The accompanying notes
are an integral part of these consolidated financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION AND OPERATIONS OF THE COMPANY
Camber
Energy Inc. (“Camber” or the “Company”) is an independent oil and gas company engaged in the development
and acquisition of onshore properties in Texas and Oklahoma. The Company’s main operations are primarily located in the
Hunton formation in Lincoln, Logan and Payne Counties, in central Oklahoma and upper Wolfberry shale in Glasscock County, Texas;
and our entry into the Horizontal San Andres play on the Central Basin Platform of the Permian Basin in West Texas announced on
January 3, 2017.
The
Company’s corporate headquarters are currently located in Houston, Texas and are planned to be moved to San Antonio, Texas
shortly after the filing of the report of which these financial statements form a part.
Pursuant
to the authorization provided by the Company’s stockholders at the Company’s March 25, 2015 annual meeting of stockholders,
and in order to meet the continued listing standards of the NYSE MKT, the Board of Directors of the Company approved the filing
of a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada to effect
a 1-for-25 reverse stock split of all of the outstanding shares of the Company’s common stock on July 15, 2015. The effect
of the reverse split was to combine each 25 shares of outstanding common stock prior to the reverse split into one new share subsequent
to the reverse split, with no change in authorized shares or par value per share, and to reduce the number of common stock shares
outstanding from approximately 35.1 million shares to approximately 1.4 million shares (prior to rounding fractional shares up
to the nearest whole share). Proportional adjustments were also made to the conversion and exercise prices of the Company’s
outstanding convertible preferred stock, warrants and stock options, and to the number of shares issued and issuable under the
Company’s stock incentive plans. All issued and outstanding shares of common stock, conversion terms of preferred stock,
options and warrants to purchase common stock and per share amounts contained in the financial statements, in accordance with
SAB TOPIC 4C, have been retroactively adjusted to reflect the reverse split for all periods presented.
NOTE
2 – LIQUIDITY AND GOING CONCERN CONSIDERATIONS
At
March 31, 2017, the Company’s total current liabilities of $48.2 million exceeded its total current assets of $3.9 million,
resulting in a working capital deficit of $44.3 million, while at March 31, 2016, the Company’s total current liabilities
of $11.1 million exceeded its total current assets of $0.5 million, resulting in a working capital deficit of $10.6 million. The
$33.7 million increase in the working capital deficit is primarily related to the borrowing of $40 million which was used to repay
and finance approximately $30.6 million of indebtedness owed by certain of the Sellers as part of the closing of the Acquisition.
On
December 30, 2015, the Company entered into an Asset Purchase Agreement (as amended from time to time the “Asset Purchase
Agreement”) to acquire, from twenty-three different entities and individuals (the “Sellers”), working interests
in producing properties and undeveloped acreage (the “Acquisition”), which acquisition transaction was completed on
August 25, 2016. The assets acquired include varied interests in two largely contiguous acreage blocks in the liquids-rich Mid-Continent
region. In connection with the closing of the acquisition, we assumed approximately $30.6 million of commercial bank debt, issued
13,009,664 shares of common stock to certain of the Sellers, issued 552,000 shares of Series B Preferred Stock to one of the Sellers
and its affiliate, and paid $4,975,000 in cash to certain of the Sellers. The effective date of the Acquisition was April 1, 2016.
Pursuant
to a Letter Agreement we entered into, at the closing of the Acquisition, RAD2 agreed to accept full financial liability for any
and all deficiencies between the “Agreed Assets Value” set forth in the Asset Purchase Agreement of $80,697,710, and
the mutually agreed upon value of the assets delivered by the Sellers at the closing of the Acquisition, up to an aggregate of
$1,030,941 (as applicable, the “Deficiency”). The Company accepted additional oil and gas producing properties and
two salt water disposal facilities from the Sellers with an approximate value of $1.0 million to resolve this Deficiency. RAD2
is one of the Sellers, which is owned and controlled by Richard N. Azar II, who was appointed as our Chairman on August 26, 2016,
serving as Chairman until May 16, 2017, provided that Mr. Azar continues to serve as a member of the Board of Directors and who
was appointed as interim Chief Executive Officer of the Company on June 2, 2017.
The
Asset Purchase Agreement between the Sellers and the Company relating to the Acquisition included the requirement that, following
the closing, the parties undertake an accounting/true-up of expenses attributable to the assets acquired by the Company and revenue
generated from such assets. A dispute has arisen between the Sellers and the Company as to the time period which the Company was
to be responsible for the payment of expenses and was to receive the revenue from such assets prior to the closing of the transaction.
Specifically, the Company believes that the agreements provide for it to be responsible for all expenses associated with the assets,
and to receive all revenue generated from the assets, from April 1, 2016, the effective date of the Asset Purchase Agreement,
through the closing date, August 25, 2016. The Sellers on the other hand, which include entities owned by Richard N. Azar, II,
the Company’s interim Chief Executive Officer, have argued that the Company was only responsible for expenses, and was only
due to receive revenue from the assets, beginning on the closing date, August 25, 2016. The difference in the amounts claimed
due to the Company from the parties currently varies from a high of $1,121,718, which the Company alleges it is due, to a low
of $342,298, which the Sellers allege that the Company is due. The parties continue to discuss the issues raised and to work towards
a mutually acceptable settlement; however, due to the continuing dispute, for the purposes of the attached financial statements,
the Company has recorded a receivable of $1,121,718 with an allowance of $779,420 for a net balance of $342,298.
As
discussed in “Note 6 – Notes Payable and Debenture”, the Company borrowed $40 million from International Bank
of Commerce (“IBC”) effective August 25, 2016. The proceeds of the loan were used to repay and refinance approximately
$30.6 million of indebtedness owed by certain of the Sellers to IBC as part of the closing of the Acquisition. As of March 31,
2017, the Company was not in compliance with certain covenants of the loan agreement, including requiring the Company to maintain
a net worth of $30 million, and the balance of the loan due to IBC of $38.3 million (less unamortized debt issuance costs of approximately
$2.2 million), was recognized as a short-term liability on the Company’s balance sheet as of March 31, 2017. The Company
also recognized approximately $30,000 in accrued interest as of March 31, 2017 related to this note.
On
April 6, 2016, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with
an accredited institutional investor (the “Investor”), pursuant to which we sold and issued a redeemable convertible
subordinated debenture, with a face amount of $530,000, initially convertible into 163,077 shares of common stock (subject to
certain conversion premiums) at a conversion price equal to $3.25 per share and a warrant to initially purchase 1,384,616 shares
of common stock (subject to adjustment thereunder) at an exercise price equal to $3.25 per share (the “First Warrant”).
The Investor purchased the debenture at a 5.0% original issue discount in the amount of $500,000 and has exercised the First Warrant
in full as described below for the sum of $4.5 million.
Also
on April 6, 2016, the Company entered into a Stock Purchase Agreement with the Investor, pursuant to which we agreed, subject
to certain conditions, to issue up to 527 shares of Series C redeemable convertible preferred stock (the “Series C Preferred
Stock”) at a 5% original issue discount, convertible into 1,618,462 shares of common stock (subject to certain conversion
premiums) at a conversion price of $3.25 per share, and a warrant to initially purchase 1,111,112 shares of common stock at an
exercise price of $4.50 per share (the “Second Warrant”). Under the terms of the Stock Purchase Agreement, the Second
Warrant and 53 shares of Series C Preferred Stock were sold and issued for $500,000 on September 2, 2016, and the remaining 474
shares of Series C Preferred Stock were sold and issued for $4.5 million on November 17, 2016.
In
July and August 2016, RAD2 advanced the Company an aggregate of $350,000. Also, in August 2016, two other Sellers advanced the
Company an aggregate of $200,000 ($100,000 each). These advances did not accrue interest and had no stated maturity date. Additionally,
in August 2016, RAD2 loaned us $1.5 million pursuant to a promissory note. The promissory note did not accrue interest for the
first month it was outstanding and accrued interest at the rate of 5% per annum thereafter until paid in full. The Company repaid
the promissory note in full and all amounts advanced by RAD2 and the two other Sellers in October 2016.
On
October 7, 2016, the Investor exercised the First Warrant in full and was due 1,384,616 shares of common stock upon exercise thereof
and an additional 2,542,735 shares of common stock in consideration for the conversion premium due thereon. A total of 810,000
shares were issued to the Investor on October 7, 2016, with the remaining shares being held in abeyance until such time as it
would not result in the Investor exceeding its beneficial ownership limitation (4.99% of the Company’s outstanding common
stock). The Company received gross proceeds of $4,500,000 from the exercise of the First Warrant and paid placement agent fees
of $427,500 for services rendered in connection with the First Warrant. Pursuant to the terms of the First Warrant, the number
of shares due in consideration for the conversion premium increases as the annual rate of return under the First Warrant increases,
including by 10% upon the occurrence of certain triggering events (which had occurred by the October 7, 2016 date of exercise),
to 17% per annum upon the exercise of the First Warrant. Additionally, as the conversion rate for the conversion premium is currently
85% of the lowest daily volume weighted average price during the measuring period, less $0.10 per share of common stock not to
exceed 85% of the lowest sales prices on the last day of such period less $0.10 per share, the number of shares issuable in connection
with the conversion premium increases as the trading price of our common stock decreases, and the trading price of our common
stock has decreased since the date the First Warrant was exercised, triggering a further reduction in the conversion price of
the conversion premium and an increase in the number of shares due to the Investor in connection with the conversion of the amount
owed in connection with the conversion premium. Additionally, pursuant to the interpretation of the Investor, the measurement
period for the calculation of the lowest daily volume weighted average price currently continues indefinitely.
At
March 31, 2017, the Company had $6,883,697 due under the $7.5 million Letter Loan Agreement (as amended, modified, restated and
revised to date, the “Rogers Loan”) originally entered into with Louise H. Rogers (“Rogers”) on August
13, 2013, the maturity date of which Rogers Loan was amended effective January 31, 2017, from January 31, 2017 to April 30, 2017.
We also paid $9,000 to Ms. Rogers and $9,000 to Robertson Global Credit, LLC, the servicer of the Rogers Loan, in connection with
the amendment. The maturity date of the Rogers Loan is currently July 31, 2017.
Effective
January 31, 2017, the Company borrowed $1,000,000 from Alan Dreeben, one of the Company’s directors, pursuant to a short-term
promissory note. The short-term promissory note had a principal balance of $1,050,000 (the $1,000,000 principal amount borrowed
plus a $50,000 original issue discount), accrues interest at 6% per annum and a maturity date of January 31, 2018, with standard
and customary events of default. As additional consideration for Mr. Dreeben agreeing to make the loan, we agreed to issue Mr.
Dreeben 40,000 shares of restricted common stock.
On
March 9, 2017, the Company borrowed $250,000 from a non-related individual pursuant to a short-term promissory note. The short-term
promissory note has a principal balance of $263,158 (the $250,000 principal amount borrowed plus a $13,158 original issue discount),
accrues interest at 6% per annum and has a maturity date of March 9, 2018 and contains standard and customary events of default.
As additional consideration for agreeing to make the loan, we agreed to issue the lender 10,000 restricted shares of common stock.
In addition to
the transactions noted above, the Company is currently discussing potential financing transactions in order to fulfill our
current capital requirements as well as our planned asset acquisition, which we believe, if finalized and completed, will
ensure the future viability of the Company. However, due to our current capital structure and the nature of oil and gas
interests, i.e., that rates of production generally decline over time as oil and gas reserves are depleted, if the Company is
unable to obtain the necessary financing to finalize the asset purchase or drill additional wells and develop its proved
undeveloped reserves (“PUDs”); coupled with the continued substantial drop in commodity prices over the last
twelve months, the Company believes that its revenues will continue to decline over time. Therefore, the Company may be
forced to scale back our business plan, sell assets to satisfy outstanding debts or take other remedial steps which may
include seeking bankruptcy protection.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern
for the next twelve months
following the issuance of
these financial statements. The accompanying financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments relating
to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue
as a going concern.
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
financial statements of Camber Energy include the accounts of its wholly-owned Texas subsidiary, CATI Operating, LLC (“CATI”),
which was created in October 2015. Per an amendment to the Rogers Loan, dated December 14, 2015, we transferred all of our oil
and gas interests and equipment to CATI (see “Note 6 – Notes Payable” below). All intercompany accounts and
transactions have been eliminated.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Camber’s
financial statements are based on a number of significant estimates, including oil and natural gas reserve quantities which are
the basis for the calculation of depreciation, depletion and impairment of oil and natural gas properties, and timing and costs
associated with its asset retirement obligations, as well as those related to the fair value of stock options, stock warrants
and stock issued for services. While we believe that our estimates and assumptions used in preparation of the financial statements
are appropriate, actual results could differ from those estimates.
Cash
and Cash Equivalents
Cash
and cash equivalents include cash in banks and financial instruments which mature within three months of the date of purchase.
The Company maintains cash and cash equivalents in bank deposit accounts, which at times may exceed federally insured limits of
$250,000. At March 31, 2017 and 2016, the Company’s cash in excess of the federally insured limit were $199,435 and $0,
respectively. Historically, the Company has not experienced any losses in such accounts. The Company had no cash equivalents at
March 31, 2017 or 2016.
Accounts
Receivable
Accounts
receivable consist of uncollateralized oil and natural gas revenues due under normal trade terms. Management reviews receivables
periodically and reduces the carrying amount by a valuation allowance that reflects management’s best estimate of the amount
that may not be collectible. At March 31, 2017 and 2016, the Company’s allowance for doubtful accounts was $779,421 and
$0, respectively.
Concentration
of Credit Risk
The
Company generally sells a significant portion of our oil and gas production to a relatively small number of customers. For the
year ended March 31, 2017, the Company’s consolidated product revenues were attributable to Shell Trading (US) Company,
Superior Pipeline Company, Sissortail Energy, LLC, and DCP Midstream, LP. For the year ended March 31, 2016, 100% of the Company’s
consolidated product revenues were attributable to Shell Trading (US) Company, the Company’s current and only customer as
of March 31, 2016. The Company are not dependent upon any one purchaser and have alternative purchasers readily available
at competitive market prices if there is disruption in services or other events that cause us to search for other ways to sell
our production.
Oil
and Natural Gas Properties, Full Cost Method
Camber
uses the full cost method of accounting for oil and natural gas producing activities. Costs to acquire mineral interests in oil
and natural gas properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development
wells including directly related overhead costs and related asset retirement costs are capitalized.
Under
this method, all costs, including internal costs directly related to acquisition, exploration and development activities are capitalized
as oil and natural gas property costs on a country-by-country basis. Costs not subject to amortization consist of unproved properties
that are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become
proved or their values become impaired. Camber assesses overall values of unproved properties, if any, on at least an annual basis
or when there has been an indication that impairment in value may have occurred. Impairment of unproved properties is assessed
based on management’s intention with regard to future development of individually significant properties and the ability
of Camber to obtain funds to finance their programs. If the results of an assessment indicate that the properties are impaired,
the amount of the impairment is added to the capitalized costs to be amortized.
Sales
of oil and natural gas properties are accounted for as adjustments to the net full cost pool with no gain or loss recognized,
unless the adjustment would significantly alter the relationship between capitalized costs and proved reserves. If it is determined
that the relationship is significantly altered, the corresponding gain or loss will be recognized in the statements of operations.
Costs
of oil and natural gas properties are amortized using the units of production method. Amortization expense calculated per equivalent
physical unit of production amounted to $10.98 and $31.83 per barrel of oil equivalent for the years ended March 31, 2017 and
2016, respectively.
Ceiling
Test
In
applying the full cost method, Camber performs an impairment test (ceiling test) at each reporting date, whereby the carrying
value of property and equipment is compared to the “estimated present value” of its proved reserves discounted at
a 10% interest rate of future net revenues, based on current economic and operating conditions at the end of the period, plus
the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs
being amortized, less the income tax effects related to book and tax basis differences of the properties. If capitalized costs
exceed this limit, the excess is charged as an impairment expense. During the year ended March 31, 2017, the Company recorded
an impairment of $79.1 million, which represented $10.9 million related to proved properties, $18.7 million related to unproved
properties, and $49.5 million in conjunction with the Acquisition, primarily due to continued low commodity prices during the
fiscal year and lease expirations. During the year ended March 31, 2016, the Company recorded an impairment of $21.4 million associated
with proved oil and gas properties primarily due to a significant decline in commodity prices during the current fiscal year.
Asset
Retirement Obligations
The
Company records the fair value of a liability for asset retirement obligations (“ARO”) in the period in which it is
incurred and a corresponding increase in the carrying amount of the related long-lived asset. The present value of the estimated
asset retirement cost is capitalized as part of the carrying amount of the long-lived asset and is depreciated over the useful
life of the asset. Camber accrues an abandonment liability associated with its oil and natural gas wells when those assets are
placed in service. The ARO is recorded at its estimated fair value and accretion is recognized over time as the discounted liability
is accreted to its expected settlement value. Fair value is determined by using the expected future cash outflows discounted at
Camber’s credit-adjusted risk-free interest rate. No market risk premium has been included in Camber’s calculation
of the ARO balance.
Other
Property and Equipment
Other
property and equipment are stated at cost and consist primarily of a field office, furniture and computer equipment. Depreciation
is computed on a straight-line basis over the estimated useful lives.
Income
Taxes
Deferred
income taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences
and operating losses and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Deferred tax assets and accrued tax liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment.
Camber
has evaluated and concluded that there are no significant uncertain tax positions requiring recognition in the Company’s
financial statements as of March 31, 2017 and 2016. The Company’s policy is to classify assessments, if any, for tax related
interest expense and penalties as interest expense.
Earnings
per Common Share
Basic
and diluted net income per share calculations are calculated on the basis of the weighted average number of shares of the Company’s
common stock outstanding during the year. Purchases of treasury stock reduce the outstanding shares commencing on the date that
the stock is purchased. Common stock equivalents are excluded from the calculation when a loss is incurred as their effect would
be anti-dilutive.
Stock
options to purchase 19,920 shares of common stock at an average exercise price of $35.38 per share and warrants to purchase 256,448
shares of common stock at an average exercise price of $12.94 per share were outstanding at March 31, 2017. Stock options to purchase
22,920 shares of common stock at a weighted average exercise price of $33.96 per share and warrants to purchase 232,585 shares
of common stock at a weighted average exercise price of $47.64 per share were outstanding at March 31, 2017.
At
March 31, 2016, Camber had outstanding 500 shares of Series A Convertible Preferred Stock. Each share of the Series A Convertible
Preferred Stock shares is convertible into an aggregate of 40 shares of the Company’s common stock and has no liquidation
preference and no maturity date. The 500 shares of outstanding Series A Preferred stock were subsequently converted into 20,000
shares of common stock on April 25, 2016.
As of March 31, 2017, the Company had a convertible subordinated debenture of $145,695 (net of the unamortized discount of $384,305) which was recognized as a long-term liability on the Company's balance sheet as of March 31, 2017. The convertible subordinated debenture was initially convertible into 163,077 shares of common stock at a conversion price equal to $3.25 per share. Due to the recent decline in the price of our common stock and that a trigger event occurred on June 30, 2016 as a result of the delay in filing our Annual Report on Form 10-K for the year ended March 31, 2016, the premium rate on the debenture increased from 6% to 34% and the conversion discount became 85% of the lowest daily volume weighted average price during the measuring period (60 days prior to and 60 days after the last date that the Investor receives the last of the shares due), less $0.10 per share of common stock not to exceed 85% of the lowest sales price on the last day of such period less $0.10 per share. Using the treasury
stock method, had the Company had net income, no common shares attributable to our outstanding stock options would have been included
in the fully diluted earnings per share calculation for the year ended March 31, 2017.
Fair Value of Financial Instruments
ASC 820 defines fair
value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. It defines fair
value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement
date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure
fair value:
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Level 1 – Quoted prices in active markets for identical assets or liabilities.
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Level 2 – Inputs other than quoted prices that are observable for the asset or liability,
either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose
significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.
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Level 3 – Unobservable inputs to measure fair value of assets and liabilities for which there
is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information
at the time, to the extent that inputs are available without undue cost and effort.
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As of March 31, 2017,
the significant inputs to the Company’s derivative liability calculation were Level 3 inputs.
Share-Based Compensation
Camber measures the
cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award
over the vesting period.
Revenue and Cost Recognition
Camber recognizes oil
and natural gas revenue under the sales method of accounting for its interests in producing wells as crude oil and natural gas
is produced and sold from those wells. Costs associated with production are expensed in the period incurred. Crude oil produced
but remaining as inventory in field tanks is not recorded as revenue in Camber’s financial statements because it is not material.
Reclassifications
Certain reclassifications
have been made to the prior year financial statements to conform with the current year presentation.
Recently Issued Accounting Pronouncements
There were various
accounting standards and interpretations issued during fiscal 2017 and 2016, none of which are expected to have a material impact
on the Company’s financial position, operations or cash flows.
In May 2014, the Financial
Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”),
which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize
revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an
entity expects to be entitled for those goods or services. ASU 2014-09 defines a five- step process to achieve this core principle
and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing
GAAP. The guidance is effective for annual and interim periods beginning after December 15, 2017. The standard is required to be
adopted using either the full retrospective approach, with all prior periods presented adjusted, or the modified retrospective
approach, with a cumulative adjustment to retained earnings on the opening balance sheet. The Company will adopt the new standard
utilizing the modified retrospective approach. The Company does not expect the adoption of this ASU to have a material impact on
its financial statements. However, we anticipate the new standard will result in more robust footnote disclosures. We cannot currently
determine the extent of the new footnote disclosures as further clarification is needed for certain practices common to the industry.
We will continue to evaluate the impacts that future contracts may have.
In August 2014, the
FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard
requires management to assess the Company’s ability to continue as a going concern. Disclosures are required if there is
substantial doubt as to the Company’s continuation as a going concern within one year after the issue date of financial statements.
The standard provides guidance for making the assessment, including consideration of management’s plans which may alleviate
doubt regarding the Company’s ability to continue as a going concern. ASU 2014-15 is effective for years ending after December
15, 2016. The Company has adopted this standard for the year ending March 31, 2017, and management has concluded that there is
substantial doubt as to the Company’s continuation as a going concern within one year after the issue date of the financial
statements.
In April 2015, the
FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of
Debt Issuance Costs. ASU 2015-03 amends previous guidance to require that debt issuance costs related to a recognized debt liability
be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.
The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The standard is
effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those
fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The Company adopted this
ASU during the first quarter of fiscal 2016 and the adoption of this ASU did not have a material impact on our financial statements.
In February 2016, the
FASB issued ASU 2016-02, a new lease standard requiring lessees to recognize lease assets and lease liabilities for most leases
classified as operating leases under previous U.S. GAAP. The guidance is effective for fiscal years beginning after December 15,
2018, with early adoption permitted. The Company will be required to use a modified retrospective approach for leases that exist
or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is currently
evaluating the impact of adopting this standard on its consolidated financial statements.
In August 2016, the
FASB issued Accounting Standards Update (ASU) 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 seeks to reduce the existing
diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.
This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years,
with early adoption permitted. The Company is currently evaluating the provisions of ASU 2016-15 and assessing the impact, if any,
it may have on its statement of consolidated cash flows.
Subsequent Events
The Company has evaluated
all transactions occurring between March 31, 2017 through the date the consolidated financial statements were issued for subsequent
event disclosure consideration.
NOTE 4 – PROPERTY AND EQUIPMENT
Oil and Natural Gas Properties
All of Camber’s oil and natural gas
properties are located in the United States. Costs being amortized at March 31, 2017 and 2016 are as follows:
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At March 31,
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2017
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2016
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Oil and gas properties subject to amortization
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$
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72,318,163
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$
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47,801,175
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Oil and gas properties not subject to amortization
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28,947,400
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—
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Capitalized asset retirement costs
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1,473,199
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717,337
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Total oil & natural gas properties
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102,738,762
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48,518,512
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Accumulated depreciation, depletion, and impairment
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(67,036,915
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)
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(34,416,407
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)
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Net Capitalized Costs
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$
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35,701,847
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$
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14,102,105
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Impairment
During the
year ended March 31, 2017, the Company recorded impairments totaling $79.1 million, which represented $10.9 million related
to proved properties, $18.7 million related to unproved properties, and $49.5 million in conjunction with the Acquisition,
primarily due to continued low commodity prices during the fiscal year and lease expirations. During the year ended March 31,
2016, the Company recorded an impairment of $21.4 million associated with oil and gas properties primarily due to a
significant decline in commodity prices during the fiscal year.
Acquisition of Oil
and Natural Gas Properties
On August 25, 2016,
the Company completed the Acquisition and acquired working interests in producing properties and undeveloped acreage from the Sellers
(see “Note 2 – Liquidity and Going Concern Considerations”). The assets acquired include varied interests in
two largely contiguous acreage blocks in the liquids-rich Mid-Continent region.
As consideration
for the Acquisition of the acquired assets, the Company assumed approximately $30.6 million of commercial bank debt, issued
13,009,664 shares of common stock to certain of the Sellers valued at the grant date fair value, issued 552,000 shares of
Series B Preferred Stock to one of the Sellers and its affiliate (see “Note 10 – Stockholders’ Equity
(Deficit)”) valued at the grant date fair value, and paid $4,975,000 in cash to certain of the Sellers. The effective date of
the Acquisition was April 1, 2016.
The following tables
summarize the purchase price and allocation of the purchase price to the net assets acquired in connection with the Acquisition:
|
Purchase Price on August 25, 2016:
|
|
Consideration Given
|
|
|
Fair value of common stock issued
|
|
$
|
49,176,530
|
|
|
Fair value of Series B Preferred Stock issued
|
|
|
14,898,038
|
|
|
Assumption of debt
|
|
|
30,595,256
|
|
|
Cash Paid at Closing
|
|
|
4,975,000
|
|
|
Total purchase price
|
|
$
|
99,644,824
|
|
|
|
|
|
|
|
|
|
|
Net Assets Acquired
|
|
|
Accounts receivable
|
|
$
|
635,482
|
|
|
Total current assets acquired
|
|
|
635,482
|
|
|
|
|
|
|
|
|
Oil and gas properties
|
|
|
50,774,684
|
|
|
Total assets acquired
|
|
|
51,410,166
|
|
|
|
|
|
|
|
|
Asset retirement obligations
|
|
|
(755,862
|
)
|
|
Total liabilities acquired
|
|
|
(755,862
|
)
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
50,654,304
|
|
|
|
|
|
|
|
|
Impairment of oil and gas properties
|
|
|
48,990,520
|
|
|
|
|
|
|
|
|
Total Purchase Price
|
|
$
|
99,644,824
|
|
The proceeds from the $40 million loan
from IBC were as follows:
|
|
|
Use of Proceeds
|
|
|
Assumption of debt
|
|
$
|
30,595,256
|
|
|
Cash funding (paid at closing)
|
|
|
4,975,000
|
|
|
Loan Commitment fee (paid at closing)
|
|
|
200,000
|
|
|
Lien Payoff (paid at closing)
|
|
|
72,657
|
|
|
Restricted cash (received at closing)
|
|
|
3,360,000
|
|
|
Cash (received at closing)
|
|
|
797,087
|
|
|
Debt payable after closing
|
|
$
|
40,000,000
|
|
Other Property and Equipment
In February 2014, the
Company purchased a field office for approximately $50,000 which is used to provide local operational support for its properties
in the Eagleford and Austin Chalk areas. The land upon which the field office resides was initially leased by the Company over
a three-year term beginning in January 2014 through December 2016, for a yearly lease amounts of $7,200 and $7,800, and $8,400
over the three-year term, respectively. In January 2017, the Company renewed the lease on a year-to-year basis for $7,200.
Office Lease
On
July 27, 2015, the Company moved its corporate headquarters from 3555 Timmons Lane, Suite 1550, Houston, Texas 77027 to 450 Gears
Road, Suite 780, Houston, Texas 77067 in connection with the expiration of our prior office space lease. The Company entered into
a sublease on approximately 3,300 square feet of office space that expired on January 31, 2016 and had a base monthly rent of approximately
$5,000 of which it had paid four months in advance as well as a $5,000 security deposit. For the proceeding months, the Company
paid month-to-month rent until it was able to move into its new office suite. On April 1, 2016, the Company entered into a lease
agreement pursuant to which the Company agreed to lease 4,439 square feet of office space at 450 Gears Road, Houston, Harris County,
Texas 77067 (Suite 860, versus Suite 780 as was leased previously). The lease had a 65-month term (through August 2021), and commenced
on April 1, 2016. The monthly rental cost under the lease was -$0- for the month of April 2016, and $7,676 for the months of May
2016 through April 2017, plus as applicable, its pro rata share of operating expenses and taxes which exceed the total operating
expenses and taxes of the property for the first year of the lease. On March 31, 2017, the Company amended its lease at 450 Gears
Road to expand to a total of 6,839 square feet, commencing on May 1, 2017. The amendment extended the lease period to November
2021.
NOTE 5 – ASSET RETIREMENT OBLIGATIONS
The following table
presents the reconciliation of the beginning and ending aggregate carrying amounts of long-term legal obligations associated with
the future retirement of oil and natural gas properties for the years ended March 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Carrying amount at beginning of year
|
|
$
|
1,179,170
|
|
|
$
|
1,051,694
|
|
|
Acquisition of oil and gas properties
|
|
|
755,862
|
|
|
|
—
|
|
|
Accretion
|
|
|
199,960
|
|
|
|
127,426
|
|
|
Revisions of previous estimates
|
|
|
(89,145
|
)
|
|
|
—
|
|
|
Carrying amount at end of year
|
|
$
|
2,045,847
|
|
|
$
|
1,179,170
|
|
NOTE 6 – NOTES PAYABLE AND DEBENTURE
The Company’s notes payable and debenture
consisted of the following:
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Note Payable - Rogers
|
|
$
|
6,883,697
|
|
|
$
|
7,153,734
|
|
|
Note Payable - Dreeben
|
|
|
1,050,000
|
|
|
|
275,000
|
|
|
Note Payable – Non-Related Individual
|
|
|
263,158
|
|
|
|
—
|
|
|
Convertible Notes Payable - Silver Star
|
|
|
—
|
|
|
|
800,000
|
|
|
Convertible Notes Payable - HFT
|
|
|
—
|
|
|
|
450,000
|
|
|
Debenture
|
|
|
530,000
|
|
|
|
—
|
|
|
Note Payable - IBC
|
|
|
38,324,527
|
|
|
|
—
|
|
|
|
|
|
47,051,382
|
|
|
|
8,678,734
|
|
|
Unamortized debt discount
|
|
|
(2,624,038
|
)
|
|
|
(583,183
|
)
|
|
Total Notes Payable and Debenture
|
|
|
44,427,344
|
|
|
|
8,095,551
|
|
|
Less current portion of long-term debt
|
|
|
(44,281,649
|
)
|
|
|
(8,095,551
|
)
|
|
Long-term portion
|
|
$
|
145,695
|
|
|
$
|
—
|
|
Rogers Loan and Promissory Note
Letter Loan Agreement
At March 31, 2017,
the Company had $6,883,697 due under the $7.5 million Letter Loan Agreement originally entered into with Rogers on August 13, 2013.
Amortization of debt discount of $21,323 was recorded during the year ended March 31, 2016 while no unamortized discount remained
as of March 31, 2017.
Currently, the Rogers
Loan has a maturity date of July 31, 2017, and the Company agreed to pay all professional fees incurred by Rogers and to pay Rogers
$39,000 in lieu of interest on the Rogers Loan as well as all operating income of collateralized assets (beginning October 1, 2015).
Also, the Company agreed to make principal payments to Rogers from certain insurance proceeds to be received, which the Company
has not received to date. For the months of January, February, March, June and July 2016, the Company did not make the required
monthly principal payments due pursuant to the terms of the Rogers loan as amended. Instead, the Company and the loan administrator
agreed to settle any outstanding administration and legal fees in lieu of the principal payments. The Company paid approximately
$98,000 related to the fees, and effective July 5, 2016, obtained a waiver for the nonpayment of the principal amounts through
July 2016. The Company has not made the $39,000 required monthly fee payments on the Rogers Loan since August 2016, however, the
Company has made all required principal payments, and Rogers has not sent any notice of default or taken any action in connection
therewith.
Additionally, per a
prior amendment, the Company transferred all of its oil and gas interests and equipment to our then newly formed wholly-owned Texas
subsidiary, CATI Operating LLC, which clarified that following the transfer, Rogers had no right to foreclose upon the Company
(at the Nevada corporate parent level) upon the occurrence of an event of default under the Rogers Loan, and that instead Rogers
would only take action against CATI and its assets and required Rogers to release all UCC and other security filings on the Company
(provided that Rogers is allowed to file the same filings on CATI and its assets). Subsequently, the Company assigned all of its
oil and gas interests and equipment to CATI pursuant to an Assignment and Bill of Sale dated December 16, 2015.
On February 1, 2017,
the maturity date of the Rogers Loan was extended from January 31, 2017 to April 30, 2017. As consideration, the
Company paid $9,000 to Ms. Rogers and $9,000 to Robertson Global Credit, LLC, the servicer of the Amended Note. In April 2017,
the maturity date was extended again until July 31, 2017. As consideration, the Company paid $9,000 to Ms. Rogers and $9,000 to
Robertson Global Credit, LLC, the servicer of the Amended Note.
Promissory Note
On August 25, 2016,
and effective on August 15, 2016, our wholly-owned subsidiary, CATI borrowed $1 million from the Company’s senior lender,
Rogers. The amount borrowed accrued interest at the rate of 12% per annum (18% upon the occurrence of an event of default) and
was due and payable on or before November 9, 2016. The note is secured by the assets of CATI and nine of our other assets, including
those acquired in the Acquisition.
Pursuant to the terms
of the note, a total of 80% of all cash flow generated by CATI was required to first be paid to satisfy amounts owed under the
August 2016 Note, and then to amounts owed under the Letter Loan, with the remaining 20% of such cash flow used by CATI for lease
and other operating expenses and capital expenditures approved by Rogers’ designated representatives. In connection with
the Company’s entry into the August 2016 note, it paid a loan origination fee of $50,000 and agreed to pay all fees of Rogers’
counsel in connection with the preparation and negotiation of the note. The $50,000 loan origination fee was recorded as a debt
discount and was amortized through interest expense using the effective interest method over the term of the note.
As additional consideration,
CATI issued Robertson Global Credit, LLC, the administrator of the Rogers Loan, a 2% overriding royalty interest in the wellbores
of the Cyclone #9H and Cyclone #10H wells.
On October 11, 2016,
the Company paid Rogers the full amount of principal due on the promissory note of $1.0 million and also paid the full amount of
interest due of $15,667 on October 13, 2016. As such, the promissory note was no longer outstanding as of March 31, 2017.
Silver Star Line of Credit
On August 30, 2015,
the Company entered into a Non-Revolving Line of Credit Agreement with Silver Star Oil Company (“Silver Star”). The
line of credit provided the Company the right to issue up to $2.4 million in convertible promissory notes to Silver Star. To date,
Camber has drawn $1,000,000 under the line of credit for the months of October, November, December 2015 and January and February
2016. The convertible notes contained a beneficial conversion feature with a combined intrinsic value of $687,987 for the five
notes, which was recognized as a debt discount and is being amortized through interest expense using the effective interest method
over the term of the notes.
Convertible notes totaling
$800,000 had been assigned by Silver Star to Rockwell Capital Partners (“Rockwell”), of which Rockwell has fully converted
a total of $830,562 of the principal and interest due on such convertible notes outstanding into shares of our common stock at
a conversion price of $1.50 per share, for an aggregate of 553,708 shares.
On July 15, 2016, pursuant
to an assignment of convertible promissory note agreement, the Company was advised that the last $200,000 convertible promissory
note issued to Silver Star on February 20, 2016 was assigned by Silver Star to Texas Capital & Assets LLC. On September 28,
2016, Texas Capital & Assets LLC converted $207,566 of principal and interest due on such convertible note into shares of our
common stock at a conversion price of $1.50 per share, for an aggregate of 138,377 shares.
As of March 31, 2017,
the Company had no remaining Silver Star convertible notes outstanding as all outstanding notes had been converted into shares
of the Company’s common stock.
HFT Convertible Promissory Note Purchase
Agreement and Convertible Promissory Notes
On March 29, 2016, Camber entered into a
Convertible Promissory Note Purchase Agreement with HFT Enterprises, LLC (“HFT”). Pursuant to the Note Purchase Agreement,
Camber agreed to sell an aggregate of $600,000 in convertible notes, including $450,000 in convertible notes purchased on the date
of the parties’ entry into the agreement, and $150,000 in convertible notes purchased by Debra Herman, the wife of Michael
Herman, the principal of HFT, on April 26, 2016. Camber also granted Mrs. Herman warrants to purchase 124,285 shares of common
stock with an exercise price of $1.50 per share on April 26, 2016, when the final loan was made pursuant to the terms of the agreement.
The fair value of these 124,285 warrants was $470,467 and the relative fair value of $113,737 was recorded as additional debt discount.
Each of the convertible
notes are due and payable twelve months from their issuance date, accrue interest at the rate of 6% per annum (15% upon the occurrence
of an event of default), and allow the holder thereof the right to convert the principal and interest due thereunder into common
stock of the Company at a conversion price of $1.50 per share, provided that the total number of shares of common stock issuable
upon conversion of the convertible notes could not exceed 19.9% of our outstanding shares of common stock on March 29, 2016, until
shareholder approval for such issuances was received, which approval was received on August 23, 2016. The convertible notes contained
a beneficial conversion feature with a combined intrinsic value of $600,000 for the three notes, which is recognized as a discount
and is being amortized through interest expense using the effective interest method over the term of the notes.
On October 4, 2016,
HFT, converted $464,800 of the principal and interest due on such convertible notes held by HFT into shares of Camber common stock
at a conversion price of $1.50 per share, for an aggregate of 309,866 shares. Additionally on November 18, 2016, Mrs. Herman converted
$155,110 of the principal and interest due on the convertible note which she held into shares of our common stock at a conversion
price of $1.50 per share, for an aggregate of 103,400 shares.
As of March 31, 2017,
the Company had no remaining HFT convertible notes outstanding and does not recognize any corresponding liability on the Company’s
balance sheet as all outstanding notes had been converted into shares of the Company’s common stock.
Dreeben Note
On
March 28, 2016, the Company borrowed $250,000 from Alan Dreeben, one of the Sellers and one of the Company’s directors, pursuant
to a short-term promissory note. The short-term promissory note has a principal balance of $275,000 (the $250,000 borrowed plus
a $25,000 original issue discount). As additional consideration for Mr. Dreeben agreeing to make the loan, the Company agreed to
issue Mr. Dreeben 15,000 shares of restricted common stock, which were issued in September 2016. The Company recognized a $48,000
discount to the short-term promissory note which was based on the closing price of the Company’s common stock ($3.20 per
share) on March 28, 2016 in addition to the original discount of $25,000, for a total discount of $73,000.
On June 27, 2016, the
Company entered into an amended and restated short-term promissory note, amending and restating the note originally entered into
with Mr. Dreeben on March 28, 2016; evidencing an additional $100,000 borrowed on June 13, 2016, plus a $10,000 original issue
discount on such loan amount and extending the maturity date of the note to August 31, 2016.
On August 31, 2016,
the Company paid Mr. Dreeben the full amount due on the short-term promissory note of $385,000.
Effective January 31,
2017, the Company borrowed $1,000,000 from Alan Dreeben, one of the Company’s directors, pursuant to a short-term promissory
note. The short-term promissory note had a principal balance of $1,050,000 (the $1,000,000 principal amount borrowed plus a $50,000
original issue discount), accrues interest at 6% per annum and a maturity date of January 31, 2018, with standard and customary
events of default. As additional consideration for Mr. Dreeben agreeing to make the loan, we agreed to issue Mr. Dreeben 40,000
shares of restricted common stock. At March 31, 2017, the Company owed $1,050,000 to Alan Dreeben. The fair value of the restricted
shares was $30,000 based on the closing price of the Company’s common stock on the issuance date. The fair value of the shares
was recorded as additional debt discount. At March 31, 2017, the Company owed $1,050,000 to Alan Dreeben. The Company also
recognized $10,500 in accrued interest as of March 31, 2017.
Non-Related Individual Note
On March 9, 2017, the
Company borrowed $250,000 from a non-related individual pursuant to a short-term promissory note. The short-term promissory note
has a principal balance of $263,158 (the $250,000 principal amount borrowed plus a $13,158 original issue discount), accrues interest
at 6% per annum and has a maturity date of March 9, 2018 and contains standard and customary events of default. As additional
consideration for agreeing to make the loan, the Company agreed to issue the lender 10,000 restricted shares of common stock. The
fair value of the restricted shares was $5,900 based on the closing price of the Company’s common stock on the issuance date.
The fair value of the shares was recorded as additional debt discount. The note is secured by a deed of trust on certain of our
properties. At March 31, 2017, the Company owed $263,158 to the non-related individual. The Company also recognized $1,316 in accrued
interest as of March 31, 2017.
Debenture
On April 6, 2016, the
Company entered into a Securities Purchase Agreement with the Investor, pursuant to which the Company issued a redeemable convertible
subordinated debenture, with a face value of $530,000, initially convertible into 163,077 shares of common stock at a conversion
price equal to $3.25 per share and warrants to initially purchase 1,384,616 shares of common stock (subject to adjustment thereunder)
at an exercise price equal to $3.25 per share (the “First Warrant”). The Investor purchased the debenture at a $30,000
original issue discount for the sum of $500,000 and agreed that it would exercise the First Warrant, upon satisfaction of certain
conditions, for the sum of $4.5 million, which warrant was exercised in October 2016. The debenture matures in seven years and
accrues interest at a rate of 6.0% per annum. Due to the recent decline in the price of our common stock and that a trigger event
occurred on June 30, 2016 as a result of the delay in filing our Annual Report on Form 10-K for the year ended March 31, 2016,
the premium rate on the debenture increased from 6% to 34% and the conversion discount became 85% of the lowest daily volume weighted
average price during the measuring period (60 days prior to and 60 days after the last date that the Investor receives the last
of the shares due), less $0.10 per share of common stock not to exceed 85% of the lowest sales price on the last day of such period
less $0.10 per share.
As the fair value of
the warrants issued in connection with the debenture exceeds the $530,000 value of the debenture, we fully discounted the entire
debenture and will amortize the discount over the term of the debenture. The discount is being amortized through interest expense
using the effective interest method over the term of the debenture.
As of March 31, 2017,
the Company had a convertible subordinated debenture of $145,695 (net of the unamortized discount of $384,305) which was recognized
as a long-term liability on the Company’s balance sheet as of March 31, 2017. The Company also recognized $180,200 in accrued
interest as of March 31, 2017.
Loan Agreement with RAD2
On August 25, 2016,
RAD2, which was one of the Sellers and which is owned and controlled by Richard N. Azar II, who was appointed as our Chairman on
August 26, 2016 and subsequently as the Company’s interim Chief Executive Officer, loaned us $1.5 million pursuant to a promissory
note. The promissory note did not accrue interest for the first month it was outstanding and accrues interest at the rate of 5%
per annum thereafter until paid in full.
On October 13, 2016,
the Company paid RAD2 the full amount due on the promissory note of $1.5 million.
Loan Agreement with International
Bank of Commerce (“IBC”)
On August 25, 2016,
the Company, as borrower, and Richard N. Azar II, who was appointed as our Chairman on August 26, 2016 and subsequently as the
Company’s interim Chief Executive Officer, and who also received the largest number of securities and cash in connection
with the closing of the Acquisition (“Azar”), Donnie B. Seay, Richard E. Menchaca, RAD2, DBS Investments, Ltd. (“DBS”,
controlled by Mr. Seay) and Saxum Energy, LLC (“Saxum”, which is controlled by Mr. Menchaca), as guarantors (collectively,
the “Guarantors”, all of which were directly or indirectly Sellers), and IBC, as Lender (“Lender”), entered
into a Loan Agreement.
Pursuant to the Loan
Agreement, the Lender loaned the Company $40 million, evidenced by a Real Estate Lien Note in the amount of $40 million. The Company
is required to make monthly payments under the note equal to the greater of (i) $425,000; and (ii) fifty percent (50%) of our monthly
net income. The note accrues annual interest at 2% above the prime rate then in effect, subject to a minimum interest rate of 5.5%
per annum. The note is due and payable on August 25, 2019. Payments under the note are subject to change as the interest rate changes
in order to sufficiently amortize the note in 120 monthly installments. The Company has the right, from time to time and without
penalty to prepay the note in whole or in part, subject to the terms thereof.
The proceeds of the
loan were used to repay and refinance approximately $30.6 million of indebtedness owed by certain of the Sellers, to the Lender
(including an aggregate of $18.3 million owed by RAD2 and another entity controlled by Mr. Azar, $9.8 million owed by DBS, and
$2.1 million owed by Mr. Menchaca), as well as to pay the $4.975 million due to the Sellers at closing. Another $3.36 million was
used to fund a sinking fund required by the Lender, as discussed below, to pay principal on the note.
The amount owed under
the note is secured by a Security Interest in substantially all of our assets and properties, pursuant to three Security Agreements.
Also, each of the Guarantors guaranteed the repayment of a portion of the Loan Agreement pursuant to a Limited Guaranty Agreement.
Additionally, in connection with the parties’ entry into the Loan Agreement and to further secure amounts due thereunder,
certain of the Guarantors pledged shares of common stock which they received at the closing to the Lender, with RAD2 pledging 3,120,606
shares of common stock; DBS pledging 935,934 shares of common stock; and Saxum pledging 673,392 shares of common stock.
The Loan Agreement
also provides that with respect to the properties located in Glasscock County, Texas, which the Company obtained ownership of at
the closing of the Acquisition (collectively, the “West Texas Properties”), the Company has the right to sell the West
Texas Properties after (i) the Lender approves the purchase and sale agreement in its sole discretion, (ii) the Lender receives
as a prepayment of the loan, 50% of the sales proceeds of the West Texas Properties, but in no event less than $2,000,000, and
(iii) the balance of the sales proceeds of the West Texas Properties are deposited in the bank account that we are required to
maintain with the Lender, to be used to pay certain principal payments of the note as approved by Lender in its sole discretion.
The Company agreed
to pay the Lender a loan finance charge of $400,000 in connection with its entry into the Loan Agreement, with half due on the
date the Company entered into the Loan Agreement and half due on or before the 180th day following the date of the Loan Agreement.
As further consideration for agreeing to the terms of the Loan, the Company agreed to issue the Lender 390,290 shares of common
stock. The Company recognized a $2.8 million note discount related to these transactions and other debt issuance costs and will
amortize the discount and debt issuance costs over the term of the note.
As of March 31, 2017,
the Company was not in compliance with certain covenants of the loan agreement, including requiring the Company to maintain a net
worth of $30 million, and the balance of the loan due to IBC of $38.3 million (less unamortized debt issuance costs of approximately
$2.2 million), was recognized as a short-term liability on the Company’s balance sheet as of March 31, 2017. The Company
has also recognized approximately $30,000 in accrued interest as of March 31, 2017.
NOTE 7 – DERIVATIVES
The Company has determined
that certain warrants the Company has issued contain provisions that protect holders from future issuances of the Company’s
common stock at prices below such warrants’ respective exercise prices and these provisions could result in modification
of the warrants’ exercise price based on a variable that is not an input to the fair value of a “fixed-for-fixed”
option as defined under FASB ASC Topic No. 815 - 40. The warrants granted to Ironman PI Fund II, LP contain anti-dilution provisions
that provide for a reduction in the exercise price of such warrants in the event that future common stock (or securities convertible
into or exercisable for common stock) is issued (or becomes contractually issuable) at a price per share (a “Lower Price”)
that is less than the exercise price of such warrant at the time. The amount of any such adjustment is determined in accordance
with the provisions of the warrant agreement and depends upon the number of shares of common stock issued (or deemed issued) at
the Lower Price and the extent to which the Lower Price is less than the exercise price of the warrant at the time.
Activities for derivative
warrant instruments during the years ended March 31, 2017 and 2016 were as follows:
|
|
|
Fair Value
|
|
Balance, March 31, 2015
|
|
$
|
—
|
|
|
Additions
|
|
|
139,019
|
|
|
Change in fair value
|
|
|
(12,059
|
)
|
|
Balance, March 31, 2016
|
|
|
126,960
|
|
|
Change in fair value
|
|
|
(105,298
|
)
|
|
Balance, March 31, 2017
|
|
$
|
21,662
|
|
The fair value of the derivative
warrants was calculated using the Black-Scholes pricing model. Variables used in the Black-Scholes pricing model as of March 31,
2017 include (1) discount rate of 1.28%, (2) expected term of 2 years, (3) expected volatility of 168.75%, and (4) zero expected
dividends. Variables used in the Black-Scholes pricing model as of March 31, 2016 include (1) discount rate of 0.87%-1.74%, (2)
expected term of 3 to 5 years, (3) expected volatility of 97.84%-149.62%, and (4) zero expected dividends.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Minimum Commitments.
The Company has operating leases for office space in Houston, Texas and land for a field office in Gonzales, Texas. The Company
incurred rental expense of $88,513 and $95,815 for the years ended March 31, 2017 and 2016, respectively.
Future minimum annual
rental commitments under non-cancelable leases at March 31, 2017 were approximately $120,000 through March 31, 2018, $135,000 through
March 31, 2019, $138,000 through March 31, 2020, $140,000 through March 31, 2021 and $104,000 thereafter.
Legal Proceedings.
From time to time suits and claims against Camber arise in the ordinary course of Camber’s business, including contract disputes
and title disputes. Camber records reserves for contingencies when information available indicates that a loss is probable and
the amount of the loss can be reasonably estimated.
On May 9, 2017, we
filed a Petition and Request for Temporary Restraining Order, Preliminary Injunction and Permanent Injunction (the “
Petition
”),
against Discover Growth Fund (otherwise defined as the Investor herein)(“
Discover
”) and Fifth Third Securities,
Inc., in the United States District Court for the Southern District of Texas Houston Division (Civil Action 4:17-cv-1436). The
Petition alleged causes of actions against Discover in connection with the Debenture, First Warrant and Series C Preferred Stock
(the “
Convertible Securities
”) and alleged causes of action against Discover and Fifth Third in connection with
conversions and sales of our common stock under the Convertible Securities. The Petition also sought declaratory relief in connection
with certain terms and provisions of the Convertible Securities, sought exemplary damages and injunctive relief as well as a temporary
restraining order to prevent Discover from further converting/exercising the Convertible Securities until the parties could reach
a further understanding regarding the terms thereof. On May 11, 2017, the court rejected our motion for hearing in connection with
a temporary restraining order. On May 16, 2017, Discover filed certain counterclaims against us and a request for a temporary restraining
order and preliminary injunction. Discover also filed a motion to dismiss our Petition on the same date. After discussion among
the parties, the lawsuit was subsequently dismissed by the parties on May 22, 2017. Notwithstanding the dismissal of the lawsuit,
we have continued to have discussions with Discover regarding a potential settlement with Discover, provided no definitive terms
have been agreed to as of the date of this filing and the parties may never come to an agreement regarding the terms of a settlement.
Employment
Agreements.
Effective November 1, 2012, the Company entered into an Employment Agreement with Anthony C. Schnur to serve as
the Chief Financial Officer of the Company, which agreement was amended and restated effective December 12, 2012, in connection
with his appointment as Chief Executive Officer. The agreement had a term of two years, expiring on October 31, 2014, provided
that the agreement was automatically extended for additional one year terms, unless either party provided notice of their intent
not to renew within the 30-day period prior to any automatic renewal date, and as neither party provided notice of their intent
to terminate in fiscal 2015 or 2016, the agreement automatically extended for an additional one year term until October 31, 2016
and October 31, 2017, respectively, notwithstanding the termination of the agreement in connection with Mr. Schnur’s resignation
on June 2, 2017, as discussed below. The Company agreed to pay Mr. Schnur a base annual salary of $310,000 during the term of the
agreement, of which $290,000 is payable in cash and $20,000 is payable in shares of the Company’s common stock. The stock
consideration due under the agreement is payable in quarterly installments at the end of each quarter, based on the stock price
on the last day of each quarter. Mr. Schnur is also eligible for an annual bonus of up to 30% of his base salary in cash or stock.
The Employment
Agreement was terminated in connection with Mr. Schnur’s resignation as Chief Executive Officer and director of the
Company effective on June 2, 2017. In connection with the departure of Mr. Schnur, Mr. Schnur entered into a severance
agreement and release with the Company, whereby (i) his employment agreement with the Company was terminated, (ii) he entered
into a mutual release with the Company; (iii) he was granted 120,000 shares of unregistered common stock (to be issued in
installments of 10,000 per month) and a monthly cash payment of $14,000 for twelve months; and (iv) he was granted
reimbursement of the payment of his COBRA premiums through (a) the one year anniversary of the termination or (b) until he is
eligible to participate in the health insurance plan of another employer, whichever is sooner, and provided that the amount
of such health benefits shall reduce his monthly cash payment.
NOTE 9 – INCOME TAXES
The Company
recorded a benefit for state income taxes of approximately $15,000 and zero for the years ended March 31, 2017 and 2016,
respectively, as a result of the losses and change in valuation allowance for each year.
|
|
|
2017
|
|
|
2016
|
|
|
Current taxes:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(15,000
|
)
|
|
$
|
—
|
|
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
(15,000
|
)
|
|
|
—
|
|
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
|
—
|
|
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
Total
|
|
$
|
(15,000
|
)
|
|
$
|
—
|
|
The following is a
reconciliation between actual tax expense (benefit) and income taxes computed by applying the U.S. federal income tax rate to income
from continuing operations before income taxes for the years ended March 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Computed at expected tax rates (34%)
|
|
$
|
(30,307,001
|
)
|
|
$
|
(8,652,916
|
)
|
|
Meals and entertainment
|
|
|
237,099
|
|
|
|
50,598
|
|
|
Return to accrual true-up
|
|
|
(15,000
|
)
|
|
|
(13,068
|
)
|
|
NOLs limitation resulting from change in control
|
|
|
15,134,586
|
|
|
|
—
|
|
|
Change in valuation allowance
|
|
|
14,935,316
|
|
|
|
8,615,386
|
|
|
Total
|
|
$
|
(15,000
|
)
|
|
$
|
—
|
|
Tax effects of temporary
differences that give rise to significant portions of the deferred tax assets and deferred liabilities are presented below:
|
|
|
At March 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating tax loss carryforwards
|
|
$
|
3,912,500
|
|
|
$
|
14,638,485
|
|
|
Gain on sale of oil and gas properties
|
|
|
7,197,260
|
|
|
|
6,696,052
|
|
|
Depletion
|
|
|
1,101,236
|
|
|
|
1,678,175
|
|
|
Unrealized net loss on available-for-sale securities
|
|
|
123,955
|
|
|
|
123,954
|
|
|
Share-based compensation
|
|
|
402,388
|
|
|
|
387,564
|
|
|
Total deferred tax assets
|
|
|
12,737,339
|
|
|
|
23,524,230
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Intangible drilling costs
|
|
|
25,949,194
|
|
|
|
(959,124
|
)
|
|
Depreciation
|
|
|
(4,165,651
|
)
|
|
|
(3,014,952
|
)
|
|
Other
|
|
|
109,102
|
|
|
|
144,903
|
|
|
Total deferred tax liabilities
|
|
|
21,892,645
|
|
|
|
(3,829,173
|
)
|
|
Subtotal
|
|
|
34,629,984
|
|
|
|
19,695,027
|
|
|
Less: valuation allowance
|
|
|
(34,629,984
|
)
|
|
|
(19,695,057
|
)
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
The
Company experienced an “ownership change” within the meaning of IRC Section 382 during the year ended March 31,
2017. As a result, certain limitations apply to the annual amount of net operating losses that can be used to offset post
ownership change taxable income. The Company has estimated that $44.7 million of its pre-ownership change net operating loss
could potentially be lost due to the IRC Section 382 limitation.
At March 31, 2017,
the Company had estimated net operating loss carry-forwards for federal and state income tax purposes of approximately $11.7 million,
adjusted for the ownership change limitation discussed above, which will begin to expire, if not previously used, beginning in
the year 2029.
The above estimates
are based upon management’s decisions concerning certain elections which could change the relationship between net income
and taxable income. Management decisions are made annually and could cause the estimates to vary significantly.
The Company files income
tax returns for federal and state purposes. Management believes that with few exceptions, the Company is not subject to examination
by United States tax authorities for tax periods prior to 2012.
NOTE 10 – STOCKHOLDERS’
EQUITY (DEFICIT)
Series A Convertible Preferred Stock
On April 19, 2016,
the holder of our Series A Convertible Preferred Stock, agreed to convert all 500 shares of our outstanding Series A Convertible
Preferred Stock into 20,000 shares of our common stock (a conversion ratio of 40:1 as provided in the original designation of the
Series A Convertible Preferred Stock adjusted for the Company’s 1:25 reverse stock split effective on July 25, 2015), which
conversion was completed on April 25, 2016. We paid the holder $20,000 in connection with such conversion in order to comply with
the terms of the Asset Purchase Agreement that required that no shares of Series A Convertible Preferred Stock be outstanding at
the closing. As of March 31, 2017, we had no Series A Convertible Preferred Stock issued or outstanding.
Series B Redeemable Convertible Preferred Stock
On September 1, 2016,
as consideration for the closing of the Acquisition, the Company issued an aggregate of 552,000 shares of Redeemable Convertible
Preferred Stock, which had a total value of $13,800,000 based on the $25 per Series B Preferred Stock share par value. The preferred
shares were issued to RAD2 (200,000 shares) and Segundo Resources, LLC (an affiliate of RAD2)(352,000 shares) on behalf of and
for the benefit of RAD2.
The Series B Preferred
Stock has a liquidation preference of $25 per share. The Series B Preferred Stock is convertible, at the option of the holder at
any time following the original issuance date, into common stock at a rate of approximately 7.14:1 (issuable into an aggregate
of 3,942,857 shares of common stock if fully converted), at the option of the holder thereof, or automatically as to 25% of the
Series B Preferred Stock shares if our common stock trades above $6.125 per share for at least 20 consecutive trading days, and
trades with at least 75,000 shares of average volume per day during such period; an additional 50% of the Series B Preferred Stock
shares if our common stock trades above $7.00 per share for at least 20 consecutive trading days, and trades with at least 75,000
shares of average volume per day during such period; and as to the remaining Series B Preferred Stock shares, if our common stock
trades above $7.875 per share for at least 20 consecutive trading days, and trades with at least 75,000 shares of average volume
per day during such period. Each outstanding share of Series B Preferred Stock will be entitled to one vote per share on all stockholder
matters. The Series B Preferred Stock is redeemable at any time by the Company upon the payment by the Company of the face amount
of the Series B Preferred Stock ($25 per share) plus any and all accrued and unpaid dividends thereon.
The Company has the
option, exercisable from time to time after the original issue date, to redeem all or any portion of the outstanding shares of
Series B Preferred Stock by paying each applicable holder, an amount equal to the original issue price multiplied by the number
of Series B Preferred shares held by each applicable holder plus the accrued dividends.
The 552,000 shares
of Series B Preferred Stock have the following features:
|
|
●
|
a liquidation preference senior to all of the Company’s common stock;
|
|
|
●
|
a dividend, payable quarterly, at an annual rate of six percent (6%) of the original issue price until such Series B Preferred Stock is no longer outstanding either due to conversion, redemption or otherwise; and
|
|
|
●
|
voting rights on all matters, with each share having 1 vote.
|
As the Series B Preferred
Stock is convertible at any time following the original issuance date into common stock at a rate of approximately 7.14:1, the
Company recognized a fair value measurement of $14,898,038 for the Series B Preferred Stock, which is based on the 552,000 preferred
shares issued times the conversion rate of approximately 7.14, times the price of the Company’s common stock of $3.78 per
share at the date of the closing of the Acquisition on August 25, 2016.
During the year
ended March 31, 2017, the Company issued a stock dividend on the Series B Preferred Stock consisting of 82,674 shares of the
Company’s common stock. Due to the fact that the Company is in a retained deficit position, the Company recognized a
charge to additional paid in-capital of $83 based on the par value of the common stock issued. As of March 31, 2017, the
Company recognized additional stock dividends on the Series B Preferred Stock consisting of 59,146 shares of our common
stock, which was recognized as a charge to additional paid in-capital and stock dividends distributable but not issued of
$34,837 based on the closing price of the Company’s common stock of $0.59 per share on March 31, 2017. The common stock
dividends were subsequently issued to the preferred shareholders on April 4, 2017.
Series C Redeemable Convertible Preferred Stock
On April 6, 2016, the
Company entered into a Stock Purchase Agreement with the Investor, pursuant to which it agreed, subject to certain conditions,
to sell 527 shares of Series C redeemable convertible preferred stock (with a face value of $5.26 million) at a 5% original issue
discount of $263,000, convertible into 1,618,462 shares of common stock at a conversion price of $3.25 per share, and a warrant
to purchase 1,111,112 shares of common stock at an exercise price of $4.50 per share (the “Second Warrant”).
On September 2, 2016,
the Second Warrant and 53 shares of Series C Preferred Stock were issued for $526,450 ($500,000, net cash proceeds to Camber) after
the Acquisition (as defined and described in “Note 2 – Liquidity and Going Concern Considerations”) closed. The
prorated share of the $263,000 discount ($26,450) was recorded as reduction to additional paid in capital. On November 17, 2016,
the remaining 474 shares of Series C Preferred Stock were issued for $4,736,550 ($4,500,000, net cash proceeds to Camber) and the
Company paid placement agent and legal fees of $514,000 for services rendered in connection with the issuance. The Company also
recognized $236,550 of the remaining 5% original issue discount, which was recorded as reduction to additional paid in capital.
The holder of the Series
C Preferred Stock is entitled to cumulative dividends through maturity, which initially totaled 6% per annum, and are adjustable
to up to 34.95% per annum, per annum, based on certain triggering events and the trading price of our common stock, and which currently
total 34.95% per annum, payable upon redemption, conversion, or maturity, and when, as and if declared by our Board of Directors
in its discretion. The Series C Preferred Stock ranks senior to the common stock and pari passu with respect to our Series B Redeemable
Convertible Preferred Stock.
The Series C Preferred
Stock may be converted into shares of common stock at any time at the option of the holder, or at our option if certain equity
conditions (as defined in the Certificate of Designation) are met. Upon conversion, we will pay the holder of the Series C Preferred
Stock being converted an amount, in cash or stock at our sole discretion, equal to the dividends that such shares would have otherwise
earned if they had been held through the maturity date (7 years), and issue to the holder such number of shares of common stock
equal to $10,000 per share of Series C Preferred Stock (the “Face Value”) multiplied by the number of such shares of
Series C Preferred Stock divided by the conversion rate ($3.25 per share).
The conversion premium
under the Series C Preferred Stock is payable and the dividend rate under the Series C Preferred Stock is adjustable on the same
terms and conditions as accrued interest is payable and adjustable under the Debenture. The Series C Preferred Stock has a maturity
date that is seven years after the date of issuance and, if the Series C Preferred Stock has not been wholly converted into shares
of common stock prior to such date, we may redeem the Series C Preferred Stock on such date by repaying to the holder in cash 100%
of the Face Value plus an amount equal to any accrued but unpaid dividends thereon. 100% of the Face Value, plus an amount equal
to any accrued but unpaid dividends thereon, automatically becomes payable in the event of a liquidation, dissolution or winding
up by us.
During
the year ended March 31, 2017
, the Investor converted shares of the Series C Preferred stock and was due shares of common
stock and an additional shares of common stock in dividend premium shares. Due to the recent decline in the price of our common
stock and the trigger event that occurred on June 30, 2016 as a result of the delay in filing our Annual Report on Form 10-K for
the year ended March 31, 2016, the dividend premium rate increased from 6% to 30% and the conversion discount became 85% of the
lowest daily volume weighted average price during the measuring period, less $0.10 per share of common stock not to exceed 85%
of the lowest sales prices on the last day of such period less $0.10 per share.
The following summarizes
the Series C Preferred Stock converted during the year ended March 31, 2017:
|
|
|
|
Number of Shares
|
|
|
Face
|
|
|
Common Stock
|
|
|
Additional Dividend Premium
|
|
|
Total Common
|
|
|
Date
|
|
|
Converted
|
|
|
Value
|
|
|
Due
|
|
|
Shares
|
|
|
Stock
|
|
|
December 22, 2016
|
|
|
|
32
|
|
|
$
|
320,000
|
|
|
|
98,462
|
|
|
|
969,138
|
|
|
|
1,067,600
|
|
|
January 9, 2017
|
|
|
|
21
|
|
|
|
210,000
|
|
|
|
64,616
|
|
|
|
657,196
|
|
|
|
721,812
|
|
|
January 25, 2017
|
|
|
|
21
|
|
|
|
210,000
|
|
|
|
64,616
|
|
|
|
780,694
|
|
|
|
845,310
|
|
|
February 24, 2017
|
|
|
|
21
|
|
|
|
210,000
|
|
|
|
64,616
|
|
|
|
1,138,159
|
|
|
|
1,202,775
|
|
|
March 2, 2017
|
|
|
|
15
|
|
|
|
150,000
|
|
|
|
46,154
|
|
|
|
812,971
|
|
|
|
859,125
|
|
|
March 29, 2017
|
|
|
|
13
|
|
|
|
130,000
|
|
|
|
40,000
|
|
|
|
1,247,235
|
|
|
|
1,287,235
|
|
|
|
|
|
|
123
|
|
|
$
|
1,230,000
|
|
|
|
378,464
|
|
|
|
5,605,393
|
|
|
|
5,983,857
|
|
As of March 31, 2017,
the Company accrued common stock dividends on the Series C Preferred Stock based on the then 34.95% premium dividend rate described
above. The Company recognized a charge to additional paid-in capital and stock dividends distributable but not issued of $563,813
related to the stock dividend declared but not issued.
Warrants
The following
summarizes Camber’s warrant activity for each of the years ended March 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Warrants
|
|
|
Price
|
|
|
Outstanding at Beginning of Year
|
|
|
232,585
|
|
|
$
|
47.64
|
|
|
|
232,585
|
|
|
$
|
50.34
|
|
|
Issued
|
|
|
2,620,013
|
|
|
|
3.70
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
(1,211,534
|
)
|
|
|
10.05
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
(1,384,616
|
)
|
|
|
3.25
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at End of Year
|
|
|
256,448
|
|
|
$
|
12.94
|
|
|
|
232,585
|
|
|
$
|
47.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended
March 31, 2017, warrants to purchase 1,384,616 shares of common stock were granted in connection with the Company’s sale
of the debenture noted in “Note 6 – Note Payables and Debenture” and warrants to purchase 1,111,112 shares of
common stock at an exercise price of $4.50 per share were granted in connection with our sale of 53 shares of Series C Preferred
Stock noted above. The Company also granted warrants to purchase 124,285 shares of common stock in connection with the HFT Convertible
Promissory Notes (see “Note 6 – Note Payables and Debenture”). No warrants were cancelled during the year ended
March 31, 2017, other than warrants to purchase 100,420 shares of common stock at an exercise price of $71.50 per share expired
unexercised on July 4, 2016.
On October 7, 2016,
the Investor exercised the First Warrant in full and was due 1,384,616 shares of common stock upon exercise thereof and an additional
2,542,735 shares of common stock in consideration for the conversion premium due thereon. A total of 810,000 shares were issued
to the Investor on October 7, 2016, with the remaining shares being held in abeyance until such time as it would not result in
the Investor exceeding its beneficial ownership limitation (4.99% of the Company’s outstanding common stock). The Company
received gross proceeds of $4,500,000 from the exercise of the First Warrant and paid placement agent fees of $427,500 for services
rendered in connection with the First Warrant. Pursuant to the terms of the First Warrant, the number of shares due in consideration
for the conversion premium increases as the annual rate of return under the First Warrant increases, including by 10% upon the
occurrence of certain triggering events (which had occurred by the October 7, 2016 date of exercise), to 17% per annum upon the
exercise of the First Warrant. Additionally, as the conversion rate for the conversion premium is currently 85% of the lowest daily
volume weighted average price during the measuring period, less $0.10 per share of common stock not to exceed 85% of the lowest
sales prices on the last day of such period less $0.10 per share, the number of shares issuable in connection with the conversion
premium increases as the trading price of our common stock decreases, and the trading price of our common stock has decreased since
the date the First Warrant was exercised, triggering a further reduction in the conversion price of the conversion premium and
an increase in the number of shares due to the Investor in connection with the conversion of the amount owed in connection with
the conversion premium. Additionally, pursuant to the interpretation of the Investor, the measurement period for the calculation
of the lowest daily volume weighted average price currently continues indefinitely.
As of July 10, 2017,
a total of 9,675,154 shares of common stock had been issued to the Investor in connection with the exercise of the First Warrant
of the approximately 37,496,859 shares which were alleged due (25,052,473 shares remain to be issued to the Investor, which shares
are currently held in abeyance until such time as it would not result in the Investor exceeding its beneficial ownership limitation
(4.99% of the Company’s outstanding common stock)) as of July 10, 2017 (subject to increases as the value of our common stock
decreases).
Additionally, warrants
to purchase 66,668 shares of common stock issued in connection with an equity raise completed in April 2014, contained a weighted
average anti-dilutive provision in which the exercise price of the warrants are adjusted downward based on any subsequent issuance
or deemed issuance of common stock or convertible securities by the Company for consideration less than the then exercise price
of such warrants. As a result of the anti-dilution rights, the exercise price of the warrants was adjusted to $3.59 per share,
in connection with an automatic adjustment to the exercise price due to the Acquisition. As of March 31, 2017 the fair value of
the derivative liability associated with the 66,668 warrants was $21,662 compared to $126,960 at March 31, 2016. Therefore, the
$105,298 change in the derivative liability fair value was recorded as other income on the consolidated statement of operations.
At March 31, 2017,
11,195 outstanding warrants had an intrinsic value of $6,483. The intrinsic value is based upon the difference between the market
price of Camber’s common stock on the date of exercise and the grant price of the stock options. These warrants were initially
issued in connection with the Rogers Loan on August 13, 2013, and the exercise price was lowered from $33.75 to $0.01 per share
on August 12, 2015.
The following is a summary of the Company’s
outstanding warrants at March, 31, 2017:
|
Warrants Outstanding
|
|
|
Exercise Price ($)
|
|
|
Expiration Date
|
|
Intrinsic Value at
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,300
|
(1)
|
|
|
57.50
|
|
|
October 18, 2017
|
|
$
|
—
|
|
|
|
11,000
|
(2)
|
|
|
37.50
|
|
|
April 4, 2018
|
|
|
—
|
|
|
|
2,000
|
(3)
|
|
|
37.50
|
|
|
May 31, 2018
|
|
|
—
|
|
|
|
11,195
|
(4)
|
|
|
0.01
|
|
|
April 21, 2019
|
|
|
6,483
|
|
|
|
66,668
|
(5)
|
|
|
4.05
|
|
|
April 21, 2017
|
|
|
—
|
|
|
|
124,285
|
(6)
|
|
|
1.50
|
|
|
April 21, 2021
|
|
|
—
|
|
|
|
256,448
|
|
|
|
|
|
|
|
|
$
|
6,483
|
|
(1) Warrants issued in connection with
the sale of units in the Company’s unit offering in April 2012. The warrants became exercisable on October 18, 2012, and
will remain exercisable thereafter until October 18, 2017.
(2) Warrants issued in connection with
the issuance of certain notes in April 2013, of which the outstanding principal and interest was paid in full on August 16, 2013.
The warrants were exercisable on the grant date (April 4, 2013) and remain exercisable until April 4, 2018.
(3) Warrants issued in connection with
the issuance of certain notes in May 2013, of which the outstanding principal and interest was paid in full on August 16, 2013.
The warrants were exercisable on the grant date (May 31, 2013) and remain exercisable until May 31, 2018.
(4) Warrants issued in connection with
the Rogers Loan. The warrants were exercisable on the grant date (August 13, 2013) and remain exercisable until August 13, 2018.
The exercise price was lowered to $0.01 per share on August 12, 2015.
(5) Warrants issued in connection with
the sale of units in the Company’s unit offering in April 2014. The Warrants became exercisable on April 21, 2014 and will
remain exercisable thereafter until April 21, 2019.
(6) Warrants issued in connection with
the HFT Convertible Promissory Notes. The warrants were exercisable on the grant date (April 26, 2016) and remain exercisable until
April 26, 2021.
