UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 10-Q 

 

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

 

For the quarterly period ended September 30, 2019

 

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

 

Commission File Number: 001-32508

 

CAMBER ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

Nevada 20-2660243
(State or other jurisdiction of 
incorporation or organization)

(I.R.S. Employer 

Identification No.) 

 

1415 Louisiana, Suite 3500, Houston, Texas 77002

(Address of principal executive offices) (Zip Code)

 

(210) 998-4035

(Registrant’s telephone number, including area code)

 

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

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.001 Par Value Per Share CEI NYSE American

 

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

 

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

 

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

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth ☐  

 

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

 

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

 

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

 

  Title of each class       Number of Shares  
Common Stock, par value
$0.001 per share
  3,028,899
(as of November 18, 2019)

 

 

 

 

CAMBER ENERGY, INC.

 

TABLE OF CONTENTS

       
      Page
PART I. FINANCIAL INFORMATION   1
       
ITEM 1. Financial Statements   1
       
  Consolidated Balance Sheets as of September 30, 2019 and March 31, 2019 (Unaudited)   1
       
  Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2019 and 2018 (Unaudited)   2
       
  Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended September 30, 2019 and 2018 (Unaudited)   3
       
  Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2019 and 2018 (Unaudited)   4
       
  Notes to the Consolidated Financial Statements (Unaudited)   5
       
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   37
       
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk   57
       
ITEM 4. Controls and Procedures   57
       
PART II. OTHER INFORMATION   58
       
ITEM 1. Legal Proceedings   58
       
ITEM 1A. Risk Factors   58
       
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds   76
       
ITEM 3. Defaults Upon Senior Securities   78
       
ITEM 4. Mine Safety Disclosures   79
       
ITEM 5. Other Information   79
       
ITEM 6. Exhibits   79
       
SIGNATURES   80

 

 

 

PART 1. FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

CAMBER ENERGY, INC. 

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   September 30,
2019
   March 31,
2019
 
ASSETS          
Current Assets          
Cash  $4,833,636   $7,778,723 
Accounts Receivable, Net of Allowance   3,337,183    129,037 
Costs in Excess of Billings   1,771,739     
Other Current Assets   65,249    263,205 
Total Current Assets   10,007,807    8,170,965 
           
Property and Equipment          
Oil and Gas Properties - Subject to Amortization   50,488,936    50,528,953 
Oil and Gas Properties - Not Subject to Amortization   28,016,989    28,016,989 
Other Property and Equipment   5,235,199    1,570 
Total Property and Equipment   83,741,124    78,547,512 
Accumulated Depletion, Depreciation, Amortization and Impairment   (81,574,648)   (78,334,324)
Total Property and Equipment, Net   2,166,476    213,188 
Right of Use Assets   757,263     
Goodwill   17,992,118     
Other Assets   264,053    198,519 
Total Assets  $31,187,717   $8,582,672 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
Current Liabilities          
Accounts Payable  $2,161,016   $1,521,329 
Common Stock Payable   1,735    303,340 
Billings in Excess of Costs   90,082     
Accrued Expenses   808,165    276,133 
Operating Lease Liabilities - Short-Term   389,857     
Finance Lease Liabilities - Short-Term   156,284     
Current Portion of Long-Terms Notes Payable, Net of Discount   216,721     
Current Income Taxes Payable   3,000    3,000 
Total Current Liabilities   3,826,860    2,103,802 
           
Asset Retirement Obligation   263,792    303,809 
Operating Lease Liabilities - Long-Term   367,406     
Finance Lease Liabilities - Long-Term   119,731     
Long-Term Notes Payable, Net of Discount   1,575,404     
Derivative Liability       5 
Total Liabilities   6,153,193    2,407,616 
           
Commitments and Contingencies          
           
Temporary Equity          
Preferred Stock Series E, 1,000,000 Shares Authorized of $0.001 Par Value, 1,000,000 and 0 Shares Issued and Outstanding, respectively, Liquidation Preference of $20,000,000   18,701,000     
Preferred Stock Series F, 16,750 Shares Authorized of $0.001 Par Value, 16,750 and 0 Shares Issued and Outstanding, respectively, Liquidation Preference of $1,675,000   1,417,000     
   Total Temporary Equity   20,118,000     
           
Stockholders’ Equity          
Preferred Stock Series A, 2,000 Shares Authorized of $0.001 Par Value, 0 Shares Issued and Outstanding        
Preferred Stock Series B, 600,000 Shares Authorized of $0.001 Par Value, 0 and 44,000 Shares Issued and Outstanding, respectively       44 
Preferred Stock Series C, 5,000 Shares Authorized of $0.001 Par Value, 2,302 and 2,305 Shares Issued and Outstanding, respectively, Liquidation Preference of $56,318,430   2    2 
Preferred Stock Series D, 50,000 Shares Authorized of $0.001 Par Value, 0 Shares Issued and Outstanding        
Common Stock, 5,000,000 Shares Authorized of $0.001 Par Value, 1,048,532 and 13,443 Shares Issued and Outstanding, respectively   1,049    13 
Additional Paid-in Capital   148,784,723    152,251,623 
Stock Dividends Distributable   11,913,781    8,141,843 
Accumulated Deficit   (155,783,031)   (154,218,469)
Total Stockholders’ Equity   4,916,524    6,175,056 
Total Liabilities and Stockholders’ Equity  $31,187,717   $8,582,672 

 

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

 

1

 

 

CAMBER ENERGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three Months Ended   Six Months Ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
Operating Revenues                    
Contract Revenue  $6,285,535   $   $6,285,535   $ 
Oil and Gas Revenue   92,753    809,466    214,104    2,504,162 
Total Revenues   6,378,288    809,466    6,499,639    2,504,162 
                     
Operating Expenses                    
Lease Operating Expenses   188,483    747,374    312,040    2,159,041 
Severance and Property Taxes   4,031    44,495    6,605    127,255 
Contract Costs   4,897,196        4,897,196     
Depreciation, Depletion, Amortization, and Accretion   68,460    136,726    72,702    463,926 
Impairment of Oil and Gas Properties       224,309        755,966 
General and Administrative   1,731,795    952,201    3,063,786    2,835,250 
Gain on Sales of Assets      (25,808,246)       (25,808,246)
Total Operating Expenses   6,889,965    (23,703,141)   8,352,329    (19,466,808)
Operating Income (Loss)   (511,677)   24,512,607    (1,852,690)   21,970,970 
                     
Other Expense (Income)                    
Interest Expense   37,677    1,268,811    38,524    2,234,107 
Other Expense (Income), Net   (272,390)   15,430    (326,652)   20,594 
Total Other Expenses   (234,713)   1,284,241    (288,128)   2,254,701 
                     
Net Income (Loss)  $(276,964)  $23,228,366   $(1,564,562)  $19,716,269 
                     
Net Income (Loss) Per Common Share                    
Basic  $(4.40)  $17,311.77   $(20.57)  $22,708.13 
Diluted  $(4.40)  $5,135.02   $(20.57)  $4,697.02 
                     
Weighted Average Number of Common Shares Outstanding                    
Basic   493,300    1,290    259,432    798 
Diluted   493,300    4,349    259,432    3,858 

 

 

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

 

2

 

 

CAMBER ENERGY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018 

 

   Series E
Preferred Stock
   Series F
Preferred Stock
   Series B
Preferred Stock
   Series C
Preferred Stock
   Common Stock               
   Number of Shares   Amount   Number of Shares   Amount   Number of Shares   Amount   Number of Shares   Amount   Number of Shares   Amount   Additional Paid-In Capital   Stock
Divided Distributable
   Accumulated Deficit   Total Stockholders’
(Deficit)
Equity
 
Balances, March 31, 2018      $       $    408,508   $409    1,132   $1    184   $   $141,429,941   $2,467,910   $(170,861,622)  $(26,963,361)
Common Shares issued for:                                                                      
Conversion of Series C Preferred Stock                           (251)        332    1    (1)            
Payment of Series B Dividend                                   1        1,348    (1,348)        
Conversion of Debenture                                   5                     
Warrants - Abeyance                                   10                     
Issuance of Series C Preferred Shares for Cash Proceeds                           210                2,000,000            2,000,000 
Stock Dividends to be Issued                                           (698,996)   698,996         
Share-Based Compensation                                           343,730            343,730 
Net Loss                                                   (3,512,097)   (3,512,097)
Balances, June 30, 2018                   408,508    409    1,091    1    532    1    143,076,022    3,165,558    (174,373,719)   (28,131,728)
Common Shares issued for:                                                                      
Conversion of Series C Preferred Stock                           (143)       1,837    1    (1)            
Payment of Series B Dividend                                   1        882    (882)        
Payment of Consulting Fees                                   1        200,000            200,000 
Stock Dividends to be Issued                                           (896,182)   896,182         
Issuance of Series C Preferred Shares for Cash Proceeds                           735    1            6,999,999            7,000,000 
Net Income                                                   23,228,366    23,228,366 
Balances, September 30, 2018      $       $    408,508   $409    1,683   $2    2,371   $2   $149,380,720   $4,060,858    $(151,145,353)  $2,296,638 
                                                                       
Balances, March 31, 2019      $       $    44,000   $44    2,305   $2    13,441   $ 13   $152,251,623   $8,141,843   $(154,218,469)  $6,175,056 
Common Shares issued for:                                                                      
Conversion of Debenture-Abeyance                                   25,008    25    (25)            
Payment for Consulting Fees                                   600    1    303,339            303,340 
Rounding Adjustment for Split                                   4                     
Stock Dividends to be Issued                                           (1,878,055)   1,878,055         
Conversion of Series B Preferred Stock                   (44,000)   (44)                   44             
Payment of Series B Dividend                                           3    (3)        
Net Loss                                                   (1,287,598)   (1,287,598)
Balances, June 30, 2019                           2,305    2    39,053    39    150,676,929    10,019,895    (155,506,067)   5,190,798 
Common Shares issued for:                                                                      
Conversion of Series C Preferred Stock                           (3)       1,004,450    1,005    (1,005)            
Conversion of Debenture - Abeyance                                     4,065    4    (4)            
Payment of Consulting Fees                                   80        27,690            27,690 

Rounding adjustment for reverse stock split

                                   884    1    (1)            
Cash Paid for Settlement of Series B Preferred Stock Warrants                                           (25,000)           (25,000)
Issuance of Series E and F Preferred Stock   1,000,000    18,701,00    16,750   1,417,000                                         
Stock Dividends to be Issued                                           (1,893,886)   1,893,886         
Net Loss                                                   (276,964)   (276,964)
Balances, September 30, 2019   1,000,000   $18,701,000    16,750   $1,417,000       $    2,302   $2    1,048,532  $  1,049   $148,784,723   $11,913,781   $(155,783,031)  $4,916,524 

 

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

 

3

 

 

CAMBER ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Six Months Ended
   September 30,
   2019  2018
Cash Flows from Operating Activities      
Net Income (Loss)  $(1,564,562)  $19,716,269 
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Depreciation, Depletion, Amortization and Accretion   72,702    463,926 
Impairment of Oil and Gas Properties   —      755,966 
Bad Debt Expense   17,694    —   
Gain on Sale of Oil and Gas Properties   —      (25,808,246)
Share-Based Compensation   27,690    343,629 
Amortization of Right of Use Assets   156,133    —   
Change in fair value of derivatives   (5)   —   
Amortization of Discount on Notes   —      1,298,275 
Changes in operating assets and liabilities:          
Accounts Receivable   (449,363)   595,248 
Costs in Excess of Billings   (827,489)   —   
Other Current Assets   258,088    109,163 
Accounts Payable and Accrued Expenses   (333,927)   697,994 
Billings in Excess of Costs   90,082    —   
Operating Lease Liabilities   (156,133)   —   
Net Cash Used in Operating Activities   (2,709,090)   (1,833,776)
           
Cash Flows from Investing Activities          
Cash Acquired in Acquisition   449,763    —   
Cash Paid for Fixed Asset Additions   (628,087)   (2,482,788)
Cash Paid for Deposits   (31,534)   (141,009)
Net Cash Used in Investing Activities   (209,858)   (2,623,797)
           
Cash Flows from Financing Activities          
Repayments of Finance Lease Liabilities   (37,457)   —   
Repayment of Shareholder Loan   (492,337)   —   
Proceeds from Notes Payable   566,455    —   
Repayment of Notes Payable   (37,800)     
Cash Paid for Settlement of Series B Preferred Stock Warrants   (25,000)   —   
Proceeds from Issuance of Series C Preferred Stock   —      9,000,000 
Net Cash Provided by (Used In) Financing Activities   (26,139)   9,000,000 
           
(Decrease) Increase in Cash and Restricted Cash   (2,945,087)   4,542,427 
Cash and Restricted Cash at Beginning of the Period   7,778,723    789,151 
Cash and Restricted Cash at End of the Period  $4,833,636   $5,331,578 

  

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

 

4

 

 

CAMBER ENERGY, INC. 

 NOTES TO FINANCIAL STATEMENTS

 (Unaudited)

 

NOTE 1 – GENERAL

 

Prior to the disposition of Camber Energy, Inc.’s (“Camber” or the “Company”) Oklahoma and South Texas properties in 2018 and 2019, and the subsequent acquisition of Lineal Star Holdings, LLC (“Lineal”), as discussed below, the Company was solely an independent oil and natural gas company engaged in the acquisition, development and sale of crude oil, natural gas and natural gas liquids from various known productive geological formations, including the Cline shale and upper Wolfberry shale in Glasscock County, Texas, as well as in productive zones in the Panhandle in Hutchinson County, Texas.

 

On July 8, 2019, the Company acquired Lineal pursuant to the terms of an Agreement and Plan of Merger dated as of the same date (the “Plan of Merger” and the merger contemplated therein, the “Merger”), by and between Lineal, Camber, Camber Energy Merger Sub 2, Inc., Camber’s wholly-owned subsidiary (“Merger Sub”), and the Members of Lineal (the “Lineal Members”). Pursuant to the Plan of Merger, Camber acquired 100% of the ownership of Lineal from the Lineal Members in consideration for newly issued shares of Series E Redeemable Convertible Preferred Stock (“Series E Preferred Stock”) and Series F Redeemable Preferred Stock (“Series F Preferred Stock”). See also “NOTE 11 – Merger Agreement.

 

Lineal is a specialty construction and oil and gas services enterprise providing services to the energy industry, and, as a result of the acquisition, the Company has transitioned from an oil and gas company to an enterprise primarily focused on providing oil and gas services, and anticipates that, as experienced in the current three-month period, in future periods the majority of its revenue and expenses will come from the operations of Lineal. Lineal is based in Houston, Texas and is the parent company of its wholly-owned subsidiaries: (a) Lineal Industries Inc. (“Lineal Industries”), based in Pittsburgh, Pennsylvania, and (b) Lineal Star Incorporated (“Lineal Star”), headquartered in Houston, Texas.

 

Prior to the acquisition of Lineal, the Company sold a significant portion of its oil and gas production assets in Oklahoma to N&B Energy, LLC (“N&B Energy”) effective August 1, 2018 (see further discussion in “NOTE 2 – Liquidation and Going Concern Considerations”), Camber retained its assets in Glasscock County and operates in Hutchinson County, Texas. Additionally, 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); a 3% overriding royalty interest in its existing Okfuskee County, Oklahoma asset; and an overriding royalty interest on certain other undeveloped leasehold interests, pursuant to an Assignment of Production Payment and Assignments of Overriding Royalty Interests. No payments were received in regard to any of the retained items noted above through September 30, 2019 and the filing date of these financial statements.

 

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in (a) Camber’s annual report filed with the SEC on Form 10-K for the year ended March 31, 2019; and (b) as relates to Lineal, the consolidated audited financial statements of Lineal and its subsidiaries, contained in Exhibit 99.1 to Camber’s Current Report on Form 8-K (Amendment No. 2), filed with the SEC on October 7, 2019. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year 2019 as reported in the Form 10-K and/or Lineal’s audited financial statements as included in the October 7, 2019 Form 8-K/A, have been omitted.

 

5

 

 

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

 

Proportional adjustments were made to the conversion and exercise prices of the Company’s outstanding convertible preferred stock, warrants and stock options, and to the number of shares issued and issuable under the Company’s stock incentive plans in connection with each of the reverse splits described above. The reverse stock splits did not affect any stockholder’s ownership percentage of the Company’s common stock, except to the limited extent that the reverse stock splits resulted in any stockholder owning a fractional share. Fractional shares of common stock were rounded up to the nearest whole share based on each holder’s aggregate ownership of the Company. All issued and outstanding shares of common stock, conversion terms of preferred stock, options and warrants to purchase common stock and per share amounts contained in the financial statements, in accordance with SAB TOPIC 4C, have been retroactively adjusted to reflect the reverse splits for all periods presented.

 

NOTE 2 – LIQUIDITY AND GOING CONCERN CONSIDERATIONS

 

At September 30, 2019, the Company’s total current assets of $10.0 million exceeded its total current liabilities of approximately $3.8 million, resulting in working capital of $6.2 million, while at March 31, 2019, the Company’s total current assets of $8.2 million exceeded its total current liabilities of approximately $2.1 million, resulting in working capital of $6.1 million, resulting in a minimal change in working capital. Substantially all of our working capital which is in cash constitutes cash held in an account designated for acquisitions and the use of such funds is only available with the consent of a designee of the Company’s outstanding Series E Preferred Stock, who has advised the Company that he does not plan to authorize the Company’s further use of the designated funds, unless or until the Company and the Series E and F Preferred Stock holders can agree to certain amended terms of the Plan of Merger. It is anticipated that an agreement will be reached, but the Company cannot provide any assurance that an agreement will be reached on favorable terms, if at all.

 

6

 

 

Management believes that with the elimination of its outstanding debt and the funds raised through equity transactions, along with revenues the Company anticipates generating through Lineal, the Company has sufficient capital to fund operating costs and planned capital expenditures through the end of August 2020, provided that it is able to use funds for working capital which are currently held in a designated bank account for acquisition (as discussed above). As discussed below under “NOTE 11 – Merger Agreement”, the Company deposited $4,000,000 into a newly opened and dedicated bank account in connection with the Merger, which was intended to be used for acquisitions. The disbursement of funds from the account is required to be approved by (i) a person designated by the holders of the Series E Preferred Stock; and (ii) the Company. As of September 30, 2019, a total of $4,000,000 remained of the Deposit and as of the date of this filing a total of approximately $3.4 million remains of the Deposit. The release of such funds requires the approval of the person designated by such Series E Preferred Stock holders, and such designated person has control over whether or not to release such funds. As of the date of this filing, the Series E Preferred Stock designee has advised the Company that he does not plan to authorize the Company’s further use of the designated funds, unless or until the Company and the Series E and F Preferred Stock holders can agree to certain amended terms of the Plan of Merger. Because the designated funds constitute substantially all of funds available for working capital, in the event the use of the funds, if required, is not authorized, we may not have sufficient capital to support our operations for the next 12 months, provided that with the use of the funds in the account, we believe that we will have sufficient funds to continue as a going concern. Additionally, moving forward, management intends to use funds (including amounts held in the designated account) to facilitate other targeted acquisitions and mergers. If additional financing is required to consummate transactions, management intends to seek additional equity and debt financing, as needed, of which no financing arrangements are currently in place. Finally, management intends to target additional acquisitions, combinations and potential mergers moving forward which will allow the Company to meet the NYSE American initial listing requirements, upon the closing of such transaction(s). The result of such transactions may be a change in the business focus and/or management of the Company. Furthermore, moving forward, the preferred stock issued to the Lineal Members as a result of the Merger may be redeemed, and the Lineal Members, subject to the terms of the preferred stock, may take back control of some or all of Lineal.

 

As discussed in “NOTE 6 – Notes Payable and Debenture”, the Company borrowed $40 million from IBC effective August 25, 2016. The proceeds of the loan were used to repay and refinance approximately $30.6 million of indebtedness owed by certain sellers in the Company’s August 2016 asset acquisition (the “Acquisition”) to International Bank of Commerce (“IBC” or “IBC Bank”) as part of the closing of the Acquisition. As of September 30, 2018, the Company was not in compliance with certain covenants of the loan agreement, including requiring the Company to maintain a net worth of $30 million, the Company was in default of the terms of the loan, and the balance of the loan due to IBC of $36.9 million (less unamortized debt issuance costs of approximately $1.3 million), was recognized as a short-term liability on the Company’s balance sheet as of September 30, 2018. The Company also recognized approximately $460,000 in accrued interest as of September 30, 2018 related to this note. In conjunction with the “Assumption Agreement” (discussed below under “Assumption Agreement”), the Company reduced its liabilities by $37.9 million, including all of the outstanding amounts due to IBC, and its assets by approximately $12.1 million, and has no secured debt outstanding as of September 30, 2019.

 

During the three and six months ended September 30, 2019 and 2018, the Company sold 0 shares and 735 shares and 0 shares and 945 shares, respectively, of Series C Preferred Stock pursuant to the terms of an October 2017 Stock Purchase Agreement, for total consideration of $0 and $7 million and $0 and $9.0 million, respectively.

 

N&B Energy Asset Disposition Agreement

 

On July 12, 2018, the Company entered into an Asset Purchase Agreement (as amended by the First Amendment to the Sale Agreement dated August 3, 2018 and the Second Amendment to Sale Agreement dated September 24, 2018, the “Sale Agreement”), as seller, with N&B Energy, LLC as purchaser, which entity is affiliated with Richard N. Azar II, the Company’s former Chief Executive Officer and former director (“N&B Energy”), and Donnie B. Seay, the Company’s former director. Pursuant to the Sale Agreement, the Company agreed to sell to N&B Energy a substantial portion of its assets, including all of the assets acquired pursuant to the terms of the December 31, 2015 Asset Purchase Agreement and certain other more recent acquisitions, other than the production payment and overriding royalty interests discussed below (the “Disposed Assets”). In consideration for the Disposed Assets, N&B Energy agreed to pay the Company $100 in cash to assume the Company’s liabilities and contractual obligations in connection with the Disposed Assets (including lease and bonus payments), to assume all of the Company’s obligations and debt owed under its outstanding loan agreement with IBC Bank, which had a then outstanding principal balance of approximately $36.9 million and the other parties agreed to enter into a settlement agreement.

 

7

 

 

Assumption Agreement

 

On September 26, 2018, the Company entered into an Assumption Agreement (the “Assumption Agreement”) with IBC Bank; CE Operating, LLC, the Company’s wholly-owned subsidiary (“CE Operating”), which became a party to the Sale Agreement pursuant to the second amendment thereto; N&B Energy, which entity is affiliated with Richard N. Azar, II, the Company’s former Chief Executive Officer and former director (“Azar”), and Donnie B. Seay, the Company’s former director (“Seay”); Azar; RAD2 Minerals, Ltd., an entity owned and controlled by Azar (“RAD2”); Seay; and DBS Investments, Ltd., an entity owned and controlled by Seay. Azar, Seay, RAD2, and DBS are collectively referred to as the “Guarantors”.

 

Pursuant to the Assumption Agreement, N&B Energy agreed to assume all of the Company’s liabilities and obligations owed to IBC Bank and IBC Bank approved the transactions contemplated by the Sale Agreement and the assumption by N&B Energy of all of the amounts and liabilities which the Company owed to IBC Bank (the “IBC Obligations”). Finally, pursuant to the Assumption Agreement, IBC Bank released and forever discharged the Company and CE Operating and each of their current and former officers, directors, and stockholders, from all covenants, agreements, obligations, claims and demands of any kind, whether in law or at equity, which IBC Bank then had, arising out of or related to the amounts which the Company owed to IBC Bank under the Note, Loan Agreement or mortgages and/or under such documents or agreements, and further agreed to release the lien which IBC Bank then held on certain of the Company’s properties located in west Texas.

 

N&B Energy Sale Agreement Closing

 

On September 26, 2018, the transactions contemplated by the Sale Agreement closed and N&B Energy assumed all of the IBC Obligations (pursuant to the Assumption Agreement described above) and paid the Company $100 in cash, and the Company transferred ownership of the Assets to N&B Energy.

 

Notwithstanding the sale of the Assets, the Company retained its assets in Glasscock County and Hutchinson Counties, Texas and also retained a 12.5% production payment (effective until a total of $2.5 million has been received); a 3% overriding royalty interest in its existing Okfuskee County, Oklahoma asset; and retained an overriding royalty interest on certain other undeveloped leasehold interests, pursuant to an Assignment of Production Payment and Assignment of Overriding Royalty Interests.

 

The effective date of the Sale Agreement is August 1, 2018. The Assets were assigned “as is” with all faults.

 

As a result of the Assumption Agreement and the Sale Agreement, the Company reduced its liabilities by $37.9 million and its assets by approximately $12.1 million.

 

8

 

 

The following table summarizes the net assets sold and gain recognized in connection with the Assumption Agreement and Sale Agreement:

 

    Transaction
Summary
 
Assumption of IBC Loan   $ 36,943,617  
Assumption of ARO Liability     699,536  
Assumption of Capital Lease Obligations and Other     287,074  
Cash Received at Closing     100  
Oil and Gas Properties Transferred     (12,122,081 )
Total Gain on Sale   $ 25,808,246  

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The Company has provided a discussion of significant accounting policies, estimates and judgments in its March 31, 2019 Annual Report on Form 10-K. There have been no changes to the Company’s significant accounting policies since March 31, 2019 which are expected to have a material impact on the Company’s financial position, operations or cash flows.

 

Reclassifications

 

Certain reclassifications have been made to the prior year financial statements to conform them with the current year presentation. These reclassifications had no effect on the reported results of operations.

 

Principles of Consolidation

 

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

 

Accounts Receivable

 

Accounts receivable and contract work in progress consist primarily of billings for work performed according to contracts from clients in the oil, gas, refinery, petrochemical and power industries in North America. Trade accounts receivables are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the probable amount of credit losses in the Company’s existing accounts receivable. At September 30, 2019 and March 31, 2019, there were allowances for doubtful accounts of approximately $208,000 and $190,000, respectively, included in accounts receivable, and there were bad debts of $17,694 recognized for the three and six-month periods ended September 30, 2019. Included in accounts receivable at September 30, 2019 are balances of approximately $1,891,000 of billed balances not paid by customers pursuant to retainage provisions in the respective contracts. The balances billed but not paid by customers pursuant to retainage provisions in certain contracts are generally due upon completion of the contracts and acceptance by the customer. Based on the Company’s contract terms in recent years, the retainage balances at each balance sheet date are expected to be collected within the next 12 months.

 

Receivable Factoring

 

The Company has a factoring agreement with an unrelated third-party financial institution whereby the Company can borrow up to $4 million, with such borrowing based on up to 85% of a billed invoice and pay a factoring fee of 10% per annum on balances outstanding under the factoring agreement. The arrangement is accounted for as a secured borrowing due to the full recourse provided by the Company. Amounts due under the factoring agreement mature on August 15, 2020. At September 30, 2019, the Company had no outstanding borrowings. Factoring fees totaled $14,623 for the three and six-month periods ended September 30, 2019, respectively.

 

9

 

 

Property and Equipment

 

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

 

Long-lived assets including intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the assets carrying amount to determine if an impairment of such asset is necessary. This evaluation, as well as an evaluation of our intangible assets, requires the Company to make long-term forecasts of the future revenues and costs related to the assets subject to review. Forecasts require assumptions about demand for the Company’s services and future market conditions. Estimating future cash flows requires significant judgment, and the Company’s projections may vary from the cash flows eventually realized. Future events and unanticipated changes to assumptions could require a provision for impairment in a future period. The effect of any impairment would be to expense the difference between the fair value (less selling costs) of such asset and its carrying value. Such expense would be reflected in earnings. No impairments were deemed necessary for the periods ended September 30, 2019 and March 31, 2019.

 

Goodwill

 

Goodwill is tested for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred. Goodwill is reviewed for impairment at the reporting unit level, which is defined as operating segments or groupings of businesses one level below the operating segment level. The Company’s operating segments are the same as the reporting units used in its goodwill impairment test. Goodwill is tested for impairment by comparing the estimated fair value of a reporting unit, determined using a market approach, if market prices are available, or alternatively, a discounted cash flow model, with its carrying value. The annual evaluation of goodwill requires the use of estimates about future operating results, valuation multiples and discount rates of each reporting unit to determine their estimated fair value. Changes in these assumptions can materially affect these estimates. Once an impairment of goodwill has been recorded, it cannot be reversed. No goodwill impairment was recognized during any of the periods presented. The Company recognized goodwill during the three months ended September 30, 2019 as a result of the Lineal Merger as discussed in “NOTE 11 – Merger Agreement”.

 

Intangible Assets

 

The Company recognizes an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or when it can be separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract, asset or liability. Such intangibles are amortized over their useful lives. Impairment losses are recognized if the carrying amount of an intangible asset subject to amortization is not recoverable from expected future cash flows and its carrying amount exceeds its fair value.

 

Revenue Recognition 

 

Exploration and Product Revenue

 

The Company’s revenue for its exploration and production segment is comprised entirely of revenue from exploration and production activities. The Company’s oil is sold primarily to marketers, gatherers, and refiners. Natural gas is sold primarily to interstate and intrastate natural-gas pipelines, direct end-users, industrial users, local distribution companies, and natural-gas marketers. Natural gas liquids (NGLs) are sold primarily to direct end-users, refiners, and marketers. Payment is generally received from the customer in the month following delivery.

 

10

 

 

Contracts with customers have varying terms, including month-to-month contracts, and contracts with a finite term. The Company recognizes sales revenues for oil, natural gas, and NGLs based on the amount of each product sold to a customer when control transfers to the customer. Generally, control transfers at the time of delivery to the customer at a pipeline interconnect, the tailgate of a processing facility, or as a tanker lifting is completed. Revenue is measured based on the contract price, which may be index-based or fixed, and may include adjustments for market differentials and downstream costs incurred by the customer, including gathering, transportation, and fuel costs.

 

Revenues are recognized for the sale of the Company’s net share of production volumes. Sales on behalf of other working interest owners and royalty interest owners are not recognized as revenues.

 

Oil and Gas Services Revenue 

 

After closing the Lineal Merger on July 8, 2019, the Company’s oil and gas services segment generates revenue from utilities pipeline maintenance contracts. The majority of the oil and gas service revenue is derived from contracts and projects that typically span between 3 to 12 months. The oil and gas service contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.

 

The Company’s construction contracts are recognized over time because of the continuous transfer of control to the customer as all of the work is performed at the customer’s site and, therefore, the customer controls the asset as it is being constructed. Contract costs include labor, material, and indirect costs. Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, the Company estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract.

 

Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, and the performance of subcontractors.

 

The timing of revenue recognition, billings and cash collections results in billed accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) on the consolidated balance sheet. On the Company’s construction contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Generally, billing occurs prior to revenue recognition, resulting in contract liabilities. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period.

 

Provision for Loss

 

The Company recognizes a loss on a portion of a project in the month it anticipates having a loss on the entire project, on the Company’s consolidated financial statements. The Company calculates a loss provision based on comparing the expected margin versus actual to date margin on the project. The actual margin to date is based on 1) actual costs incurred to date and the estimated cost to complete compared to 2) the project inception to date margin. The loss is calculated and recorded as an expense and accumulated on the balance sheet as a liability. Over time, the liability account will reverse itself as the Company realizes the loss projected. Any realized losses are included in cost of revenue in the consolidated statement of operations as they occur until the project is completed.  During the three and six months ended September 30, 2019 and 2018, there were no realized losses recognized.

 

Concentration of Credit Risk

 

The Company has a concentration of customers in the oil and gas and power industries which expose the Company to a concentration of credit risk within a single industry. The Company seeks to obtain advance and progress payments for contract work performed on major contracts. Receivables are generally not collateralized.

 

11

 

 

During the three-month period ended September 30, 2019, three oil and gas service contract customers accounted for approximately 49%, 42% and 13%, respectively, and for the same period the prior year, four oil and gas production customers accounted for approximately 31%, 27%, 19% and 13% of the Company’s revenue. During the six month period ending September 30, 2019, the same oil and gas service three contract customers accounted for approximately 48%, 41% and 13%, respectively, and for the same period the prior year, three oil and gas production customers accounted for approximately 37%, 35% and 12% of the Company’s revenue. At September 30, 2019, one customer accounted for 82% of outstanding accounts receivable.

 

Fair Value of Financial Instruments

 

ASC 820 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. It defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

 

  Level 1 – Quoted prices in active markets for identical assets or liabilities.
  Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.
  Level 3 – Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.

 

As of September 30, 2019 and March 31, 2019, the significant inputs to the Company’s derivative liability and mezzanine equity calculations were Level 3 inputs.

 

Recently Adopted Accounting Pronouncements

 

Accounting Standards Codification (ASC) 2014-09, Revenue from Contracts with Customers (Topic 606)”, supersedes the revenue recognition requirements and industry-specific guidance under Revenue Recognition (Topic 605). Topic 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. The Company adopted Topic 606 on April 1, 2018, using the modified retrospective method applied to contracts that were not completed as of April 1, 2018. Under the modified retrospective method, prior period financial positions and results will not be adjusted. The cumulative effect adjustment recognized in the opening balances included no significant changes as a result of this adoption. While the Company does not expect 2020 net earnings to be materially impacted by revenue recognition timing changes, Topic 606 requires certain changes to the presentation of revenues and related expenses beginning April 1, 2018. Refer to “NOTE 9 – Revenue from Contracts with Customers” for additional information.

 

In November 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) amending the presentation of restricted cash within the consolidated statements of cash flows. The new guidance requires that restricted cash be added to cash and cash equivalents on the consolidated statements of cash flows. The Company adopted this ASU on April 1, 2018.

 

12

 

 

Following is a summary of cash and cash equivalents and restricted cash:

 

    September 30,
2019
    March 31,
2019
 
Cash, cash equivalents and restricted cash   $ 4,833,636     $ 7,778,723  
                 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 seeks to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2017. The Company adopted this ASU on April 1, 2018 and the adoption did not have a significant impact to the Company’s consolidated financial statements.  

 

In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which amends the current definition of a business. Under ASU 2017-01, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contributes to the ability to create outputs. ASU 2017-01 further states that when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The new guidance also narrows the definition of the term “outputs” to be consistent with how it is described in Topic 606, Revenue from Contracts with Customers. The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions. The guidance is effective for the annual period beginning after December 15, 2017, with early adoption permitted. The Company adopted this ASU on April 1, 2018 and the adoption did not have a significant impact to the Company’s consolidated financial statements.

 

In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting”, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company adopted this ASU on April 1, 2018 and the adoption did not have a significant impact to the Company’s consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016.02 “Leases (Topic 842)”. The new lease guidance supersedes Topic 840. The core principle of the guidance is that entities should recognize the assets and liabilities that arise from leases. Topic 840 does not apply to leases to explore for, or to use, minerals, oil, natural gas and similar nongenerative resources including the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained. In July 2018, the FASB issued “Leases (Topic 842): Targeted Improvements”, which provides entities with an alternative modified transition method to elect not to recast the comparative periods presented when adopting Topic 842. The Company adopted Topic 842 as of April 1, 2019, using the alternative modified transition, for which, comparative periods, including the disclosures related to those periods, are not restated.

 

In addition, the Company elected practical expedients provided by the new standard, and the Company has elected to not reassess its prior conclusions about lease identification, lease classification, and initial direct costs and to retain off-balance sheet treatment of short-term leases (i.e., 12 months or less which do not contain purchase options that the Company is reasonably likely to exercise). As a result of the short-term expedient election, the Company does not have leases that require the recording of a net lease asset and lease liability on the Company’s consolidated balance sheet or have a material impact on consolidated earnings or cash flows as of April 1, 2019. Moving forward, the Company will evaluate any new lease commitments for application of topic 842.

 

In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement,” which changes the disclosure requirements for fair value measurements by removing, adding, and modifying certain disclosures. The Company adopted ASU 2018-13 effective April 1, 2019. The adoption did not have a material impact on its consolidated financial statements.

 

13

 

 

Recently Issued Accounting Pronouncements

 

The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying consolidated financial statements.

 

Subsequent Events

 

The Company has evaluated all transactions through the date the consolidated financial statements were issued for subsequent event disclosure consideration.

 

NOTE 4 – PROPERTY AND EQUIPMENT

 

Oil and Gas Properties

 

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

 

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

 

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

 

Costs of oil and natural gas properties are amortized using the units of production method. Amortization expense calculated per equivalent physical unit of production amounted to $0.95 and $4.45 per barrel of oil equivalent for the six months ended September 30, 2019 and 2018, respectively.

 

All of Camber’s oil and natural gas properties are located in the United States. Costs being amortized at September 30, 2019 and March 31, 2019 are as follows:

 

    At
September 30, 2019
  At
March 31, 2019
 
 Oil and gas properties subject to amortization   $ 50,352,304   $ 50,352,304  
 Oil and gas properties not subject to amortization     28,016,989     28,016,989  
 Capitalized asset retirement costs     136,632     176,649  
 Total oil & natural gas properties     78,505,925     78,545,944  
 Accumulated depreciation, depletion, and impairment     (78,340,200   (78,333,628 )
 Net Capitalized Costs   $ 165,725   $ 212,316  

 

14

 

 

Impairments

 

For the six months ended September 30, 2019, the Company recorded no impairments. For the six months ended September 30, 2018, the Company recorded impairments totaling $755,966 which were due to lease expirations. 

 

Additions and Depletion

 

During the six months ended September 30, 2019 and 2018, the Company incurred costs of $0 and $2,482,788, respectively, for technical and other capital enhancements to extend the lives of the Company’s wells. Additionally, the Company recorded $6,572 and $458,939 for depletion for the six months ended September 30, 2019 and 2018, respectively.

 

Disposition of Oil and Natural Gas Properties

 

On July 12, 2018, the Company entered into an Asset Purchase Agreement (as amended by the First Amendment to the Sale Agreement dated August 3, 2018 and the Second Amendment to Sale Agreement dated September 24, 2018, the “Sale Agreement”), as seller, with N&B Energy as purchaser, which entity is affiliated with Richard N. Azar II, the Company’s former Chief Executive Officer and former director, and Donnie B. Seay, the Company’s former director. Pursuant to the Sale Agreement, the Company agreed to sell to N&B Energy a substantial portion of its assets, including all of the assets acquired pursuant to the terms of the December 31, 2015 Asset Purchase Agreement and certain other more recent acquisitions, other than the production payment and overriding royalty interests discussed below (the “Disposed Assets”). In consideration for the Disposed Assets, N&B Energy agreed to pay the Company $100 in cash, to assume all of the Company’s obligations and debt owed under its outstanding loan agreement with IBC Bank, which had a then outstanding principal balance of approximately $36.9 million, and certain other parties agreed to enter into a settlement agreement. The transaction closed in September 2018.

 

Properties and Equipment

 

Property and equipment are summarized as follows:

 

   At September 30,  At March 31,
   2019  2019
       
 Furniture and fixtures  $9,847   $1,570 
 Information systems   48,392    —   
 Construction equipment   2,387,943    —   
 Autos, trucks and trailers   2,789,017    —   
Total cost   5,235,199    1,570 
 Accumulated depreciation   (3,234,448)   (696)
Net book value  $2,000,751   $874 

 

Additions and Depreciation for Property and Equipment

 

During the three and six months ended September 30, 2019, the Company incurred costs of $628,087 for purchases of property and equipment. Additionally, the Company recorded $65,000 and $65,130 of depreciation during the three and six months ended September 30, 2019, respectively.

 

15

 

 

NOTE 5 – ASSET RETIREMENT OBLIGATIONS

 

The following table presents the reconciliation of the beginning and ending aggregate carrying amounts of long-term legal obligations associated with the future retirement of oil and natural gas properties for the six-month periods ended September 30, 2019 and 2018, respectively.

 

   2019   2018 
Carrying amount at beginning of year  $303,809   $979,159 
Accretion   1,000    4,725 
Dispositions       (699,536)
Revisions of previous estimates   (41,017)   48,099 
Carrying amount at end of year  $263,792   $985,365 

 

Camber has no short-term obligations as of September 30, 2019 and March 31, 2019.

 

NOTE 6 – NOTES PAYABLE AND DEBENTURE

 

Notes payable or debenture outstanding as of September 30, 2019 or March 31, 2019 are comprised of:

 

    September 30, 2019     March 31, 2019  
             
Promissory note to Willbros United States Holdings, Inc., interest rate of 5% due July 30, 2019 and 2020, maturing July 30, 2021, secured by the assets of the Company, interest incurred of $13,422 for the three and six-month period ended September 30, 2019, respectively   $ 1,175,000     $  
Equipment note payable to third party, original balance of $566,455, due in monthly installments of $16,952, interest rate of 4.9%, maturing July 25, 2022, secured by the equipment purchased, interest incurred of $4,566 for the three and six-month periods ended September 30, 2019, respectively                 532,873        
Equipment note payable to third party, original balance of $109,140, due in monthly installments of $3,420, interest rate of 8%, maturing December 30, 2021, secured by the equipment purchased, interest incurred of $1,639 for the three and six-month periods ended September 30, 2019, respectively                    84,252        
Less: current maturities     (216,721 )      
Total   $ 1,575,404     $  

 

Debenture

 

On October 31, 2018, an accredited institutional investor, Discover Growth Fund (“Discover”) converted the entire $495,000 remaining balance of principal owed under the terms of a convertible debenture, into an aggregate of 642 shares of common stock, including 5 shares of common stock issuable upon conversion of the principal amount thereof (at a conversion price of $101,562.50 per share), and 637 shares in connection with conversion premiums due thereon (at an initial conversion price, as calculated as provided in such debenture, of $1,912.50 per share). A total of 80 of such shares were issued to Discover in connection with the initial conversion and the remaining shares were held in abeyance subject to Discover’s 9.99% ownership limitation, to be issued from time to time, at the request of Discover. Subsequent to the October 31, 2018 conversion date, Discover was due an additional 38,116 shares of common stock in connection with true ups associated with the original issuance, as a result of the conversion price of the conversion premiums falling to $31.25 per share pursuant to the terms of the convertible debenture. Through September 30, 2019, all but 276 of the shares had been issued, which shares were held in abeyance subject to Discover’s 9.99% ownership limitation, to be issued from time to time, at the request of Discover.

 

16

 

 

Loan Agreement with IBC

 

The Company recognized approximately $460,000 in accrued interest as of September 30, 2018 related to its note with IBC Bank which was assumed by certain third parties on September 26, 2018, as discussed above under “NOTE 2 – Liquidity and Going Concern Considerations”.

 

NOTE 7 – DERIVATIVE LIABILITY

 

The Company has determined that certain warrants the Company has issued contain provisions that protect holders from future issuances of the Company’s common stock at prices below such warrants’ respective exercise prices and these provisions could result in modification of the warrants’ exercise price based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The warrants granted to Ironman PI Fund II, LP contain anti-dilution provisions that provide for a reduction in the exercise price of such warrants in the event that future common stock (or securities convertible into or exercisable for common stock) is issued (or becomes contractually issuable) at a price per share (a “Lower Price”) that is less than the exercise price of such warrant at the time. The amount of any such adjustment is determined in accordance with the provisions of the warrant agreement and depends upon the number of shares of common stock issued (or deemed issued) at the Lower Price and the extent to which the Lower Price is less than the exercise price of the warrant at the time. The warrants expired on April 21, 2019.

 

Activities for derivative warrant instruments during the six months ended September 30, 2019 and 2018 were as follows: 

 

    2019     2018  
Carrying amount at beginning of period   $ 5     $ 5  
Change in fair value     (5 )      
Carrying amount at end of period   $     $ 5  

 

The fair value of the derivative warrants was calculated using the Black-Scholes pricing model. Variables used in the Black Scholes pricing model as of September 30, 2018 include (1) discount rate of 1.91%, (2) expected term of 0.81 years, (3) expected volatility of 145.70%, and (4) zero expected dividends.

 

NOTE 8 – COMMITMENTS AND CONTINGENCIES

 

During March and April 2018, the Company purchased certain equipment pursuant to capital leases. The effective borrowing rate was approximately 35%, and all obligations were due by December 2018. In conjunction with the assignment of the liabilities owed under the IBC Bank loan agreements to N&B Energy in September 2018, as discussed under “NOTE 2 – Liquidity and Going Concern Considerations” – “Assumption Agreement” all of the remaining obligations were assumed by the purchaser. 

 

The Company has the usual liability of contractors for the completion of contracts and the warranty of its work. In addition, the Company acts as prime contractor on a majority of the projects it undertakes and is normally responsible for the performance of the entire project, including subcontract work. Management is not aware of any material exposure related thereto which has not been provided for in the accompanying consolidated financial statements.

 

Lineal Industries executed a consulting agreement with its CEO in January 2019 who will be paid monthly fees of $10,000 for a period of three years. Additionally, the interim CEO of the subsidiary received a success fee of $250,000 in cash and $250,000 in value of shares of stock of Camber from the Lineal Members’ shares received pursuant to the Merger, upon completion of the Merger described in “NOTE 1 – General”. In the event of closing of a purchase or sale transaction as defined in the agreement, the interim CEO of the subsidiary may receive a fee of 4% of the value of the transaction, up to a value of $5,000,000 and 2% of the value of the transaction after $5,000,000 of value. Additionally, effective August 1, 2019, the Company agreed to provide Lineal consideration sufficient to allow Lineal to pay the interim CEO of the subsidiary a monthly fee of $15,000 through December 31, 2019, for advisory services related to acquisitions being considered by the Company and Lineal.

 

17

 

 

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

 

MidFirst 

 

In October 2018, the Company entered into a confidential settlement agreement with MidFirst Bank, its prior landlord, and settled all claims relating to the Company’s prior office space lease.  

 

Maranatha Oil Matter

 

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

 

Petroglobe Energy Holdings, LLC and Signal Drilling, LLC

 

In March 2019, Petroglobe Energy Holdings, LLC and Signal Drilling, LLC 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 Energy Holdings, LLC and Signal Drilling, LLC, 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. The Company denies the plaintiffs’ claims and intends to vehemently defend itself against the allegations and seek damages for the counter claims.

 

Apache Corporation

 

In December 2018, Apache Corporation (“Apache”) sued the Company, Sezar Energy, L.P., and Texokcan Energy Management Inc., in the 129th Judicial District Court of Harris County, Texas (Cause 2018-89515). Apache alleged causes of action for Breach of Contract, Money Had & Received and Conversion, relating to amounts Apache alleged it was owed under a joint operating agreement. Apache is seeking $586,438 in actual damages, exemplary damages, pre- and post-judgment interest, court costs and other amounts which it may be entitled. The Company has filed a general denial to the claims and asserted the affirmative defense of failure to mitigate. The parties are currently moving towards discovery. The Company denies Apache’s claims and intends to vehemently defend itself against the allegations.

 

18

 

 

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 Sale Agreement for true ups and post-closing adjustments associated therewith. The petition seeks amounts owed, pre- and post-judgment interest and attorney’s fees. The Company denies N&B Energy’s claims, believes it is owed approximately $400,000 related to the Sale Agreement and intends to vehemently defend itself against the allegations and claims and seek counterclaims. The Company is currently discussing settling the matter with N&B Energy through binding arbitration.

 

NOTE 9 – REVENUE FROM CONTRACTS WITH CUSTOMERS

 

Disaggregation of Revenue from Contracts with Customers

 

Oil and Gas Contracts

 

The following table disaggregates revenue by significant product type for the three and six months ended September 30, 2019 and 2018: 

 

   Three Months Ended   Six Months Ended 
   September 30,   September 30, 
   2019   2018   2019   2018 
Oil sales  $66,786   $181,952   $160,485   $382,021 
Natural gas sales   12,343    266,430    19,547    739,943 
Natural gas liquids sales   13,624    361,084    34,072    1,382,198 
Total oil and gas revenue from customers  $92,753   $809,466   $214,104   $2,504,162 

 

Construction and Service Contracts

 

For the contracts entered into, there is a similar number of performance obligations, and in most cases, the Company has determined that the method of revenue recognition for these contracts is the same as the Company previously utilized considering different elements, such as variable consideration, when evaluating their transaction prices. The Company ultimately determined that over time revenue recognition was appropriate via the percentage-of-completion method, based on time incurred, or as units are produced, in accordance with ASC 606-10-25-27 as the Company satisfies its performance obligations over time. 

 

Contract cost and recognized income not yet billed on uncompleted contracts arise when recorded revenues for a contract exceed the amounts billed under the terms of the contracts. Contract billings in excess of cost and recognized income arise when billed amounts exceed revenues recorded. Amounts are billable to customers upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of the contract. 

 

As of September 30, 2019, the Company had approximately $2.9 million in unsatisfied performance obligations under its executed fixed price service contracts in progress. The Company expects to satisfy these performance obligations within the next 12 months.

 

19

 

 

Contract cost and recognized income not yet billed and related amounts billed as of September 30, 2019 were as follows:  

 

    September 30, 2019  
       
Contract cost and recognized income not yet billed   $ 1,771,739  
Contract billings in excess of cost and recognized income     (90,082 )
 Net amount of cost and estimated earnings on uncompleted contracts in excess of billings   $ 1,681,657  

 

NOTE 10 – RETIREMENT PLANS

 

        The Company, through Lineal, contributes to a multi-employer defined benefit pension plan under the terms of a collective-bargaining agreement that cover certain union-represented employees. Currently, the Company has no intention to withdraw from the plan. The risks of participating in a multi-employer plan are different from single-employer plans in the following aspects:

 

  a. Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.

 

  b. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

 

  c. If a participating employer chooses to stop participating in a multiemployer plan, the employer may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

 

The Company receives an annual report disclosing the performance of the multiemployer plan and its ability to meet its benefit requirements based on its performance in the prior year. As of the latest report dated December 31, 2018, the multi-employer plan had adequate assets to pay benefits as they become due. The plan has not provided any updated information in 2019 but the Company is not aware of any significant occurrences since the date of the report that would impact its employees as of September 30, 2019 and March 31, 2019. Additionally, the Company is unable to provide additional quantitative information on the plan because the Company is unable to obtain that information without undue cost and effort.

 

The Employee Retirement Income Security Act of 1974 (“ERISA”), as amended by the Multi-Employer Pension Plan Amendments Act of 1980, imposes certain liabilities upon employers who are contributors to a multiemployer plan in the event of the employer’s withdrawal from, or upon termination of, such plan. The plans do not maintain information on the net assets and actuarial present value of the plans’ unfunded vested benefits allocable to the Company. As such, the amount, if any, for which the Company may be contingently liable, is not ascertainable at this time.

 

The following table contains a summary of plan information relating to the Lineal’s participation in the multiemployer pension plan, including Lineal’s contributions for the last two calendar years, status of the multiemployer plan, and whether the plan is subject to a funding improvement, rehabilitation plan or contribution surcharges.

 

Fund   EIN/ Plan
Number
  PPA
Zone
Status
  Plan Year
End for
Zone
Status
  Subject to
Funding
Improvement/
Rehabilitation
Plan
  2018
Contributions
(in thousands)
    2017
Contributions
(in thousands)
    Sur-charge Imposed   Expiration
Date of
Collective
Bargaining
Agreement
Pennsylvania Heavy and Highway Contractors Pension Fund   23-6531755/ 001   Green (Greater than 80% funded)   12/31/2018   No   $ 1,985     $ 2,085     No   12/31/2021
                                         

20

 

 

NOTE 11 – MERGER AGREEMENT

 

On July 8, 2019 (the “Closing Date”), the Company entered into, and closed the transactions contemplated by, a Plan of Merger, by and between the Company, Camber Energy Merger Sub 2, Inc., the Company’s newly formed wholly-owned subsidiary, Lineal, and the Lineal Members. Pursuant to the Plan of Merger, the Company acquired 100% of the ownership of Lineal from the Lineal Members in consideration for newly issued shares of Series E Redeemable Convertible Preferred Stock and Series F Redeemable Preferred Stock, as described in greater detail below.

 

In connection with the Plan of Merger, the Company entered into several other agreements, including (a) a Security Exchange Agreement dated July 8, 2019 (the “Exchange Agreement”), by and between the Company and Discover; (b) a Termination Agreement dated July 8, 2019, by and between the Company and Discover Growth; and (c) a Funding and Loan Agreement dated July 8, 2019, by and among the Company, Lineal, and certain of the Lineal Members who also acquired shares of the Company’s preferred stock as a result of the Merger (the “Funding Agreement”), which provided for the Company to loan $1,050,000 to Lineal, which loan was evidenced by a Promissory Note entered into by Lineal, as borrower, in favor of the Company, as lender, dated July 8, 2019 (the “Note”).

 

Also as part of the Merger, the Company designated three new series of preferred stock, (1) Series D Convertible Preferred Stock (the “Series D Preferred Stock” and the certificate of designations setting forth the rights thereof, the “Series D Designation”); (2) Series E Redeemable Convertible Preferred Stock (the “Series E Preferred Stock” and the certificate of designation setting forth the rights thereof (the “Series E Designation”); and (3) Series F Redeemable Preferred Stock (the “Series F Preferred Stock” and the certificate of designation setting forth the rights thereof, the “Series F Designation”, and the Series E Preferred Stock and the Series F Preferred Stock, collectively, the “Series E and F Preferred Stock”). Additionally, with the approval of the holders thereof, the Company amended and restated the designation of its Series C Redeemable Convertible Preferred Stock (the “Series C Preferred Stock” and the amended and restated designation setting forth the rights thereof, the “Series C Designation”). All of the preferred stock and related designations are described in greater detail below.

 

The result of the Plan of Merger, Series D Designation and Series E Designation, will be that, effective upon the date that the stockholders of the Company have approved the Plan of Merger and issuance of shares in connection therewith (the “Stockholder Approval” and such date of Stockholder Approval, the “Stockholder Approval Date”), and subject to certain closing conditions, (a) the common stock holders of the Company will hold between 6% and 6.67% of the Company’s fully-diluted capitalization (depending on certain factors); (b) Discover will hold Series D Preferred Stock convertible into 26.67% of the Company’s fully-diluted capitalization, subject to the terms of the Series D Preferred Stock; and (c) the Lineal Members, who hold the Series E Preferred Stock, will have the right to convert such Series E Preferred Stock, subject to the terms thereof, as discussed below, into 66.67% of the Company’s fully-diluted capitalization, or 70%, subject to certain factors. In the event the Stockholder Approval Date does not occur, the Series E Preferred Stock will not be convertible, the Series C Preferred Stock will not be exchanged for Series D Preferred Stock, no Series D Preferred Stock will be outstanding and as a result, the terms of the Series C Preferred Stock, as set forth in the Series C Designation, will continue to apply. Additionally, in the event the Company completes a further acquisition/combination prior to Stockholder Approval, the post-Stockholder Approval ownership percentages above may be subject to modification with the mutual approval of the preferred stockholders and the Company.

 

Pursuant to the Plan of Merger, Merger Sub merged with and into Lineal, with Lineal continuing as the surviving entity in the Merger and as a wholly-owned subsidiary of the Company.

 

21

 

 

 The Funding Agreement required the Company, promptly following the Closing Date, to deposit into a newly opened and dedicated bank account, $4,000,000 (the “Deposit”), which was intended to be used for acquisitions. The disbursement of the Deposit from the account is required to be approved by (i) a person designated by the holders of the Series E Preferred Stock; and (ii) the Company. As of September 30, 2019, a total of $4,000,000 remained of the Deposit.

 

The Funding Agreement also required the Company to fund $1,050,000 in immediately available funds to Lineal (the “Loan”). The Loan was documented by a promissory note and the Loan was made on July 9, 2019.

 

In the event the Stockholder Approval has been received, the Note and all principal and interest due thereunder will be automatically forgiven by the Company.

 

On July 3, 2019, the Company entered into an Indemnification Agreement with each of its then officers and directors.

 

The terms of the Plan of Merger, and the designations of the preferred stock are described in greater detail in the Company’s Current Report on Form 8-K and Form 8-K/A filed with the Securities and Exchange Commission on July 9, 2019 and July 10, 2019, respectively.

 

The Plan of Merger contained certain post-closing requirements. Those include:

 

-Requiring the Company to prepare and file a proxy statement on Schedule 14A with the Securities and Exchange Commission (“SEC”) in order to seek shareholder approval of the issuance of the shares of common stock upon conversion of the Series E Preferred Stock, the terms of the Plan of Merger and such other matters that the holders of the Series E Preferred Stock may reasonably request and/or that are required to be approved by the shareholders of the Company pursuant to applicable NYSE American rules and regulations in accordance with applicable rules and requirements of the SEC and the NYSE American at a duly called meeting of shareholders of the Company (the “Shareholder Meeting”) which Shareholder Approval shall be received prior to November 22, 2019, or if a Lineal Transaction (defined below) has not occurred prior to September 23, 2019, a date which is 60 days after the closing of a Lineal Transaction, or such other later date which is approved by the Company and a majority in interest of the Series E Preferred Stock (a “Majority Interest”). “Lineal Transaction” means an acquisition by Lineal of assets or securities which results in the Company, immediately after such acquisition, being able to meet the initial listing requirements of the NYSE American.

 

-Notwithstanding the above, the Shareholder Approval is not to be received, and the Shareholder Meeting shall be adjourned, extended, delayed, abandoned or re-scheduled, if the NYSE American determines that a “back-door listing”/“reverse merger” is deemed to occur upon receipt of such Shareholder Approval, until or unless the Company, upon receipt of the Shareholder Approval (or immediately prior to such anticipated date of Shareholder Approval), in the reasonable determination of the Company, qualifies for initial listing of the Company’s common stock on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE American.

 

-After the Closing Date, until the Shareholder Approval is received, the executive officers and directors of Company, shall not, in aggregate, be paid, or accrue, compensation in excess of $78,333 per month, not including the reimbursement of certain expenses, unless such compensation is approved with the consent of a Majority Interest.

 

The consideration paid for the acquisition was as follows:

 

Series E Preferred Shares  $18,701,000 
Series F Preferred Shares   1,417,000 
   Total consideration  $20,118,000 

 

22

 

 

The Series E Preferred Shares and the Series F Preferred Shares were determined to be contingently redeemable preferred stock, and are accounted for as mezzanine equity. The initial fair value of the instruments was determined using an income valuation approach to estimated cash flows of the acquired business, analysis of the terms and rights of each class of equity instrument issued by the Company and an assessment of the probability of the various scenarios that could occur depending on the outcome of the Stockholder Approval vote, and the impact each scenario would have on the capital structure of the Company. Subsequent to the date of the Merger, the instruments will be assessed to determine whether it is probable of the instruments being redeemed as a result of contingencies being resolved. When it is deemed probable, the fair value will be adjusted to the new estimate of fair value in that period.

 

The allocation of the preliminary purchase price to the assets and liabilities acquired from the Merger is based on the current values of the assets and liabilities of Lineal as of the Merger date on July 8, 2019 and are as follows:

 

Cash  $449,763 
Accounts receivable   2,776,477 
Deferred tax assets   34,000 
Cost in excess of billings   944,250 
Property and equipment   1,436,920 
Right of use asset – operating leases   913,396 
Other current assets and deposits   60,132 
Goodwill   17,992,118 
Accounts payable – trade   (400,889)
Accrued and other liabilities   (893,013)
Operating lease liabilities   (913,396)
Finance lease liabilities   (313,472)
Loan Payable – shareholder   (492,337)
Notes payable   (1,475,949)
   Net assets acquired  $20,118,000 

 

The total purchase price is allocated to the acquired tangible and intangible assets and liabilities of Lineal based on their estimated fair values as of the purchase closing date. The excess of the purchase price over the fair value of assets and liabilities acquired, if any, is allocated to goodwill. The purchase price allocation above is preliminary, as the Company has not completed the assessment of the fair value of assets acquired, liabilities assumed and the identification of any intangible assets. The Company expects to finalize the purchase price allocation within one year of the acquisition date, which may result in material changes to the preliminary values recognized above.

 

The results of Lineal are included in the consolidated financial statements effective July 8, 2019. Revenue and income from operations for the period since the acquisition date through September 30, 2019 were $6,285,535 and $1,323,471, respectively. The Company incurred transaction costs of $567,000 related to the acquisition.

 

The following schedule contains pro-forma consolidated results of operations for the three and six months ended September 30, 2019 and 2018 as if the acquisition occurred on April 1, 2018. The pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisition had taken place on April 1, 2018, or of results that may occur in the future.

 

   Three Months Ended September 30, 2019   Three Months Ended September 30, 2018   Six Months Ended September 30, 2019   Six Months Ended September 30, 2018 
Revenue  $6,726,043   $5,868,154   $12,264,466   $10,234,586 
Operating income (loss)   (625,426)   23,374,978    (2,314,344)   19,433,893 
Net income (loss)   (312,403)   22,757,458    (1,975,521)   17,821,311 
Income (loss) per common share - basic  $(4.47)  $16,946.73   $(22.15)  $20,333.50 
Income (loss) per common share - diluted  $(4.47)  $5,026.74   $(22.15)  $4,205.84 

 

23

 

 

NOTE 12 - INCOME TAXES

 

The Company has estimated that its effective tax rate for U.S. purposes will be zero percent for the 2020 and 2019 fiscal years as a result of net losses and a full valuation allowance against the net deferred tax assets. Consequently, the Company has recorded no provision or benefit for income taxes for the three months ended September 30, 2019 and 2018. The tax liability of $3,000 as shown on the balance sheet as of September 30, 2019, relates to the Company’s potential Oklahoma franchise tax liability and is not related to income tax.

 

NOTE 13 – STOCKHOLDERS’ EQUITY (DEFICIT)

 

Common Stock

 

On April 20, 2018, Discover was issued 5 shares of common stock as a result of true-ups in connection with the August 23, 2017 conversion of $35,000 of the principal amount of the debenture held by Discover.

 

During the quarter ended September 30, 2018, the Company issued a stock dividend on the Series B Preferred Stock consisting of 1 share (with fair value of $15,625 based on the share price at September 30, 2018) of the Company’s common stock. Due to the fact that the Company is in a retained deficit position, the Company recognized a charge to additional paid in-capital of $882 and stock dividends distributable but not issued based on the par value of the common stock issued. During the quarter ended September 30, 2018, the Company issued 1 share to settle a stock dividend accrued on Series B Preferred Stock.

 

On November 15, 2018, the Company entered into a consulting agreement with Regal Consulting, an investor relations firm, pursuant to which the firm agreed to provide the Company investor relations and consulting services for a period of six months, for monthly consideration of $28,000 and 7 restricted shares of the Company’s common stock. In January 2019, the Company issued 13 shares of restricted common stock to Regal Consulting for the months of November and December 2018, which shares were issued during the year ended March 31, 2019.  On February 13, 2019, and effective on January 31, 2019, the Company entered into a First Amendment to the Consulting Agreement previously entered into with Regal Consulting. Pursuant to the First Amendment, the parties agreed to expand the investor relations services required to be provided by Regal Consulting under the agreement in consideration for $50,000 per month and 40 restricted shares of common stock per month (the “Regal Shares”)(which are fully-earned upon issuance) during the term of the agreement, and agreed to extend the term of the agreement until October 1, 2019 (unless the Company completes an acquisition or combination prior to such date). All of the Regal Shares had been earned and issued to Regal as of September 30, 2019. Subsequent to September 30, 2019, the Company entered into a settlement with Regal as described in greater detail below under “NOTE 20 – Subsequent Events”.

 

On February 13, 2019, the Company entered into a letter agreement with SylvaCap Media (“SylvaCap”), pursuant to which SylvaCap agreed to act as the Company’s non-exclusive digital marketing service provider in consideration for an aggregate of 480 shares of restricted common stock (the “SylvaCap Shares”), which are fully-earned upon their issuance, and $50,000 per month during the term of the agreement, which ends on November 12, 2019 (unless the Company completes an acquisition or combination prior to such date) or upon termination by either party for cause. The Company also agreed to provide SylvaCap piggy-back registration rights in connection with the SylvaCap Shares and to pay SylvaCap $6,250 every three months as an expense reimbursement. The total value of the restricted shares of common stock due of $261,540 was accrued in common stock payable as of March 31, 2019. The 480 SylvaCap shares were issued in May 2019 and there are no shares due as of September 30, 2019.

 

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On July 9, 2019, Discover converted 1 share of the Series C Preferred Stock into a total of 490,839 shares of common stock. A total of 4,300 of such shares were issued to Discover in connection with the initial conversion, and additional shares were issued subsequent thereto, except for 426,244 shares which were held in abeyance subject to Discover’s 9.99% ownership limitation, to be issued from time to time, at the request of Discover, of which all shares had been issued through September 30, 2019.

 

On July 19, 2019 and August 21, 2019, Discover Growth Fund LLC, which purchased shares of Series C Preferred Stock from us in December 2018 (“Discover Growth”) converted 2 shares of the Series C Preferred Stock into a total of 981,678 shares of common stock (489,839 shares on each conversion date). All but 41,823 of the shares had been issued to Discover Growth as of September 30, 2019, which shares were held in abeyance subject to Discover Growth’s 9.99% ownership limitation, to be issued from time to time, at the request of Discover Growth subsequent to September 30, 2019.

 

From April 1, 2019 to September 30, 2019, Discover was issued 29,073 shares of common stock as true-ups in connection with the October 31, 2018 conversion of the $495,000 remaining balance of principal owed under the terms of a convertible debenture.

 

Series A Convertible Preferred Stock 

 

As of September 30, 2019 and March 31, 2019, the Company had no Series A Convertible Preferred Stock issued or outstanding.  

 

Series B Redeemable Convertible Preferred Stock  

 

As of September 30, 2019 and March 31, 2019, there were 0 and 44,000 shares of Series B Preferred Stock outstanding, respectively, which have the following features:

 

  a liquidation preference senior to all of the Company’s common stock;
  a dividend, payable quarterly, at an annual rate of six percent (6%) of the original issue price until such Series B Preferred Stock is no longer outstanding either due to conversion, redemption or otherwise; and
  voting rights on all matters, with each share having 1/781,250 of one vote.

 

During the quarter ended September 30, 2018, the Company issued a stock dividend on the Series B Preferred Stock consisting of 1 share of the Company’s common stock as described above.

 

On May 15, 2019, the Company entered into a conversion agreement with the then holder of all 44,000 shares of the Company’s then outstanding Series B Preferred Stock. Pursuant to the Conversion Agreement, all of the Series B Preferred Stock was converted into 1 share of the Company’s common stock pursuant to the stated terms of such Series B Preferred Stock, in consideration for $25,000 in cash due at the time of the parties entry into the agreement, which payment was made during the three months ended September 30, 2019. The holder also provided the Company a release in connection with certain of his rights under the Series B Preferred Stock (including any and all accrued and unpaid dividends) and certain other matters.

 

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Series C Redeemable Convertible Preferred Stock

 

During the three and six months ended September 30, 2018, the Company sold 735 and 945 shares of Series C Preferred Stock pursuant to the terms of an October 2017 Stock Purchase Agreement, for total consideration of $7 million and $9 million, respectively. As of September 30, 2019 and 2018, there were 2,302 and 1,683 shares of Series C Preferred Stock outstanding, respectively.

 

During the three and six months ended September 30, 2018, Discover converted 143 and 394 shares of the Series C Preferred Stock with a face value of $1.43 million and $3.94 million, respectively, and a total of 1,837 shares and 2,169 shares of common stock were issued, respectively, which includes additional shares for conversion premiums and true ups in connection with those conversions through September 30, 2018.

 

As of September 30, 2019 and March 31, 2019, the Company accrued common stock dividends on the Series C Preferred Stock based on the then 34.95% premium dividend rate. The Company recognized a total charge to additional paid-in capital and stock dividends distributable but not issued of $1,893,886 and $896,182 related to the stock dividend declared but not issued for the quarters ended September 30, 2019 and 2018, respectively. The Company recognized a total charge to additional paid-in capital and stock dividends distributable but not issued of $3,771,941 and $1,595,178 related to the stock dividend declared but not issued for the six months ended September 30, 2019 and 2018, respectively.

 

As discussed above under “Common Stock”, during the three and six months ended September 30, 2019, Discover and Discover Growth converted 1 and 2 shares of the Series C Preferred Stock with a face value of $10,000 and $20,000, respectively, and a total of 490,839 shares and 981,678 shares of common stock were issued, respectively, which includes additional shares for conversion premiums. As of September 30, 2019, a total of 468,067 shares were due to Discover and Discover Growth, which shares were held in abeyance subject to Discover’s and Discover Growth’s 9.99% ownership limitation, to be issued from time to time, at the request of such parties.

 

Series E Redeemable Convertible Preferred Stock and Series F Convertible Preferred Stock

 

As described above in “NOTE 1 – General” and “NOTE 11 – Merger Agreement”, on the Closing Date, pursuant to the Plan of Merger, the Company acquired 100% of the ownership of Lineal from the Lineal Members in consideration for 1,000,000 of the newly issued shares of Series E Preferred Stock and 16,750 of the newly issued shares of Series F Preferred Stock.

 

Warrants

 

The following is a summary of the Company’s outstanding warrants at September 30, 2019:

 

Warrants     Exercise     Expiration     Intrinsic Value at  
Outstanding     Price ($)     Date     September 30, 2019  
  1 (1)     1,171,875.00       April 26, 2021     $  
  3 (2)     195,412.50       September 12, 2022        
  32 (3)     12,187.50       May 24, 2023        
  36                     $  

 

  (1) Warrants issued in connection with the sale of convertible notes. The warrants were exercisable on the grant date (April 26, 2016) and remain exercisable until April 26, 2021.
  (2) Warrants issued in connection with the Initial Tranche of the funding from Vantage. The warrants were exercisable on the grant date (September 12, 2017) and remain exercisable until September 12, 2022.
  (3) Warrants issued in connection with the Severance Agreement with Richard N. Azar II. The warrants were exercisable on the grant date (May 25, 2018) and remain exercisable until May 24, 2023.

 

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NOTE 14 – SHARE-BASED COMPENSATION

 

Camber measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award over the vesting period.

 

Stock Options

 

As of September 30, 2019 and March 31, 2019, the Company had 2 stock options outstanding with a weighted average exercise price of $40,429,700.

 

Of the Company’s outstanding options, no options were exercised or forfeited during the six months ended September 30, 2019. Additionally, no stock options were granted during the six months ended September 30, 2019. Compensation expense related to stock options during the six-month periods ended September 30, 2019 and 2018 was $0.

 

Options outstanding and exercisable at September 30, 2019 and March 31, 2019 had no intrinsic value, respectively. The intrinsic value is based upon the difference between the market price of Camber’s common stock on the date of exercise and the grant price of the stock options.

 

As of September 30, 2019 and March 31, 2019, there was no remaining unrecognized share-based compensation expense related to all non-vested stock options. 

 

Options outstanding and exercisable as of September 30, 2019:

 

Exercise     Remaining     Options     Options  
Price ($)     Life (Yrs.)     Outstanding     Exercisable  
  40,429,700       1.0       2       2  
          Total       2       2  

 

NOTE 15 – INCOME (LOSS) PER COMMON SHARE

 

The calculation of earnings (loss) per share for the three and six months ended September 30, 2019 and 2018 was as follows:

 

   Three Months Ended  Six Months Ended
   September 30,  September 30,
   2019  2018  2019  2018
Numerator:            
Net Income (loss)  $(276,964)  $23,228,366   $(1,564,562)  $19,716,269)
Less preferred dividends   (1,893,886)   (896,182)   (3,771,941)   (1,595,178)
Net income (loss) attributable to common stockholders  $(2,170,850)  $22,332,184   $(5,336,503)  $18,121,091 
                     
Denominator                    
Weighted average share – basic   493,300    1,290    259,432    798 
                     
Dilutive effect of common stock equivalents                    
Options/warrants   —      —      —      1 
Convertible debenture   —      641    —      641 
Preferred C shares   —      2,418    —      2,418 
                     
Denominator                    
Total Weighted average shares – diluted   493,300    4,349    259,432    3,858 
Income (loss) per share – basic  $(4.40)  $17,311.77   $(20.57)  $22,708.13 
Income (loss) per share – diluted  $(4.40)  $5,135.02   $(20.57)  $4,697.02 

 

  

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For the three and six months ended September 30, 2019 and 2018, the following share equivalents related to convertible debt and warrants to purchase shares of common stock were excluded from the computation of diluted net income (loss) per share as the inclusion of such shares would be anti-dilutive.

 

   Three Months Ended  Six Months Ended
   September 30,  September 30,
   2019  2018  2019  2018
Common Shares Issuable for:            
Convertible Debt   276    38,758    276    38,758 
Options and Warrants   38    182    38    182 
Series C Preferred Shares   1,130,378,205    72,622,028    1,130,378,205    72,622,028 
  Total   1,130,378,519    72,660,968    1,130,378,519    72,660,968 

  

NOTE 16 – SEGMENT AND GEOGRAPHIC DATA

 

The Company operates through two lines of business, or operating segments: exploration and production and oil and gas services, which market to different sets of customers. Each line of business represents unique products and suppliers, and each line of business focuses on specific end markets within its industry based on a variety of factors, including supplier or customer opportunities, expected growth and prevailing economic conditions. The accounting policies used to account for transactions in each of the lines of business are the same as those used to account for transactions at the corporate level.

 

A brief description of each segment follows:

 

Exploration and Production. The exploration and production segment’s revenue is comprised entirely of revenue from exploration and production activities. The Company’s oil is sold primarily to marketers, gatherers, and refiners. Natural gas is sold primarily to interstate and intrastate natural-gas pipelines, direct end-users, industrial users, local distribution companies, and natural-gas marketers. NGLs are sold primarily to direct end-users, refiners, and marketers. 

 

Oil and Gas Services. The oil and gas services segment was acquired in July 2019, with the acquisition of Lineal (see “NOTE 11 – Merger Agreement”). The oil and gas services line of business is a provider of upstream, midstream, and utilities pipeline maintenance, specialty construction and integrity services. All of the revenue generated from the oil and gas services line of business is currently generated from utilities pipeline maintenance contracts. As such no further disaggregation of revenue information is provided.

 

The Chief Executive Officer is the Chief Operating Decision Maker. The Chief Operating Decision Maker reviews operating results in order to make decisions, assess performance and allocate resources to each line of business. In order to maintain the focus on-line of business performance, certain expenses are excluded from the line of business results utilized by the Company’s Chief Operating Decision Maker in evaluating line of business performance. These expenses include depreciation and amortization, certain selling, general and administrative expense and corporate items including transaction related costs, interest and income tax expense. These items are separately delineated to reconcile to reported net income (loss). The Company had a concentration of business with certain customers as set forth in “NOTE 3 – Summary of Significant Accounting Policies” – “Concentration of Credit Risk”. There were no Intersegment revenues.

 

Certain assets are aggregated at the line of business level. The assets attributable to the Company’s lines of business, that are reviewed by the Chief Operating Decision Maker, consist of trade accounts receivable, inventories, intangible assets, goodwill and any specific assets that are otherwise directly associated with a line of business. The Company’s inventory of packaging materials and containers, as well as property, plant and equipment, are generally not allocated to a line of business and are included in unallocated assets.

 

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Summarized financial information relating to the Company’s lines of business is as follows:

 

   Three Months Ended September 30, 2019   Three Months Ended September 30, 2018   Six Months Ended September 30, 2019   Six Months Ended September 30, 2018 
Operating Revenues                    
   Exploration and production  $92,753   $809,466   $214,104   $2,504,162 
   Oil and gas services   6,285,535        6,285,535     
Total operating revenues   6,378,288    809,466    6,499,639    2,504,162 
                     
Operating Income (Loss)                    
   Exploration and production   (103,333)   25,464,808    (112,113)   24,806,220 
   Oil and gas services   1,323,471        1,323,471     
   Corporate   (1,731,815)   (952,201)   (3,064,048)   (2,835,250)
Total operating income (loss)   (511,677)   24,512,607    (1,852,690)   21,970,970 
                     
Interest expense   (37,677)   (1,268,811)   (38,524)   (2,234,107)
Other expense (income), net   272,390    (15,430)   326,652    (20,594)
Net income (loss)  $(276,964)  $23,228,366   $(1,564,562)  $19,716,269 

 

   September 30, 2019   March 31, 2019 
Identifiable assets          
   Exploration and production  $544,005   $803,949 
   Oil and gas services   26,425,656     
   Corporate   4,218,056    7,778,723 
Total assets  $31,187,717   $8,582,672 

 

NOTE 17 – LEASES

 

In February 2016, the FASB issued ASU No. 2016.02 “Leases (Topic 842)”. The new lease guidance supersedes Topic 840. The core principle of the guidance is that entities should recognize the assets and liabilities that arise from leases. Topic 840 does not apply to leases to explore for, or to use, minerals, oil, natural gas and similar nongenerative resources including the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained. In July 2018, the FASB issued “Leases (Topic 842): Targeted Improvements”, which provides entities with and alternative modified transition method to elect not to recast the comparative periods presented when adopting Topic 842. The Company adopted Topic 842 as of April 1, 2019, using the alternative modified transition, for which, comparative periods, including the disclosures related to those periods, are not restated.

 

In addition, the Company elected practical expedients provided by the new standard, and the Company has elected to not reassess its prior conclusions about lese identification, lease classification, and initial direct costs and to retain off-balance sheet treatment of short-term leases (i.e., 12 months or less which do not contain purchase options that the Company is reasonably likely to exercise). As a result of the short-term expedient election, the Company did not have leases that require the recording of a net lease asset and lease liability on the Company’s consolidated balance sheet or have a material impact on consolidated earnings or cash flows as of as of April 1, 2019. Moving forward, the Company will evaluate any new lease commitments for application of topic 842.

 

As part of the Lineal Acquisition, the Company acquired various operating and finance leases for sales and administrative offices, motor vehicles and machinery and equipment. The Company’s leases have remaining lease terms of 1 year to 4 years. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend the lease when it is reasonably certain that the Company will exercise those options. Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance and tax payments. The variable lease payments are not presented as part of the initial Right of Use (“ROU”) asset or lease liability. The Company’s lease agreements do not contain any material restrictive covenants. The Company recognized a right of use asset and operating lease liability of $913,396 as part of the purchase price accounting, based on estimated values at the acquisition date.

 

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The components of lease cost for operating and finance leases for the three and six months ended September 30, 2019 were as follows:

         
Lease Cost 

Three Months Ended

September 30, 2019

  

Six Months Ended

September 30, 2019

 
Operating lease cost  $185,840   $185,840 
Finance lease cost          
Amortization of right-of-use assets   17,476    17,476 
Interest on lease liabilities   5,770    5,770 
Total finance lease cost   23,246    23,246 
Short-term lease cost   350,396    350,396 
Total lease cost  $559,482   $559,482 

 

Supplemental cash flow information related to leases was as follows:

     
Other Lease Information  Six Months Ended September 30, 2019 
Cash paid for amounts included in the measurement of lease liabilities:     
Operating cash flows from operating leases  $185,840 
Operating cash flows from finance leases  $5,770 
Financing cash flows from finance leases  $37,456 

 

The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheet at September 30, 2019:

       
Lease Position September 30, 2019  
Operating Leases    
Operating lease right-of-use assets       
Operating lease liabilities short-term $ 389,857  
Operating lease liabilities long-term 367,406  
Total operating lease liabilities $ 757,263  
   
Finance Leases    
Equipment $ 350,306  
Accumulated depreciation (17,476 )
Net Property $ 332,830  
       
Long-term debt due within one year $      156,284  
Long-Term Debt 119,731  
Total finance lease liabilities $ 276,015  

 

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The Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable.

 

Lease Term and Discount Rate  September 30, 2019 
Weighted-average remaining lease term (years)     
Operating leases   2.1 
Finance leases   2.1 
Weighted-average discount rate     
Operating leases   10.0%
Finance leases   7.8%

 

The following table provides the maturities of lease liabilities at September 30, 2019:

             

Maturity of Lease Liabilities at September 30, 2019

Operating Leases   Finance Leases  
2020 $ 289,084   $ 86,452  
2021 314,078   126,604  
2022 210,747   80,304  
2023 30,896   8,736  
2024    
2025 and thereafter    
Total future undiscounted lease payments   844,805     302,097  
Less: Interest (87,542 ) (26,082 )
Present value of lease liabilities $ 757,263   $ 276,015  

 

At September 30, 2019, the Company had no additional leases which had not yet commenced.

 

In October 2018, the Company entered into a settlement agreement for the unexpired lease term of the Houston office and agreed to pay the landlord $100,000 plus $10,000 per month for each of the next 20 months. In the event that an aggregate of $150,000 was paid by April 15, 2019, in addition to the $100,000 payment made in October 2018, the remaining $50,000 of payments would be forgiven and waived. The Company made the payments prior to March 31, 2019, resulting in no remaining unpaid amounts at March 31, 2019. See also “NOTE 8 – Commitments and Contingencies – Legal Proceedings – MidFirst.

 

Effective August 1, 2018, the Company entered into a month-to-month lease at 1415 Louisiana, Suite 3500, Houston, Texas 77002. The entity providing use of the space without charge is affiliated with the Company’s Chief Financial Officer.

 

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NOTE 18 – SUPPLEMENTAL CASH FLOW INFORMATION

 

Net cash paid for interest and income taxes was as follows for the six months ended September 30, 2019 and 2018:

 

    2019     2018  
 Interest   $ 38,525     $ 842,520  
 Income taxes   $     $  

 

Non-cash investing and financing activities for three months ended September 30, 2019 and 2018 included the following:

 

   Six Months Ended September 30, 
   2019   2018 
Increase in Accounts Payable for Accrued Capital Expenditures  $   $451,543 
Settlement of Common Stock Payable  $331,030   $200,000 
Change in Estimate for Asset Retirement Obligations  $41,017   $48,099 
Stock Dividends Distributable but not Issued  $3,771,941   $1,595,178 
Issuance of Stock Dividends  $3   $2,231 
Conversion of Convertible Notes to Common Stock  $   $142 
Conversion of Preferred Stock to Common Stock  $1,049   $67,588 
Common Stock Issued in Abeyance  $29   $308 

 

NOTE 19   – FAIR VALUE MEASUREMENTS

 

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

 

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

 

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Fair Value Measurements

 

The liabilities and mezzanine equity carried at fair value as of September 30, 2019 and March 31, 2019 were as follows:

 

   September 30, 2019 
   Total   Level 1   Level 2   Level 3 
Liabilities:                
Derivative liability  $   $   $   $ 
                     
Mezzanine Equity:                    
Series E Preferred Stock   18,701,000            18,701,000 
Series F Preferred Stock   1,417,000            1,417,000 
Total liabilities and mezzanine equity at fair value  $20,118,000   $   $   $20,118,000 

 

   March 31, 2019 
   Total   Level 1   Level 2   Level 3 
Liabilities:                
Derivative liability  $5   $   $   $5 
Total liabilities at fair value  $5   $   $   $5 

 

There were no transfers in or out of Level 3 for the six months ended September 30, 2019.

 

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

 

In addition to the financial instruments that are recorded at fair value on a recurring basis, the Company records assets and liabilities at fair value on a non-recurring basis as required by U.S. GAAP. Generally, assets are recorded at fair value on a non-recurring basis as a result of impairment charges or as part of a business combination. As discussed in “NOTE 11 – Merger Agreement”, during the six months ended September 30, 2019, the Company recorded non-recurring fair value measurements related to the Plan of Merger. These fair value measurements were classified as Level 3 within the fair value hierarchy.

 

Additionally, the Series E Preferred Stock and Series F Preferred Stock are considered contingently redeemable preferred stock and are classified as mezzanine equity. The fair value of these instruments was estimated as part of the accounting for the Plan of Merger described in “NOTE 11 – Merger Agreement”. As these instruments are not currently redeemable due to the contingencies not being met, the fair value of the instruments will not be adjusted until it is considered probable that those contingencies will be resolved and that the instruments would be redeemed.

 

NOTE 20 – SUBSEQUENT EVENTS

 

On October 7, 2019, Lineal completed the acquisition of 80% of the outstanding membership interests of Evercon Energy LLC (“Evercon”). Evercon provides pipeline solutions and field services, project management and inspection services, energy infrastructure maintenance, facilities construction, fabrication and heavy civil construction services in and around College Station, Texas. The total purchase price paid for the acquisition was (a) $25,000 in cash at closing and $15,000 in cash per month for the six months following the closing; (b) the assumption of a $100,000 promissory note owed by Evercon to a bank lender (which note was acquired by the Company), and the release of the seller’s personal guaranty of such debt; and (c) the agreement to fund the operating expenses of Evercon, and pay certain expenses of the seller, in an aggregate amount of up to $50,000 per month, for six months following the closing, with the Company having the right to terminate such obligations six months after closing under certain circumstances.

 

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Subsequent to September 30, 2019, the Series C Holders converted 4 shares of Series C Preferred Stock into 1,957,488 shares of common stock of which no shares remained to be issued as of November 18, 2019.

 

On October 15, 2019, the Company entered into a Settlement and Mutual Release Agreement (the “Release”) with Regal Consulting, LLC (“Regal”), pursuant to which it agreed to settle and terminate the consulting agreement with Regal on November 15, 2018, as amended on February 13, 2019. Specifically, the Company agreed to issue Regal 1,514 shares of the Company’s restricted common stock and to pay Regal $17,500 in consideration for agreeing to terminate the agreement. The Company and Regal also provided each other mutual releases in connection with the Release.  

 

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

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally located in the material set forth below under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” but may be found in other locations as well. For a more detailed description of the risks and uncertainties involved, the following discussion and analysis should be read in conjunction with management’s discussion and analysis contained in Camber’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019, as filed with the SEC on July 1, 2019, and related discussion of our business and properties contained therein.

 

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

 

  the availability of funding and the terms of such funding;
     
  our ability to integrate and realize the benefits from future acquisitions that we may complete;
     
  significant dilution caused by the conversion of Series C Preferred Stock into common stock, as well as downward pressure on our stock price as a result of the sale of such shares;
     
  our growth strategies;
     
  anticipated trends in our business;
     
  our ability to repay outstanding loans and satisfy our outstanding liabilities;
     
  our liquidity and ability to finance our exploration, acquisition and development strategies;
     
  market conditions in the oil and gas and pipeline services industries;
     
  the timing, cost and procedure for future acquisitions;
     
  the impact of government regulation;
     
  estimates regarding future net revenues from oil and natural gas reserves and the present value thereof;
     
  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;

 

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  the number of potential drilling locations;
     
  our ability to maintain our NYSE listing;
     
  our ability to integrate Lineal, the voting and conversion rights of the preferred stock issued in connection therewith;
     
  our pipeline service operations, risks associated therewith and liabilities which result therefrom; and
     
  our financial position, business strategy and other plans and objectives for future operations.

 

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

 

  the availability of funding and the terms of such funding;

 

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

 

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

 

  our growth strategies;

 

  anticipated trends in our businesses;

 

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

 

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

 

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

 

  the timing, cost and procedure for future acquisitions;

 

  the impact of operational hazards;
     
  the outcome of competitive bids;
     
  customer defaults;

 

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

 

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

 

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

 

  increases in oil and gas production;

 

  changes in the market price of oil and gas;

 

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  changes in the number of drilling rigs available;

 

  the number of wells we anticipate drilling in the future;

 

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

 

  the number of potential drilling locations;

 

  our ability to maintain our NYSE listing;

 

  our ability to integrate Lineal, the voting and conversion rights of the preferred stock issued in connection therewith;

 

  our pipeline service operations, risks associated therewith and liabilities which result therefrom; and

 

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

 

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

 

Review of Information and Definitions

 

This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the consolidated financial statements and notes thereto and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended March 31, 2019.

 

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

 

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

 

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

 

  Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
     
  Bbl” refers to one stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons;
     
  SEC” or the “Commission” refers to the United States Securities and Exchange Commission;
     
  Boe” barrels of oil equivalent, determined using the ratio of one Bbl of crude oil, condensate or natural gas liquids, to six Mcf of natural gas;
     
  Mcf” refers to a thousand cubic feet of natural gas;
     
  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.

 

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Overview

 

Camber Energy, Inc., a Nevada corporation, was incorporated in Nevada in December 2003 under the name Panorama Investments Corp., the Company changed its name to Lucas Energy, Inc. effective September 9, 2006 and effective January 4, 2017, the Company changed its name to Camber Energy, Inc. The Company is based in Houston, Texas.

 

Prior to the disposition of our Oklahoma and South Texas properties in 2018 and 2019, and the subsequent acquisition of Lineal, as discussed below, we were solely an independent oil and natural gas company engaged in the acquisition, development and sale of crude oil, natural gas and natural gas liquids from various known productive geological formations, including the Cline shale and upper Wolfberry shale in Glasscock County, Texas, as well as in productive zones in the Panhandle in Hutchinson County, Texas. Subsequent to the acquisition of Lineal on July 9, 2019, our primary business operations changed to those of Lineal, which provides upstream, midstream and downstream pipeline services.

 

Lineal has provided over six decades of upstream, midstream, and utilities pipeline maintenance, specialty construction and integrity services to Fortune 500 companies located in the states of Ohio, Pennsylvania, Virginia, West Virginia, Maryland and New York.

 

The Company believes the ongoing expansion of pipelines throughout the United States, in conjunction with the push towards increasing domestic energy production, presents a long-term opportunity for the expansion of Lineal as an experienced, trusted pipeline infrastructure specialty service company. Additionally, Lineal is developing a technological process utilizing drones, designed to improve field operations reporting, as well as maximize real time inspection and monitoring of systems for its clients. This system is expected to allow it to give “early warnings” of imminent breakdowns to Lineal’s clients and operators for immediate repairs or service before critical outages can occur. Lineal’s operations are described in greater detail below under “Oil and Gas Pipeline Services”.

 

Moving forward, the Company plans to expand the Lineal brand by acquiring and developing complementary specialty engineering, procurement and construction energy infrastructure service businesses, as well as generating organic growth in downstream field services in Lineal Star, Lineal’s recently formed Gulf Coast based operation. The Company’s strategy will be a balanced approach to acquire and grow energy service businesses that focus in upstream, midstream and downstream sectors that are not severely affected by wide swings in the commodity price of oil and natural gas. In connection with this strategy, in October 2019, we, through Lineal, acquired Evercon Energy LLC, which provides pipeline solutions and field services, project management and inspection services, energy infrastructure maintenance, facilities construction, fabrication and heavy civil construction services in and around College Station, Texas, as discussed in greater detail above under “Part I – Financial Information” – “Item 1. Financial Statements” – “NOTE 20 – Subsequent Events”.

 

Our website address is http://www.camber.energy. Our fiscal year ends on the last day of March of each year. The information on, or that may be accessed through, our website is not incorporated by reference into this report and should not be considered a part of this report. We refer to the twelve-month periods ended March 31, 2019 and March 31, 2018 as our 2019 Fiscal Year and 2018 Fiscal Year, respectively.

 

As of September 30, 2019 and March 31, 2019, the Company had leasehold interests (working interests) covering approximately 221 / 3,500 (net / gross) acres, producing from the Cline and Wolfberry formations. The remaining Texas acreage consists of leasehold covering approximately 555 / 638 (net / gross) acres and wellbores located in the Panhandle in Hutchinson County, Texas, which was acquired by the Company in March 2018. On May 30, 2019, the Company received a Severance Order from the Texas Railroad Commission (the “TRC”) for noncompliance with TRC rules, suspending the Company’s ability to produce or sell oil and gas from its Panhandle leases in Hutchinson County, Texas, until certain well performance criteria are met. Since that time, the Company has been following TRC procedures in order to regain TRC compliance for the Panhandle wells. Additionally, as a result of a notice from its working interest partner, Petroglobe Energy, and related litigation, all prior production on the Panhandle wells is held in suspense. The Company is working to cure the issues raised by the TRC and to obtain the release of the production held in suspense. Additionally, as disclosed above under “Part I. Financial Information” – “Item 1. Financial Statements” – “NOTE 8 – Commitments and Contingencies” – “Legal Proceedings”, the Company has filed counterclaims against the Petroglobe Energy and related parties. Notwithstanding the Company’s current issues with the TRC and production held in suspense, and because, as a result of the Merger, the Company’s main operations changed to those of Lineal, the Company does not believe either its assets or operations are materially affected by the TRC issues or production held in suspense at this time.

 

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As of September 30, 2019, Camber was producing an average of approximately 37.5 net barrels of oil equivalent per day (“Boepd”) from 25 active well bores. The ratio between the gross and net production varies due to varied working interests and net revenue interests in each well. Our production sales totaled 3,472 and 6,874 Boe, net to our interest, for the three and six months ended September 30, 2019, respectively. At September 30, 2019, Camber’s total estimated proved producing reserves were 155,376 Boe, of which 120,590 Bbls were crude oil and NGL reserves, and 208,710 Mcf were natural gas reserves.

 

The Hutchinson County, Texas, acquisition in March 2018 included interests in 48 gross non-producing well bores, 5 saltwater disposal wells, and the required infrastructure and equipment necessary to support future hydrocarbon production as well as approximately 555 net leasehold acres in Hutchinson County, Texas. Camber holds an interest in 25 producing wells in Glascock County and the Company previously restored 11 wells in Hutchinson County to production.

 

As of the date of this filing and September 30, 2019, Camber has curtailed production from its wells in Hutchinson County, Texas, because of the Severance Order issued by the TRC on May 30, 2019. The Company is actively working to resolve the issues raised by the TRC. Additionally, the Company’s oil purchaser is holding hydrocarbons in suspense pursuant to the terms of the Petroglobe lawsuit discussed above under “Part I. Financial Information” – “Item 1. Financial Statements” – “NOTE 8 – Commitments and Contingencies” – “Legal Proceedings”.

 

As of September 30, 2019, Camber had 86 employees and also, utilized independent contractors on an as-needed basis.

 

On July 12, 2018, we entered into an Asset Purchase Agreement, which closed on September 26, 2018, described in greater detail above under “Part I. Financial Information – Item 1. Financial Statements – NOTE 2– Liquidity and Going Concern Considerations – N&B Energy Asset Disposition Agreement”, “Assumption Agreement”, and “N&B Energy Sale Agreement Closing”. Pursuant to the Sale Agreement and Assumption Agreement, the Company transferred a significant portion of its assets to N&B Energy in consideration for N&B Energy assuming all of its debt owed to IBC Bank.

 

Notwithstanding the sale of the Assets, the Company retained its assets in Glasscock County and Hutchinson County, Texas, and also retained a 12.5% production payment (effective until a total of $2.5 million has been received); a 3% overriding royalty interest in its existing Okfuskee County, Oklahoma asset; and an overriding royalty interest on certain other undeveloped leasehold interests, pursuant to an Assignment of Production Payment and Assignments of Overriding Royalty Interests. No payments were received in regard to any of the retained items noted through September 30, 2019 or through the date of this filing.

 

Recent Reverse Stock Splits and Amendments to Articles

 

On March 1, 2018, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada to affect a 1-for-25 reverse stock split of all outstanding common stock shares of the Company which was effective on March 5, 2018. On December 20, 2018, the Company filed a Certificate of Change with the Secretary of State of Nevada to affect another 1-for-25 reverse stock split of the Company’s (a) authorized shares of common stock (from 500,000,000 shares to 20,000,000 shares); and (b) issued and outstanding shares of common stock, which was effective on December 24, 2018. Effective on April 10, 2019, the Company amended its Articles of Incorporation to increase the number of the Company’s authorized shares of common stock, $0.001 per value per share, from 20,000,000 shares to 250,000,000 shares. On July 3, 2019, the Company filed a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada to affect another 1-for-25 reverse stock split of all outstanding common stock shares of the Company, which was effective on July 8, 2019. The effect of the July 2019 reverse stock split was to combine each 25 shares of outstanding common stock into one new share, with no change in authorized shares (which remained 250 million) or par value per share, and to reduce the number of common stock shares outstanding from approximately 53.9 million shares to approximately 2.2 million shares (prior to rounding). On October 28, 2019, the Company filed a Certificate of Change with the Secretary of State of Nevada to affect a 1-for-50 reverse stock split of the Company’s (a) authorized shares of common stock (from 250,000,000 shares to 5,000,000 shares); and (b) issued and outstanding shares of common stock. The reverse stock split was effective on October 29, 2019. The effect of the reverse stock split was to combine every 50 shares of outstanding common stock into one new share, with a proportionate 1-for-50 reduction in the Company’s authorized shares of common stock, but with no change in the par value per share of the common stock. The result of the reverse stock split was to reduce the number of common stock shares outstanding on the effective date of the reverse, from approximately 74.5 million shares to approximately 1.5 million shares (prior to rounding).

 

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All issued and outstanding shares of common stock, conversion terms of preferred stock, options and warrants to purchase common stock and per share amounts contained herein have been retroactively adjusted to reflect the reverse splits for all periods presented.

 

Industry Segments

 

Our operations during the three and six months ended September 30, 2018 were all crude oil and natural gas exploration and production related. Subsequent to the end of the quarter ended September 30, 2018, during the quarter ended September 30, 2019, and our acquisition of Lineal in July 2019, our operations changed to those of Lineal, and the majority of our revenue, expenses and financial results relate to the operations of Lineal, a pipeline services company.

 

Operations

 

Oil and Gas Pipeline Services

 

Lineal’s pipeline integrity operations provide a full-service integrity management program, including program development, corrosion evaluation, and integrity construction services such as (i) pipeline integrity management programs; (ii) fabrication and installation of launchers and receivers (the sections of the pipeline which allow the oil to enter and exit the pipeline); (iii) right of way erosion control repair services; (iv) hot tap interconnects and stopples (the process of drilling a hole (or patching a hole) in an on-stream piping system without spilling its contents or interrupting its flow); (v) pipeline replacements; (vi) class location changes and pipeline reroutes; (vii) line lowering; (viii) anomaly remediation; (ix) corrections of shorted casings; (x) recoating applications; (xi) conversion of pipeline services; (xii) pipeline reversals; (xiii) hydrostatic pressure testing; (xiv) pigging services (cleaning of pipelines); (xv) inline pigging inspection assistance; (xvi) cathodic protection systems; and (xvii) pipe to soil interface solutions.

 

In addition to the above, Lineal provides special construction services for oil and gas pipelines including (i) specialty onsite and offsite field fabrication; (ii) launchers and receiver installation; (iii) well pad clearing and development; (iv) meter and regulator station fabrication and installation; (v) compressor and scrubber installations (which remove traces of liquid droplets from gas streams to protect downstream equipment from damage and failure); (vi) right of way clearing and restoration; (vii) hydrostatic pressure testing; (viii) river crossings – dredging or directional drills; (ix) road crossings – road bores or horizontal directional drills (HDD); (x) extensive experience in steep terrain, rain and winter weather; and (xi) downstream services including (a) Project management; (b) turnaround planning and estimating; (c) execution of turnaround services; and (d) downstream construction and maintenance services.

 

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Lineal’s subsidiary, Lineal Industries, has numerous Master Service Agreements in place with well-known upstream and midstream industry companies including TransCanada Pipelines and Dominion Resources.

 

As discussed above, as a result of the Merger the Company anticipates the majority of its revenues and operations moving forward coming from Lineal and not through oil and gas exploration as discussed below.

 

Oil and Gas Properties

 

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

 

Additionally, in March 2018, we completed the acquisition of working interests in certain leases, wells and equipment located in the Texas panhandle and a 37.5% interest in one partnership that owned certain leases, wells and equipment in the same fields, for a total purchase price of $250,000, payable in three tranches, from an entity which is controlled by Ian Acrey, who served as the operating manager of our operations through a different entity. The acquisition included 49 non-producing well bores, 5 saltwater disposal wells and the required infrastructure and equipment necessary to support future hydrocarbon production as well as approximately 555 net leasehold acres in Hutchinson County, Texas. As a result of the May 30, 2019 Severance Order from the TRC discussed above, the Company is effectively blocked from selling oil and gas from its 11 Panhandle wells located in Hutchinson County, Texas, and as a result of the Petroglobe lawsuit (discussed above), a total of approximately 1,000 barrels of oil are held in suspension pending the outcome of the lawsuit.

 

Recent Events

 

Lineal Acquisition

 

On July 8, 2019, the Company entered into, and closed the transactions contemplated by an Agreement and Plan of Merger, by and between the Company, Merger Sub, Lineal, and the Lineal Members. Pursuant to the Plan of Merger, the Company acquired 100% of the ownership of Lineal from the Lineal Members in consideration for newly issued shares of Series E Redeemable Convertible Preferred Stock and Series F Redeemable Preferred Stock, as described in greater detail below.

 

Lineal, based in Houston, Texas, is the parent company of (a) 64-year-old Lineal Industries, based in Pittsburgh, Pennsylvania, and (b) Lineal Star, headquartered in Houston, each of which were acquired by the Company as part of the Merger. Lineal Industries has provided over six decades of upstream, midstream, and utilities pipeline maintenance, specialty construction and integrity services to Fortune 500 companies located in the states of Ohio, Pennsylvania, Virginia, West Virginia, Maryland and New York.

 

In connection with the Plan of Merger, the Company entered into several other agreements, including (a) a Security Exchange Agreement dated July 8, 2019, by and between the Company and Discover; (b) a Termination Agreement dated July 8, 2019, by and between the Company and Discover Growth Fund; and (c) a Funding and Loan Agreement dated July 8, 2019, by and among the Company, Lineal, and certain of the Lineal Members who also acquired shares of the Company’s preferred stock as a result of the Merger, which provided for the Company to loan $1,050,000 to Lineal, which loan was evidenced by a Promissory Note entered into by Lineal, as borrower, in favor of the Company, as lender, dated July 8, 2019.

 

Also as part of the Merger, the Company designated three new series of preferred stock, (1) Series D Convertible Preferred Stock; (2) Series E Redeemable Convertible Preferred Stock; and (3) Series F Redeemable Preferred Stock. Additionally, with the approval of the holders thereof, the Company amended and restated the designation of its Series C Redeemable Convertible Preferred Stock. All of the preferred stock and related designations are described in greater detail below.

 

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The result of the Plan of Merger, Series D Designation and Series E Designation, each as described in greater detail below, will be that, effective upon the date of Stockholder Approval, and subject to certain closing conditions set forth in the Exchange Agreement, (a) the common stock holders of the Company will hold between 6% and 6.67% of the Company’s fully-diluted capitalization (depending on whether the 3% increase described below is triggered); (b) Discover will hold Series D Preferred Stock convertible into 26.67% of the Company’s fully-diluted capitalization, subject to the terms of the Series D Preferred Stock; and (c) the Lineal Members, who hold the Series E Preferred Stock, will have the right to convert such Series E Preferred Stock, subject to the terms thereof, as discussed below, into 66.67% of the Company’s fully-diluted capitalization, subject to the 3% increase described below. In the event the Stockholder Approval Date does not occur, the Series E Preferred Stock will not be convertible, the Series C Preferred Stock will not be exchanged for Series D Preferred Stock, no Series D Preferred Stock will be outstanding and as a result, the terms of the Series C Preferred Stock, as set forth in the Series C Designation, will continue to apply.

 

Currently the Company does not anticipate holding a meeting to seek the Stockholder Approval until the date that the Board of Directors reasonably believes that the Company will meet the NYSE American’s initial listing requirements on the date of such Stockholder Approval, which the Company believes will be required, as a result of prior conversations with the NYSE American, due to the fact that upon Stockholder Approval, a ‘reverse merger’ under the NYSE American rules will be deemed to have occurred and the combined company (the Company and Lineal) will be required to re-meet the initial listing requirements of the NYSE American. Additionally, the Series F Preferred Stock will remain outstanding pursuant to its current terms. Additionally, in the event the Company completes a further acquisition/combination prior to Stockholder Approval, the post-Stockholder Approval ownership percentages above may be subject to modification with the mutual approval of the preferred stockholders and the Company.

 

The terms of the Plan of Merger, and the designations of the preferred stock are described in greater detail in the Company’s Current Reports on Form 8-K and Form 8-K/A filed with the Securities and Exchange Commission on July 9, 2019 and July 10, 2019, respectively.

 

Plan of Merger

 

Pursuant to the Plan of Merger, Merger Sub merged with and into Lineal, with Lineal continuing as the surviving entity in the Merger and as a wholly-owned subsidiary of the Company.

 

The Company issued to the members of Lineal a total of 1,000,000 shares of Series E Preferred Stock and 16,750 shares of Series F Preferred Stock, pursuant to the Plan of Merger. The Series E Preferred Stock and Series F Preferred Stock have the rights and privileges described below. The completion of the Merger was not subject to the approval of the stockholders of the Company, however, as discussed below, the conversion rights of the Series E Preferred Stock, are subject to stockholder approval.

 

The Plan of Merger contained certain post-closing requirements.

 

Securities Exchange Agreement

 

Pursuant to the Exchange Agreement, Discover agreed that, on the Approval Date (which also requires that the shares of common stock issuable upon conversion of the Series D Preferred Stock and the terms of the Exchange Agreement are approved by the Company’s stockholders), subject to the terms and conditions of the Exchange Agreement, all the shares of Series C Preferred Stock held by Discover as of the Approval Date will be exchanged for a number of shares of Series D Preferred Stock equal to four (4) times the total number of shares of common stock outstanding as of such date, divided by 1,000, rounded up to the nearest whole share.

 

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The closing of the transactions contemplated by the Exchange Agreement is subject to the satisfaction of certain closing conditions, including that the stockholders have approved the Plan of Merger and issuance of shares of common stock upon conversion of the preferred stock issued thereby and the Company’s common stock is listed on the NYSE American.

 

The Exchange Agreement terminates if stockholder approval has not been received before December 31, 2020.

 

Termination Agreement

 

Pursuant to the Termination Agreement, Discover agreed, that effective as of the Approval Date, all of its rights under the (a) Preferred Stock Purchase Agreement between Discover LLC and the Company, dated April 6, 2016; (b) Securities Purchase Agreement between Discover LLC and the Company, dated April 6, 2016; (c) Stock Purchase Agreement between Discover LLC and the Company, dated October 5, 2017; and (d) Stock Purchase Agreement between Discover LLC and the Company, dated October 26, 2018, and all of Discover LLC’s rights under the Redeemable Convertible Subordinated Debenture from the Company in the original principal amount of $530,000, and all rights to true-ups thereunder, would be terminated, along with all rights thereunder.

 

The Termination Agreement is subject to the same closing conditions as the Exchange Agreement (discussed above).

 

Funding and Loan Agreement

 

The Funding Agreement required the Company, promptly following the Closing Date, to deposit into a newly opened and dedicated bank account, $4,000,000, which has been deposited to date, which was originally intended to be used for solely for acquisitions. As of the date of this filing a total of approximately $3.4 million of the original amount remains available for acquisitions, and the remaining amount was used for small acquisitions and working capital.

 

The Funding Agreement also required the Company to wire $1,050,000 in immediately available funds to Lineal. The Loan was documented by the Note (described below) and the Loan was made on July 9, 2019.

 

Promissory Note

 

The promissory note (the “Note”), issued by Lineal as borrower, in the amount of $1,050,000, accrues interest, compounded monthly, at 10% per annum (18% upon the occurrence of an event of default), beginning upon the date, if ever, that the Company no longer owns at least 50% of the voting securities of Lineal, and is either to be (a) forgiven on the Stockholder Approval Date; or (b) payable in full together with accrued interest thereon, 2 years from the Interest Effective Date, or earlier upon acceleration upon the occurrence of an event of default under the Note. The Note contains standard and customary events of default. The amount loaned by the Company to Lineal pursuant to the Note was, or will be, promptly paid to affiliates of Lineal in order to satisfy amounts owed to such affiliates as of the Closing.

 

In the event the Stockholder Approval has been received, the Note and all principal and interest due thereunder will be automatically forgiven by the Company.

 

Amended and Restated Series C Redeemable Convertible Preferred Stock

 

The Series C Designation, amended and restated the prior designation of the Company’s Series C Preferred Stock to clarify that such preferred stock was junior to the Series E Redeemable Convertible Preferred Stock and Series F Redeemable Convertible Preferred Stock, as to the securities and assets of Lineal and its existing and future subsidiaries, but senior to the Series E and F Preferred as to all other assets of the Company; to provide that the Merger was not a deemed liquidation event under the Series C Designation, and to provide the Series E Preferred Stock and Series F Preferred Stock holders priority rights to the Lineal Assets upon a liquidation of the Company (through the redemption of such Series E Preferred Stock and Series F Preferred Stock).

 

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Series D Convertible Preferred Stock

 

The Series D Designation, provides that the Series D Preferred Stock does not accrue dividends; the Series D Preferred Stock is (a) senior to the Company’s common stock; (b) pari passu with respect to the Series E and F Preferred Stock; and (c) junior to all existing and future indebtedness of the Company (provided that the consent of the Series D Preferred Stock holders is required for the Company to issue any securities senior to the Series D Preferred Stock, other than the Series E and F Preferred Stock). 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 prior to or concurrently with the closing, effectuation or occurrence of any such action, redeem the Series D Preferred Stock for cash, by wire transfer of immediately available funds to an account designated by Holder, at an amount equal to the Liquidation Value per share of Series D Preferred Stock. The “Liquidation Value” is equal to $10 million divided by the total number of shares of Series D Preferred Stock issued pursuant to the terms of the Exchange Agreement. The $10 million liquidation preference of the Series D Preferred Stock will be a significant decrease from the aggregate liquidation preference which currently applies to the Series C Preferred Stock, which is approximately $56 million. Each share of Series D Preferred Stock may be converted into 1,000 shares of common stock at any time at the option of the holder. The Series D Preferred Stock is subject to a beneficial ownership limitation, which prevents any holder of the Series D Preferred Stock from converting such Series D Preferred Stock into common stock, if upon such conversion, the holder would beneficially own greater than 4.99% of all common stock outstanding immediately after giving effect to such issuance, as determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder; provided, however, that any holder may increase such amount to 9.99% upon not less than 61 days’ prior notice to the Company.  The Series D Preferred Stock has no voting rights on general corporate matters, provided that the Series D Designation does contain customary protective provisions restricting the Company’s ability to amend or modify the rights of the Series D Preferred Stock without the consent of the holders thereof. The Company may, in its sole and absolute discretion, redeem any or all shares of Series D Preferred Stock then outstanding at any time by paying Holder in cash an amount per share equal to the Redemption Value for the shares redeemed. The “Redemption Value” equals $12 million divided by the total number of shares of Series D Preferred Stock issued pursuant to the terms of the Exchange Agreement.

 

Series E Redeemable Convertible Preferred Stock

 

The Series E Designation, does not accrue any dividends, provided that, subject to the rights of the holders, if any, of any shares of the Series C Preferred Stock, Series D Preferred Stock, Series F Preferred Stock or other securities senior to or pari passu with, the Series E Preferred Stock, the holders of Series E Preferred Stock are entitled to such dividends paid and distributions made to the holders of common stock to the same extent as if such holders had converted the Series E Preferred Stock into common stock at the Conversion Rate (described below under “Conversion Rights”)(without regard to any limitations on conversion herein or elsewhere) and had held such shares of common stock on the record date for such dividends and distributions. In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary (each a “Liquidation Event”), the holders of Series E Preferred Stock are entitled to receive prior to the holders of the Company’s other security holders, except in the case of the Series C Preferred Stock, which is junior in ranking only to the first distributions up until $20 per share of Series E Preferred Stock (the original issue price per share), and the Series F Preferred Stock, the Company’s capital leases as may be in place from time to time and other senior debt approved by a majority in interest of such preferred holders, and then is entitled to pari passu ranking, and pro rata with the holders of the Company’s Series D Preferred Stock, an amount per share for each share of Series E Preferred Stock held by them equal to the greater of (a) $20 per share and (b) the amount of cash that would have been received had such share of Series E Preferred Stock been converted into common stock immediately prior to such Liquidation Event based on the Conversion Rate. Each share of Series E Preferred Stock is convertible, at the option of the holder thereof, at any time following the Approval Date, into that number of shares of common stock as equal the Conversion Rate. For the purposes of the preceding sentence:

 

  Approval Date” means the later of (a) the first business day after the date that all of the requirements of shareholder approval as required by the Plan of Merger (the “Shareholder Approval”) are met; and (b) the business day that the Company has affected a reverse stock split of its outstanding common stock subsequent to the Shareholder Approval, to the extent such reverse stock split is deemed necessary by a majority in interest of such of such preferred holders in writing prior to the date of Shareholder Approval.

 

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  Conversion Rate” means that number of shares of common stock as equals 67% of the Company’s fully-diluted shares, unless (a) the 30-day average trading price of the Company’s common stock, as calculated pursuant to applicable NYSE American rules and requirements, following the Shareholder Approval date is below $0.20 per share (which value is not subject to adjustment in connection with any recapitalizations or splits); or (b) the failure of the Company, on the date that the Company’s shareholders have approved the transactions contemplated by the Plan of Merger and the issuance of shares of common stock upon the conversion of the Series E Preferred Stock, or the first business day immediately following such date, to meet the listing standards for the listing of the Company’s common stock on the NYSE American, at which time the applicable percentage shall be 70% of the fully-diluted shares (the “3% Increase”), in each case divided by the 1,000,000 shares of Series E Preferred Stock issued in connection with the Merger.

Except as otherwise expressly provided in the Series E Designation, the holders of Series E Preferred Stock and common stock vote together as a single class and not as separate classes. Such shares in aggregate vote (i) 18.9% of the total shares of common stock issued and outstanding on the date the Plan of Merger was agreed to by the parties, prior to the Approval Date; and (b) 76.0% of the Company’s total voting shares on, and following, the Approval Date.

 

Additionally, for so long as the outstanding Series E Preferred Stock shares have the right to vote at least 5% of the Company’s total voting shares, the Series E Preferred Stock, voting as a group, have the right to (a) appoint one member to the Company’s Board of Directors; (b) appoint four (4) members of Lineal’s Board of Directors (i.e., the managers of Lineal) (prior to Shareholder Approval); and one (1) member to Lineal’s Board of Directors (subsequent to Shareholder Approval), provided that unless approved by a majority in interest of such Series E Preferred Stock holders, the Board of Directors of Lineal shall have no more than five (5) members; (c) nominate an individual to serve as the Company’s COO; and (d) nominate individuals to serve as the executive officers of Lineal.

 

Until the earlier of (a) the fifth (5th) anniversary of the Closing Date; and (b) the date that 5% or less of the 1 million shares of Series E Preferred Stock issued in connection with the Merger are outstanding, the Company is not authorized to affect any material asset transfer or change of control, as described in the Series E Designation, without the consent of a majority in interest of such holders. The Company is also prohibited from undertaking various other material transactions without the consent of the Series E Preferred Stockholders during the same period.

 

The Series E Preferred Stock holders, with the consent of a majority in interest, have the option, exercisable from time to time 60 days after the closing of an acquisition by Lineal of assets or securities which results in the Company, immediately after such acquisition, being able to meet the initial listing requirements of the NYSE American (“Lineal Transaction”), or such other later date which is approved by the Company and a majority in interest of such holders, provided that the Shareholder Approval has not been received by such date, to require that the Company redeem shares of the outstanding Series E Preferred Stock. Each redemption shall be on a one-for-one basis between Series E Preferred Stock and Lineal Common Shares and shall be subject to applicable law. No redemption of the Series E Preferred Stock is allowed unless there is a pro rata redemption of the Series F Preferred Stock. In the event the Series E Preferred Stock was fully-redeemed, the Series E Preferred holders and Series F Preferred Stockholders would be able to re-acquire 100% of the securities of Lineal.

 

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Series F Redeemable Preferred Stock

 

Dividends accrue on the Series F Preferred Stock at the end of each calendar quarter, beginning at the end of the first calendar quarter following the Closing Date, based on a price per share of Series F Preferred Stock of $100, at the rate of 8% per annum, until such Series F Preferred Stock is no longer outstanding. If the Company is prohibited from paying the Accrued Dividends in cash pursuant to applicable law, such Accrued Dividends shall continue to accrue until such time as the Company is legally able to pay such Accrued Dividends, during which period such Accrued Dividends shall accrue interest, compounded monthly, at the end of each month that such Accrued Dividends remain unpaid, at 12% per annum.

 

In the event of a Liquidation Event, the holders of Series F Preferred Stock are entitled to receive prior to the holders of the Company’s securities other than the Series D Preferred Stock, and pro rata with the holders of the Series D Preferred Stock, but not prior to any holders of the Company’s senior securities (as described in the designation), an amount per share for each share of Series F Preferred Stock held by them equal to $100, then, after any distributions to any other shares of preferred stock, the holders are entitled to eight percent (8%) of any remaining assets left for distribution to the holders of the common stock. The Series F Preferred Stock have no conversion rights. Except as otherwise provided in the Series F Designation or as required by law, the holders of Series F Preferred Stock and the holders of common stock shall vote together as a single class and not as separate classes. Each outstanding share of Series F Preferred Stock is entitled to vote a number of voting shares equal to (i) 1% of the total shares of common stock issued and outstanding on the date the Plan of Merger was agreed to by the parties, prior to the Approval Date; and (b) 4% of the Company’s total voting shares on the Approval Date, divided by the 16,750 shares of Series F Preferred Stock issued in connection with the Plan of Merger; provided that the Series F Preferred Stock shall not be allowed to vote on the Shareholder Approval.

 

Until the earlier of (a) the 5th anniversary of the Closing Date; (b) the date that 5% or less of the 16,750 shares of Series F Preferred Stock issued in connection with the Merger are outstanding, the Company is not authorized to affect any material asset transfer or change of control without the consent of a majority in interest of the Series F Preferred Stock holders.

 

The holders of the Series F Preferred Stock have the option, exercisable from time to time after the Redemption Date, provided that the Shareholder Approval has not been received by November 22, 2019, or if a Lineal Transaction, has not occurred prior to September 23, 2019, a date which is 60 days after the closing of a Lineal Transaction, or such other later date which is approved by the Company and a majority in interest of the holders of the Series F Preferred Stock, or if Shareholder Approval has been received, then only after the date following the Closing Date when the Company has received net proceeds from the issuance of equity securities of at least $6,750,000, to require that the Company redeem all or any portion of the outstanding shares of Series F Preferred Stock for cash, by requiring the Company pay each applicable holder, an amount equal to $100 per Series F Preferred Stock share multiplied by the number of Series F Preferred Stock shares held by each applicable holder, subject to redemption. In the event the Company is prohibited from completing a redemption due to applicable law, the Company is required to redeem that number of shares of Series F Preferred Stock which is able to be redeemed under applicable law.

 

Additionally, concurrently with any Series E Preferred Stock redemption (discussed above under the description of the Series E Preferred Stock), the holders of the Series F Preferred Stock are required to redeem the pro rata portion of Series F Preferred Stock for shares of Lineal’s Preferred Stock, with each share of Series F Preferred Stock being redeemed in consideration for 100 shares of Lineal Preferred Stock.

 

Financing

 

A summary of our financing transactions, funding agreements and other material funding transactions can be found under “Part I. Financial Information” – “Item 1. Financial Statements” – “NOTE 2 – Liquidity and Going Concern Considerations”, “NOTE 6 – Note Payables and Debenture”, “NOTE 13 – Stockholders’ Equity (Deficit)” and “NOTE 20 – Subsequent Events”, above.

 

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The Company believes it will not have sufficient liquidity to operate as a going concern for the next twelve months following the issuance of the financial statements included herein, unless it uses funds which are currently held in a segregated account for acquisitions. As discussed above, in connection with the Merger, the Company deposited $4,000,000 into a newly opened and dedicated bank account, which was intended to be used for acquisitions. The disbursement of funds from the account is required to be approved by (i) a person designated by the holders of the Series E Preferred Stock; and (ii) the Company. As of September 30, 2019, a total of $4,000,000 remained of the Deposit and as of the date of this filing a total of $3.4 million remains of the Deposit. The release of such funds requires the approval of the person designated by such Series E Preferred Stock holders, and such designated person has control over whether or not to release such funds. Because the designated funds constitute substantially all of the funds available for working capital, in the event the use of the funds, if required, is not authorized, we may not have sufficient capital to support our operations for the next 12 months, provided that with the use of the funds in the account, we believe that we will have sufficient funds to continue as a going concern. The accompanying 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 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, subsequent to the date of the Note (discussed above) we have continued to lend funds to Lineal, including amounts loaned for the acquisition of Evercon as discussed above under “Part I – Financial Information” – “Item 1. Financial Statements” – “NOTE 20 – Subsequent Events”. Such amounts are not shown on the balance sheet (as they are inter-company transactions), are not evidenced by a promissory note (or the Note), do not bear interest and do not have a stated due date. However, in the event that Lineal is re-acquired by the Lineal Members as a result of the redemption of the Series E Preferred Stock and Series F Preferred Stock, the Company plans to seek the return of such funds, together with customary and reasonable interest.

 

Market Conditions and Commodity Prices

 

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

 

RESULTS OF OPERATIONS

 

The following discussion and analysis of the results of operations for the three and six-month periods ended September 30, 2019 and 2018 should be read in conjunction with our consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q. The majority of the numbers presented below are rounded numbers and should be considered as approximate. 

 

Three Months Ended September 30, 2019 vs. Three Months Ended September 30, 2018

 

We reported a net loss for the three months ended September 30, 2019 of $(0.3) million, or ($4.40) per share of common stock. We reported net income for the three months ended September 30, 2018 of $23.2 million, or $27.69 per share of common stock. As discussed in more detail below, our net income decreased by $23.5 million, primarily due to the gain recognized on N&B Energy Sale Agreement and related transactions which closed in September 2018, as described in greater detail above under “Part I – Financial Information” – “Item 1. Financial Statements” – “NOTE 2 – Liquidity and Going Concern Considerations” – “N&B Energy Asset Disposition Agreement” (the “September 2018 N&B Disposition”).

 

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Oil and Gas Exploration and Production Segment Information

 

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

 

    Three Months Ended
September 30,
    Increase     %
Increase
 
    2019     2018     (Decrease)     (Decrease)  
Sale Volumes:                                
Crude Oil (Bbls)     1,288       2,706            (1,418 )     (52 )%
Natural Gas (Mcf)     5,828       100,652       (94,824 )     (94 )%
NGL (Gallons)     50,928       517,563       (466,635 )     (90 )%
Total (Boe)(1)     3,472       31,804       (28,332 )     (89 )%
                                 
Crude Oil (Bbls per day)     14       29       (15 )     (52 )%
Natural Gas (Mcf per day)     63       1,094       (1,031 )     (94 )%
NGL (Gallons per day)     554       5,626       (5,072 )     (90 )%
Total (Boe per day)(1)     38       346       (308 )     (89 )%
                                 
Average Sale Price:                                
Crude Oil ($/Bbl)    $ 51.85     $ 67.25     $ (15.40 )     (23 )%
Natural Gas ($/Mcf)    $ 2.12     $ 2.65     $ (0.53 )     (20 )%
NGL ($/Bbl)    $ 11.24     $ 29.30     $ (18.06 )     (62 )%
                                 
Net Operating Revenues:                                
Crude Oil   $ 66,786     $ 181,952     $ (115,166 )     (63 )%
Natural Gas     12,343       266,430       (254,087 )     (95 )%
NGL     13,624       361,084       (347,460 )     (96 )%
Total Oil and Gas Revenues   $ 92,753     $ 809,466     $ (716,713 )     (89 )%

 

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

 

Oil and Gas Services Segment Information

 

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

 

    Three Months Ended
September 30,
    Increase     %
Increase
 
    2019     2018     (Decrease)     (Decrease)  
Contract Revenue   6,285,535      $     $ 6,285,535       100 %
Contract Costs     4,897,196             4,897,196       100 %
Contract income   1,388,339     $     $ 1,388,339       100 %

 

Contract Revenue

 

The Company’s oil and gas service revenue is generated by Lineal, which was acquired in July 2019.

 

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Contract Costs

 

Contract costs include labor, material, and indirect costs. Services contract costs increased for the three months ended September 30, 2019, compared to the same period for 2018, as a result of the Merger.

 

Operating and Other Expenses

 

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

 

   Three Months Ended
September 30,
   Increase   %
Increase
 
   2019   2018   (Decrease)   (Decrease) 
Direct lease operating expense  $171,452   $582,065   $(410,613)   (71)%
Workovers expense       1,506    (1,506)   (100)%
Other   17,031    163,803    (146,772)   (90)%
Lease Operating Expenses  $188,483   $747,374   $(558,091)   (75)%
                     
Severance and Property Taxes  $4,031    44,495    (40,464)   (91)%
Depreciation, Depletion, Amortization and Accretion   68,460    136,725    (68,265)   (50)%
Impairment of Oil and Gas Properties       234,309    (234,309)   (100)%
General and Administrative (“G&A”)   1,731,795    952,201    779,594    82%
Gain on Sale of Assets       25,808,246    (28,808,246)   (100)%
                     
Interest Expense  $37,677   $1,268,811    (1,231,134)   (97)%
Other Expense (Income), Net  $(272,390)  $15,430    (287,820)   (1,865)%

 

Lease Operating Expenses

 

There was a decrease in lease operating expense of approximately $0.6 million when comparing the current quarter to the prior year quarter. The decrease is primarily due to the September 2018 N&B Disposition.

 

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

 

DD&A decreased for the current quarter as compared to the prior year’s quarter by approximately $0.1 million, primarily related to the decrease in total depreciable assets caused by the September 2018 N&B Disposition.

 

Impairment of Oil and Gas Properties

 

There was no impairment expense for the three months ended September 30, 2019, compared to impairment expense of $0.2 million for the three months ended September 30, 2018. The decrease was due to the expiration of all remaining leases not held by production during the year ended March 31, 2019.

 

General and Administrative (G&A) Expenses

 

G&A expenses increased by approximately $0.8 million for the three months ended September 30, 2019, compared to the prior year’s period. The increase was due primarily to consulting, legal and other costs incurred related to the Lineal transaction and the inclusion of Lineal’s operations as a result of the Merger which closed in June 2019. 

 

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Gain on Sale of Assets

 

Gain on sale of oil and gas properties was $25.8 million for the three months ended September 30, 2018, compared to $0 for the same three-month period ended September 30, 2019 due to the September 2018 N&B Disposition.

 

Interest Expense

 

Interest expense for the three months ended September 30, 2019 decreased by approximately $1.2 million when compared to the three-month period ended September 30, 2018, due to the assignment of the IBC Bank debt in connection with the September 2018 N&B Disposition.  

 

Other Expense (Income), Net

 

Other expense (income), net, for the three months ended September 30, 2019 decreased by approximately $0.3 million, compared to the same period ended September 30, 2018, due, in part, to an increase in interest earned on excess operating funds during the quarter ended September 30, 2019.

 

Six Months Ended September 30, 2019 vs. Six Months Ended September 30, 2018

 

We reported a net loss for the six months ended September 30, 2019 of $1.6 million, or $20.57 per share of common stock. We reported net income for the six months ended September 30, 2018 of $19.7 million, or $36.33 per share of common stock. As discussed in more detail below, our net income decreased by $21.3 million, primarily due to the N&B Energy Sale Agreement and related transactions which closed in September 2018, as described in greater detail above under “Part I – Financial Information” – “Item 1. Financial Statements” – “NOTE 2 – Liquidity and Going Concern Considerations” – “N&B Energy Asset Disposition Agreement” (the “September 2018 N&B Disposition”).

 

Oil and Gas Exploration and Production Segment Information

 

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

 

    Six Months Ended
September 30,
    Increase