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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-14 · 45 added, 66 removed, 112 unchanged (50% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with the financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

You should read the following discussion and analysis in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

In preparing the management’s discussion and analysis, the registrant presumes that you have read or have access to the discussion and analysis for the preceding fiscal year.

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Pending Merger

On February 15, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Viking.

The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Viking will merge with and into a newly-formed wholly-owned subsidiary of Camber (“Merger Sub”), with Viking surviving the Merger as a wholly-owned subsidiary of Camber.

On February 15, 2021, the Company entered into an Agreement and Plan of Merger with Viking, which was amended on April 18, 2023 (as amended, the “Merger Agreement”).

The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, a wholly owned subsidiary of the Company (“Merger Sub”) will merge with and into Viking (the “Merger”), with Viking surviving the Merger as a wholly owned subsidiary of the Company.

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share:

(i) of common stock, par value $0.001 per share, of the Viking (the “Viking Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares owned by Camber, Viking and Merger Sub, will be converted into the right to receive one share of common stock of Camber;

and (ii) of Series C Convertible Preferred Stock of Viking (the “Viking Preferred Stock”) issued and outstanding immediately prior to the Effective Time will be converted into the right to receive one share of Series A Convertible Preferred Stock of Camber (the “Camber Series A Preferred Stock”).

Each share of Camber Series A Preferred Stock will convert into 890 shares of common stock of Camber (subject to a beneficial ownership limitation preventing conversion into Camber common stock if the holder would be deemed to beneficially own more than 9.99% of Camber’s common stock), will be treated equally with Camber’s common stock with respect to dividends and liquidation, and will only have voting rights with respect to voting:

(a) on a proposal to increase or reduce Camber’s share capital;

(i) of common stock, par value $0.001 per share, of Viking (the “Viking Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares owned by the Company, Viking and Merger Sub, will be converted into the right to receive one share of common stock of the Company (the “Camber Common Stock”);

(ii) of Series C Convertible Preferred Stock of Viking (the “Viking Series C Preferred Stock”) issued and outstanding immediately prior to the Effective Time will be converted into the right to receive one share of Series A Convertible Preferred Stock of the Company (the “Camber Series A Preferred Stock”), and (iii) of Series E Convertible Preferred Stock of Viking (the “Viking Series E Preferred Stock,” and, together with the Viking Series C Preferred Stock, the “Viking Preferred Stock”) issued and outstanding immediately prior to the Effective Time will be converted into the right to receive one share of Series H Preferred Stock of the Company (the “Camber Series H Preferred Stock,” and, together with the Camber Series A Preferred Stock, the “New Camber Preferred Stock”).

Each share of Camber Series A Preferred Stock will be convertible into 890 shares of Camber Common Stock (subject to a beneficial ownership limitation preventing conversion into Camber Common Stock if the holder would be deemed to beneficially own more than 9.99% of Camber Common Stock), will be treated equally with Camber Common Stock with respect to dividends and liquidation, and will only have voting rights with respect to voting:

(a) on a proposal to increase or reduce the Company’s share capital;

(b) on a resolution to approve the terms of a buy-back agreement;

(d) on a proposal for the disposal of all or substantially all of Camber’s property, business and undertaking;

(f) during the winding-up of Camber;

and/or (g) with respect to a proposed merger or consolidation in which Camber is a party or a subsidiary of Camber is a party.

Holders of Viking Common Stock and Viking Preferred Stock will have any fractional shares of Camber common stock or preferred stock after the Merger rounded up to the nearest whole share.

At the Effective Time, each outstanding Viking equity award, will be converted into the right to receive the merger consideration in respect of each share of Viking Common Stock underlying such equity award and, in the case of Company stock options, be converted into vested Camber stock options based on the merger exchange ratio calculated as provided above (the “Exchange Ratio”).

(d) on a proposal for the disposal of all or substantially all of the Company’s property, business and undertaking;

(f) during the winding-up of the Company;

and/or (g) with respect to a proposed merger or consolidation in which the Company is a party or a subsidiary of the Company is a party.

Each share of Camber Series H Preferred Stock will have a face value of $10,000 per share, will be convertible into a certain number of shares of Camber Common Stock, with the conversion ratio based upon achievement of certain milestones by Viking’s subsidiary, Viking Protection Systems, LLC (provided the holder has not elected to receive the applicable portion of the purchase price in cash pursuant to that certain Purchase Agreement, dated as of February 9, 2022, by and between Viking and Jedda Holdings, LLC), will be subject to a beneficial ownership limitation of 4.99% of Camber Common Stock (but may be increased up to a maximum of 9.99% at the sole election of a holder by the provision of at least 61 days’ advance written notice) and will have voting rights equal to one vote per share of Camber Series H Preferred Stock held on a non-cumulative basis.

Holders of Viking Common Stock and Viking Preferred Stock will have any fractional shares of Camber Common Stock or New Camber Preferred Stock after the Merger rounded up to the nearest whole share.

At the Effective Time, each then outstanding option or warrant to purchase Viking Common Stock (a “Viking Option”) will, to the extent unvested, automatically become fully vested and will be converted automatically into an option or warrant (an “Adjusted Option”) to purchase, on substantially the same terms and conditions as were applicable to such Viking Option immediately prior to the effective time of the Merger, except that (i) instead of being exercisable into Viking Common Stock, such Adjusted Option will be exercisable into Camber Common Stock, and (ii) all references to the “Company” in the Viking Option agreements will be references to Camber in the Adjusted Option agreements.

At the Effective Time, each promissory note issued by Viking that is convertible into Viking Common Stock (a “Viking Convertible Note”) that, as of immediately prior to the effective time of the Merger, is outstanding and unconverted shall be converted into a promissory note convertible into Camber Common Stock (an “Adjusted Convertible Note”) having substantially the same terms and conditions as applied to the corresponding Viking Convertible Note as of immediately prior to the effective time of the Merger (including, for the avoidance of doubt, any extended post-termination conversion period that applies following consummation of the Merger), except that (i) instead of being convertible into Viking Common Stock, such Adjusted Convertible Note will be convertible into Camber Common Stock, and (ii) all references to the “Company” in the Viking Convertible Note agreements will be references to Camber in the Adjusted Convertible Note agreements..

The Merger Agreement provides, among other things, that effective as of the Effective Time, James A.

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The Merger Agreement provides that, as of the Effective Time, the combined company will have its headquarters in Houston, Texas.

The Merger Agreement also provides that, during the period from the date of the Merger Agreement until the Effective Time, each of Camber and Viking will be subject to certain restrictions on its ability to solicit alternative acquisition proposals from third parties, to provide non-public information to third parties and to engage in discussions with third parties regarding alternative acquisition proposals, subject to customary exceptions.

The Merger Agreement also provides that, during the period from the date of the Merger Agreement until the Effective Time, each of the Company and Viking will be subject to certain restrictions on its ability to solicit alternative acquisition proposals from third parties, to provide non-public information to third parties and to engage in discussions with third parties regarding alternative acquisition proposals, subject to customary exceptions.

Viking is required to hold a meeting of its stockholders to vote upon the adoption of the Merger Agreement and, subject to certain exceptions, to recommend that its stockholders vote to adopt the Merger Agreement.

Camber is required to hold a meeting of its stockholders to approve the issuance of Viking Common Stock and Viking Preferred Stock in connection with the Merger (the “Share Issuance”).

The completion of the Merger is subject to customary conditions, including (i) adoption of the Merger Agreement by Camber’s stockholders and approval of the Share Issuance by Camber’s stockholders, (ii) receipt of required regulatory approvals, (iii) effectiveness of a registration statement on Form S-4 for the Camber common stock to be issued in the Merger (the “Form S-4”), and (iv) the absence of any law, order, injunction, decree or other legal restraint preventing the completion of the Merger or making the completion of the Merger illegal.

The Company is required to hold a meeting of its stockholders to approve the issuance of Camber Common Stock and New Camber Preferred Stock (including the shares of Camber Common Stock issuable upon conversion thereof) in connection with the Merger (the “Share Issuances”) and, subject to certain exceptions, to recommend that its stockholders approve such proposals.

The completion of the Merger is subject to customary conditions, including (i) adoption of the Merger Agreement by Viking’s stockholders and approval of the Share Issuances by Camber’s stockholders, (ii) receipt of required regulatory approvals, (iii) effectiveness of a registration statement on Form S-4 for the Camber Common Stock to be issued in the Merger (the “Form S-4”), and (iv) the absence of any law, order, injunction, decree or other legal restraint preventing the completion of the Merger or making the completion of the Merger illegal.

Each party’s obligation to complete the Merger is also subject to certain additional customary conditions, including (i) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (ii) subject to certain exceptions, performance by the other party of its obligations under the Merger Agreement and (iii) the absence of any material adverse effect on the other party as defined in the Merger Agreement.

Additional closing conditions to the Merger include that in the event the NYSE American determines that the Merger constitutes, or will constitute, a “back-door listing” / “reverse merger”, Camber (and its common stock) is required to qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE as of the Effective Time.

Additional closing conditions to the Merger include:

(i) receipt of fairness opinions from financial advisors of both the Company and Viking that the Merger is fair from a financial point of view to the holders of each company’s common stock, (ii) confirmation from the Company that it is not in default of its outstanding agreements with a certain preferred equity holder and lender, (iii) written agreement from the Company’s warrant holders regarding the number and exercise price of the Company’s outstanding warrants and that the Merger will not trigger any price adjustments in certain outstanding warrant agreements, and (iv) that, in the event the NYSE American determines that the Merger constitutes, or will constitute, a “back-door listing”/”reverse merger”, the Company (and its common stock) is required to qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE as of the Effective Time.

The Merger Agreement can be terminated (i) at any time with the mutual consent of the parties;

(ii) by either Camber or Viking if any governmental consent or approval required for closing is not obtained, or any governmental entity issues a final non-appealable order or similar decree preventing the Merger;

(iii) by either Company or Viking if the Merger shall not have been consummated on or before August 1, 2021;

(iv) by Company of Viking, upon the breach by the other of a term of the Merger, which is not cured within 30 days of the date of written notice thereof by the other;

(v) by Camber if Viking is unable to obtain the affirmative vote of its stockholders for approval of the Merger;

(vi) by Viking if Camber is unable to obtain the affirmative vote of its stockholders required pursuant to the terms of the Merger Agreement;

and (vii) by Company or Viking if there is a willful breach of the Merger Agreement by the other party thereto.

(ii) by either the Company or Viking if any governmental consent or approval required for closing is not obtained, or any governmental entity issues a final non-appealable order or similar decree preventing the Merger;

(iii) by either Viking or the Company if the Merger shall not have been consummated on or before September 30, 2023;

(iv) by the Company or Viking, upon the breach by the other of a term of the Merger, which is not cured within 30 days of the date of written notice thereof by the other;

(v) by the Company if Viking is unable to obtain the affirmative vote of its stockholders for approval of the Merger;

(vi) by Viking if the Company is unable to obtain the affirmative vote of its stockholders for approval of the Share Issuances;

and (vii) by Viking or the Company if there is a willful breach of the Merger Agreement by the other party thereto.

The Merger Agreement contains customary indemnification obligations of the parties and representations and warranties.

The Merger has not been completed.

As of the date of filing this report, neither Viking or Camber has advised of its intention to terminate the Merger Agreement.

There is no guarantee that the merger will be completed.

The Merger has not been completed.

As of November 8, 2022, neither Viking nor Camber has advised of its intention to terminate the Merger Agreement.

However, given the lapse of time since the date of the Merger Agreement and the lack of progress during that period toward completing certain of the transaction requirements and satisfying certain of the conditions to the merger, we believe it is reasonably likely that certain terms, including economic terms of the merger would need to be modified by the parties in order for the parties to proceed with the merger.

While the parties have discussed this likelihood, neither party has determined the revised terms, if any, upon which it would be prepared to proceed with a revised merger agreement.

Any revisions to the terms and conditions of the merger agreement would be subject to the written agreement of the parties, and there is no assurance Viking and Camber will agree on any such proposed modifications or conditions.

Moreover, the satisfaction of conditions, whether existing or new, may be outside of Camber’s control.

Going Concern Qualification

The Company’s consolidated financial statements included herein have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company generated a net loss of $86,841,169 for the nine months ended September 30, 2022 as compared to a net loss of $253,172,096 for the nine months ended September 30, 2021.

The Company generated a net loss of $2,346,076 for the three months ended March 31, 2023 as compared to a net loss of $68,155,477 for the three months ended March 31, 2022.

The 2023 loss was comprised of, among other things, certain non-cash items with a total net impact of $612,336 including:

(i) a loss on derivative liability of $71,846,677 (ii) loss in earnings of unconsolidated entity of $8,265,256 (iii) stock-based compensation of $123,754;

(i) a gain on derivative and warrant liability of $1,281,706 (ii) loss in earnings of unconsolidated entity of $1,097,839 (iii) amortization of debt discount of $793,380;

and (iv) depreciation, depletion and accretion of $2,823.

As of September 30, 2022, the Company has a stockholders’ deficit of $33,079,090 and total long-term debt of $33,116,749, net of debt discount.

As of September 30, 2022, the Company has a working capital deficiency of approximately $34.8 million.

The largest component of current liabilities creating this working capital deficiency is a derivative liability of $32.7 million.

As of March 31, 2023, the Company has a stockholders’ deficit of $19,469,710 and total long-term debt of $34,721,141, net of debt discount.

As of March 31, 2023, the Company has a working capital deficiency of approximately $16.6 million.

The largest components of current liabilities creating this working capital deficiency are a derivative liability of $9.8 million and a warrant liability of $2.4 million.

Management believes it will be able to continue to leverage the expertise and relationships of its operational and technical teams to enhance existing assets and identify new development and acquisition opportunities in order to improve the Company’s financial position.

The Company may have the ability, if it can raise additional capital, to acquire new assets in a separate division from existing subsidiaries.

None the less, recent oil and gas price volatility as a result of geopolitical conditions and the global COVID-19 pandemic have already had and may continue to have a negative impact on the Company’s financial position and results of operations.

Nonetheless, recent oil and gas price volatility as a result of geopolitical conditions and the global COVID-19 pandemic have already had and may continue to have a negative impact on the Company’s financial position and results of operations.

Negative impacts could include but are not limited to:

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RESULTS OF CONTINUING OPERATIONS

The following discussion of the financial condition and results of operation of the Company for the three and nine months ended September 30, 2022 and 2021, should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The following discussion of the financial condition and results of operation of the Company for the three months ended March 31, 2023 and 2022, should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Liquidity and Capital Resources

As of September 30, 2022, and December 31, 2021, the Company had $2,455,688 and $5,854,382 in cash holdings, respectively.

Three months ended September 30, 2022 compared to the three months ended September 30, 2021

The Company had gross revenues of $158,508 for the three months ended September 30, 2022, as compared to $103,191 for the three months ended September 30, 2022, reflecting an increase of $55,317.

This increase in revenue is a result of an increase in oil and gas realized prices in 2022.

The Company’s operating expenses increased to $1,380,232 for the three-month period ended September 30, 2022, from $1,023,497 in the corresponding prior period.

Lease operating costs increased by $12,417 to $51,078 for the three-month period ended September 30, 2022 as compared to $38,661 for the three-month period ended September 30, 2021, due to lower realized production levels.

DD&A expense was relatively unchanged at $2,724 for the three months ended September 30, 2022 as compared to $1,906 for the three months ended September 30, 2021.

As of March 31, 2023, and December 31, 2022, the Company had $574,977 and $1,166,596 in cash holdings, respectively.

Three months ended March 31, 2023 compared to the three months ended March 31, 2022

The Company had gross revenues of $93,471 for the three months ended March 31, 2023, as compared to $136,407 for the three months ended March 31, 2022, reflecting a decrease of $42,936.

The Company’s operating expenses increased to $1,465,121 for the three-month period ended March 31, 2023, from $1,153,976 in the corresponding prior period.

Lease operating costs decreased by $6,280 to $43,085 for the three-month period ended March 31, 2023 as compared to $49,365 for the three-month period ended March 31, 2022, due to lower realized production levels.

DD&A expense was relatively unchanged at $2,823 for the three months ended March 31, 2023 as compared to $2,867 for the three months ended March 31, 2022.

General and administrative expenses and stock-based compensation combined reflected an increase of $317,469 to $1,419,213, when compared to $1,101,744 in the corresponding prior period.

Income (loss) from Operations

The Company generated a loss from operations for the three months ended September 30, 2022 of $(1,221,724), when compared to a loss from operations of $(920,306) for the three months ended September 30, 2021.

Other Income (Expense)

The Company had other (expense) of $(22,059,003) for the three months ended September 30, 2022, as compared to other (expense) of $(263,635,217) for the three months ended September 30, 2021.

This significant difference is primarily a result of the Company’s stock price and its impact on our derivatives.

Net Income (Loss)

The Company had net loss of $(23,280,727) during the three-month period ended September 30, 2022, compared with a net loss of $(264,555,523) for the three-month period ended September 30, 2021, primarily as a result of the items discussed above.

Nine months ended September 30, 2022 compared to the nine months ended September 30, 2021

The Company had gross revenues of $466,566 for the nine months ended September 30, 2022, as compared to $266,082 for the nine months ended September 30, 2022, reflecting an increase of $200,484.

This increase in revenue is a result of an increase in oil and gas realized prices in 2022.

The Company’s operating expenses decreased to $3,675,066 for the nine-month period ended September 30, 2022, from $4,271,528 in the corresponding prior period.

Lease operating costs increased by $43,667 to $141,807 for the nine-month period ended September 30, 2022 as compared to $98,140 for the nine-month period ended September 30, 2021, due to lower realized production levels.

DD&A expense was relatively unchanged at $8,461 for the nine months ended September 30, 2022 as compared to $9,458 for the nine months ended September 30, 2021.

General and administrative expenses and stock-based compensation combined reflected a decrease of $982,632 to $3,524,798, when compared to $4,163,930 in the corresponding prior period.

Income (loss) from Operations

The Company generated a loss from operations for the nine months ended September 30, 2022 of $(3,208,500), when compared to a loss from operations of $(4,005,446) for the nine months ended September 30, 2021.

The Company generated a loss from operations for the three months ended March 31, 2023 of $(1,371,650), when compared to a loss from operations of $(1,017,569) for the three months ended March 31, 2022.

Other Income (Expense)

The Company had other (expense) of $(83,632,669) for the nine months ended September 30, 2022, as compared to other (expense) of $(242,489,656) for the nine months ended September 30, 2021.

The Company had other (expense) of $(974,426) for the three months ended March 31, 2023, as compared to other (expense) of $(67,137,908) for the three months ended March 31, 2022.

This significant difference is primarily a result of the Company’s stock price and its impact on our derivatives.

Net Income (Loss)

The Company had net loss of $(86,841,169) during the nine-month period ended September 30, 2022, compared with a net loss of $(253,172,096) for the nine-month period ended September 30, 2021, primarily as a result of the items discussed above.

The Company had net loss of $(2,346,076) during the three-month period ended March 31, 2023, compared with a net loss of $(68,155,477) for the three-month period ended March 31, 2022, primarily as a result of the items discussed above.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions and apply judgments.

We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared and actual results could differ from our estimates and such differences could be material.

We prepare our consolidated financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions and apply judgments.

We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the consolidated financial statements are prepared and actual results could differ from our estimates and such differences could be material.

Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions.

On a regular basis, we review our critical accounting policies and how they are applied in the preparation of our financial statements, as well as the sufficiency of the disclosures pertaining to our accounting policies in the footnotes accompanying our financial statements.

On a regular basis, we review our critical accounting policies and how they are applied in the preparation of our consolidated financial statements, as well as the sufficiency of the disclosures pertaining to our accounting policies in the footnotes accompanying our financial statements.

Described below are the most significant policies we apply in preparing our consolidated financial statements, some of which are subject to alternative treatments under GAAP.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis