Camber Energy(US:CEI)2020-08-14 20:17PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements for Q2 2020, detailing balance sheets, operations, equity changes, and cash flows, with notes on asset growth, increased net loss, and significant equity increase from preferred stock issuance Consolidated Balance Sheets Total assets increased to $13.9 million by June 30, 2020, driven by cash and notes receivable, while liabilities decreased and stockholders' equity rose to $6.2 million from preferred stock issuance Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | June 30, 2020 ($) | March 31, 2020 ($) | | :--- | :--- | :--- | | Assets | | | | Cash | $1,705,374 | $656,615 | | Total Current Assets | $2,233,251 | $1,132,660 | | Total Assets | $13,910,159 | $9,695,218 | | Liabilities & Equity | | | | Total Current Liabilities | $1,687,656 | $2,028,908 | | Total Liabilities | $1,707,004 | $2,070,431 | | Total Stockholders' Equity | $6,203,155 | $2,624,787 | Consolidated Statements of Operations Net loss widened to $1.6 million for Q2 2020, primarily due to a $1.1 million equity investment loss, despite reduced operating expenses and a sharp revenue decline Statement of Operations Summary (Unaudited) | Metric | Three Months Ended June 30, 2020 ($) | Three Months Ended June 30, 2019 ($) | | :--- | :--- | :--- | | Total Revenues | $33,689 | $121,351 | | Operating Loss | ($725,909) | ($1,341,013) | | Loss from Equity Method Investment | $1,083,355 | $0 | | Net Loss | ($1,594,632) | ($1,287,598) | | Net Loss Per Share (Basic & Diluted) | ($0.44) | ($206.26) | Consolidated Statements of Cash Flows Net cash increased by $1.05 million in Q2 2020, with $6.0 million from financing activities offsetting $0.75 million used in operations and $4.2 million in investing Cash Flow Summary (Unaudited) | Cash Flow Activity | Three Months Ended June 30, 2020 ($) | Three Months Ended June 30, 2019 ($) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($751,241) | ($1,298,906) | | Net Cash Used in Investing Activities | ($4,200,000) | ($75,000) | | Net Cash Provided by Financing Activities | $6,000,000 | $0 | | Increase (Decrease) in Cash | $1,048,759 | ($1,373,906) | Notes to Consolidated Financial Statements Notes detail the pending Viking merger, a $9.2 million investment, substantial doubt about going concern, Lineal divestiture, notes receivable, and $6 million Series C Preferred Stock issuance - The company has substantial doubt about its ability to continue as a going concern for the next twelve months unless it can raise new funding or close the pending merger with Viking Energy Group, Inc42 - On February 3, 2020, the company entered into a merger agreement with Viking Energy Group, Inc. A condition of the merger required Camber to invest $9.2 million in Viking, which was completed by June 22, 2020, giving Camber a 30% interest in Viking's subsidiary, Elysium Energy Holdings, LLC3579 - The company divested its entire interest in Lineal Star Holdings on December 31, 2019. In connection with the divestiture, Camber holds two unsecured promissory notes from Lineal totaling approximately $2.34 million30117118 - During the quarter, the company sold 630 shares of Series C Preferred Stock for $6 million. These shares are classified as temporary equity due to a redemption feature that is triggered if the Viking merger does not close122123 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, emphasizing the Viking merger, a 72% revenue decrease, a $1.6 million net loss from an equity investment, and improved liquidity from $6 million financing, while reiterating going concern dependency Results of Operations Net loss increased to $1.6 million in Q2 2020, driven by a $1.1 million equity investment loss, while oil and gas revenues fell 72% due to price and volume declines, and G&A expenses decreased 48% Revenue and Production Comparison | Metric | Q2 2020 ($) | Q2 2019 ($) | % Change | | :--- | :--- | :--- | :--- | | Total Oil and Gas Revenues | $33,689 | $121,351 | (72)% | | Total Sales Volume (Boe) | 2,707 | 3,402 | (20)% | | Average Crude Oil Price ($/Bbl) | $18.28 | $60.02 | (70)% | - The net loss for Q2 2020 was $1.6 million, an increase from $1.3 million in Q2 2019. The increase is primarily attributed to a $1.1 million loss from the equity method investment in Elysium, which was acquired in February 2020194 - General and Administrative (G&A) expenses decreased by approximately $0.6 million (48%) compared to the prior year's period, mainly because of costs incurred in 2019 related to the Lineal merger that did not recur199203 Liquidity and Capital Resources Working capital improved to a $0.5 million surplus due to a $6.0 million preferred stock sale, but liquidity remains insufficient for going concern without the Viking merger or new financing, with $0.8 million used in operations and $4.2 million in investing - The company's working capital improved from a deficit of $0.9 million at March 31, 2020, to a surplus of $0.5 million at June 30, 2020, primarily due to the sale of $6 million of Series C Preferred Stock219 - Management believes the company will not have sufficient liquidity to operate as a going concern for the next twelve months unless it can close the Viking Merger or secure other financing209 Quarterly Cash Flow Summary | Cash Flow Activity | Three Months Ended June 30, 2020 ($) | | :--- | :--- | | Cash flows used in operating activities | ($751,241) | | Cash flows used in investing activities | ($4,200,000) | | Cash flows provided by financing activities | $6,000,000 | | Net increase in cash | $1,048,759 | Quantitative and Qualitative Disclosures About Market Risk The company's revenues are entirely dependent on crude oil, natural gas, and NGL sales, exposing it to significant commodity price risk, with no current hedging activities in place - The company's revenues are entirely derived from the sale of crude oil, natural gas, and NGLs, making it highly exposed to commodity price risk227 - Camber currently does not engage in commodity price hedging activities to manage its exposure to price volatility226 Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2020, due to a material weakness from a lack of segregation of duties, with no material changes to internal controls during the quarter - Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2020232 - The identified reason for the ineffectiveness of disclosure controls was a lack of segregation of duties232 PART II – OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings arising from normal business activities, with details on ongoing litigation and a recently settled matter provided in Note 9 of the financial statements - The company is subject to legal proceedings that have arisen in the ordinary course of business, with specific details provided in Note 9 of the financial statements237 Risk Factors Updated risk factors include limited oil and gas operations, COVID-19 impact on commodity prices, significant credit risk from Lineal and Viking notes, and merger-related risks like shareholder dilution and a potential $6.93 million preferred stock redemption - The COVID-19 pandemic has adversely affected the demand for and price of oil and gas, which has negatively impacted and may continue to negatively impact the company's operating results242 - The company faces significant credit risk as Lineal and Viking collectively owe it over $11.5 million in promissory notes. A failure to repay these notes could materially harm Camber's financial condition245246247 - Termination of the merger agreement could require Camber to redeem 630 shares of Series C Preferred Stock for $6,930,000, potentially causing a severe negative impact on its financial condition if Viking fails to pay its corresponding break-up fee256 - If the merger with Viking is completed, it will result in immediate and substantial dilution to existing stockholders and a change of control of the company257 Unregistered Sales of Equity Securities and Use of Proceeds Between April 1 and August 13, 2020, the company issued 6,518,546 unregistered common shares to Discover, resulting from Series C Preferred Stock conversions and settlement of prior conversions, deemed exempt from registration - From April 1, 2020, through August 13, 2020, the company issued 1,544,354 shares of common stock upon the conversion of 59 shares of Series C Preferred Stock and an additional 4,974,192 shares related to prior conversions273 - As of August 10, 2020, the 2,892 outstanding shares of Series C Preferred Stock were convertible into approximately 75.7 million shares of common stock, subject to adjustments and conversion price calculations275 Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - None280 Mine Safety Disclosures This section is not applicable to the company's operations - Not Applicable282 Other Information The company reported no other information required to be disclosed in this section - None284 Exhibits This section provides an index of all exhibits filed or furnished with the Quarterly Report on Form 10-Q, including agreements, amendments, certifications, and corporate governance documents - An index of exhibits filed with the Form 10-Q is provided, including amendments to the Viking merger agreement and officer certifications285291