UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  

FORM 10-KT/A

(Amendment No. 1)

 

(Mark One)

 

☐     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

or

 

☒     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from April 1, 2020 to December 31, 2020

 

Commission File Number:001-32508

 

 

CAMBER ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

20-2660243

(State of other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

15915 Katy Freeway, Suite 450, Houston, Texas

 

77094

(Address of principal executive offices)

 

(Zip code)

 

Registrant’s telephone number, including area code: (210) 998-4035

 

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

CEI

NYSE American

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐     No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐     No ☒

 

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” and “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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

 

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

 

As of September 30, 2020 (the date of the registrant’s most recently completed second fiscal quarter, prior to its determination to change its fiscal year end), the aggregate market value of the shares of the registrant's common equity held by non-affiliates was approximately $16,000,000 using the September 30, 2020 closing price of the registrant's common stock of $0.64/share. Shares of the registrant's common stock held by each executive officer and director and by each person who beneficially owns 10 percent or more of the registrant’s outstanding common stock have been excluded in that such persons may be deemed to be "affiliates" of the registrant for purposes of the above calculation. This determination of affiliate status is not a conclusive determination for other purposes.

 

There were 414,290,116 shares of the registrant’s common stock outstanding as of May 16, 2022.

 

Documents incorporated by reference: None.

 

 

 

  

Explanatory Note

 

This Amendment No. 1 on Form 10-KT/A amends the registrant’s Transition Report on Form 10-KT for the nine-month period ending December 31, 2020, as filed with the Securities and Exchange Commission by the registrant on May 19, 2022. This Amendment is filed solely to include the XBRL Interactive Data File exhibits required by Item 601(b)(101) of Regulation S-K. No other items are being amended and this Amendment does not reflect any events occurring after the filing of the original Transition Report on Form 10-KT for the nine-month period ending December 31, 2020.

 

 

 

  

TABLE OF CONTENTS

 

 

 

Page

 

Glossary of Oil and Gas Terms

 

3

 

Cautionary Note Regarding Forward-Looking Statements

 

6

 

Where You Can Find More Information

 

8

 

General Information

 

8

 

 

PART I

ITEM 1.

Business

 

9

 

 

General

 

10

 

 

Recent Reverse Stock Splits and Amendments to Articles

 

 

 

 

Industry Segments

 

18

 

 

Operations and Oil and Gas Properties

 

 

 

Marketing

 

 

 

Competition

 

18

 

 

Regulation

 

18

 

 

Insurance Matters

 

19

 

 

Other Matters

 

19

 

ITEM 1A.

Risk Factors

 

22

 

ITEM 2.

Properties

 

41

 

ITEM 3.

Legal Proceedings

 

42

 

ITEM 4.

Mine Safety Disclosures

 

43

 

 

PART II

ITEM 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

44

 

ITEM 6.

Selected Financial Data

 

49

 

ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

49

 

ITEM 7A.

Quantitative and Qualitative Disclosures About Market Risk

 

56

 

ITEM 8.

Financial Statements and Supplementary Data

 

57

 

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

58

 

ITEM 9A.

Controls and Procedures

 

58

 

ITEM 9B.

Other Information

 

59

 

 

PART III

ITEM 10.

Directors, Executive Officers and Corporation Governance

 

60

 

ITEM 11.

Executive Compensation

 

68

 

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

70

 

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

 

71

 

ITEM 14.

Principal Accounting Fees and Services

 

73

 

 

 

PART IV

 

ITEM 15.

Exhibits, Financial Statement Schedules

 

74

 

ITEM 16.

Form 10–K Summary

 

74

 

SIGNATURES

 

75

 

 
2

Table of Contents

  

GLOSSARY OF OIL AND NATURAL GAS TERMS

 

The following are abbreviations and definitions of certain terms used in this Report, which are commonly used in the oil and natural industry.

 

AFE or Authorization for Expenditures. A document that lays out proposed expenses for a particular project and authorizes an individual or group to spend a certain amount of money for that project.

 

ARO. Asset retirement obligation, a legal obligation associated with the retirement of an asset, which in the Company’s case is generally associated with the pugging of oil wells. 

 

Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used in this Annual Report in reference to crude oil or other liquid hydrocarbons.

 

Bcf. An abbreviation for billion cubic feet. Unit used to measure large quantities of gas, approximately equal to 1 trillion Btu.

 

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

 

Boepd. Barrels of oil equivalent per day.

 

Bopd. Barrels of oil per day.

 

Btu or British thermal unit. The quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.

 

Completion. The operations required to establish production of oil or natural gas from a wellbore, usually involving perforations, stimulation and/or installation of permanent equipment in the well or, in the case of a dry hole, the reporting of abandonment to the appropriate agency.

 

Condensate. Liquid hydrocarbons associated with the production of a primarily natural gas reserve.

 

Development well. A well drilled into a proved oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

 

Exploratory well. A well drilled to find and produce oil or natural gas reserves not classified as proved, to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir or to extend a known reservoir.

 

Field. An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition.

 

Gross acres or gross wells. The total acres or wells in which a working interest is owned.

 

Horizontal drilling or well. A drilling operation in which a portion of the well is drilled horizontally within a productive or potentially productive formation. This operation typically yields a horizontal well that has the ability to produce higher volumes than a vertical well drilled in the same formation. A horizontal well is designed to replace multiple vertical wells, resulting in lower capital expenditures for draining like acreage and limiting surface disruption.

 

Liquids. Liquids, or natural gas liquids, are marketable liquid products including ethane, propane, butane and pentane resulting from the further processing of liquefiable hydrocarbons separated from raw natural gas by a natural gas processing facility.

 

LOE or Lease operating expenses. The costs of maintaining and operating property and equipment on a producing oil and gas lease.

 

 
3

Table of Contents

  

MBbl. One thousand barrels of crude oil or other liquid hydrocarbons.

 

MMBbl/d. One thousand barrels of crude oil or other liquid hydrocarbons per day.

 

Mcf. One thousand cubic feet of natural gas.

 

Mcfgpd. Thousands of cubic feet of natural gas per day.

 

MMcf. One million cubic feet of natural gas.

 

MMBtu. One million British thermal units.

 

Net acres or net wells. The sum of the fractional working interest owned in gross acres or wells.

 

Net revenue interest. The interest that defines the percentage of revenue that an owner of a well receives from the sale of oil, natural gas and/or natural gas liquids that are produced from the well.

 

NGL. Natural gas liquids.

 

NYMEX. New York Mercantile Exchange.

 

Permeability. A reference to the ability of oil and/or natural gas to flow through a reservoir.

 

 
4

Table of Contents

  

Play. A set of known or postulated oil and/or natural gas accumulations sharing similar geologic, geographic and temporal properties, such as source rock, migration pathways, timing, trapping mechanism and hydrocarbon type.

 

Possible reserves. Additional reserves that are less certain to be recognized than probable reserves.

 

Probable reserves. Additional reserves that are less certain to be recognized than proved reserves but which, in sum with proved reserves, are as likely as not to be recovered.

 

Producing well, production well or productive well. A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of the well’s production exceed production-related expenses and taxes.

 

Properties. Natural gas and oil wells, production and related equipment and facilities and natural gas, oil or other mineral fee, leasehold and related interests.

 

Prospect. A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is considered to have potential for the discovery of commercial hydrocarbons.

 

Proved developed reserves. Proved reserves that can be expected to be recovered through existing wells and facilities and by existing operating methods.

 

Proved reserves. Reserves of oil and natural gas that have been proved to a high degree of certainty by analysis of the producing history of a reservoir and/or by volumetric analysis of adequate geological and engineering data.

 

Proved undeveloped reserves or PUDs. Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.

 

Reservoir. A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

 

Royalty interest. An interest in an oil and natural gas lease that gives the owner of the interest the right to receive a portion of the production from the leased acreage (or of the proceeds of the sale thereof), but generally does not require the owner to pay any portion of the costs of drilling or operating the wells on the leased acreage. Royalties may be either landowner’s royalties, which are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved by an owner of the leasehold in connection with a transfer to a subsequent owner.

 

Shut in. To shut in a well is to close off the well so that it stops producing.

 

 Trend. A region of oil and/or natural gas production, the geographic limits of which have not been fully defined, having geological characteristics that have been ascertained through supporting geological, geophysical or other data to contain the potential for oil and/or natural gas reserves in a particular formation or series of formations.

 

Unconventional resource play. A set of known or postulated oil and or natural gas resources or reserves warranting further exploration which are extracted from (a) low- permeability sandstone and shale formations and (b) coalbed methane. These plays require the application of advanced technology to extract the oil and natural gas resources.

 

Undeveloped acreage. Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas, regardless of whether such acreage contains proved reserves. Undeveloped acreage is usually considered to be all acreage that is not allocated or assignable to productive wells.

 

 
5

Table of Contents

  

Unproved and unevaluated properties. Refers to properties where no drilling or other actions have been undertaken that permit such property to be classified as proved.

 

Vertical well. A hole drilled vertically into the earth from which oil, natural gas or water flows are pumped.

 

Wellbore. The hole made by a well.

 

WTI or West Texas Intermediate. A grade of crude oil used as a benchmark in oil pricing. This grade is described as light because of its relatively low density, and sweet because of its low sulfur content.

 

Working interest. The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and receive a share of production.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Transition Report on Form 10-KT (this “Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally located in the material set forth under the headings “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business”, and “Properties” but may be found in other locations as well. These forward-looking statements are subject to risks and uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. You should not unduly rely on these statements. Factors, risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements include, among others:

 

 

·

the availability of funding and the terms of such funding;

 

 

 

 

·

our ability to integrate and realize the benefits from future acquisitions that we may complete and the costs of such integrations;

 

 

 

 

·

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

 

 

 

 

·

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

 

 
6

Table of Contents

  

 

·

our growth strategies;

 

 

 

 

·

anticipated trends in our business;

 

 

 

 

·

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

 

 

 

 

·

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

 

 

 

 

·

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

 

 

 

 

·

the timing, cost and procedure for future acquisitions;

 

 

 

 

·

the impact of government regulation;

 

 

 

 

·

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

 

 

 

 

·

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

 

 

 

 

·

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

 

 

 

 

·

increases in oil and gas production;

 

 

 

 

·

changes in the market price of oil and gas;

 

 

 

 

·

changes in the number of drilling rigs available;

 

 

 

 

·

the number of wells we anticipate drilling in the future;

 

 

 

 

·

estimates, plans and projections relating to acquired properties;

 

 

 

 

·

the number of potential drilling locations;

 

 

 

 

·

our ability to maintain our NYSE listing;

 

 

 

 

·

the voting and conversion rights of our preferred stock;

 

 

 

 

·

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

 

 

 

 

·

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

 

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

 

 
7

Table of Contents

  

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

 

Where You Can Find Other Information

 

We file annual, quarterly, and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public over the Internet at the SEC’s website at www.sec.gov and are available for download, free of charge, soon after such reports are filed with or furnished to the SEC, on the “Investors,” “SEC Filings” page of our website at www.camber.energy. Information on our website is not part of this Report, and we do not desire to incorporate by reference such information herein. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC like us. Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report. In addition, you can access our proxy statements, our Code of Business Conduct and Ethics, Nominating and Corporate Governance Committee Charter, Audit Committee Charter, and Compensation Committee Charter on our website http://www.camber.energy, at “Investors” – “SEC Filings” – “All SEC Filings” and “Governance” - “Policies”.

 

General Information

 

The following discussion and analysis provide information which management believes is relevant for an assessment and understanding of the results of operations and financial condition of the Company. Expectations of future financial condition and results of operations are based upon current business plans and may change. The discussion should be read in conjunction with the audited financial statements and notes thereto.

 

In this Report, we may rely on and refer to information regarding our industry which comes from market research reports, analyst reports and other publicly available information. Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of this information, and we have not independently verified any of it.

 

Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “Camber,” “Camber Energy” and “Camber Energy, Inc.” refer specifically to Camber Energy, Inc., and our consolidated subsidiaries: CE Operating, LLC, an Oklahoma limited liability company which is wholly-owned, and C E Energy LLC, a Texas limited liability company which is wholly-owned (“CE”).

 

Certain abbreviations and oil and gas industry terms used throughout this Annual Report are described and defined in greater detail above under “Glossary of Oil and Natural Gas Terms” on page 1 of this Report, and readers are encouraged to review that section.

 

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

 

 

·

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

 

 

 

 

·

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

 

 

 

 

·

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

 

 
8

Table of Contents

  

PART I

 

ITEM 1. BUSINESS.

 

Our website address is http://www.camber.energy. The information on, or that may be accessed through, our website is not incorporated by reference into this Report and should not be considered a part of this Report.

 

Change in Fiscal Year End 

 

On February 4, 2021, the Board of Directors of the Company approved changing the Company's fiscal year from a fiscal year ending on March 31 of each year to a fiscal year ending on December 31 of each year. As a result of this change, we are filing this Transition Report on Form 10-KT covering the nine-month transition period from April 1, 2020, to December 31, 2020. References to our previous fiscal years mean the fiscal years ending on March 31st. The Company’s fiscal year 2021 commenced on January 1, 2021.

 

Late Filings and Restatements

 

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”).

 

The Company had discussions with its accounting advisors and the SEC staff regarding the accounting treatment for the Series C Shares. The Series C Shares have been outstanding since 2016 and the accounting treatment is applicable to all of the Company’s previously filed and yet to be filed financial statements. On September 16, 2021 the Company filed an 8-K, Item 4.02 non-reliance on previously filed financial statements and deferred filing Annual Reports on Form 10-K and quarterly reports on Form 10-Q until the appropriate accounting treatment had been determined.

 

In November 2021, the Company believed it had determined the appropriate accounting treatment and filed an amended Annual Report on Form 10-K/A for the year ended March 31, 2020, inclusive of restated comparative financial statements for the year ended March 31, 2019, an amended Quarterly report on From 10-Q/A for the three months ended June 30, 2020, and an amended quarterly report on Form 10-Q/A for the three and six month periods ended September 30, 2020. 

 

Subsequent to filing the amended filings, the Company was advised by the SEC that the staff continued to question the accounting treatment for the Series C Shares. Consequently, the Company continued to defer filing Annual Reports on Form 10-K and quarterly reports on Form 10-Q until the matter had been resolved. On March 28, 2022 the Company filed Form 8-K, Item 4.02 non-reliance on previously filed financial statements

 

After numerous consultations with the SEC staff and the Company’s accounting advisors, in May 2022, the Company has now concluded on the proper accounting treatment and is bringing all financial statement filings current.

 

 
9

Table of Contents

 

General 

 

Camber, a Nevada corporation, is based in Houston, Texas. We are currently primarily engaged in the acquisition, development and sale of crude oil, natural gas and natural gas liquids from various known productive geological formations in Kansas, Louisiana and Texas, and hold interests in non-producing wells in Mississippi. Incorporated in Nevada in December 2003 under the name Panorama Investments Corp., the Company changed its name to Lucas Energy, Inc., effective June 9, 2006, and effective January 4, 2017, the Company changed its name to Camber Energy, Inc. With the acquisition of a majority interest in Viking Energy Group, Inc. described herein, the Company's business plan is to acquire a majority interest in assets or entities in the energy sector, including engaging in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor.

 

Viking Investment

 

On December 23, 2020, Camber entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Viking to acquire (the “Viking Acquisition” or the “Acquisition”) 26,274,510 shares of Viking’s common stock, constituting 51% of the issued common stock of Viking (the “Initial Viking Shares”), in consideration of (i) the payment of $10,900,000 in cash by Camber to Viking, which was retained by Viking (the “Cash Purchase Price”), and (ii) Camber canceling $9,200,000 in promissory notes previously issued to Camber by Viking (the February 3, 2020 promissory note for $5,000,000 and the June 25, 2020 promissory note for $4,200,000, collectively the “Viking Notes”) along with accrued interest. Pursuant to the Purchase Agreement, Viking is generally obligated (subject to certain limitations) to issue additional shares of Viking common stock to Camber to ensure that Camber shall own at least 51% of the common stock of Viking through July 1, 2022.

 

In connection with the investment, on December 23, 2020, the Company also entered into (i) a termination agreement with Viking terminating the prior Amended and Restated Agreement and Plan of Merger, dated August 31, 2020, as amended (the “Termination Agreement”), and (ii) an Assignment of Camber’s 30% Membership Interest in one of Viking’s subsidiaries, Elysium Energy Holdings, LLC, back to Viking (the “Assignment”). Also in connection with the Acquisition, on December 23, 2020, the Company (i) borrowed $12,000,000 from the institutional investor described in the “Preferred Stock Financing Transactions” section below (the “Investor”); (ii) issued the Investor a promissory note in the principal amount of $12,000,000 (the “December 23rd Investor Note”), accruing interest at the rate of 10% per annum and maturing December 11, 2022; (iii) granted the Investor a first-priority security interest in the Initial Viking Shares and the Company’s other assets pursuant to a Security Agreement-Pledge (the “December 23rd Pledge Agreement”), and a general security agreement (the “December 23rd Security Agreement”), respectively; and (iv) entered into an amendment to the Company’s $6,000,000 promissory note previously issued to the Investor dated December 11, 2020, amending the acceleration provision of the note to provide that the note repayment obligations would not accelerate if Camber had increased its authorized capital stock by March 11, 2021 (the “Note Amendment”). On February 23, 2021, the Company’s stockholders approved an amendment to the Company’s Articles of Incorporation to increase the number of our authorized shares of common stock from 25,000,000 to 250,000,000, which amendment was filed with the State of Nevada on February 23, 2021.

 

On December 23, 2020, the December 23rd Investor Note was funded, and the Company closed the investment, paying the Cash and assigning the membership interests to Viking and cancelling the Viking Notes and related accrued interest. At the closing, James Doris and Frank Barker, Jr., Viking’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), respectively, were appointed the CEO and CFO, respectively, of the Company, and Mr. Doris was appointed a member of the Board of Directors of the Company.

 

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

 

Simultaneously, on January 8, 2021, Viking entered into a Cancellation Agreement with EMC (the “Cancellation Agreement”) pursuant to which Viking agreed to pay $325,000 to EMC, and EMC agreed to cancel and terminate in the EMC Note and all other liabilities, claims, amounts owing and other obligations under the Note.

 

As a result of these two investments, the Company owned approximately 63% of the outstanding common shares of Viking as of January 8, 2021.

 

The Company has determined that its ownership of the common shares of Viking gives the Company the ability to exercise significant influence over Viking, but not control from an accounting perspective pursuant to applicable accounting rules and/or guidelines, and therefore the Company has not consolidated the financial statements of Viking into the Company’s financial statements.  Rather, the Company accounts for its investment in Viking under the equity method.

 

 
10

Table of Contents

  

Merger Agreement with Viking Energy Group, Inc.

 

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

 

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share: (i) of common stock, par value $0.001 per share, of Viking (the “Viking Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares owned by Camber, Viking and Merger Sub, will be converted into the right to receive one share of common stock of Camber; and (ii) of Series C Convertible Preferred Stock of Viking (the “Viking Preferred Stock”) issued and outstanding immediately prior to the Effective Time will be converted into the right to receive one share of Series A Convertible Preferred Stock of Camber (the “Camber Series A Preferred Stock”). Each share of Camber Series A Preferred Stock will be convertible into 890 shares of common stock of Camber (subject to a beneficial ownership limitation preventing conversion into Camber common stock if the holder would be deemed to beneficially own more than 9.99% of Camber’s common stock), will be treated equally with Camber’s common stock with respect to dividends and liquidation, and will only have voting rights with respect to voting: (a) on a proposal to increase or reduce Camber’s share capital; (b) on a resolution to approve the terms of a buy-back agreement; (c) on a proposal to wind up Camber; (d) on a proposal for the disposal of all or substantially all of Camber’s property, business and undertaking; (f) during the winding-up of Camber; and/or (g) with respect to a proposed merger or consolidation in which Camber is a party or a subsidiary of Camber is a party. Holders of Viking Common Stock and Viking Preferred Stock will have any fractional shares of Camber common stock or preferred stock after the Merger rounded up to the nearest whole share.

 

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

 

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

 

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

 

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

 

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

 

 
11

Table of Contents

  

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

 

The Merger Agreement has no impact on the Camber Series C Preferred Stock.

 

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

 

The representations, warranties and covenants of each party set forth in the Merger Agreement have been made only for the purposes of, and were and are solely for the benefit of the parties to, the Merger Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Accordingly, the representations and warranties may not describe the actual state of affairs at the date they were made or at any other time, and investors should not rely on them as statements of fact. In addition, such representations and warranties (i) will not survive consummation of the Merger and (ii) were made only as of the date of the Merger Agreement or such other date as is specified in the Merger Agreement. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the parties’ public disclosures. Accordingly, the Merger Agreement is included with this filing only to provide investors with information regarding the terms of the Merger Agreement, and not to provide investors with any factual information regarding Camber or Viking, their respective affiliates or their respective businesses. The Merger Agreement should not be read alone, but should instead be read in conjunction with the other information regarding Camber, Viking, their respective affiliates or their respective businesses, the Merger Agreement and the Merger that will be contained in, or incorporated by reference into, a Form S-4 that will include a joint proxy statement of Camber and Viking and a prospectus of Viking, as well as in the Forms 10-K, Forms 10-Q and other filings that each of Camber and Viking make with the SEC.

 

The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which is filed as Exhibit 2.1.

 

Lineal Acquisition and Divestiture

 

On December 31, 2019, the Company entered into a Preferred Stock Redemption Agreement (the “Redemption Agreement”) by and between the Company and the prior owners of Lineal, whereby the Company redeemed the Company’s Series E and F Preferred Stock (the holders of such preferred stock, collectively, the “Preferred Holders”) issued in connection with the Lineal Merger (as defined in Note 2). Pursuant to the Redemption Agreement, effective as of December 31, 2019, ownership of 100% of Lineal was transferred back to the Preferred Holders, and, all of the Series E Preferred Stock and Series F Preferred Stock of the Company outstanding were canceled through the redemption (the “Lineal Divestiture”). The Redemption Agreement also provided for (a) the entry by Lineal and the Company into a new unsecured promissory note in the amount of $1,539,719, the outstanding amount of the July 2019 Lineal Note together with additional amounts loaned by Camber to Lineal through December 31, 2019 (the “December 2019 Lineal Note”); and, (b) the unsecured loan by the Company to Lineal on December 31, 2019 of an additional $800,000, entered into by Lineal in favor of the Company on December 31, 2019 (“Lineal Note No. 2”); The December 2019 Lineal Note and Lineal Note No. 2, accrued interest, payable quarterly in arrears, beginning on March 31, 2020 and continuing until December 31, 2021, when all interest and principal was due, at 8% and 10% per annum (18% upon the occurrence of an event of default), respectively. Pursuant to the Redemption Agreement, the parties thereto mutually agreed to unwind the Lineal Merger and allow for the redemption in full of Lineal by the Preferred Holders. In connection therewith, the Company redeemed the Company’s Series E and F Preferred Stock issued in connection with the Lineal Merger and ownership of 100% of Lineal was transferred back to the Preferred Holders, and all of the Series E Preferred Stock and Series F Preferred Stock of the Company outstanding were cancelled through the redemption.

 

N&B Production Payment

 

The Company sold a significant portion of its oil and gas production assets in Oklahoma to N&B Energy, LLC (“N&B Energy”) effective August 1, 2018. As part of the sale of its assets to N&B Energy, the Company also retained a 12.5% production payment (effective until a total of $2.5 million has been received) and a 3% overriding royalty interest, in its then existing Okfuskee County, Oklahoma assets; and an overriding royalty interest on certain other undeveloped leasehold interests, pursuant to an Assignment of Production Payment and Assignments of Overriding Royalty Interests. No payments were received in regard to any of the retained items noted above through December 31, 2020, and the filing date hereof.

 

 
12

Table of Contents

 

Camber retained its assets in Glasscock County and operated wells in Hutchinson County, Texas, following the N&B Energy transaction until completion of the Settlement Agreement discussed below.

 

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

 

Apache Corporation Settlement

 

In December 2018, Apache Corporation (“Apache”) sued Camber, Sezar Energy, L.P., and Texokcan Energy Management Inc., in the 129th Judicial District Court of Harris County, Texas (Cause 2018-89515). Apache alleged causes of action for Breach of Contract, Money Had & Received and Conversion, relating to amounts Apache alleged it was owed under a joint operating agreement. On July 13, 2020, Apache filed a Second Amended Petition against Camber, Sezar, Texokcan, N&B Energy, LLC, and Richard N. Azar, II alleging Breach of Contract, Defaults under a Joint Operating Agreement, Money Had & Received and Conversion, relating to amounts Apache allegedly overpaid Sezar and Azar and Unjust Enrichment. On October 26, 2020, the Company entered into an agreement with Apache to obtain a release of all liability (both parties provided mutual releases) for $20,000 which the Company paid in October 2020, which is included in general and administrative expenses on the statement of operations for the nine months ended December 31, 2020. The litigation was dismissed against the Company.

 

Preferred Stock Financing Transactions

 

On and effective June 22, 2020, the Company and an institutional investor, Discover Growth Fund, LLC ( “Discover”) entered into a Stock Purchase Agreement (the “June 2020 Purchase Agreement”), pursuant to which Discover purchased 630 shares of the Company’s Series C Redeemable Convertible Preferred Stock (the “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”). Pursuant to the June 2020 Purchase Agreement, as long as Discover holds any shares of Series C Preferred Stock, the Company agreed that, except as contemplated in connection with the Merger, the Company would not issue or enter into or amend an agreement pursuant to which the Company may issue any shares of common stock, other than (a) for restricted securities with no registration rights, (b) in connection with a strategic acquisition, (c) in an underwritten public offering, or (d) at a fixed price. The Company also agreed that it would not issue or amend any debt or equity securities convertible into, exchangeable or exercisable for, or including the right to receive, shares of common stock (i) at a conversion price, exercise price or exchange rate or other price that is based upon or varies with, the trading prices of or quotations for the shares of common stock at any time after the initial issuance of the security or (ii) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of the security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the common stock.

 

The Company also agreed to provide Discover a right of first offer to match any offer for financing the Company receives from any person while the shares of Series C Preferred Stock sold pursuant to the June 2020 Purchase Agreement are outstanding, except for debt financings not convertible into common stock, which are excluded from such right to match.

 

The Company agreed that if it issues any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to Discover, then the Company would notify Discover of such additional or more favorable term and such term, at Discover’s option, may become a part of the transaction documents with Discover.

 

Finally, the Company agreed to include proposals relating to the approval of the June 2020 Purchase Agreement and the issuance of the shares of common stock upon conversion of the Series C Preferred Stock sold pursuant to the June 2020 Purchase Agreement, as well as an increase in authorized common stock to fulfill the Company’s obligations to issue such shares, at the meeting held to approve the merger pursuant to the original planned merger agreement entered into with Viking in February 2020 (“First Merger Agreement”) or a separate meeting in the event the Merger is terminated prior to shareholder approval, and to use commercially reasonable best efforts to obtain such approvals as soon as possible and in any event prior to December 31, 2020.

 

The Company loaned $4.2 million of the funds provided by the June 2020 Purchase Agreement to Viking in connection with the purchase of the June 2020 Secured Note.

 

 
13

Table of Contents

  

Also on June 22, 2020, the Company and Discover entered into an Amendment to Stock Purchase Agreement (the “SPA Amendment”), pursuant to which the Investor agreed to terminate the obligation set forth in the Stock Purchase Agreement previously entered into between the Company and the Investor 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 First Merger Agreement was terminated.

 

Effective as of July 9, 2021, the Company and another institutional investor, Antilles Family Office, LLC, an affiliate of Discover ( “Antilles”), entered into a Stock Purchase Agreement (the “July 2021 Purchase Agreement”).

 

Under the terms of the July 2021 Purchase Agreement, Antilles purchased 1,575 shares of Series C Preferred Stock for $15 million, at a 5% original issue discount to the $10,000 face value of each share of preferred stock.

 

Pursuant to the July 2021 Purchase Agreement, as long as Antilles holds any shares of Series C Preferred Stock, we agreed that, except as contemplated in connection with the Merger, we would not issue or enter into or amend an agreement pursuant to which we may issue any shares of common stock, other than (a) for restricted securities with no registration rights, (b) in connection with a strategic acquisition, (c) in an underwritten public offering, or (d) at a fixed price. We also agreed that we would not issue or amend any debt or equity securities convertible into, exchangeable or exercisable for, or including the right to receive, shares of common stock (i) at a conversion price, exercise price or exchange rate or other price that is based upon or varies with, the trading prices of or quotations for the shares of common stock at any time after the initial issuance of the security or (ii) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of the security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the common stock.

 

We also agreed that if we issue any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to Antilles, then we would notify Antilles of such additional or more favorable term and such term, at the Investor’s option, may become a part of the transaction documents with the Investor. We agreed to include proposals relating to the approval of the July 2021 Purchase Agreement and the issuance of the shares of common stock upon conversion of the Series C Preferred Stock sold pursuant to the July 2021 Purchase Agreement, as well as an increase in authorized common stock to fulfill our obligations to issue such shares, at the Company’s next Annual Meeting, the meeting held to approve the Merger or a separate meeting in the event the Merger is terminated prior to shareholder approval, and to use commercially reasonable best efforts to obtain such approvals as soon as possible and in any event prior to January 1, 2022.

 

Exchange Agreement, Promissory Notes and Security Agreements with the Investor

 

On December 11, 2020, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with Discover, the sole shareholder of the Company’s Series C Preferred Stock at that time. The transactions contemplated by the Exchange Agreement closed on December 11, 2020. Pursuant to the Exchange Agreement, as an accommodation to the Company, and in order to reduce the potential dilutive impact of the Series C Preferred Stock, by reducing the number of outstanding shares of Series C Preferred Stock, the Investor exchanged 600 shares of Series C Preferred Stock (the “Exchanged Shares”), with an aggregate face value of $6,000,000 (600 shares each with a face value of $10,000 per share), for a $6,000,000 secured Promissory Note (the “December 11th Investor Note”), and the 600 Preferred Shares were cancelled.

 

Pursuant to the Exchange Agreement (a) Discover waived all prior breaches and defaults that occurred prior to the date of the Exchange Agreement or that may continue or occur for 90 days thereafter, under any agreements entered into with Discover relating to the acquisition of shares of Series C Preferred Stock (the “90 Day Period”), and waived all rights and remedies with respect to any such breaches and defaults; (b) we agreed to timely file all reports required by the SEC for so long as Discover holds any Series C Preferred Stock (provided the Company was provided until December 31, 2020, to file its Quarterly Report on Form 10-Q for the quarter ended September 30, 2020); (c) we agreed to indemnify and hold Discover, its affiliates, managers and advisors, and their related parties, harmless from any losses related to any breach of the Exchange Agreement (or other transaction documents), and from any action by the Company or a creditor or stockholder of the Company, challenging the transactions contemplated by the Exchange Agreement and related agreements, except to the extent finally adjudicated to be caused solely by such indemnified party’s unexcused material breach of an express provision of the Exchange Agreement or related agreements; (d) we agreed to reserve from our outstanding common stock, shares of common stock to allow for the conversion of the outstanding Series C Preferred Stock (subject to the 90 Day Period); (e) Discover agreed to vote all shares of common stock which it holds as of the record date for any shareholder meeting in favor of the Company’s previously announced pending plan of merger with Viking (the “Merger”), and the other proposals that are recommended for approval by the Board of Directors of the Company in the proxy statement filed in connection with such Merger; (f) Discover agreed to the Merger and agreed to waive any rights it may have (including favored nations, anti-dilution and/or reset rights) in connection therewith; (g) we acknowledged that Discover had previously provided notice to the Company of its intent to increase the beneficial ownership limitation set forth in the designation of the Series C Preferred Stock to 9.99%, and that such limitation will continue to apply moving forward; and (h) we provided Discover and its related parties a general release.

 

The Exchange Agreement also amended the June 22, 2020 Stock Purchase Agreement previously entered into with Discover, pursuant to which Discover purchased 630 shares of Series C Preferred Stock, to remove from such June 22, 2020 agreement (i) the prohibition on Discover transferring and/or selling shares of Series C Preferred Stock; and (ii) the repurchase obligation, which required the Company to redeem for cash, at 110% of the face value thereof ($10,000 per share), all 630 shares of Series C Preferred Stock sold by the Company in June 2020, in the event the Merger did not close by the required date set forth in the plan of merger relating thereto (as amended from time to time), and all similar provisions in any prior agreements entered into between the Company and Discover.

 

 
14

Table of Contents

  

The December 11th Investor Note (which had no conversion features upon issuance, but is now convertible as described below) had a balance of $6,000,000 and accrues interest at the rate of 10% per annum, which increases to the highest non-usurious rate of interest allowed under applicable law upon the occurrence of an event of default, which interest is due on the maturity date, which maturity date was the earlier of (a) December 11, 2022 (which may be extended with the mutual consent of the parties and a written amendment to the December 11th Investor Note signed by Discover); (b) March 11, 2021, in the event the Merger does not close or is not fully consummated by such date; and (c) the date a change of control of the Company occurs, which includes any person becoming the beneficial owner of more than 50% of the combined voting power of the Company (a “Change in Ownership”), or the approval of (1) a plan of complete liquidation, (2) an agreement for the sale or disposition of all or substantially all the Company’s assets, or (3) a merger (other than a merger for purposes of redomiciling the Company), consolidation, or reorganization of the Company, which would result in a Change in Ownership, provided that the closing of the Merger will not trigger a change of control (or Change in Ownership). The December 11th Investor Note includes customary events of default. Upon the occurrence of an event of default, Discover has the right to accelerate the full amount of the December 11th Investor Note and all interest thereon, to enforce its rights under the December 11th Security Agreement (defined below), and take other actions allowed under applicable law. On or about December 23, 2020, the Company and Discover executed a First Amendment to 10% Secured Promissory Note (the “Note Amendment”) to modify item (b) above as it relates to the potential acceleration of the maturity date of the December 11th Investor Note. Specifically, the Note Amendment provided that the December 11th Investor Note shall automatically accelerate, and all amounts of unpaid principal and interest shall become due immediately in the event that the Merger does not close or is not fully consummated by March 11, 2021; however, such provision shall not apply if on or before such date the Company has increased its authorized capital to at least 250,000,000 common shares (which did occur on February 25, 2021).

 

Payment of the December 11th Investor Note and performance of the Company’s obligations thereunder is required to be guaranteed by all subsidiaries or entities controlled or owned by the Company, or which may be owned after the date of the December 11th Investor Note, provided that no guarantees have been entered into to date. The December 11th Investor Note may be assigned by Discover subject to compliance with applicable securities laws. The Company may prepay the December 11th Investor Note at any time.

 

The payment of amounts due under the December 11th Investor Note is secured by the terms of a Security Agreement entered into by the Company in favor of Discover, which provides Discover a first priority security interest in substantially all of our assets (the “December 11th Security Agreement”). If an event of default occurs under the December 11th Investor Note, Discover can enforce its rights under the December 11th Security Agreement and foreclose on our assets in order to satisfy amounts owed thereunder. 

 

As described above, in connection with the Viking Investment, on December 23, 2020, the Company (i) borrowed an additional $12,000,000 from Discover; (ii) issued Discover the December 23rd Investor Note, accruing interest at the rate of 10% per annum and maturing December 11, 2022; (iii) granted Discover a first-priority security interest in the Initial Viking Shares and the Company’s other assets (the “ December 23rd Pledge Agreement”), and a general security agreement (the December 23rd Security Agreement), respectively; and (iv) entered into an amendment to the December 11th Investor Note, amending the acceleration provision of the note to provide that the note repayment obligations would not accelerate if Camber had increased its authorized capital stock by March 11, 2021, which requirement was satisfied.

 

On April 23, 2021, the Company (i) borrowed an additional $2,500,000 from Discover; (ii) issued Discover a promissory note in the principal amount of $2,500,000 (the “April 23rd Investor Note”), accruing interest at the rate of 10% per annum and maturing December 11, 2022; (iii) to secure payment of the April 23rd Investor Note, the December 23rd Investor Note, and the December 11th Investor Note (such notes together the “Investor Notes”), granted Discover a first-priority security interest in Camber’s shares of Viking and Camber’s other assets pursuant to a Security Agreement-Pledge (the “April 23rd Pledge Agreement”) and a general security agreement (the “April 23rd Security Agreement”). Discover originally had the right to convert amounts owing under the April 23rd Investor Note into shares of common stock of Camber at a fixed price of $1.00 per share (later amended to $1.25 per share as described below), subject to 9.99% beneficial ownership limitations.

 

Effective July 9, 2021, Camber and Discover executed amendments to each of Discover Notes, pursuant to which (i) the Maturity Date of each of Discover Notes was extended from December 11, 2022, to January 1, 2024; and (ii) Discover is permitted to convert amounts owing under each of Discover Notes into shares of common stock of Camber at a fixed price of $1.25 per share, subject to 9.99% beneficial ownership limitations.

 

 
15

Table of Contents

 

On October 9, 2021, the Company entered into two agreements (collectively, the “October 2021 Agreements”), one agreement with Antilles, a holder of shares of Series C Preferred Stock (the “Preferred Shares”), and another agreement with Discover, a holder of Series C Preferred Stock and holder of three promissory notes with an aggregate principal amount totaling $20,500,000, which were previously executed by the Company in favor of Discover (collectively, the “Notes”). The October 2021 Agreements are identical as to their terms.

 

Securities Purchase Agreements between the Company and each of Discover and Antilles regarding the purchase and sale of the Series C Preferred Stock (the “SPAs”) require the Company to, among other things, timely file all reports required to be filed by Company pursuant to the Securities Exchange Act of 1934, as amended, and to maintain sufficient reserves from its duly authorized Common Stock for issuance of all Conversion Shares (as defined in the Fourth Amended and Restated Certificate of Designation regarding the Preferred Shares filed by the Company on or about July 10, 2021 (“COD”)). On October 6, 2021, the Company received notice from Antilles and Discover claiming the Company breached the SPAs for failing to comply with the foregoing two items. The Notes contain a provision stating a breach by the Company of any terms within the SPA or COD is also a breach under the Notes, which would result in an immediate acceleration of the Notes at the holder’s option.

 

Pursuant to the October 2021 Agreements, as an accommodation to the Company and in order to help facilitate implementation of the Company’s business plans and continued trading on the NYSE American, although the parties agreed that a Trigger Event had occurred pursuant to the COD, each of Antilles and Discover agreed to refrain from declaring defaults or bringing a breach of contract action under the SPAs, and Discover agreed to refrain from declaring defaults or bringing a breach of contract action under the Notes, in each case provided the Company: (i) files by November 19, 2021 all reports required to be filed by the Company pursuant to the Exchange Act; and (ii) implements and maintains, as soon as possible but no later than December 31, 2021, a sufficient reserve from its duly authorized Common Stock for issuance of all Conversion Shares. The Company does not have sufficient authorized shares of Common Stock for the issuance of all Conversion Shares and will be required to hold a shareholders’ meeting to approve an amendment to its articles of incorporation to increase its authorized shares of Common Stock in order to comply with the foregoing requirement of the October 2021 Agreements. The Company also agreed to, within 30 days of the date of the Agreements, amend the COD to provide that holders of the Series C Preferred Stock will vote together with holders of common stock on all matters other than election of directors and shareholder proposals (including proposals initiated by any holders of Preferred Shares), on an as-if converted basis, subject to the beneficial ownership limitation in the COD, even if there are insufficient shares of authorized common stock to fully convert the Series C Preferred Stock (the “COD Amendment Requirement”). Pursuant to the October 2021 Agreements, the Company further agreed that due to the occurrence of a Trigger Event the Company would no longer have the right to conduct an early redemption of the Series C Preferred Stock as provided for in the COD.

 

On November 8, 2021, the Company complied with the COD Amendment Requirement by filing with the Secretary of State of Nevada a Fifth Amended and Restated Designation regarding its Series C Preferred Stock, which amended the Designations to provide the required voting rights.

 

Series C Preferred Stock Corrections and Amendments

 

On December 14, 2020, the Company, with the approval of the Board of Directors of the Company and the sole holder of the Company’s Series C Preferred Stock, filed a certificate of corrections with the Secretary of State of Nevada to correct the original designation of the Series C Preferred Stock and the first amended and restated designation thereof, to correct certain errors which were identified in such designations, which failed to clarify, in error, that (A) the failure of any holder of Series C Preferred Stock to receive the number of shares of common stock due upon conversion of Series C Preferred Stock within five trading days of any conversion notice, and any halt or suspension of trading of the Company’s common stock on its then applicable trading market or by any U.S. governmental agency, for 10 or more consecutive trading days, should not have been ‘deemed liquidation events’ under the Series C Preferred Stock designation, unless such events were due to the occurrence of an event that is solely within the control of the Company; (B) the Company was not required to redeem any shares of Series C Preferred Stock for cash solely because the Company does not have sufficient authorized but unissued shares of common stock to issue upon receipt of a notice of conversion or upon a maturity conversion (where the remaining shares of Series C Preferred Stock convert into common stock of the Company automatically on the seven year anniversary date of the Series C Preferred Stock)(a “Maturity Conversion”); and (C) that a Maturity Conversion is only required to occur to the extent that the Company has sufficient authorized but unissued shares of common stock available for issuance upon conversion in connection therewith. The corrections were made solely to match the agreements to the original intent of the parties. The parties determined the corrections were needed because without such corrections, under ASC 480- 10- S99-3A5 and ASC 480-10-S99-3A3(f), the non-corrected designations required the Series C Preferred Stock to be classified as temporary equity due to the foregoing events being outside the Company’s control. However, the corrections failed to remove all redemption provisions that were outside the control of the Company. Therefore, the Series C Preferred Stock remained in temporary equity. The embedded conversion meets the requirements to be considered a derivative liability as stipulated under ASC 815-40-25, under an assessment of the conversion premium as a freestanding instrument.

 

 
16

Table of Contents

  

The corrections were effective as of the original filing dates with the Secretary of State of Nevada of the Company’s original Series C Preferred Stock designation (August 25, 2016) and the Company’s first amended and restated Series C Preferred Stock designation (July 8, 2019), subject to certain exceptions set forth in the Nevada Revised Statutes.

 

Also on December 14, 2020, the Company, with the approval of the Board of Directors of the Company and the sole holder of the Company’s Series C Preferred Stock, filed a second amended and restated designation of the Series C Preferred Stock with the Secretary of State of Nevada which was effective upon filing (the “Second Amended and Restated Designation”), which amended the first amended and restated designation of the Series C Preferred Stock (as corrected), to include the right of the Company to redeem all (but not less than all) of the outstanding shares of Series C Preferred Stock at a redemption price equal to 110% of the face value of such preferred stock ($10,000 per share), at the Company’s option, at any time, in the event the Company is not in default of any of the terms of any Stock Purchase Agreement pursuant to which such applicable shares of Series C Preferred Stock were sold; (b) formally amend the measurement period for the calculation of the conversion premiums (the “Measurement Period”) due under the terms of the Series C Preferred Stock to begin on the later of February 3, 2020 or, if no trigger event (as described in the designation of the Series C Preferred Stock) has occurred, 30 trading days, and if a trigger event has occurred 60 trading days, before the date of an applicable conversion notice, which had previously been agreed to contractually by the parties (i.e., the beginning of each future measurement period for conversions made after February 3, 2020, will extend back to February 3, 2020); and (c) update the references in the designation to the “Merger” which had previously referred to the Company’s combination with Lineal Star Holdings, LLC, which transaction was rescinded and terminated effective December 31, 2019, to refer to the planned merger with Viking, which has the effect of the Viking merger being approved by the holder of the Series C Preferred Stock and not being a ‘deemed liquidation event’ under the Second Amended and Restated Designation.

 

On April 14, 2021, the Company, with the approval of the Board of Directors of the Company and the holders of the Company’s Series C Preferred Stock, filed a certificate of correction with the Secretary of State of Nevada to correct the original designation of the Series C Preferred Stock, the first amended and restated designation, and the second amended and restated designation thereof to correct certain errors which were identified in such designations, which failed to clarify, in error, that (A) Section I.D.2(e) of the original Certificate of Designation (the "Designation") implicitly excluded as “Deemed Liquidation Event,” an event or proposal that was initiated by or voted upon by the holder of the Series C Redeemable Convertible Preferred Stock (the “Preferred Shares”), and the Designation has been clarified to expressly exclude such occurrence, (B) Section I.F.4 of the Designation failed to include language to clarify the Corporation is not obligated to redeem the Preferred Shares for cash for any reason that is not solely within the control of the Corporation, (C) Section 1.G.1 of the Designation mistakenly included two subsection b’s where only one was intended, and the unintended subsection b. has been removed, (D) Section I.G.1(e) of the Designation failed to include language to clarify that the Corporation not having sufficient authorized but unissued shares, solely within the control of the Corporation and excluding any event that is not solely within the control of the Corporation, is not a reason that would otherwise trigger the obligations in such section, (E) Sections I.G.1(f) and (g) of the Designation failed to include language to clarify the particular obligations apply only if the Corporation has sufficient authorized and unissued shares, (F) Section I.G.7.e of the Designation mistakenly referenced the incorrect Conversion Price, (G) Section 1.G.9 of the Designation failed to include language to clarify the maximum number of common shares that could be potentially issuable with respect to all conversions and other events that are not solely within the control of the Corporation, that the Dividend Maturity Date is to be indefinitely extended and suspended until sufficient authorized and unissued shares become available, the number of shares required to settle the excess obligation is fixed on the date that net share settlement occurs and that all provisions of the Designation are to be interpreted so that net share settlement is within the control of the Corporation.

 

The corrections were effective as of the original filing dates with the Secretary of State of Nevada of the Company’s original Series C Preferred Stock designation (August 25, 2016) and the Company’s first amended and restated Series C Preferred Stock designation (July 8, 2019), and the Company’s second amended and restated Series C Preferred Stock designation (December 14, 2020), subject to certain exceptions set forth in the Nevada Revised Statutes.

 

On April 20, 2021, the Company, with the approval of the Board of Directors of the Company and the holders of the Company’s Series C Preferred Stock, filed a third amended and restated designation of the Series C Preferred Stock with the Secretary of State of Nevada (the “Third Amended and Restated Designation”), which amended the Designations to state that dividends and conversion premiums will only be paid in shares of Company common stock, and state that redemption amounts will only be paid in shares of Company common stock. On July 10, 2021, the Company, with the approval of the Board of Directors of the Company and the holders of the Company’s Series C Preferred Stock, filed an amendment to its designation of its Series C Preferred Stock with the Secretary of State of Nevada (the “Fourth Amended and Restated Designation”), solely to increase the number of preferred shares designated as Series C Preferred Stock from 5,000 to 5,200.

 

On November 8, 2021, the Company filed with the Secretary of State of Nevada a Fifth Amended and Restated Designation regarding its Series C Preferred Stock which amended the Designations to provide voting rights to holders of the Series C Preferred Stock as required by the October 2021 Agreements (as defined herein).

 

 
17

Table of Contents

 

Amendments to Articles Regarding Common Shares

 

Effective on April 16, 2020, with the approval of the Company’s stockholders at its April 16, 2020 special meeting of stockholders, the Company filed a Certificate of Amendment to its Articles of Incorporation to increase its authorized shares of common stock to 25 million shares of common stock. Effective on February 23. 2021, with the approval of the Company’s stockholders at its February 23, 2021 special meeting of stockholders, the Company filed a Certificate of Amendment to its Articles of Incorporation to increase its authorized shares of common stock to 250 million shares of common stock.

 

Industry Segments 

 

For the year ended March 31, 2020 and the nine months ended December 31, 2020, our operations were all crude oil and natural gas exploration and production related, except that from July 8, 2019 to December 31, 2019, we also owned and operated Lineal, which operated as an oil and gas service company and generated oil and gas service revenues. As described above under “Lineal Acquisition and Divestiture”, on December 31, 2019, we divested our entire interest in Lineal. In conjunction with the Lineal Divestiture, all contract revenue (oil and gas service revenue) has been included in “Loss from Discontinued Operations” for the year ended March 31, 2020, on the statement of operations. Our operations for the nine months ended December 31, 2020 were all crude oil and natural gas exploration.

   

Competition 

 

We are in direct competition for properties with numerous oil and natural gas companies and partnerships exploring various areas of Louisiana, Texas, and elsewhere. Many competitors are large, well-known oil and natural gas and/or energy companies, although no single entity dominates the industry. Many of our competitors possess greater financial and personnel resources, enabling them to identify and acquire more economically desirable energy producing properties and drilling prospects than us. Additionally, there is competition from other fuel choices to supply the energy needs of consumers and industry.

 

Regulation 

 

Our operations are subject to various types of regulation at the federal, state and local levels. These regulations include requiring permits for the drilling of wells; maintaining hazard prevention, health and safety plans; submitting notification and receiving permits related to the presence, use and release of certain materials incidental to oil and natural gas operations; and regulating the location of wells, the method of drilling and casing wells, the use, transportation, storage and disposal of fluids and materials used in connection with drilling and production activities, surface plugging and abandonment of wells and the transporting of production. Our operations are also subject to various conservation matters, including the number of wells which may be drilled in a unit and the unitization or pooling of oil and natural gas properties. In this regard, some states allow the forced pooling or integration of tracts to facilitate exploration, while other states rely on voluntary pooling of lands and leases, which may make it more difficult to develop oil and gas properties. In addition, state conservation laws establish maximum rates of production from oil and natural gas wells, generally limiting the venting or flaring of natural gas, and impose certain requirements regarding the ratable purchase of production. The effect of these regulations is to possibly limit the amounts of oil and natural gas we can produce from our wells and to limit the number of wells or the locations at which we can drill.

 

In the United States, legislation affecting the oil and natural gas industry has been pervasive and is under constant review for amendment or expansion. Pursuant to such legislation, numerous federal, state and local departments and agencies issue recommended new and extensive rules and regulations binding on the oil and natural gas industry, some of which carry substantial penalties for failure to comply. These laws and regulations have a significant impact on oil and natural gas drilling, natural gas processing plants and production activities, increasing the cost of doing business and, consequently, affect profitability. Insomuch as new legislation affecting the oil and natural gas industry is common-place and existing laws and regulations are frequently amended or reinterpreted, we may be unable to predict the future cost or impact of complying with these laws and regulations. We consider the cost of environmental protection a necessary and manageable part of our business. We have historically been able to plan for and comply with new environmental initiatives without materially altering our operating strategies.

 

 
18

Table of Contents

  

Insurance Matters 

 

We maintain insurance coverage which we believe is reasonable per the standards of the oil and natural gas industry. It is common for companies in these industries to not insure fully against all risks associated with their operations either because such insurance is unavailable or because premium costs are considered prohibitive. A material loss not fully covered by insurance could have an adverse effect on our financial position, results of operations or cash flows. We maintain insurance at industry customary levels to limit our financial exposure in the event of a substantial environmental claim resulting from sudden, unanticipated and accidental discharges of certain prohibited substances into the environment. Such insurance might not cover the complete amount of such a claim and would not cover fines or penalties for a violation of an environmental law.

 

Other Matters

 

Environmental. Our exploration, development, and production of oil and natural gas, including our operation of saltwater injection and disposal wells, are subject to various federal, state and local environmental laws and regulations. Such laws and regulations can increase the costs of planning, designing, installing and operating oil, natural gas, and disposal wells. Our domestic activities are subject to a variety of environmental laws and regulations, including but not limited to, the Oil Pollution Act of 1990 (“OPA”), the Clean Water Act (“CWA”), the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Resource Conservation and Recovery Act (“RCRA”), the Clean Air Act (“CAA”), and the Safe Drinking Water Act (“SDWA”), as well as state regulations promulgated under comparable state statutes. We are also subject to regulations governing the handling, transportation, storage, and disposal of naturally occurring radioactive materials that are found in our oil and gas operations. Civil and criminal fines and penalties may be imposed for non-compliance with these environmental laws and regulations. Additionally, these laws and regulations require the acquisition of permits or other governmental authorizations before undertaking certain activities, limit or prohibit other activities because of protected areas or species, and impose substantial liabilities for cleanup of pollution.

 

Under the OPA, a release of oil into water or other areas designated by the statute could result in us being held responsible for the costs of remediating such a release, certain OPA specified damages, and natural resource damages. The extent of that liability could be extensive, as set forth in the statute, depending on the nature of the release. A release of oil in harmful quantities or other materials into water or other specified areas could also result in us being held responsible under the CWA for the costs of remediation, and civil and criminal fines and penalties.

 

CERCLA and comparable state statutes, also known as “Superfund” laws, can impose joint and several and retroactive liability, without regard to fault or the legality of the original conduct, on certain classes of persons for the release of a “hazardous substance” into the environment. In practice, cleanup costs are usually allocated among various responsible parties. Potentially liable parties include site owners or operators, past owners or operators under certain conditions, and entities that arrange for the disposal or treatment of, or transport hazardous substances found at the site. Although CERCLA, as amended, currently exempts petroleum, including but not limited to, crude oil, natural gas and natural gas liquids, from the definition of hazardous substance, our operations may involve the use or handling of other materials that may be classified as hazardous substances under CERCLA. Furthermore, the exemption may not be preserved in future amendments of the act, if any.

 

RCRA and comparable state and local requirements impose standards for the management, including treatment, storage, and disposal, of both hazardous and non- hazardous solid wastes. We generate hazardous and non-hazardous solid waste in connection with our routine operations. From time to time, proposals have been made that would reclassify certain oil and natural gas wastes, including wastes generated during drilling, production and pipeline operations, as “hazardous wastes” under RCRA, which would make such solid wastes subject to much more stringent handling, transportation, storage, disposal, and clean-up requirements. This development could have a significant impact on our operating costs. While state laws vary on this issue, state initiatives to further regulate oil and natural gas wastes could have a similar impact. Because oil and natural gas exploration and production, and possibly other activities, have been conducted at some of our properties by previous owners and operators, materials from these operations remain on some of the properties and in some instances, require remediation. In addition, in certain instances, we have agreed to indemnify sellers of producing properties from which we have acquired reserves against certain liabilities for environmental claims associated with such properties. While we do not believe that costs to be incurred by us for compliance and remediating previously or currently owned or operated properties will be material, there can be no guarantee that such costs will not result in material expenditures.

 

 
19

Table of Contents

  

Additionally, in the course of our routine oil and natural gas operations, surface spills and leaks, including casing leaks, of oil or other materials occur, and we incur costs for waste handling and environmental compliance. Moreover, we are able to control directly the operations of only those wells for which we act as the operator. Management believes that we are in substantial compliance with applicable environmental laws and regulations.

 

In response to liabilities associated with these activities, accruals are established when reasonable estimates are possible. Such accruals would primarily include estimated costs associated with remediation. We have used discounting to present value in determining our accrued liabilities for environmental remediation or well closure, but no material claims for possible recovery from third party insurers or other parties related to environmental costs have been recognized in our financial statements. We adjust the accruals when new remediation responsibilities are discovered and probable costs become estimable, or when current remediation estimates must be adjusted to reflect new information.

 

We do not anticipate being required in the near future to expend amounts that are material in relation to our total capital expenditures program by reason of environmental laws and regulations, but inasmuch as such laws and regulations are frequently changed, we are unable to predict the ultimate cost of compliance. More stringent laws and regulations protecting the environment may be adopted in the future and we may incur material expenses in connection with environmental laws and regulations in the future.

 

Occupational Health and Safety. We are also subject to laws and regulations concerning occupational safety and health. Due to the continued changes in these laws and regulations, and the judicial construction of many of them, we are unable to predict with any reasonable degree of certainty our future costs of complying with these laws and regulations. We consider the cost of safety and health compliance a necessary and manageable part of our business. We have been able to plan for and comply with new initiatives without materially altering our operating strategies.

 

Hydraulic Fracturing. Vast quantities of natural gas, natural gas liquids and oil deposits exist in deep shale and other unconventional formations. It is customary in our industry to recover these resources through the use of hydraulic fracturing, combined with horizontal drilling. Hydraulic fracturing is the process of creating or expanding cracks, or fractures, in deep underground formations using water, sand and other additives pumped under high pressure into the formation. As with the rest of the industry, we use hydraulic fracturing as a means to increase the productivity of almost every well that we drill and complete. These formations are generally geologically separated and isolated from fresh ground water supplies by thousands of feet of impermeable rock layers. We follow applicable legal requirements for groundwater protection in our operations that are subject to supervision by state and federal regulators (including the Bureau of Land Management (“BLM”) on federal acreage). Furthermore, our well construction practices require the installation of multiple layers of protective steel casing surrounded by cement that are specifically designed and installed to protect freshwater aquifers by preventing the migration of fracturing fluids into aquifers.

 

Injection rates and pressures are required to be monitored in real time at the surface during our hydraulic fracturing operations. Pressure is required to be monitored on both the injection string and the immediate annulus to the injection string. Hydraulic fracturing operations are required to be shut down if an abrupt change occurs to the injection pressure or annular pressure. These aspects of hydraulic fracturing operations are designed to prevent a pathway for the fracturing fluid to contact any aquifers during the hydraulic fracturing operations.

 

Hydraulic fracture stimulation requires the use of water. We use fresh water or recycled produced water in our fracturing treatments in accordance with applicable water management plans and laws. Several proposals have previously been presented to the U.S. Congress that, if implemented, would either prohibit or restrict the practice of hydraulic fracturing or subject the process to regulation under the Safe Drinking Water Act. Several states have previously considered, or are currently considering, legislation to regulate hydraulic fracturing practices that could impose more stringent permitting, transparency, and well construction requirements on hydraulic-fracturing operations or otherwise seek to ban fracturing activities altogether. Hydraulic fracturing of wells and subsurface water disposal are also under public and governmental scrutiny due to potential environmental and physical impacts, including possible contamination of groundwater and drinking water and possible links to earthquakes. In addition, some municipalities have significantly limited or prohibited drilling activities and/or hydraulic fracturing, or are considering doing so.

 

 
20

Table of Contents

  

Restrictions on hydraulic fracturing could make it prohibitive to conduct our operations, and also reduce the amount of oil, natural gas liquids and natural gas that we are ultimately able to produce in commercial quantities from our properties.

 

The Endangered Species Act. The Endangered Species Act (“ESA”) restricts activities that may affect areas that contain endangered or threatened species or their habitats. While some of our assets and lease acreage may be located in areas that are designated as habitats for endangered or threatened species, we believe that we are in substantial compliance with the ESA. However, the designation of previously unidentified endangered or threatened species in areas where we intend to conduct construction activity could materially limit or delay our plans.

 

Global Warming and Climate Change. Various state governments and regional organizations are considering enacting new legislation and promulgating new regulations governing or restricting the emission of greenhouse gases from stationary sources such as our equipment and operations. Legislative and regulatory proposals for restricting greenhouse gas emissions or otherwise addressing climate change could require us to incur additional operating costs and could adversely affect demand for the natural gas and oil that we sell. The potential increase in our operating costs could include new or increased costs to obtain permits, operate and maintain our equipment and facilities, install new emission controls on our equipment and facilities, acquire allowances to authorize our greenhouse gas emissions, pay taxes related to our greenhouse gas emissions and administer and manage a greenhouse gas emissions program.

 

Taxation. Our operations, as is the case in the petroleum industry generally, are significantly affected by federal tax laws. Federal, as well as state, tax laws have many provisions applicable to corporations which could affect our future tax liabilities.

 

Commitments and Contingencies. We are liable for future restoration and abandonment costs associated with our oil and gas properties. These costs include future site restoration, post closure and other environmental exit costs. The costs of future restoration and well abandonment have not been determined in detail. State regulations require operators to post bonds that assure that well sites will be properly plugged and abandoned. We currently operate only in Texas, which requires a security bond based on the number of wells we operate. Management views this as a necessary requirement for operations and does not believe that these costs will have a material adverse effect on our financial position as a result of this requirement.

 

Employees

 

The Company now has 9 fulltime employees, all working at the Company’s office in Houston, Texas. Outside of the Houston operation, the Company continues to retain outside consultants as needed, involved in business development, business analysis, financial consulting, web programming and designing, execution and support of the Company's business.

 

Reports to Securities Holders

 

The Company provides its annual report that includes its audited financial information to its shareholders upon written request. The Company also makes its financial information equally available to any interested parties or investors through compliance with the disclosure rules of the Exchange Act. The Company is subject to disclosure filing requirements including filing Form 10-K's annually and Form 10-Q's quarterly. In addition, the Company files Form 8-K and other proxy and information statements from time to time as required.

 

The public may read and copy any materials that the Company files with the SEC at the SEC's Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

 

 
21

Table of Contents

  

ITEM 1A. RISK FACTORS.

 

Our business and operations are subject to many risks. The risks described below may not be the only risks we face, as our business and operations may also be subject to risks that we do not yet know of, or that we currently believe are immaterial. If any of the events or circumstances described below actually occurs, our business, financial condition, results of operations or cash flow could be materially and adversely affected and the trading price of our common stock could decline. The following risk factors should be read in conjunction with the other information contained herein, including the financial statements and the related notes. Please read “Cautionary Note Regarding Forward-Looking Statements” in this filing, where we describe additional uncertainties associated with our business and the forward-looking statements included or incorporated by reference in this filing.

 

Our securities should only be purchased by persons who can afford to lose their entire investment in us. You should carefully consider the following risk factors and other information in this filing before deciding to become a holder of our securities. If any of the following risks actually occur, our business and financial results could be negatively affected to a significant extent.

 

Lineal owes us a substantial amount of money which may not be timely repaid, if at all.

 

Pursuant to a December 31, 2019 Redemption Agreement entered into between us and the prior owners of Lineal, we entered into a new unsecured promissory note in the amount of $1,539,719 with Lineal, evidencing the outstanding amount of a prior July 2019 promissory note, together with additional amounts loaned by us to Lineal through December 31, 2019 (the “December 2019 Lineal Note”); and loaned Lineal an additional $800,000, which was evidenced by an unsecured promissory note in the amount of $800,000, entered into by Lineal in favor of Camber on December 31, 2019 (“Lineal Note No. 2”). The December 2019 Lineal Note and Lineal Note No. 2, accrue interest, payable quarterly in arrears, beginning on March 31, 2020 and continuing until December 31, 2021, when all interest and principal is due, at 8% and 10% per annum (18% upon the occurrence of an event of default), respectively. The December 2019 Lineal Note and Lineal Note No. 2 are unsecured. 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. As of December 31, 2020, Lineal is in arrears for interest due on July 1 and October 1, 2020 totaling $109,882 which has been accrued as of December 31, 2020, but which the Company has fully reserved in its allowance for bad debts. Additionally, the Company applied a reserve in the amount of $115,719 against the principal balance of the notes.

 

Our Business and operations may be adversely affected by the recent COVID-19 pandemic or other similar outbreaks.

 

As a result of the recent COVID-19 outbreak or other adverse public health developments, including voluntary and mandatory quarantines, travel restrictions and other restrictions, our operations, and those of our subcontractors, customers and suppliers, have and may continue to experience delays or disruptions and temporary suspensions of operations. In addition, our financial condition and results of operations have been and may continue to be adversely affected by the coronavirus outbreak.

 

The timeline and potential magnitude of the COVID-19 outbreak is currently unknown. The continuation or amplification of this virus could continue to more broadly affect the United States and global economy, including our business and operations, and the demand for oil and gas (as it has already). For example, a significant outbreak of coronavirus or other contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect our operating results. In addition, the effects of COVID-19 and concerns regarding its global spread have recently negatively impacted the domestic and international demand for crude oil and natural gas, which has contributed to price volatility, impacted the price we receive for oil and natural gas and materially and adversely affected the demand for and marketability of our production. As the potential impact from COVID-19 is difficult to predict, the extent to which it may negatively affect our operating results or the duration of any potential business disruption is uncertain. Any impact will depend on future developments and new information that may emerge regarding the severity and duration of COVID-19 and the actions taken by authorities to contain it or treat its impact, all of which are beyond our control. These potential impacts, while uncertain, could adversely affect our operating results, notwithstanding the fact that the impact of COVID-19 has already negatively affected our first quarter and second quarter results of operations.

 

Furthermore, COVID-19 and the measures being taken to address and limit the spread of the virus have adversely affected the economies and financial markets of many countries, resulting in an economic downturn that has negatively impacted, and may continue to negatively impact, global demand and prices for crude oil and NGLs. If the COVID-19 outbreak should continue or worsen, we may also experience disruptions to commodities markets, equipment supply chains and the availability of personnel, which could adversely affect our ability to conduct our business and operations. There are still too many variables and uncertainties regarding the COVID-19 pandemic - including the ultimate geographic spread of the virus, the duration and severity of the outbreak and the extent of travel restrictions and business closures imposed in affected countries - to fully assess the potential impact on our business and operations.

 

 
22

Table of Contents

  

We may have difficulty managing growth in our business, which could have a material adverse effect on our business, financial condition and results of operations and our ability to execute our business plan in a timely fashion. 

 

Because of our small size, growth in accordance with our business plans, if achieved, will place a significant strain on our financial, technical, operational and management resources. If we expand our activities, developments and production, and increases in the number of projects we are evaluating or in which we participate, there will be additional demands on our financial, technical and management resources. The failure to continue to upgrade our technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties, including the inability to recruit and retain experienced managers, geoscientists, petroleum engineers, landmen, engineers and employees could have a material adverse effect on our business, financial condition and results of operations and our ability to execute our business plan in a timely fashion.

 

We depend significantly upon the continued involvement of our present management.

 

We depend to a significant degree upon the involvement of our management, specifically, our Chief Executive Officer, James G. Doris, and our Chief Financial Officer, Frank Barker, who were appointed on December 23, 2020 concurrent with the Acquisition. Mr. Doris is in charge of our strategic planning and operations. Our performance and success are dependent to a large extent on the efforts and continued employment of Mr. Doris and Mr. Barker. We do not believe that Mr. Doris or Mr. Barker could be quickly replaced with personnel of equal experience and capabilities, and their successor(s) may not be as effective. If Mr. Doris, Mr. Barker, or any of our other key personnel resign or become unable to continue in their present roles and if they are not adequately replaced, our business operations could be adversely affected.

 

We also have an active Board of Directors that meets several times throughout the year and is intimately involved in its business and the determination of our operational strategies. Members of our Board of Directors work closely with management to identify potential prospects, acquisitions and areas for further development. If any of our directors resign or become unable to continue in their present role, it may be difficult to find replacements with the same knowledge and experience and as a result, our operations may be adversely affected.

 

Future increases in our tax obligations; either due to increases in taxes on energy products, energy service companies and exploration activities or reductions in currently available federal income tax deductions with respect to oil and natural gas exploration and development, may adversely affect our results of operations and increase our operating expenses.

 

Federal, state and local governments have jurisdiction in areas where we operate and impose taxes on the oil and natural gas products we sell. There are constant discussions by federal, state and local officials concerning a variety of energy tax proposals, some of which, if passed, would add or increase taxes on energy products, service companies and exploration activities. The passage of any legislation or any other changes in U.S. federal income tax laws could impact or increase the taxes that we are required to pay and consequently adversely affect our results of operations and/or increase our operating expenses.

 

Because of the inherent dangers involved in oil and gas exploration, there is a risk that we may incur liability or damages for our conduct or our business operations, which could force us to expend a substantial amount of money in connection with litigation and/or a settlement.

 

The oil and natural gas business involve a variety of operating hazards and risks such as well blowouts, pipe failures, casing collapse, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, spills, pollution, releases of toxic gas and other environmental hazards and risks. These hazards and risks could result in substantial losses to us from, among other things, injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. In addition, we may be liable for environmental damages caused by previous owners of property purchased and leased by us in the future. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could reduce or eliminate the funds available for the purchase of properties and/or property interests, exploration, development or acquisitions or result in the loss of our properties and/or force us to expend substantial monies in connection with litigation or settlements. As such, our current insurance or the insurance that we may obtain in the future may not be adequate to cover any losses or liabilities. We cannot predict the availability of insurance or the availability of insurance at premium levels that justify its purchase. The occurrence of a significant event not fully insured or indemnified against could materially and adversely affect our financial condition and operations. We may elect to self-insure if management believes that the cost of insurance, although available, is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event not fully covered by insurance could have a material adverse effect on our financial condition and results of operations, which could lead to any investment in us declining in value or becoming worthless.

 

 
23

Table of Contents

  

We incur certain costs to comply with government regulations, particularly regulations relating to environmental protection and safety, and could incur even greater costs in the future.

 

Our operations are regulated extensively at the federal, state and local levels and are subject to interruption or termination by governmental and regulatory authorities based on environmental or other considerations. Moreover, we have incurred and will continue to incur costs in our efforts to comply with the requirements of environmental, safety and other regulations. Further, the regulatory environment in the oil and natural gas industry could change in ways that we cannot predict and that might substantially increase our costs of compliance and, in turn, materially and adversely affect our business, results of operations and financial condition.

 

Specifically, as an owner or lessee and operator of crude oil and natural gas properties, we are subject to various federal, state, local and foreign regulations relating to the discharge of materials into, and the protection of, the environment. These regulations may, among other things, impose liability on us for the cost of pollution cleanup resulting from operations, subject us to liability for pollution damages and require suspension or cessation of operations in affected areas. Moreover, we are subject to the United States (“U.S.”) EPA rule requiring annual reporting of greenhouse gas (“GHG”) emissions. Changes in, or additions to, these regulations could lead to increased operating and compliance costs and, in turn, materially and adversely affect our business, results of operations and financial condition.

 

We are aware of the increasing focus of local, state, national and international regulatory bodies on GHG emissions and climate change issues. In addition to the U.S. EPA’s rule requiring annual reporting of GHG emissions, we are also aware of legislation proposed by U.S. lawmakers to reduce GHG emissions.

 

Additionally, there have been various proposals to regulate hydraulic fracturing at the federal level, including possible regulations limiting the ability to dispose of produced waters. Currently, the regulation of hydraulic fracturing is primarily conducted at the state level through permitting and other compliance requirements. Any new federal regulations that may be imposed on hydraulic fracturing could result in additional permitting and disclosure requirements (such as the reporting and public disclosure of the chemical additives used in the fracturing process) and in additional operating restrictions. In addition to the possible federal regulation of hydraulic fracturing, some states and local governments have considered imposing various conditions and restrictions on drilling and completion operations, including requirements regarding casing and cementing of wells, testing of nearby water wells, restrictions on the access to and usage of water and restrictions on the type of chemical additives that may be used in hydraulic fracturing operations. Such federal and state permitting and disclosure requirements and operating restrictions and conditions could lead to operational delays and increased operating and compliance costs and, moreover, could delay or effectively prevent the development of crude oil and natural gas from formations which would not be economically viable without the use of hydraulic fracturing.

 

We will continue to monitor and assess any new policies, legislation, regulations and treaties in the areas where we operate to determine the impact on our operations and take appropriate actions, where necessary. We are unable to predict the timing, scope and effect of any currently proposed or future laws, regulations or treaties, but the direct and indirect costs of such laws, regulations and treaties (if enacted) could materially and adversely affect our business, results of operations and financial condition.

 

Possible regulation related to global warming and climate change could have an adverse effect on our operations and demand for oil and gas.

 

Studies over recent years have indicated that emissions of certain gases may be contributing to warming of the Earth’s atmosphere. In response to these studies, governments have begun adopting domestic and international climate change regulations that require reporting and reductions of the emission of greenhouse gases. Methane, a primary component of natural gas, and carbon dioxide, a by-product of the burning of oil, natural gas and refined petroleum products, are considered greenhouse gases. In the United States, at the state level, many states, either individually or through multi-state regional initiatives, have begun implementing legal measures to reduce emissions of greenhouse gases, primarily through the planned development of emission inventories or regional greenhouse gas cap and trade programs or have begun considering adopting greenhouse gas regulatory programs. At the federal level, Congress has considered legislation that could establish a cap-and-trade system for restricting greenhouse gas emissions in the United States. The ultimate outcome of this federal legislative initiative remains uncertain. In addition to pending climate legislation, the EPA has issued greenhouse gas monitoring and reporting regulations. Beyond measuring and reporting, the EPA issued an “Endangerment Finding” under section 202(a) of the Clean Air Act, concluding that greenhouse gas pollution threatens the public health and welfare of current and future generations. The finding served as a first step to issuing regulations that require permits for and reductions in greenhouse gas emissions for certain facilities. Moreover, the EPA has begun regulating greenhouse gas emission from certain facilities pursuant to the Prevention of Significant Deterioration and Title V provisions of the Clean Air Act. In the courts, several decisions have been issued that may increase the risk of claims being filed by government entities and private parties against companies that have significant greenhouse gas emissions. Such cases may seek to challenge air emissions permits that greenhouse gas emitters apply for and seek to force emitters to reduce their emissions or seek damages for alleged climate change impacts to the environment, people, and property. Any existing or future laws or regulations that restrict or reduce emissions of greenhouse gases could require us to incur increased operating and compliance costs. In addition, such laws and regulations may adversely affect demand for the fossil fuels we produce, including by increasing the cost of combusting fossil fuels and by creating incentives for the use of alternative fuels and energy.

 

 
24

Table of Contents

  

Our officers and directors have limited liability, and we are required in certain instances to indemnify our officers and directors for breaches of their fiduciary duties.

 

We have adopted provisions in our articles of incorporation and bylaws which limit the liability of our officers and directors and provide for indemnification by us of our officers and directors to the full extent permitted by Nevada corporate law. Our articles generally provide that our officers and directors shall have no personal liability to us or our stockholders for monetary damages for breaches of their fiduciary duties as directors, except for breaches of their duties of loyalty, acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, acts involving unlawful payment of dividends or unlawful stock purchases or redemptions, or any transaction from which a director derives an improper personal benefit. Such provisions substantially limit our stockholders’ ability to hold officers and directors liable for breaches of fiduciary duty, and may require us to indemnify our officers and directors.

 

We currently have outstanding indebtedness and we may incur additional indebtedness which could reduce our financial flexibility, increase interest expense and adversely impact our operations in the future.

 

We currently have outstanding indebtedness and, in the future, may incur significant amounts of additional indebtedness in order to make acquisitions or to develop properties. Our level of indebtedness could affect our operations in several ways, including the following:

 

 

·

a significant portion of our cash flows could be used to service our indebtedness;

 

 

 

 

·

a high level of debt would increase our vulnerability to general adverse economic and industry conditions;

 

 

 

 

·

any covenants contained in the agreements governing our outstanding indebtedness could limit our ability to borrow additional funds;

 

 

 

 

·

dispose of assets, pay dividends and make certain investments;

 

 

 

 

·

a high level of debt may place us at a competitive disadvantage compared to our competitors that are less leveraged and, therefore, they may be able to take advantage of opportunities that our indebtedness may prevent us from pursuing; and

 

 

 

 

·

debt covenants to which we may agree may affect our flexibility in planning for, and reacting to, changes in the economy and in its industry.

 

A high level of indebtedness increases the risk that we may default on our debt obligations. We may not be able to generate sufficient cash flows to pay the principal or interest on our debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. If we do not have sufficient funds and are otherwise unable to arrange financing, we may have to sell significant assets or have a portion of our assets foreclosed upon which could have a material adverse effect on our business, financial condition and results of operations.

 

We may experience adverse impacts on our reported results of operations as a result of adopting new accounting standards or interpretations.

 

Our implementation of and compliance with changes in accounting rules, including new accounting rules and interpretations, could adversely affect our reported financial position or operating results or cause unanticipated fluctuations in our reported operating results in future periods.

 

We have identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting. If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock.

 

Maintaining effective internal control over financial reporting and effective disclosure controls and procedures are necessary for us to produce reliable financial statements. As reported under “Part II - Item 9A. Controls and Procedures”, as of December 31, 2020, our CEO and CFO have determined that our disclosure controls and procedures were not effective, and such disclosure controls and procedures have not been deemed effective since approximately September 30, 2017. Separately, management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 and determined that such internal control over financial reporting was not effective as a result of such assessment.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.

 

Maintaining effective disclosure controls and procedures and effective internal control over financial reporting are necessary for us to produce reliable financial statements and the Company is committed to remediating its material weaknesses in such controls as promptly as possible. However, there can be no assurance as to when these material weaknesses will be remediated or that additional material weaknesses will not arise in the future. Any failure to remediate the material weaknesses, or the development of new material weaknesses in our internal control over financial reporting, could result in material misstatements in our financial statements and cause us to fail to meet our reporting and financial obligations, which in turn could have a material adverse effect on our financial condition and the trading price of our common stock, and/or result in litigation against us or our management. In addition, even if we are successful in strengthening our controls and procedures, those controls and procedures may not be adequate to prevent or identify irregularities or facilitate the fair presentation of our financial statements or our periodic reports filed with the SEC.

 

 
25

Table of Contents

  

Risks Relating to Our Oil and Gas Operations and Industry

 

We are subject to production declines and loss of revenue due to shut-in wells.

 

The majority of our oil and gas production revenues come from a number of producing wells. In the event those wells are required to be shut-in (as they were for various periods in the past), our production and revenue could be adversely affected. Our wells are shut-in from time-to-time for maintenance, workovers, upgrades and other matters outside of our control, including repairs, adverse weather (including hurricanes, flooding and tropical storms), inability to dispose of produced water or other regulatory and market conditions. Any significant period where our wells, and especially our top producing wells, are shut-in, would have a material adverse effect on our results of production, oil and gas revenues and net income or loss for the applicable period. However, notwithstanding the above, Camber’s management believes that Camber’s non-operated properties will be immaterial to the combined company following the merger and following the merger the combined company’s management will determine what course to take regarding such combined company assets, including Camber’s non-operated properties.

 

Many of our leases are in areas that have been partially depleted or drained by offset wells.

 

Many of our leases are in areas that have been partially depleted or drained by offset drilling. Interference from offset drilling may inhibit our ability to find or recover commercial quantities of oil and/or may result in an acceleration in the decline in production of our wells, which may in turn have an adverse effect on our recovered barrels of oil and consequently our results of operations.

 

Crude oil and natural gas prices are highly volatile in general and low prices will negatively affect our financial results.

 

Our oil and gas revenues, operating results, profitability, cash flow, future rate of growth and ability to borrow funds or obtain additional capital, as well as the carrying value of our oil and natural gas properties, are substantially dependent upon prevailing prices of crude oil and natural gas. Lower crude oil and natural gas prices also may reduce the amount of crude oil and natural gas that we can produce economically. Historically, the markets for crude oil and natural gas have been very volatile, and such markets are likely to continue to be volatile in the future. Prices for oil and natural gas fluctuate widely in response to a variety of factors beyond our control, such as:

 

 

·

overall U.S. and global economic conditions;

 

·

weather conditions and natural disasters;

 

·

seasonal variations in oil and natural gas prices;

 

·

price and availability of alternative fuels;

 

·

technological advances affecting oil and natural gas production and consumption;

 

·

consumer demand;

 

·

domestic and foreign supply of oil and natural gas;

 

·

variations in levels of production;

 

·

regional price differentials and quality differentials of oil and natural gas; price and quantity of foreign imports of oil, NGLs, and natural gas;

 

·

global pandemics and epidemics, such as COVID-19;

 

·

the completion of large domestic or international exploration and production projects;

 

·

restrictions on exportation of oil and natural gas;

 

·

the availability of refining capacity;

 

·

the impact of energy conservation efforts;

 

·

political conditions in or affecting other oil producing and natural gas producing countries, including the current conflicts in the Middle East and conditions in South America and Russia; and

 

·

domestic and foreign governmental regulations, actions and taxes.

 

 
26

Table of Contents

 

Further, oil and natural gas prices do not necessarily fluctuate in direct relation to each other. Our revenue, profitability, and cash flow depend upon the prices of supply and demand for oil and natural gas, and a drop in prices can significantly affect our financial results and impede our growth. In particular, declines in commodity prices may:

 

 

·

negatively impact the value of our reserves, because declines in oil and natural gas prices would reduce the value and amount of oil and natural gas that we can produce economically;

 

 

 

 

·

reduce the amount of cash flow available for capital expenditures, repayment of indebtedness, and other corporate purposes; and

 

 

 

 

·

limit Camber’s ability to borrow money or raise additional capital.

 

Downturns and volatility in global economies and commodity and credit markets have materially adversely affected our business, results of operations and financial condition.

 

Our results of operations are materially adversely affected by the conditions of the global economies and the credit, commodities and stock markets. Among other things, we have recently been adversely impacted, and anticipate to continue to be adversely impacted, due to a global reduction in consumer demand for oil and gas, and consumer lack of access to sufficient capital to continue to operate their businesses or to operate them at prior levels. In addition, a decline in consumer confidence or changing patterns in the availability and use of disposable income by consumers can negatively affect the demand for oil and gas and as a result our results of operations.

 

We face intense competition in connection with our oil and gas operations.

 

We are in direct competition for properties with numerous oil and natural gas companies, drilling and income programs and partnerships exploring various areas of Texas and Oklahoma. Many competitors are large, well-known energy companies, although no single entity dominates the industry. Many of our competitors possess greater financial and personnel resources enabling them to identify and acquire more economically desirable energy producing properties and drilling prospects than us. Additionally, there is competition from other fuel choices to supply the energy needs of consumers and industry. Management believes that a viable marketplace exists for smaller producers of natural gas and crude oil.

 

Our oil and gas competitors may use superior technology and data resources that we may be unable to afford or that would require a costly investment by us in order to compete with them more effectively.

 

The oil and gas industry is subject to rapid and significant advancements in technology, including the introduction of new products and services using new technologies and databases. As our competitors use or develop new technologies, we may be placed at a competitive disadvantage, and competitive pressures may force us to implement new technologies at a substantial cost. In addition, many of our competitors will have greater financial, technical and personnel resources that allow them to enjoy technological advantages and may in the future allow them to implement new technologies before we can. We cannot be certain that we will be able to implement technologies on a timely basis or at a cost that is acceptable to us. One or more of the technologies that we will use or that we may implement in the future may become obsolete, and we may be adversely affected.

 

Restrictions on drilling activities intended to protect certain species of wildlife may adversely affect our ability to conduct drilling activities in some of the areas where we operate.

 

Oil and natural gas operations in our operating areas can be adversely affected by seasonal or permanent restrictions on drilling activities designed to protect various wildlife. Seasonal restrictions may limit our ability to operate in protected areas and can intensify competition for drilling rigs, oilfield equipment, services, supplies and qualified personnel, which may lead to periodic shortages when drilling is allowed. These constraints and the resulting shortages or high costs could delay our operations and materially increase our operating and capital costs. Permanent restrictions imposed to protect endangered species could prohibit drilling in certain areas or require the implementation of expensive mitigation measures. Specifically, applicable laws protecting endangered species prohibit the harming of endangered or threatened species, provide for habitat protection, and impose stringent penalties for noncompliance. The designation of previously unprotected species as threatened or endangered in areas where we operate could cause us to incur increased costs arising from species protection measures or could result in limitations, delays, or prohibitions on our exploration and production activities that could have an adverse impact on our ability to develop and produce our reserves.

 

 
27

Table of Contents

 

If we do not hedge our exposure to reductions in oil and natural gas prices, we may be subject to significant reductions in prices. Alternatively, we use oil and natural gas price hedging contracts, which involve credit risk and may limit future revenues from price increases and result in significant fluctuations in our profitability.

 

In the event that we choose not to hedge our exposure to reductions in oil and natural gas prices by purchasing futures and by using other hedging strategies, we may be subject to significant reduction in prices which could have a material negative impact on our profitability. Alternatively, we use hedging transactions with respect to a portion of our oil and natural gas production to achieve more predictable cash flow and to reduce our exposure to price fluctuations. While the use of hedging transactions limits the downside risk of price declines, their use also may limit future revenues from price increases. Hedging transactions also involve the risk that the counterparty may be unable to satisfy its obligations.

 

Declines in oil and, to a lesser extent, NGL and natural gas prices, have in the past, and will continue in the future to, adversely affect our business, financial condition and results of operations may adversely affect our ability to meet our capital expenditure obligations or targets and financial commitments.

 

The price we receive for oil and, to a lesser extent, natural gas and NGLs, heavily influences our revenue, profitability, cash flows, liquidity, access to capital, present value and quality of reserves, the nature and scale of our operations and future rate of growth. Oil, NGL and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. In recent years, the markets for oil and natural gas have been volatile. These markets will likely continue to be volatile in the future. Further, oil prices and natural gas prices do not necessarily fluctuate in direct relation to each other. In general, our financial results are more sensitive to movements in oil prices. The price of crude oil has experienced significant volatility over the last five years, with the price per barrel of West Texas Intermediate (“WTI”) crude rising from a low of $27 in February 2016 to a high of $76 in October 2018, then, in 2020, dropping below $20 per barrel due in part to reduced global demand stemming from the recent global COVID-19 outbreak, provided that pricing has since increased to over $70 per barrel prior to the filing of this Report. A prolonged period of low market prices for oil and natural gas, or further declines in the market prices for oil and natural gas, will likely result in capital expenditures being further curtailed and will adversely affect our business, financial condition and liquidity and our ability to meet obligations, targets or financial commitments and could ultimately lead to restructuring or filing for bankruptcy, which would have a material adverse effect on our stock price and indebtedness.

 

Our oil and gas operations are substantially dependent on the availability of water. Restrictions on our ability to obtain water may have an adverse effect on our financial condition, results of operations and cash flows.

 

Water is an essential component of deep shale oil and natural gas production during both the drilling and hydraulic fracturing, or fracking processes. Our oil and gas operations and future operations could be adversely impacted if we are unable to locate sufficient amounts of water or dispose of or recycle water used in our exploration and production operations. Currently, the quantity of water required in certain completion operations, such as hydraulic fracturing, and changing regulations governing usage may lead to water constraints and supply concerns (particularly in some parts of the country). As a result, future availability of water from certain sources used in the past may be limited. Moreover, the imposition of new environmental initiatives and conditions could include restrictions on our ability to conduct certain operations such as hydraulic fracturing or disposal of waste, including, but not limited to, produced water, drilling fluids and other wastes associated with the exploration, development or production of oil and natural gas. The CWA and analogous state laws impose restrictions and strict controls regarding the discharge of pollutants, including produced waters and other oil and natural gas waste, into navigable waters or other regulated federal and state waters. Permits or other approvals must be obtained to discharge pollutants to regulated waters and to conduct construction activities in such waters and wetlands. Uncertainty regarding regulatory jurisdiction over wetlands and other regulated waters has, and will continue to, complicate and increase the cost of obtaining such permits or other approvals. The CWA and analogous state laws provide for civil, criminal and administrative penalties for any unauthorized discharges of pollutants and unauthorized discharges of reportable quantities of oil and other hazardous substances. Many state discharge regulations, and the Federal National Pollutant Discharge Elimination System General permits issued by the United States Environmental Protection Agency (“EPA”), prohibit the discharge of produced water and sand, drilling fluids, drill cuttings and certain other substances related to the oil and natural gas industry into coastal waters. While generally exempt under federal programs, many state agencies have also adopted regulations requiring certain oil and natural gas exploration and production facilities to obtain permits for storm water discharges. There has been recent nationwide concern over earthquakes associated with Class II underground injection control wells, a predominant storage method for crude oil and gas wastewater. It is likely that new rules and regulations will be developed to address these concerns, possibly eliminating access to Class II wells in certain locations, and increasing the cost of disposal in others. Finally, EPA studies have previously focused on various stages of water use in hydraulic fracturing operations. It is possible that, in the future, the EPA will move to more strictly regulate the use of water in hydraulic fracturing operations. While we cannot predict the impact that these changes may have on our business at this time, they may be material to our business, financial condition, and operations. Compliance with environmental regulations and permit requirements governing the withdrawal, storage and use of surface water or groundwater necessary for hydraulic fracturing of wells or the disposal or recycling of water will increase our operating costs and may cause delays, interruptions or termination of our operations, the extent of which cannot be predicted. In addition, our inability to meet our water supply needs to conduct our completion operations may impact our business, and any such future laws and regulations could negatively affect our financial condition, results of operations and cash flows.

 

 
28

Table of Contents

 

If we acquire crude oil and natural gas properties in the future, our failure to fully identify existing and potential problems, to accurately estimate reserves, production rates or costs, or to effectively integrate the acquired properties into our operations could materially and adversely affect our business, financial condition and results of operations.

 

From time to time, we seek to acquire crude oil and natural gas properties. Although we perform reviews of properties to be acquired in a manner that we believe is duly diligent and consistent with industry practices, reviews of records and properties may not necessarily reveal existing or potential problems, and may not permit us to become sufficiently familiar with the properties in order to fully assess their deficiencies and potential. Even when problems with a property are identified, we may assume environmental and other risks and liabilities in connection with acquired properties pursuant to the acquisition agreements. Moreover, there are numerous uncertainties inherent in estimating quantities of crude oil and natural gas reserves (as discussed further below), actual future production rates and associated costs with respect to acquired properties. Actual reserves, production rates and costs may vary substantially from those assumed in our estimates. We may be unable to locate or make suitable acquisitions on acceptable terms and future acquisitions may not be effectively and profitably integrated. Acquisitions involve risks that could divert management resources and/or result in the possible loss of key employees and customers of the acquired operations. For the reasons above, among others, an acquisition may have a material and adverse effect on our business and results of operations, particularly during the periods in which the operations of the acquired properties are being integrated into our ongoing operations or if we are unable to effectively integrate the acquired properties into our ongoing operations.

 

If we make any acquisitions or enter into any business combinations in the future, they may disrupt or have a negative impact on our business.

 

If we make acquisitions or enter into any business combinations in the future, funding permitting, we could have difficulty integrating the acquired companies’ assets, personnel and operations with our own. Additionally, acquisitions, mergers or business combinations we may enter into in the future (other than the Merger) could result in a change of control of the Company, and a change in the Board of Directors or officers of the Company. In addition, the key personnel of the acquired business may not be willing to work for us. We cannot predict the effect expansion may have on our core business. Regardless of whether we are successful in making an acquisition or completing a business combination, the negotiations could disrupt our ongoing business, distract our management and employees and increase our expenses. In addition to the risks described above, acquisitions and business combinations are accompanied by a number of inherent risks, including, without limitation, the following:

 

 

·

the difficulty of integrating acquired companies, concepts and operations;

 

 

 

 

·

the potential disruption of the ongoing businesses and distraction of our management and the management of acquired companies;

 

 

 

 

·

change in our business focus and/or management;

 

 

 

 

·

difficulties in maintaining uniform standards, controls, procedures and policies;

 

 

 

 

·

the potential impairment of relationships with employees and partners as a result of any integration of new management personnel;

 

 

 

 

·

the potential inability to manage an increased number of locations and employees;

 

 

 

 

·

our ability to successfully manage the companies and/or concepts acquired;

 

 

 

 

·

the failure to realize efficiencies, synergies and cost savings; or

 

 

 

 

·

the effect of any government regulations which relate to the business acquired.

 

 
29

Table of Contents

 

Our business could be severely impaired if and to the extent that we are unable to succeed in addressing any of these risks or other problems encountered in connection with an acquisition or business combination, many of which cannot be presently identified. These risks and problems could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations.

 

Any acquisition or business combination transaction we enter into in the future could cause substantial dilution to existing stockholders, result in one party having majority or significant control over the Company or result in a change in business focus of the Company.

 

Our business is subject to extensive regulation.

 

As many of our activities are subject to federal, state and local regulation, and as these rules are subject to constant change or amendment, our operations may be adversely affected by new or different government regulations, laws or court decisions applicable to our operations.

 

Government regulation and liability for environmental matters may adversely affect our business and results of operations.

 

Crude oil and natural gas operations are subject to extensive federal, state and local government regulations, which may be changed from time to time. Matters subject to regulation include discharge permits for drilling operations, drilling bonds, reports concerning operations, the spacing of wells, unitization and pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of crude oil and natural gas wells below actual production capacity in order to conserve supplies of crude oil and natural gas. There are federal, state and local laws and regulations primarily relating to protection of human health and the environment applicable to the development, production, handling, storage, transportation and disposal of crude oil and natural gas, byproducts thereof and other substances and materials produced or used in connection with crude oil and natural gas operations. In addition, we may inherit liability for environmental damages caused by previous owners of property we purchase or lease. As a result, we may incur substantial liabilities to third parties or governmental entities. The implementation of new, or the modification of existing, laws or regulations could have a material adverse effect on us.

 

The crude oil and natural gas reserves we report in our SEC filings are estimates and may prove to be inaccurate.

 

There are numerous uncertainties inherent in estimating crude oil and natural gas reserves and their estimated values. The reserves we report in our filings with the SEC now and in the future will only be estimates and such estimates may prove to be inaccurate because of these uncertainties. Reservoir engineering is a subjective and inexact process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner. Estimates of economically recoverable crude oil and natural gas reserves depend upon a number of variable factors, such as historical production from the area compared with production from other producing areas and assumptions concerning effects of regulations by governmental agencies, future crude oil and natural gas prices, future operating costs, severance and excise taxes, development costs and work-over and remedial costs. Some or all of these assumptions may in fact vary considerably from actual results. For these reasons, estimates of the economically recoverable quantities of crude oil and natural gas attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows expected therefrom prepared by different engineers or by the same engineers but at different times may vary substantially. Accordingly, reserve estimates may be subject to downward or upward adjustment. Actual production, revenue and expenditures with respect to our reserves will likely vary from estimates, and such variances may be material.

 

Additionally, “probable” and “possible reserve estimates” are considered unproved reserves and as such, the SEC views such estimates to be inherently unreliable, may be misunderstood or seen as misleading to investors that are not “experts” in the oil or natural gas industry. Unless you have such expertise, you should not place undue reliance on these estimates. Except as required by applicable law, we undertake no duty to update this information and do not intend to update this information.

 

 
30

Table of Contents

 

The calculated present value of future net revenues from our proved reserves will not necessarily be the same as the current market value of our estimated oil and natural gas reserves.

 

You should not assume that the present value of future net cash flows as included in our public filings is the current market value of our estimated proved oil and natural gas reserves. We generally base the estimated discounted future net cash flows from proved reserves on current costs held constant over time without escalation and on commodity prices using an unweighted arithmetic average of first-day-of-the-month index prices, appropriately adjusted, for the 12-month period immediately preceding the date of the estimate. Actual future prices and costs may be materially higher or lower than the prices and costs used for these estimates and will be affected by factors such as:

 

 

·

actual prices we receive for oil and natural gas;

 

 

 

 

·

actual cost and timing of development and production expenditures;

 

 

 

 

·

the amount and timing of actual production; and

 

 

 

 

·

changes in governmental regulations or taxation.

 

In addition, the 10% discount factor that is required to be used to calculate discounted future net revenues for reporting purposes under GAAP is not necessarily the most appropriate discount factor based on the cost of capital in effect from time to time and risks associated with our business and the oil and natural gas industry in general.

 

Crude oil and natural gas development, re-completion of wells from one reservoir to another reservoir, restoring wells to production and exploration, drilling and completing new wells are speculative activities and involve numerous risks and substantial and uncertain costs.

 

Our oil and gas operations will be materially dependent upon the success of our future development program. Even considering our business philosophy to avoid wildcat wells, drilling for crude oil and natural gas and reworking existing wells involves numerous risks, including the risk that no commercially productive crude oil or natural gas reservoirs will be encountered. The cost of exploration, drilling, completing and operating wells is substantial and uncertain, and drilling operations may be curtailed, delayed or cancelled as a result of a variety of factors beyond our control, including: unexpected drilling conditions; pressure or irregularities in formations; equipment failures or accidents; inability to obtain leases on economic terms, where applicable; adverse weather conditions and natural disasters; compliance with governmental requirements; and shortages or delays in the availability of drilling rigs or crews and the delivery of equipment. Furthermore, we cannot provide investors with any assurance that we will be able to obtain rights to additional producing properties in the future and/or that any properties we obtain rights to will contain commercially exploitable quantities of oil and/or gas.

 

Drilling or reworking is a highly speculative activity. Even when fully and correctly utilized, modern well completion techniques such as hydraulic fracturing and horizontal drilling do not guarantee that we will find crude oil and/or natural gas in our wells. Hydraulic fracturing involves pumping a fluid with or without particulates into a formation at high pressure, thereby creating fractures in the rock and leaving the particulates in the fractures to ensure that the fractures remain open, thereby potentially increasing the ability of the reservoir to produce oil or natural gas. Horizontal drilling involves drilling horizontally out from an existing vertical well bore, thereby potentially increasing the area and reach of the well bore that is in contact with the reservoir. Our future drilling activities may not be successful and, if unsuccessful, such failure would have an adverse effect on our future results of operations and financial condition. Our overall drilling success rate and/or our drilling success rate for activities within a particular geographic area may decline in the future. We may identify and develop prospects through a number of methods, some of which do not include lateral drilling or hydraulic fracturing, and some of which may be unproven. The drilling and results for these prospects may be particularly uncertain. Our drilling schedule may vary from our capital budget. The final determination with respect to the drilling of any scheduled or budgeted prospects will be dependent on a number of factors, including, but not limited to: the results of previous development efforts and the acquisition, review and analysis of data; the availability of sufficient capital resources to us and the other participants, if any, for the drilling of the prospects; the approval of the prospects by other participants, if any, after additional data has been compiled; economic and industry conditions at the time of drilling, including prevailing and anticipated prices for crude oil and natural gas and the availability of drilling rigs and crews; our financial resources and results; the availability of leases and permits on reasonable terms for the prospects; and the success of our drilling technology.

 

These projects may not be successfully developed and the wells discussed, if drilled, may not encounter reservoirs of commercially productive crude oil or natural gas. There are numerous uncertainties in estimating quantities of proved reserves, including many factors beyond our control. If we are unable to find commercially exploitable quantities of oil and natural gas in any properties we may acquire in the future, and/or we are unable to commercially extract such quantities we may find in any properties we may acquire in the future, the value of our securities may decline in value.

 

 
31

Table of Contents

 

Unless we replace our oil and natural gas reserves, our reserves and production will decline, which would adversely affect our business, financial condition and results of operations.

 

The rate of production from our oil and natural gas properties will decline as our reserves are depleted. Our future oil and natural gas reserves and production and, therefore, our income and cash flow, are highly dependent on our success in (a) efficiently developing and exploiting our current reserves on properties owned by us or by other persons or entities and (b) economically finding or acquiring additional oil and natural gas properties. In the future, we may have difficulty acquiring new properties. During periods of low oil and/or natural gas prices, it will become more difficult to raise the capital necessary to finance expansion activities. If we are unable to replace our production, our reserves will decrease, and our business, financial condition and results of operations would be adversely affected.

 

The unavailability or high cost of drilling rigs, completion equipment and services, supplies and personnel, including hydraulic fracturing equipment and personnel, could adversely affect our ability to establish and execute exploration and development plans within budget and on a timely basis, which could have a material adverse effect on our business, financial condition and results of operations.

 

Shortages or the high cost of drilling rigs, completion equipment and services, supplies or personnel could delay or adversely affect our operations. When drilling activity in the United States increases, associated costs typically also increase, including those costs related to drilling rigs, equipment, supplies and personnel and the services and products of other vendors to the industry. These costs may increase, and necessary equipment and services may become unavailable to us at economical prices. Should this increase in costs occur, we may delay drilling activities, which may limit our ability to establish and replace reserves, or we may incur these higher costs, which may negatively affect our business, financial condition and results of operations.

 

The oil and gas industry is cyclical and, from time to time, there is a shortage of drilling rigs, equipment, supplies or qualified personnel. During these periods, the costs and delivery times of rigs, equipment and supplies tend to increase, in some cases substantially. In addition, the demand for, and wage rates of, qualified drilling rig crews rise as the number of active rigs in service increases within a geographic area. If increasing levels of exploration and production result in response to strong prices of oil and natural gas, the demand for oilfield services will likely rise, and the costs of these services will likely increase, while the quality of these services may suffer. The future lack of availability or high cost of drilling rigs, as well as any future lack of availability or high costs of other equipment, supplies, insurance or qualified personnel, in the areas in which we operate could materially and adversely affect our business and results of operations.

 

Federal and state legislation and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.

 

Hydraulic fracturing is a common practice that is used to stimulate production of hydrocarbons from tight formations. The process involves the injection of water, sand and chemicals under pressure into rock formations to fracture the surrounding rock and stimulate production. There has been increasing public controversy regarding hydraulic fracturing with regard to the transportation and use of fracturing fluids, impacts on drinking water supplies, use of waters, and the potential for impacts to surface water, groundwater, air quality and the environment generally. A number of lawsuits and enforcement actions have been initiated implicating hydraulic fracturing practices. Additional legislation or regulation could make it more difficult to perform hydraulic fracturing, cause operational delays, increase our operating costs or make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings. New legislation or regulations in the future could have the effect of prohibiting the use of hydraulic fracturing, which would prevent us from completing our wells as planned and would have a material adverse effect on production from our wells. If these legislative and regulatory initiatives cause a material delay or decrease in our drilling or hydraulic fracturing activities, our business and profitability could be materially impacted.

 

Future acquired properties may not be worth what we pay due to uncertainties in evaluating recoverable reserves and other expected benefits, as well as potential liabilities.

 

Successful property acquisitions require an assessment of a number of factors beyond our control. These factors include estimates of recoverable reserves, exploration potential, future natural gas and oil prices, operating costs, production taxes and potential environmental and other liabilities. These assessments are complex and inherently imprecise. Our review of the properties we acquire may not reveal all existing or potential problems. In addition, our review may not allow us to fully assess the potential deficiencies of the properties. We do not inspect every well, and even when we inspect a well, we may not discover structural, subsurface, or environmental problems that may exist or arise. There may be threatened or contemplated claims against the assets or businesses we acquire related to environmental, title, regulatory, tax, contract, litigation or other matters of which we are unaware, which could materially and adversely affect our production, revenues and results of operations. We may not be entitled to contractual indemnification for pre-closing liabilities, including environmental liabilities, and our contractual indemnification may not be effective. At times, we acquire interests in properties on an “as is” basis with limited representations and warranties and limited remedies for breaches of such representations and warranties. In addition, significant acquisitions can change the nature of our operations and business if the acquired properties have substantially different operating and geological characteristics or are in different geographic locations than our existing properties.

 

 
32

Table of Contents

 

Risks Relating To An Investment In Our Securities

 

If we are unable to maintain compliance with NYSE American continued listing standards, our common stock may be delisted from the NYSE American equities market, which would likely cause the liquidity and market price of our common stock to decline.

 

Our common stock is currently listed on the NYSE American. The NYSE American will consider suspending dealings in, or delisting, securities of an issuer that does not meet its continued listing standards. If we cannot meet the NYSE American continued listing requirements, the NYSE American may delist our common stock, which could have an adverse impact on us and the liquidity and market price of our stock.

 

On February 24, 2020, we received notice from the NYSE American (the “Exchange”) that we were not in compliance with certain of the Exchange’s continued listing standards as set forth in Part 10 of the NYSE American Company Guide (the “Company Guide”). Specifically, because we reported stockholders’ equity of $3.1 million as of December 31, 2019 and net losses in three of our four most recent fiscal years then ended, we did not comply with Section 1003(a)(ii) of the Company Guide because we had stockholders’ equity of less than $4,000,000 and reported losses from continuing operations and/or net losses in three of our four most recent fiscal years. In order to maintain our listing on the Exchange, the Exchange requested we submit a plan of compliance (the “Plan”) by March 25, 2020 addressing how we intended to regain compliance with Section 1003(a)(ii) of the Company Guide by August 24, 2021, which plan was submitted and accepted. On May 8, 2020, the Company was notified by the NYSE that the NYSE Regulation accepted the Company’s plan to regain compliance with the Exchange’s continued listing standards set forth in Section 1003(a)(ii) of the NYSE American Company Guide (the “Company Guide”) by August 24, 2021, subject to periodic review by the NYSE for compliance with the initiatives set forth in the plan. If the Company is not in compliance with the continued listing standards by August 24, 2021, or if the Company does not make progress consistent with the plan during the plan period, the NYSE staff may initiate delisting proceedings as appropriate. We are continuing to make progress with our plan of compliance as previously submitted to the NYSE. During the plan period, we are able to continue our listing and will be subject to continued periodic review by the Exchange staff. If we do not make progress consistent with the Plan during the plan period, we will be subject to delisting procedures as set forth in the Company Guide. Pursuant to a letter dated January 21, 2021, the Exchange advised the Company is back in compliance with all of the Exchange’s continued listing standards set forth in Company Guide. Specifically, the Company has resolved the continued listing deficiency with respect to Section 1003(a)(ii) of the Company Guide referenced in the Exchange’s letter dated February 24, 2020. The Company is subject to NYSE Regulation’s normal continued listing monitoring, and in accordance with Section 1009(h) of the Company Guide, if the Company is again determined to be below any of the continued listing standards within 12 months of the date of the January 21, 2021 letter, the Exchange will examine the relationship between the two incidents of noncompliance and re-evaluate the Company’s method of financial recovery from the first incident. NYSE Regulation will then take the appropriate action, which, depending on the circumstances, may include truncating the compliance procedures described Section 1009 of the Company Guide or immediately initiating delisting proceedings.

 

On May 21, 2021, we received notice from the Exchange that the Company is not in compliance with the Exchange’s continued listing standards as set forth in Section 1007 of the Company given the Company failed to timely file (the “Filing Delinquency”) its Form 10-K for the 9-month transition period ended December 31, 2020 (the “Report”). We believe this delinquency will be cured via the filing of this Report.

 

The Company previously filed a Form 12b-25 with the Securities and Exchange Commission on May 6, 2021, to extend the due date for the Report. The Form 12b-25 disclosed that the Report was unable to be filed on time due to delays in assembling the financial information required to be reviewed by the Company’s independent auditor, and in completing the accounting of certain transactions affecting the Company. Such further delay in filing the Report past the deadline set forth in the Form 12b-25 is due to issues that have arisen in connection with (i) finalizing the determination of the fair values of both assets and liabilities associated with the Company’s acquisition of a controlling interest in Viking Energy Group, Inc. in December of 2020, and (ii) key personnel changes at the Company’s independent auditing firm. The Company is taking steps to complete the required accounting and plans to file the Report as soon as practicable.

 

During the six-month period from the date of the Filing Delinquency (the “Initial Cure Period”), the Exchange will monitor the Company and the status of the Report and any subsequent delayed filings, including through contact with the Company, until the Filing Delinquency is cured. If the Company fails to cure the Filing Delinquency within the Initial Cure Period, the Exchange may, in the Exchange's sole discretion, allow the Company’s securities to be traded for up to an additional six-month period (the “Additional Cure Period”) depending on the Company’s specific circumstances. If the Exchange determines an Additional Cure Period is not appropriate, suspension and delisting procedures will commence in accordance with the procedures set out in Section 1010 hereof. If the Exchange determines that an Additional Cure Period of up to six months is appropriate and the Company fails to file its Delinquent Report and any subsequent delayed filings by the end of that period, suspension and delisting procedures will generally commence.

 

If we are unable to retain compliance with the NYSE American criteria for continued listing, our common stock would be subject to delisting. A delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock and reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing. In addition, delisting from the NYSE American might negatively impact our reputation and, as a consequence, our business. Additionally, if we were delisted from the NYSE American and we are not able to list our common stock on another national exchange we will no longer be eligible to use Form S-3 registration statements (we are currently not eligible to use Form S-3 until potentially in mid-2023 due to late filings) and will instead be required to file a Form S-1 registration statement for any primary or secondary offerings of our common stock, which would delay our ability to raise funds in the future, may limit the type of offerings of common stock we could undertake, and would increase the expenses of any offering, as, among other things, registration statements on Form S-1 are subject to SEC review and comments whereas take downs pursuant to a previously filed Form S-3 are not.

 

 
33

Table of Contents

 

If we are delisted from the NYSE American, your ability to sell your shares of our common stock would also be limited by the penny stock restrictions, which could further limit the marketability of your shares.

 

If our common stock is delisted from the NYSE American, it would come within the definition of “penny stock” as defined in the Exchange Act and would be covered by Rule 15g-9 of the Exchange Act. That Rule imposes additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors. For transactions covered by Rule 15g-9, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, Rule 15g-9, if it were to become applicable, would affect the ability or willingness of broker-dealers to sell our securities, and accordingly would affect the ability of stockholders to sell their securities in the public market. These additional procedures could also limit our ability to raise additional capital in the future.

 

We do not intend to pay cash dividends to our stockholders.

 

We currently anticipate that we will retain all future earnings, if any, to finance the growth and development of our business. We do not intend to pay cash dividends in the foreseeable future. Any payment of cash dividends will depend upon our financial condition, capital requirements, earnings and other factors deemed relevant by our Board of Directors. As a result, only appreciation of the price of our common stock, which may not occur, will provide a return to our stockholders.

 

We currently have a volatile market for our common stock, and the market for our common stock is and may remain volatile in the future.

 

We currently have a highly volatile market for our common stock, which market is anticipated to remain volatile in the future. Factors that could affect our stock price or result in fluctuations in the market price or trading volume of our common stock include:

 

 

·

our actual or anticipated operating and financial performance and drilling locations, including reserve estimates;

 

 

 

 

·

quarterly variations in the rate of growth of our financial indicators, such as net income/loss per share, net income/loss and cash flows, or those of companies that are perceived to be similar to us;

 

 

 

 

·

changes in revenue, cash flows or earnings estimates or publication of reports by equity research analysts;

 

 

 

 

·

speculation in the press or investment community;

 

 

 

 

·

public reaction to our press releases, announcements and filings with the SEC;

 

 

 

 

·

sales of our common stock by us or other stockholders, or the perception that such sales may occur;

 

 

 

 

·

the amount of our freely tradable common stock available in the public marketplace;

 

 

 

 

·

general financial market conditions and oil and natural gas industry market conditions, including fluctuations in commodity prices;

 

 

 

 

·

the realization of any of the risk factors that we are subject to;

 

 

 

 

·

the recruitment or departure of key personnel;

 

 

 

 

·

commencement of, or involvement in, litigation;

 

 

 

 

·

the prices of oil and natural gas;

 

 

 

 

·

the success of our exploration and development operations, and the marketing of any oil and natural gas we produce;

 

 

 

 

·

changes in market valuations of companies similar to the Company; and

 

 

 

 

·

domestic and international economic, public health, legal and regulatory factors unrelated to our performance.

 

Our common stock is listed on the NYSE American under the symbol “CEI.” Our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. Additionally, general economic, political, public health and market conditions, such as recessions, interest rates or international currency fluctuations, or global virus outbreaks may adversely affect the market price of our common stock. You should exercise caution before making an investment in us.

 

 
34

Table of Contents

 

A prolonged decline in the market price of our common stock could affect our ability to obtain additional financing which would adversely affect our operations.

 

Historically, we have relied on equity and debt financing as primary sources of financing. A prolonged decline in the market price of our common stock or a reduction in our accessibility to the global markets may result in our inability to secure additional financing which would have an adverse effect on our operations.

 

Nevada law and our Articles of Incorporation authorize us to issue shares of stock which shares may cause substantial dilution to our existing stockholders.

 

We have authorized capital stock consisting of 250,000,000 shares of common stock, $0.001 par value per share and 10,000,000 shares of preferred stock, $0.001 par value per share. As of November 13, 2021, we had (i) 250,000,000 shares of common stock outstanding and (ii) 5,200 designated shares of Series C Preferred Stock, 3,886 of which were outstanding (each as described in greater detail below under “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Description of Capital Stock”). As a result, our Board of Directors has the ability to issue a large number of additional shares of common stock without stockholder approval, subject to the requirements of the NYSE American (which generally require stockholder approval for any transactions which would result in the issuance of more than 20% of our then outstanding shares of common stock or voting rights representing over 20% of our then outstanding shares of stock), which if issued could cause substantial dilution to our then stockholders. Shares of additional preferred stock may also be issued by our Board of Directors without stockholder approval, with voting powers and such preferences and relative, participating, optional or other special rights and powers as determined by our Board of Directors, which may be greater than the shares of common stock currently outstanding. As a result, shares of preferred stock may be issued by our Board of Directors which cause the holders to have majority voting power over our shares, provide the holders of the preferred stock the right to convert the shares of preferred stock they hold into shares of our common stock, which may cause substantial dilution to our then common stock stockholders and/or have other rights and preferences greater than those of our common stock stockholders. Investors should keep in mind that the Board of Directors has the authority to issue additional shares of common stock and preferred stock, which could cause substantial dilution to our existing stockholders. Additionally, the dilutive effect of any preferred stock which we may issue may be exacerbated given the fact that such preferred stock may have super voting rights and/or other rights or preferences which could provide the preferred stockholders with substantial voting control over us subsequent to the date of this filing and/or give those holders the power to prevent or cause a change in control. As a result, the issuance of shares of common stock and/or Preferred Stock may cause the value of our securities to decrease and/or become worthless.

 

Stockholders may be diluted significantly through our efforts to obtain financing and/or satisfy obligations through the issuance of additional shares of our common stock.

 

Wherever possible, our Board of Directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of shares of our common stock. Subject to certain consent rights of the holder of our Series C Preferred Stock, our Board of Directors has authority, without action or vote of the stockholders, to issue all or part of the authorized but unissued shares of common stock (subject to NYSE American rules which limit among other things, the number of shares we can issue without stockholder approval to no more than 20% of our outstanding shares of common stock, subject to certain exceptions). These actions will result in dilution of the ownership interests of existing stockholders, and that dilution may be material.

 

If persons engage in short sales of our common stock, including sales of shares to be issued upon exercise of our outstanding warrants, convertible debentures and preferred stock, the price of our common stock may decline.

 

Selling short is a technique used by a stockholder to take advantage of an anticipated decline in the price of a security. In addition, holders of options, warrants and other convertible securities will sometimes sell short knowing they can, in effect, cover through the exercise or conversion of options, warrants and other convertible securities, thus locking in a profit. A significant number of short sales or a large volume of other sales within a relatively short period of time can create downward pressure on the market price of a security. Further sales of common stock issued upon exercise or conversion of options, warrants and other convertible securities could cause even greater declines in the price of our common stock due to the number of additional shares available in the market upon such exercise/conversion, which could encourage short sales that could further undermine the value of our common stock. You could, therefore, experience a decline in the value of your investment as a result of short sales of our common stock.

 

The market price for our common stock may be volatile, and our stockholders may not be able to sell our stock at a favorable price or at all.

 

Many factors could cause the market price of our common stock to rise and fall, including: actual or anticipated variations in our quarterly results of operations; changes in market valuations of companies in our industry; changes in expectations of future financial performance; fluctuations in stock market prices and volumes; issuances of dilutive common stock or other securities in the future; the addition or departure of key personnel; announcements by us or our competitors of acquisitions, investments or strategic alliances; and the increase or decline in the price of oil and natural gas.

 

 
35

Table of Contents

 

Substantial sales of our common stock, or the perception that such sales might occur, could depress the market price of our common stock.

 

We cannot predict whether future issuances of our common stock or resales in the open market will decrease the market price of our common stock. The impact of any such issuances or resales of our common stock on our market price may be increased as a result of the fact that our common stock is thinly, or infrequently, traded. The exercise of any options that we have or that we may grant to directors, executive officers and other employees in the future, the issuance of common stock in connection with acquisitions and other issuances of our common stock (including shares previously registered in our registration statements and prospectus supplements, and/or in connection with future registration statements or prospectus supplements) could have an adverse effect on the market price of our common stock. In addition, future issuances of our common stock may be dilutive to existing stockholders. Any sales of substantial amounts of our common stock in the public market, or the perception that such sales might occur, could lower the market price of our common stock.

 

We incur significant costs as a result of operating as a fully reporting publicly traded company and our management is required to devote substantial time to compliance initiatives.

 

We incur significant legal, accounting and other expenses in connection with our status as a fully reporting public company. Specifically, we are required to prepare and file annual, quarterly and current reports, proxy statements and other information with the SEC. Additionally, our officers, directors and significant stockholders are required to file Forms 3, 4 and 5 and Schedules 13D/G with the SEC disclosing their ownership of the Company and changes in such ownership. Furthermore, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and rules subsequently implemented by the SEC have imposed various new requirements on public companies, including requiring changes in corporate governance practices. In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure of controls and procedures. The costs and expenses of compliance with SEC rules and our filing obligations with the SEC, or our identification of deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, could materially adversely affect our results of operations or cause the market price of our stock to decline in value.

 

Securities analyst coverage or lack of coverage may have a negative impact on our common stock’s market price.

 

The trading market for our common stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If securities or industry analysts stop their coverage of us or additional securities and industry analysts fail to cover us in the future, the trading price for our common stock would be negatively impacted. If any analyst or analysts who cover us downgrade our common stock, changes their opinion of our shares or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If any analyst or analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease and we could lose visibility in the financial markets, which could cause our stock price and trading volume to decline.

 

Due to the fact that our common stock is listed on the NYSE American, we are subject to financial and other reporting and corporate governance requirements which increase our cost and expenses.

 

We are currently required to file annual and quarterly information and other reports with the SEC that are specified in Sections 13 and 15(d) of the Exchange Act. Additionally, due to the fact that our common stock is listed on the NYSE American, we are also subject to the requirements to maintain independent directors, comply with other corporate governance requirements and are required to pay annual listing and stock issuance fees. These obligations require a commitment of additional resources including, but not limited, to additional expenses, and may result in the diversion of our senior management’s time and attention from our day-to-day operations. These obligations increase our expenses and may make it more complicated or time consuming for us to undertake certain corporate actions due to the fact that we may require the approval of the NYSE American for such transactions and/or NYSE American rules may require us to obtain stockholder approval for such transactions.

 

You may experience future dilution as a result of future equity offerings or other equity issuances.

 

We may in the future issue additional shares of our common stock or other securities convertible into or exchangeable for our common stock.

 

 
36

Table of Contents

 

Risks Relating to Our Series C Preferred Stock

 

The full amount of premiums, interest and dividends through the maturity date of our Series C Preferred Stock is due upon the repayment/redemption or conversion, as applicable, of the Series C Preferred Stock.

 

The Series C Preferred Stock provides that all applicable dividends, which initially accrued in the amount of 24.95% per annum and which increase or decrease subject to the terms of the Series C Preferred Stock, based on among other things, the trading price of the Company’s common stock, up to a maximum of 34.95% per annum, are due upon conversion or repayment/redemption (where applicable) thereof, for the full seven year term of such securities.

 

The requirement that we pay all premiums and dividends through maturity and the adjustable nature of such premium and dividend rates, may force us to issue the holders significant additional shares of common stock, which may cause significant dilution to existing stockholders. Pursuant to the Third Amended and Restated Certificate of Designation, the Company has the option to redeem any or all shares of Series C Preferred Stock by paying Holder, in registered or unregistered shares of Common Stock valued at an amount per share equal to 100% of the Liquidation Value for the shares redeemed, and the Corporation will use its best efforts to register such shares.

 

The number of shares of common stock issuable in consideration for premiums, interest and dividends through maturity on the Series C Preferred Stock continue to be adjustable after the conversion of such securities.

 

Pursuant to the terms of the Series C Preferred Stock, the conversion rate of such securities in connection with the premiums and dividends due on such securities through maturity (7 years, regardless of when converted), continues to be adjustable after the issuance of such securities. Specifically, such securities remain adjustable, based on a discount to the lowest daily volume weighted average price during a measuring period for a period of 30 or 60 days (depending on whether or not a Triggering Event has occurred, and potentially longer if certain equity conditions are not satisfied) after the applicable number of shares stated in the initial conversion notice have actually been received into the holder’s designated brokerage account in electronic form and fully cleared for trading (subject to certain extensions described in the applicable securities). Because the holders of the Series C Preferred Stock are limited to holding not more than 9.99% of the Company’s common stock upon exercise/conversion of any security, they may not receive all of the shares due upon any conversion, until it has sold shares and been issued additional shares and as such, the beginning date for the applicable 30 or 60 day period after conversion is impossible to determine and may be a significant additional number of days after the initial conversion.

 

In the event of a decrease in the Company’s stock price during the applicable measuring periods, the conversion rate of the premiums and dividends due on such applicable securities will adjust downward and holders of Series C Preferred Stock would be due additional shares of common stock for their conversions, which issuances may cause further significant dilution to existing stockholders and the sale of such shares may cause the value of the Company’s common stock to decline in value. Furthermore, it is likely that the sale by holders of the shares of common stock received in connection with any conversion, during the applicable measuring period, will cause the value of the Company’s common stock to decline in value and the conversion rate to decrease and will result in holder being due additional shares of common stock during the measuring period, which will trigger additional decreases in the value of the Company’s common stock upon further public sales. If this were to occur, holder would be entitled to receive an increasing number of shares, upon conversion of the remaining securities, which could then be sold, triggering further price declines and conversions for even larger numbers of shares, which would cause additional dilution to our existing stockholders and would likely cause the value of our common stock to decline.

 

 
37

Table of Contents

 

The issuance of common stock upon conversion of the Series C Preferred Stock will cause immediate and substantial dilution and the sale of such stock will cause significant downward pressure on our stock price.

 

The issuance of common stock upon conversion of the Series C Preferred Stock will result in immediate and substantial dilution to the interests of other stockholders. Although holders may not receive shares of common stock exceeding 9.99% of our outstanding shares of common stock immediately after affecting such conversion, this restriction does not prevent holders from receiving shares up to the 9.99% limit, selling those shares, and then receiving the rest of the shares it is due, in one or more tranches, while still staying below the 9.99% limit. If holders choose to do this, it will cause substantial dilution to the then holders of our common stock. Additionally, the continued sale of shares issuable upon successive conversions will likely create significant downward pressure on the price of our common stock as holders sells material amounts of our common stock over time and/or in a short period of time. This could place further downward pressure on the price of our common stock and in turn result in holders receiving an ever-increasing number of additional shares of common stock upon conversion of its securities, and adjustments thereof, which in turn will likely lead to further dilution, reductions in the exercise/conversion price of holders securities and even more downward pressure on our common stock, which could lead to our common stock becoming devalued or worthless.

 

Holders of Series C Preferred Stock Hold a Liquidation Preference in the Company.

 

Upon any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, after payment or provision for payment of debts and other liabilities of the Company, prior to any distribution or payment made to the holders of Preferred Stock or Common Stock by reason of their ownership thereof, the Holders of Series C Preferred Stock will be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount with respect to each share of Series C Preferred Stock equal to $10,000.00, plus an amount equal to any accrued but unpaid Dividends thereon. Because the dividends currently require that interest be paid on the Face Value of between 24.95% and 34.95% per annum, for the entire seven-year term of the Series C Preferred Stock (even if payable sooner than seven years after the issuance date), the total liquidation value required to be paid to Discover upon a liquidation, dissolution or winding up of the Company is approximately $72.1 million. Because our net assets total less than $72.1 million, it is likely that our common stockholders would not receive any amount in the event the Company was liquidated, dissolved or wound up, and the Series C Preferred shareholders would instead receive the entire amount of available funds after liquidation.

 

If the Company determines to liquidate, dissolve or wind-up its business and affairs, or upon closing or occurrence of any Deemed Liquidation Event, the Company will to the extent allowed under applicable law, but thereafter, prior to or concurrently with the closing, effectuation or occurrence any such action, redeem the Series C Preferred Stock for cash, by wire transfer of immediately available funds to an account designated by Holder, at the Early Redemption Price (defined below) if the event is prior to the Dividend Maturity Date, or at the Liquidation Value if the event is on or after the Dividend Maturity Date. Notwithstanding any other provision, the Company will not be required to redeem any shares of Series C Preferred Stock for cash solely because the Company does not have sufficient authorized but unissued shares of Common Stock to issue upon receipt of a Delivery Notice, upon a maturity conversion, or for any other reason that is not solely within the control of the Company.

 

A “Deemed Liquidation Event” means: (a) a merger or consolidation in which the Company is a constituent party or a subsidiary of the Company is a constituent party and the Company issues shares of its capital stock pursuant to such merger or consolidation, except (i) any such merger or consolidation involving the Company or a subsidiary in which the Company is the surviving or resulting Company, (ii) any merger effected exclusively to change the domicile of the Company, (iii) any transaction or series of transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction continue to retain more than 50% of the total voting power of such surviving entity, or (iv) the merger with Viking; (b) Company issues convertible or equity securities that are senior to the Series C Preferred Stock in any respect, other than the securities issued in the Merger; (c) Holder does not receive the number of Conversion Shares stated in a Delivery Notice with 5 Trading Days of the notice due to the occurrence of an event that is solely within the control of the Company and excluding any event that is not solely within the control of the Company; (d) trading of the Common Stock is halted or suspended by the Trading Market or any U.S. governmental agency for 10 or more consecutive trading days, due to the occurrence of an event that is solely within the control of the Company and excluding any event that is not solely within the control of the Company; or (e) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Company or any subsidiary of the Company of all or substantially all the assets of the Company and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one or more subsidiaries of the Company if substantially all of the assets of the Company and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where one or more Holders initiate consideration of and vote upon a proposal for such sale, lease, transfer, exclusive license or other disposition, or it is to a wholly owned subsidiary of the Company, other than the Merger and except otherwise agreed to by holders holding a majority of the then outstanding Series C Preferred Stock.

 

 
38

Table of Contents

 

The “Early Redemption Price” is the sum of the following: (a) 100% of the Face Value, plus (b) the Conversion Premium, minus (c) any Dividends that have been paid, for each share of Series C Preferred Stock redeemed.

 

The “Conversion Premium” for each share of Series C Preferred Stock means the Face Value, multiplied by the product of (i) the applicable Dividend Rate, and (ii) the number of whole years between the Issuance Date and the Dividend Maturity Date.

 

The “Dividend Maturity Date” means the date that is 7 years after the Issuance Date.

 

Holders of our Series C Preferred Stock, effectively have the ability to consent to any material transaction involving the Company.

 

Due to the restrictions placed on the Company as a result of the Series C Preferred Stock, including, but not limited to the significant liquidation preference discussed above and the fact that, as long as there are any issued and outstanding shares of Series C Preferred Stock, we agreed that we would not issue or enter into or amend an agreement pursuant to which we may issue any shares of common stock, other than (a) for restricted securities with no registration rights, (b) in connection with a strategic acquisition, (c) in an underwritten public offering, or (d) at a fixed price; or issue or amend any debt or equity securities convertible into, exchangeable or exercisable for, or including the right to receive, shares of common stock (i) at a conversion price, exercise price or exchange rate or other price that is based upon or varies with, the trading prices of or quotations for the shares of common stock at any time after the initial issuance of the security or (ii) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of the security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the common stock. Holder has to effectively consent to any material transaction involving the Company. In the event holders do not consent to any such transaction, we may be prohibited (either effectively or otherwise) from completing a material transaction in the future, including, but not limited to a combination or acquisition which may be accretive to stockholders. Furthermore, holders may condition the approval of a future transaction, which conditions may not be favorable to stockholders.

 

 
39

Table of Contents

 

Some of our Series C Preferred Stockholders have rights of first refusal to provide further funding and favored nation rights.

 

We have granted the Investor a right of first offer to match any offer for financing we receive from any person while the shares of Series C Preferred Stock sold pursuant to the June 2020 Purchase Agreement are outstanding, except for debt financings not convertible into common stock, which are excluded from such right to match. Such right of first refusal may delay or prevent us from raising funding in the future.

 

We have also agreed with some of Series C Preferred Stock holders that if we issue any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Series C Preferred Stock holder, then we would notify Series C Preferred Stock holder of such additional or more favorable term and such term, at the holder’s option, may become a part of the transaction documents with the holder, including the Series C Preferred Stock and the agreements relating to the sale thereof. Such favored nations provisions may make it more costly to complete transactions in the future, may prevent future transactions from occurring and/or may provide the holders additional rights than they currently have, all of which may cause significant dilution to existing stockholders, and/or cause the value of our common stock to decline in value.

 

The holders of our Series C Preferred Stock, subject to applicable contractual restrictions, and/or a third party, may sell short our common stock, which could have a depressive effect on the price of our common stock.

 

The holders of our Series C Preferred Stock are currently prohibited from selling the Company’s stock short; however, in the event a trigger event occurs under the Series C Preferred Stock such restriction is waived. Additionally, nothing prohibits a third party from selling the Company’s common stock short based on their belief that due to the dilution caused by the conversions of our Series C Preferred Stock, that the trading price of our common stock will decline in value. The significant downward pressure on the price of our common stock as any of our Series C Preferred Stockholders sell material amounts of our common stock could encourage investors to short sell our common stock. This could place further downward pressure on the price of our common stock and in turn result in our Series C Preferred Stock holders receiving additional shares of common stock upon exercise/conversion of its securities, and adjustments thereof.

 

The Company’s CEO, James Doris, holds Viking preferred stock which, upon termination from Camber could afford him enough shareholder votes to control Viking, and dilute Camber’s ownership interest below 51%.

 

The Company’s CEO and director, James Doris, holds 28,092 shares of Viking’s Series C Preferred Stock, with each share of Viking preferred stock entitling the holder to convert such share of Viking preferred stock into 37,500 shares of Viking common stock, and entitling the holder to 37,500 votes on all matters submitted to the vote of the Viking’s security holders, provided that so long as Camber Energy, Inc. owns or is entitled to own at least 51% of the outstanding shares of common stock of Viking and James Doris remains a director and Chief Executive Officer of Camber, each share of Viking preferred stock shall not be entitled to any votes on matters submitted to a vote of the stockholders of Viking. By virtue of such preferred stock ownership, and the possibility of Camber owning less than 51% of the outstanding shares of common stock of the Company, Mr. Doris could control the election of the members of the Company’s Board of Directors and generally exercise control over the affairs of Viking. Pursuant to the December 23 Purchase Agreement, whereby the Company acquired 51% of Viking, Viking is generally obligated (subject to certain limitations) to issue additional shares of Viking common stock to Camber to ensure that Camber shall own at least 51% of the common stock of Viking through July 1, 2022, which effectively prohibits Mr. Doris from obtaining control over the affairs of Viking at least until July 1, 2022. There can be no assurance that after July 1, 2022, conflicts of interest will not arise with respect to Mr. Doris’s ownership of the preferred stock, or that such conflicts will be resolved in a manner favorable to the Company.

 

 
40

Table of Contents

 

Item 2. Properties

 

Effective December 23, 2020, the Company relocated its offices to 15915 Katy Freeway, Suite 450, Houston, Texas 77094, the current registered office of Viking, consolidating all administrative functions in one location. The Company terminated its month-to-month lease at 1415 Louisiana, Suite 3500, Houston, Texas, 77002.

 

Oil and Natural Gas Properties

 

Current Operations and Business Information - Camber

 

As of December 31, 2020, the Company had leasehold interests (working interests) in properties producing from the Cline and Wolfberry formations, which were producing an average of approximately 43.7 net barrels of oil equivalent per day (“BOEPD”) from 18 active well bores. The ratio between the gross and net production varies due to varied working interests and net revenue interests in each well. Our production sales totaled 7,994 BOE, net to our interest, for the nine months ended December 31, 2020. At December 31, 2020, Camber’s total estimated proved producing reserves were approximately 86,000 BOE, of which 65,900 Bbls were crude oil and NGL reserves and 120,500 Mcf were natural gas reserves.

 

The following tables set forth summary information with respect to Camber’s proved reserves as of December 31, 2020.

 

Reserves Category

 

Crude Oil

(BBLs)

 

 

NGL

(BBLs)

 

 

Natural Gas

(MCF)

 

 

Total Proved

(BOE) (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proved Reserves

 

 

 

 

 

 

 

 

 

 

 

 

Developed

 

 

35,700

 

 

 

30,200

 

 

 

120,500

 

 

 

85,984

 

Developed Non-Producing

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Undeveloped

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Proved Reserves

 

 

35,700

 

 

 

30,200

 

 

 

120,500

 

 

 

85,984

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated Future Net Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

$ 477,400

 

10% annual discount for estimated timing of cash flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(163,100 )

Standardized Measure of Discounted Future Net Cash Flows - (PV10) (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

$ 314,300

 

 

(1) - BOE (barrels of oil equivalent) is calculated by a ratio of 6 MCF to 1 BBL of Oil 

(2) - PV-10 represents the discounted future net cash flows attributable to our proved oil and natural gas reserves discounted at 10%. PV-10 of our total year-end proved reserves is considered a non-US GAAP financial measure as defined by the SEC. We believe that the presentation of the PV-10 is relevant and useful to our investors because it presents the discounted future net cash flows attributable to our proved reserves. We further believe investors and creditors use our PV-10 as a basis for comparison of the relative size and value of our reserves to other companies. 

 

 
41

Table of Contents

 

The following table presents certain information with respect to oil and natural gas production attributable to our interests in all of our properties in the United States, the revenue derived from the sale of such production, average sales prices received and average production costs during the nine months ended December 31, 2020 and the year ended March 31, 2020.

 

 

 

Unit of

 

December 31,

 

 

March 31,

 

 

 

Measure

 

2020

 

 

2020

 

 

 

 

 

 

 

 

 

 

Production

 

 

 

 

 

 

 

 

Oil

 

Barrels

 

 

3,319

 

 

 

5,399

 

Natural Gas

 

Mcf

 

 

11,093

 

 

 

18,892

 

NGL

 

Gallons

 

 

118,697

 

 

 

190,503

 

BOE

 

 

 

 

7,994

 

 

 

13,084

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

 

 

 

 

 

 

 

 

Oil

 

Barrels

 

$ 109,570

 

 

$ 296,036

 

Natural Gas

 

Mcf

 

 

13,910

 

 

 

37,049

 

NGL

 

Gallons

 

 

27,333

 

 

 

64,033

 

 

 

 

 

$ 150,813

 

 

$ 397,118

 

 

 

 

 

 

 

 

 

 

 

 

Average Sales Prices

 

 

 

 

 

 

 

 

 

 

Oil

 

Barrels

 

$ 33.01

 

 

$ 54.83

 

Natural Gas

 

Mcf

 

$ 1.25

 

 

$ 1.96

 

NGL

 

Gallons

 

$ .23

 

 

$ .34

 

 

 

 

 

 

 

 

 

 

 

 

Production - Lease operating expenses

 

 

 

$ 131,937

 

 

$ 494,096

 

 

 

 

 

 

 

 

 

 

 

 

Average Cost of Production per BOE

 

 

 

$ 16.51

 

 

$ 37.76

 

 

Drilling and other exploratory and development activities

 

During the nine months ended December 31, 2020 and the year ended March 31, 2020, the Company had no gross or net wells that were in the process of being drilled, nor did we have any drilling plans or delivery commitments.

 

ITEM 3. LEGAL PROCEEDINGS

 

Camber is periodically named in legal actions arising from normal business activities. Camber evaluates the merits of these actions and, if it determines that an unfavorable outcome is probable and can be reasonably estimated, Camber will establish the necessary reserves. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.

  

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.

 

 
42

Table of Contents

 

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 January 31, 2020, the Company entered into a Compromise Settlement Agreement (the “Settlement Agreement”) with 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 is 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.

 

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, which is expected to close shortly after the filing of this Report.

 

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, and is still in the process of determining its next steps.

 

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

 

Apache Corporation

 

In December 2018, Apache Corporation (“Apache”) sued Camber, Sezar Energy, L.P., and Texokcan Energy Management Inc., in the 129th Judicial District Court of Harris County, Texas (Cause 2018-89515). Apache alleged causes of action for Breach of Contract, Money Had & Received and Conversion, relating to amounts Apache alleged it was owed under a joint operating agreement. Apache is seeking $656,908 in actual damages, exemplary damages, pre- and post-judgment interest, court costs, and other amounts to which it may be entitled. Camber filed a general denial to the claims and asserted the affirmative defense of failure to mitigate. On July 13, 2020, Apache filed a Second Amended Petition against Camber, Sezar, Texokcan, N&B Energy, LLC, and Richard N. Azar, II alleging Breach of Contract, Defaults under a Joint Operating Agreement, Money Had & Received and Conversion, relating to amounts Apache allegedly overpaid Sezar and Azar and Unjust Enrichment. On October 26, 2020, the Company entered into an agreement with Apache to obtain a release of all liability (both parties provided mutual releases) for $20,000, which was paid in October 2020, and the litigation against the Company was dismissed.

 

N&B Energy

 

On September 12, 2019, N&B Energy filed a petition in the District Court for the 285th Judicial District of Bexar County, Texas (Case #2019CI11816). Pursuant to the petition, N&B Energy raises claims against the Company for breach of contract, unjust enrichment, money had and received and disgorgement, in connection with $706,000 which it alleges it is owed under the July 2018 Asset Purchase Agreement between the Company and N&B Energy (the “Sale Agreement”), for true-ups and post-closing adjustments associated therewith. The petition sought amounts owed, pre- and post-judgment interest, and attorney’s fees. On October 21, 2020, the arbitrator issued an Interim Stage II Order granting an award that acknowledged the claims of both parties that resulted in an arbitration award in favor of N&B Energy of approximately $52,000, which was paid in December 2020.

 

Litigation Following Short Report

 

The Company was the target of a “short” report issued by Kerrisdale Capital in early October, 2021, and as a result of such short report there was an action commenced against the Company, James Doris and Frank Barker by or on behalf of certain shareholders of Camber in connection with losses alleged to have been suffered by the shareholders. The Company and Messrs. Doris and Barker have retained the firm of Baker Botts LLP to defend the action, and deny the allegations contained in the claim.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 
43

Table of Contents

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information

 

Our common stock is quoted on the NYSE American under the symbol “CEI”.

 

Holders

 

As of May 16, 2022, there were approximately 16,900 record holders of our common stock, not including holders who hold their shares in street name.

 

Description of Capital Stock

 

The total number of shares of all classes of stock that we have authority to issue is 1,010,000,000, consisting of 1,000,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. As of May 16, 2022, we had (i) 414,290,116 shares of common stock outstanding, (ii) 5,200 designated shares of Series C Preferred Stock, 1,605 of which were outstanding and (iii) 25,000 designated shares of Series G Preferred Stock, 7,908 of which were outstanding.

 

Common Stock

 

Holders of our common stock: (i) are entitled to share ratably in all of our assets available for distribution upon liquidation, dissolution or winding up of our affairs; (ii) do not have preemptive, subscription or conversion rights, nor are there any redemption or sinking fund provisions applicable thereto; and (iii) are entitled to one vote per share on all matters on which stockholders may vote at all stockholder meetings. Each stockholder is entitled to receive the dividends as may be declared by our directors out of funds legally available for dividends. Our directors are not obligated to declare a dividend. Any future dividends will be subject to the discretion of our directors and will depend upon, among other things, future earnings, the operating and financial condition of our Company, our capital requirements, general business conditions and other pertinent factors.

 

The presence of the persons entitled to vote 33% of the outstanding voting shares on a matter before the stockholders shall constitute the quorum necessary for the consideration of the matter at a stockholders meeting.

 

The vote of the holders of a majority of the votes cast on the matter at a meeting at which a quorum is present shall constitute an act of the stockholders, except for the election of directors, who shall be appointed by a plurality of the shares entitled to vote at a meeting at which a quorum is present. The common stock does not have cumulative voting rights, which means that the holders of a majority of the common stock voting for election of directors can elect 100% of our directors if they choose to do so.

 

Preferred Stock

 

Subject to the terms contained in any designation of a series of preferred stock, the Board of Directors is expressly authorized, at any time and from time to time, to fix, by resolution or resolutions, the following provisions for shares of any class or classes of preferred stock:

 

 

1)

The designation of such class or series, the number of shares to constitute such class or series which may be increased (but not below the number of shares of that class or series then outstanding) by a resolution of the Board of Directors;

 

 

 

 

2)

Whether the shares of such class or series shall have voting rights, in addition to any voting rights provided by law, and if so, the terms of such voting rights;

 

 
44

Table of Contents

 

 

3)

The dividends, if any, payable on such class or series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, and the preference or relation which such dividends shall bear to the dividends payable on any share of stock of any other class or any other shares of the same class;

 

 

 

 

4)

Whether the shares of such class or series shall be subject to redemption by the Company, and, if so, the times, prices and other conditions of such redemption or a formula to determine the times, prices and such other conditions;

 

 

 

 

5)

The amount or amounts payable upon shares of such series upon, and the rights of the holders of such class or series in, the voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the Company;

 

 

 

 

6)

Whether the shares of such class or series shall be subject to the operation of a retirement or sinking fund, and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such class or series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof;

 

 

 

 

7)

Whether the shares of such class or series shall be convertible into, or exchangeable for, shares of stock of any other class or any other series of the same class or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchanges;

 

 

 

 

8)

The limitations and restrictions, if any, to be effective while any shares of such class or series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Company of the common stock or shares of stock of any other class or any other series of the same class;

 

 

 

 

9)

The conditions or restrictions, if any, upon the creation of indebtedness of the Company or upon the issuance of any additional stock, including additional shares of such class or series or of any other series of the same class or of any other class;

 

 

 

 

10)

The ranking (be it pari passu, junior or senior) of each class or series vis-à-vis any other class or series of any class of preferred stock as to the payment of dividends, the distribution of assets and all other matters;

 

 

 

 

11)

Facts or events to be ascertained outside the articles of incorporation of the Company, or the resolution establishing the class or series of stock, upon which any rate, condition or time for payment of distributions on any class or series of stock is dependent and the manner by which the fact or event operates upon the rate, condition or time of payment; and

 

 

 

 

12)

Any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions thereof, insofar as they are not inconsistent with the provisions of our articles of incorporation, as amended, to the full extent permitted by the laws of the State of Nevada.

 

The powers, preferences and relative, participating, optional and other special rights of each class or series of preferred stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.

 

Series A Convertible Preferred Stock

 

On August 31, 2020, the Board of Directors approved the designation of 28,092 shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”), which were designated with the Secretary of State of Nevada on August 31, 2020 (the “Series A Designation”) to have substantially similar rights as the Series C Preferred Stock of Viking (as amended), as adjusted for the exchange ratio set out in the merger agreement at that time, which was subsequently terminated as noted below.

 

On December 23, 2020, the Company entered into (i) a termination agreement with Viking terminating the Amended and Restated Agreement and Plan of Merger, dated August 31, 2020, as amended to date.

 

On February 15, 2021, the Company entered into a new Agreement and Plan of Merger with Viking. Pursuant to the terms of the Agreement and Plan of Merger with Viking, upon closing of the Merger, each one (1) share of Viking Series C Preferred Stock (“Viking Preferred Stock”) issued and outstanding immediately prior to the Effective Time, shall be converted into the right to receive one (1) share of the to be designated Series A Convertible Preferred Stock of Camber (the “New Camber Preferred”).

 

Each share of Camber Series A Preferred Stock will be convertible into 890 shares of common stock of Camber subject to a 9.99% beneficial ownership limitation, will be treated equally with the Company’s common shareholders with respect to dividends and liquidation, and will have no right to vote on any matters, questions or proceedings of Camber except: (a) on a proposal to increase or reduce Camber’s share capital; (b) on a resolution to approve the terms of a buy-back agreement; (c) on a proposal to wind up Camber; (d) on a proposal for the disposal of all or substantially all of Camber’s property, business and undertaking; (f) during the winding-up of Camber; and/or (g) with respect to a proposed merger or consolidation in which Camber is a party or a subsidiary of Camber is a party.

 

As of December 31, 2020 and March 31, 2020, the Company had no Series A Convertible Preferred Stock issued or outstanding.

 

 
45

Table of Contents

 

Series C Redeemable Convertible Preferred Stock

 

Holders of the Series C Preferred Stock are entitled to cumulative dividends in the amount of 24.95% per annum (adjustable up to 34.95% if a trigger event, as described in the designation of the Series C Preferred Stock occurs), payable upon redemption, conversion, or maturity, and when, as and if declared by our Board of Directors in its discretion, provided that upon any redemption, conversion, or maturity, seven years of dividends are due and payable on such redeemed, converted or matured stock. The Series C Preferred Stock ranks senior to the common stock. The Series C Preferred Stock has no right to vote on any matters, questions or proceedings of the Company including, without limitation, the election of directors except: (a) during a period where a dividend (or part of a dividend) is in arrears; (b) on a proposal to reduce the Company’s share capital; (c) on a resolution to approve the terms of a buy-back agreement; (d) on a proposal to wind up the Company; (e) on a proposal for the disposal of all or substantially all of the Company’s property, business and undertakings; and (f) during the winding-up of the Company.

 

The Series C Preferred Stock may be converted into shares of common stock (“Conversion Shares”) at any time at the option of the holder, or at our option if certain equity conditions (as defined in the certificate of designation for the Series C Preferred Stock), are met. Upon conversion, we will pay the holders of the Series C Preferred Stock being converted through the issuance of common shares, in an amount equal to the dividends that such shares would have otherwise earned if they had been held through the maturity date (i.e., seven years), and issue to the holders such number of shares of Common stock equal to $10,000 per share of Series C Preferred Stock (the “Face Value”) multiplied by the number of such shares of Series C Preferred Stock divided by the applicable Conversion Price of $3.25 per share adjusted for any forward or reverse splits..

 

The conversion premium under the Series C Preferred Stock is payable and the dividend rate under the Series C Preferred Stock is adjustable. Specifically, the conversion rate of such premiums and dividends equals 95% of the average of the lowest 5 individual daily volume weighted average prices during the Measuring Period, not to exceed 100% of the lowest sales prices on the last day of the Measuring Period, less $0.05 per share of common stock, unless a trigger event has occurred, in which case the conversion rate equals 85% of the lowest daily volume weighted average price during the Measuring Period, less $0.10 per share of common stock not to exceed 85% of the lowest sales prices on the last day of such the Measuring Period, less $0.10 per share. The “Measuring Period” is the period beginning, if no trigger event has occurred, 30 trading days, and if a trigger event has occurred, 60 trading days, before the applicable notice has been provided regarding the exercise or conversion of the applicable security, and ending, if no trigger event has occurred, 30 trading days, and if a trigger event has occurred, 60 trading days, after the applicable number of shares stated in the initial exercise/conversion notice have actually been received into the holder’s designated brokerage account in electronic form and fully cleared for trading. 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. As a result of an agreement entered into with the holder of the Series C Preferred Stock in February 2020, the Measuring Period begins on February 3, 2020.

 

The Series C Preferred Stock has a maturity date that is seven years after the date of issuance and, if the Series C Preferred Stock has not been wholly converted into shares of common stock prior to such date, all remaining outstanding Series C Preferred Stock will automatically be converted in to shares of Common Stock, to the extent the Corporation has sufficient authorized but unissued shares of Common Stock available for issuance upon conversion. Notwithstanding any other provision of this designation, available authorized and unissued shares of Common Stock will be a limit and cap on the maximum number of common shares that could be potentially issuable with respect to all conversions and other events that are not solely within the control of the Corporation. The Corporation will at all times use its best efforts to authorize sufficient shares. The number of shares required to settle the excess obligation is fixed on the date that net share settlement occurs. The Dividend Maturity Date will be indefinitely extended and suspended until sufficient authorized and unissued shares become available. 100% of the Face Value, plus an amount equal to any accrued but unpaid dividends thereon, automatically becomes payable in the event of a liquidation, dissolution or winding up by us.

 

We may not issue any preferred stock that is pari passu or senior to the Series C Preferred Stock with respect to any rights for a period of one year after the earlier of such date (i) a registration statement is effective and available for the resale of all shares of common stock issuable upon conversion of the Series C Preferred Stock, or (ii) Rule 144 under the Securities Act is available for the immediate unrestricted resale of all shares of common stock issuable upon conversion of the Series C Preferred Stock.

 

 
46

Table of Contents

 

The Series C Preferred Stock is subject to a beneficial ownership limitation, which prevents any holder of the Series C Preferred Stock from converting such Series C Preferred Stock into common stock, if upon such conversion, the holder would beneficially own greater than 9.99% of our outstanding common stock.

 

Pursuant to the Fifth Amended and Restated COD, which was filed as required by the October 2021 Agreements, holders of the Series C Preferred Stock are permitted to vote together with holders of common stock on all matters other than election of directors and shareholder proposals (including proposals initiated by any holders of Preferred Shares), on an as-if converted basis, subject to the beneficial ownership limitation in the COD, even if there are insufficient shares of authorized common stock to fully convert the Series C Preferred Stock. Also pursuant to the October 2021 Agreements, due to the occurrence of a Trigger Event the Company no longer has the right to conduct an early redemption of the Series C Preferred Stock as provided for in the Designation.

 

Dividend Policy

 

We have not declared or paid cash dividends or made distributions in the past. We do not anticipate that we will pay cash dividends or make distributions in the foreseeable future. We currently intend to retain and reinvest future earnings to finance operations. We may however declare and pay dividends in shares of our common stock in the future (similar to how we have in the past).

 

Sales of Unregistered Securities

 

There have been no sales of unregistered securities during the nine months ended December 31, 2020 and from the period from January 1, 2021 to the filing date of this report, which have not previously been disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K, except as set forth below:

 

 

a.

The following issuances to Sylva International LLC d/b/a SylvaCap Media (“SylvaCap”):

 

 

·

100,000 shares of restricted common stock issued May 15, 2020

 

 

 

 

·

75,000 shares of restricted common stock issued September 23, 2020

 

 

 

 

·

100,000 shares of restricted common stock issued December 22, 2020

 

 
47

Table of Contents

 

 

b.

Effective January 1, 2021 the Company entered into a letter agreement with Sylva International LLC d/b/a SylvaCap Media (“SylvaCap”) pursuant to which SylvaCap agreed to act as the Company’s non-exclusive digital marketing service provider in consideration for a cash payment of $50,000 per month and an aggregate of 275,000 shares of restricted common stock, which are fully-earned upon their issuance, which ends on December 31, 2021. The 275,000 shares in connection with agreement were issued by the Company on February 24, 2021. In the letter agreement, SylvaCap also made representations regarding its financial condition and investing knowledge pursuant to the amendment in order for the Company to confirm that an exemption from registration exists for the issuance of the shares. 

 

 

 

 

c.

During the nine-month period from April 1, 2020 and through December 31, 2020, Discover converted 756 shares of Series C Preferred Stock with a face value of $7.56 million into approximately 19,890,682 shares of common stock, of which 19,823,487 shares of common stock had been issued. As of December 31, 2020, Discover was owed approximately 43,970,077 common shares in connection with previous conversion notices as a result of the extension of the Measurement Period and the drop in the price of Camber’s common stock during the extended Measurement following delivery of the original conversion notices (the “True-Up Shares”). All of the True-Up Shares have been issued to Discover.

 

As at December 31, 2020 Discover held 2,093 shares of Series C Preferred Stock, and between January 1, 2021 and May 6, 2022 Discover converted 2,063 of such shares into 174,218,536 common shares, leaving a balance of 30 Series C Preferred Stock held by Discover.

 

Discover is entitled to convert the face value of the remaining 30 Series C Preferred Stock at a fixed conversion price of $3.25, and to convert the value of the associated Conversion Premium at a price equal to (A x B) – C whereas: A equals the lowest volume weighted average price during the Measurement Period (the “VWAP”); B equals 0.85; and C equals $0.10. Neither the Measurement Period nor VWAP are certain with respect to the remaining 30 shares of Series C Preferred Stock held by Discover but if the applicable VWAP was equal to recent conversions by Discover, i.e. $0.3475, and assuming: (i) a Triggering Event has occurred (which is the case at the moment) and no waiver for same has been obtained; and (ii) the highest possible dividend rate of 34.95%, the Company estimates that the 30 Series C Preferred Stock held by Discover would convert into approximately 3,848,450 common shares of the Company, subject to the 9.99% ownership limitation set forth in the designation of the Series C Preferred Stock. These Series C Preferred shares would convert into additional common shares of the Company if the VWAP during the Measurement Period falls below $0.3475, or convert into fewer common shares of the Company if the applicable VWAP is greater than $0.3475.

 

Further, Discover may be entitled to additional True-Up Shares (“Summer 2021 True-Up Shares”), i.e. additional common shares, regarding the portion of those 1,575 shares of Series C Preferred Stock converted by Discover between June 18, 2020 and September 30, 2021 at a VWAP higher than $0.3475 since the Measurement Period in respect of those prior conversions has not expired given the Company is not at the moment in compliance with all of the Equity Conditions set out in the Certificate of Designation. The Company estimates the Summer 2021 True-Up Shares total approximately 37,000,000.

 

 

 

 

d.

On January 8, 2021, 1,890 shares of Series C Preferred Stock were issued EMC, a debt holder of Viking, in exchange for extinguishment of debt owed by Viking to EMC. The Company received 16,153,847 additional shares of Viking common stock in consideration for issuance of the 1,890 shares of Series C Preferred Stock to EMC.

 

On or about September 14, 2021, EMC converted 38 shares of Series C Preferred Stock into 4,874,703 common shares based on a VWAP of $0.3475 during the Measurement Period. On or about October 7, 2021, EMC issued a Notice of Conversion to the Company’s Transfer Agent advising of the conversion of an additional 59 shares of Series C Preferred Stock into 7,568,617 common shares based on the same VWAP, but only 436,591 of the requested common shares were issued to EMC, leaving 7,132,026 common shares due to EMC in respect of these 59 shares of Series C Preferred Stock.

 

Following the conversions mentioned above, EMC holds a balance of 1,793 shares of Series C Preferred Stock. Neither the Measurement Period nor VWAP are certain with respect to the remaining 1,793 shares of Series C Preferred Stock held by EMC but if the applicable VWAP was equal to recent conversions by EMC, i.e. $0.3475, and assuming: (i) a Triggering Event has occurred (which is the case at the moment) and no waiver for same has been obtained; and (ii) the highest possible dividend rate of 34.95%, the Company estimates that the 1,793 shares of Series C Preferred Stock would convert into approximately 230,008,965 common shares of the Company, subject to the 9.99% ownership limitation set forth in the designation of the Series C Preferred Stock. These Series C Preferred shares would convert into additional common shares of the Company if the VWAP during the Measurement Period falls below $0.3475, or convert into fewer common shares of the Company if the applicable VWAP is greater than $0.3475.

 

 

 

 

e.

Between February 24 and September, 2021, the Company issued 1,225,094 shares of restricted common stock to Agro Consulting, LLC (“Agro”) pursuant to a Consulting Agreement, as amended, for various services including investor relations, business development and evaluation of merger and acquisition opportunities, between the Company and Agro, as amended, which expires August 31, 2022.

 

 

 

 

f.

On or about April 26, 2021, the Company issued fully vested warrants to Regal Consulting, LLC (“Regal”) for marketing consulting and strategic business advisory services entitling Regal to purchase 100,000 shares of common stock of the Company at an exercise price of $0.705 per share. The warrants expire on April 25, 2022.

 

 

 

 

g.

On July 12, 2021, 1,575 shares of Series C Preferred Stock were issued to Antilles Family Office, LLC (“Antilles”) in exchange for $15,000,000. As of the date hereof, Antilles has not issued a Notice of Conversion with respect to the proposed conversion of any of the Series C Preferred Stock held by Antilles into shares of the Company’s common stock. Accordingly, the Measurement Period has not commenced and therefore the Company cannot at this moment calculate precisely the number of underlying common shares associated with the 1,575 shares of Series C Preferred Stock. Also, for the purposes of calculating the number of shares associated with any Conversion Premium, the dividend rate and VWAP may be different for any or all potential conversions. For present purposes, given a Triggering Event has occurred and no waiver for same has been obtained (which is the case at the moment), and applying the highest possible dividend rate of 34.95% and assuming a VWAP of $0.3475 and the greatest discount to the VWAP allowable to calculate the shares owing for the Conversion Premium, the Company estimates that the 1,575 Series C Preferred Stock held by this shareholder would convert into approximately 202,043,569 common shares of the Company, subject to the 9.99% ownership limitation set forth in the designation of the Series C Preferred Stock. These Series C Preferred shares would convert into a higher or lower number of common shares of the Company depending on various factors including: (i) the actual Measurement Period for each conversion; (ii) the actual VWAP during such period, specifically if the VWAP is higher or lower than $0.3475; and (iii) whether the shareholder has waived any Triggering Events.

 

 
48

Table of Contents

 

The sales and issuances of the securities described above have been determined to be exempt from registration under the Securities Act in reliance on Sections 3(a)(9) and 4(a)(2) of the Securities Act, Rule 506 of Regulation D promulgated thereunder and Regulation S promulgated thereunder, as transactions by an issuer not involving a public offering. The preferred stock holder (Discover) has represented that it is an accredited investor, as that term is defined in Regulation D, it is not a U.S. Person, and that it is acquiring the securities for its own account.

 

As of May 16, 2022, and based on certain assumptions outlined above, the 1,175 outstanding shares of Series C Preferred Stock could possibly convert, pursuant to their terms, into an aggregate total of approximately 104,394,519 shares of our common stock subject to the 9.99% ownership limitation and other limitations set forth in the designation of the Series C Preferred Stock. The number of common shares may increase significantly from time to time as the trading price of our common stock decreases, upon the occurrence of any trigger event under the Designation of the Series C Preferred Stock and upon the occurrence of certain other events, as described in greater detail in the Designation of the Series C Preferred Stock.

 

ITEM 6. SELECTED FINANCIAL DATA.

 

Not required under Regulation S-K for “smaller reporting companies.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

You should read the following discussion and analysis in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report on Form 10-K.

 

In preparing the management's discussion and analysis, the registrant presumes that you have read or have access to the discussion and analysis for the preceding fiscal year.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This document includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended or the Reform Act. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, including, but not limited to, any projections of earning, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions of performance; and statements of belief; and any statements of assumptions underlying any of the foregoing. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following:

 

The Company's ability to raise capital and the terms thereof; and other factors referenced in this Form 10-KT.

 

The use in this Form 10-KT of such words as "believes", "plans", "anticipates", "expects", "intends", and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These forward-looking statements present the Company's estimates and assumptions only as of the date of this report. Except for the Company's ongoing obligation to disclose material information as required by the federal securities laws, the Company does not intend, and undertakes no obligation, to update any forward-looking statements.

 

Although the Company believes that the expectations reflected in any of the forward-looking statements are reasonable, actual results could differ materially from those projected or assumed or any of the Company's forward-looking statements. The Company's future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.

 

 
49

Table of Contents

 

PLAN OF OPERATIONS

 

Overview

 

The Company's business plan is to engage in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. The Company’s majority-owned investee, Viking Energy Group, Inc., has relationships with industry experts and formulated an acquisition strategy, with emphasis on acquiring under-valued, producing properties from distressed vendors or those deemed as non-core assets by larger sector participants. The Company does not focus on speculative exploration programs, but rather targets properties with current production and untapped reserves. The Company’s growth strategy includes the following key initiatives:

 

 

·

Acquisition of under-valued producing oil and gas assets

 

 

 

 

·

Employ enhanced recovery techniques to maximize production

 

 

 

 

·

Implement responsible, lower-risk drilling programs on existing assets

 

 

 

 

·

Aggressively pursue cost-efficiencies

 

 

 

 

·

Opportunistically explore strategic mergers and/or acquisitions

 

 

 

 

·

Actively hedge mitigating commodity risk

 

The following overview provides a background, mostly occurring through Viking prior to the acquisition, for the current strategy being implemented by management during the nine months ended December 31, 2020 and the year ended March 31, 2020

 

Acquisitions Of Viking – Texas, Louisiana and Mississippi

 

On December 22, 2017, Viking completed an acquisition of 100% of the membership interests of Petrodome Energy, LLC, a privately-owned company, with working interests in multiple oil and gas fields across Texas, Louisiana and Mississippi, comprising approximately 11,700 acres.

 

As a part of this acquisition, Viking retained an operational office in Houston, Texas that includes several senior level professionals with over 100 years of combined oil and gas experience which provides Viking the capability of operating many of its own wells internally. This expertise has since been utilized to evaluate additional oil and gas acquisitions, evaluate the profitable management of all of Viking’s oil and gas assets, and evaluate and develop new drilling prospects.

 

Acquisitions – Texas and Louisiana

 

On December 28, 2018, Viking, through its newly formed Ichor Energy subsidiaries completed an acquisition (the “Ichor Energy Acquisition”) of working interests in certain oil and gas leases in Texas (primarily in Orange and Jefferson Counties) and Louisiana (primarily in Calcasiue Parish), which include 58 producing wells and 31 salt water disposal wells. The properties produce hydrocarbons from known reservoirs/sands in the on-shore Gulf Coast region, with an average well depth in excess of 10,600 feet, and daily production volumes averaging in excess of 2,300 BOE. This acquisition of these assets is consistent with the location of our Petrodome assets and are effectively managed from our Houston office.

 

On May 10, 2019, Petrodome Louisiana Pipeline LLC ("Petrodome LA"), a subsidiary of Viking’s subsidiary, Petrodome Energy, LLC, acquired a majority working interest in 6 gas wells (including 2 producing gas wells), 1 producing oil well and 1 salt water disposal well located in the East Mud Lake Field in Cameron Parish, Louisiana, with leases to mineral rights (oil and gas) concerning approximately 765 acres.

 

On October 10, 2019, Viking, through a newly formed subsidiary, Elysium Energy, LLC (“Elysium”), entered into a Purchase and Sale Agreement to purchase working interests and over-riding royalty interests in oil and gas properties in Texas (approximately 71 wells in 11 counties) and Louisiana (approximately 52 wells in 6 parishes), along with associated wells and equipment (the “Elysium Energy Acquisition”). As of December 31, 2019, Viking paid deposits of $2,750,000 into escrow in connection with this acquisition, which deposits were applied toward the purchase price at closing of the Elysium Energy Acquisition on or about February 3, 2020.

   

 
50

Table of Contents

 

On February 3, 2020, Elysium, a wholly owned subsidiary of Elysium Energy Holdings, LLC (“Elysium Holdings”), which at the time was a partially owned subsidiary of Viking, acquired interests in oil and gas properties located in Texas and Louisiana, which included leases, working interests, and over-riding royalty interests in oil and gas properties in Texas (approximately 72 wells in 11 counties) and Louisiana (approximately 55 wells in 6 parishes), along with associated equipment. On February 4, 2020, Elysium hedged 75% of the estimated oil and gas production associated with the newly acquired assets for 2020, 60% of the estimated production for 2021 and 50% of the estimated production for the period between January 2022 and July 2022. Theses hedges have a floor of $45 and a ceiling ranging from $52.70 to $56.00 for oil, and a floor of $2.00 and a ceiling of $2.425 for natural gas. On December 23, 2020, the remaining membership interests in Elysium Holdings were assigned by the Company to Viking, and Elysium Holdings became a wholly owned subsidiary of Viking.

 

Going Concern Qualification

 

The Company’s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

The Company generated a net loss of $52.0 million for the nine months ended December 31, 2020 (the “2020 Loss”) as compared to a net loss of $26.0 million for the year ended March 31, 2020. The 2020 Loss was comprised of certain non-cash items with a net impact of $49.7 million including: (i) a loss on changes in fair value of the derivative liability relating to the Series C Preferred Stock of $41.9 million; (ii) equity in loss of unconsolidated entity of $5.4 million (iii) a bad debt charge-off of $2.3 million; and (iv) other items of $0.1 million.

 

As of December 31, 2020, the Company had stockholders’ deficit of $102.2 million and total long-term debt of $18.0 million.

 

As of December 31, 2020, the Company has a working capital deficiency of approximately $94.1 million. The largest components of current liabilities creating this working capital deficiency was a derivative liability associated with our Series C Preferred Stock of $94.0 million.

 

Management believes it will be able to continue to leverage the expertise and relationships of its operational and technical teams to enhance existing assets and identify new development, drilling and acquisition opportunities in order to improve the Company’s financial position. The Company may have the ability, if it can raise additional capital, to acquire new assets in a separate division from existing subsidiaries.

 

Nonetheless, recent oil and gas price volatility as a result of geopolitical conditions and the global COVID-19 pandemic have already had and may continue to have a negative impact on the Company’s financial position and results of operations. Negative impacts could include but are not limited to: The Company’s ability to sell [its] oil and gas production, reduction in the selling price of the Company’s oil and gas, failure of a counterparty to make required hedge payments, possible disruption of production as a result of worker illness or mandated production shutdowns, the Company’s ability to maintain compliance with loan covenants and/or refinance existing indebtedness, and access to new capital and financing.

 

These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for the twelve months following the issuance of its financial statements for the nine-month period ended December 31, 2020. The Company’s ability to continue as a going concern is dependent upon its ability to utilize the resources in place to generate future profitable operations, to develop additional acquisition opportunities, and to obtain the necessary financing to meet its debt obligations and repay its liabilities arising from business operations when they come due. Management believes the Company will be able to continue to develop new opportunities and will be able to obtain additional funds through debt and / or equity financings to facilitate its development strategy; however, there is no assurance of additional funding being available. These consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.

 

During the nine months ended December 31, 2020, and year ended March 31, 2020, the Company sold 630 and 525 shares, respectively, of Series C Preferred Stock pursuant to the terms of various Stock Purchase Agreements, for total proceeds of $6.0 and $5.0 million, respectively, and through the issuance of new debt instruments received total proceeds of $18.0 and $0 million, respectively.

 

In April 2021 the Company borrowed $2.5 million from an institutional investor, and in July 2021 the Company sold 1,575 Series C Shares for total proceeds of $15.0 million.

 

Although the Company has been successful in obtaining the financial resources in the past, these conditions continue to raise substantial doubt regarding the Company’s ability to continue as a going concern. Therefore, the Company believes it appropriate to continue to include a going concern qualification in its financial statements.

 

RESULTS OF OPERATIONS

 

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

 

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

 

 
51

Table of Contents

 

Our primary sources of cash for the 9-month period ended December 31, 2020 were from funds generated from the sale of preferred stock and/or loans from the Company’s then Series C Preferred shareholder. The primary uses of cash were funds used in operations and funds invested in connection with the Viking Acquisition.

 

Pursuant to the December 31, 2019 Redemption Agreement, we entered into a new unsecured promissory note in the amount of $1,539,719 with Lineal, evidencing the repayment of the prior July 2019 Lineal Note, together with additional amounts loaned by Camber to Lineal through December 31, 2019; and loaned Lineal an additional $800,000, which was evidenced by an unsecured promissory note in the amount of $800,000, entered into by Lineal in favor of the Company on December 31, 2019. The December 2019 Lineal Note and Lineal Note No. 2, accrue interest, payable quarterly in arrears, beginning on March 31, 2020 and continuing until December 31, 2021, when all interest and principal is due, at 8% and 10% per annum (18% upon the occurrence of an event of default), respectively. The December 2019 Lineal Note and Lineal Note No. 2 are unsecured. Such loans are described in greater detail above under “Item 1. Business - General - Lineal Acquisition and Divestiture”, and Lineal has advised it does not have resources to repay the loans. The loans have been fully reserved as of December 31, 2020.

 

On June 22, 2020, the Company and the Investor (as defined above) entered into a Stock Purchase Agreement pursuant to which the Investor purchased 630 shares of Series C Preferred Stock for $6 million (of which $4.2 million of such funds were subsequently loaned to Viking as discussed herein).

 

The following discussion of the consolidated financial condition and results of operation of the Company should be read in conjunction with the consolidated financial statements and the related Notes included elsewhere in this Report.

 

Liquidity and Capital Resources

 

 

 

December 31,

 

 

March 31,

 

Working Capital:

 

2020

 

 

2020

 

 

 

 

 

 

 

 

Current assets

 

$ 909,836

 

 

$ 1,132,660

 

Current liabilities

 

$ 95,048,013

 

 

$ 79,665,574

 

Working capital (deficit)

 

$ (94,138,177 )

 

$ (78,532,574 )

 

 

 

Nine Months Ended

December 31,

 

 

Year Ended

March 31,

 

Cash Flows:

 

2020

 

 

2020

 

 

 

 

 

 

 

 

Net Cash Used in Operating Activities

 

$ (2,688,067 )

 

$ (3,588,464 )

Net Cash Provided by (Used in) Investing Activities

 

$ 15,100,000

 

 

$ (9,641,019 )

Net Cash Provided by Financing Activities

 

$ 18,000,000

 

 

$ 6,107,375

 

Increase (Decrease) in Cash during the Period

 

$ 211,933

 

 

$ (7,122,108 )

Cash, end of Period

 

$ 868,548

 

 

$ 656,615

 

 

The Company had current assets of $909,836 as of December 31, 2020, as compared to $1,132,660 as of March 31, 2020. The Company had current liabilities of $95,048,013 as of December 31, 2020, as compared to $79,665,574 as of March 31, 2020. The Company had a working capital deficit of $94,138,177 of December 31, 2020, as compared to a working capital deficit of $78,532,574 as of March 31, 2020.

 

 
52

Table of Contents

 

Net cash used by operating activities decreased to $2,773,275 during the nine months ended December 31, 2020, as compared to cash used by operating activities of $3,588,464 for the year ended March 31, 2020, as the operating period was for nine months as compared to twelve.

 

Net cash provided by investing activities of $1,079,481 during the nine months ended December 31, 2020 is a result of cash acquired in the Viking Acquisition of $5,279,481, as compared to cash used by investing activities of $9,641,019 during the year ended March 31, 2020, representing investments in notes receivable in excess of $9 mil-lion dollars.

 

Net cash provided by financing activities increased to $9,745,266 during the nine months ended December 31, 2020, as compared to $6,107,375 for the year ended March 31, 2020. This increase is mainly due to new borrowings to facilitate the acquisition of 51% of Viking on December 23, 2020, offset by repayments of long-term debt.

 

Revenue

 

The Company had gross revenues of $150,814 for the nine months ended December 31, 2020 as compared to $397,118 for the year ended March 31, 2020 primarily due to nine months of revenues compared to twelve months for the prior period.

 

Expenses

 

The Company's operating expenses were $5,351,187 for the nine months ended December 31, 2020, as compared to $5,424,387 for the year ended March 31, 2020. General and administrative expenses decreased due to the shorter nine month period as compared to the twelve month period in the prior period which was partially offset by a $2.2 million charge to bad debt for the Lineal loan during the nine months ended December 31, 2020.

 

Income (Loss) from Operations

 

The Company generated a loss from operations of $5,200,373 for the nine months ended December 31, 2020, as compared to a loss from operations of $5,027,269 from operations for the year ended March 31, 2020, due primarily to those items listed above.

 

Other income (expense)

 

The Company had other income (expense) of ($46,811,015) for the nine months ended December 31, 2020, as compared to ($22,930,900) for the year ended March 31, 2020. The largest components of this change is the recognition of a change in the fair value of derivative liabilities of $41,878,821 during the nine months ended December 31, 2020 as compared to $24,101,870 for the year ended March 31, 2020 and equity in losses of unconsolidated affiliates of ($5,401,540) during the nine months ended December 31, 2020, which was primarily the loss associated the equity investment in Viking.

 

Off Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in the Company's securities.

 

Seasonality

 

The Company's operating results are not affected by seasonality.

 

Inflation

 

The Company's business and operating results are not currently affected in any material way by inflation although they could be adversely affected in the future were inflation to increase, resulting in cost increases.

 

Critical Accounting Policies

 

We prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared and actual results could differ from our estimates and such differences could be material. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical accounting policies and how they are applied in the preparation of our financial statements, as well as the sufficiency of the disclosures pertaining to our accounting policies in the footnotes accompanying our financial statements. Described below are the most significant policies we apply in preparing our consolidated financial statements, some of which are subject to alternative treatments under GAAP. We also describe the most significant estimates and assumptions we make in applying these policies. See “Note 2 - Summary of Significant Accounting Policies” to our consolidated financial statements.

 

 
53

Table of Contents

 

Oil and Gas Property Accounting

 

The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas properties (including such costs as leasehold acquisition costs, geological expenditures, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred.

 

The full cost method requires the Company to calculate quarterly, by cost center, a "ceiling," or limitation on the amount of properties that can be capitalized on the balance sheet. To the extent capitalized costs of oil and natural gas properties, less accumulated depletion and related deferred taxes exceed the sum of the discounted future net revenues of proved oil and natural gas reserves, the lower of cost or estimated fair value of unproved properties subject to amortization, the cost of properties not being amortized, and the related tax amounts, such excess capitalized costs are charged to expense.

 

No impairment expense was recorded for the year ended December 31.

 

Proved Reserves

 

Estimates of our proved reserves included in this report are prepared in accordance with U.S. SEC guidelines for reporting corporate reserves and future net revenue. The accuracy of a reserve estimate is a function of:

 

 

i.

the quality and quantity of available data;

 

 

ii.

the interpretation of that data;

 

 

iii.

the accuracy of various mandated economic assumptions; and

 

 

iv.

the judgment of the persons preparing the estimate.

 

Our proved reserve information included in this report was predominately based on estimates. Because these estimates depend on many assumptions, all of which may substantially differ from future actual results, reserve estimates will be different from the quantities of oil and gas that are ultimately recovered. In addition, results of drilling, testing and production after the date of an estimate may justify material revisions to the estimate.

 

In accordance with SEC requirements, we based the estimated discounted future net cash flows from proved reserves on the unweighted arithmetic average of the prior 12-month commodity prices as of the first day of each of the months constituting the period and costs on the date of the estimate.

 

The estimates of proved reserves materially impact depreciation, depletion, amortization and accretion (“DD&A”) expense. If the estimates of proved reserves decline, the rate at which we record DD&A expense will increase, reducing future net income. Such a decline may result from lower market prices, which may make it uneconomic to drill for and produce from higher-cost fields.

 

 
54

Table of Contents

 

Asset Retirement Obligation

 

Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount we will incur to plug, abandon and remediate our producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. We determined our ARO by calculating the present value of estimated cash flows related to the obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation’s inception, with an offsetting increase to proved properties. Periodic accretion of discount of the estimated liability is recorded as accretion expense in the accompanying consolidated statements of operations and comprehensive income.

 

ARO liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated ARO.

 

Derivative Liabilities

 

The Company has determined that certain obligations to issue shares relating to conversions of the Series C Preferred Stock contain provisions that could result in modification of the the Series C Preferred Stock conversion price that is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40.

 

The 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 generally not subject to adjustment. If the Conversion Premium is paid in shares, the conversion ratio is based on a VWAP calculation based on the lowest stock price over the Measurement Period. The Measurement Period is 30 days (or 60 days if there is a Triggering Event) prior to the conversion date and 30 days (or 60 days if there is a Triggering Event) after the conversion date. The VWAP calculation is subject to adjustment if there is a Triggering Event and the Measurement Period is subject to adjustment in the event that the Company is in default of one or more Equity Conditions provided in the 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 (or 60 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 derivative liability at the end of each period includes a derivative liability for the outstanding Series C shares 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.

 

 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 preferred 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.

   

 

55

 

 

The following tables present a range of estimates of the number of shares potentially issuable to settle future conversions of the Series C Preferred Stock outstanding at December 31, 2020, including the conversion premiums, reflecting consideration of all provisions that pertain to the computation of settlements as follows:

 

Estimate of Common Shares Due to Series C Pref. Shareholders (assuming Dividends/Conversion Premium are paid in stock as opposed to cash)

 

 

 

 

 

Series C Pref. Shares Outstanding - December 31, 2020

 

 

2,093

 

Assume Triggering Event

 

 Yes

 

 

Low VWAP During Measurement

Period - $0.3475

 

 

Low VWAP During Measurement

Period - $0.50

 

 

Low VWAP During Measurement

Period - $1.00

 

 

 

 

 

 

 

 

 

Conversion Price for Preferred Stock

 

$

3.25

 

 

Conversion Price for Preferred Stock

 

$

3.25

 

 

Conversion Price for Preferred Stock

 

$

3.25

 

VWAP during Measurement Period

 

$

0.3475

 

 

VWAP during Measurement Period

 

$

0.5000

 

 

VWAP during Measurement Period

 

$

1.0000

 

Price for Calculating Conversion Premium (i.e. 85% of VWAP less $0.10)

 

$

0.1954

 

 

Price for Calculating Conversion Premium (i.e. 85% of VWAP less $0.10)

 

$

0.3250

 

 

Price for Calculating Conversion Premium (i.e. 85% of VWAP less $0.10)

 

$

0.7500

 

Series C Pref Shares

 

$

2,093

 

 

Series C Pref Shares

 

$

2,093

 

 

Series C Pref Shares

 

 

2,093

 

Face value per share

 

$

10,000

 

 

Face value per share

 

$

10,000

 

 

Face value per share

 

$

10,000

 

Total value

 

$

20,930,000

 

 

Total value

 

$

20,930,000

 

 

Total value

 

$

20,930,000

 

Annual Conversion Premium

 

$

7,315,035

 

 

Annual Conversion Premium

 

$

7,315,035

 

 

Annual Conversion Premium

 

$

7,315,035

 

Total conversion Premium (7 years worth of dividends)

 

$

51,205,245

 

 

Total conversion Premium (7 years worth of dividends)

 

$

51,205,245

 

 

Total conversion Premium (7 years worth of dividends)

 

$

51,205,245.00

 

Underlying common shares for Face Value Portion

 

 

6,440,000

 

 

Underlying common Shares for Face Value Portion

 

 

6,440,000

 

 

Underlying common shares for Face Value Portion

 

 

6,440,000

 

Underlying common shares for Conversion Premium

 

 

262,053,454

 

 

Underlying common shares for Conversion Premium

 

 

157,554,600

 

 

Underlying common shares for Conversion Premium

 

 

68,273,660

 

Total Potential Shares

 

 

268,493,454

 

 

Total Potential Shares

 

 

163,994,600

 

 

Total Potential Shares

 

 

74,713,660

 

 

Series C Pref. Shares Outstanding – March 31, 2020

 

 

3,886

 

Assume Triggering Event

 

 No

 

 

Low VWAP During Measurement

Period - $0.3475

 

 

Low VWAP During Measurement

Period - $0.50

 

 

Low VWAP During Measurement

Period - $1.00

 

 

 

 

 

 

 

 

 

Conversion Price for Preferred Stock

 

$

3.25

 

 

Conversion Price for Preferred Stock

 

$

3.25

 

 

Conversion Price for Preferred Stock

 

$

3.25

 

VWAP during Measurement Period

 

$

0.3475

 

 

VWAP during Measurement Period

 

$

0.5000

 

 

VWAP during Measurement Period

 

$

1.0000

 

Price for Calculating Conversion Premium (i.e. 95% of VWAP less $0.05)

 

$

0.2801

 

 

Price for Calculating Conversion Premium (i.e. 95% of VWAP less $0.05)

 

$

0.4250

 

 

Price for Calculating Conversion Premium (i.e. 95% of VWAP less $0.05)

 

$

0.9000

 

Series C Pref Shares

 

 

2,093

 

 

Series C Pref Shares

 

 

2,093

 

 

Series C Pref Shares

 

 

2,093

 

Face value per share

 

$

10,000

 

 

Face value per share

 

$

10,000

 

 

Face value per share

 

$

10,000

 

Total value

 

$

20,930,000

 

 

Total value

 

$

20,930,000

 

 

Total value

 

$

20,930,000

 

Annual Conversion Premium

 

$

7,315,035

 

 

Annual Conversion Premium

 

$

7,315,035

 

 

Annual Conversion Premium

 

$

7,315,035

 

Total conversion Premium (7 years worth of dividends)

 

$

51,205,245

 

 

Total conversion Premium (7 years worth of dividends)

 

$

51,205,245

 

 

Total conversion Premium (7 years worth of dividends)

 

$

51,205,245

 

Underlying common shares for Face Value Portion

 

 

6,440,000

 

 

Underlying common Shares for Face Value Portion

 

 

6,440,000

 

 

Underlying common shares for Face Value Portion

 

 

6,440,000

 

Underlying common shares for Conversion Premium

 

 

182,810,586

 

 

Underlying common shares for Conversion Premium

 

 

120,482,929

 

 

Underlying common shares for Conversion Premium

 

 

56,894,717

 

Total Potential Shares

 

 

189,250,586

 

 

Total Potential Shares

 

 

126,922,929

 

 

Total Potential Shares

 

 

63,334,717

 

        

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

The Company, as a smaller reporting company (as defined by Rule 12b-2 of the Exchange Act), is not required to furnish information required by this item.

 

 
56

Table of Contents

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

INDEX TO THE FINANCIAL STATEMENTS

 

 

 

Page 

 

Report of Independent Registered Public Accounting Firm

 

 

F-1

 

Consolidated Balance Sheets as of December 31 and March 31, 2020

 

F-3

 

Consolidated Statements of Operations for the Nine Months Ended December 31, 2020 and the Year Ended March 31, 2020

 

F-4

 

Consolidated Statement of Changes in Stockholders’ Equity (Deficit) Nine Months Ended December 31, 2020 and the Year Ended March 31, 2020

 

F-5

 

Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2020 and the Year Ended March 31, 2020

 

F-6

 

Notes to Consolidated Financial Statements

 

F-7

 

 

57

 

  Your Vision Our Focus

 

  

   

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of

Camber Energy, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Camber Energy, Inc. (the “Company”) as of December 31, 2020 and March 31, 2020, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the period from April 1, 2020 through December 31, 2020 and for the year ended March 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and March 31, 2020 and the results of its operations and its cash flows for the period from April 1, 2020 through December 31, 2020 and for the year ended March 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph – Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 3, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

            

 
F-1

Table of Contents

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate 

  

Series C Preferred Stock

     

As discussed in Note 14, the Company issued a series of preferred stock that contained several features which derived value from sources unrelated to the host preferred stock instrument. The Company determined certain of the features included in the Series C Preferred Stock designations, including the conversion, dividend and liquidation value, required that the preferred stock be reported as a component of temporary equity with the conversion and dividend components bifurcated and accounted for on a stand-alone basis as derivatives. The determination of fair value of these derivatives as well as the value of the temporary equity involved using complex valuation methodologies and significant assumptions including volume weighted prices and the estimated valuation of the Company’s common stock taking into consideration the effect of these dilutive instruments.

 

We identified auditing the Company’s evaluation of the accounting for the features included in the Series C Preferred Stock, specifically the methods and assumptions used to estimate the fair value of the derivative liabilities, as a critical audit matter.

 

How We Addressed the Matter in Our Audit:

 

The primary procedures we performed to address this critical audit matter included:

 

 

-

Obtaining and reviewing the underlying Series C Preferred Stock certificate of designation and related amendments to understand the terms and conditions, economic substance, and identify embedded features requiring evaluation.

 

 

 

 

-

Testing management’s development of the assumptions used in the valuation models applied and the reasonableness of those assumptions.

 

 

 

 

-

Obtaining an understanding of management’s process for developing the estimated fair value of the embedded features, including evaluation of the appropriateness of the method selected by the Company, identifying the significant assumptions used to determine the fair value estimate, and the application of those assumptions in the related method.

 

 

 

 

-

Testing the data and significant assumptions used in developing the fair value estimate, including procedures to determine whether the data was complete and accurate and sufficiently precise.

 

/s/ Turner, Stone & Company, L.L.P.

 

We have served as the Company’s auditor since 2021

 

Dallas, Texas

May 18, 2022

   

Turner, Stone & Company, L.L.P.

Accountants and Consultants

12700 Park Central Drive, Suite 1400

Dallas, Texas 75251

Telephone: 972-239-1660 ⁄ Facsimile: 972-239-1665

  Toll Free: 877-853-4195

Web site: turnerstone.com

 

    

 INTERNATIONAL ASSOCIATION OF ACCOUNTANTS AND AUDITORS

    

 
F-2

Table of Contents

 

CAMBER ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

December 31,

2020

 

 

March 31,

2020

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$ 868,548

 

 

$ 656,615

 

Accounts receivable – oil and gas

 

 

7,077

 

 

 

255,363

 

Prepaid expenses

 

 

34,211

 

 

 

220,682

 

Total current assets

 

 

909,836

 

 

 

1,132,660

 

 

 

 

 

 

 

 

 

 

Oil and gas properties, full cost method

 

 

 

 

 

 

 

 

Proved developed producing oil and gas properties, net

 

 

74,877

 

 

 

110,617

 

 

 

 

 

 

 

 

 

 

Fixed assets, net

 

 

-

 

 

 

-

 

Equity method investment

 

 

15,830,538

 

 

 

957,169

 

Notes receivable

 

 

-

 

 

 

7,339,719

 

Deposits and other assets

 

 

 

 

 

 

155,053

 

TOTAL ASSETS

 

$ 16,815,251

 

 

$ 9,695,218

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$ 996,382

 

 

$ 1,474,221

 

Common stock payable

 

 

-

 

 

 

173,000

 

Accrued expenses and other current liabilities

 

 

67,397

 

 

 

348,460

 

Current taxes payable

 

 

3,000

 

 

 

3,000

 

Derivative Liability

 

 

93,981,234

 

 

 

77,636,666

 

Total current liabilities

 

 

95,048,013

 

 

 

79,635,347

 

Long term debt – net of current portion

 

 

18,000,000

 

 

 

-

 

Asset retirement obligation

 

 

46,748

 

 

 

71,750

 

TOTAL LIABILITIES

 

 

113,094,761

 

 

 

79,707,097

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

TEMPORARY EQUITY

 

 

 

 

 

 

 

 

Preferred Stock Series C, 2,093 and 2,819 shares issued and outstanding, respectively, liquidation preference of $72,135,245 and $97,156,835, respectively

 

 

5,946,052

 

 

 

9,801,446

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Preferred Stock Series A, 2,000 shares authorized of $0.001 par value, -0-shares issued and outstanding

 

 

-

 

 

 

-

 

Preferred Stock Series B, 600,000 shares authorized of $0.001 par value, -0- shares issued and outstanding

 

 

-

 

 

 

-

 

Preferred Stock Series E, 1,000,000 shares authorized of $0.001 par value, -0- shares issued and outstanding

 

 

-

 

 

 

-

 

Preferred Stock Series F, 16,750 shares authorized of $0.001 par value, -0- shares issued and outstanding

 

 

-

 

 

 

-

 

Common stock, 250,000,000 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

 

 

209,362,384

 

 

 

179,783,233

 

Accumulated deficit

 

 

(311,612,946 )

 

 

(259,601,558 )

TOTAL STOCKHOLDERS' DEFICIT

 

 

(102,225,562 )

 

 

(79,813,325 )

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

 

$ 16,815,251

 

 

$ 9,695,218

 

 

 
F-3

Table of Contents

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Nine Months

Ended

December 31,

2020

 

 

Year Ended

March 31,

2020

 

Revenue

 

 

 

 

 

 

Oil and gas sales

 

$ 150,814

 

 

$ 397,118

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Lease operating costs

 

 

131,937

 

 

 

494,096

 

General and administrative (including stock-based compensation of $36,502 and $200,690

 

 

5,212,635

 

 

 

4,909,871

 

Depreciation, depletion, Amortization and Accretion

 

 

6,615

 

 

 

20,420

 

Total operating expenses

 

 

5,351,187

 

 

 

5,424,387

 

 

 

 

 

 

 

 

 

 

Income (Loss) from operations

 

 

(5,200,373 )

 

 

(5,027,269 )

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

Interest expense

 

 

(67,397 )

 

 

(14,771 )

Equity (deficit) in earnings of unconsolidated entity

 

 

(5,401,540 )

 

 

957,169

 

Loss on derivative liability

 

 

(41,878,821 )

 

 

(24,101,870 )

Other expenses

 

 

(228,773 )

 

 

-

 

Interest and other income

 

 

765,516

 

 

 

228,572

 

Total other expense

 

 

(46,811,015 )

 

 

(22,930,900 )

 

 

 

 

 

 

 

 

 

Net loss before income taxes

 

 

(52,011,388 )

 

 

(27,958,169 )

Income tax benefit (expense)

 

 

-

 

 

 

-

 

Net loss

 

 

(52,011,388

)

 

 

(27,958,169 )

Less preferred dividends

 

 

(6,929,910 )

 

 

(7,131,495 )

Net loss attributable to common stockholders

 

$ (58,941,298 )

 

$ (35,089,664 )

 

 

 

 

 

 

 

 

 

Loss per weighted average number of common shares outstanding – basic and diluted

 

$ (3.36 )

 

$ (16.64 )

Weighted average number of common shares outstanding – basic and diluted

 

 

17,556,725

 

 

 

2,109,622

 

 

 
F-4

Table of Contents

 

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

 

FOR THE NINE MONTHS ENDED DECEMBER 31, 2020 AND THE YEAR ENDED MARCH 31, 2020

    

 

 

Series C

 

 

Series E

 

 

Series F

 

 

Series B

 

 

Series C

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

 

 

Total

 

 

 

Number

 

 

Preferred

 

 

Number

 

 

Preferred

 

 

Number

 

 

Preferred

 

 

Number

 

 

Preferred

 

 

Number

 

 

Preferred

 

 

Number

 

 

Common

 

 

Paid In

 

 

Accumulated

 

 

Stockholders'

 

 

 

Of Shares

 

 

Amount

 

 

Of Shares

 

 

Stock

 

 

Of Shares

 

 

Stock

 

 

Of Shares

 

 

Stock

 

 

Of Shares

 

 

Stock

 

 

Of Shares

 

 

Stock

 

 

Capital

 

 

Deficit

 

 

(Deficit) Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, March 31, 2020

 

 

2,819

 

 

$ 9,801,446

 

 

 

-

 

 

$ -

 

 

 

-

 

 

$ -

 

 

 

-

 

 

$ -

 

 

 

-

 

 

$ -

 

 

 

5,000,000

 

 

$ 5,000

 

 

$ 179,783,233

 

 

$ (259,601,558 )

 

 

(79,813,325 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares issued for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Series C Preferred Stock

 

 

(756 )

 

 

(1,734,473 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19,823,486

 

 

 

19,823

 

 

 

28,790,997

 

 

 

-

 

 

 

28,810,820

 

True-Up Shares

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of Common Shares for Consulting Fees

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

176,514

 

 

 

177

 

 

 

209,325

 

 

 

-

 

 

 

209,502

 

Issuance of Series C Preferred Shares for Cash Proceeds

 

 

630

 

 

 

2,217,671

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,217,671 )

 

 

-

 

 

 

(2,217,671 )
Series C Preferred Stock exchanged for debt

 

 

(600 )

 

 

(1,542,092 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Change in fair value of Series C shares

 

 

-

 

 

 

(2,796,500 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,796,500

 

 

 

-

 

 

 

2,796,500

 

Other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net Loss  

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(52,011,388 )

 

 

(52,011,385 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances December 31, 2020

 

 

2,093

 

 

$ 5,946,052

 

 

 

-

 

 

$ -

 

 

 

-

 

 

$ -

 

 

 

-

 

 

$ -

 

 

 

-

 

 

$ -

 

 

 

25,000,000

 

 

$ 25,000

 

 

$ 209,362,384

 

 

$ (311,612,946 )

 

$ (102,225,562 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, March 31, 2019

 

 

2,305

 

 

$ 2,710,680

 

 

 

-

 

 

$ -

 

 

 

-

 

 

$ -

 

 

 

44,000

 

 

$ 44

 

 

 

-

 

 

$ -

 

 

 

13,442

 

 

$ 13

 

 

$ 174,804,234

 

 

$ (231,643,392 )

 

 

(56,839,101 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Shares issued for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Series C Preferred Stock

 

 

(11 )

 

 

(40,729 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,899,442

 

 

 

4,899

 

 

 

11,804,507

 

 

 

-

 

 

 

11,809,406

 

Conversion of Debenture - Abeyance

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

29,073

 

 

 

29

 

 

 

(29 )

 

 

-

 

 

 

-

 

True-Up Shares

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Payment of Consulting Fees

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

680

 

 

 

1

 

 

 

331,029

 

 

 

-

 

 

 

331,030

 

Rounding adjustment for split

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

57,363

 

 

 

58

 

 

 

(58 )

 

 

-

 

 

 

-

 

Cash paid for Settlement of Preferred B Stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(25,000 )

 

 

-

 

 

 

(25,000 )
Conversion of Series B to Common

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(44,000 )

 

 

(44 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

44

 

 

 

-

 

 

 

-

 

Payment of Seris B Dividend

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of Series E and F Preferred Stock

 

 

-

 

 

 

-

 

 

 

1,000,000

 

 

 

18,701,000

 

 

 

16,750

 

 

 

1,417,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Change in valuation of Series E and F Preferred Stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,035,000 )

 

 

-

 

 

 

1,017,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Redemption of Series E and F Preferred Stock

 

 

-

 

 

 

-

 

 

 

(1,000,000 )

 

 

(14,666,000 )

 

 

(16,750 )

 

 

(2,434,000 )

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of Series C Preferred Shares for Cash Proceeds

 

 

525

 

 

 

2,600,769

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,600,769 )

 

 

-

 

 

 

(2,600,769 )
Change in fair value of Series C shares

 

 

-

 

 

 

4,530,725

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,530,725 )

 

 

-

 

 

 

(4,530,725 )
Series C dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3

 

 

 

3

 

Net Loss  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,958,169 )

 

 

(27,958,169 )