Camber Energy(CEI) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and related notes for Camber Energy, Inc ITEM 1. Financial Statements This section presents the unaudited consolidated financial statements for Camber Energy, Inc., including balance sheets, statements of operations, changes in stockholders' equity, and cash flows for the periods ended June 30, 2019, and March 31, 2019 (or June 30, 2018 for income statement and cash flow) It also includes detailed notes explaining significant accounting policies, liquidity, asset dispositions, and recent corporate actions like reverse stock splits and the Lineal acquisition Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Summary (Unaudited) | Metric | June 30, 2019 | March 31, 2019 | | :--------------------------------------- | :-------------- | :--------------- | | ASSETS | | | | Total Current Assets | $6,675,287 | $8,170,965 | | Total Property and Equipment, Net | $217,205 | $213,188 | | Total Assets | $7,166,011 | $8,582,672 | | LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | | Total Current Liabilities | $1,663,144 | $2,103,802 | | Total Liabilities | $1,975,213 | $2,407,616 | | Total Stockholders' Equity | $5,190,798 | $6,175,056 | - Total assets decreased from $8.58 million at March 31, 2019, to $7.17 million at June 30, 2019, primarily driven by a decrease in cash and other current assets[13] - Total liabilities decreased from $2.41 million to $1.98 million, mainly due to a reduction in common stock payable and accounts payable[13] Consolidated Statements of Operations This section outlines the company's revenues, expenses, and net loss over specific reporting periods Consolidated Statements of Operations Summary (Unaudited) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------- | :------------- | | Total Revenues | $121,351 | $1,694,696 | $(1,573,345) | (93)% | | Total Operating Expenses | $1,462,364 | $4,236,333 | $(2,773,969) | (65)% | | Operating Loss | $(1,341,013) | $(2,541,637) | $1,200,624 | (47)% | | Net Loss | $(1,287,598) | $(3,512,097) | $2,224,499 | (63)% | | Net Loss Per Common Share (Basic and Diluted) | $(4.13) | $(277.10) | $272.97 | (98.5)% | | Weighted Average Number of Common Shares Outstanding | 767,389 | 15,202 | 752,187 | 4948% | - The company significantly reduced its net loss by 63% year-over-year, from $(3.51) million in Q2 2018 to $(1.29) million in Q2 2019, primarily due to lower operating expenses and interest expense[16] - Total revenues decreased by 93% year-over-year, from $1.69 million in Q2 2018 to $0.12 million in Q2 2019, largely due to the disposition of assets[16] Consolidated Statements of Changes in Stockholders' Equity (Deficit) This section details changes in the company's equity, including net loss, stock issuances, and dividends - Total stockholders' equity decreased from $6.18 million at March 31, 2019, to $5.19 million at June 30, 2019, primarily due to the net loss incurred during the quarter and stock dividends distributable[20] - Common shares issued and outstanding increased significantly from 672,103 at March 31, 2019, to 1,952,679 at June 30, 2019, mainly due to conversions of Series B Preferred Stock and payments for consulting fees[20] Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Summary (Unaudited) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Change (YoY) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------- | | Net Cash Used in Operating Activities | $(1,298,906) | $(1,246,307) | $(52,599) | | Net Cash Used in Investing Activities | $(75,000) | $(904,275) | $829,275 | | Net Cash Provided by Financing Activities | $0 | $2,000,000 | $(2,000,000) | | Decrease in Cash and Restricted Cash | $(1,373,906) | $(150,582) | $(1,223,324) | | Cash and Restricted Cash at End of Period | $6,404,817 | $638,569 | $5,766,248 | - Net cash used in operating activities slightly increased by $52,599 year-over-year, reaching $(1.30) million in Q2 2019[23] - Net cash used in investing activities significantly decreased by $0.83 million, from $(0.90) million in Q2 2018 to $(0.08) million in Q2 2019, primarily due to reduced oil and gas property development costs[23] - Net cash provided by financing activities decreased by $2.0 million year-over-year, as there were no sales of Series C Preferred Stock in Q2 2019 compared to $2.0 million in Q2 2018[23] Notes to the Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements NOTE 1 – GENERAL Camber Energy, Inc. acquired Lineal Star Holdings, LLC on July 9, 2019, transitioning its primary focus from an oil and gas company to an oil and gas services enterprise The company retained certain assets in Texas and royalty interests in Oklahoma after selling a substantial portion of its assets to N&B Energy, LLC in August 2018 Multiple reverse stock splits were effected between March 2018 and July 2019, retroactively adjusted in financial statements - Camber Energy, Inc. acquired Lineal Star Holdings, LLC on July 9, 2019, shifting its primary business from oil and gas production to providing oil and gas services[25] - The company completed multiple reverse stock splits (1-for-25 each) in March 2018, December 2018, and July 2019, retroactively adjusting all per-share amounts[28] - Following the sale of assets to N&B Energy, LLC in August 2018, Camber retained assets in Glasscock and Hutchinson Counties, Texas, and a 12.5% production payment and 3% overriding royalty interest in Oklahoma assets[26] NOTE 2 – LIQUIDITY AND GOING CONCERN CONSIDERATIONS The company's working capital decreased by $1.1 million to $5.0 million at June 30, 2019, primarily due to general and administrative costs related to the Lineal acquisition Management believes current capital, equity funds, and anticipated Lineal revenues are sufficient through August 2020 The company eliminated $37.9 million in liabilities, including a $36.9 million loan from IBC Bank, through an asset disposition to N&B Energy in September 2018, resulting in a $25.8 million gain on sale Working Capital Trend | Metric | June 30, 2019 | March 31, 2019 | | :---------------- | :-------------- | :--------------- | | Total Current Assets | $6.7 million | $8.2 million | | Total Current Liabilities | $1.7 million | $2.1 million | | Working Capital | $5.0 million | $6.1 million | | Decrease in Working Capital | | $(1.1) million | - Management projects sufficient capital to fund operations and capital expenditures through August 2020, supported by equity transactions and anticipated revenues from Lineal[31] - The company reduced liabilities by $37.9 million and assets by $12.1 million through the N&B Energy asset disposition and assumption agreement, resulting in a $25.8 million gain on sale[32][41] NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The company's significant accounting policies remain consistent with its March 31, 2019, annual report, with no material changes expected Recent accounting pronouncements adopted include ASC 2014-09 (Revenue from Contracts with Customers), ASU 2016-15 (Statement of Cash Flows), ASU 2017-01 (Business Combinations), ASU 2017-09 (Stock Compensation), and Topic 842 (Leases), none of which had a significant material impact on the financial statements - The company adopted ASC 2014-09, 'Revenue from Contracts with Customers (Topic 606)', on April 1, 2018, using the modified retrospective method, with no significant changes to opening balances[44] - ASU 2016-02 'Leases (Topic 842)' was adopted on April 1, 2019, using the alternative modified transition method, and did not result in material impact on consolidated earnings or cash flows due to the short-term lease expedient election[50][51] - Other recently adopted ASUs (2016-15, 2017-01, 2017-09, 2018-13) had no significant material impact on the consolidated financial statements[46][47][49][52] NOTE 4 – PROPERTY AND EQUIPMENT Camber uses the full cost method for oil and natural gas producing activities, capitalizing acquisition, exploration, and development costs Net capitalized costs for oil and gas properties were $216,463 at June 30, 2019, with no impairments recorded in Q2 2019, compared to $531,657 in Q2 2018 due to lease expirations The company incurred no capital enhancements in Q2 2019, a significant decrease from $0.8 million in Q2 2018 All capital lease obligations were assumed by N&B Energy in September 2018 - Camber uses the full cost method of accounting for oil and natural gas producing activities, capitalizing acquisition, exploration, and development costs[55] Net Capitalized Oil & Natural Gas Properties | Metric | June 30, 2019 | March 31, 2019 | | :--------------------------------------- | :-------------- | :--------------- | | Total oil & natural gas properties | $78,554,202 | $78,545,944 | | Accumulated depreciation, depletion, and impairment | $(78,337,739) | $(78,333,628) | | Net Capitalized Costs | $216,463 | $212,316 | - No impairments were recorded for the three months ended June 30, 2019, a decrease from $531,657 in the prior year due to lease expirations[60] - Capital expenditures for technical enhancements decreased from approximately $0.8 million in Q2 2018 to $0 in Q2 2019[61] NOTE 5 – ASSET RETIREMENT OBLIGATIONS The company's asset retirement obligation increased to $312,069 at June 30, 2019, from $303,809 at the beginning of the year, primarily due to revisions of previous estimates Asset Retirement Obligations | Metric | 2019 | 2018 | | :--------------------------------------- | :----- | :----- | | Carrying amount at beginning of year | $303,809 | $979,159 | | Accretion | $2 | $2,264 | | Revisions of previous estimates | $8,258 | $3,942 | | Carrying amount at end of year | $312,069 | $985,365 | NOTE 6 – NOTES PAYABLE AND DEBENTURE Camber Energy had no notes payable or debenture outstanding as of June 30, 2019, or March 31, 2019 The $495,000 convertible debenture held by Discover was fully converted into common stock by October 31, 2018 The $36.9 million loan from IBC Bank was assumed by N&B Energy as part of an asset disposition in September 2018, releasing Camber from all related obligations - The company had no outstanding notes payable or debenture as of June 30, 2019, or March 31, 2019[73] - The $495,000 convertible debenture held by Discover was fully converted into common stock by October 31, 2018, with additional shares issued for true-ups through June 30, 2019[74] - The $36.9 million loan from IBC Bank was assumed by N&B Energy on September 26, 2018, as part of an asset disposition, releasing Camber from all related liabilities[75][76] NOTE 7 – DERIVATIVE LIABILITY The company's derivative liability, related to warrants with anti-dilution provisions, decreased from $5 at the beginning of the period to $0 at June 30, 2019, as the warrants expired on April 21, 2019 Derivative Warrant Instruments Activity | Metric | 2019 | 2018 | | :--------------------------------------- | :--- | :--- | | Carrying amount at beginning of period | $5 | $5 | | Change in fair value | $(5) | $0 | | Carrying amount at end of period | $0 | $5 | - The derivative liability became zero at June 30, 2019, as the related warrants expired on April 21, 2019[79][80] NOTE 8 – COMMITMENTS AND CONTINGENCIES Camber is involved in several legal proceedings, including disputes with Maranatha Oil Co. (alleged unpaid royalties), Petroglobe Energy Holdings, LLC and Signal Drilling, LLC (negligent misrepresentation, fraud, breach of contract), Apache Corporation (breach of contract, money owed), and N&B Energy (breach of contract, unjust enrichment) The company settled a lawsuit with Aaron Rubenstein in December 2018 and a prior office lease dispute with MidFirst Bank in October 2018 The company intends to vehemently defend itself against ongoing claims and seek counterclaims where applicable - Ongoing legal proceedings include disputes with Maranatha Oil Co. (alleged unpaid royalties and working interest), Petroglobe Energy Holdings, LLC and Signal Drilling, LLC (negligent misrepresentation, fraud, breach of contract related to asset purchase), Apache Corporation (breach of contract for joint operating agreement), and N&B Energy (breach of contract, unjust enrichment related to asset sale true-ups)[83][86][87][88] - The company settled a lawsuit with Aaron Rubenstein regarding alleged short-swing profits in December 2018[85] - A settlement agreement was reached with MidFirst Bank in October 2018 regarding a prior office space lease[82] NOTE 9 – REVENUE FROM CONTRACTS WITH CUSTOMERS The company adopted ASU 2014-09, 'Revenue from Contracts with Customers (Topic 606)', on April 1, 2018, with no significant changes to revenue recognition timing or valuation for exploration and production activities Total revenue from customers for the three months ended June 30, 2019, was $121,351, a 93% decrease from $1,694,696 in the same period of 2018, primarily due to reduced sales of natural gas and natural gas liquids - The company adopted ASU 2014-09, 'Revenue from Contracts with Customers (Topic 606)', on April 1, 2018, with no significant changes to revenue recognition for exploration and production[91][92] Disaggregation of Revenue from Customers | Product Type | June 30, 2019 | June 30, 2018 | Change (YoY) | % Change (YoY) | | :----------------------- | :-------------- | :-------------- | :----------- | :------------- | | Oil sales | $93,699 | $200,069 | $(106,370) | (53)% | | Natural gas sales | $7,204 | $473,513 | $(466,309) | (98)% | | Natural gas liquids sales | $20,448 | $1,012,114 | $(991,666) | (98)% | | Total revenue from customers | $121,351 | $1,694,696 | $(1,573,345) | (93)% | NOTE 10 – INCOME TAXES The company estimated a zero percent effective tax rate for fiscal years 2019 and 2020 due to net losses and a full valuation allowance against net deferred tax assets, resulting in no provision or benefit for income taxes - The effective tax rate for U.S. purposes is estimated at zero percent for fiscal years 2019 and 2020 due to net losses and a full valuation allowance against net deferred tax assets[94] NOTE 11 – STOCKHOLDERS' EQUITY (DEFICIT) Common stock outstanding increased significantly due to conversions of debentures and preferred stock, and issuances for consulting services All Series B Preferred Stock was converted into common stock in May 2019 Series C Preferred Stock outstanding increased, and the company accrued substantial stock dividends distributable The company has various warrants outstanding with different exercise prices and expiration dates - Common stock shares increased due to debenture true-ups, Series B Preferred Stock dividends, and issuances for consulting services (Regal Consulting and SylvaCap Media)[95][96][98][99] - All 44,000 shares of Series B Preferred Stock were converted into 20 shares of common stock on May 15, 2019, in exchange for $25,000 cash and a release of rights[103] - Series C Preferred Stock outstanding increased from 1,091 shares at June 30, 2018, to 2,305 shares at June 30, 2019, with $1,878,055 accrued for stock dividends distributable in Q2 2019[105][107] Outstanding Warrants at June 30, 2019 | Warrants Outstanding | Exercise Price ($) | Expiration Date | | :------------------- | :----------------- | :-------------- | | 8 | 23,437.50 | April 26, 2021 | | 102 | 3,906.25 | June 12, 2022 | | 1,600 | 243.75 | May 24, 2023 | | Total: 1,710 | | | NOTE 12 – SHARE-BASED COMPENSATION Camber measures share-based compensation based on grant-date fair value As of June 30, 2019, the company had 2 stock options outstanding with a weighted average exercise price of $808,594, none of which were exercised, forfeited, or granted during the quarter No unrecognized share-based compensation expense remained for non-vested options - The company had 2 stock options outstanding at June 30, 2019, with a weighted average exercise price of $808,594[110][113] - No stock options were exercised, forfeited, or granted during the three months ended June 30, 2019[110] - There was no remaining unrecognized share-based compensation expense related to non-vested stock options as of June 30, 2019[112] NOTE 13 – LOSS PER COMMON SHARE For the three months ended June 30, 2019, the basic and diluted loss per common share was $(4.13), significantly lower than $(277.10) for the same period in 2018 This improvement is primarily due to a reduced net loss and a substantial increase in weighted average common shares outstanding Loss Per Common Share (Basic and Diluted) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | | :--------------------------------------- | :------------------------------- | :------------------------------- | | Net Loss | $(1,287,598) | $(3,512,097) | | Less Preferred Dividends | $(1,878,055) | $(700,344) | | Loss Attributable to Common Stockholders | $(3,165,653) | $(4,212,441) | | Weighted Average Common Shares – Basic and Diluted | 767,389 | 15,202 | | Loss per Common Share – Basic and Diluted | $(4.13) | $(277.10) | - All stock options and warrants were considered anti-dilutive for both periods[114] NOTE 14 – SUPPLEMENTAL CASH FLOW INFORMATION Net cash paid for interest and income taxes was $0 for both periods Non-cash investing and financing activities for Q2 2019 included $1,250 for common stock issuance from prior convertible notes, $8,260 change in asset retirement obligations, $303,340 for common stock payable, and $1,878,055 for stock dividends distributable - Net cash paid for interest and income taxes was $0 for the three months ended June 30, 2019, and 2018[115] Non-Cash Investing and Financing Activities (Q2 2019) | Activity | Amount (2019) | | :---------------------------------------------------- | :------------ | | Issuance of Common Stock of Prior Conversion of Convertible Notes | $1,250 | | Change in Estimate for Asset Retirement Obligations | $8,260 | | Issuance of Common Stock for Common Stock Payable | $303,340 | | Stock Dividends Distributable but not Issued | $1,878,055 | | Issuance of Stock Dividends | $3 | | Conversion of Preferred Stock B to Common Stock | $44 | | Conversion of Preferred Stock C to Common Stock | $0 | NOTE 15 – SUBSEQUENT EVENTS Subsequent to June 30, 2019, Camber Energy completed the acquisition of Lineal Star Holdings, LLC on July 8, 2019, transitioning to an oil and gas services company This merger involved issuing new Series E and F Preferred Stock to Lineal Members and amending Series C Preferred Stock The company also received a NYSE American non-compliance notification regarding low stock price, which it addressed with a 1-for-25 reverse stock split on July 8, 2019 The Lineal acquisition included a $1.05 million loan to Lineal and a $4 million deposit for future acquisitions - On July 9, 2019, Camber Energy acquired Lineal Star Holdings, LLC, a specialty construction and oil and gas services enterprise, in an all-stock transaction[25][120] - The acquisition involved the designation of new Series D, E, and F Preferred Stock and an amendment to the Series C Preferred Stock, significantly altering the company's capital structure and voting control[123][124] - The company received a NYSE American non-compliance notification on July 2, 2019, due to low stock price, and subsequently effected a 1-for-25 reverse stock split on July 8, 2019, to address this[119] - As part of the Lineal merger, Camber loaned $1.05 million to Lineal and deposited $4 million into a dedicated account for future acquisitions[126][127] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results for the three months ended June 30, 2019, compared to the same period in 2018 It highlights the strategic shift from an oil and gas producer to an oil and gas services company following the Lineal acquisition, discusses recent reverse stock splits, and details the financial impact of asset dispositions and the Lineal merger The company reported a significantly reduced net loss despite a sharp decline in revenues, primarily due to lower operating and interest expenses CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This section warns readers about the inherent uncertainties and risks associated with forward-looking statements in the report - This report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied[132][133] - Key factors, risks, and uncertainties include funding availability, integration of future acquisitions, significant dilution from preferred stock conversions, growth strategies, ability to repay loans, liquidity, market conditions in oil/gas and pipeline services, government regulation, and legal proceedings[133][134][135][136] Review of Information and Definitions This section provides context for the financial statements and defines key terms used throughout the report - This section should be read in conjunction with the interim unaudited financial statements and notes in this 10-Q, and the consolidated financial statements and MD&A in the Annual Report on Form 10-K for March 31, 2019[138] - Defines key terms such as 'Exchange Act', 'Bbl', 'SEC', 'Boe', 'Mcf', and 'Securities Act' for clarity within the report[140] Overview This section introduces the company's strategic shift to oil and gas services and its expansion plans following the Lineal acquisition - Camber Energy, Inc. transitioned from an independent oil and natural gas company to an enterprise primarily focused on providing oil and gas services after acquiring Lineal Star Holdings, LLC on July 9, 2019[143] - The company's strategy is to expand the Lineal brand by acquiring and developing complementary specialty engineering, procurement, and construction energy infrastructure service businesses, focusing on sectors less affected by commodity price volatility[144] Production Data and Reserves (as of June 30, 2019) | Metric | Value | | :--------------------------------------- | :------ | | Average Net Barrels of Oil Equivalent per Day (Boepd) | 37.3 | | Total Production Sales (Boe) for Q2 2019 | 3,402 | | Total Estimated Proved Producing Reserves (Boe) | 155,376 | | Crude Oil and NGL Reserves (Bbls) | 120,590 | | Natural Gas Reserves (Mcf) | 208,710 | Recent Reverse Stock Splits and Amendments to Articles This section details the company's recent capital structure changes, including reverse stock splits and authorized share increases - The company effected multiple 1-for-25 reverse stock splits in March 2018, December 2018, and July 2019, retroactively adjusting all per-share amounts[154][155] - Authorized common stock shares were increased from 20 million to 250 million in April 2019[154] Industry Segments This section describes the company's operational focus, transitioning from oil and gas production to pipeline services - Prior to the Lineal acquisition, operations were solely crude oil and natural gas exploration and production Post-acquisition, the majority of operations will be pipeline services[156] Operations and Oil and Gas Properties This section outlines the company's remaining oil and gas exploration and production activities in Texas - The company operates in productive areas of Glasscock County and Hutchinson County, Texas, with interests in wells producing from Wolfberry and Cline formations[157] - A March 2018 acquisition in the Texas panhandle included working interests in leases, wells, equipment, and a partnership interest, with at least 11 wells now producing[158] Recent Events This section summarizes significant corporate actions and agreements, particularly those related to the Lineal acquisition Lineal Acquisition On July 8, 2019, Camber Energy acquired 100% of Lineal Star Holdings, LLC, a Houston-based company specializing in upstream, midstream, and utilities pipeline maintenance and specialty construction The acquisition involved issuing new Series E and F Redeemable Convertible Preferred Stock to Lineal Members and amending the Series C Preferred Stock designation This transaction is expected to result in Lineal Members holding 66.67% of Camber's fully-diluted capitalization upon stockholder approval - Camber Energy acquired 100% of Lineal Star Holdings, LLC on July 8, 2019, in an all-stock merger[160] - Lineal provides upstream, midstream, and utilities pipeline maintenance, specialty construction, and integrity services[161] - The merger involved designating new Series D, E, and F Preferred Stock and amending Series C Preferred Stock, with Lineal Members potentially holding 66.67% of Camber's fully-diluted capitalization upon stockholder approval[163][164] Plan of Merger Under the Plan of Merger, Lineal became a wholly-owned subsidiary of Camber Energy Camber issued 1,000,000 shares of Series E Preferred Stock and 16,750 shares of Series F Preferred Stock to Lineal members The conversion rights of the Series E Preferred Stock are contingent upon stockholder approval - Merger Sub merged into Lineal, making Lineal a wholly-owned subsidiary of Camber[168] - Camber issued 1,000,000 shares of Series E Preferred Stock and 16,750 shares of Series F Preferred Stock to Lineal members[169] - The conversion rights of Series E Preferred Stock are subject to stockholder approval[169] Securities Exchange Agreement The Securities Exchange Agreement stipulates that upon stockholder approval, all Series C Preferred Stock held by Discover will be exchanged for Series D Preferred Stock This exchange is contingent on stockholder approval of the Plan of Merger and the listing of Camber's common stock on the NYSE American The agreement terminates if stockholder approval is not received by December 31, 2020 - Discover agreed to exchange all Series C Preferred Stock for Series D Preferred Stock upon the Approval Date, contingent on stockholder approval of the Plan of Merger and NYSE American listing[171][172] - The agreement terminates if stockholder approval is not received by December 31, 2020[173] Termination Agreement The Termination Agreement, effective upon the Approval Date, will terminate all of Discover's rights under various prior securities purchase agreements and a convertible debenture, including all rights to true-ups This agreement is subject to the same closing conditions as the Exchange Agreement - Discover agreed to terminate all rights under prior securities purchase agreements and a convertible debenture, including true-ups, effective upon the Approval Date[174] - The Termination Agreement is subject to the same closing conditions as the Exchange Agreement[175] Funding and Loan Agreement The Funding Agreement required Camber to deposit $4 million into a dedicated bank account for future acquisitions and to loan $1.05 million to Lineal The $4 million deposit requires approval from both the Series E Preferred Stock holders' designee and the Company for disbursement - Camber was required to deposit $4 million into a dedicated bank account for acquisitions, with disbursement requiring approval from both the Series E Preferred Stock holders' designee and the Company[176] - A $1.05 million loan was provided to Lineal on July 9, 2019, as part of the Funding Agreement[176] Promissory Note Lineal issued a $1.05 million promissory note to Camber, accruing interest at 10% per annum (18% upon default) if Camber no longer owns at least 50% of Lineal's voting securities The note will be automatically forgiven upon stockholder approval of the Lineal merger, otherwise, it is payable in full two years from the interest effective date - Lineal issued a $1.05 million promissory note to Camber, accruing interest at 10% per annum (18% upon default) if Camber's ownership in Lineal falls below 50%[178] - The note will be automatically forgiven upon stockholder approval of the Lineal merger; otherwise, it is due in full two years from the interest effective date[179] Amended and Restated Series C Redeemable Convertible Preferred Stock The Series C Designation was amended to clarify its junior ranking to Series E and F Preferred Stock regarding Lineal assets, but senior to Series E and F Preferred Stock for all other company assets It also specified that the merger was not a deemed liquidation event and granted Series E and F Preferred Stock holders priority rights to Lineal assets upon liquidation - The Series C Preferred Stock was amended to be junior to Series E and F Preferred Stock regarding Lineal assets, but senior for all other company assets[180] - The amendment clarified that the merger was not a deemed liquidation event and granted Series E and F Preferred Stock holders priority rights to Lineal assets upon liquidation[180] Series D Convertible Preferred Stock The Series D Preferred Stock does not accrue dividends, is senior to common stock, pari passu with Series E and F Preferred Stock, and junior to all existing and future indebtedness (with consent required for senior securities issuance) It has a liquidation value of $10 million (aggregate) and can be converted into 1,000 shares of common stock per share, subject to beneficial ownership limitations The company can redeem Series D Preferred Stock at a redemption value of $12 million (aggregate) - Series D Preferred Stock does not accrue dividends and ranks senior to common stock, pari passu with Series E and F Preferred Stock, and junior to other indebtedness[181] - It has an aggregate liquidation value of $10 million and can be converted into 1,000 shares of common stock per share, subject to beneficial ownership limitations (4.99% or 9.99% with notice)[181] - The company has the option to redeem Series D Preferred Stock at an aggregate redemption value of $12 million[181] Series E Redeemable Convertible Preferred Stock Series E Preferred Stock does not accrue dividends but participates in common stock dividends It has a liquidation preference of the greater of $2,000 per share or common stock conversion value, ranking junior to Series C for initial distributions but pari passu with Series D thereafter Conversion rights are contingent on stockholder approval and a potential reverse stock split, with a conversion rate of 67% (or 70% under certain conditions) of fully-diluted shares Holders have significant voting rights (76% post-approval) and control over certain company and Lineal board appointments and material transactions - Series E Preferred Stock does not accrue dividends but participates in common stock dividends and has a liquidation preference of the greater of $2,000 per share or common stock conversion value[183] - Conversion rights are contingent on stockholder approval and a potential reverse stock split, with a conversion rate of 67% (or 70% if certain conditions are met) of fully-diluted shares[183][184] - Holders collectively vote 76.0% of total voting shares post-approval and have rights to appoint directors to the Company and Lineal boards, and nominate executive officers for Lineal[185][186] - Series E holders can require redemption of their shares after November 22, 2019, or 60 days after a Lineal Transaction if stockholder approval is not received, potentially unwinding the Lineal acquisition[189] Series F Redeemable Preferred Stock Series F Preferred Stock accrues dividends at 8% per annum on a $100 per share price, compounded monthly at 12% if unpaid It has a liquidation preference of $100 per share, ranking pari passu with Series D Preferred Stock Holders have no conversion rights but collectively vote 4% of total voting shares post-approval They also have protective provisions against material asset transfers or changes of control and can require redemption of their shares under certain conditions, including a pro rata redemption with Series E Preferred Stock - Series F Preferred Stock accrues dividends at 8% per annum on a $100 per share price, with unpaid dividends compounding at 12% monthly[190] - It has a liquidation preference of $100 per share, ranking pari passu with Series D Preferred Stock, and no conversion rights[191] - Holders collectively vote 4% of total voting shares post-approval and have protective provisions against material asset transfers or changes of control[191][192] - Series F holders can require redemption of their shares under specific conditions, including a pro rata redemption with Series E Preferred Stock, in exchange for Lineal Preferred Stock[194][195] Letter to Record Shareholders Regarding Ratification This section informs shareholders about the Board's ratification of the company's stock status - On or around July 8, 2019, the Board of Directors ratified the validly issued and fully paid and nonassessable status of the company's common and preferred stock as of July 2, 2019, pursuant to Nevada Revised Statutes Section 78.0296[196] Financing This section discusses the company's current liquidity and capital resources, affirming its ability to operate as a going concern - Following the Sale Agreement, Assumption Agreement, and Lineal Merger, the company believes it has sufficient liquidity to operate as a going concern for the next twelve months[198] Market Conditions and Commodity Prices This section addresses the impact of volatile commodity prices on the company's financial performance and its hedging strategy - Financial results are highly dependent on volatile natural gas, natural gas liquids, and crude oil prices, which are influenced by market supply/demand, weather, inventory levels, and other external factors[199] - The company does not currently engage in commodity price hedging activities but may consider them to reduce exposure to volatility[227] RESULTS OF OPERATIONS This section analyzes the company's financial performance, comparing revenues and expenses across reporting periods Three Months Ended June 30, 2019 vs. Three Months Ended June 30, 2018 The company reported a net loss of $1.3 million for Q2 2019, a significant improvement from a $3.5 million net loss in Q2 2018, primarily due to the N&B Energy Sale Agreement Total revenues decreased by 93% year-over-year, while total operating expenses decreased by 65% Production volumes for crude oil, natural gas, and NGLs all saw substantial declines Key Financial and Production Data (Q2 2019 vs. Q2 2018) | Metric | Q2 2019 | Q2 2018 | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :------ | :------ | :----------- | :------------- | | Net Loss | $(1.3) million | $(3.5) million | $2.2 million | (63)% | | Total Revenues | $121,351 | $1,694,696 | $(1,573,345) | (93)% | | Total Operating Expenses | $1,462,364 | $4,236,333 | $(2,773,969) | (65)% | | Total Production (Boe) | 3,402 | 74,480 | (71,078) | (95)% | | Crude Oil Sales ($/Bbl) | $60.04 | $63.45 | $(3.41) | (5)% | | Natural Gas Sales ($/Mcf) | $1.66 | $2.25 | $(0.59) | (26)% | | NGL Sales ($/Bbl) | $18.31 | $28.15 | $(9.84) | (35)% | - The decrease in net loss was primarily attributed to the September 2018 N&B Disposition[202] Operating and Other Expenses Operating expenses saw significant reductions in Q2 2019 compared to Q2 2018, primarily due to the September 2018 N&B Disposition Lease operating expenses decreased by 91%, severance and property taxes by 97%, DD&A by 99%, and impairment of oil and gas properties by 100% General and administrative expenses also decreased by 29%, and interest expense by 100% Operating and Other Expenses (Q2 2019 vs. Q2 2018) | Expense Category | Q2 2019 | Q2 2018 | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :------ | :------ | :----------- | :------------- | | Lease Operating Expenses | $123,557 | $1,411,667 | $(1,288,110) | (91)% | | Severance and Property Taxes | $2,574 | $82,760 | $(80,186) | (97)% | | Depreciation, Depletion, Amortization and Accretion | $4,242 | $327,200 | $(322,958) | (99)% | | Impairment of Oil and Gas Properties | $0 | $531,657 | $(531,657) | (100)% | | Total G&A Expense | $1,331,991 | $1,883,049 | $(551,058) | (29)% | | Interest Expense | $847 | $965,296 | $(964,449) | (100)% | | Other Expense (Income), Net | $(54,262) | $5,164 | $(59,426) | (1,151)% | - The significant decrease across most expense categories is primarily attributable to the September 2018 N&B Disposition[206][207][208][209][210] LIQUIDITY AND CAPITAL RESOURCES This section evaluates the company's ability to meet its short-term and long-term financial obligations Cash Flows Net cash used in operating activities was $1.3 million in Q2 2019, slightly higher than $1.2 million in Q2 2018, mainly due to operating expenses exceeding revenues Net cash used in investing activities decreased significantly by $0.8 million to $0.1 million, primarily due to reduced oil and gas property development costs Net cash provided by financing activities was $0 in Q2 2019, down from $2.0 million in Q2 2018 due to no Series C Preferred Stock sales Cash Flow Summary (Q2 2019 vs. Q2 2018) | Cash Flow Category | Q2 2019 | Q2 2018 | Change (YoY) | | :--------------------------------------- | :-------------- | :-------------- | :----------- | | Net cash used in operating activities | $(1,298,906) | $(1,246,307) | $(52,599) | | Net cash used in investing activities | $(75,000) | $(904,275) | $829,275 | | Net cash provided by financing activities | $0 | $2,000,000 | $(2,000,000) | | Net decrease in cash | $(1,373,906) | $(150,582) | $(1,223,324) | - The decrease in net cash provided by financing activities was due to no sales of Series C Preferred Stock shares in the current period[224] Plan of Operations Following asset divestitures, Camber Energy acquired Lineal Star Holdings, LLC on July 9, 2019, to diversify into oil and gas services Upon shareholder approval, Lineal shareholders will gain voting control (80%) and conversion rights to 67-70% of the company's fully-diluted shares - Camber Energy acquired Lineal Star Holdings, LLC on July 9, 2019, to diversify operations into specialty construction and oil and gas services[217] - Upon shareholder approval of the Lineal transaction, Lineal shareholders will have 80% voting control and conversion rights to 67-70% of the company's fully-diluted shares[218] Working Capital Working capital decreased by $1.1 million from $6.1 million at March 31, 2019, to $5.0 million at June 30, 2019, primarily due to general and administrative costs associated with the Lineal acquisition Working Capital Summary | Metric | June 30, 2019 | March 31, 2019 | | :--------------------------------------- | :-------------- | :--------------- | | Total Current Assets | $6.7 million | $8.2 million | | Total Current Liabilities | $1.7 million | $2.1 million | | Working Capital | $5.0 million | $6.1 million | | Decrease in Working Capital | | $(1.1) million | - The decrease in working capital is mainly attributed to general and administrative costs incurred for the Lineal acquisition[219] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks primarily related to commodity price volatility for crude oil, natural gas, and natural gas liquids, which significantly impact revenues It does not currently use hedging instruments but may consider them in the future The company also faces interest rate risk on variable rate debt, which it may manage through interest rate swap agreements Commodity Price Risk This section details the company's exposure to fluctuations in crude oil, natural gas, and natural gas liquids prices - Revenues are highly dependent on the volatile prices of crude oil, natural gas, and natural gas liquids, which are influenced by market supply and demand, weather, and inventory levels[226] - The company does not currently engage in commodity price hedging but may use derivative instruments in the future to reduce exposure to volatility[227] Interest Rate Risk This section describes the company's exposure to interest rate changes on its debt and potential mitigation strategies - The company may use financial instruments like interest rate swap agreements to manage interest rate volatility on its variable rate debt[229] ITEM 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2019, due to a lack of segregation of duties There have been no material changes in internal control over financial reporting during the quarter Disclosure Controls and Procedures This section assesses the effectiveness of the company's controls for financial reporting and disclosure - Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2019, primarily due to a lack of segregation of duties[232] Changes in Internal Control Over Financial Reporting This section reports on any material changes to the company's internal controls during the quarter - There have been no material changes in internal control over financial reporting during the quarter ended June 30, 2019[233] PART II. OTHER INFORMATION This section includes legal proceedings, risk factors, unregistered equity sales, and other required disclosures ITEM 1. LEGAL PROCEEDINGS Camber Energy is involved in various legal actions arising from normal business activities, as detailed in Note 8 of the financial statements While the company evaluates the merits of these actions and establishes reserves for probable and estimable losses, the outcome of litigation is inherently uncertain and could materially affect financial condition and operating results - Camber is periodically named in legal actions, including contract and title disputes, and establishes reserves when a loss is probable and estimable[236] - The outcome of litigation is inherently uncertain, and adverse resolutions could materially impact the company's financial condition and operating results[237] ITEM 1A. RISK FACTORS This section outlines significant risks, including the potential delisting from NYSE American due to non-compliance with listing standards, extreme dilution to common stockholders from Series C Preferred Stock conversions, and the voting control and redemption rights of Series E and F Preferred Stock holders post-Lineal merger Additionally, risks associated with the new pipeline services operations, such as competition, operational hazards, environmental regulations, and dependence on fixed-price contracts, are highlighted Risks Relating to the Continued Listing of Our Common Stock on the NYSE American Camber Energy faces a significant risk of delisting from the NYSE American due to non-compliance with continued listing standards, specifically regarding low stock price Despite a 1-for-25 reverse stock split in July 2019, the company must maintain a price above $0.20 per share by January 2, 2020, or face delisting Delisting would negatively impact liquidity, market price, and ability to raise equity financing - The company received a NYSE American non-compliance notification on July 2, 2019, due to its stock selling for a low price per share[119][243] - A 1-for-25 reverse stock split was completed on July 8, 2019, to address the low stock price, but the company must maintain a price above $0.20 per share by January 2, 2020, to avoid delisting[243] - Delisting would negatively impact liquidity, market price, investor willingness to hold or acquire common stock, and the ability to raise equity financing[244] Risks Relating to the Lineal Merger; Shareholder Approval in Connection Therewith; and Our Securities The Lineal merger and related securities pose substantial risks, including extreme dilution to existing common stockholders due to the conversion of Series C Preferred Stock (approximately 56 billion shares due) Upon stockholder approval, Series E and F Preferred Stock holders will gain 80% voting control and convertibility into 67-70% of fully-diluted shares, significantly reducing common stockholders' ownership to 6-6.67% These preferred shares also carry substantial liquidation preferences and redemption rights that could unwind the acquisition or limit the company's financial flexibility - As of August 14, 2019, Series C Holders are due approximately 56 billion shares of common stock upon conversion, significantly exceeding the 250 million authorized shares, which will cause extreme dilution[246][250] - Upon stockholder approval, Series E and F Preferred Stock holders will collectively have 80% voting control and conversion rights into 67-70% of the company's fully-diluted shares, reducing common stockholders' ownership to 6-6.67%[251][252][254][256] - Series E and F Preferred Stock include redemption rights that, if exercised, could effectively unwind the Lineal acquisition and make the $1.05 million loan to Lineal due without security[257][258][261][262] - The Series C Holders hold an approximately $56.3 million liquidation preference, which, along with other preferred stock preferences, makes it likely that common stockholders would receive no amount upon liquidation[275] - The Funding Agreement requires $4 million to be held in a segregated account for acquisitions, limiting its use for other operations and potentially forcing earlier fundraising[276] Risks Relating to Our Pipeline Service Operations The company's new pipeline services operations face intense competition from larger, more resourced companies Operational hazards, natural disasters, and potential climate change legislation could lead to significant losses, increased costs, and decreased demand Stringent environmental, health, and safety regulations may require substantial expenditures The business is subject to unpredictable fluctuations due to project-based work, economic cycles, and reliance on fixed-price contracts, which carry risks of cost overruns and disputes Additionally, dependence on subcontractors, surety bonds, and the inherent dangers of the industry pose further financial and reputational risks - The pipeline services business faces strong competition from major energy and chemical companies with greater financial resources and technology[284] - Operations are subject to hazards like natural disasters, accidents, and mechanical failures, which could result in significant damage, interruptions, and liabilities not fully covered by insurance[287][288] - Climate change legislation and other regulatory initiatives could decrease demand for services and increase operating costs, while stringent environmental, health, safety, and security laws may require substantial expenditures[290][291][293][294] - The business is subject to significant quarterly and annual fluctuations due to weather, project timing, economic conditions, and reliance on fixed-price contracts, which carry risks of cost overruns[299][303][317][318] - The ability to obtain surety bonds is critical for contracts, and any limitation on bonding capacity could hinder the company's ability to compete for projects[328][329][330] - The inherent dangers of pipeline services and oil and gas exploration expose the company to substantial liabilities for injury, property damage, and environmental harm, which may not be fully insurable[347] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has made unregistered sales of equity securities, primarily involving the conversion of Series C Preferred Stock by Discover and Discover Growth As of August 14, 2019, 541 shares of Series C Preferred Stock were converted into approximately 49.2 million common shares (including true-ups), with 28.2 million shares held in abeyance An additional 2,303 Series C Preferred Stock shares can convert into approximately 56.3 billion common shares These issuances were exempt from registration under Sections 3(a)(9) and 4(a)(2) of the Securities Act - As of August 14, 2019, 541 shares of Series C Preferred Stock were converted into approximately 49.2 million common shares (including true-ups), with 28.2 million shares held in abeyance[359] - An additional 2,303 remaining Series C Preferred Stock shares can convert into approximately 56.3 billion common shares, subject to further adjustments, based on a current conversion price of $0.001 per share[359] - These sales and issuances were exempt from registration under the Securities Act in reliance on Sections 3(a)(9) and 4(a)(2), Rule 506 of Regulation D, and Regulation S[364][369] - The $495,000 convertible debenture held by Discover was fully converted into common stock by October 31, 2018, with additional true-up shares issued through June 30, 2019[367] Use of Proceeds from Sale of Registered Securities This section reports on the application of funds from registered securities sales - There were no proceeds from the sale of registered securities[370] Issuer Purchases of Equity Securities This section details any repurchases of the company's own equity securities - The company made no purchases of its equity securities[371] ITEM 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[372] ITEM 4. Mine Safety Disclosures This item is not applicable to the company - Mine safety disclosures are not applicable to the company[374] ITEM 5. Other Information No other information is reported in this section - No other information is reported[376] ITEM 6. Exhibits This section lists all exhibits filed or furnished with this Quarterly Report on Form 10-Q, including the Agreement and Plan of Merger, various Certificates of Amendment and Designations for preferred stock, and other agreements related to the Lineal acquisition and corporate governance - The exhibit index includes the Agreement and Plan of Merger, Certificates of Amendment for common stock, and Certificates of Designations for Series C, D, E, and F Preferred Stock[382] - Other exhibits include the Security Exchange Agreement, Termination Agreement, Funding and Loan Agreement, Promissory Note, and Indemnification Agreement for officers and directors[382][383]