SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|6 Months Ended|
Sep. 30, 2019
|Accounting Policies [Abstract]|
|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.
Certain reclassifications have been made to the prior year financial statements to conform them with the current year presentation. These reclassifications had no effect on the reported results of operations.
Principles of Consolidation
The consolidated financial statements include the accounts of Camber and Lineal and all of their wholly-owned and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.
Accounts receivable and contract work in progress consist primarily of billings for work performed according to contracts from clients in the oil, gas, refinery, petrochemical and power industries in North America. Trade accounts receivables are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the probable amount of credit losses in the Company’s existing accounts receivable. At September 30, 2019 and March 31, 2019, there were allowances for doubtful accounts of approximately $208,000 and $190,000, respectively, included in accounts receivable, and there were bad debts of $17,694 recognized for the three and six-month periods ended September 30, 2019. Included in accounts receivable at September 30, 2019 are balances of approximately $1,891,000 of billed balances not paid by customers pursuant to retainage provisions in the respective contracts. The balances billed but not paid by customers pursuant to retainage provisions in certain contracts are generally due upon completion of the contracts and acceptance by the customer. Based on the Company’s contract terms in recent years, the retainage balances at each balance sheet date are expected to be collected within the next 12 months.
The Company has a factoring agreement with an unrelated third-party financial institution whereby the Company can borrow up to $4 million, with such borrowing based on up to 85% of a billed invoice and pay a factoring fee of 10% per annum on balances outstanding under the factoring agreement. The arrangement is accounted for as a secured borrowing due to the full recourse provided by the Company. Amounts due under the factoring agreement mature on August 15, 2020. At September 30, 2019, the Company had no outstanding borrowings. Factoring fees totaled $14,623 for the three and six-month periods ended September 30, 2019, respectively.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over their useful lives. Amortization of the equipment under capital leases is computed using the straight-line method over lives ranging from 3 to 5 years and is included in depreciation expense. Costs of maintenance and repairs are charged to expense when incurred.
Long-lived assets including intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the assets carrying amount to determine if an impairment of such asset is necessary. This evaluation, as well as an evaluation of our intangible assets, requires the Company to make long-term forecasts of the future revenues and costs related to the assets subject to review. Forecasts require assumptions about demand for the Company’s services and future market conditions. Estimating future cash flows requires significant judgment, and the Company’s projections may vary from the cash flows eventually realized. Future events and unanticipated changes to assumptions could require a provision for impairment in a future period. The effect of any impairment would be to expense the difference between the fair value (less selling costs) of such asset and its carrying value. Such expense would be reflected in earnings. No impairments were deemed necessary for the periods ended September 30, 2019 and March 31, 2019.
Goodwill is tested for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred. Goodwill is reviewed for impairment at the reporting unit level, which is defined as operating segments or groupings of businesses one level below the operating segment level. The Company’s operating segments are the same as the reporting units used in its goodwill impairment test. Goodwill is tested for impairment by comparing the estimated fair value of a reporting unit, determined using a market approach, if market prices are available, or alternatively, a discounted cash flow model, with its carrying value. The annual evaluation of goodwill requires the use of estimates about future operating results, valuation multiples and discount rates of each reporting unit to determine their estimated fair value. Changes in these assumptions can materially affect these estimates. Once an impairment of goodwill has been recorded, it cannot be reversed. No goodwill impairment was recognized during any of the periods presented. The Company recognized goodwill during the three months ended September 30, 2019 as a result of the Lineal Merger as discussed in “NOTE 11 – Merger Agreement”.
The Company recognizes an acquired intangible asset apart from goodwill whenever the intangible asset arises from contractual or other legal rights, or when it can be separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract, asset or liability. Such intangibles are amortized over their useful lives. Impairment losses are recognized if the carrying amount of an intangible asset subject to amortization is not recoverable from expected future cash flows and its carrying amount exceeds its fair value.
Exploration and Product Revenue
The Company’s revenue for its exploration and production segment is comprised entirely of revenue from exploration and production activities. The Company’s oil is sold primarily to marketers, gatherers, and refiners. Natural gas is sold primarily to interstate and intrastate natural-gas pipelines, direct end-users, industrial users, local distribution companies, and natural-gas marketers. Natural gas liquids (NGLs) are sold primarily to direct end-users, refiners, and marketers. Payment is generally received from the customer in the month following delivery.
Contracts with customers have varying terms, including month-to-month contracts, and contracts with a finite term. The Company recognizes sales revenues for oil, natural gas, and NGLs based on the amount of each product sold to a customer when control transfers to the customer. Generally, control transfers at the time of delivery to the customer at a pipeline interconnect, the tailgate of a processing facility, or as a tanker lifting is completed. Revenue is measured based on the contract price, which may be index-based or fixed, and may include adjustments for market differentials and downstream costs incurred by the customer, including gathering, transportation, and fuel costs.
Revenues are recognized for the sale of the Company’s net share of production volumes. Sales on behalf of other working interest owners and royalty interest owners are not recognized as revenues.
Oil and Gas Services Revenue
After closing the Lineal Merger on July 8, 2019, the Company’s oil and gas services segment generates revenue from utilities pipeline maintenance contracts. The majority of the oil and gas service revenue is derived from contracts and projects that typically span between 3 to 12 months. The oil and gas service contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.
The Company’s construction contracts are recognized over time because of the continuous transfer of control to the customer as all of the work is performed at the customer’s site and, therefore, the customer controls the asset as it is being constructed. Contract costs include labor, material, and indirect costs. Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, the Company estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract.
Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, and the performance of subcontractors.
The timing of revenue recognition, billings and cash collections results in billed accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) on the consolidated balance sheet. On the Company’s construction contracts, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Generally, billing occurs prior to revenue recognition, resulting in contract liabilities. These assets and liabilities are reported on the consolidated balance sheet on a contract-by-contract basis at the end of each reporting period.
Provision for Loss
The Company recognizes a loss on a portion of a project in the month it anticipates having a loss on the entire project, on the Company’s consolidated financial statements. The Company calculates a loss provision based on comparing the expected margin versus actual to date margin on the project. The actual margin to date is based on 1) actual costs incurred to date and the estimated cost to complete compared to 2) the project inception to date margin. The loss is calculated and recorded as an expense and accumulated on the balance sheet as a liability. Over time, the liability account will reverse itself as the Company realizes the loss projected. Any realized losses are included in cost of revenue in the consolidated statement of operations as they occur until the project is completed. During the three and six months ended September 30, 2019 and 2018, there were no realized losses recognized.
Concentration of Credit Risk
The Company has a concentration of customers in the oil and gas and power industries which expose the Company to a concentration of credit risk within a single industry. The Company seeks to obtain advance and progress payments for contract work performed on major contracts. Receivables are generally not collateralized.
During the three-month period ended September 30, 2019, three oil and gas service contract customers accounted for approximately 49%, 42% and 13%, respectively, and for the same period the prior year, four oil and gas production customers accounted for approximately 31%, 27%, 19% and 13% of the Company’s revenue. During the six month period ending September 30, 2019, the same oil and gas service three contract customers accounted for approximately 48%, 41% and 13%, respectively, and for the same period the prior year, three oil and gas production customers accounted for approximately 37%, 35% and 12% of the Company’s revenue. At September 30, 2019, one customer accounted for 82% of outstanding accounts receivable.
Fair Value of Financial Instruments
ASC 820 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. It defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
As of September 30, 2019 and March 31, 2019, the significant inputs to the Company’s derivative liability and mezzanine equity calculations were Level 3 inputs.
Recently Adopted Accounting Pronouncements
Accounting Standards Codification (ASC) 2014-09, “Revenue from Contracts with Customers (Topic 606)”, supersedes the revenue recognition requirements and industry-specific guidance under Revenue Recognition (Topic 605). Topic 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. The Company adopted Topic 606 on April 1, 2018, using the modified retrospective method applied to contracts that were not completed as of April 1, 2018. Under the modified retrospective method, prior period financial positions and results will not be adjusted. The cumulative effect adjustment recognized in the opening balances included no significant changes as a result of this adoption. While the Company does not expect 2020 net earnings to be materially impacted by revenue recognition timing changes, Topic 606 requires certain changes to the presentation of revenues and related expenses beginning April 1, 2018. Refer to “NOTE 9 – Revenue from Contracts with Customers” for additional information.
In November 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) amending the presentation of restricted cash within the consolidated statements of cash flows. The new guidance requires that restricted cash be added to cash and cash equivalents on the consolidated statements of cash flows. The Company adopted this ASU on April 1, 2018.
Following is a summary of cash and cash equivalents and restricted cash:
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 seeks to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2017. The Company adopted this ASU on April 1, 2018 and the adoption did not have a significant impact to the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which amends the current definition of a business. Under ASU 2017-01, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contributes to the ability to create outputs. ASU 2017-01 further states that when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The new guidance also narrows the definition of the term “outputs” to be consistent with how it is described in Topic 606, Revenue from Contracts with Customers. The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions. The guidance is effective for the annual period beginning after December 15, 2017, with early adoption permitted. The Company adopted this ASU on April 1, 2018 and the adoption did not have a significant impact to the Company’s consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting”, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company adopted this ASU on April 1, 2018 and the adoption did not have a significant impact to the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016.02 “Leases (Topic 842)”. The new lease guidance supersedes Topic 840. The core principle of the guidance is that entities should recognize the assets and liabilities that arise from leases. Topic 840 does not apply to leases to explore for, or to use, minerals, oil, natural gas and similar nongenerative resources including the intangible right to explore for those natural resources and rights to use the land in which those natural resources are contained. In July 2018, the FASB issued “Leases (Topic 842): Targeted Improvements”, which provides entities with an alternative modified transition method to elect not to recast the comparative periods presented when adopting Topic 842. The Company adopted Topic 842 as of April 1, 2019, using the alternative modified transition, for which, comparative periods, including the disclosures related to those periods, are not restated.
In addition, the Company elected practical expedients provided by the new standard, and the Company has elected to not reassess its prior conclusions about lease identification, lease classification, and initial direct costs and to retain off-balance sheet treatment of short-term leases (i.e., 12 months or less which do not contain purchase options that the Company is reasonably likely to exercise). As a result of the short-term expedient election, the Company does not have leases that require the recording of a net lease asset and lease liability on the Company’s consolidated balance sheet or have a material impact on consolidated earnings or cash flows as of April 1, 2019. Moving forward, the Company will evaluate any new lease commitments for application of topic 842.
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement,” which changes the disclosure requirements for fair value measurements by removing, adding, and modifying certain disclosures. The Company adopted ASU 2018-13 effective April 1, 2019. The adoption did not have a material impact on its consolidated financial statements.
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.
The Company has evaluated all transactions through the date the consolidated financial statements were issued for subsequent event disclosure consideration.
The entire disclosure for all significant accounting policies of the reporting entity.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef