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 December 31, 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
  5,000,000
(as of February 14, 2020)

 

 

  

 

 

 

CAMBER ENERGY, INC.

 

TABLE OF CONTENTS

 

       
      Page
PART I. FINANCIAL INFORMATION   1
       
ITEM 1. Financial Statements   1
       
  Consolidated Balance Sheets as of December 31, 2019 and March 31, 2019 (Unaudited)   1
       
  Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2019 and 2018 (Unaudited)   2
       
  Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended December 31, 2019 and 2018 (Unaudited)   3
       
  Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 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   31
       
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk   47
       
ITEM 4. Controls and Procedures   48
       
PART II. OTHER INFORMATION   49
       
ITEM 1. Legal Proceedings   49
       
ITEM 1A. Risk Factors   49
       
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds   59
       
ITEM 3. Defaults Upon Senior Securities   60
       
ITEM 4. Mine Safety Disclosures   60
       
ITEM 5. Other Information   60
       
ITEM 6. Exhibits   60
       
SIGNATURES   61

 

 

 

 

PART 1. FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

CAMBER ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

  

    December 31,
2019
    March 31,
2019
 
ASSETS                
Current Assets                
Cash   $ 2,253,739     $ 7,778,723  
Accounts Receivable, Net of Allowance     176,038       129,037  
Other Current Assets           263,205  
Total Current Assets     2,429,777       8,170,965  
                 
Property and Equipment                
Oil and Gas Properties - Subject to Amortization     50,504,527       50,528,953  
Oil and Gas Properties - Not Subject to Amortization     28,016,989       28,016,989  
Other Property and Equipment     1,570       1,570  
Total Property and Equipment     78,523,086       78,547,512  
Accumulated Depletion, Depreciation, Amortization and Impairment     (78,346,620 )     (78,334,324 )
Total Property and Equipment, Net     176,466       213,188  
Notes Receivable     2,339,719        
Other Assets     155,053       198,519  
Total Assets   $ 5,101,015     $ 8,582,672  
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                
Current Liabilities                
Accounts Payable   $ 1,427,022     $ 1,521,329  
Common Stock Payable     10,000       303,340  
Accrued Expenses     296,843       276,133  
Asset Retirement Obligation - Current     239,167        
Current Income Taxes Payable     3,000       3,000  
Total Current Liabilities     1,976,032       2,103,802  
                 
Asset Retirement Obligations     42,137       303,809  
Derivative Liability           5  
Total Liabilities     2,018,169       2,407,616  
                 
Commitments and Contingencies                
                 
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, 2,294 and 2,305 Shares Issued and Outstanding, respectively, Liquidation Preference of $56,122,710     2       2  
Preferred Stock Series D, 50,000 Shares Authorized of $0.001 Par Value, 0 Shares Issued and Outstanding            
Preferred Stock Series E, 1,000,000 Shares Authorized of $0.001 Par Value, 0 Shares Issued and Outstanding                     —  
Preferred Stock Series F, 16,750 Shares Authorized of $0.001 Par Value, 0 Shares Issued and Outstanding                     —  
Common Stock, 5,000,000 Shares Authorized of $0.001 Par Value, 4,709,167 and 13,441 Shares Issued and Outstanding, respectively     4,709       13  
Additional Paid-in Capital     146,890,176       152,251,623  
Stock Dividends Distributable     13,804,668       8,141,843  
Accumulated Deficit     (157,616,709 )     (154,218,469)  
Total Stockholders’ Equity     3,082,846       6,175,056  
Total Liabilities and Stockholders’ Equity   $ 5,101,015     $ 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   Nine Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
Operating Revenues                    
Crude Oil  $69,092   $73,301   $229,577   $455,322 
Natural Gas   9,871    13,114    29,418    753,057 
Natural Gas Liquids   15,152    41,522    49,224    1,423,720 
Total Revenues   94,115    127,937    308,219    2,632,099 
                     
Operating Expenses                    
Lease Operating Expenses   72,955    441,312    384,995    2,600,353 
Severance and Property Taxes   4,081    5,937    10,686    133,192 
Depreciation, Depletion, Amortization, and Accretion   7,382    1,026    15,215    464,952 
Impairment of Oil and Gas Properties       548,819        1,304,785 
General and Administrative   1,146,374    677,566    3,418,849    3,512,816 
Gain on Sales of Assets               (25,808,246)
Total Operating Expenses   1,230,792    1,674,660    3,829,745    (17,792,148)
Operating Income (Loss)   (1,136,677)   (1,546,723)   (3,521,526)   20,424,247 
                     
Other Expense (Income)                    
Interest Expense   9,750    202,669    14,771    2,436,776 
Other (Income), Net   (22,861)   (163,308)   (138,057)   (142,714)
Total Other (Income) Expenses   (13,111)   39,361    (123,286)   2,294,062 
                     
Net Income (Loss) Before Discontinued Operations   (1,123,566)   (1,586,084)   (3,398,240)   18,130,185 
Loss from Discontinued Operations   (710,112)            
Net Income (Loss)  $(1,833,678)  $(1,586,084)  $(3,398,240)  $18,130,185 
                     
Net Income (Loss) Per Common Share                    
Basic                    
  Continuing Operations  $(1,03)  $(800.49)  $(7.84)  $7,982.41 
  Discontinued Operations   (0.24)            
    Total  $(1.27)  $(800.49)  $(7.84)  $7,982.41 
Diluted                    
  Continuing Operations  $(1.03)  $(800.49)  $(7.84)  $529.23 
  Discontinued Operations   (0.24)            
    Total  $(1.27)  $(800.49)  $(7.84)  $529.23 
                     
Weighted Average Number of Common Shares Outstanding                    
Basic   2,937,254    4,000    1,155,285    1,869 
Diluted   2,937,254    4,000    1,155,285    28,190 

 

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 NINE MONTHS ENDED DECEMBER 31, 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)        
Share-Based Compensation                                           343,730            343,730 
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         
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 
Issuance of Series C Preferred Shares for Cash Proceeds                           735    1            6,999,999            7,000,000 
Stock Dividends to be Issued                                           (896,182)   896,182         
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 
Common Shares issued for:                                                                      
Conversion of Series B to Common                   (364,508)   (365)           3        365             
Conversion of Series C Preferred Stock                           (10)       2,234    2    (2)            
Payment of Series B Dividend                                   10        469    (469)        
Debenture Conversion                                   800    1    917,103            917,104 
Issuance of Series C Preferred Shares for Cash Proceeds                           632                 6,000,000            6,000,000 
Stock Dividends to be Issued                                           (1,615,886)   1,615,886         
Net Income (Loss)                                                   (1,586,084)   (1,586,084)
Balances, December 31, 2018      $       $    44,000   $44    2,305   $2    5,418   $5   $154,682,769   $5,676,275   $(152,731,437)  $7,267,658 
                                                                       
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 Series B Preferred Stock                   (44,000)   (44)                   44             
Payment of Series B Dividend                                           3    (3)        
Conversion of Debenture - Abeyance                                   25,008    25    (25)            
Payment for Consulting Fees                                   600    1    303,339            303,340 
Rounding Adjustment for Split                                   4                     
Stock Dividends to be Issued                                           (1,878,055)   1,878,055         
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:                                                                      
Cash Paid for Settlement of Series B Preferred Stock Warrants                                           (25,000)           (25,000)
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 
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         
Rounding adjustment for reverse stock split                                   884    1    (1)            
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 
Common Shares issued for:                                                                      
Conversion of Series C Preferred Stock                           (8)       3,604,160    3,604    (3,604)            
Change in Valuation of Series E and F Preferred Stock       (4,035,000)       1,017,000                                         
Redemption of Series E and F Preferred Stock   (1,000,000)   (14,666,000)  (16,750)  (2,434,000)                                        
Stock Dividends to be Issued                                           (1,890,887)   1,890,887         
Rounding adjustment for reverse stock split                                   56,475    56    (56)            
Net Loss                                                   (1,883,678)   (1,883,678)
Balances December 31, 2019      $       $       $    2,294   $2    4,709,167   $4,709   $146,890,176   $13,804,668   $(157,616,709)  $3,082,846  

 

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

 

3

 

 

CAMBER ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Nine Months Ended 
   December 31, 
   2019   2018 
Cash Flows from Operating Activities          
Net Income (Loss)  $(3,398,240)  $18,130,185 
Net Loss from Discontinued Operations        
Net Income (Loss) from Continuing Operations   (3,398,240)   18,130,185 
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Depreciation, Depletion, Amortization and Accretion   15,215    463,926 
Impairment of Oil and Gas Properties       1,304,785 
Bad Debt Expense   17,694     
Gain on Sale of Oil and Gas Properties       (25,808,246)
Share-Based Compensation   37,690    343,629 
Litigation Settlement - PetroGlobe   204,842     
Change in fair value of derivatives   (5)    
Amortization of Discount on Notes       1,499,647 
Changes in operating assets and liabilities:          
Accounts Receivable   (64,695)   576,320 
Other Current Assets   263,205    (3,444)
Accounts Payable and Accrued Expenses   (279,437)   (696,281)
Cash Used in Operating Activities from Continuing operations   (3,203,731)   (4,188,452)
Cash Provided by Operating Activities from Discontinued Operations   1,212,391     
Cash Used in Operating Activities   (1,991,340)   (4,188,452)
           
Cash Flows from Investing Activities          
Cash Acquired in Lineal Acquisition   449,763     
Cash Disposed of in Connection with Lineal Redemption   (2,101,879)    
Cash Loaned to Lineal Holdings   (2,339,719)    
Cash Paid for Fixed Asset Additions       (2,187,302)
Cash Received (Paid) for Deposits   43,466    (141,009)
Cash Used in Investing activities from Continuing Operations   (3,948,369)   (2,328,311)
Cash Used in Investing Activities from Discontinued Operations   (692,650)    
Net Cash Used in Investing Activities   (4,641,019)   (2,328,311)
           
Cash Flows from Financing Activities          
Cash Paid for Settlement of Series B Preferred Stock Warrants   (25,000)    
Proceeds from Issuance of Series C Preferred Stock       15,000,000 
Cash Used in Financing Activities from continuing operations   (25,000)   15,000,000 
Cash Provided by Financing Activities from Discontinued Operations   1,132,375     
Cash Provided by Financing Activities   1,107,375    15,000,000 
           
(Decrease) Increase in Cash and Restricted Cash   (5,524,984)   8,483,237 
Cash and Restricted Cash at Beginning of the Period   7,778,723    789,151 
Cash and Restricted Cash at End of the Period  $2,253,739   $9,272,388 

 

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

 

4

 

 

 

CAMBER ENERGY, INC. 

 

NOTES TO FINANCIAL STATEMENTS

 (Unaudited)

 

NOTE 1  – GENERAL

 

Camber Energy, Inc. (“Camber” or the “Company”) is an independent oil and natural gas company engaged in the acquisition, development and sale of crude oil, natural gas and natural gas liquids from various known productive geological formations, 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. Additionally, from the July 8, 2019 acquisition of Lineal Star Holdings, LLC (“Lineal”), until the divestiture of Lineal effective on December 31, 2019, each as discussed below, the Company, through Lineal, was involved in the oil and gas services industry.

 

On 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 “Lineal Plan of Merger” and the merger contemplated therein, the “Lineal 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”). Lineal is a specialty construction and oil and gas services enterprise providing services to the energy industry. Pursuant to the Lineal Plan of Merger, Camber acquired 100% of the ownership of Lineal from the Lineal Members in consideration for newly issued shares of Series E Redeemable Convertible Preferred Stock (“Series E Preferred Stock”) and Series F Redeemable Preferred Stock (“Series F Preferred Stock”). See also “NOTE 10 – Merger Agreement and Divestiture”. On October 8, 2019, Lineal acquired an 80% interest in Evercon Energy LLC (“Evercon”). The acquisition required Lineal to assume certain liabilities and provide working capital for a period of six months in an amount of $50,000 per month to Evercon. As part of the Lineal Divestiture, described below, Evercon was divested effective December 31, 2019.

 

On December 31, 2019, the Company entered into a Preferred Stock Redemption Agreement (the “Redemption Agreement”) by and between the Company and Lineal, whereby the Company redeemed the Company’s Series E and F Preferred Stock (the holders of such preferred stock, collectively, the “Preferred Holders”) issued in connection with the Lineal Merger. Pursuant to the Redemption Agreement, effective as of December 31, 2019, ownership of 100% of Lineal was transferred back to the Preferred Holders, and, all of the Series E Preferred Stock and Series F Preferred Stock of the Company outstanding were cancelled through the redemption See also “NOTE 10 – Merger Agreement and Divestiture”.

 

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”). 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 December 31, 2019 and the filing date of these financial statements.

 

Camber retained its assets in Glasscock County and operates in Hutchinson County, Texas. 

 

On January 31, 2020, the Company entered into a Compromise Settlement Agreement (the “Settlement Agreement”) with PetroGlobe Energy Holdings, LLC (“PetroGlobe”),  Signal Drilling, LLC (“Signal”), Petrolia Oil, LLC (“Petrolia”), Prairie Gas Company of Oklahoma, LLC (“PGCO”), and Canadian River Trading Company, LLC (“CRTC”). Pursuant to the Settlement Agreement, the Company agreed to pay PetroGlobe $250,000, of which $100,000 was due upon execution of the Settlement Agreement, which payment has been made, and $150,000 was paid to an escrow account, which release is subject to approval by the Company upon the successful transfer of all wells and partnership interests of the Company’s current wholly-owned subsidiary CE to PetroGlobe. CE operates all of our producing wells and leases which are located in Hutchinson County, Texas. See also “NOTE 8 – Commitments and Contingencies” – “Legal Proceedings”.

 

5

 

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.

 

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.

 

6

 

NOTE 2  – LIQUIDITY AND GOING CONCERN CONSIDERATIONS

 

At December 31, 2019, the Company’s total current assets of $2.4 million exceeded its total current liabilities of approximately $2.0 million, resulting in working capital of $0.4 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. The reduction from $6.1 million to $0.4 million is due to losses from continuing operations and costs incurred with the merger and ultimate divestiture of Lineal, including funds loaned to Lineal in connection with such divestiture. See also “NOTE 10 – Merger Agreement and Divestiture”.

The factors above raise substantial doubt about the Company's ability to continue to operate as a going concern for the twelve months following the issuance of these financial statements. The Company believes that it will not have sufficient liquidity to meet its operating costs unless it can raise new funding, which may be through the sale of debt or equity or unless it closes the Viking Merger (discussed below), which is scheduled to be closed by June 30, 2020, extendable up to December 31, 2020 under certain circumstances, the completion of which is the Company's current plan. There is no guarantee though that the Viking merger will be completed or other sources of funding be available. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The Company has no secured debt outstanding as of December 31, 2019.

 

During the three and nine months ended December 31, 2019 and 2018, the Company sold 0 shares and 632 shares and 0 shares and 1,577 shares, respectively, of Series C Preferred Stock pursuant to the terms of an October 2017, October 2018 and November 2018 Stock Purchase Agreement, for total consideration of $0 and $6 million and $0 and $15 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 as purchaser, 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”). 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 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 International Bank of Commerce (“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.

 

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; 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 (collectively, 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.

 

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Notwithstanding the sale of the Assets, the Company retained its assets in Glasscock 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 was 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.

 

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 Bank 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 all of its wholly-owned and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

 

Accounts Receivable

 

Accounts receivable, net, include amounts due for oil and gas revenues from prior month production, accrued interest on the notes receivable due from Lineal and an estimate of amounts due from N&B Energy related to the September 2018 Sale Agreement. 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 December 31, 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 $0 and $17,694, recognized for the three and nine-month periods ended December 31, 2019, respectively.

 

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Notes Receivable

 

Notes receivable includes the two notes due from Lineal in the amounts of $1,539,719 and $800,000, respectively, as more fully discussed in “NOTE 10 – Merger Agreement and Divestiture”. Notes receivable are reported based on the principal amounts due from Lineal pursuant to notes receivable issued by Camber to Lineal pursuant to the Redemption Agreement. As of December 31, 2019, the Company had no allowance for uncollectible amounts related to the notes receivable.

 

Property and Equipment

 

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

 

Long-lived assets including intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the assets carrying amount to determine if an impairment of such asset is necessary. This evaluation, as well as an evaluation of our intangible assets, requires the Company to make long-term forecasts of the future revenues and costs related to the assets subject to review. Forecasts require assumptions about demand for the Company’s services and future market conditions. Estimating future cash flows requires significant judgment, and the Company’s projections may vary from the cash flows eventually realized. Future events and unanticipated changes to assumptions could require a provision for impairment in a future period. The effect of any impairment would be to expense the difference between the fair value (less selling costs) of such asset and its carrying value. Such expense would be reflected in earnings. No impairments were deemed necessary for the periods ended December 31, 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. The Company recognized goodwill during the three months ended September 30, 2019 in conjunction with the Lineal Merger which was written off during the quarter ended December 31, 2019 as a result of the Lineal Divestiture as discussed in “NOTE 10 – Merger Agreement and Divestiture”.

 

Revenue Recognition 

 

 Exploration and Production 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.

 

9

 

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

 

The majority of Lineal’s 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.

Lineal’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, Lineal 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 Lineal’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.

 

Fair Value of Financial Instruments

 

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

 

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

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

 

10

 

 

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 December 31, 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

 

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.

 

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

 

 

 

December 31,
2019

 

 

March 31,
2019

 

Cash, cash equivalents and restricted cash

 

$

2,253,739

 

 

$

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.

 

11

 

 

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.

 

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.

 

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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 $1.18 and $4.20 per barrel of oil equivalent for the nine months ended December 31, 2019 and 2018, respectively.

 

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

 

 

 

 

At
December 31,

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

 

 

152,223

 

 

176,649

 

Total oil & natural gas properties

 

 

78,521,516

 

 

78,545,944

 

Accumulated depreciation, depletion, and impairment

 

 

(78,345,531

)

 

(78,333,628

)

Net Capitalized Costs

 

$

175,985

 

$

212,316

 

 

Impairments

 

For the nine months ended December 31, 2019, the Company recorded no impairments. For the nine months ended December 31, 2018, the Company recorded impairments totaling $1,304,785, which were due to lease expirations. 

 

Additions and Depletion

 

During the nine months ended December 31, 2019 and 2018, the Company incurred costs of $0 and $2,187,302, respectively, for technical and other capital enhancements to extend the lives of the Company’s wells. Additionally, the Company recorded $11,902 and $459,835 for depletion for the nine months ended December 31, 2019 and 2018, respectively.

 

Disposition of Oil and Natural Gas Properties

 

On July 12, 2018, the Company entered into the Sale Agreement, as seller, with N&B Energy as purchaser. 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 acquisitions, other than a production payment and overriding royalty interests (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.

 

13

 

Leases

 

As part of the Lineal Acquisition, the Company acquired various operating and finance leases for sales and administrative offices, motor vehicles and machinery and equipment. Due to the Redemption Agreement discussed above in “NOTE 10 – Merger Agreement and Divestiture”, the Company no longer owns the operating and finance leases that it had acquired in connection with the Lineal Acquisition.

 

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

 

NOTE 5  – ASSET RETIREMENT OBLIGATIONS

The following table presents the reconciliation of the beginning and ending aggregate carrying amounts of current and long-term obligations associated with the future retirement of oil and natural gas properties for the nine-month periods ended December 31, 2019 and 2018, respectively.

 

   2019   2018 
Carrying amount at beginning of period  $303,809   $979,159 
Accretion   2,920    4,725 
Dispositions       (699,536)
Revisions of previous estimates   (25,425)   35,422 
Carrying amount at end of period  $281,304   $319,770 

 

Camber has short-term obligations of $239,167 and $0 related to the plugging liabilities at December 31, 2019 and March 31, 2019, respectively.

 

NOTE 6  – NOTES PAYABLE AND DEBENTURE

 

The Company had no notes payable or debenture outstanding as of December 31, 2019 or March 31, 2019.

 

14

 

Debenture

 

On October 31, 2018, an accredited institutional investor, Discover Growth Fund LLC (“Discover”) converted the entire $495,000 remaining balance of principal owed under the terms of a convertible debenture which it held, 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 December 31, 2019, all of the shares have been issued.

 

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 nine months ended December 31, 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 December 31, 2018 include (1) discount rate of 2.20%, (2) expected term of 0.30 years, (3) expected volatility of 238.27%, 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.

 

15

 

Lineal (which as of December 31, 2019 has been completely divested in connection with the Lineal Divestiture discussed in “NOTE 10 – Merger Agreement and Divestiture”) has the usual liability of contractors for the completion of contracts and the warranty of its work. In addition, Lineal acts as prime contractor on a majority of the projects it undertakes and is normally responsible for the performance of the entire project, including subcontract work. Management is not aware of any material exposure related thereto which has not been provided for in the accompanying consolidated financial statements.

 

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

 

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

 

On January 31, 2020, the Company entered into a Settlement Agreement as discussed in “NOTE 1 – General”. The $250,000 that the Company agreed to pay has been included in current liabilities on the consolidated balance sheet as of December 31, 2019, and the Company recognized its asset retirement obligations related these properties as current liabilities as the Company expects to become compliant with the Texas Railroad Commission in March 2020, resulting in a net settlement cost of $204,842 included on the statement of operations for the three and nine-month periods ended December 31, 2019.  Upon satisfaction of the Settlement Agreement conditions and disposition of the assets and related liabilities, the Company will record the transfer of a deposit of a surety bond of $50,000 and the related oil and gas properties of approximately $70,000 at December 31, 2019, oil currently held in storage at the Company’s location and any related outstanding accounts receivable due to the Company.  The Company has fully reserved any amounts related to the oil in storage and the accounts receivable which are recorded on the Consolidated Balance Sheet as of December 31, 2019 at $0.

 

16

 

The intention of such transfer of wells and partnership interests of CE is that (a) the Company shall be completely removed from liabilities resulting from future acts or omissions of CE occurring after such transfer date, (b) CE is effectively transferred and all steps have been approved by the Railroad Commission of Texas, including approval of new directors, officers, and owners of greater than a 25% interest in CE, and (c) that liability for the wells and partnership interests of the Company in CE, and the current officers and directors of CE, will be transferred after approval by the Railroad Commission along with all oil in storage tanks and the bond currently in place. CE operates all of our producing wells and leases located in Hutchinson County, Texas.

 

The Company also agreed to bring the certain wells into regulatory compliance to the extent such compliance is required to obtain Railroad Commission of Texas approval and upon successful completion of the Company bringing the properties into regulatory compliance, the Company is required to assign to PetroGlobe, or its designee, all of its right, title and interest in all wells, leases, royalties, minerals, equipment, and other tangible assets associated with specified wells and properties. Such properties shall be free and clear of all claims and liens arising during the direct operation of such properties by CE. In the event that the Railroad Commission of Texas fails or refuses to approve the form “P-5 O” to remove all current officers, directors, and owners of CE from the form and substitute the officers, directors and owners of CE as directed by PetroGlobe within 180 days of delivery of assignment of the Company’s interests in CE to PetroGlobe, or its designee, the parties will cooperate to seek divestiture of their interests in the wells and leaseholds held in escrow. Upon completion of such divestiture and removal of Company and the current officers and directors of CE from potential regulatory responsibility for such wells and leaseholds, the Company is required to direct the release to PetroGlobe of all funds held in escrow. If the properties are not divested within the additional 180 day period, the funds held in escrow are to be returned to the Company.

 

Upon the Company successfully bringing properties into regulatory compliance and assigning the properties to PetroGlobe, or its designee, the Company is required to also assign all of its membership interests in Petrolia.

 

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

 

The parties agreed to promptly cause the filing of a motion and order to dismiss the lawsuit with prejudice shortly after execution of the Settlement Agreement.

 

Apache Corporation

 

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

 

17

 

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 in negotiations to settle the matter with N&B Energy through binding arbitration.

 

NOTE 9  – REVENUE FROM CONTRACTS WITH CUSTOMERS

 

Oil and Gas Contracts

 

The following table disaggregates revenue by significant product type for the three and nine months ended December 31, 2019 and 2018: 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Oil sales

 

$

69,092

 

 

$

78,301

 

 

$

229,577

 

 

$

455,32

 

Natural gas sales

 

 

9,871

 

 

 

13,114

 

 

 

29,418

 

 

 

753,057

 

Natural gas liquids sales

 

 

15,152

 

 

 

41,522

 

 

 

49,224

 

 

 

1,423,720

 

Total oil and gas revenue from customers

 

$

94,115

 

 

$

127,937

 

 

$

308,219

 

 

$

2,632,099

 

 

NOTE 10  – MERGER AGREEMENT AND DIVESTITURE

 

Merger Agreement

 

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

 

In connection with the Lineal 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 Lineal 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 “July 2019 Lineal Note”).

 

18

 

Also as part of the Lineal 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”).

 

The Lineal Plan of Merger, Series D Designation and Series E Designation, provided that, effective upon the date that the stockholders of the Company had approved the Lineal 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 were to hold between 6% and 6.67% of the Company’s fully-diluted capitalization (depending on certain factors); (b) Discover was to 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 held the Series E Preferred Stock, were to have the right to convert such Series E Preferred Stock, subject to the terms thereof, as discussed above, into 66.67% of the Company’s fully-diluted capitalization, or 70%, subject to certain factors.

 

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

 

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

 

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

 

 

The Series E Preferred Shares and the Series F Preferred Shares were determined to be contingently redeemable preferred stock and were accounted for as mezzanine equity. The 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 Lineal 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.

 

19

 

The allocation of the preliminary purchase price to the assets and liabilities acquired in connection with the Lineal Merger was based on the current values of the assets and liabilities of Lineal as of the Lineal 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 was 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 was allocated to goodwill.

 

Divestiture

 

On December 31, 2019, the Company entered into, and closed the transactions contemplated by the Redemption Agreement, by and between the Company, Lineal and the Preferred Holders.

 

Pursuant to the Redemption Agreement, the Company redeemed the Company’s Series E and F Preferred Stock issued in connection with the Lineal Merger and ownership of 100% of Lineal was transferred back to the Preferred Holders, and all of the Series E Preferred Stock and Series F Preferred Stock of the Company outstanding were cancelled through the redemption. See also “NOTE 10 – Merger Agreement and Divestiture”.

 

The Redemption Agreement also provided for (a) the entry by Lineal and the Company into a new unsecured promissory note in the amount of $1,539,719, the outstanding amount of the July 2019 Lineal Note together with additional amounts loaned by Camber to Lineal through December 31, 2019 (the “December 2019 Lineal Note”); (b) the unsecured loan by the Company to Lineal on December 31, 2019 of an additional $800,000, entered into by Lineal in favor of the Company on December 31, 2019 (“Lineal Note No. 2”); and (c) the termination of the prior Lineal Plan of Merger and Funding Agreement entered into in connection therewith (pursuant to which all funds previously held in a segregated account for future Lineal acquisitions, less amounts loaned pursuant to Lineal Note No. 2, were released back to the Company). The December 2019 Lineal Note and Lineal Note No. 2, accrue interest, payable quarterly in arrears, beginning on March 31, 2020 and continuing until December 31, 2021, when all interest and principal is due, at 8% and 10% per annum (18% upon the occurrence of an event of default), respectively. As of December 31, 2019, $51,656 of interest related to the December 2019 Lineal Note and Lineal Note No. 2 was accrued and included in the consolidated balance sheet in Accounts Receivable.

 

The divestiture resulting from the Redemption Agreement qualifies as a discontinued operation in accordance with U.S. generally accepted accounting principles (“GAAP”). As a result, operating results and cash flows related to the Lineal operations have been reflected as discontinued operations in the Company’s consolidated statements of operations and consolidated statements of cash flows for the periods presented.

 

20

 

The net consideration received for the divestiture was as follows:

 

Return of Series E Preferred Shares

 

$

14,666,000

 

Return of Series F Preferred Shares

 

 

2,434,000

 

   Total net consideration

 

$

17,100,000

 

 

The fair value of the instruments immediately prior to the divestiture was determined using an income valuation approach to estimate 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. Immediately prior to the Lineal Disposition, the Company recognized a gain on the change in fair value of the Series E and F Preferred Shares of $3,018,000, included within net loss from discontinued operations.

 

The following table summarizes the assets and liabilities of Lineal which were transferred from the Company to the Preferred Holders, together with Lineal, as part of the Redemption agreement:

 

Cash   $ 2,101,879  
Accounts receivable     1,673,538  
Deferred tax assets     34,000  
Cost in excess of billings     497,340  
Property and equipment     1,996,229  
Right of use asset – operating leases     710,898  
Other current assets and deposits     49,275  
Goodwill     18,314,222  
Accounts payable – trade     (260,882 )
Accrued and other liabilities     (369,448 )
Billings in excess of costs                                                                                                               (445,759)  
Operating lease liabilities     (710,898 )
Finance lease liabilities     (237,925 )
Notes payable     (3,545,841 )
   Net assets divested   $ 19,806,628  

 

As a result of the above, the Company recognized a loss on the disposal of the Lineal operations of $2,706,628 included within net loss from discontinued operations.

 

Components of amounts reflected in the Company’s consolidated statements of operations related to discontinued operations are presented in the following table for the three and nine months ended December 31, 2019.

 

    Three Months Ended     Nine Months Ended  
    December 31, 2019     December 31, 2019  
Contract revenue   $ 2,821,229     $ 9,106,764  
Contract costs     (2,875,530 )     (7,772,726 )
Depreciation and amortization     (90,415 )     (155,282 )
Selling, general and administrative     (885,164 )     (1,649,643 )
Operating loss     (1,029,880 )     (470,887 )
Other income     9,925       273,037  
Interest expense     (1,529 )     (113,522)  
Net (loss) from discontinued operations     (1,021,484)       (311,372 )
Loss on disposal of business     (2,706,628 )     (2,706,628 )
Change in value of preferred stock     3,018,000       3,018,000  
Total loss on discontinued operations   $ (710,112 )   $  

 

21

 

NOTE 11  - 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 nine months ended December 31, 2019 and 2018. The tax liability of $3,000 as shown on the balance sheet as of December 31, 2019, relates to the Company’s potential Oklahoma franchise tax liability and is not related to income tax.

 

NOTE 12  – 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 a 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. On October 15, 2019, the Company entered into a Settlement and Mutual Release Agreement (the “Release”) with Regal, pursuant to which it agreed to settle and terminate the consulting agreement with Regal. Pursuant to the Release, 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. 

 

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 December 31, 2019.

 

22

 

During the three and nine months ended December 31, 2019, Discover and Discover Growth Fund, which purchased shares of Series C Preferred Stock from us in December 2018 (“Discover Growth”, which subsequently transferred all of its shares of Series C Preferred Stock to Discover) converted 8 and 11 shares of the Series C Preferred Stock with a face value of $80,000 and $110,000, respectively, and a total of 3,604,160 shares and 4,608,610 shares of common stock were issued, respectively, which includes additional shares for conversion premiums and true ups in connection with those conversions through December 31, 2019.

 

As of December 31, 2019, a total of 777,489 shares were due to Discover in connection with the Series C Preferred Stock conversions discussed above, 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 such party, of which 290,833 shares were issued subsequent to December 31, 2019.

 

From April 1, 2019 to December 31, 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 December 31, 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 December 31, 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.

 

Series C Redeemable Convertible Preferred Stock

 

During the three and nine months ended December 31, 2018, the Company sold 632 and 1,577 shares of Series C Preferred Stock pursuant to the terms of an October 2017 Stock Purchase Agreement, October 2019 Stock Purchase Agreement and November 2018 Stock Purchase Agreement, for total consideration of $6 million and $15 million, respectively.  During the three and nine months ended December 31, 2019, the Company sold no shares of Series C Preferred Stock. As of December 31, 2019 and 2018, there were 2,294 and 2,305 shares of Series C Preferred Stock outstanding, respectively.

 

During the three and nine months ended December 31, 2018, Discover converted 10 and 404 shares of the Series C Preferred Stock with a face value of $0.1 million and $4.04 million, respectively, and a total of 2,234 shares and 4,403 shares of common stock were issued, respectively, which includes additional shares for conversion premiums and true ups in connection with those conversions through December 31, 2018.

 

23

 

During the three and nine months ended December 31, 2019, Discover and Discover Growth converted 8 and 11 shares of the Series C Preferred Stock with a face value of $80,000 and $110,000, respectively, and a total of 3,604,160 shares and 4,608,610 shares of common stock were issued, respectively, which includes additional shares for conversion premiums and true ups in connection with those conversions through December 31, 2019.

 

As of December 31, 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 $1,890,887 and $1,615,886 related to the stock dividend declared but not issued for the quarters ended December 31, 2019 and 2018, respectively. The Company recognized a total charge to additional paid-in capital and stock dividends distributable but not issued of $5,662,828 and $3,211,064 related to the stock dividends declared but not issued for the nine months ended December 31, 2019 and 2018, respectively.

 

As of December 31, 2019, a total of 777,489 shares were due to Discover, 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 such party, of which 290,833 shares were issued subsequent to December 31, 2019.

 

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

 

As described above in “NOTE 1 – General” and “NOTE 10 – Merger Agreement and Divestiture”, on the Closing Date, pursuant to the Lineal 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 and effective on December 31, 2019, the Company divested its ownership in Lineal and the Series E Preferred Stock and Series F Preferred Stock were returned to the Company and cancelled.

 

Warrants

 

The following is a summary of the Company’s outstanding warrants at December 31, 2019:

 

Warrants

 

 

Exercise

 

 

 

Expiration

 

 

 

Intrinsic Value at

 

Outstanding

 

 

Price ($)

 

 

 

Date

 

 

 

December 31, 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.

 

NOTE 13  – 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 December 31, 2019 and March 31, 2019, the Company had 2 stock options outstanding with a weighted average exercise price of $40,429,700.

 

24

 

 

Of the Company’s outstanding options, no options were exercised or forfeited during the nine months ended December 31, 2019. Additionally, no stock options were granted during the nine months ended December 31, 2019. Compensation expense related to stock options during the nine-month periods ended December 31, 2019 and 2018 was $0.

 

Options outstanding and exercisable at December 31, 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 December 31, 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 December 31, 2019:

 

Exercise

 

Remaining

 

 

Options

 

 

Options

 

Price ($)

 

Life (Yrs.)

 

 

Outstanding

 

 

Exercisable

 

40,429,700

 

 

0.75

 

 

 

2

 

 

 

2

 

 

 

 

Total

 

 

 

2

 

 

 

2

 

 

NOTE 14 – INCOME (LOSS) PER COMMON SHARE 

 

The calculation of earnings (loss) per share for the three and nine months ended December 31, 2019 and 2018 was as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before discontinued operations

 

$

(1,123,566

)

 

$

(1,586,084

)

 

$

(3,398,240

)

 

$

18,130,185

 

Discontinued operations

 

 

(710,112

)

 

 

 

 

 

 

 

 

Net income (loss)

 

 

(1,833,678

)

 

 

(1,586,084

 

 

 

(3,398,240

)

 

 

18,130,185

 

Less preferred dividends

 

 

(1,890,887

)

 

 

(1,615,886

)

 

 

(5,662,828

)

 

 

(3,211,064

)

Net income (loss) attributable to common stockholders

 

$

(3,724,565

)

 

$

(3,201,970

)

 

$

(9,061,068

)

 

$

14,919,121

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average share – basic

 

 

2,937,254

 

 

 

4,000

 

 

 

1,155,285

 

 

 

1,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of common stock equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options/warrants

 

 

 

 

 

 

 

 

 

 

 

494

 

Convertible debenture

 

 

 

 

 

 

 

 

 

 

 

 

Preferred C shares

 

 

 

 

 

 

 

 

 

 

 

25,827

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Weighted average shares – diluted

 

 

2,937,254

 

 

 

4,000

 

 

 

1,155,285

 

 

 

28,190

 

Income (loss) per share – basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(1.03

)

 

$

(800.49

)

 

$

(7.84

)

 

$

7,982.41

 

Discontinued operations

 

 

(0.24

)

 

 

 

 

 

 

 

 

Total

 

$

(1.27

)

 

$

(800.49

)

 

$

(7.84

)

 

$

7,982.41

 

Income (loss) per share – diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing Operations

 

$

(1.03

)

 

$

(800.49

)

 

$

(7.84

)

 

$

529.23

 

Discontinued operations

 

 

(0.24

)

 

 

 

 

 

 

 

 

Total

 

$

(1.27

)

 

$

(800.49

)

 

$

(7.84

)

 

$

529.23

 

 

25

 

 

For the three and nine months ended December 31, 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

 

 

Nine Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Common Shares Issuable for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible Debt

 

 

276

 

 

 

 

 

 

276

 

 

 

 

Options and Warrants

 

 

38

 

 

 

1,071,7182

 

 

 

38