Camber Energy(CEI) - 2021 Q2 - Quarterly Report

Part I – Financial Information This section covers the company's financial statements, management's discussion and analysis, market risk disclosures, and internal controls Financial Statements Unaudited financials for June 30, 2021, show increased assets and net income, but significant deficits raise going concern doubts Note 1: Relationship with and Ownership of Viking Energy Group, Inc. Camber accounts for its increasing investment in Viking Energy Group under the equity method, with a pending merger to make Viking a wholly-owned subsidiary - Camber acquired a 51% interest in Viking in December 2020 and increased it to ~63% in January 2021, accounted for under the equity method due to significant influence but not control[14] - A new merger agreement was established in February 2021 for Viking to merge with a Camber subsidiary, becoming wholly-owned by Camber, with each Viking common stock share converting into one Camber common stock share[17] - In July 2021, Camber acquired an additional 27.5 million shares of Viking for $11 million, with proceeds used by Viking for acquisitions and working capital[22] Note 3: Liquidity and Going Concern Considerations Significant stockholders' deficit and working capital deficiency raise substantial doubt about the company's ability to continue as a going concern - The company reported net income of $18.1 million for the six months ended June 30, 2021, primarily due to a non-cash gain on derivative liability of $34.2 million[25] - As of June 30, 2021, the company had a stockholders' deficit of $(30.4 million) and a working capital deficiency of approximately $32.6 million, with a derivative liability of $32.3 million being a major component[25] - These conditions raise substantial doubt regarding the Company's ability to continue as a going concern, dependent on future profitable operations and obtaining necessary financing[26] Note 4: Summary of Significant Accounting Policies Key accounting policies include full cost for oil and gas, equity method for Viking, and complex fair value measurement of Series C derivative liabilities using Level 3 inputs - The company changed its fiscal year-end from March 31 to December 31, effective February 4, 2021[27] - The derivative liability related to the Series C Preferred Stock is measured at fair value using Level 3 inputs (unobservable inputs)[30][31] - The Series C Preferred Stock contains an embedded derivative liability due to a variable conversion premium feature, with its fair value estimated based on cash required to settle the premium or, after an April 2021 amendment, the fair value of shares issuable[48][61] Note 8: Long Term Debt Total long-term debt increased to $20.5 million as of June 30, 2021, consisting of secured promissory notes maturing in January 2027 Long-Term Debt Obligations | Debt Holder | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Discover Growth Fund | $20,500,000 | $18,000,000 | | Total Long-Term Debt | $20,500,000 | $18,000,000 | - The entire $20.5 million in long-term debt matures after 2026, specifically on January 1, 2027[53] Note 9: Derivative Liabilities The Series C Preferred Stock contains a complex embedded derivative liability, which decreased to $32.3 million by June 30, 2021, following an amendment requiring common share settlement - The Series C Preferred Stock contains an embedded derivative due to the potential conversion into a variable number of common shares to satisfy the Conversion Premium and True-Up obligation[53][55] - On April 20, 2021, the Series C COD was amended to require all conversions to be settled in common shares, removing the cash option and changing the accounting for the derivative[61] Derivative Liability Activity (Six Months Ended June 30) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Beginning Balance | $93,981,234 | $77,636,666 | | Issued Series C shares | $46,238,850 | $15,412,950 | | Change in Fair value | $(34,166,784) | $41,878,821 | | Settlement of Obligation | $(73,780,539) | $(40,947,203) | | Ending Balance | $32,272,761 | $93,981,234 | Note 11: Commitments and Contingencies The company faces ongoing legal proceedings, including a royalty dispute and a new shareholder action initiated after a 'short' report, with all allegations denied - The company is being sued by Maranatha Oil Co for approximately $100,000 related to alleged unpaid royalty interests[65] - A lawsuit with PetroGlobe Energy Holdings was settled on January 31, 2020, with the company paying $250,000 and transferring its subsidiary C E Energy LLC to PetroGlobe[66] - Following a 'short' report by Kerrisdale Capital in October 2021, a shareholder action was commenced against the company, its CEO, and CFO, who deny the allegations[67] Note 13: Stockholders' Deficit The stockholders' deficit is heavily influenced by Series C Preferred Stock, with potential dilution from 241.6 million common shares upon conversion and recent covenant breaches - On January 8, 2021, the Company issued 1,890 shares of Series C Preferred Stock to satisfy approximately $18.9 million of Viking's debt, recorded as an additional investment in Viking[74] - In October 2021, the company received notice of breaching covenants related to its Series C Preferred Stock for failing to timely file SEC reports and maintain sufficient common stock reserves for conversion[76] Estimated Common Shares for Series C Conversion | Conversion Component | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Shares for conversion at $3.25/share | 11,710,769 | 6,440,000 | | Shares for Conversion Premium | 229,938,443 | 103,226,626 | | Total Estimated Shares | 241,649,212 | 109,666,626 | Note 16: Subsequent Events Subsequent events include significant financing activities, increased investment in Viking, authorization of 1 billion common shares, new loans, and ongoing Series C conversions - On July 29, 2021, the company acquired an additional 27.5 million shares of Viking for $11 million, increasing its ownership to approximately 73%[88] - In December 2021, the company increased its authorized common stock from 250 million to 1 billion shares[88] - The company secured new financing, including a $25 million loan in December 2021 and a stock purchase agreement for $100 million of new Series G Preferred Stock[97][98] Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Items | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash | $2,053,074 | $868,548 | | Investment in unconsolidated entity | $22,652,026 | $15,830,538 | | Total Assets | $25,004,945 | $16,815,251 | | Liabilities & Equity | | | | Derivative liability | $32,272,761 | $93,981,234 | | Long-term debt | $20,500,000 | $18,000,000 | | Total Liabilities | $55,454,342 | $113,094,761 | | Total Stockholders' Deficit | $(30,449,397) | $(102,225,562) | Consolidated Statement of Operations Highlights (Unaudited) | Income Statement Items | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Oil and gas sales | $162,891 | $122,588 | | Loss from operations | $(3,085,140) | $(2,231,652) | | Gain (loss) on derivative liability | $34,166,784 | $(19,586,317) | | Net income (loss) | $18,060,420 | $(21,639,008) | | Net income (loss) per share (basic & diluted) | $0.28 | $(4.04) | Consolidated Statement of Cash Flows Highlights (Unaudited) | Cash Flow Items | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,315,474) | $(2,348,365) | | Net cash used in investing activities | $0 | $(9,200,000) | | Net cash provided by financing activities | $2,500,000 | $11,000,000 | | Net increase (decrease) in cash | $1,184,526 | $(548,365) | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses oil and gas strategy, reiterates going concern doubts, and highlights revenue increases driven by non-cash derivative gains and critical accounting policies Plan of Operations Camber's business plan focuses on acquiring and developing oil and gas properties, primarily through its investment in and pending merger with Viking Energy Group - The company's business plan is to acquire, explore, and develop oil and gas properties, with a strategy focused on acquiring undervalued producing assets rather than speculative exploration[110][111] - A merger with Viking Energy Group, Inc is pending, which would result in Viking becoming a wholly-owned subsidiary of Camber[112] Results of Continuing Operations Revenue increased for the three and six months ended June 30, 2021, but operating losses widened, with net income primarily driven by significant non-cash gains on derivative liabilities Three-Month Operational Comparison (Ended June 30) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Revenue | $97,238 | $33,689 | | Operating Expenses | $1,321,493 | $759,598 | | Loss from Operations | $(1,224,255) | $(725,909) | | Other Income (Expense) | $64,062,368 | $(12,908,153) | | Net Income (Loss) | $62,838,113 | $(13,634,062) | Six-Month Operational Comparison (Ended June 30) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Revenue | $162,891 | $122,588 | | Operating Expenses | $3,248,031 | $2,354,240 | | Loss from Operations | $(3,085,140) | $(2,231,652) | | Other Income (Expense) | $21,145,560 | $(19,407,356) | | Net Income (Loss) | $18,060,420 | $(21,639,008) | Critical Accounting Policies and Estimates Critical accounting policies involve significant estimates for oil and gas properties, proved reserves, asset retirement obligations, and complex derivative liabilities sensitive to stock price volatility - The company uses the full cost method of accounting for oil and gas properties, which requires a quarterly 'ceiling' test to assess for impairment[122][123] - Estimates of proved reserves are crucial as they impact DD&A expense and are based on volatile commodity prices and other assumptions[124] - The accounting for derivative liabilities associated with Series C Preferred Stock is a critical policy, with fair value determined by complex models sensitive to stock price changes, showing potential share issuance ranging from 136 million to 488 million shares depending on the stock's VWAP[126][127][128] Quantitative and Qualitative Disclosures about Market Risk The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company - The company is not required to provide quantitative and qualitative disclosures about market risk because it qualifies as a smaller reporting company[128] Controls and Procedures Management concluded that disclosure controls were ineffective as of June 30, 2021, due to material weaknesses including insufficient staff, lack of resources for complex accounting, and inadequate oversight - The CEO concluded that the company's disclosure controls and procedures were not effective as of June 30, 2021[128] - Material weaknesses identified include: (1) lack of segregation of duties, (2) insufficient resources for complex accounting, and (3) inadequate oversight and error detection[129] Part II – Other Information This section details legal proceedings, unregistered equity sales, and required exhibits Legal Proceedings While no material lawsuits were pending as of June 30, 2021, a new shareholder action was commenced in October 2021 following a 'short' report, with allegations denied - Following a 'short' report by Kerrisdale Capital in October 2021, a lawsuit was filed against the company and its executives, with the company denying the allegations[131] Unregistered Sales of Equity Securities and Use of Proceeds The company issued a significant number of unregistered common shares during the three months ended June 30, 2021, primarily for Series C Preferred Stock conversions and consultant services - The company issued a total of 46.1 million shares of common stock to a preferred stockholder for conversions of Series C Preferred Stock[133] - 360,000 shares of common stock were issued to a consultant for services[133] Exhibits This section lists exhibits filed with the Form 10-Q, including SOX certifications from the Principal Executive Officer and Principal Financial Officer, and XBRL data files - The report includes certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[136]