cei_10qa.htm

10-Q/A 1 cei_10qa.htm FORM 10-Q/A cei_10qa.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-32508

CAMBER ENERGY, INC.

(Exact name of registrant as specified in its charter)

Nevada		20-2660243
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

15915 Katy Freeway, Suite 450, Houston, Texas 77094

(Address of principal executive offices) (Zip Code)

(210) 998-4035

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 Par Value Per Share	CEI	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of each class		Number of Shares
Common Stock, par value $0.001 per share		250,000,000 (as of November 19, 2021)

Explanatory Note

Camber Energy, Inc (the “Company”) is filing this Quarterly Report on Form 10-Q/A (“Form 10-Q/A”) to amend our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, originally filed with the Securities and Exchange Commission (the “SEC”) on August 24, 2020 (“Original Report”) to restate our financial statements and related notes (collectively, the “financial statements” or “Financial Statements”) for the three month periods ended June 30, 2020 and 2019. This Form 10-Q/A also amends certain other Items in the Original Report, as listed in “Items Amended in this Form 10-Q/A” below.

Restatement Background

On October 31, 2020, the Company received a comment letter from the SEC ("SEC Comment Letter") with respect to Amendment No. 2 to the Registration Statement on Form S-4 filed on October 14, 2020. Among other things, the SEC Comment Letter questioned the Company’s historical accounting treatment regarding the sale of our Series C Redeemable Convertible Preferred Stock (the “Series C Stock”). The Company recorded such sales as “permanent equity,” and the SEC Comment Letter suggested the appropriate accounting classification was something other than permanent equity given certain provisions within the Certificate of Designation for the Series C Stock (“COD”). After considering the SEC Comment Letter and reviewing the COD, the Company and the holder of the Series C Stock determined there were several errors made in the drafting of the COD that could result in unintended consequences. Both parties agreed to subsequently correct the COD, and Certificates of Correction to the COD were filed on December 9, 2020, and on April 20, 2021, to correct the errors. Both parties agreed the corrections would be applied retroactive to the original filing date of the COD, being August 25, 2016; however, US GAAP requires a transaction to be accounted for in accordance with the terms of an agreement in effect during the period of the financial statements, and, consequently, the Company determined that in accordance with the terms of the original COD, the Series C Stock should have been recorded as temporary equity instead of permanent equity. In addition, certain provisions of the original COD required the Company to recognize a derivative liability for certain conversions of the Series C Stock into common stock. After consultations with the SEC staff and the Company’s accounting advisors, the Company determined: (i) the impact of the error(s) is material for the fiscal years ended March 31, 2019 and 2020; and (ii) to restate its Annual Report on Form 10-K for the year ended March 31, 2020, inclusive of comparative financial statements for the year ended March 31, 2019, the previously filed quarterly report on Form 10-Q for the three months ended June 30, 2020, and the previously filed quarterly report on Form 10-Q for the three and six month periods ended September 30, 2020. See Note 4 to the Consolidated Financial Statements included in Item 1 for additional information and a reconciliation of the previously reported amounts to the restated amounts.

Items Amended in this Form 10-Q/A

This Form 10-Q/A presents the Original Report in its entirety, as amended and restated with modifications as necessary to reflect the restatements. The following items have been amended to reflect the restatements:

Part I, Item. Financial Statements

Part II, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In addition, the Company’s Chief Executive Officers and Principal Accounting Officer have provided new certifications dated as of the date of this filing in connection with this Form

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CAMBER ENERGY, INC.

TABLE OF CONTENTS

PART 1. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS	4

	CONSOLIDATED BALANCE SHEETS (UNAUDITED)	4
	CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)	5
	CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (UNAUDITED)	6
	CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)	7
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	36

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	51

ITEM 4.	CONTROLS AND PROCEDURES	51

PART II – OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	52

ITEM 1A.	RISK FACTORS	52

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	58

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	59

ITEM 4.	MINE SAFETY DISCLOSURES	59

ITEM 5.	OTHER INFORMATION	59

ITEM 6.	EXHIBITS	59

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PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CAMBER ENERGY, INC.

CONSOLIDATED BALANCE SHEETS (Restated)

(Unaudited)

	June 30, 2020			March 31, 2020
ASSETS
Current Assets
Cash	$	1,705,374		$	656,615
Accounts Receivable, Net of Allowance		279,904			255,363
Other Current Assets		247,973			220,682
Total Current Assets		2,233,251			1,132,660

Property and Equipment
Oil and Gas Properties - Subject to Amortization		50,443,883			50,443,883
Oil and Gas Properties - Not Subject to Amortization		28,016,989			28,016,989
Other Property and Equipment		1,570			1,570
Total Property and Equipment		78,462,442			78,462,442
Accumulated Depletion, Depreciation, Amortization and Impairment		(78,354,120	)		(78,351,825	)
Total Property and Equipment, Net		108,322			110,617
Equity Method Investment – Elysium Energy, LLC		—			957,169
Notes Receivable		11,413,533			7,339,719
Other Assets		155,053			155,053
Total Assets	$	13,910,159		$	9,695,218
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts Payable	$	1,439,641		$	1,474,221
Common Stock Payable		—			173,000
Accrued Expenses		192,613			348,460
Current Asset Retirement Obligation		52,402			30,227
Current Income Taxes Payable		3,000			3,000
Derivative Liability		14,370,827			8,669,831
Total Current Liabilities		16,058,483			10,698,739

Asset Retirement Obligation		19,348			41,523
Total Liabilities		16,077,831			10,740,262

Commitments and Contingencies (see Note 10)
Temporary Equity
Preferred Stock Series C, 2,951 and 2,819 Issued and Outstanding Respectively, Liquidation Preference of $81,049,215 and $77,423,835, respectively		40,080,571			39,389,202

Stockholders’ Deficit
Preferred Stock Series A, 2,000 Shares Authorized of $0.001 Par Value, -0- Shares issued and Outstanding		—			—
Preferred Stock Series B, 600,000 Shares Authorized of $0.001 Par Value, 0 and 0 Shares issued and Outstanding, respectively		—			—
Common Stock, 25,000,000 shares Authorized of $0.001 Par Value, 13,160,530 and 5,000,000 Shares Issued and Outstanding, respectively		13,161			5,000
Additional Paid-in Capital		155,298,998			149,825,528
Accumulated Deficit		(197,560,402	)		(190,264,774	)
Total Stockholders’ Deficit		(42,248,243	)		(40,434,246	)
Total Liabilities and Stockholders’ Deficit	$	13,910,159		$	9,695,218

The accompanying notes are an integral part of these consolidated financial statements.

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CAMBER ENERGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Restated)

(Unaudited)

	Three Months Ended
	June 30,
	2020			2019
Operating Revenues
Crude Oil	$	21,789		$	93,699
Natural Gas		4,164			7,204
Natural Gas Liquids		7,736			20,448
Total Revenues		33,689			121,351

Operating Expenses
Lease Operating Expenses		69,291			123,557
Severance and Property Taxes		1,349			2,574
Depreciation, Depletion, Amortization, and Accretion		2,295			4,242
General and Administrative		686,663			1,331,991
Total Operating Expenses		759,598			1,462,364

Operating Loss		(725,909	)		(1,341,013	)

Other Expense (Income)
Interest Expense		—			847
Loss from Equity Method Investment		1,083,355			—
Other Expense (Income), Net		(214,632	)		(54,262	)
Loss on Derivative liability		5,700,996			2,163,891
Total Other Expenses (Income)		6,569,719			2,110,476

Net Loss	$	(7,295,628	)	$	(3,451,489	)

Less Preferred Dividends		1,680,756			1,453,718

Net loss attributable to common shareholders
		(8,976,384	)		(4,905,207	)

Net Loss Per Common Share
Basic and Diluted	$	(1.19	)	$	(319.60	)
Weighted Average Number of Common Shares Outstanding
Basic and Diluted		7,527,903			15,348

The accompanying notes are an integral part of these consolidated financial statements.

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CAMBER ENERGY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED JUNE 30, 2020 AND 2019 (Restated)

	Series C Preferred Stock						Series E Preferred Stock				Series F Preferred Stock				Series B Preferred Stock						Common Stock													Total
	Number of Shares			Amount			Number of Shares		Amount		Number of Shares		Amount		Number of Shares			Amount			Number of Shares		Amount		Additional Paid-In Capital			Stock Divided Distributable			Accumulated Deficit			Stockholders’ Deficit
Balances, March 31, 2019 (as restated)	2,305			$	28,248,946			—	$	—		—	$	—		44,000		$	44			662,324	$	13	$	155,664,694		$	3		$	(181,650,293	)	$	(25,985,539	)
Common Shares issued for:
Conversion of Series B Preferred Stock		—			—			—		—		—		—		(44,000	)		(44	)		—		—		44			—			—			—
Payment of Series B Dividend		—			—			—		—		—		—		—			—			—		—		3			(3	)		—			—
Conversion of Debenture - Abeyance		—			—			—		—		—		—		—			—			25,008		25		(25	)		—			—			—
Payment for Consulting Fees		—			—			—		—		—		—		—			—			600		1		303,339			—			—			303,340
Rounding Adjustment for Split		—			—			—		—		—		—		—			—			4		—		—			—			—			—
Stock Dividends to be Issued		—			1,453,718			—		—		—		—		—			—			—		—		(1,453,718	)					—			(1,453,718	)
Net Loss		—			—			—		—		—		—		—			—			—		—		—			—			(3,451,489	)		(3,451,489	)
Balances, June 30, 2019		2,305		$	29,702,664			—	$	—		—	$	—		—		$	—			701,182	$	39	$	154,514,337		$	--		$	(185,101,782	)	$	(30,587,406	)

Balances, March 31, 2020 (as restated)		2,819		$	39,389,202			—	$	—		—	$	—		—		$	—			5,000,000	$	5,000	$	149,825,528		$	--		$	(190,264,774	))	$	(40,434,246	)
Common Shares issued for:
Conversion of Series C Preferred Stock		(498	)		(7,289,387	)		—		—		—		—		—			—			8,059,016		8,059		7,281,328			—			—			7,289,387
Payment of Consulting Fees		—			—			—		—		—		—		—			—			101,514		102		172,898			—			—			173,000
Issuance of Series C Preferred Stock		630			6,300,000			—		—		—		—		—			—			—		—		(300,000	)		—			—			(300,000	)
Stock Dividends to be Issued		—			1,680,756			—		—		—		—		—			—			—		—		(1,680,756	)					—			(1,680,756	)
Net Loss		—			—			—		—		—		—		—			—			—		—		—			—			(7,295,628	)		(7,295,628	)
Balances, June 30, 2020		2,951		$	40,080,571			—	$	—		—	$	—		—		$	—			13,160,530	$	13,161	$	155,298,998		$	--		$	(197,560,402	)	$	(42,248,243	)

See accompanying notes are an integral part of these consolidated financial statements.

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CAMBER ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED)

(Unaudited)

	Three Months Ended June 30,
	2020			2019
Cash Flows from Operating Activities
Net Loss	$	(7,295,628	)	$	(3,451,489	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, Depletion, Amortization and Accretion		2,295			4,242
Bad debt Expense		—			17,694
Share-Based Compensation		—			27,690
Loss from Equity Method Investment		1,083,355			—
Change in Fair Value of Derivative Liability		5,700,996			2,163,886
Changes in Components of Working Capital and Other Assets:
Accounts Receivable		(24,541	)		(12,995	)
Other Current Assets		(27,291	)		117,073
Accounts Payable and Accrued Expenses		(190,427	)		(165,007	)
Net Cash Used in Operating Activities		(751,241	)		(1,298,906	)

Investing Cash Flows
Cash Paid for Issuance of Notes Receivable		(4,200,000	)		—
Cash Paid for Deposits		—			(75,000	)
Net Cash Used in Investing Activities		(4,200,000	)		(75,000	)

Financing Cash Flows
Proceeds from Issuance of Series C Preferred Stock		6,000,000			—
Net Cash Provided by Financing Activities		6,000,000			—

Increase (Decrease) in Cash		1,048,759			(1,373,906	)
Cash at Beginning of the Period		656,615			7,778,723
Cash at End of the Period	$	1,705,374		$	6,404,817

The accompanying notes are an integral part of these consolidated financial statements.

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CAMBER ENERGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – GENERAL

Camber Energy, Inc. (“Camber” or the “Company”) is an independent oil and natural gas company engaged in the acquisition, development and sale of crude oil, natural gas and natural gas liquids from various known productive geological formations in Louisiana and Texas. Additionally, from the July 8, 2019 acquisition of Lineal Star Holdings, LLC (“Lineal”), until the divestiture of Lineal effective on December 31, 2019, each as discussed below, the Company, through Lineal, was involved in the oil and gas services industry.

On February 3, 2020, the Company entered into an Agreement and Plan of Merger (as amended to date, the “Merger Agreement”, and the merger contemplated therein, the “Merger”) with Viking Energy Group, Inc. (“Viking”). Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock of Viking (the “Viking Common Stock”) issued and outstanding, other than certain shares owned by the Company, Viking and the subsidiary of the Company formed as part of the merger (“Merger Sub”), will be converted into the right to receive the pro rata share of 80% of the Company’s post-closing capitalization, subject to certain adjustment mechanisms discussed in the Merger Agreement (and excluding shares issuable upon conversion of the Series C Preferred Stock of the Company)(the “exchange ratio”). Holders of Viking Common Stock will have any fractional shares of Company common stock after the Merger rounded up to the nearest whole share. The completion of the Merger is subject to certain closing conditions. A further requirement to the closing of the Merger was that the Company was required to have acquired 30% of Viking’s subsidiary Elysium Energy Holdings, LLC (“Elysium”) as part of a $9,200,000 investment in Viking’s Rule 506(c) offering, which transaction was completed on February 3, 2020 (25% and a $5 million investment) and June 22, 2020 (5% and a $4.2 million investment). See also “Note 6 – Plan of Merger and Investment In Unconsolidated Entity”.

A novel strain of coronavirus (“COVID-19”) was first identified in December 2019, and subsequently declared a global pandemic by the World Health Organization on March 11, 2020. As a result of the outbreak, many companies have experienced disruptions in their operations, workforce and markets served, including a significant reduction in the demand for petroleum-based products. The market for the Company’s oil and gas assets began being adversely impacted by effects of COVID-19 in March of 2020 when circumstances surrounding, and responses to, the pandemic, including stay-at-home orders, began to materialize in North America. Due to the Company’s limited oil and gas production and the fact that all of the Company’s current properties are non-operated, the Company has yet to experience a significant adverse impact from COVID-19. However, the full extent of the COVID-19 outbreak and changes in demand for oil and the impact on the Company’s operations is uncertain. A prolonged disruption could have a material adverse impact on the financial results, assets (including requiring write-downs or impairments) and business operations of the Company.

NOTE 2 – LIQUIDITY AND GOING CONCERN CONSIDERATIONS

At June 30, 2020, the Company’s total current assets of $2.2 million were greater than its total current liabilities of approximately $16.0 million, resulting in working capital deficit of $13.8 million, while at March 31, 2020, the Company’s total current assets of $1.1 million were less than its total current liabilities of approximately $10.7 million, resulting in a working capital deficit of $9.6 million. The increase in the working capital deficit of of $3.2 million is due primarily to an increase in the recognized loss on the Series C Derivative Liability.

Recent oil and gas price volatility as a result of geopolitical conditions and the global COVID-19 pandemic may have a negative impact on the Company’s financial position and results of operations. Negative impacts could include, but are not limited to, the Company’s inability to sell its oil and gas production, reduction in the selling price of the Company’s oil and gas, failure of a counterparty to make required payments, possible disruption of production as a result of worker illness or mandated production shutdowns or ‘stay-at-home’ orders, and access to new capital and financing.

The factors above raise substantial doubt about the Company’s ability to continue to operate as a going concern for the twelve months following the issuance of these financial statements. The Company believes that it may not have sufficient liquidity to meet its operating costs unless it can raise new funding, which may be through the sale of debt or equity.

The Company had no secured debt outstanding as of June 30, 2020.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company has provided a discussion of significant accounting policies, estimates and judgments in its March 31, 2020 Annual Report on Form 10-K/A. There have been no changes to the Company’s significant accounting policies since March 31, 2020 which are expected to have a material impact on the Company’s financial position, operations or cash flows.

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Amounts presented in the consolidated balance sheet as of March 31, 2020 are derived from our audited consolidated financial statements as of that date. The unaudited consolidated financial statements as of and for the period ended June 30, 2020 and 2019 have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information on a basis consistent with the annual audited consolidated financial statements and with the instructions to Form 10-Q. The consolidated financial statements presented herein reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position of the Company as of June 30, 2020 and March 31, 2020, and the results of operations for the three month periods ended June 30, 2020 and 2019, the consolidated statements of changes in equity for the three month periods ended June 30, 2020 and 2019 and cash flows for the three month periods ended June 30, 2020 and 2019. All of these adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results expected for a full year. The statements should be read in conjunction with the audited consolidated financial statements and the notes thereto which are included in our Annual Report on Form 10-K/A (amendment No. 1) for the year ended March 31, 2020.

Principles of Consolidation

The consolidated financial statements include the accounts of Camber and all of its wholly-owned and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

Accounts Receivable

Accounts receivable, net, include amounts due for oil and gas revenues from prior month production, accrued interest on the notes receivable due from Lineal and Viking and an estimate of amounts due from N&B Energy related to the September 2018 Asset Purchase Agreement entered into with N&B Energy. The allowance for doubtful accounts is the Company’s best estimate of the probable amount of credit losses in the Company’s existing accounts receivable. At June 30, 2020 and March 31, 2020, there were allowances for doubtful accounts of approximately $208,000, included in accounts receivable, and there were bad debts of $0 and $17,694, recognized for the three months ended June 30, 2020 and 2019, respectively.

Notes Receivable

Notes receivable includes the $9,200,000, excluding adjustment for excess loss from equity method investment of $126,186, of notes from Viking as described in “Note 7 – Long-Term Notes Receivable” and “Note 5 – Plan of Merger and Investment In Unconsolidated Entity”, and two notes due from Lineal in the amounts of $1,539,719 and $800,000, respectively, as more fully discussed in “Note 7 – Long-Term Notes Receivable” and “Note 12 – Lineal Merger Agreement and Divestiture”. As of June 30, 2020, the Company had no allowance for uncollectible amounts related to the notes receivable.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over their useful lives. Amortization of the equipment under capital leases related to the Lineal operations was computed using the straight-line method over lives ranging from 3 to 5 years and is included in depreciation expense. Costs of maintenance and repairs were charged to expense when incurred.

Long-lived assets including intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the assets carrying amount to determine if an impairment of such asset is necessary. This evaluation, as well as an evaluation of our intangible assets, requires the Company to make long-term forecasts of the future revenues and costs related to the assets subject to review. Forecasts require assumptions about demand for the Company’s services and future market conditions. Estimating future cash flows requires significant judgment, and the Company’s projections may vary from the cash flows eventually realized. Future events and unanticipated changes to assumptions could require a provision for impairment in a future period. The effect of any impairment would be to expense the difference between the fair value (less selling costs) of such asset and its carrying value. Such expense would be reflected in earnings. No impairments were deemed necessary for the three months ended June 30, 2020 and 2019, respectively.

Investment in Unconsolidated Entities

The Company accounts for its investment in unconsolidated entities under the equity method of accounting when it owns less than 51% of a controlling interest and does not have the ability to exercise significant influence over the operating and financial policies of the entity. The investment is adjusted accordingly for dividends or distributions it receives and its proportionate share of earnings or losses of the entity. The current investment in unconsolidated entities is a 30% (25% from February 3, 2020 to June 25, 2020) interest in Elysium Energy Holdings, LLC, which, through its wholly-owned subsidiary, Elysium Energy, LLC, is involved in oil and gas exploration and production in the United States. The balance sheet of Elysium Holdings, LLC at June 30, 2020 included current assets of $2.2 million, total assets of $32.4 million, total liabilities of $33.2 million and net assets of $(0.8) million. The balance sheet of Elysium Energy Holdings, LLC at March 31, 2020 included current assets of $4.0 million, total assets of $37.7 million, total liabilities of $34.0 million and net assets of $3.7 million. The income statement of Elysium Energy Holdings, LLC for the three months ended June 30, 2020 included total revenues of $3.8 million and a net loss of $4.3 million. See also “Note 6 – Plan of Merger and Investment In Unconsolidated Entity”.

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Goodwill

Goodwill is tested for impairment annually and whenever events or circumstances make it more likely than not that an impairment may have occurred. Goodwill is reviewed for impairment at the reporting unit level, which is defined as operating segments or groupings of businesses one level below the operating segment level. The Company’s operating segments are the same as the reporting units used in its goodwill impairment test. Goodwill is tested for impairment by comparing the estimated fair value of a reporting unit, determined using a market approach, if market prices are available, or alternatively, a discounted cash flow model, with its carrying value. The annual evaluation of goodwill requires the use of estimates about future operating results, valuation multiples and discount rates of each reporting unit to determine their estimated fair value. Changes in these assumptions can materially affect these estimates. Once an impairment of goodwill has been recorded, it cannot be reversed.

Revenue Recognition

Exploration and Production Revenue

The Company’s revenue for its exploration and production operations are comprised entirely of revenue from exploration and production activities. The Company’s oil is sold primarily to marketers, gatherers, and refiners. Natural gas is sold primarily to interstate and intrastate natural-gas pipelines, direct end-users, industrial users, local distribution companies, and natural-gas marketers. Natural gas liquids (“NGLs”) are sold primarily to direct end-users, refiners, and marketers. Payment is generally received from the customer in the month following delivery.

Contracts with customers have varying terms, including month-to-month contracts, and contracts with a finite term. The Company recognizes sales revenues for oil, natural gas, and NGLs based on the amount of each product sold to a customer when control transfers to the customer. Generally, control transfers at the time of delivery to the customer at a pipeline interconnect, the tailgate of a processing facility, or as a tanker lifting is completed. Revenue is measured based on the contract price, which may be index-based or fixed, and may include adjustments for market differentials and downstream costs incurred by the customer, including gathering, transportation, and fuel costs.

Revenues are recognized for the sale of the Company’s net share of production volumes. Sales on behalf of other working interest owners and royalty interest owners are not recognized as revenues.

Fair Value of Financial Instruments

Accounting Standards Codification (“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 June 30, 2020 and March 31, 2020, the significant inputs to the Company’s derivative liability calculations was Level 3 inputs.

Recently Issued Accounting Pronouncements

The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying consolidated financial statements.

Subsequent Events

The Company has evaluated all transactions through the date the consolidated financial statements were issued for subsequent event disclosure consideration.

NOTE 4 – Restatement of previously issued financial statements

On October 31, 2020, the Company received a SEC Comment Letter with respect to Amendment No. 2 to the Registration Statement on Form S-4 filed on October 14, 2020. Among other things, the SEC Comment Letter questioned the Company’s historical accounting treatment regarding the accounting treatment for our Series C Stock. The Company recorded such sales as permanent equity and the SEC Comment Letter suggested the appropriate accounting classification was something other than permanent equity given certain provisions within the Certificate of Designation for the Series C Stock (“COD”). After considering the SEC Comment letter and reviewing the COD, the Company and the holder of the Series C Stock determined there were several errors made in the drafting of the COD that could result in unintended consequences.

Both parties agreed to subsequently correct the COD, and Certificates of Correction to the COD were filed on December 9, 2020 and on April 20, 2021 to correct the errors. Both parties agreed the corrections would be applied retroactive to the original filing date of the COD, being August 25, 2016. However, US GAAP requires a transaction to be accounted for in accordance with the terms of an agreement in effect during the period of the financial statements and, consequently, the Company determined that in accordance with the terms of the original COD, the Series C Stock should have been recorded as temporary equity instead of permanent equity. In addition, certain provisions of the original COD required the Company to recognize a derivative liability for certain conversions of the Series C Stock into common stock. After consultations with the SEC staff and the Company’s accounting advisors, the Company determined: (i) the impact of the error(s) is material for the three months ended June 30, 2020; and (ii) to restate its Quarterly Report on Form 10-Q for the period ended June 30, 2020, inclusive of comparative financial statements for the period ended June 30, 2019.

As a result of the errors described above, we are restating our financial statements to reclassify the Series C Stock from permanent equity to temporary equity and to recognize a derivative liability for the potential obligation to issue additional shares after the Series C shares have been converted to common shares. We have estimated the fair value of the derivative liability at June 30, 2020 and March 31, 2020 using a binomial pricing model and applying the conversion price (or the lowest trading price for the Company’s common stock subsequent to the conversion, if lower than the conversion price) and the historical volatility of the Company’s common stock.

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The table below sets forth changes to the consolidated balance sheet as of June 30, 2020:

As Previously

Reported

Adjustments

As Restated

TOTAL ASSETS

13,910,159

LIABILITIES AND EQUITY

SEC Form 10-Q/A filed by Camber Energy, Inc. (Amendment)