Camber Energy(US:CEI)2020-06-29 22:27PART I Business Camber Energy, Inc. is an independent oil and gas company focused on acquisition and development, with recent activities dominated by corporate restructuring and a pending merger with Viking Energy Group, Inc. General Overview The company's strategy centers on a pending merger with Viking Energy Group, Inc., following significant asset divestitures and a brief acquisition of Lineal Star Holdings - The company's primary strategic focus is the completion of its merger with Viking Energy Group, Inc., after which it plans to develop Viking's properties and seek new acquisitions to grow production and revenue71125 - In July 2019, Camber acquired Lineal Star Holdings, an oil and gas services company, but divested it on December 31, 2019, by returning ownership to the original holders in exchange for canceling the preferred stock issued for the acquisition686988 - As a condition of the Viking merger, Camber invested in Viking by loaning it a total of $9.2 million ($5M in Feb 2020, $4.2M in June 2020) and in return received secured notes and a 30% total interest in Viking's subsidiary, Elysium Energy, LLC9699106 - In September 2018, the company sold a substantial portion of its assets to N&B Energy, an entity affiliated with former company executives. This transaction reduced liabilities by approximately $37.9 million and assets by $12.1 million7479 Recent Reverse Stock Splits and Amendments to Articles The company has implemented multiple reverse stock splits and adjusted its authorized common stock to manage share price and capital structure - The company has conducted four reverse stock splits since March 2018: 1-for-25 (March 2018), 1-for-25 (December 2018), 1-for-25 (July 2019), and 1-for-50 (October 2019)126127 - In April 2020, stockholders approved an increase in authorized common stock to 25 million shares127 Operations and Oil and Gas Properties As of March 31, 2020, Camber's operations are limited to 35.8 net Boepd from Glasscock County, with Hutchinson County assets being transferred due to a legal settlement Production and Reserves (as of March 31, 2020) | Metric | Value | | :--- | :--- | | Average Daily Production | 35.8 net Boepd | | Active Well Bores | 25 | | Total Estimated Proved Reserves | 133,442 Boe | | - Crude Oil & NGL | 98,600 Bbls | | - Natural Gas | 207,823 Mcf | - The company's Hutchinson County, Texas wells were subject to a Severance Order from the Texas Railroad Commission (TRC) and are being transferred to PetroGlobe as part of a legal settlement, effectively ending the company's operational role in that area119122132 Marketing, Competition, and Regulation The company relies heavily on one customer for revenue, faces intense competition, and operates under extensive federal, state, and local regulations - For the fiscal year ended March 31, 2020, a single customer, Apache Corporation, accounted for 92% of the company's total revenues136137 - The company competes with numerous oil and gas companies that possess greater financial and personnel resources138 - Operations are heavily regulated at federal, state, and local levels, impacting permits, drilling methods, waste disposal, and production rates, which can increase costs and limit activities139 Risk Factors The company faces substantial risks including merger uncertainties, limited operations, financial instability, extreme stock dilution from preferred shares, and material weaknesses in internal controls Risks Relating to the Merger The pending merger with Viking Energy carries significant risks, including uncertain exchange ratios, integration challenges, potential loss of key personnel, and stringent listing requirements - A critical condition for the merger is that the combined company must qualify for initial listing on the NYSE American, which has more stringent requirements than the continued listing standards Camber currently fails to meet187188298 - If the merger is terminated, Camber may be required to transfer back its 30% interest in Elysium to Viking and redeem 630 shares of Series C Preferred Stock from Discover for $6.93 million177185192 - The merger will cause immediate and substantial dilution to existing Camber stockholders and result in a change of control, as Viking shareholders will receive a pro rata share of approximately 80% of the post-merger company180181 General Business and Other Risks Relating to the Company Key business risks include limited operations, reliance on note repayments, COVID-19 impacts on oil prices, and identified material weaknesses in internal financial controls - Management has concluded that as of March 31, 2020, the company's disclosure controls and procedures and its internal control over financial reporting were not effective, representing a material weakness231232 - The company has significant notes receivable from Lineal (unsecured, ~$2.34 million) and Viking (secured, $9.2 million). Failure of these parties to repay the notes could materially and adversely affect Camber's financial condition198200201 - The COVID-19 pandemic has negatively impacted demand for crude oil and natural gas, contributing to price volatility and adversely affecting the marketability and price of the company's production202203 Risks Relating to Our Oil and Gas Operations and Industry Oil and gas operations face inherent risks from volatile prices, intense competition, geographic concentration in Texas, and the speculative nature of reserve replacement - Revenues and the value of reserves are substantially dependent on volatile crude oil and natural gas prices. A prolonged period of low prices could lead to asset write-downs and adversely affect financial condition238243252 - All of the company's oil and gas properties are located in Texas, creating geographic concentration risk and vulnerability to regional issues like transportation constraints, natural disasters, and localized regulatory changes286 - Future production is highly dependent on successfully and economically replacing depleted reserves, a process which is speculative and involves numerous risks related to drilling and development277278 Risks Relating To An Investment In Our Securities Investing in the company's securities carries high risk due to potential delisting, stock price volatility, significant dilution from preferred stock, and restrictive financing agreements - The company is not in compliance with NYSE American's continued listing standards due to having stockholders' equity below $4.0 million and a history of net losses, creating a risk of delisting294297 - Stockholders may be significantly diluted through future financing efforts and the conversion of outstanding preferred stock. The Board can issue additional common and preferred shares without stockholder approval, subject to NYSE rules312313 - Financing agreements with Discover restrict the company from issuing variable-priced securities and grant Discover a right of first offer on future financings, which may limit the company's ability to raise capital293 Risks Relating to Our Series C Preferred Stock The Series C Preferred Stock poses extreme dilution risk due to its full-term dividend payment upon conversion, floating conversion price, and an $87.8 million liquidation preference senior to common stock - Upon conversion or redemption, the Series C Preferred Stock requires payment of dividends for the full seven-year term of the security, regardless of when it is converted, creating a significant liability that can be paid in highly dilutive shares328330 - The Series C Preferred Stock has a liquidation preference of approximately $87.8 million, which is senior to common stock and significantly exceeds the company's total assets, implying common stockholders would likely receive no recovery in a liquidation scenario337 - The conversion price for dividend payments includes a fixed dollar discount ($0.05 or $0.10) applied after a percentage discount to the market price. As the stock price falls, this fixed discount represents an exponentially larger percentage discount, potentially leading to a conversion price of $0.001 per share and causing extreme dilution348349351 Properties As of March 31, 2020, the company's properties include non-operated wells in Glasscock County and transferring assets in Hutchinson County, with significantly reduced production and no drilling activity Production and Financial Metrics (FY 2020 vs. FY 2019) | Metric | FY 2020 | FY 2019 | | :--- | :--- | :--- | | Total Revenues | $397,118 | $2,742,102 | | Total Production (Boe) | 13,084 | 113,685 | | Avg. Crude Oil Price ($/Bbl) | $54.83 | $59.51 | | Avg. Natural Gas Price ($/Mcf) | $1.96 | $2.40 | | Avg. Production Cost ($/Boe) | $37.76 | $26.42 | Proved Reserves (as of March 31, 2020) | Category | Barrels of Oil Equivalent (Boe) | | :--- | :--- | | Crude Oil | 54,850 Bbls | | NGL | 43,955 Bbls | | Natural Gas | 34,637 Boe (207,823 Mcf) | | Total Proved Reserves | 133,442 Boe | - The company had no drilling activity in the fiscal years ended March 31, 2020 and 2019, and had no wells in the process of being drilled at year-end362 Legal Proceedings The company is involved in multiple legal disputes, including a settled lawsuit with PetroGlobe, and ongoing suits with Maranatha Oil, Apache Corporation, and N&B Energy - The lawsuit with PetroGlobe was settled in January 2020. Camber agreed to pay $250,000 and transfer all of its Hutchinson County, Texas assets to PetroGlobe376378 - N&B Energy, an entity affiliated with former executives, is suing the company for $706,000 related to post-closing adjustments from the 2018 asset sale. Camber denies the claims and is in negotiations to settle the matter383 - Apache Corporation is suing the company for approximately $586,000 for an alleged breach of a joint operating agreement382 Mine Safety Disclosures This item is not applicable to the company - Not applicable384 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Camber's common stock trades on NYSE American, but its capital structure is heavily impacted by highly dilutive Series C Preferred Stock with complex conversion terms - The Series C Preferred Stock contains highly dilutive terms. Dividends accrue at 24.95% per annum (adjustable up to 34.95%) and are payable for the full seven-year term upon conversion. The conversion price for these dividends is based on a floating discount to the market price, which can lead to significant additional share issuances400402 - Between April 1, 2020, and June 24, 2020, the holder of the Series C Preferred Stock converted 498 shares, resulting in the issuance and future obligation to issue over 13 million shares of common stock410 - If converted at the lowest possible price of $0.001 per share, the outstanding Series C Preferred Stock could convert into a maximum of 51.5 billion shares of common stock413 Selected Financial Data As a "smaller reporting company," Camber Energy is not required to provide this information - Not required for smaller reporting companies414 Management's Discussion and Analysis of Financial Condition and Results of Operations For FY2020, the company reported a $3.9 million net loss and a $0.9 million working capital deficit, raising going concern doubts, with future liquidity dependent on the Viking merger Financial Performance (FY 2020 vs. FY 2019) | Metric | FY 2020 | FY 2019 | | :--- | :--- | :--- | | Net Operating Revenues | $397,118 | $2,742,102 | | Lease Operating Expenses | $479,656 | $2,870,908 | | General & Administrative | $4,909,871 | $5,152,766 | | Gain on Sale of Property | $0 | $25,808,246 | | Net Income (Loss) | ($3,856,299) | $16,643,153 | Cash Flow Summary (FY 2020 vs. FY 2019) | Cash Flow | FY 2020 | FY 2019 | | :--- | :--- | :--- | | From Operating Activities | ($3,588,464) | ($5,773,428) | | From Investing Activities | ($9,641,019) | ($2,237,000) | | From Financing Activities | $6,107,375 | $15,000,000 | - The company has a working capital deficit of $0.9 million as of March 31, 2020, down from a working capital surplus of $6.1 million at March 31, 2019, raising substantial doubt about its ability to continue as a going concern456467 - The significant decrease in net income from FY2019 to FY2020 is primarily due to the absence of a one-time $25.8 million gain on the sale of assets that was recognized in FY2019434447 Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," Camber Energy is not required to provide this information - Not required for smaller reporting companies486 Financial Statements and Supplementary Data Audited financial statements for FY2020 and FY2019 include a going concern warning, detail a shift to a working capital deficit, and show decreased proved reserves and PV-10 - The independent auditor's report contains an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern due to significant losses and an accumulated deficit492 Consolidated Balance Sheet Highlights (As of March 31) | Account | 2020 | 2019 | | :--- | :--- | :--- | | Total Current Assets | $1,132,660 | $8,170,965 | | Total Current Liabilities | $2,028,908 | $2,103,802 | | Working Capital (Deficit) | ($896,248) | $6,067,163 | | Total Assets | $9,695,218 | $8,582,672 | | Total Stockholders' Equity | $2,624,787 | $6,175,056 | Standardized Measure of Discounted Future Net Cash Flows (PV-10) | As of | Value | | :--- | :--- | | March 31, 2020 | $963,889 | | March 31, 2019 | $2,078,481 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company changed auditors from GBH CPAs, PC to Marcum LLP on July 27, 2018, due to a practice combination, with no reported disagreements - The company's change in accountants from GBH CPAs, PC to Marcum LLP on July 27, 2018, was due to GBH combining its practice with Marcum755 - There were no disagreements with the former auditor, GBH, on any accounting or auditing matters757 Controls and Procedures Management concluded that as of March 31, 2020, the company's disclosure controls and internal control over financial reporting were not effective, indicating a material weakness - Management concluded that as of March 31, 2020, the company's disclosure controls and procedures were not effective760 - Based on an evaluation using the COSO framework, management concluded that the company's internal controls over financial reporting were not effective as of March 31, 2020764 Other Information There is no other information to report for this item - None769 PART III Directors, Executive Officers and Corporate Governance The company's executive officers are Louis G. Schott (Interim CEO) and Robert Schleizer (CFO), with an independent Board maintaining Audit, Compensation, and Nominating committees Executive Officers and Directors | Name | Position | | :--- | :--- | | Louis G. Schott | Interim Chief Executive Officer | | Robert Schleizer | Chief Financial Officer, Treasurer and Director | | Fred Zeidman | Director | | James G. Miller | Director | - The Board has determined that James G. Miller qualifies as an "audit committee financial expert"807 Executive Compensation For FY2020, Interim CEO Louis G. Schott and CFO Robert Schleizer received $334,453 and $253,333 respectively, compensated via consulting agreements Summary Compensation Table (FY 2020) | Name and Principal Position | Fees/Salary | All Other Compensation | Total | | :--- | :--- | :--- | :--- | | Louis G. Schott (Interim CEO) | $300,000 | $34,453 | $334,453 | | Robert Schleizer (CFO) | $200,000 | $53,333 | $253,333 | - Both the Interim CEO and CFO are compensated through consulting agreements with their respective firms, Fides Energy LLC and BlackBriar Advisors LLC836838 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of June 24, 2020, Discover Growth Fund is the sole beneficial owner of over 5% of common stock, capped at 9.99%, while current executives and directors hold no shares - Discover Growth Fund is the only beneficial owner of more than 5% of the company's common stock, holding 9.99% as of June 24, 2020854 - Discover's ownership is limited to 9.99% due to a blocker provision in the Series C Preferred Stock designation. As of June 24, 2020, an additional ~5.7 million shares were due to Discover upon conversion but were held in abeyance due to this limitation856 - None of the current executive officers or directors beneficially owned any shares of the company's common stock as of June 24, 2020854 Certain Relationships and Related Transactions, and Director Independence The company has engaged in significant related party transactions, including asset sales to an affiliate of former executives and complex financing agreements with its largest shareholder, Discover - In 2018, the company sold a substantial portion of its assets to N&B Energy, LLC, an entity affiliated with former CEO Richard N. Azar II and former director Donnie B. Seay861 - The company has a series of complex financing agreements with Discover, its largest shareholder, involving multiple sales of Series C Preferred Stock and a convertible debenture874875 - The Board of Directors has determined that Fred Zeidman and James G. Miller are independent directors, constituting two-thirds of the board930 Principal Accounting Fees and Services The company incurred audit and related fees from Marcum LLP and its predecessor for FY2020 and FY2019, with all services pre-approved by the Audit Committee Audit and Related Fees | Fee Type | FY 2020 | FY 2019 | | :--- | :--- | :--- | | Audit Fees | $323,100 | $150,000 | | Audit-Related Fees | $100,000 | $0 | | Tax Fees | $0 | $0 | | All Other Fees | $30,000 | $0 | PART IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report, including merger and financing agreements - The report includes an index of all exhibits filed, such as merger agreements, asset purchase agreements, financing agreements, and corporate governance documents941948 Form 10-K Summary No summary is provided under this item - None942