LIQUIDITY AND GOING CONCERN CONSIDERATIONS
|9 Months Ended|
Dec. 31, 2019
|Organization, Consolidation and Presentation of Financial Statements [Abstract]|
|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.
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.
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:
The entire disclosure when substantial doubt is raised about the ability to continue as a going concern. Includes, but is not limited to, principal conditions or events that raised substantial doubt about the ability to continue as a going concern, management's evaluation of the significance of those conditions or events in relation to the ability to meet its obligations, and management's plans that alleviated or are intended to mitigate the conditions or events that raise substantial doubt about the ability to continue as a going concern.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef