|6 Months Ended|
Sep. 30, 2019
|Organization, Consolidation and Presentation of Financial Statements [Abstract]|
On July 8, 2019 (the “Closing Date”), the Company entered into, and closed the transactions contemplated by, a Plan of Merger, by and between the Company, Camber Energy Merger Sub 2, Inc., the Company’s newly formed wholly-owned subsidiary, Lineal, and the Lineal Members. Pursuant to the Plan of Merger, the Company acquired 100% of the ownership of Lineal from the Lineal Members in consideration for newly issued shares of Series E Redeemable Convertible Preferred Stock and Series F Redeemable Preferred Stock, as described in greater detail below.
In connection with the Plan of Merger, the Company entered into several other agreements, including (a) a Security Exchange Agreement dated July 8, 2019 (the “Exchange Agreement”), by and between the Company and Discover; (b) a Termination Agreement dated July 8, 2019, by and between the Company and Discover Growth; and (c) a Funding and Loan Agreement dated July 8, 2019, by and among the Company, Lineal, and certain of the Lineal Members who also acquired shares of the Company’s preferred stock as a result of the Merger (the “Funding Agreement”), which provided for the Company to loan $1,050,000 to Lineal, which loan was evidenced by a Promissory Note entered into by Lineal, as borrower, in favor of the Company, as lender, dated July 8, 2019 (the “Note”).
Also as part of the Merger, the Company designated three new series of preferred stock, (1) Series D Convertible Preferred Stock (the “Series D Preferred Stock” and the certificate of designations setting forth the rights thereof, the “Series D Designation”); (2) Series E Redeemable Convertible Preferred Stock (the “Series E Preferred Stock” and the certificate of designation setting forth the rights thereof (the “Series E Designation”); and (3) Series F Redeemable Preferred Stock (the “Series F Preferred Stock” and the certificate of designation setting forth the rights thereof, the “Series F Designation”, and the Series E Preferred Stock and the Series F Preferred Stock, collectively, the “Series E and F Preferred Stock”). Additionally, with the approval of the holders thereof, the Company amended and restated the designation of its Series C Redeemable Convertible Preferred Stock (the “Series C Preferred Stock” and the amended and restated designation setting forth the rights thereof, the “Series C Designation”). All of the preferred stock and related designations are described in greater detail below.
The result of the Plan of Merger, Series D Designation and Series E Designation, will be that, effective upon the date that the stockholders of the Company have approved the Plan of Merger and issuance of shares in connection therewith (the “Stockholder Approval” and such date of Stockholder Approval, the “Stockholder Approval Date”), and subject to certain closing conditions, (a) the common stock holders of the Company will hold between 6% and 6.67% of the Company’s fully-diluted capitalization (depending on certain factors); (b) Discover will hold Series D Preferred Stock convertible into 26.67% of the Company’s fully-diluted capitalization, subject to the terms of the Series D Preferred Stock; and (c) the Lineal Members, who hold the Series E Preferred Stock, will have the right to convert such Series E Preferred Stock, subject to the terms thereof, as discussed below, into 66.67% of the Company’s fully-diluted capitalization, or 70%, subject to certain factors. In the event the Stockholder Approval Date does not occur, the Series E Preferred Stock will not be convertible, the Series C Preferred Stock will not be exchanged for Series D Preferred Stock, no Series D Preferred Stock will be outstanding and as a result, the terms of the Series C Preferred Stock, as set forth in the Series C Designation, will continue to apply. Additionally, in the event the Company completes a further acquisition/combination prior to Stockholder Approval, the post-Stockholder Approval ownership percentages above may be subject to modification with the mutual approval of the preferred stockholders and the Company.
Pursuant to the Plan of Merger, Merger Sub merged with and into Lineal, with Lineal continuing as the surviving entity in the Merger and as a wholly-owned subsidiary of the Company.
The Funding Agreement required the Company, promptly following the Closing Date, to deposit into a newly opened and dedicated bank account, $4,000,000 (the “Deposit”), which was intended to be used for acquisitions. The disbursement of the Deposit from the account is required to be approved by (i) a person designated by the holders of the Series E Preferred Stock; and (ii) the Company. As of September 30, 2019, a total of $4,000,000 remained of the Deposit.
The Funding Agreement also required the Company to fund $1,050,000 in immediately available funds to Lineal (the “Loan”). The Loan was documented by a promissory note and the Loan was made on July 9, 2019.
In the event the Stockholder Approval has been received, the Note and all principal and interest due thereunder will be automatically forgiven by the Company.
On July 3, 2019, the Company entered into an Indemnification Agreement with each of its then officers and directors.
The terms of the Plan of Merger, and the designations of the preferred stock are described in greater detail in the Company’s Current Report on Form 8-K and Form 8-K/A filed with the Securities and Exchange Commission on July 9, 2019 and July 10, 2019, respectively.
The Plan of Merger contained certain post-closing requirements. Those include:
The consideration paid for the acquisition was as follows:
The Series E Preferred Shares and the Series F Preferred Shares were determined to be contingently redeemable preferred stock, and are accounted for as mezzanine equity. The initial fair value of the instruments was determined using an income valuation approach to estimated cash flows of the acquired business, analysis of the terms and rights of each class of equity instrument issued by the Company and an assessment of the probability of the various scenarios that could occur depending on the outcome of the Stockholder Approval vote, and the impact each scenario would have on the capital structure of the Company. Subsequent to the date of the Merger, the instruments will be assessed to determine whether it is probable of the instruments being redeemed as a result of contingencies being resolved. When it is deemed probable, the fair value will be adjusted to the new estimate of fair value in that period.
The allocation of the preliminary purchase price to the assets and liabilities acquired from the Merger is based on the current values of the assets and liabilities of Lineal as of the Merger date on July 8, 2019 and are as follows:
The total purchase price is allocated to the acquired tangible and intangible assets and liabilities of Lineal based on their estimated fair values as of the purchase closing date. The excess of the purchase price over the fair value of assets and liabilities acquired, if any, is allocated to goodwill. The purchase price allocation above is preliminary, as the Company has not completed the assessment of the fair value of assets acquired, liabilities assumed and the identification of any intangible assets. The Company expects to finalize the purchase price allocation within one year of the acquisition date, which may result in material changes to the preliminary values recognized above.
The results of Lineal are included in the consolidated financial statements effective July 8, 2019. Revenue and income from operations for the period since the acquisition date through September 30, 2019 were $6,285,535 and $1,323,471, respectively. The Company incurred transaction costs of $567,000 related to the acquisition.
The following schedule contains pro-forma consolidated results of operations for the three and six months ended September 30, 2019 and 2018 as if the acquisition occurred on April 1, 2018. The pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisition had taken place on April 1, 2018, or of results that may occur in the future.
The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef