preferred Dividends

 

 

--

 

 

 

84,282

 

 

 

2,217,671

 

 

 

84,282

 

Net Loss Attributable to Common Shareholders

 

 

(19,986,843 )

 

 

(8,495,358 )

 

 

(35,838,576 )

 

 

(11,946,847 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$ (1.01 )

 

$

(18.77

)

 

$ (2.61 )

 

$

(48.99

)

Discontinued Operations

 

 

 

 

 

1.54

 

 

 

 

 

 

2.94

 

Total

 

$ (1.01 )

 

$

(17.22

)

 

$ (2.61 )

 

$

(46.05

)

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$ (1.01 )

 

$

(18.77

)

 

$ (2.61 )

 

$

(48.99

)

Discontinued Operations

 

 

 

 

 

1.54

 

 

 

 

 

 

2.94

 

Total

 

$ (1.01 )

 

$

(17.22

)

 

$ (2.61 )

 

$

(46.05

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Number of Common Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

19,815,872

 

 

 

493,300

 

 

 

13,705,461

 

 

 

259,432

 

Diluted

 

 

19,815,872

 

 

 

493,300

 

 

 

13,705,461

 

 

 

259,432

 

 

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

    

 
6

Table of Contents

   

CAMBER ENERGY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT 

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (RESTATED)

(Unaudited)

   

 

 

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

 

 

Accumulated Deficit

 

 

Stockholders’

(Deficit)

Equity

 

Balances, March 31, 2019 (as restated)

 

 

2,305

 

 

$ 2,710,681

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

44,000

 

 

$ 44

 

 

 

13,441

 

 

$ 13

 

 

$ 174,804,234

 

 

$ (231,643,389. )

 

$ (56,839,098 )

Common Shares issued for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Series B Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,000 )

 

 

(44 )

 

 

 

 

 

 

 

 

44

 

 

 

 

 

 

 

Payment of Series B Dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Debenture - Abeyance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,008

 

 

 

25

 

 

 

(25 )

 

 

 

 

 

 

Payment for Consulting Fees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

600

 

 

 

1

 

 

 

303,339

 

 

 

 

 

 

303,340

 

Rounding Adjustment for Split

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

Series C fair value adjustment

 

 

 

 

 

(1,637,614 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,637,614

 

 

 

 

 

 

(1,637,614 )

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,451,489 )

 

 

(3,451,489 )

Balances, June 30, 2019

 

 

2,305

 

 

$ 1,073,067

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

39,053

 

 

$ 39

 

 

$ 176,745,206

 

 

$ (235,094,878 )

 

$ (58,349,633 )

Common Shares issued for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Series C Preferred Stock

 

 

(3 )

 

 

(682 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,004,450

 

 

 

1,005

 

 

 

5,439,306

 

 

 

 

 

 

5,440,311

 

Stock Compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

884

 

 

 

1

 

 

 

(1 )

 

 

 

 

 

 

Payment for Consulting Fees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

80

 

 

 

 

 

 

 

27,690

 

 

 

 

 

 

27,690

 

Warrant Obeyance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,065

 

 

 

4

 

 

 

(4 )

 

 

 

 

 

 

Cash Paid for Settlement of series B Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,000 )

 

 

 

 

 

(25,000 )

Issuance of Series E and F Preferred Stock

 

 

 

 

 

 

 

 

1,000,000

 

 

 

18,701,000

 

 

 

16,750

 

 

 

1,417,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series C share deemed dividends

 

 

 

 

 

84,282

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(84,282 )

 

 

 

 

 

(84,282 )

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,411,076 )

 

 

(8,411,076 )

Balances, September 30, 2019

 

 

2,302

 

 

$ 1,156,666

 

 

 

1,000,000

 

 

$ 18,701,000

 

 

 

16,750

 

 

$ 1,417,000

 

 

 

 

 

$

 

 

 

1,048,532

 

 

 

1,049

 

 

$ 182,102,915

 

 

$ (243,505,954 )

 

$ (61,401,990 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, March 31, 2020 (as restated)

 

2819

 

 

$ 9,801,447

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

5,000,000

 

 

$ 5,000

 

 

$ 179,783,233

 

 

$ (259,601,558 )

 

$ (79,813,325 )

Common Shares issued for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Series C Preferred Stock

 

 

(498 )

 

 

(1,213,918 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,059,016

 

 

 

8,059

 

 

 

10,314,912

 

 

 

 

 

 

10,322,971

 

Payment of Consulting Fees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101,514

 

 

 

102

 

 

 

172,898

 

 

 

 

 

 

173,000

 

Issuance of Series C Preferred Stock

 

 

630

 

 

 

2,217,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,217,671 )

 

 

 

 

 

(2,217,671 )

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,634,062 )

 

 

(13,634,062 )

Balances, June 30, 2020

 

 

2,951

 

 

$ 10,805,200

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

13,160,530

 

 

$ 13,161

 

 

$ 188,053,372

 

 

$ (273,235,620 )

 

$ (85,169,087 )

Common Shares issued for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Series C Preferred Stock

 

 

(258 )

 

 

(520,555 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,764,470

 

 

 

11,764

 

 

 

8,254,990

 

 

 

 

 

 

8,266,754

 

Payment for Consulting Fees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

75,000

 

 

 

75

 

 

 

36,427

 

 

 

 

 

 

36,502

 

Series C fair value adjustment

 

 

 

 

 

 

(4,981,507 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,981,507

 

 

 

 

 

 

 

4,981,507

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,986,843 )

 

 

(19,986,843 )

Balances, September 30, 2020

 

 

2,693

 

 

 

5,303,138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,000,000

 

 

 

25,000

 

 

 

201,326,296

 

 

 

(293,222,463 )

 

 

(91,871,167 )

 

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

   

 
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CAMBER ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED)

(Unaudited)

 

 

 

Six Months Ended

September 30,

 

 

 

2020

 

 

2019

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net Loss

 

$ (33,620,905 )

 

$ (11,862,565 )

Net Income from Discontinued Operations

 

 

 

 

 

761,768

 

Net Loss from Continuing Operations

 

 

(33,620,905 )

 

 

(12,624,333 )

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

 

 

 

 

 

 

 

 

Depreciation, Depletion, Amortization, and Accretion

 

 

5,132

 

 

 

7,834

 

Bad debt Expense

 

 

170,660

 

 

 

17,694

 

Share-Based Compensation

 

 

36,502

 

 

 

29,425

 

Loss from Equity Method Investment

 

 

2,140,121

 

 

 

 

Change in Fair Value of Derivative Liability

 

 

29,969,765

 

 

 

10,298,003

 

Changes in Components of Working Capital and Other Assets:

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

55,060

 

 

 

(7,213 )

Other Current Assets

 

 

155,053

 

 

 

234,145

 

Accounts Payable and Accrued Expenses

 

 

(255,038 )

 

 

(409,688 )

Net Cash Used in Operating Activities from Continuing Operations

 

 

(1,343,650 )

 

 

(2,454,133 )

Net Cash Used in Operating Activities from Discontinued Operations

 

 

 

 

 

(383,770 )

Net Cash Used in Operating Activities

 

 

(1,343,650 )

 

 

(2,837,903 )

 

 

 

 

 

 

 

 

 

Investing Cash Flows

 

 

 

 

 

 

 

 

Cash Paid for Subsidiary

 

 

 

 

 

(1,050,000 )

Cash Paid for Issuance of Notes Receivable

 

 

(4,200,000 )

 

 

 

Cash Received for Deposits

 

 

 

 

 

(31,534 )

Net Cash Used in Investing Activities from Continuing Operations

 

 

(4,200,000 )

 

 

(1,081,534 )

Net Cash Used in Investing Activities from Discontinued Operations

 

 

 

 

 

(70,440 )

Net Cash Used in Investing Activities

 

 

(4,200,000 )

 

 

(1,151,974 )

 

 

 

 

 

 

 

 

 

Financing Cash Flows

 

 

 

 

 

 

 

 

Cash Paid for Settlement of Series B Preferred Stock Warrants

 

 

 

 

 

(25,000 )

Proceeds from Issuance of Series C Preferred Stock

 

 

6,000,000

 

 

 

 

Net Cash Provided by (Used in) Financing Activities from Continuing Operations

 

 

6,000,000

 

 

 

(25,000 )

Net Cash Provided by Financing Activities from Discontinued Operations

 

 

 

 

 

454,210

 

Net Cash Provided by Financing Activities

 

 

6,000,000

 

 

 

429,210

 

 

 

 

 

 

 

 

 

 

Increase (Decrease) in Cash

 

 

456,350

 

 

 

(3,560,667 )

Cash at Beginning of the Period

 

 

656,615

 

 

 

7,778,723

 

Cash at End of the Period

 

$ 1,112,965

 

 

$ 4,218,056

 

 

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

  

 
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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 with Viking Energy Group, Inc. (“Viking”), which was amended and restated by an Amended and Restated Agreement and Plan of Merger entered into with Viking on August 31, 2020 (as amended to date, the “Merger Agreement”, and the merger contemplated therein, the “Merger”). Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), (a) each share of common stock of Viking (the “Viking Common Stock”) issued and outstanding, other than certain shares owned by the Company, Viking and the subsidiary of the Company formed as part of the Merger (“Merger Sub”), will be converted into the right to receive the pro rata share (when including the Viking preferred stock conversion rights (defined below)) of 80% of the Company’s post-closing (excluding shares issuable upon conversion of the Series C Preferred Stock of the Company)(the “exchange ratio”); and (b) each share of Viking preferred stock outstanding immediately prior to the effective time will be converted into one share of Camber Series A Preferred Stock, which preferred stock will have the right to vote, and convert into, that number of shares of Camber common stock that its holder would have received in the Merger, had such holder fully converted the Viking preferred stock into Viking common stock immediately prior to the Effective Time (the “Viking preferred stock conversion rights”).

 

Holders of Viking Common Stock will have any fractional shares of Company common stock after the Merger rounded up to the nearest whole share. The completion of the Merger is subject to certain closing conditions. A further requirement to the closing of the Merger was that the Company was required to have acquired 30% of Viking’s subsidiary Elysium Energy Holdings, LLC (“Elysium”) as part of a $9,200,000 investment in Viking’s Rule 506(c) offering, which transaction was completed on February 3, 2020 (25% and a $5 million investment) and June 22, 2020 (5% and a $4.2 million investment). See also “Note 6 – Plan of Merger and Investment In Unconsolidated Entity”.

    

 
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A novel strain of coronavirus (“COVID-19”) was first identified in December 2019, and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the outbreak, many companies have experienced disruptions in their operations, workforce and markets served, including a significant reduction in the demand for petroleum-based products. The market for the Company’s oil and gas assets began being adversely impacted by the effects of COVID-19 in March of 2020 when circumstances surrounding, and responses to, the pandemic, including stay-at-home orders, began to materialize in North America. Due to the Company’s limited oil and gas production and the fact that all of the Company’s current properties are non-operated, the Company has yet to experience a significant adverse impact from COVID-19. However, the full extent of the COVID-19 outbreak and changes in demand for oil and the impact on the Company’s operations is uncertain. A prolonged disruption could have a material adverse impact on the financial results, assets (including requiring write-downs or impairments), and business operations of the Company.

 

NOTE 2 – LIQUIDITY AND GOING CONCERN CONSIDERATIONS

 

At September 30, 2020, the Company’s total current assets of $1.5 million were less than its total current liabilities of approximately $98.3 million, resulting in a working capital deficit of $96.8 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 $79.7 million, resulting in a working capital deficit of $78.6 million. The increase in working capital deficit of $18.2 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

  

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The Company has provided a discussion of significant accounting policies, estimates, and judgments in its March 31, 2020, Annual Report on Form 10-K. There have been no changes to the Company’s significant accounting policies since March 31, 2020, which are expected to have a material impact on the Company’s financial position, operations, or cash flows.

   

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 three and six month periods ended September 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 September 30, 2020 and March 31, 2020, and the results of operations for the three and six month periods ended September 30, 2020 and 2019, the consolidated statements of changes in equity for the three and six month periods ended September 30, 2020 and 2019 and cash flows for the six 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.

 

 
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Principles of Consolidation

 

The consolidated financial statements include the accounts of Camber and all of its wholly-owned and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

 

Accounts Receivable

 

Accounts receivable, net, include amounts due for oil and gas revenues from prior month production, accrued interest on the notes receivable due from Lineal and Viking and an estimate of amounts due from N&B Energy related to the September 2018 Asset Purchase Agreement entered into with N&B Energy. The allowance for doubtful accounts is the Company’s best estimate of the probable amount of credit losses in the Company’s existing accounts receivable. At September 30, 2020, and March 31, 2020, there were allowances for doubtful accounts of approximately $171,000 and $208,000, included in accounts receivable, and there were bad debts of $170,660 and $17,694, recognized for the six months ended September 30, 2020, and 2019, respectively.

 

Notes Receivable

 

Notes receivable includes the $9,200,000, excluding adjustment for excess loss from equity method investment of $1,182,952, of notes from Viking as described in ”Note 7 – Long-Term Notes Receivable” and “Note 6 – Plan of Merger and Investment In Unconsolidated Entity”, and two notes due from Lineal in the amounts of $1,539,719 and $800,000, respectively, net of reserves of $115,719 as more fully discussed in ”Note 7 – Long-Term Notes Receivable” and “Note 12 – Lineal Merger Agreement and Divestiture”.

 

Property and Equipment

 

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

 

Long-lived assets including intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the assets carrying amount to determine if an impairment of such asset is necessary. This evaluation, as well as an evaluation of our intangible assets, requires the Company to make long-term forecasts of the future revenues and costs related to the assets subject to review. Forecasts require assumptions about demand for the Company’s services and future market conditions. Estimating future cash flows requires significant judgment, and the Company’s projections may vary from the cash flows eventually realized. Future events and unanticipated changes to assumptions could require a provision for impairment in a future period. The effect of any impairment would be to expense the difference between the fair value (less selling costs) of such asset and its carrying value. Such an expense would be reflected in earnings. No impairments were deemed necessary for the three and six months ended September 30, 2020, and 2019, respectively.

 

Investment in Unconsolidated Entities

 

The Company accounts for its investment in unconsolidated entities under the equity method of accounting when it owns less than 50% of a controlling interest and cannot exercise significant influence over the operating and financial policies of the entity. The investment is adjusted accordingly for dividends or distributions it receives and its proportionate share of earnings or losses of the entity. The current investment in unconsolidated entities is a 30% (25% from February 3, 2020, to June 25, 2020) interest in Elysium Energy Holdings, LLC, which, through its wholly-owned subsidiary, Elysium Energy, LLC, is involved in oil and gas exploration and production in the United States. The balance sheet of Elysium Holdings, LLC at September 30, 2020, included current assets of $2.3 million, total assets of $30.8 million, total liabilities of $34.9 million, and net liabilities of $(4.1) million. The balance sheet of Elysium Energy Holdings, LLC at March 31, 2020, included current assets of $4.0 million, total assets of $37.7 million, total liabilities of $34.0 million, and net assets of $3.7 million. The income statement of Elysium Energy Holdings, LLC for the three and six months ended September 30, 2020, included total revenues of $4.0 million and $7.8 million and a net loss of $3.2 million and $7.5 million, respectively. See also “Note 6 – Plan of Merger and Investment In Unconsolidated Entity”.

  

 
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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.

  

 
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Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from or corroborated by, third-party pricing services.

 

 

 

 

Level 3 – Unobservable inputs to measure the fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.

 

As of September 30, 2020, and March 31, 2020, the significant inputs to the Company’s derivative liability were Level 3 inputs.

 

Derivative Liabilities

 

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 Volume Weighted Average Price (“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 Certificate of Designation. 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. Trigger events are described in the designation of the Series C Preferred Stock, but include items which would typically be events of default under a debt security, including filing of reports late with the SEC.

 

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.

 

The determination of the Conversion Premium for outstanding Series C Shares and the potential obligation to issue True-Up shares subsequent to a conversion are based on variables that are not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40 and required to be accounted for at fair value as are derivatives liabilities.

 

The derivative liability at the end of each period includes a derivative liability for the outstanding Series C shares Conversion Premium and a derivative liability for the potential obligation to issue True-Up Shares relating to Series C shares that have been converted and the Measurement Period has not expired, if applicable

 

The fair value of the derivative liability relating to the Conversion Premium for any outstanding Series C Shares is equal to the cash required to settle the Conversion Premium. The fair value of the potential true-up share obligation has been estimated using a binomial pricing mode and the lesser of the conversion price or the low closing price of the Company’s stock subsequent to the conversion date. and the historical volatility of the Company’s common stock. (See notes 4 and 10)

 

 
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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 and six months ended September 30, 2020; and (ii) to restate its Quarterly Report on Form 10-Q for the period ended September 30, 2020, inclusive of comparative financial statements for the period ended June 30, 2019.

  

As a result of the errors described above, we restated 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 with Amendment No. 2 to our Quarterly Report on Form 10-Q/ (“Second Amendment”). We have estimated the fair value of the derivative liability at September 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. 

   

After additional consultations with the SEC staff and review of the applicable accounting requirements, the Company determined that the accounting for the Series C Stock required further adjustment from the accounting treatment applied in the First Amendment.  The Series C Stock were initially issued in September 2016 and should have been recorded with a deemed dividend to recognize the required conversion premium upon issuance and a loss on derivative liability to recognize the variability if the shares were converted to common shares. Subsequent measurement should have included adjustments to the carrying value of the Series C Stock to recognize changes in fair value due to changes in the Company’s stock price and recognition of gains or losses on conversion of the Series C Stock into common stock. Our accounting treatment and calculations are more fully described in note 9.

 

Then impact of the restatement on our financial statements included in the First Amendment are as follows:

 

 
14

Table of Contents

 

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

 

 

 

 As Previously Restated (Second amendment)

 

 

 Adjustments

 

 

 As Restated

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

11,795,451

 

 

 

-

 

 

 

11,795,451

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES  AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

1,455,898

 

 

 

 

 

 

 

1,455,898

 

Accrued expenses

 

 

107,621

 

 

 

 

 

 

 

107,621

 

Derivative liability - Series C

 

 

30,866,933

 

 

 

65,884,245

 

 

 

96,751,178

 

Current ARO

 

 

25,766

 

 

 

 

 

 

 

25,766

 

Current income taxes payable

 

 

3,000

 

 

 

 

 

 

 

3,000

 

Total current liabilities

 

 

32,459,218

 

 

 

65,884,245

 

 

 

98,343,463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset retirement obligations

 

 

20,017

 

 

 

 

 

 

 

20,017

 

TOTAL LIABILITIES

 

 

32,479,235

 

 

 

65,884,245

 

 

 

98,363,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TEMPORARY EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock Series C

 

 

38,002,002

 

 

 

(32,698,864 )

 

 

5,303,138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock Series C

 

 

-

 

 

 

 

 

 

 

-

 

Common Stock

 

 

25,000

 

 

 

 

 

 

 

25,000

 

Additional paid in capital

 

 

161,157,247

 

 

 

40,169,049

 

 

 

201,326,296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings (deficit)

 

 

(219,868,033 )

 

 

(73,354,430 )

 

 

(293,222,463 )

Total stockholders equity (deficit)

 

 

(58,685,786 )

 

 

(33,185,381 )

 

 

(91,871,167 )

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

 

11,795,451

 

 

 

-

 

 

 

11,795,451

 

    

 
15

Table of Contents

 

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

 

 

 

 As Previously Restated (Second amendment)

 

 

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

 

 

 

68,966,835

 

 

 

77,636,666

 

Current ARO

 

 

30,227

 

 

 

-

 

 

 

30,227

 

Current income taxes payable

 

 

3,000

 

 

 

-

 

 

 

3,000

 

Total current liabilities

 

 

10,698,739

 

 

 

68,966,835

 

 

 

79,665,574

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset retirement obligations

 

 

41,523

 

 

 

-

 

 

 

41,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

10,740,262

 

 

 

68,966,835

 

 

 

79,707,097

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

-

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TEMPORARY EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock Series C

 

 

39,389,202

 

 

 

(29,587,756

)

 

 

9,801,446

 

STOCKHOLDERS EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

5,000

 

 

 

-

 

 

 

5,000

 

Additional paid in capital

 

 

149,825,528

 

 

 

29,957,705

 

 

 

179,783,233

 

 

 

 

 

 

 

 

 

 

 

Retained earnings (deficit)

 

 

(190,264,774 )

 

 

(69,336,784

)

 

 

(259,601,558 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders equity (Deficit)

 

 

(40,434,246

)

 

 

(39,379,079 )

 

 

(79,813,325 )

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

 

9,695,218

 

 

 

--

 

 

 

9,695,218

 

  

 
16

Table of Contents

 

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

  

Three Months Ended September 30, 2020

 

 As Previously Restated (Second amendment)

 

 

Adjustments

 

 

Restated

 

 

 

 

 

 

 

 

 

 

 

Total Revenues

 

 

57,458

 

 

 

 

 

 

57,458

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Lease Operating Expenses

 

 

27,222

 

 

 

 

 

 

27,222

 

Severance and Property Taxes

 

 

2,126

 

 

 

 

 

 

2,126

 

Depreciation, Depletion, Amortization, and Accretion

 

 

2,837

 

 

 

 

 

 

2,837

 

General and Administrative

 

 

852,915

 

 

 

 

 

 

852,915

 

Total Operating Expenses

 

 

885,100

 

 

 

 

 

 

885,100

 

Operating Loss

 

 

(827,642 )

 

 

 

 

 

(827,642 )

 

 

 

 

 

 

 

 

 

 

 

 

Other Expense (Income)

 

 

 

 

 

 

 

 

 

 

 

Loss from Unconsolidated Entity

 

 

1,056,766

 

 

 

 

 

 

1,056,766

 

Loss on Derivative Liability

 

 

20,251,123

 

 

 

(2,320,788 )

 

 

17,930,335

 

Other Expense (Income), Net

 

 

172,100

 

 

 

 

 

 

 

172,100

 

Total Other Expenses

 

 

21,479,989

 

 

 

(2,320,788 )

 

 

19,159,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (22,307,631 )

 

$ 2,320,788

 

 

$ (19,986,843 )

Less Preferred Dividends

 

 

1,651,219

 

 

 

(1,651,219 )

 

 

--

 

Net Loss Attributable to Common Shareholders

 

 

(23,958,850 )

 

 

3,972,007

 

 

 

(19,986,843 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

   Continuing Operations

 

$ (1.21 )

 

$ 0.20

 

 

$ (1.01 )

   Discontinued Operations

 

 

 

 

 

 

 

 

 

 

   Total

 

$ (1.21 )

 

$ 0.20

 

 

$ (1.01 )

 Diluted

 

 

 

 

 

 

 

 

 

 

 

 

   Continuing Operations

 

$ (1.21 )

 

$ 0.20

 

 

$ (1.01 )

   Discontinued Operations

 

 

 

 

 

 

 

 

 

 

   Total

 

$ (1.21 )

 

$ 0.20

 

 

$ (1.01 )

     

 
17

Table of Contents

 

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

 

Six Months Ended September 30, 2020

 

 As Previously Restated (Second amendment)

 

 

Adjustments

 

 

Restated

 

 

 

 

 

 

 

 

 

 

 

Total Revenues

 

 

91,147

 

 

 

 

 

 

91,147

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Lease Operating Expenses

 

 

96,513

 

 

 

 

 

 

96,513

 

Severance and Property Taxes

 

 

3,475

 

 

 

 

 

 

3,475

 

Depreciation, Depletion, Amortization, and Accretion

 

 

5,132

 

 

 

 

 

 

5,132

 

General and Administrative

 

 

1,539,578

 

 

 

 

 

 

1,539,578

 

Total Operating Expenses

 

 

1,644,698

 

 

 

 

 

 

1,644,698

 

Operating Loss

 

 

(1,553,551 )

 

 

 

 

 

(1,553,551 )

 

 

 

 

 

 

 

 

 

 

 

 

Other Expense (Income)

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

 

 

 

 

 

 

 

Loss from Unconsolidated Entity

 

 

2,140,121

 

 

 

 

 

 

2,140,121

 

Loss on Derivative Liability

 

 

25,952,119

 

 

 

4,017,646

 

 

 

29,969,765

 

Other Expense (Income), Net

 

 

(42,532

 

 

 

 

 

 

 

(42,532 )

Total Other Expenses

 

 

28,049,708

 

 

 

4,017,646

 

 

 

32,067,354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Before Discontinued Operations

 

 

(29,603,259 )

 

 

(4,017,646 )

 

 

(33,620,905 )

Income from Discontinued Operations

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (29,603,259 )

 

$ (4,017,646 )

 

$ (33,620,905 )

Less Preferred Dividends

 

 

3,331,975

 

 

 

(1,114,304

)

 

 

2,217,671

 

Net Loss Attributable to Common Shareholders

 

 

(32,935,234 )

 

 

(2,903,342 )

 

 

(35,838,576 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$ (2.40 )

 

$ (0.21 )

 

$ (2.61 )

Discontinued Operations

 

 

 

 

 

 

 

 

 

 

Total

 

$ (2.40 )

 

$ (0.21 )

 

$ (2.61 )

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$ (2.40 )

 

$ (0.21 )

 

$ (2.61 )

Discontinued Operations

 

 

 

 

 

 

 

 

 

 

Total

 

$ (2.40 )

 

$ (0.21 )

 

$ (2.61 )

  

 
18

Table of Contents

 

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

 

Three Months Ended September 30, 2019

 

 As Previously Restated (Second amendment)

 

 

Adjustments

 

 

Restated

 

 

 

 

 

 

 

 

 

 

 

Total Revenues

 

 

92,753

 

 

 

 

 

 

92,753

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Lease Operating Expenses

 

 

188,483

 

 

 

 

 

 

188,483

 

Severance and Property Taxes

 

 

4,031

 

 

 

 

 

 

4,031

 

Depreciation, Depletion, Amortization, and Accretion

 

 

3,592

 

 

 

 

 

 

3,592

 

General and Administrative

 

 

940,483

 

 

 

 

 

 

940,483

 

Total Operating Expenses

 

 

1,136,589

 

 

 

 

 

 

1,136,589

 

Operating Loss

 

 

(1,043,836 )

 

 

 

 

 

(1,043,836 )

 

 

 

 

 

 

 

 

 

 

 

 

Other Expense (Income)

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

4,174

 

 

 

 

 

 

4,174

 

Loss on Derivative Liability

 

 

2,767,878

 

 

 

5,366,234

 

 

 

8,134,112

 

Other Expense (Income), Net

 

 

(9,278 )

 

 

 

 

 

 

(9,278 )

Total Other Expenses (Income)

 

 

(2,762,774

)

 

 

5,366,234

 

 

 

8,129,008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Before Discontinued Operations

 

 

(3,806,610 )

 

 

(5,366,234 )

 

 

(9,172,844 )

Income from Discontinued Operations

 

 

761,768

 

 

 

 

 

 

 

761,768

 

Net Loss

 

$ (3,044,842 )

 

$ (5,366,234 )

 

$

(8,411,076

)

Less Preferred Dividends

 

 

1,468,328

 

 

 

(1,384,046 )

 

 

84,282

 

Net Loss Attributable to Common Shareholders

 

 

(4,513,170 )

 

 

(3,982,188 )

 

 

(8,495,358 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$ (10.69 )

 

$ (8.07 )

 

$

(18.77

)

Discontinued Operations

 

 

1.54

 

 

 

 

 

 

 

1.54

 

Total

 

$ (9.15 )

 

$ (8.07 )

 

$ (17.22 )

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$ (10.69 )

 

$ (8.07 )

 

$ (18.77 )

Discontinued Operations

 

 

1.54

 

 

 

 

 

 

 

1.54

 

Total

 

$ (9.15 )

 

$ (8.07 )

 

$ (17.22 )

    

 
19

Table of Contents

 

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

  

Six Months Ended September 30, 2019

 

 As Previously Restated (Second amendment)

 

 

Adjustments

 

 

Restated

 

 

 

 

 

 

 

 

 

 

 

Total Revenues

 

 

214,104

 

 

 

 

 

 

214,104

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Lease Operating Expenses

 

 

312,040

 

 

 

 

 

 

312,040

 

Severance and Property Taxes

 

 

6,605

 

 

 

 

 

 

6,605

 

Depreciation, Depletion, Amortization, and Accretion

 

 

7,834

 

 

 

 

 

 

7,834

 

General and Administrative

 

 

2,272,474

 

 

 

 

 

 

2,272,474

 

Total Operating Expenses

 

 

2,598,953

 

 

 

 

 

 

2,598,953

 

Operating Loss

 

 

(2,384,849 )

 

 

 

 

 

(2,384,849 )

 

 

 

 

 

 

 

 

 

 

 

 

Other Expense (Income)

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

5,021

 

 

 

 

 

 

5,021

 

Loss from Unconsolidated Entity

 

 

 

 

 

 

 

 

 

Loss on Derivative Liability

 

 

4,931,769

 

 

 

5,366,234

 

 

 

10,298,003

 

Other Expense (Income), Net

 

 

(63,540 )

 

 

 

 

 

 

(63,540 )

Total Other Expenses (Income)

 

 

(4,873,250

)

 

 

5,366,234

 

 

 

10,239,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Before Discontinued Operations

 

 

(7,258,099 )

 

 

(5,366,234 )

 

 

(12,624,333 )

Income from Discontinued Operations

 

 

761,768

 

 

 

 

 

 

 

761,768

 

Net Loss

 

$ (6,496,331 )

 

$ (5,366,234 )

 

$ (11,862,565 )

Less Preferred Dividends

 

 

2,922,049

 

 

 

(2,837,767 )

 

 

84,282

 

Net Loss Attributable to Common Shareholders

 

 

(9,418,380 )

 

 

(2,528,467

)

 

 

(11,946,847 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$ (39.24 )

 

$

(9.75

)

 

$

(48.99

)

Discontinued Operations

 

 

2.94

 

 

 

 

 

 

 

2.94

 

Total

 

$ (36.30 )

 

$

(9.75

)

 

$

(46.05

)

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$ (39.24 )

 

$

(9.75

)

 

$

(48.99

)

Discontinued Operations

 

 

2.94

 

 

 

 

 

 

 

2.94

 

Total

 

$ (36.30 )

 

$

(9.75

)

 

$

(46.05

)

    

 
20

Table of Contents

  

The table below sets forth changes to the consolidated statement of shareholders’ equity as of September 30, 2020:

 

 

 

As previously restated (First Amendment)

 

 

Adjustments

 

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

Balances September 30, 2020

 

 

 

 

 

 

 

 

 

Series C preferred Stock

 

$ 38,002,002

 

 

$ (32,698,864 )

 

$ 5,303,138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

25,000

 

 

 

 

 

 

 

25,000

 

Additional Paid-in Capital

 

 

161,157,247

 

 

 

40,169,049

 

 

 

201,326,296

 

Accumulated Deficit

 

 

(219,868,033 )

 

 

(73,354,430 )

 

 

(293,222,463 )

  Total Stockholders' Equity, September 30, 2020

 

$

(58,685,786

)

 

$ (33,185,381 )

 

$

(91,871,167

)

 

The table below sets forth changes to the consolidated statement of shareholders’ equity as of March 3 1 , 2020 :

 

 

 

As previously restated (First Amendment)

 

 

Adjustments

 

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

Balances March 31, 2020

 

 

 

 

 

 

 

 

 

Series C preferred Stock

 

$ 39,389,202

 

 

$ (29,587,756 )

 

$ 9,801,446

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

$ 5,000

 

 

 

 

 

 

$ 5,000

 

Additional Paid-in Capital

 

 

149,825,528

 

 

 

29,957,705

 

 

 

179,783,233

 

Accumulated Deficit

 

 

(190,264,774 )

 

 

(69,336,784 )

 

 

(259,601,558 )

  Total Stockholders' Equity, March 31, 2020

 

$ (40,434,246 )

 

$ (39,379,079 )

 

$ (79,813,325 )

  

 
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Table of Contents

 

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

 

Six Months Ended September 30, 2020

 

 As Previously Restated (Second amendment)

 

 

Adjustments

 

 

Restated

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (29,603,259 )

 

 

(4,017,646 )

 

$ (33,620,905 )

Net Income from Discontinued Operations

 

 

 

 

 

 

 

 

 

 

Net Loss from Continuing Operations

 

 

(29,603,259 )

 

 

(4,017,646 )

 

 

(33,620,905 )

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

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, Depletion, Amortization, and Accretion

 

 

5,132

 

 

 

 

 

 

 

5,132

 

Bad debt Expense

 

 

170,660

 

 

 

 

 

 

 

170,660

 

Share-Based Compensation

 

 

36,502

 

 

 

 

 

 

 

36,502

 

Loss from Equity Method Investment

 

 

2,140,121

 

 

 

 

 

 

 

2,140,121

 

Change in Fair Value of Derivative Liability

 

 

25,952,119

 

 

 

4,017,646

 

 

 

29,969,765

 

Changes in Components of Working Capital and Other Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

55,060

 

 

 

 

 

 

 

55,060 )

Other Current Assets

 

 

155,053

 

 

 

 

 

 

 

155,053

 

Accounts Payable and Accrued Expenses

 

 

(255,038 )

 

 

 

 

 

 

(255,038 )

Net Cash Used in Operating Activities

 

 

(1,343,650 )

 

 

 

 

 

 

(1,343,650 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

Cash Paid for Issuance of Notes Receivable

 

 

(4,200,000 )

 

 

 

 

 

 

(4,200,000

 

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

 

 

456,350

 

 

 

 

 

 

 

456,350 )

Cash at Beginning of the Period

 

 

656,615

 

 

 

 

 

 

 

656,615

 

Cash at End of the Period

 

$ 1,112,965

 

 

 

 

 

 

$ 1,112,965

 

 

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

 

Six Months Ended September 30, 2019

 

 As Previously Restated (Second amendment)

 

 

Adjustments

 

 

Restated

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (6,496,331 )

 

 

(5,366,234 )

 

$ (11,862,565 )

Net Income from Discontinued Operations

 

 

761,768

 

 

 

 

 

 

 

761,768

 

Net Loss from Continuing Operations

 

 

(7,258,099 )

 

 

(5,366,234 )

 

 

(12,624,333 )

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

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation, Depletion, Amortization, and Accretion

 

 

7,834

 

 

 

 

 

 

 

7,834

 

Bad debt Expense

 

 

17,694

 

 

 

 

 

 

 

17,694

 

Share-Based Compensation

 

 

29,425

 

 

 

 

 

 

 

29,425

 

Loss from Equity Method Investment

 

 

 

 

 

 

 

 

 

 

Change in Fair Value of Derivative Liability

 

 

4,931,764

 

 

 

5,366,234

 

 

 

10,298,003

 

Changes in Components of Working Capital and Other Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

(7,213

 

 

 

 

 

 

 

(7,213 )

Other Current Assets

 

 

234,145

 

 

 

 

 

 

 

234,14

 

Accounts Payable and Accrued Expenses

 

 

(409,683 )

 

 

(5 )

 

 

(409,688 )

Net Cash Used in Operating Activities from Continuing Operations

 

 

(2,454,133 )

 

 

 

 

 

 

(2,454,133 )

Net Cash Used in Operating Activities from Discontinued Operations

 

 

(383,770

 

 

 

 

 

 

 

(383,770 )

Net Cash Used in Operating Activities

 

 

(2,837,903 )

 

 

 

 

 

 

(2,837,903 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

Cash Paid for Subsidiary

 

 

(1,050,000

 

 

 

 

 

 

 

(1,050,000 )

Cash Paid for Issuance of Notes Receivable

 

 

 

 

 

 

 

 

 

 

Cash Received for Deposits

 

 

(31,534

 

 

 

 

 

 

 

(31,534 )

Net Cash Used in Investing Activities from Continuing Operations

 

 

(1,081,534 )

 

 

 

 

 

 

(1,081,534 )

Net Cash Used in Investing Activities from Discontinued Operations

 

 

(70,440

 

 

 

 

 

 

 

(70,440 )

Net Cash Used in Investing Activities

 

 

(1,151,974 )

 

 

 

 

 

 

(1,151,974 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

Cash Paid for Settlement of Series B Preferred Stock Warrants

 

 

(25,000

 

 

 

 

 

 

 

(25,000 )

Proceeds from Issuance of Series C Preferred Stock

 

 

 

 

 

 

 

 

 

 

Net Cash Provided by (Used in) Financing Activities from Continuing Operations

 

 

(25,000

 

 

 

 

 

 

 

(25,000 )

Net Cash Provided by Financing Activities from Discontinued Operations

 

 

454,210

 

 

 

 

 

 

 

454,210

 

Net Cash Provided by Financing Activities

 

 

429,210

 

 

 

 

 

 

 

429,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (Decrease) in Cash

 

 

(3,560,667

 

 

 

 

 

 

 

(3,560,667 )

Cash at Beginning of the Period

 

 

7,778,723

 

 

 

 

 

 

 

7,778,723

 

Cash at End of the Period

 

$ 4,218,056

 

 

 

 

 

 

$ 4,218,056

 

 

 
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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 the future development of individually significant properties and the ability of Camber to obtain funds to finance its programs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized.

 

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

 

Costs of oil and natural gas properties are amortized using the units of production method. Amortization expense calculated per equivalent physical unit of production amounted to $0.57 and $0.95 per barrel of oil equivalent for the six months ended September 30, 2020, and 2019, respectively.

  

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

 

 

 


September 30,

2020

 

 


March 31,

2020

 

Oil and gas properties subject to amortization

 

$ 50,413,792

 

 

$ 50,443,883

 

Oil and gas properties not subject to amortization

 

 

28,016,989

 

 

 

28,016,989

 

Capitalized asset retirement costs

 

 

1,570

 

 

 

1,570

 

Total oil & natural gas properties

 

 

78,432,351

 

 

 

78,462,442

 

Accumulated depreciation, depletion, and impairment

 

 

(78,356,957 )

 

 

(78,351,825 )

Net Capitalized Costs

 

$ 75,394

 

 

$ 110,617

 

 

Impairments

 

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

 

Additions and Depletion

 

During the six months ended September 30, 2020, and 2019, the Company incurred no costs for technical and other capital enhancements to extend the lives of the Company’s wells. Additionally, the Company recorded $4,871 and $6,572 of depletion for the six months ended September 30, 2020, and 2019, respectively. The Company recorded $2,164 and $2,572 of depletion for the three months ended September 30, 2020, and 2019, respectively.

 

Leases

 

As part of the Lineal Acquisition, the Company acquired various operating and finance leases for sales and administrative offices, motor vehicles, and machinery and equipment. Due to the Redemption Agreement discussed in – “Note 1 – General” and below in “Note 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, which was amended and restated by an Amended and Restated Agreement and Plan of Merger entered into with Viking on August 31, 2020 (the Merger Agreement). Pursuant to the Merger Agreement, at the effective time of the Merger, (a) each share of common stock of Viking issued and outstanding, other than certain shares owned by the Company, Viking and the Company’s merger sub which will be merged with and into Viking, with Viking being the surviving entity in the merger (“Merger Sub”), will be converted into the right to receive the pro-rata share (when including the Viking preferred stock conversion rights) of 80% of the Company’s post-closing capitalization (excluding shares issuable upon conversion of the Series C Preferred Stock of the Company); and (b) each share of Viking preferred stock outstanding immediately prior to the effective time will be converted into one share of Camber Series A Preferred Stock, which preferred stock will have the right to vote, and convert into, that number of shares of Camber common stock that its holder would have received in the Merger, had such holder fully converted the Viking preferred stock into Viking common stock immediately prior to the Effective Time. Holders of Viking common stock will have any fractional shares of Company common stock after the Merger rounded up to the nearest whole share. The Merger Agreement can be terminated under certain circumstances, including by either Viking or the Company if the Merger has not been consummated on or before December 31, 2020, subject to certain exceptions.

  

 
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Table of Contents

   

A further requirement to the closing of the Merger was that the Company was required to have acquired 30% of Elysium as part of a $9,200,000 investment in Viking’s Rule 506(c) offering, which transaction was completed on February 3, 2020 (25% of Elysium and $5 million investment) and June 25, 2020 (5% of Elysium and $4.2 million investment), as discussed below. In the event of termination of the Merger Agreement, Camber is required, under certain circumstances described below, to return a portion of the Elysium interests to Viking:

 

Reason for Termination

 

Percentage of Elysium

Retained by

Camber

 

Termination of the Merger Agreement by mutual agreement of the parties because the conditions to closing the Merger relating to the receipt of exchange listing and regulatory approvals and the Registration Statement on Form S-4, being declared effective, have a reasonable likelihood of not being satisfied through no fault of Camber or Viking

 

 

20 %*

Termination of the Merger Agreement due to either (i) Camber’s determination not to proceed with the Merger even though Viking has substantially performed its obligations pursuant to the Merger Agreement (except as discussed below), or (ii) a matter raised in Camber’s Merger Agreement disclosure schedule which was (A) not disclosed by Camber in its SEC reports, (B) could reasonably result in a material adverse effect on Camber in excess of $500,000, and (c) which Viking objected to within 5 business days of disclosure by Camber to Viking

 

 

0 %*

Termination of the Merger Agreement due to the failure of Camber’s shareholders to approve the terms of the Merger

 

 

15 %*

Termination of the Merger Agreement by either party due to any other reason not set forth above through no fault of Camber

 

 

25 %*

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

 

 

30 %

 

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

 

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

 

A required condition to the entry into the Merger was that the Company loan Viking $5 million, pursuant to the terms of a Securities Purchase Agreement, which was entered into on February 3, 2020 (the “1st SPA”). On February 3, 2020, the Company and Discover Growth Fund, an institutional investor (“Discover”), entered into a Stock Purchase Agreement pursuant to which Discover purchased 525 shares of Series C Preferred Stock of the Company, for $5 million, at a 5% original issue discount to the $10,000 face value of such preferred stock. Pursuant to the 1st SPA, the Company made a $5 million loan to Viking (using funds raised from the sale of the Series C Preferred Stock shares to Discover), which was evidenced by a 10.5% Secured Promissory Note (the “1st Secured Note”). On June 25, 2020, the Company advanced an additional $4.2 million to Viking in consideration for, among other things, an additional 10.5% Secured Promissory Note in the principal amount of $4.2 million (the “2nd Secured Note” and together with the 1st Secured Note, the “Secured Notes”).

  

 
26

Table of Contents

   

The Secured Notes accrue interest at the rate of 10.5% per annum, payable quarterly, and are due and payable on February 3, 2022. The notes include standard events of default, including certain defaults relating to the trading status of Viking’s common stock and change of control transactions involving Viking. The Secured Notes can be prepaid at any time with prior notice as provided therein, and together with a pre-payment penalty equal to 10.5% of the original amount of the Secured Notes. The Secured Notes are secured by a security interest, pari passu with the other investors in Viking’s Secured Note offering (subject to certain pre-requisites) in Viking’s 70% ownership of Elysium and 100% of Ichor Energy Holdings, LLC. Additionally, pursuant to a separate Security and Pledge Agreement, Viking provided Camber a security interest in the membership, common stock, and/or ownership interests of all of Viking’s existing and future, directly owned or majority-owned subsidiaries, to secure the repayment of the Secured Notes.

 

The Secured Notes are convertible into common shares of Viking at a conversion price of $0.24 per share at any time after March 4, 2020, and before the 15th day after Viking’s common stock has traded at an average daily price of at least $0.55 for 15 consecutive business days (at which point the Secured Notes are no longer convertible), provided that the Company is restricted from converting any portion of the Secured Notes into Viking’s common stock if upon such conversion the Company would beneficially own more than 4.99% of Viking’s common stock (which percentage may be increased or decreased, with 61 days prior written notice to Viking, provided that such percentage cannot under any circumstances be increased to greater than 9.99%).

 

On and effective June 22, 2020, the Company and Discover entered into a Stock Purchase Agreement (the “June 2020 Purchase Agreement”), pursuant to which Discover purchased 630 shares of Series C Preferred Stock for $6 million, at a 5% original issue discount to the $10,000 face value of such preferred stock (the “Face Value”). Provided that the Company has not materially breached the terms of the June 2020 Purchase Agreement, the Company may at any time, in its sole and absolute discretion, repurchase from Discover all, but not less than all, of the then outstanding shares of Series C Preferred Stock sold pursuant to the agreement by paying to Discover 110% of the aggregate face value of all such shares.

 

The Company agreed pursuant to the June 2020 Purchase Agreement that if the Merger does not close by the required date approved by the parties thereto (as such may be extended from time to time), the Company is required, at Discover’s option, in its sole and absolute discretion, to immediately repurchase from Discover all then outstanding Series C Preferred Stock shares acquired by Discover pursuant to the June 2020 Purchase Agreement, by paying to Discover 110% of the aggregate Face Value of all such shares (the “Repurchase Requirement”), which totals $6,930,000. The Repurchase Requirement was terminated in connection with the parties’ entry into the Exchange Agreement in December 2020, discussed below under “Note 19—Subsequent Events”.

 

On June 22, 2020, the Company and Discover entered into an Amendment to Stock Purchase Agreement (the “SPA Amendment”), pursuant to which Discover agreed to terminate the obligation set forth in the February 2020 Stock Purchase Agreement previously entered into between the Company and Discover on February 3, 2020, which contained a Repurchase Requirement substantially similar to the one contained in the June 2020 Purchase Agreement (as to the 525 shares of Series C Preferred Stock sold to Discover on February 3, 2020), which would have required that the Company pay Discover an aggregate of $5,775,000 in connection with the redemption of the 525 shares of Series C Preferred Stock the Company sold to Discover in the event the Merger was terminated.

 

Investment in Unconsolidated Entity

 

The Company accounts for its investment in unconsolidated entities under the equity method of accounting when it owns less than 50% of a controlling interest and does not have the ability to exercise significant influence over the operating and financial policies of the entity. The Company owns 30% of Elysium as of September 30, 2020 (25% from February 3, 2020, to June 25, 2020), as discussed above, and accounts for such ownership under the equity method of accounting. The investment is adjusted accordingly for dividends or distributions it receives and its proportionate share of earnings or losses of the entity. Elysium is involved in oil and gas exploration and production in the United States. The balance sheet of Elysium at September 30, 2020, included current assets of $2.3 million, total assets of $30.8 million, total liabilities of $34.9 million, and net liabilities of $(4.1) million. The balance sheet of Elysium at March 31, 2020, included current assets of $4.0 million, total assets of $37.7 million, total liabilities of $34.0 million, and net assets of $3.7 million. Additionally, the income statement for Elysium for the three and six months ended September 30, 2020, included total revenues of $4.0 million and $7.8 million and a net loss of $3.2 million and $7.5 million, respectively.

 

 
27

Table of Contents

   

The carrying value of the notes receivable was reduced by $1,182,952, as the Company’s share of losses from Elysium for the six months ended September 30, 2020. In accordance with ASC 323-10-35, the losses from Elysium exceeded the equity investment of the Company which was used to reduce the related notes receivable balance. If the losses were to exceed the notes receivable balance, no additional losses would be recorded for the equity investment.

 

The table below shows the changes in the investment in the unconsolidated entity for the six-month periods ended September 30, 2020 and 2019, respectively.

 

 

 

2020

 

 

2019

 

Carrying amount at beginning of period

 

$ 957,169

 

 

$

 

Investment in Elysium

 

 

 

 

 

 

Equity change in net loss of unconsolidated entity applied to Long-Term Notes Receivable

 

 

1,182,952

 

 

 

 

Proportionate Share of Elysium Loss

 

 

(2,140,121 )

 

 

 

Carrying amount at end of period

 

$

 

 

$

 

 

NOTE 7 – LONG-TERM NOTES RECEIVABLE

 

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

 

 

 

September 30,
2020

 

 

March 31,
2020

 

Notes receivable from Viking Energy Group, Inc. pursuant to 10.5% Secured Promissory Notes dated February 3, 2020 ($5,000,000) and June 25, 2020 ($4,200,000) in the original principal amount of $9,200,000, having an annual interest rate of 10.5%, with interest due quarterly beginning on May 1, 2020, maturing February 3, 2022. Accrued and unpaid interest of $132,329 and $83,425 is included in accounts receivable at September 30, 2020, and March 31, 2020, respectively. The Note is secured by secured interests in six Viking Energy Group, Inc. subsidiaries. See also “Note 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 $16,132 and $37,966 included in accounts receivable at September 30, 2020, and March 31, 2020, respectively. The Company recognized a partial allowance of $76,152 and the related accrued interest has been fully reserved as of September 30, 2020. See also “Note 1 – General” and “Note 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 $38,809 and $15,781 included in accounts receivable at September 30, 2020, and March 31, 2020, respectively. The Company recognized a partial allowance of $39,567 and the related accrued interest has been fully reserved as of September 30, 2020. See also “Note 1 – General” and “Note 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”

 

 

(1,182,952 )

 

 

 

Less allowance for notes receivable

 

 

(115,719 )

 

 

 

Less: current maturities

 

 

 

 

 

 

Total

 

$ 10,241,048

 

 

$ 7,339,719

 

  

 
28

Table of Contents

     

As discussed in Note 12, the Lineal notes are unsecured. Due to the impact of COVID-19 on its operations, Lineal notified the Company that it currently has insufficient liquidity to make scheduled interest payments due under the notes. The Company is in negotiations with Lineal to restructure the notes receivable and an allowance has been applied to the principle and accrued interest of these notes (discussed further below) subject to completion of the negotiations. The Company performed an analysis of Lineal notes to estimate their value as of September 30, 2020. The Company analyzed information received from Lineal including Lineal’s financial statements, which calculated the value of the notes and discounted the expected future payments due thereunder using a standard discounted cash flow model for the principal and accrued interest to the maturity date from September 30, 2020. The Company applied a discount of 15% based on factors in the Lineal notes to determine a valuation as of September 30, 2020.

 

Based on this analysis, the Company recorded a total allowance of $170,660 to reduce the reported value of the Lineal notes and accrued interest, fully reserving the current interest due of $54,941 with the remainder of $115,719 applied as an allowance to the principal value of the notes as of September 30, 2020.

 

NOTE 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 six-month periods ended September 30, 2020, and 2019, respectively.

 

 

 

2020

 

 

2019

 

Carrying amount at beginning of period

 

$ 71,750

 

 

$ 303,809

 

Panhandle Settlement

 

 

(30,227 )

 

 

 

Payments

 

 

 

 

 

 

Accretion

 

 

 

 

 

2

 

Revisions of previous estimates

 

 

4,260

 

 

 

8,258

 

Carrying amount at end of period

 

$ 45,783

 

 

$ 312,069

 

 

Camber has short-term obligations of $25,766 and $30,277 related to the plugging liabilities at September 30, 2020, and March 31, 2020, respectively.

 

NOTE 9 – DERIVATIVE LIABILITY

 

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 volume weighted average stock price of the Company’s common stock (“VWAP”) calculation based on the lowest stock price over the Measurement Period.  The conversion price is equal to 95% (85% following a Triggering Event) of the five lowest VWAPs over the Measurement Period, less $0.05 ($0.10 following a Triggering Event) per share. 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.

 

Our accounting treatment of the Series C Stock is described below:

 

Prior to April 20, 2021

 

Issuance of the Series C Stock

 

Upon issuance we determined that the Series C Stock included an embedded derivative and, because the conversion was generally outside the control of the Company, the Series C Stock were required to be recorded as temporary equity. Upon issuance of the Series C Stock, we determined the amount to be the allocated to the derivative liability to be the Conversion Premium, assuming a cash settlement and we determined the redemption value of the Series C Stock to be the fair value of the common shares issuable to satisfy the conversion of the Series C Stock. To the extent that consideration paid for the Series C Stock was less than the redemption value plus the derivative liability, we first allocated the consideration to the derivative liability and recorded the difference as a loss on derivative liability. The consideration received never exceeded the derivative liability. Consequently, no proceeds were allocated to the redemption value. The redemption value was recorded as temporary equity and a deemed dividend. The cash obligation required to satisfy the Conversion Premium, less cash received was recorded as a derivative liability.

 

 
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Conversion of the Series C Stock

 

The Company receives notice of conversion from the holder with a calculation of the number of common shares required to be issued to satisfy the redemption value plus the Conversion Premium. The Company has never elected to satisfy the conversion premium in cash. The Company then issues the number of common shares determined by the holder using a VWAP calculation for the Measurement Period before the conversion date. The shares may be issued over time due to ownership limitations of the holder. Upon conversion of the Series C Stock, the Company reduces the derivative liability by the amount that was originally recorded for the number of Series C Stock converted. Any difference between the current fair value of the common shares issued to satisfy the conversion premium and the originally recorded derivative liability was recorded as a loss on derivative liability. Temporary equity is also reduced by the fair value the common shares issued to satisfy the redemption value (amounts recorded in temporary equity). Any difference is recorded as additional deemed dividend or an equity contribution.

 

The holder may be entitled to additional shares subsequent to the conversion date 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, referred to as “true-up” shares. If the VWAP calculation is higher, no true-up shares are issued.

 

Management has determined that the potential obligation to issue “true-up” shares under the Conversion Premium creates an additional 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 Certificate of Designation, the Measurement Period does not end until the Company is in compliance. The potential obligation to issue true-up shares after the conversion date is a derivative liability.

 

The derivative liability for the True-Up Shares at the end of each period represents Series C 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 pricing model, the estimated remaining Measurement Period, the share price and the historical volatility of the Company’s common stock.

 

Adjustments to the Carrying value of the Series C Stock and the Derivative Liability

 

At each reporting period the Company determined the fair value of the common shares required to satisfy the redemption of the outstanding Series C Stock and recorded an additional deemed dividend or an equity contribution for any differences. The redemption Conversion Premium was assumed to be settled in cash because cash settlement is more favorable to the Company. The fair value of the common shares required to satisfy the redemption of the Series C Stock was determined generally using the closing share price of the Company’s stock as of the reporting date. The amount of cash required to settle the Conversion Premium was generally fixed at the time of issuance. Consequently, the fair value of the derivative liability relating to the cash obligation to satisfy the Conversion Premium is generally unchanged until conversion.

 

The cash required to settle the conversion premium was unchanged until the dividend rate of 24.95% was increased in accordance with the terms of the Series C Stock to 34.95% due to covenant violations. The increase in the conversion premium was recorded as an increase in the derivative liability and a loss on change in fair value of derivative liability.

 

The fair value of the derivative liability relating to the potential obligation to issue true-up shares is subject to adjustment as the Company’s stock price changes. Such changes are recorded as changes in fair value of derivative liability.

 

April 20, 2021 Amendment to the Series C Stock COD

 

On April 20, 2021, the Company amended the Series C Stock certificate of designation (COD) to require all conversions to be in common shares, thus removing the cash option for redemption of the Conversion Premium. We determined that the amendment required reclassification of the Series C Stock recorded in temporary equity to be reclassified to permanent equity with no further quarterly adjustments.

 

Effect on derivative liability

 

We determined that the removal of the cash option for conversion of the Conversion Premium changed the cash redemption assumption to assume, in all cases, share redemption. Therefore, the derivative liability is required to be recorded at the fair value of the equivalent number of common shares issuable to satisfy the Conversion Premium. We recorded an adjustment to derivative liability and loss on derivative on April 20, 2021 and we will record changes in fair value of the derivative liability each quarter thereafter as long as any Series C Stock are outstanding. We estimated the fair value of the derivative liability for the outstanding Series C Stock Conversion Premium using the period end number of shares required to satisfy the Conversion Premium at the period end closing share price of the Company’s common stock, except as noted below.

 

Limitations on using the closing price of the Company’s common stock to determine fair value

 

The Company is a smaller reporting company and is traded on the NYSE American exchange. Historically, our stock price has been extremely volatile and subject to large and sometimes unexplained price variations on a daily or weekly basis. In addition, the Company declared four reverse stock splits in 2018 and 2019 and the Company’s common stock generally trades at less than $1.00 per share. These factors have exacerbated daily volatility of our stock price. Consequently, we believe that the closing price of our stock on the reporting date may not, in all cases, represent the fair value of the common share required to satisfy the redemption of the Series C Stock. Recognizing that the closing share price of our publicly traded stock is an observable input to fair value, we used such price for determining fair value in most cases and only considered an alternative measure of fair value when the closing price of the Company’s common stock varied by more than 20% from the five-day moving average immediately prior to the measurement date. In such cases, we used an average closing price of the previous 30-day period as an estimate of fair value, adjusted for stock splits if applicable.  In addition, conversion of the Series C shares require a significant number of common shares to be issued in relation to the total number of shares outstanding.  We do not believe that the market price of the Company’s common stock appropriately reflects the potential for significant dilution caused by a large conversion and may not be representative of market value.   In cases where the number of common shares required to satisfy a conversion of the Series C shares into common stock was significant in relation to the total number of shares outstanding (approximately 30% or greater) we determined the fair value of the embedded features based on the historical market capitalization of the Company. 

 

 
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Activities for derivative warrant instruments during the six months ended September 30, 2020, and 2019 were as follows:

 

 

 

2020

 

 

2019

 

Carrying amount at beginning of period

 

$

 

 

$ 5

 

Change in fair value

 

 

 

 

 

(5 )

Carrying amount at end of period

 

$

 

 

$

 

 

Activities for derivative Series C Preferred Stock derivative liability during the six months ended September 30, 2020 and 2019 were as follows (restated):

 

 

 

2020

 

 

2019

 

Carrying amount at beginning of period

 

$ 77,636,666

 

 

$ 60,303,474

 

Settlements of derivative liabilities (issuance of shares)

 

 

(13,176,041 )

 

 

 

 

Change in fair value

 

 

32,290,533

 

 

 

4,858,374

 

Carrying amount at end of period

 

$ 96,751,178

 

 

$ 65,161,848

 

 

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.

 

Additionally, as of September 30, 2020, the Company had 2 outstanding stock options and warrants to purchase 36 shares outstanding which were exercisable for shares of the Company’s commons stock. As of September 30, 2020, the Company did not have sufficient authorized shares of common stock to satisfy any exercise requests and the common stock equivalents are considered to be tainted derivative instruments.

 

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.

 

Lineal (which as of December 31, 2019, has been completely divested in connection with the Lineal Divestiture discussed in “Note 1 – General” and “Note 12 – Lineal Merger Agreement and Divestiture”) has the usual liability of contractors for the completion of contracts and the warranty of its work. In addition, Lineal acts as the prime contractor on a majority of the projects it undertakes and is normally responsible for the performance of the entire project, including subcontract work. Management is not aware of any material exposure related thereto which has not been provided for in the accompanying consolidated financial statements.

 

Legal Proceedings. From time to time suits and claims against Camber arise in the ordinary course of Camber’s business, including contract disputes and title disputes. Camber records reserves for contingencies when information available indicates that a loss is probable, and the amount of the loss can be reasonably estimated.

 

Maranatha Oil Matter

 

In November 2015, Randy L. Robinson, d/b/a Maranatha Oil Co. sued the Company in Gonzales County, Texas (Cause No. 26160). The plaintiff alleged that it assigned oil and gas leases to the Company in April 2010, retaining a 4% overriding royalty interest and 50% working interest and that the Company failed to pay such overriding royalty interest or royalty interest. The interests relate to certain oil and gas properties which the Company subsequently sold to Nordic Oil USA in April 2013. The petition alleges causes of actions for breach of contract, failure to pay royalties, non-payment of working interest, fraud, fraud in the inducement of contract, money had and received, constructive trust, violation of theft liability act, continuing tort, and fraudulent concealment. The suit seeks approximately $100,000 in amounts alleged owed, plus pre-and post-judgment interest. The Company has filed a denial to the claims and intends to vehemently defend itself against the allegations.

  

 
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PetroGlobe Energy Holdings, LLC and Signal Drilling, LLC

 

In March 2019, PetroGlobe and Signal sued the Company in the 316th Judicial District of Hutchinson County, Texas (Cause No. 43781). The plaintiffs alleged causes of action relating to negligent misrepresentation; fraud and willful misconduct; gross negligence; statutory fraud; breach of contract; and specific performance, in connection with a purchase and sale agreement entered into between the parties in March 2018, relating to the purchase by plaintiffs of certain oil and gas assets from the Company, and a related joint venture agreement. The lawsuit seeks in excess of $600,000 in damages, as well as pre- and post-judgment interest, court costs and attorneys’ fees, and punitive and exemplary damages. Additionally, a portion of the revenues from the properties in contention are being held in suspense as a result of the lawsuit. On October 31, 2019, the Company brought counterclaims against PetroGlobe and Signal, and Petrolia Oil, LLC, and Ian Acrey, including bringing claims for causes of actions including declaratory judgment (that PetroGlobe and certain other plaintiffs represented that a lease and related wells were free of all agreements and rights in favor of third parties and provided a special warranty of title pursuant to the purchase and sale agreement); breach of contract (in connection with the purchase and sale agreement); statutory fraud; common law fraud (against Mr. Acrey and other plaintiffs); fraud by non-disclosure (against Mr. Acrey and other plaintiffs); negligent misrepresentation (against Mr. Acrey and other plaintiffs); breach of fiduciary duty (against Mr. Acrey and other plaintiffs) and seeking attorney’s fees and pre- and post-judgment interest.

 

On May 30, 2019, the Company received a Severance Order from the Texas Railroad Commission (the “TRC”) for noncompliance with TRC rules, suspending the Company’s ability to produce or sell oil and gas from its Panhandle leases in Hutchinson County, Texas, until certain well performance criteria were met. Subsequent to that date, the Company followed TRC procedures in order to regain TRC compliance for the Panhandle wells.

 

On January 31, 2020, the Company entered into a Compromise Settlement Agreement (the “Settlement Agreement”) with PetroGlobe Energy Holdings, LLC (“PetroGlobe”), Signal Drilling, LLC (“Signal”), Petrolia Oil, LLC (“Petrolia”), Prairie Gas Company of Oklahoma, LLC (“PGCO”), and Canadian River Trading Company, LLC (“CRTC”). Pursuant to the Settlement Agreement, the Company agreed to pay PetroGlobe $250,000, of which $100,000 was due upon execution of the Settlement Agreement, which payment has been made, and $150,000 was paid to an escrow account, which release was subject to approval by the Company upon the successful transfer of all wells and partnership interests of the Company’s current wholly-owned subsidiary CE to PetroGlobe, which occurred on July 16, 2020.

 

On July 16, 2020, the Company completed all of the requirements of the Settlement Agreement and assigned PetroGlobe all of its right, title, and interest in all wells, leases, royalties, minerals, equipment, and other tangible assets associated with specified wells and properties, located in Hutchinson County, Texas, the $150,000 held in escrow was released to PetroGlobe and the Settlement Agreement transactions closed. As a result of the transfers, the Company no longer owns CE, and no longer has any interest in or any liabilities related to the Hutchinson County, Texas wells.

 

The Company recognized a net settlement cost of $204,842 included on the statement of operations for the year ended March 31, 2020, in connection with the settlement. All provisions of the settlement were finalized, and the $150,000, held in escrow pending final approvals, was released on July 16, 2020.

 

The Company released the parties to the Settlement Agreement, including Ian Acrey, individually, as well as their officers, directors, or members from any claims asserted in the lawsuit, and the parties to the Settlement Agreement along with Ian Acrey, individually, released the Company, its officers, directors, shareholders and affiliate corporations from any claims asserted in the lawsuit. The Company did not release any claims or causes of action against N&B Energy, LLC, Sezar Energy, LLP related to Richard Azar, or any of their affiliates, or predecessors, or successors.

 

The parties filed a motion and order to dismiss the lawsuit with prejudice shortly after the execution of the Settlement Agreement.

  

 
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Apache Corporation