Camber Energy(CEI) - 2020 Q3 - Quarterly Report

PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Unaudited consolidated financial statements for Camber Energy, Inc. as of September 30, 2020, including balance sheets, statements of operations, equity, cash flows, and detailed accounting notes CONSOLIDATED BALANCE SHEETS (UNAUDITED) Consolidated balance sheets as of September 30, 2020, show increased total assets, driven by notes receivable and cash, alongside decreased current liabilities | Metric | Sep 30, 2020 | Mar 31, 2020 | Change | |:---|:---|:---|:---| | Assets | | | | | Cash | $1,112,965 | $656,615 | +$456,350 | | Accounts Receivable, Net | $145,362 | $255,363 | -$110,001 | | Total Current Assets | $1,479,009 | $1,132,660 | +$346,349 | | Total Property and Equipment, Net | $75,394 | $110,617 | -$35,223 | | Equity Method Investment – Elysium Energy, LLC | $0 | $957,169 | -$957,169 | | Notes Receivable | $10,241,048 | $7,339,719 | +$2,901,329 | | Total Assets | $11,795,451 | $9,695,218 | +$2,100,233 | | Liabilities | | | | | Total Current Liabilities | $1,592,285 | $2,028,908 | -$436,623 | | Total Liabilities | $1,612,302 | $2,070,431 | -$458,129 | | Equity | | | | | Temporary Equity (Preferred Stock Series C) | $6,000,000 | $5,000,000 | +$1,000,000 | | Total Stockholders' Equity | $4,183,149 | $2,624,787 | +$1,558,362 | | Total Liabilities and Stockholders' Equity | $11,795,451 | $9,695,218 | +$2,100,233 | CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Significant increase in net loss for Q3 and H1 2020, driven by Elysium losses and declining oil and gas revenues, partially offset by reduced operating expenses | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | |:---|:---|:---|:---|:---|\ | Total Revenues | $57,458 | $92,753 | $91,147 | $214,104 | | Total Operating Expenses | $885,100 | $1,136,589 | $1,644,698 | $2,598,953 | | Operating Loss | $(827,642) | $(1,043,846) | $(1,553,551) | $(2,384,849) | | Loss from Unconsolidated Entity | $1,056,766 | $0 | $2,140,121 | $0 | | Net Loss Before Discontinued Operations | $(2,056,508) | $(1,038,732) | $(3,651,140) | $(2,326,330) | | Income from Discontinued Operations | $0 | $761,768 | $0 | $761,768 | | Net Loss | $(2,056,508) | $(276,964) | $(3,651,140) | $(1,564,562) | | Net Loss Per Common Share (Basic) | $(0.19) | $(4.40) | $(0.51) | $(20.57) | | Weighted Average Number of Common Shares Outstanding (Basic) | 19,815,872 | 493,300 | 13,705,461 | 259,432 | CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED) Stockholders' equity increased from March 31 to September 30, 2020, mainly due to Series C Preferred Stock and common share issuances, despite accumulated deficit | Metric | March 31, 2020 | September 30, 2020 | |:---|:---|:---|\ | Preferred Stock Series C (Temporary Equity) | $5,000,000 | $6,000,000 | | Common Stock | $5,000 | $25,000 | | Additional Paid-in Capital | $144,815,627 | $146,673,154 | | Stock Dividends Distributable | $15,878,926 | $19,210,901 | | Accumulated Deficit | $(158,074,768) | $(161,725,908) | | Total Stockholders' Equity | $2,624,787 | $4,183,149 | - During the six months ended September 30, 2020, the company issued 630 shares of Series C Preferred Stock for $6 million and converted 756 shares of Series C Preferred Stock into 19,823,486 common shares[133][135] CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Net cash increased for H1 2020, primarily from financing activities (preferred stock issuance), offsetting cash used in operating and investing activities | Metric | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | |:---|:---|:---|\ | Net Cash Used in Operating Activities | $(1,343,650) | $(2,837,903) | | Net Cash Used in Investing Activities | $(4,200,000) | $(1,151,974) | | Net Cash Provided by Financing Activities | $6,000,000 | $429,210 | | Increase (Decrease) in Cash | $456,350 | $(3,560,667) | | Cash at End of Period | $1,112,965 | $4,218,056 | - The increase in cash from financing activities was primarily due to the sale of 630 shares of Series C Preferred Stock for $6 million in June 2020[272] - Net cash used in investing activities increased significantly due to a $4.2 million loan made to Viking during the six months ended September 30, 2020[271] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Detailed explanations and disclosures for consolidated financial statements, covering business, accounting policies, transactions, and financial instruments NOTE 1 – GENERAL Camber Energy, Inc. is an independent oil and gas company, with this note detailing corporate events, including Lineal divestiture, Texas asset settlement, and the pending Viking merger - Camber Energy is primarily engaged in the acquisition, development, and sale of crude oil, natural gas, and natural gas liquids in Louisiana and Texas[26] - The company acquired Lineal Star Holdings, LLC on July 8, 2019, and subsequently divested 100% ownership of Lineal on December 31, 2019, redeeming Series E and F Preferred Stock[27][28] - On January 31, 2020, Camber entered into a Compromise Settlement Agreement, transferring all wells and partnership interests of its subsidiary CE in Hutchinson County, Texas, to PetroGlobe Energy Holdings, LLC, completed on July 16, 2020[31][102] - A merger agreement with Viking Energy Group, Inc. was entered into on February 3, 2020, and amended on August 31, 2020, requiring Camber to acquire 30% of Viking's subsidiary Elysium Energy Holdings, LLC through a $9.2 million investment[33][34] - The company underwent multiple reverse stock splits (1-for-25 in March 2018, 1-for-25 in December 2018, 1-for-25 in July 2019, and 1-for-50 in October 2019) and increased authorized common stock to 25 million shares in April 2020[35] - The COVID-19 pandemic has adversely impacted the market for oil and gas, but Camber's limited and non-operated production has mitigated significant direct adverse impact on its operations to date[38] NOTE 2 – LIQUIDITY AND GOING CONCERN CONSIDERATIONS Camber Energy faces significant liquidity challenges with a $0.1 million working capital deficit, relying on new funding or the Viking Merger to continue as a going concern | Metric | Sep 30, 2020 | Mar 31, 2020 | Change | |:---|:---|:---|:---|\ | Total Current Assets | $1.5 million | $1.1 million | +$0.4 million | | Total Current Liabilities | $1.6 million | $2.0 million | -$0.4 million | | Working Capital Deficit | $0.1 million | $0.9 million | -$0.8 million | - The decrease in working capital deficit is primarily due to the sale of Series C Preferred Stock shares in June 2020[39] - The company's ability to continue as a going concern is uncertain and relies on raising new funding (debt or equity) or closing the Viking Merger, which is expected in Q1 2021[41] NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines significant accounting policies, estimates, and judgments for consolidated financial statements, including consolidation, revenue, and fair value measurements, with no material changes since March 31, 2020 - The consolidated financial statements include Camber and its wholly-owned and majority-owned subsidiaries, with all material intercompany accounts eliminated[44] - Accounts receivable include oil and gas revenues, accrued interest on notes from Lineal and Viking, and amounts from N&B Energy, with an allowance for doubtful accounts of approximately $171,000 recorded at September 30, 2020[45] - Notes receivable include $9.2 million from Viking and $2.3 million from Lineal, net of reserves[46] - Property and equipment are recorded at cost and depreciated/amortized using the straight-line method; long-lived assets are evaluated for impairment based on estimated future undiscounted cash flows[47][48] - Investment in unconsolidated entities (30% interest in Elysium Energy Holdings, LLC) is accounted for using the equity method, adjusting for proportionate share of earnings or losses[49] - Revenue from oil, natural gas, and NGLs is recognized when control transfers to the customer, based on contract price, and only for the company's net share of production volumes[51][52][53] - Fair value measurements are categorized into a three-level hierarchy, with significant inputs to derivative liability and mezzanine equity calculations classified as Level 3 (unobservable inputs)[54][56][57] - No recently issued accounting pronouncements are expected to have a material effect on the financial statements[58] - Subsequent events have been evaluated through the financial statement issuance date[59] NOTE 4 – PROPERTY AND EQUIPMENT This note details the company's full cost method accounting for oil and gas properties, including capitalization, depletion, depreciation, amortization, and impairment - Camber uses the full cost method for oil and natural gas producing activities, capitalizing costs related to mineral interests, exploratory wells, and development wells[60] | Metric | Sep 30, 2020 | Mar 31, 2020 | |:---|:---|:---|\ | Oil and gas properties subject to amortization | $50,413,792 | $50,443,883 | | Oil and gas properties not subject to amortization | $28,016,989 | $28,016,989 | | Capitalized asset retirement costs | $1,570 | $1,570 | | Total oil & natural gas properties | $78,432,351 | $78,462,442 | | Accumulated depletion, depreciation, and impairment | $(78,356,957) | $(78,351,825) | | Net Capitalized Costs | $75,394 | $110,617 | - No impairment was recorded for the three and six months ended September 30, 2020, and 2019[65] - Depletion expense was $4,871 for the six months ended September 30, 2020, and $2,164 for the three months ended September 30, 2020[66] - The company no longer owns operating and finance leases acquired through the Lineal Acquisition due to the Redemption Agreement[67] NOTE 5 – PLAN OF MERGER AND INVESTMENT IN UNCONSOLIDATED ENTITY This note details the Viking Merger Agreement, including stock conversion, Camber's $9.2 million investment for a 30% interest in Elysium, termination conditions, and secured note treatment - Camber entered into a Merger Agreement with Viking Energy Group, Inc. on February 3, 2020 (amended August 31, 2020), where Viking common stock will convert into 80% of Camber's post-closing capitalization (excluding Series C Preferred Stock conversion shares)[69] - A condition for the merger closing was Camber's acquisition of 30% of Elysium Energy Holdings, LLC, completed through a $5 million investment (25%) on February 3, 2020, and a $4.2 million investment (5%) on June 25, 2020[71] - The Merger Agreement outlines conditions for termination, including mutual consent, failure to obtain governmental approvals, or non-consummation by December 31, 2020[69] - Secured Notes totaling $9.2 million (from $5 million and $4.2 million loans to Viking) accrue 10.5% interest, are due February 3, 2022, and are secured by Viking's ownership in Elysium and Ichor Energy Holdings, LLC; these notes will be forgiven if the merger closes[73][75] - Camber sold 630 shares of Series C Preferred Stock for $6 million in June 2020, with a repurchase requirement of 110% of face value if the merger did not close, which was later terminated in December 2020[77][78] - Camber accounts for its 30% investment in Elysium under the equity method, recognizing its proportionate share of losses; Elysium reported a net loss of $7.5 million for the six months ended September 30, 2020[80] - The carrying value of notes receivable was reduced by $1,182,952 due to Camber's share of Elysium's losses, as losses exceeded the equity investment[82] NOTE 6 – LONG-TERM NOTES RECEIVABLE This note details long-term notes receivable from Viking ($9.2 million) and Lineal ($2.3 million), highlighting Lineal's liquidity issues and restructuring negotiations | Metric | Sep 30, 2020 | Mar 31, 2020 | |:---|:---|:---|\ | Notes receivable from Viking Energy Group, Inc. | $9,200,000 | $5,000,000 | | Note receivable from Lineal Star Holdings, LLC (Promissory Note) | $1,539,719 | $1,539,719 | | Note receivable from Lineal Star Holdings, LLC (Promissory Note No. 2) | $800,000 | $800,000 | | Equity loss of unconsolidated entity applied to notes receivable | $(1,182,952) | $0 | | Less allowance for notes receivable | $(115,719) | $0 | | Total Long-Term Notes Receivable | $10,241,048 | $7,339,719 | - Lineal Star Holdings, LLC has notified the Company of insufficient liquidity to make scheduled interest payments on its unsecured notes, leading to restructuring negotiations[86] - An allowance of $170,660 was recorded to reduce the reported value of Lineal notes and accrued interest, fully reserving current interest due ($54,941) and applying the remainder ($115,719) to principal[87] NOTE 7 – ASSET RETIREMENT OBLIGATIONS This note reconciles asset retirement obligations, showing a decrease due to settlement, partially offset by revisions of previous estimates | Metric | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | |:---|:---|:---|\ | Carrying amount at beginning of period | $71,750 | $303,809 | | Panhandle Settlement | $(30,227) | $0 | | Revisions of previous estimates | $4,260 | $8,258 | | Carrying amount at end of period | $45,783 | $312,069 | - Short-term asset retirement obligations were $25,766 at September 30, 2020[89] NOTE 8 – DERIVATIVE LIABILITY No derivative liability was recorded for warrants (expired) or Series C Preferred Stock (structured to avoid cash settlement) for H1 2020, despite potential provisions - Derivative warrant instruments had a carrying amount of $0 at September 30, 2020, as the warrants expired on April 21, 2019[90][92] - The Series C Preferred Stock, convertible into common stock, is not classified as a tainted derivative instrument because its designation requires best efforts to obtain shareholder approval for sufficient authorized shares and does not mandate cash settlement[92] - As of September 30, 2020, 2 outstanding stock options and warrants to purchase 36 shares were considered tainted derivative instruments due to insufficient authorized common stock, but their fair values were de minimis[93] NOTE 9 – COMMITMENTS AND CONTINGENCIES This note outlines commitments and contingencies, including an office lease, Lineal liabilities, and legal proceedings such as Maranatha Oil, settled PetroGlobe, Apache, and N&B Energy disputes - The company has a month-to-month office lease with an affiliated entity providing space without charge[94][68] - Legal proceedings include a 2015 lawsuit by Maranatha Oil Co. for alleged unpaid royalties and working interest (seeking $100,000+)[97] - The lawsuit with PetroGlobe and Signal Drilling, LLC, seeking over $600,000, was settled on January 31, 2020, with Camber paying $250,000 and transferring Hutchinson County, Texas assets, finalizing on July 16, 2020[99][101][102] - The Apache Corporation lawsuit, seeking $656,908, was settled on October 26, 2020, for $20,000 with mutual releases[107] - The N&B Energy arbitration, claiming $706,000, resulted in an award of approximately $52,000 in favor of N&B Energy on October 21, 2020[108] - Merger Compensation Agreements were entered into on August 31, 2020, for non-executive directors and officers, contingent on the Viking Merger closing, including $100,000 for past services and $50,000 as a success bonus[109] NOTE 10 – REVENUE FROM CONTRACTS WITH CUSTOMERS This note disaggregates revenue by product type for Q3 and H1 2020 and 2019, showing a decline across all categories | Product Type | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | |:---|:---|:---|:---|:---|\ | Oil sales | $45,846 | $66,786 | $67,635 | $160,485 | | Natural gas sales | $4,643 | $12,343 | $8,807 | $19,547 | | Natural gas liquids sales | $6,969 | $13,624 | $14,705 | $34,072 | | Total oil and gas revenue | $57,458 | $92,753 | $91,147 | $214,104 | NOTE 11 – LINEAL MERGER AGREEMENT AND DIVESTITURE This note details the acquisition of Lineal Star Holdings, LLC on July 8, 2019, and its divestiture on December 31, 2019, resulting in preferred stock redemption and unsecured promissory notes - Camber acquired 100% of Lineal Star Holdings, LLC on July 8, 2019, in exchange for Series E and F Redeemable Convertible Preferred Stock[113] - On December 31, 2019, Camber divested its entire interest in Lineal, redeeming the Series E and F Preferred Stock and transferring Lineal back to its original owners[114] - As part of the divestiture, Lineal issued two unsecured promissory notes to Camber totaling $2,339,719, accruing interest at 8% and 10% per annum, due December 31, 2021[115] - The divestiture was accounted for as a discontinued operation, with a gain on change in fair value of Series E and F Preferred Shares of $3,018,000 and a loss on disposal of Lineal operations of $2,706,628[117][118][119] | Metric | Three Months Ended Sep 30, 2019 | Six Months Ended Sep 30, 2019 | |:---|:---|:---|\ | Contract revenue | $6,285,535 | $6,285,535 | | Net income from discontinued operations | $761,768 | $761,768 | NOTE 12 - INCOME TAXES The company reported a zero percent effective tax rate for fiscal years 2020 and 2019 due to net losses and a full valuation allowance - Camber recorded no provision or benefit for income taxes for the three and six months ended September 30, 2020, and 2019, due to net losses and a full valuation allowance[123] - The $3,000 tax liability on the balance sheet relates to potential Oklahoma franchise tax, not income tax[123] NOTE 13 – STOCKHOLDERS' EQUITY (DEFICIT) This note details changes in stockholders' equity, including common stock issuance, Series A Preferred Stock designation for the Viking merger, and Series C Preferred Stock transactions - During the six months ended September 30, 2020, Camber issued 176,514 shares of restricted common stock for investor relations and marketing services, recognizing $36,502 in share-based compensation expense[124] - The Board approved the designation of 28,092 shares of Series A Convertible Preferred Stock on August 31, 2020, with voting and conversion rights tied to the Viking Merger exchange ratio; no shares will be issued until the merger closes[126][128][131] - On February 3, 2020, 525 shares of Series C Preferred Stock were sold for $5 million; an obligation to redeem these shares at a 110% premium if the Viking Merger terminated was later removed on June 22, 2020[132] - On June 22, 2020, 630 shares of Series C Preferred Stock were sold for $6 million; these shares were classified as temporary equity due to a repurchase requirement if the merger failed, which was terminated in December 2020[132][133] - During the six months ended September 30, 2020, 756 shares of Series C Preferred Stock were converted, resulting in 19,823,486 common shares issued[135] - The company accrued $3,331,975 in common stock dividends on Series C Preferred Stock for the six months ended September 30, 2020[136] - On December 14, 2020, corrections and a second amended and restated designation for Series C Preferred Stock were filed to clarify conversion terms, redemption requirements, and update references to the Viking Merger, ensuring the stock is classified as permanent equity[138][140] NOTE 14 – SHARE-BASED COMPENSATION This note details share-based compensation, primarily stock options, with 2 outstanding options as of September 30, 2020, having no intrinsic value or recognized compensation expense - As of September 30, 2020, and March 31, 2020, Camber had 2 stock options outstanding with a weighted average exercise price of $40,429,700, expiring in October 2020[145] - No stock options were exercised, forfeited, or granted during the six months ended September 30, 2020, and no compensation expense related to stock options was recognized[146] - The outstanding and exercisable options had no intrinsic value as of September 30, 2020, and March 31, 2020[147] NOTE 15 – INCOME (LOSS) PER COMMON SHARE This note calculates basic and diluted income (loss) per common share for Q3 and H1 2020 and 2019, showing significant net losses and increased weighted average shares | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | |:---|:---|:---|:---|:---|\ | Net (Loss) | $(2,056,508) | $(276,964) | $(3,651,140) | $(1,564,562) | | Less preferred dividends | $(1,651,219) | $(1,893,886) | $(3,331,975) | $(3,771,941) | | Net loss attributable to common stockholders | $(3,707,727) | $(2,170,850) | $(6,983,115) | $(5,336,503) | | Weighted average share – basic | 19,815,872 | 493,300 | 13,705,461 | 259,432 | | Income (loss) per share – basic (Total) | $(0.19) | $(4.40) | $(0.51) | $(20.57) | - Common share equivalents from convertible debt, options, warrants, and Series C Preferred Shares were excluded from diluted EPS calculation as their inclusion would be anti-dilutive[151] | Common Shares Issuable for: | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | |:---|:---|:---|:---|:---|\ | Convertible Debt | 276 | 276 | 276 | 276 | | Options and Warrants | 38 | 38 | 38 | 38 | | Series C Preferred Shares | 47,033,410,723 | 1,130,378,205 | 47,033,410,723 | 1,130,378,205 | | Total | 47,033,411,037 | 1,130,378,519 | 47,033,411,037 | 1,130,378,519 | NOTE 16 – SUPPLEMENTAL CASH FLOW INFORMATION This note provides supplemental cash flow information, including net cash paid for interest and taxes, and details non-cash investing and financing activities for H1 2020 and 2019 | Non-Cash Activity | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | |:---|:---|:---|\ | Settlement of Common Stock Payable | $173,000 | $331,060 | | Change in Estimate for Asset Retirement Obligations | $4,260 | $41,017 | | Stock Dividends Distributable but not Issued | $3,331,975 | $3,771,941 | | Conversion of Preferred C Stock to Common Stock | $19,823 | $1,049 | | Reclassification of Preferred C Stock to Permanent Equity | $5,000,000 | $0 | - Net cash paid for interest was $0 for the six months ended September 30, 2020, compared to $5,021 in the prior year; net cash paid for income taxes was $0 for both periods[153] NOTE 17 – FAIR VALUE MEASUREMENTS This note explains fair value measurements, emphasizing observable inputs and management judgment for Level 3 instruments, with no recurring or non-recurring fair value liabilities or assets - The company maximizes the use of quoted market prices and minimizes unobservable inputs for fair value measurements, using industry-standard valuation models for non-active markets[154][155] - Significant inputs for Level 3 instruments are estimated as the net present value of expected future cash flows based on internal and external inputs[155] - No liabilities were carried at fair value as of September 30, 2020, and March 31, 2020, on a recurring basis[157] - No assets or liabilities were recorded at fair value on a non-recurring basis due to impairment charges or business combinations during the periods presented[158] NOTE 18 – SUBSEQUENT EVENTS This note details significant post-September 30, 2020, events, including Viking Merger amendments, an Exchange Agreement with Discover for Series C Preferred Stock, and designation corrections - On October 9, 2020, the Viking Merger Agreement was amended to fix Camber's post-Merger capitalization at 20%, extend the termination date to December 31, 2020, and remove the requirement for Viking to obtain lender consent[159] - On December 11, 2020, Camber entered into an Exchange Agreement with Discover, converting 600 shares of Series C Preferred Stock ($6 million face value) into a $6 million secured Promissory Note (Investor Note) to reduce dilution[160] - The Exchange Agreement included waivers of prior breaches, commitments to SEC filings, indemnification, and Discover's agreement to vote in favor of the Viking Merger and waive certain rights[161] - The Investor Note accrues 10% annual interest, due on the earlier of December 11, 2022, or March 11, 2021, if the Merger doesn't close, and is secured by a first priority interest in substantially all of Camber's assets[164][166] - On December 14, 2020, corrections and a second amended and restated designation for Series C Preferred Stock were filed to clarify conversion terms, redemption requirements, and update references to the Viking Merger[138][140] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's discussion and analysis of Camber Energy's financial condition and operations for Q3 and H1 2020, covering business, Viking merger, Series C Preferred Stock, COVID-19 impact, and liquidity CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This section warns about forward-looking statements, highlighting risks like funding, merger completion, dilution, commodity price volatility, and COVID-19 impact - The report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially[169][170] - Key risks include funding availability, ability to integrate acquisitions (Viking Merger), costs associated with the merger, collection of notes receivable, significant dilution from Series C Preferred Stock conversion, and market conditions in the oil and gas industry[170][172][173][175][176] - The impact of global pandemics like COVID-19 on operations, properties, and demand for oil and gas is also a significant risk factor[172] REVIEW OF INFORMATION AND DEFINITIONS This section provides context for the report, directing readers to relevant financial statements and defining capitalized terms and industry abbreviations - Readers should review this information in conjunction with the interim unaudited financial statements and the Annual Report on Form 10-K for the fiscal year ended March 31, 2020[178] - Defines key terms such as "Exchange Act," "Bbl," "SEC," "Boe," "Mcf," and "Securities Act"[181] OVERVIEW Camber Energy, Inc. is a Houston-based oil and gas company, with this overview detailing its corporate history, Lineal divestiture, and strategic focus on the Viking merger and growth - Camber Energy, Inc. is a Nevada corporation based in Houston, Texas, primarily engaged in oil and natural gas acquisition, development, and sale in Louisiana and Texas[182] - The company acquired Lineal Star Holdings, LLC on July 8, 2019, and divested it on December 31, 2019, returning to its core oil and gas operations[183][184] - Camber plans to complete a merger with Viking Energy Group, Inc. and then focus on developing Viking's properties and seeking new acquisitions, anticipating additional financing for growth[186] RECENT EVENTS This section details recent corporate events, including the Viking Plan of Merger, Series C Preferred Stock amendments, and the Discover Exchange Agreement, streamlining the merger and capital structure Viking Plan of Merger The Viking Plan of Merger, amended in August 2020, involves Viking stockholders receiving 80% of Camber's post-closing capitalization, contingent on Camber's 30% Elysium investment - The Merger Agreement with Viking Energy Group, Inc. (February 3, 2020, amended August 31, 2020) stipulates Viking common stock holders will receive 80% of Camber's post-closing capitalization (excluding Series C Preferred Stock conversion shares)[187] - A key closing condition was Camber's acquisition of a 30% interest in Elysium Energy Holdings, LLC, through a $9.2 million investment[190] - Secured Notes provided to Viking will be forgiven upon merger closing; if terminated, an additional payment (115.5% of original principal minus repayment amount) is due from Viking[191] - Camber's 30% interest in Elysium (acquired through the Viking investment) includes working and overriding royalty interests in approximately 123 oil and gas wells in Texas and Louisiana, producing ~2,200 Boe/day for Q3 2020[193] Series C Preferred Stock Corrections and Amendments Camber filed corrections and amendments to Series C Preferred Stock on December 14, 2020, clarifying "deemed liquidation events," cash redemption requirements, conversion prices, and Viking Merger references - On December 14, 2020, Camber filed corrections to Series C Preferred Stock designations to clarify that certain events (e.g., failure to issue common stock upon conversion, trading halts) are not "deemed liquidation events" unless solely within Camber's control[194] - The corrections also clarified that Camber is not required to redeem Series C Preferred Stock for cash solely due to insufficient authorized common shares for conversion[194] - A second amended and restated designation was filed to include Camber's option to redeem Series C Preferred Stock at 110% of face value, update conversion prices for a prior reverse stock split, and amend the measurement period for conversion premiums[196] - References to the Lineal merger were updated to refer to the planned Viking merger, ensuring the Viking merger is not considered a 'deemed liquidation event'[197] Discover Exchange Agreement, Promissory Note and Security Agreement On December 11, 2020, Camber and Discover exchanged 600 Series C Preferred Stock shares ($6 million face value) for a $6 million secured Promissory Note, waiving breaches and securing the note - On December 11, 2020, Discover exchanged 600 shares of Series C Preferred Stock ($6 million face value) for a $6 million secured Promissory Note (Investor Note) to reduce potential dilution[198] - The Exchange Agreement included Discover waiving prior breaches, Camber agreeing to timely SEC filings, and Discover agreeing to vote in favor of the Viking Merger[200] - The Investor Note accrues 10% annual interest, due on the earlier of December 11, 2022, or March 11, 2021, if the Merger does not close, and is secured by a first priority interest in substantially all of Camber's assets[202][204] - The agreement also removed the repurchase obligation for 630 shares of Series C Preferred Stock sold in June 2020, reclassifying the remaining 30 shares as permanent equity[201][163] CORPORATE INFORMATION AND SUMMARY OF CURRENT OPERATIONS Camber Energy, Inc. is an oil and gas company with Texas leasehold interests, divested Hutchinson County properties, no employees, and a future strategy focused on the Viking Merger and acquisitions - As of September 30, 2020, Camber had leasehold interests covering approximately 221 net acres, producing from the Cline and Wolfberry formations in Texas[206] - The company divested its Hutchinson County, Texas properties in July 2020 as part of the PetroGlobe settlement, eliminating those interests and liabilities[206][207] - Camber was producing approximately 28.1 net barrels of oil equivalent per day (Boepd) from 25 active wellbores as of September 30, 2020[209] - Total estimated proved producing reserves were 133,442 Boe at September 30, 2020, with no reserves related to the divested Panhandle properties[209] - Camber has no employees and utilizes independent contractors; its future plan is to complete the Viking Merger and grow through Viking's properties and new acquisitions, requiring additional financing[212][213] INDUSTRY SEGMENTS For Q3 and H1 2020, Camber's operations were solely crude oil and natural gas E&P, while prior year included Lineal's oil and gas services until divestiture - Camber's operations for the three and six months ended September 30, 2020, were entirely crude oil and natural gas exploration and production[217] - For the same periods in 2019, operations included oil and gas services through Lineal until its divestiture on December 31, 2019, with Lineal's contract revenue reported in "Loss from Discontinued Operations"[217] OPERATIONS Camber operates and invests in productive oil and gas areas in Louisiana and Texas to minimize geological risk, having divested Lineal on December 31, 2019 - Camber operates and invests in known productive oil and natural gas areas in Louisiana and Texas to reduce geological and exploratory risk[218] - The company divested its entire interest in Lineal, an oil and gas service company, on December 31, 2019[219] FINANCING Camber's financing activities are detailed in notes, with significant liquidity concerns requiring the Viking Merger or new funding to continue as a going concern - Camber's financing transactions are detailed in Notes 1, 5, 6, 11, and 13 of the financial statements[220] - The company believes it lacks sufficient liquidity to operate as a going concern for the next twelve months without closing the Viking Merger, expected in Q4 2020 or Q1 2021[221] MARKET CONDITIONS AND COMMODITY PRICES Camber's financial results are highly dependent on volatile crude oil, natural gas, and NGL prices, influenced by external supply and demand, with no current hedging activities - Camber's financial results are highly dependent on the volatile prices of natural gas, natural gas liquids, and crude oil[222] - Commodity prices are affected by external factors like market supply and demand, weather, and inventory levels, leading to unpredictable future prices[222] - The company expects continued price volatility and does not currently engage in commodity price hedging activities[222][276] NOVEL CORONAVIRUS ("COVID-19") COVID-19 significantly impacted global oil and gas demand and prices, affecting Lineal's debt payments to Camber, with the full impact uncertain but cash sufficient contingent on the merger - The COVID-19 pandemic, declared in March 2020, has lowered global demand and prices for hydrocarbons due to social distancing and travel restrictions[224][225] - Camber's non-operated properties have not been materially affected by COVID-19 to date, but the full extent of the impact on operations and demand is uncertain[224][227] - COVID-19 has impacted Lineal Holdings, LLC, which owes Camber $2,339,719 and has insufficient liquidity to make scheduled interest payments, leading to restructuring negotiations[226] - The company believes it has sufficient cash to support operations through the closing of the Merger Agreement, but will continue to evaluate its business based on new information[228] RESULTS OF OPERATIONS Detailed analysis of Camber Energy's financial performance for Q3 and H1 2020 vs. 2019, highlighting drivers of changes in net loss, revenues, and expenses Three Months Ended September 30, 2020, vs. Three Months Ended September 30, 2019 Net loss for Q3 2020 increased to $2.1 million from $0.3 million, driven by a $1.1 million Elysium loss, $0.2 million Lineal reserve, and a 38% decline in oil and gas revenues | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Change | % Change | |:---|:---|:---|:---|:---|\ | Net Loss | $(2.1) million | $(0.3) million | $(1.8) million | +600% | | Net Loss Per Common Share | $(0.19) | $(4.40) | +$4.21 | -95.7% | | Total Oil and Gas Revenues | $57,458 | $92,753 | $(35,295) | -38% | | Lease Operating Expenses | $27,222 | $188,483 | $(161,261) | -86% | | General and Administrative Expenses | $852,915 | $940,483 | $(87,568) | -9% | | Loss from Unconsolidated Entity | $1,056,766 | $0 | +$1,056,766 | N/A | | Other Expense (Income), Net | $172,100 | $(9,278) | +$181,378 | +1955% | - Sales volumes decreased by approximately 30% due to a significant drop in market prices for oil and gas, primarily from decreased demand due to COVID-19; crude oil average sales price declined by 11%[233] - Lease operating expenses decreased by approximately $161,000, mainly due to production declines and the divestiture of Panhandle, Texas properties[237] - G&A expenses decreased by $0.1 million, primarily due to the absence of Lineal Merger-related costs from the prior year; share-based compensation increased by $37,000 due to restricted common shares issued for consulting fees[239][240] - Loss from unconsolidated entity increased by $1.1 million due to the equity loss of Elysium Holdings, LLC; other expense, net, increased by $0.2 million due to the partial allowance for Lineal loans[242][243] Six Months Ended September 30, 2020, vs. Six Months Ended September 30, 2019 Net loss for H1 2020 increased to $3.7 million from $1.6 million, driven by a $2.1 million Elysium loss and $0.2 million Lineal allowance, with oil and gas revenues declining 57% | Metric | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | Change | % Change | |:---|:---|:---|:---|:---|\ | Net Loss | $(3.7) million | $(1.6) million | $(2.1) million | +131% | | Net Loss Per Common Share | $(0.51) | $(20.57) | +$20.06 | -97.5% | | Total Oil and Gas Revenues | $91,147 | $214,104 | $(122,957) | -57% | | Lease Operating Expenses | $96,513 | $312,040 | $(215,527) | -69% | | General and Administrative Expenses | $1,539,578 | $2,272,474 | $(732,896) | -32% | | Loss from Unconsolidated Entity | $2,140,121 | $0 | +$2,140,121 | N/A | | Other Expense (Income), Net | $(42,532) | $(63,540) | +$21,008 | +33% | - Sales volumes decreased by approximately 25% due to a significant drop in market prices for oil and gas, primarily from decreased demand due to COVID-19; crude oil average sales price declined by 45%[246] - Lease operating expenses decreased by approximately $216,000 due to production declines and the divestiture of Panhandle, Texas properties[250] - G&A expenses (excluding share-based compensation) decreased by $740,000, primarily due to the absence of Lineal Merger-related costs; share-based compensation increased by $7,000 due to restricted shares for consulting[251][252] - Loss from unconsolidated entity increased by $2.1 million due to the equity loss of Elysium Holdings, LLC; other expense, net, decreased by $21,000 due to partial impairment of Lineal notes and elimination of other income from Lineal[255][256] LIQUIDITY AND CAPITAL RESOURCES Camber Energy faces significant liquidity challenges with a $0.1 million working capital deficit, relying on the Viking Merger or new funding to continue as a going concern, exacerbated by COVID-19 - Camber had a working capital deficit of approximately $0.1 million at September 30, 2020[259] - The company's ability to continue as a going concern depends on closing the Viking Merger (anticipated Q4 2020 or Q1 2021) or raising new funding[259] - COVID-19 has negatively impacted Lineal's operations, leading to insufficient liquidity for scheduled interest payments on its $2.3 million unsecured notes to Camber, prompting restructuring negotiations[260] - Camber advanced $9.2 million to Viking (from Series C Preferred Stock sales) in exchange for 10.5% Secured Promissory Notes, secured by Viking's subsidiaries and Elysium ownership[262][263] - A $6 million Series C Preferred Stock sale in June 2020 had a repurchase obligation if the merger failed, which was terminated in December 2020; Viking has agreed to a break-up fee if the merger terminates, which should cover Camber's Investor Note repayment[264] PLAN OF OPERATIONS Camber's future plan centers on completing the Viking merger, then developing Viking's properties and pursuing new acquisitions for growth, anticipating additional financing - Camber's plan is to complete the merger with Viking Energy Group, Inc[265] - Post-merger, the company will focus on developing Viking's properties and seeking new acquisitions to grow oil and gas production and revenues[265] - Additional financing (debt or equity) is anticipated to fund acquisitions after the merger closes[265] CASH FLOWS Net cash increased for H1 2020, primarily from $6.0 million in financing activities, offsetting $1.3 million in operating and $4.2 million in investing activities | Cash Flow Activity | Six Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2019 | |:---|:---|:---|\ | Net cash used in operating activities | $(1,343,650) | $(2,837,903) | | Net cash used in investing activities | $(4,200,000) | $(1,151,974) | | Net cash provided by financing activities | $6,000,000 | $429,210 | | Net increase (decrease) in cash | $456,350 | $(3,560,667) | - Net cash used in operating activities decreased due to reduced G&A and operating costs, despite an increased net loss[270] - Net cash used in investing activities increased significantly due to a $4.2 million loan to Viking[271] - Net cash provided by financing activities increased substantially due to the $6 million sale of Series C Preferred Stock[272] - Oil prices, which have been highly volatile, significantly influence Camber's revenue and cash flows, with prolonged low prices posing a risk to financial condition and ability to meet obligations[268] WORKING CAPITAL Working capital deficit improved from $0.9 million to $0.1 million by September 30, 2020, primarily due to a $6 million Series C Preferred Stock sale | Metric | Sep 30, 2020 | Mar 31, 2020 | Change | |:---|:---|:---|:---|\ | Total Current Assets | $1.5 million | $1.1 million | +$0.4 million | | Total Current Liabilities | $1.6 million | $2.0 million | -$0.4 million | | Working Capital Deficit | $0.1 million | $0.9 million | -$0.8 million | - The improvement in working capital deficit was primarily driven by the $6 million sale of Series C Preferred Stock in June 2020[269] FINANCING This section reiterates that Camber's financing transactions, funding agreements, and lending activities are comprehensively disclosed in the financial statement notes - A summary of financing transactions, funding agreements, and lending transactions can be found in Notes 1, 5, 6, 11, and 13 of the financial statements[273] OFF-BALANCE SHEET ARRANGEMENTS Camber does not engage in off-balance sheet financial transactions or partnerships, except for its 30% interest in Elysium Energy Holdings, LLC - Camber does not participate in off-balance sheet financial transactions or partnerships, other than its 30% interest in Elysium Energy Holdings, LLC[275] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. This section discusses Camber's market risk exposure, primarily commodity price risk, which significantly impacts revenues, with no current hedging activities COMMODITY PRICE RISK Camber's revenues are highly sensitive to volatile crude oil, natural gas, and NGL prices, which significantly impact financial results, and the company does not currently hedge - All of Camber's revenues for the six months ended September 30, 2020, and some for the same period in 2019, were from the sale of crude oil, natural gas, and NGL production[277] - Changes in commodity prices, influenced by market supply and demand, can significantly impact the company's revenues[277] - The company does not currently engage in commodity price hedging activities[276] ITEM 4. CONTROLS AND PROCEDURES. This section addresses Camber's disclosure controls and internal control over financial reporting, concluding controls were ineffective due to lack of segregation of duties, with no material changes DISCLOSURE CONTROLS AND PROCEDURES. Camber's disclosure controls and procedures were deemed ineffective as of September 30, 2020, due to a lack of segregation of duties - Camber's disclosure controls and procedures were deemed not effective as of September 30, 2020[279] - The ineffectiveness was attributed to a lack of segregation of duties[279] CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING No material changes occurred in Camber's internal control over financial reporting during the quarter ended September 30, 2020 - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2020[280] PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Camber is involved in various legal actions, establishing reserves when losses are probable and estimable, with uncertain outcomes that could impact financial condition - Camber is periodically named in legal actions and records reserves when a loss is probable and estimable[283] - The company is not currently involved in legal proceedings expected to have a material adverse effect, except as detailed in Note 9 of the financial statements[283] - The outcome of litigation is uncertain, and adverse resolutions could materially affect financial condition and operating results[284] ITEM 1A. RISK FACTORS. This section updates significant risks for Camber Energy, Inc., including general business, Viking merger, and Series C Preferred Stock risks, which could materially affect the company GENERAL BUSINESS AND OTHER RISKS Camber faces general business risks including limited oil and gas operations, COVID-19 impacts, potential defaults from Lineal and Viking, volatile commodity prices, and limited authorized common stock - Camber has limited oil and gas operations, with its Hutchinson County, Texas leases (30% of historical producing properties) transferred in July 2020, which may adversely affect revenues[286] - The COVID-19 pandemic has negatively impacted global oil and gas demand and prices, and its continued effects could adversely affect Camber's operations and financial results[287][289][290] - Lineal and Viking owe Camber substantial amounts ($2,339,719 and $9.2 million, respectively), and their inability to repay these unsecured/secured notes could materially harm Camber's cash flows and financial stability[291][292][294] - Declines in oil, NGL, and natural gas prices have and will continue to adversely affect Camber's business, financial condition, and ability to meet obligations, potentially leading to restructuring or bankruptcy[296][297] - Camber currently has no authorized but unissued shares of common stock, which limits its ability to use common stock for acquisitions, raise funding, or issue share-based compensation, potentially negatively affecting revenues and stock value[299] RISKS RELATING TO THE PLANNED MERGER Risks of the Viking merger include uncertain share issuance, substantial dilution, and negative impacts if terminated, potentially requiring Elysium interest transfer and Investor Note acceleration - The exact number of Camber common shares issued to Viking stockholders in the merger is uncertain, as the exchange ratio depends on factors immediately prior to closing[300][301] - The merger will cause immediate and substantial dilution to existing Camber stockholders and result in a change of control of the company[305][306] - Termination of the Merger Agreement could negatively impact Camber's stock price, business, and financial results, potentially requiring the transfer of the 30% Elysium interest back to Viking and accelerating the Investor Note's maturity to March 11, 2021[304][307] - If the merger terminates and Viking is unable to pay the agreed-upon break-up fee, Camber may be unable to repay the Investor Note, leading to material adverse effects on cash flows and operations, potentially forcing bankruptcy[304][309] RISKS RELATING TO THE SERIES C PREFERRED STOCK Series C Preferred Stock risks include immediate dilution, stock price pressure from converted share sales, a $74.0 million liquidation preference, and exponential conversion discounts at declining stock prices - Conversion of Series C Preferred Stock will cause immediate and substantial dilution to common stockholders and significant downward pressure on the stock price as Discover sells converted shares[311][312] - Discover holds an approximately $74.0 million liquidation preference in the company, which would be paid before any distribution to common stockholders in a liquidation, likely leaving common stockholders with no value[313] - Fixed conversion discounts ($0.05/$0.10) on Series C Preferred Stock conversion premiums increase exponentially as the common stock price declines, potentially leading to conversion at the minimum par value of $0.001 per share[315][316][318] - Camber's obligations under the $6 million Investor Note are secured by a first priority security interest in substantially all of its assets, meaning a default could lead to the Investor taking control of assets or forcing bankruptcy[320] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. This section discloses unregistered sales of equity securities, detailing Series C Preferred Stock conversions by Discover and potential future dilution from remaining shares - Since July 1, 2020, Discover converted 258 shares of Series C Preferred Stock into 11,779,818 shares of common stock, with 15,348 shares held in abeyance pending an increase in authorized common stock[321] - These sales and issuances were exempt from registration under Sections 3(a)(9) and 4(a)(2) of the Securities Act, Rule 506 of Regulation D, and Regulation S[322] - As of December 17, 2020, the remaining 2,693 outstanding Series C Preferred Stock shares (including 600 shares being cancelled) could convert into up to 118,181,407 common shares (ignoring beneficial ownership limits), with a lowest possible conversion price of $0.001 per share, potentially resulting in 47,033,410,723 common shares[323] USE OF PROCEEDS FROM SALE OF REGISTERED SECURITIES The company reported no use of proceeds from the sale of registered securities - No proceeds were used from the sale of registered securities[325] ISSUER PURCHASES OF EQUITY SECURITIES The company reported no issuer purchases of equity securities - No issuer purchases of equity securities were made[326] ITEM 3. DEFAULTS UPON SENIOR SECURITIES. The company reported no defaults upon senior securities - No defaults upon senior securities were reported[328] ITEM 4. MINE SAFETY DISCLOSURES. This item is not applicable to the company - This item is not applicable[330] ITEM 5. OTHER INFORMATION. This section provides disclosures typically found in Form 8-K, covering material agreements, financial obligations, security holder rights modifications, and corporate document amendments ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT. On December 11, 2020, Camber and Discover entered an Exchange Agreement, converting 600 Series C Preferred Stock shares ($6 million face value) into a $6 million secured Promissory Note - On December 11, 2020, Camber entered an Exchange Agreement with Discover, converting 600 shares of Series C Preferred Stock ($6 million face value) into a $6 million secured Promissory Note (Investor Note)[331] - The Exchange Agreement amended the June 22, 2020 Stock Purchase Agreement, removing the prohibition on transferring Series C Preferred Stock and the repurchase obligation for 630 shares[333] - The Investor Note accrues 10% annual interest, due on the earlier of December 11, 2022, or March 11, 2021, if the Merger doesn't close, and is secured by a first priority interest in substantially all of Camber's assets[334][339] - The Investor Note includes customary events of default, allowing the Investor to accelerate the full amount and enforce security rights[337] ITEM 2.03 CREATION OF DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT. This item incorporates by reference information from Item 1.01 regarding the Investor Note and Security Agreement, creating a direct financial obligation for the registrant - Information regarding the Investor Note and Security Agreement, as detailed in Item 1.01, is incorporated by reference, creating a direct financial obligation for the registrant[341] ITEM 3.03 MATERIAL MODIFICATION TO RIGHTS OF SECURITY HOLDERS. This item incorporates by reference information from Item 5.03, detailing material modifications to Series C Preferred Stock holder rights via Certificates of Correction and the Second Amended and Restated Designation - Material modifications to the rights of Series C Preferred Stock holders, as described in Item 5.03 (Corrections and Second Amended and Restated Designation), are incorporated by reference[342] ITEM 5.03 AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL YEAR. On December 11, 2020, Camber filed Certificates of Correction and a Second Amended and Restated Certificate of Designations for Series C Preferred Stock, clarifying conversion terms, redemption, and Viking Merger references - On December 11, 2020, Certificates of Correction were filed to clarify errors in the original Series C Preferred Stock designations, ensuring certain events are not "deemed liquidation events" unless solely within Camber's control and that cash redemption is not required due to insufficient authorized shares[343][345] - A Second Amended and Restated Designation was filed to allow Camber to redeem Series C Preferred Stock at 110% of face value, update conversion prices for a prior reverse stock split, amend the measurement period for conversion premiums, and update merger references to Viking Energy Group, Inc[347] - These corrections and amendments were effective as of the original filing dates of the Series C Preferred Stock designations[346] ITEM 5.07 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On December 11, 2020, the sole Series C Preferred Stock shareholder approved the Certificates of Correction and Second Amended and Restated Designation via written consent - The sole shareholder of Series C Preferred Stock approved the filing of Certificates of Correction and the adoption of the Second Amended and Restated Designation on December 11, 2020, via written consent[350] ITEM 6. EXHIBITS. This section lists all exhibits filed or furnished with the Quarterly Report on Fo