UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018

 

OR

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 

 

For the transition period from ____________ to ____________.

 

Commission file number: 000-29219

 

VIKING ENERGY GROUP, INC.

(Formerly Viking Investments Group, Inc.)

(Exact name of registrant as specified in its charter)

 

Nevada

 

98-0199508

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

 

4200 Montrose Blvd, Suite 410

Houston, TX 77006

(Address of principal executive offices)

 

(212) 653 0946

(Registrant’s telephone number, including area code)

 

___________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

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 x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting 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

x

 

 

Emerging Growth Company

¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for comply 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 x

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of May 18, 2018, the registrant had 80,512,548 shares of common stock outstanding.

 

 
 
 
 

 

 VIKING ENERGY GROUP, INC.

 

 

Part I – Financial Information

 
 

Item 1

Financial Statements

 

3

 

Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017

 

3

 

Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2018 and 2017 (unaudited)

 

4

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (unaudited)

 

5

 

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

 

6

 

Notes to Consolidated Financial Statements (unaudited)

 

7

 

Item 2

Management’s Discussion and Analysis or Plan of Operation

 

23

 

Item 3

Quantitative and Qualitative Disclosures about Market Risk

 

26

 

Item 4

Controls and Procedures

 

26

 

Part II – Other Information

 

Item 1

Legal Proceedings

 

27

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

27

 

Item 3

Defaults Upon Senior Securities

 

27

 

Item 4

Mine Safety Disclosures

 

27

 

Item 5

Other Information

 

27

 

Item 6

Exhibits

 

28

 
 
2
 
Table of Contents

 

PART I—FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

VIKING ENERGY GROUP, INC.

Consolidated Balance Sheets

(Amounts expressed in US dollars)

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$ 1,947,143

 

 

$ 536,156

 

Restricted cash

 

 

-

 

 

 

5,199,103

 

Accounts receivable – oil and gas

 

 

731,917

 

 

 

573,296

 

Other receivable – related party

 

 

488,486

 

 

 

548,714

 

Prepaid expenses

 

 

75,903

 

 

 

-

 

Total current assets

 

 

3,243,449

 

 

 

6,857,269

 

 

 

 

 

 

 

 

 

 

Oil and gas properties, full cost method

 

 

 

 

 

 

 

 

Proved developed producing oil and gas properties, net

 

 

11,265,471

 

 

 

12,301,141

 

Undeveloped and non-producing oil and gas properties, net

 

 

27,469,468

 

 

 

26,859,634

 

Total oil and gas properties, net

 

 

38,734,939

 

 

 

39,160,775

 

 

 

 

 

 

 

 

 

 

Fixed assets, net

 

 

282,700

 

 

 

166,741

 

Other assets

 

 

9,396

 

 

 

9,396

 

TOTAL ASSETS

 

$ 42,270,484

 

 

$ 46,194,181

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accrued expenses and other current liabilities

 

$ 687,767

 

 

$ 397,070

 

Accounts payable

 

 

455,288

 

 

 

2,555,869

 

Undistributed revenues and royalties

 

 

1,113,130

 

 

 

1,175,200

 

Derivative liability

 

 

599,979

 

 

 

1,052,788

 

Amount due to directors

 

 

862,390

 

 

 

1,192,970

 

Current portion of long term debt – net of debt discount

 

 

7,139,004

 

 

 

3,562,051

 

Total current liabilities

 

 

10,857,558

 

 

 

9,935,948

 

Long term debt - net of current portion and debt discount

 

 

4,904,318

 

 

 

9,742,830

 

Deferred tax liability

 

 

639,038

 

 

 

910,827

 

Asset retirement obligation

 

 

3,317,706

 

 

 

3,096,263

 

TOTAL LIABILITIES

 

 

19,718,620

 

 

 

23,685,868

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Capital Stock

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000,000 shares authorized,

 

 

 

 

 

 

 

 

28,092 shares issued and outstanding as of March 31, 2018 and December 31, 2017

 

 

28

 

 

 

28

 

Common stock, $0.001 par value, 100,000,000 shares authorized,

 

 

 

 

 

 

 

 

77,376,490 and 72,347,991 shares issued, issuable and outstanding as of March 31, 2018 and December 31, 2017 respectively.

 

 

77,377

 

 

 

72,348

 

Additional Paid-In Capital

 

 

19,812,708

 

 

 

19,029,892

 

Prepaid equity-based compensation

 

 

(11,000 )

 

 

(11,827 )

Retained earnings

 

 

2,672,751

 

 

 

3,417,872

 

TOTAL STOCKHOLDERS’ EQUITY

 

 

22,551,864

 

 

 

22,508,313

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$ 42,270,484

 

 

$ 46,194,181

 

 

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

 
 
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VIKING ENERGY GROUP, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(Amounts expressed in US dollars) 

 

 

 

Three months ended,

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

Oil and gas sales

 

$ 2,161,947

 

 

$ 206,863

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Lease operating costs

 

 

1,008,268

 

 

 

160,518

 

General and administrative

 

 

900,525

 

 

 

270,341

 

Stock based compensation

 

 

173,487

 

 

 

347,404

 

Accretion - ARO

 

 

48,431

 

 

 

8,837

 

Depreciation, depletion and amortization

 

 

489,686

 

 

 

51,282

 

Total operating expenses

 

 

2,620,397

 

 

 

838,382

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(458,450 )

 

 

(631,519 )

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,069,310 )

 

 

(256,710 )

Change in fair value of derivatives

 

 

(354,953 )

 

 

336,013

 

Loss on sale of investments

 

 

-

 

 

 

(7,185 )

Gain on ARO settlement

 

 

58,041

 

 

 

--

 

Total other income (expense)

 

 

(1,366,222 )

 

 

72,118

 

 

 

 

 

 

 

 

 

 

Net income (loss) before income taxes

 

 

(1,824,672 )

 

 

(559,401 )

Income tax benefit (expense)

 

 

271,789

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$ (1,552,883 )

 

$ (559,401 )

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

Unrealized gain (loss) on securities available-for-sale

 

 

-

 

 

 

1,446

 

 

 

 

 

 

 

 

 

 

Net Comprehensive income (loss)

 

$ (1,552,883 )

 

$ (557,955 )

Earnings (loss) per common share

 

 

 

 

 

 

 

 

Basic

 

$ (0.02 )

 

$ (0.01 )

Diluted

 

$ (0.02 )

 

$ (0.01 )

Weighted average number of common shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

74,306,169

 

 

 

56,766,673

 

Diluted

 

 

74,306,169

 

 

 

56,766,673

 

 

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

 
 
4
 
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VIKING ENERGY GROUP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts expressed in US dollars)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$ (1,552,883 )

 

$ (559,401 )

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

 

 

 

Derivative gain (loss)

 

 

354,953

 

 

 

(336,013 )

Amortization of prepaid expenses

 

 

-

 

 

 

90,815

 

Stock based compensation

 

 

173,487

 

 

 

347,404

 

Loss on sale of investments

 

 

-

 

 

 

7,185

 

Depreciation, depletion and amortization

 

 

489,686

 

 

 

51,282

 

Gain on ARO settlement

 

 

(58,041 )

 

 

-

 

Accretion – Asset retirement obligation

 

 

48,431

 

 

 

8,837

 

Amortization of debt discount

 

 

708,107

 

 

 

178,153

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(158,621 )

 

 

21,134

 

Prepaid expenses

 

 

(75,903 )

 

 

-

 

Other receivable

 

 

60,228

 

 

 

-

 

Accounts payable

 

 

(2,100,581 )

 

 

6,032

 

Accrued expenses and other current liabilities

 

 

267,054

 

 

 

21,433

 

Deferred tax liability

 

 

(271,789 )

 

 

-

 

Undistributed revenues and royalties

 

 

(62,070 )

 

 

-

 

Amounts due to directors

 

 

25,191

 

 

 

39,892

 

Net cash used in operating activities

 

 

(2,152,751 )

 

 

(123,247 )

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Investment in, and acquisition of oil and gas properties

 

 

(963,709 )

 

 

-

 

Acquisition of fixed assets

 

 

(130,000 )

 

 

-

 

Proceeds from sale of oil and gas interests

 

 

1,144,953

 

 

 

-

 

Proceeds from sale of investments

 

 

-

 

 

 

101,191

 

Net cash provided by in investing activities

 

 

51,244

 

 

 

101,191

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from amount due to directors

 

 

583,000

 

 

 

3,900

 

Repayment of amount due to directors

 

 

(938,771 )

 

 

(144,480 )

Proceeds from sale of common stock

 

 

-

 

 

 

331,667

 

Proceeds from long term debt

 

 

3,992,143

 

 

 

331,667

 

Repayment of long term debt

 

 

(5,322,981 )

 

 

(222,500 )

Net cash used by financing activities

 

 

(1,686,609 )

 

 

300,254

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

(3,788,116 )

 

 

278,198

 

Cash, beginning of period

 

 

5,735,259

 

 

 

18,605

 

 

 

 

 

 

 

 

 

 

Cash, end of period

 

$ 1,947,143

 

 

$ 296,803

 

Supplemental Cash Flow Information:

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$ 231,822

 

 

$ 67,136

 

Income taxes

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Recognition of asset retirement obligation

 

$ 231,053

 

 

$ -

 

Issuance of shares as discount on debt

 

$ 615,185

 

 

$ -

 

Prepayment of contract through amounts due directors

 

$ -

 

 

$ 100,000

 

Long term debt paid through amounts due directors

 

$ -

 

 

$ 104,904

 

Issuance of shares for contract services

 

$ 55,000

 

 

$ 700,920

 

Sale of shares through satisfaction of unrelated notes payable

 

$ -

 

 

$ 127,215

 

Accrued expenses exchanged for long term debt

 

$ -

 

 

$ 9,500

 

 

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

 

 
5
 
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VIKING ENERGY GROUP, INC.

Consolidated Statements of Changes in Stockholders’ Deficit

(Unaudited)

(Amounts expressed in US dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares to

 

 

 

 

 

 

 

 

Additional

 

 

Prepaid

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

be Issued

 

 

Preferred Stock

 

 

Paid-in

 

 

Equity-Based

 

 

Comprehensive

 

 

Accumulated  

 

 

Stockholders'

 

 

 

Number

 

 

Amount

 

 

Number

 

 

Amount

 

 

Number

 

 

Amount

 

 

Capital

 

 

Compensation

 

 

Loss

 

 

Deficit

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2017

 

 

72,347,990

 

 

$ 72,348

 

 

 

-

 

 

$ -

 

 

 

28,092

 

 

$ 28

 

 

$ 19,029,892

 

 

$ (11,827 )

 

$ -

 

 

$ 3,417,872

 

 

$ 22,508,313

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounting principal change relative to certain derivative liabilities - Note 2.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

807,762

 

 

 

807,762

 

Shares issued as debt discount

 

 

4,110,000

 

 

 

4,110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

611,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

615,185

 

Shares issued as prepaid equity-based compensation

 

 

250,000

 

 

 

250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54,750

 

 

 

(55,000 )

 

 

 

 

 

 

 

 

 

 

-

 

Amortization of prepaid equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55,827

 

 

 

 

 

 

 

 

 

 

 

55,827

 

Shares issued for services

 

 

668,500

 

 

 

669

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

116,991

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

117,660

 

Net loss for the three months ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,552,883 )

 

 

(1,552,883 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at March 31, 2018

 

 

77,376,490

 

 

$ 77,377

 

 

 

-

 

 

$ -

 

 

 

28,092

 

 

$ 28

 

 

$ 19,812,708

 

 

$ (11,000 )

 

$ -

 

 

$ 2,672,751

 

 

$ 22,551,864

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 
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VIKING ENERGY GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Amounts expressed in US dollars)

 

Note 1 Nature of Business and Going Concern 

 

Viking Energy Group, Inc. (“Viking” or the “Company”) was incorporated under the laws of the State of Florida on May 3, 1989, as Sparta Ventures Corp. and remained inactive until June 27, 1998. After several name changes, the Company merged with and into a wholly-owned subsidiary, SinoCubate, Inc., which remained the surviving entity of the merger. SinoCubate, Inc. was formed in the State of Nevada on September 11, 2008. The merger resulted in a change of name of the Company from Synthenol Inc. to SinoCubate, Inc., and a change in the state of incorporation of the Company from Florida to Nevada. On June 13, 2012, the Company changed its name to Viking Investments Group, Inc., and the Company’s ticker symbol was changed to “VKIN.” On March 17, 2017, the Company changed its name to Viking Energy Group, Inc.

 

The Company's business plan is to engage in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. In November of 2014, the Company entered into its first contract relative to oil and gas activities involving jointly controlled assets and related liabilities by purchasing an undivided 50% interest in the Joffre project located in Alberta, Canada. On March 8, 2016, the Company incorporated a wholly owned subsidiary, Viking Oil & Gas (Canada) ULC, in Alberta, Canada, to hold its Canadian oil and gas interests. On February 23, 2016, the Company closed on the acquisition of working interests in four leases with access to the mineral rights (oil and gas) concerning approximately 281 acres of property in Miami and Franklin Counties in eastern Kansas. On August 30, 2016, the Company incorporated an additional wholly owned subsidiary, Mid-Con Petroleum, LLC, in the State of Kansas to hold certain of its acquisitions in the central United States. On October 4, 2016, the Company, through Mid-Con Petroleum, completed an acquisition whereby the Company (i) increased its working interest in three existing oil and gas leases in Miami and Franklin Counties in Eastern Kansas, and (ii) acquired a working interest in four new oil and gas leases in the same region, comprising approximately 660 acres of property. On August 25, 2017, the Company created an additional wholly owned subsidiary, Mid-Con Drilling, LLC. (“Mid-Con Drilling”), in the State of Kansas to hold additional acquisitions in the central United States. On September 11, 2017, the Company through Mid-Con Drilling, completed an acquisition of a 90% working interest in four new oil and gas leases in Anderson County in Eastern Kansas, comprising approximately 980 acres of property. On October 2, 2017, the Company, through Mid-Con Drilling, closed on an acquisition, effective October 1, 2017, of a 100% working interest in six new oil and gas leases in Miami and Franklin Counties in Eastern Kansas. Existing production from the acquired interests is approximately twenty-two barrels of oil per day. The purchase includes an undivided interest in all oil and gas wells, equipment, fixtures and other personal property located upon the leased properties and used in connection with oil and gas operations upon the leases attributable to the working interests purchased by Viking, through Mid-Con Drilling. On October 4, 2017, the Company, through Mid-Con Drilling, closed on an acquisition of an 80% working interest in six new oil and gas leases in Riley, Geary and Wabaunsee Counties in Kansas. Existing production from the acquired interests is approximately thirteen barrels of oil per day. The purchase includes an undivided interest in all oil and gas wells, equipment, fixtures and other personal property located upon the leased properties. On December 22, 2017, the Company completed an acquisition of 100% of the issued and outstanding membership interests of Petrodome Energy LLC, a privately-owned company, with working interests in multiple oil and gas fields across Texas, Louisiana and Mississippi, comprising approximately 11,700 acres. On December 27, 2017, the Company created an additional wholly owned subsidiary, Mid-Con Development, LLC (“Mid-Con Development”) in the State of Kansas to hold additional acquisition in the central United States. On December 29, 2017, the Company through Mid-Con Development completed an acquisition of working interests in approximately 41 oil leases in Ellis and Rooks Counties in Kansas, comprising several thousand acres. On January 12, 2018, the Company, through Mid-Con Drilling, completed an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Eastern Kansas. Effective February 1, 2018, the Company, through Mid-Con Drilling, closed on the acquisition of a working interest in a lease with access to the mineral rights (oil and gas) concerning approximately 80 acres of property in Douglas County in eastern Kansas. The acquisition price was $50,000.

 
 
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These consolidated financial statements 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 had a net comprehensive loss of $1,552,883, and $557,955 for the three months ended March 31, 2018 and 2017, respectively. The Company has accumulated a stockholders’ equity of $22,551,864 as of March 31, 2018. The Company has generated losses from operations and has a significant working capital deficit. These conditions raise substantial doubt regarding the Company's ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances; however, there is no assurance of additional funding being available. These consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.

 

Note 2 Summary of Significant Accounting Policies 

 

a) Basis of Presentation  

 

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto contained in Viking’s latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments (unless otherwise indicated), necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

 

b) Basis of Consolidation

 

The financial statements presented herein reflect the consolidated financial results of the Company and its wholly owned subsidiaries, Viking Oil & Gas (Canada) ULC, a Canadian corporation formed on March 8, 2016, to provide a base of operations for properties in Canada, Mid-Con Petroleum, LLC, formed on August 30, 2016, Mid-Con Drilling, LLC, formed on August 25, 2017, and Mid-Con Development, LLC, formed on December 27, 2017, all to provide a base of operations for properties in the Central United States, and Petrodome Energy, LLC, based in Houston, Texas to provide a base of operations to facilitate property acquisitions in Texas, Louisiana and Mississippi. All significant intercompany transactions and balances have been eliminated upon consolidation. 

 

c) Use of Estimates in the Preparation of Financial Statements

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts and timing of revenues and expenses, the reported amounts and classification of assets and liabilities, and disclosure of contingent assets and liabilities. The Company's actual results could vary materially from management's estimates and assumptions. Significant areas requiring the use of management estimates relate to the determination of expected tax rates for future income tax recoveries, stock-based compensation, embedded derivative liabilities, asset retirement obligations and impairment of long-lived assets.

 
 
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The estimates of proved, probable and possible oil and gas reserves are used as significant inputs in determining the depletion of oil and gas properties and the impairment of proved and unproved oil and gas properties. There are numerous uncertainties inherent in the estimation of quantities of proved, probable and possible reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks.

 

Actual results could differ from the estimates and assumptions utilized.

 

d) Financial Instruments  

 

ASC Topic 820-10, “Fair Value Measurement” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 820-10, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for other receivable – related party, accrued expenses and other current liabilities, accounts payable, derivative liabilities, amount due to directors, and convertible notes each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 

·

Level 1: inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

·

Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

·

Level 3: inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

Liabilities measured at fair value as of March 31, 2018 are classified below based on the three fair value hierarchy described above:

 

Description

 

Quoted

Prices in

Active

Markets for Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant Unobservable

Inputs

(Level 3)

 

 

Total Gains

(Losses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

Long term investment

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

Commodity Derivative

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$ -

 

 

$ -

 

 

$ -

 

 

$ -

 

Commodity Derivative

 

 

 

 

 

 

599,979

 

 

 

-

 

 

 

(354,953 )

 

 

$ -

 

 

$ 599,979

 

 

$ -

 

 

$ (354,953 )

 
 
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Assets and liabilities measured at fair value as of December 31, 2017 are classified below based on the three fair value hierarchy described above:

 

Description

 

Quoted Prices in Active Markets for Identical Assets

(Level 1)

 

 

Significant Other Observable Inputs

(Level 2)

 

 

Significant Unobservable Inputs

(Level 3)

 

 

Total Gains

(Losses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

Long term investment

 

$ -

 

 

$ -

 

 

$ -

 

 

$ 1,446

 

 

 

$ -

 

 

$ -

 

 

$ -

 

 

$ 1,446

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$ -

 

 

$ -

 

 

$ 807,762

 

 

$ 232,840

 

Commodity Derivative

 

 

-

 

 

 

245,026

 

 

 

-

 

 

 

(183,965 )

 

 

$ -

 

 

$ 245,026

 

 

$ 807,762

 

 

$ 48,875

 

 

The Company’s long-term investment consisted of 1,437,500 common shares of Tanager Energy Inc., as of December 31, 2016, which is traded on the TSX Venture Exchange (Toronto Stock Exchange). During the three months ended March 31, 2017, the Company sold these shares. The change in the fair value of this investment that has been recognized as an unrealized gain in other comprehensive income on the statement of operations and comprehensive loss was $1,446 for the three months ended March 31, 2017. 

 

The Company had commodity financial derivatives in place at March 31, 2018.  The Company does not designate its commodities derivative instruments as hedges and therefore does not apply hedge accounting.  Changes in fair value of derivative instruments subsequent to the initial measurement are recorded as change in fair value on derivative liability, in other income (expense).  The estimated fair value amounts of the Company’s commodity derivative instruments have been determined at discrete points in time based on relevant market information which resulted in the Company classifying such derivatives as Level 2.  Although the Company’s commodity derivative instruments are valued using public indices, the instruments themselves are traded with unrelated counterparties and are not openly traded on an exchange.

 

The Company uses the Black-Scholes model to value its derivative liabilities. This model takes into account inputs such as contract terms, including maturity and market parameters, including assumptions associated with interest rates, volatility and credit worthiness. The derivative assets and liabilities of the Company were $0 and $599,979 respectively as of March 31, 2018, and $0 and $1,052,788 respectively as of December 31, 2017, respectively. The change in the fair value of the derivative liabilities for the three months ended March 31, 2018 consisted of an increase of $354,953 associated with commodity derivatives. The decrease in the derivative liabilities associated with warrants and the conversion features of convertible debt in the amount of $807,762 are the result of the Company adopting ASU 2017-11, (Topic 815) Accounting for certain Instruments with down round features. The effect is a reduction in the derivative liability and a restatement of beginning retained earnings in the amount of $807,762.

 
 
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e) Cash and Cash Equivalents  

 

Cash and cash equivalents include cash in banks and highly liquid investment securities that have original maturities of three months or less. At March 31, 2018 and December 31, 2017, the Company has cash deposits in excess of FDIC insured limits in the amounts of $820,641 and $5,372,818 respectively.

 

Restricted cash in the amount of $0 and $5,199,103 as of March 31, 218 and December 31, 2017 respectively, represents cash provided through funding for the Petrodome acquisition, restricted for drilling and exploration.

 

f) Accounts receivable

 

Accounts receivable consist of oil and gas receivables. The Company has classified these as short-term assets in the balance sheet because the Company expects repayment or recovery within the next 12 months. The Company evaluates these accounts receivable for collectability and, when necessary, records allowances for expected unrecoverable amounts. The Company has recorded an allowance for doubtful accounts of $72,941 at March 31, 2018. 

 

g) Prepaid equity-based compensation

 

Prepaid equity-based expenses represent amounts paid in advance through the issuance of restricted shares of stock, for future contractual benefits to be received. These expenses paid in advance are recorded as prepaid equity-based compensation as a component of “Stockholders’ Deficit” and then amortized to the statements of operations and comprehensive loss over the life of the contract using the straight-line method. At March 31, 2018 and December 31, 2017, the balances of the prepaid equity-based compensation were comprised of the following:

 

 

 

March 31,

2018

 

 

December 31,

2017

 

 

 

 

 

 

 

 

In February 2017, a one-year consulting agreement for services related to investor relations, market exposure and content development for a total amount of $44,160.

 

 

-

 

 

 

6,412

 

 

 

 

 

 

 

 

 

 

In April 2017, a one-year consulting agreement comprised of four quarterly incremental installments for services related to analysis of potential oil and gas acquisitions, for an initial quarterly amount of $40,250, a second installment of $28,000 in July 2017, and a third installment of $55,000 in January 2018.

 

 

11,000

 

 

 

5,415

 

 

 

 

 

 

 

 

 

 

 

 

$ 11,000

 

 

$ 11,827

 

 

h) Oil and Gas Properties

 

The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs, are capitalized. General and administrative costs related to production and general overhead are expensed as incurred.

 

All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit of production method using estimates of proved reserves. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in operations. Unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is included in loss from continuing operations before income taxes and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.

 
 
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Depreciation, depletion and amortization expense utilizing the unit-of-production method for the Company’s oil and gas properties for the three months ended March 31, 2018 and 2017 were as follows:

 

Oil and Gas Properties by Geographical Cost Center

 

 

Three months ended,

 

 

 

March 31,

 

Cost Center

 

2018

 

 

2017

 

 

 

 

 

 

 

 

Canada

 

$ 10,738

 

 

$ 17,007

 

United States

 

 

478,948

 

 

 

34,275

 

 

 

 

 

 

 

 

 

 

 

 

$ 489,686

 

 

$ 51,282

 

 

i) Limitation on Capitalized Costs

 

Under the full-cost method of accounting, the Company is required, at the end of each reporting date, to perform a test to determine the limit on the book value of our oil and natural gas properties (the “Ceiling” test). If the capitalized costs of its oil and natural gas properties, net of accumulated amortization and related deferred income taxes, exceed the Ceiling, this excess or impairment is charged to expense. The expense may not be reversed in future periods, even though higher oil and natural gas prices may subsequently increase the Ceiling. The Ceiling is defined as the sum of:

 

(a) the present value, discounted at 10 percent, and assuming continuation of existing economic conditions, of 1) estimated future gross revenues from proved reserves, which is computed using oil and natural gas prices determined as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month hedging arrangements pursuant to SAB 103, less 2) estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, plus

 

(b) the cost of properties not being amortized; plus

 

(c) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, net of

 

(d) the related tax effects related to the difference between the book and tax basis of our oil and natural gas properties.

 

j) Oil and Gas Reserves

 

Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using recent prices of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.

 

k) Loss per Share

 

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and, adjusted by any effects of warrants and options outstanding, if dilutive, that may add to the number of common shares during the period. At March 31, 2018 and 2017 there were approximately 31,503,126 and 6,582,259 common stock equivalents respectively, that were anti-dilutive.

 
 
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 l) Revenue Recognition  

 

On January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (ASC 606),” using the modified retrospective method. Adoption of the new revenue standard had no impact on the Company’s consolidated balance sheet, results of operations, equity or cash flows as of the adoption date, and the Company does not expect any further material impact to its consolidated financial statements on an ongoing basis as a result of adopting the new revenue standard.

 

Sales of crude oil, natural gas, and natural gas liquids (NGLs) are included in revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts. Performance obligations primarily comprise delivery of oil, gas, or NGLs at a delivery point, as negotiated within each contract. Each barrel of oil, million Btu (MMBtu) of natural gas, or other unit of measure is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated. Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title. In each case, the term between delivery and when payments are due is not significant.

 

The following table disaggregates the Company’s revenue by source for the periods ended March 31, 2018 and 2017:

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

Oil

 

$ 2,024,184

 

 

$ 197,819

 

Natural gas and Natural gas liquids

 

 

137,763

 

 

 

9,044

 

 

 

 

 

 

 

 

 

 

 

 

$ 2,161,947

 

 

$ 206,863

 

 

m) Comprehensive Loss  

 

FASB ASC 220 “Comprehensive Income,” establishes standards for the reporting and presentation of comprehensive income and its components in the consolidated financial statements. For the three months ended March 31, 2018 and 2017, comprehensive income (loss) was $0 and $1,446 respectively and consisted primarily of unrealized gains and (losses) on available for sale securities.

 

n) Income Taxes

 

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the consolidated financial statements and the tax basis of assets and liabilities by using estimated tax rates for the year in which the differences are expected to reverse.

 
 
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The Company recognizes deferred tax assets and liabilities to the extent that we believe that these assets and/or liabilities are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If we determine that the Company would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

 

In assessing the realizability of its deferred tax assets and liabilities, management evaluated whether it is more likely than not that some portion, or all of its deferred tax assets and liabilities, will be realized. As of December 31, 2017, based on all the available evidence, management determined that it is more likely than not its deferred tax assets will be fully realized. Accordingly, the Company recorded a deferred tax liability of $910,827. During the three months ended March 31, 2018, the Company incurred a net loss, which created a decrease in its deferred tax liability with a corresponding income tax benefit in the amount of $271,789.

 

o) Stock-Based Compensation  

 

The Company may issue stock options to employees and stock options or warrants to non-employees in non-capital raising transactions for services and for financing costs. In accordance with guidance in ASC Topic 718, the cost of stock options and warrants issued to employees and non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.

 

The fair value of stock warrants was determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate, and dividend yield. The expected term represents the period of time that stock-based compensation awards granted are expected to be outstanding and is estimated based on considerations including the vesting period, contractual term and anticipated employee exercise patterns. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of stock-based compensation instrument. The dividend yield assumption is based on historical patterns and future expectations for the Company dividends.

 

The following table represents stock warrant activity as of and for the three months ended March 31, 2018:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual Life

 

 

Aggregate

Intrinsic

Value

 

Warrants Outstanding – December 31, 2017

 

 

27,440,626

 

 

 

0.27

 

 

8.2 years

 

 

 

-

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited/expired/cancelled

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants Outstanding – March 31, 2018

 

 

27,440,626

 

 

$ 0.27

 

 

8.0 years

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding Exercisable – December 31, 2017

 

 

27,440,626

 

 

$ 0.27

 

 

8.2 years

 

 

$ -

 

Outstanding Exercisable – March 31, 2018

 

 

27,440,626

 

 

$ 0.27

 

 

8.0 years

 

 

$ -

 

 
 
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p) Impairment of long-lived assets 

 

In accordance with ASC 360, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company is required to review its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

 

Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally determined by using the asset's expected future discounted cash flows or market value. The Company estimates fair value of the assets based on certain assumptions such as budgets, internal projections, and other available information as considered necessary. There is no impairment of long-lived assets during the three months ended March 31, 2018 and 2017.

 

q) Foreign Currency Exchange 

 

An entity's functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management's judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements. The functional currency of the parent company is the U.S. Dollar. The reporting currency of the Company is the U.S. Dollar. The Company has oil and gas operations in Alberta, Canada in which the Canadian Dollar (“CAD” or “CS” herein) is the primary economic environment. The reporting currency of these consolidated financial statements is the U.S. Dollar.

 

For financial reporting purposes, the operational results of the Company's oil and gas operations in Canada are prepared using the CAD, and are translated into the Company's reporting currency, the U.S. Dollar. Revenue and expenses applicable to the oil and gas operations in Alberta, Canada are translated using average rates prevailing during each reporting period. Gains or losses resulting from the settlement of foreign currency transactions are recorded as a separate component of accumulated other comprehensive loss in stockholders' deficit when realized. There have been no settlement transactions that resulted in the recognition of a foreign currency exchange gain or loss during the three months ended March 31, 2018 and 2017.

 

r) Convertible Notes Payable

 

The Company accounts for conversion options embedded in convertible notes in accordance with ASC 815. ASC 815 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free standing derivative financial instruments.

 

The Company has evaluated the terms and conditions of its convertible notes under the guidance of ASC 815. The conversion feature did not meet the definition of “indexed to a company’s own stock” provided for in ASC 815 due to the down round protection feature. Therefore, the conversion feature requires bifurcation and liability classification. Additionally, the default put requires bifurcation because it is indexed to risks that are not associated with credit or interest risk. As a result, the compound embedded derivative comprises of (i) the embedded conversion feature and (i) the default put. Rather than bifurcating and recording the compound embedded derivative as a derivative liability, the Company elected to initially and subsequently measure the convertible note in its entirety at fair value, with changes in fair value recognized in earnings in accordance with ASC 815-15-25-4. On January 1, 2018, the Company adopted ASU 2017-11, Derivatives and Hedging (Topic 815) and increased beginning retained earnings in the amount of $807,762.

 

s) Derivative Liability

 

We review the terms of convertible debt issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument

 
 
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Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense. 

 

t) Accounting for Asset Retirement Obligations

 

Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount the Company will incur to plug, abandon and remediate its producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. The Company determined its ARO by calculating the present value of estimated cash flows related to the obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation’s inception, with an offsetting increase to proved properties.

 

The following table describes the changes in the Company’s asset retirement obligations for the three months ended March 31, 2018 and the year ended December 31, 2017: 

 

 

 

Three months

ended

March 31,

2018

 

 

Year ended December 31,

2017

 

 

 

 

 

 

 

 

Asset retirement obligation – beginning

 

$ 3,096,263

 

 

$ 833,017

 

Oil and gas purchases

 

 

231,053

 

 

 

2,205,171

 

Gain on ARO Settlement

 

 

(58,041 )

 

 

 

 

Accretion expense

 

 

48,431

 

 

 

58,075

 

 

 

 

 

 

 

 

 

 

Asset retirement obligation - ending

 

$ 3,317,706

 

 

$ 3,096,263

 

 

u) Undistributed Revenues and Royalties

 

The Company records a liability for cash collected from oil and gas sales that have not been distributed. The amounts get distributed in accordance with the working interests of the respective owners.

 

v) Recent Accounting Pronouncements

 

As of March 31, 2018, and through the date of this filing, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements. The Company will monitor these emerging issues to assess any potential future impact on its financial statements.

 

ASU Update 2014-09 Revenue from Contracts with Customers (Topic 606) issued May 28, 2014 by FASB and IASB converged guidance on recognizing revenue in contracts with customers on an effective date after December 31, 2017. The ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers which supersedes current revenue recognition guidance, including most industry-specific guidance. The guidance provides that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. We adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method. Under the modified retrospective method, the Company would recognize the cumulative effect of initially applying the standard as an adjustment to opening retained earnings at the date of initial application; however, we did not have any material adjustments as of the date of the adoption. The comparative periods have not been restated.

 
 
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In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard will be effective for our interim and annual periods beginning January 1, 2019 and must be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We are currently evaluating the timing of adoption and the potential impact of this standard on our financial position, but we do not expect it to have a material impact on our results of operations.

 

In July 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part 1) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Non-public Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception” (“ASU 2017-11”). Part I relates to the accounting for certain financial instruments with down round features in Subtopic 815-40, which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced based on the pricing of future equity offerings. An entity still is required to determine whether instruments would be classified as equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities. ASU 2017-11 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted, including in an interim period. We adopted Topic 815 as of January 1, 2018. The effect was to no longer recognize certain freestanding instruments with down round features as a liability, through an increase in beginning retained earnings of $807,762.

 

w) Subsequent events

 

The Company has evaluated all subsequent events from March 31, 2018, through the date of filing this report, and determined there are no additional items to disclose other than those listed in Note 9.

 

Note 3. Business Acquisition 

 

Petrodome Energy LLC

 

As discussed in Note 1, on December 22, 2017, the Company closed on the acquisition of all of the issued and outstanding membership interests of Petrodome Energy, LLC, a Texas Limited Liability company, with an effective date of November 1, 2017, in a transaction accounted for under the acquisition method of accounting, whereby the assets acquired and the liabilities, if any assumed are to be valued at fair value, and compared to the fair value of the consideration given to identify if there are any identifiable intangible assets to be recognized as a result of the transaction.

 

The recorded cost of this acquisition was based upon the fair market value of the assets acquired based on an independent valuation. The fair value of the Business Enterprise and its assets exceed the value of the consideration given, creating a bargain purchase gain, which is to be recognized immediately by the purchaser. The fair value of the bargain purchase gain has been recorded in the amount of $27,021,418 during the year ended December 31, 2017.

 
 
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Proforma unaudited condensed selected financial data for the three months ended March 31, 2017 as though this acquisition had taken place at January 1, 2017 are as follows:

 

 

 

Three Months Ended March 31, 2017

 

 

 

 

 

Revenues

 

$ 2,976,948

 

 

 

 

 

 

Net Loss (excludes unrealized gains / losses)

 

$ (1,587,224 )

 

 

 

 

 

Loss per share

 

$ (0.03 )

 

Note 4. Related Party Transactions

 

During April 2015, the Company made an advance to Tanager Energy Inc., in conjunction with a joint investment in the second oil well of the Joffre Project. As of March 31, 2018, the balance owed by Tanager to the Company is $153,877. The Company has determined to reserve 100% of the balance and has reduced the amount shown as other receivable – related party to $0 on the consolidated balance sheet.

 

During the three months ended March 31, 2018, the Company’s CEO and Director, James Doris incurred expenses on behalf of, and made advances to the Company in the amount of $608,191 in order to provide the Company with funds to carry on its operations, and the Company made repayments of $938,771. These advances do not bear interest, are unsecured and have no specific terms of repayment. As of March 31, 2018, the amount due for advances and expenses paid on behalf of the Company is $0. The Company has not imputed interest as the amount is deemed immaterial. Additionally, Mr. Doris made several loans to the Company totaling $862,930, all accruing interest at 12%, and payable on demand. As of March 31, 2018, the total amount due to Mr. Doris for advances and expenses paid on behalf of the Company and loans is $862,930. Accrued interest of $176,038 is included in accrued expenses and other current liabilities at March 31, 2018.

 

Note 5. Oil and Gas Properties 

 

The following table summarizes the Company’s oil and gas activities by classification and geographical cost center for the three months ended March 31, 2018:

 

 

 

December 31,

2017

 

 

Adjustments

 

 

Impairments

 

 

March31,

2018

 

Proved developed producing oil and gas properties

 

 

 

 

 

 

 

 

 

 

 

 

Canada cost center

 

$ 23,279

 

 

$ -

 

 

$ -

 

 

$ 23,279

 

United States cost center

 

 

12,513,088

 

 

 

(899,083 )

 

 

-

 

 

 

11,614,005

 

Accumulated depreciation, depletion and amortization

 

 

(235,226 )

 

 

(136,587 )

 

 

-

 

 

 

(371,813 )

Proved developed producing oil and gas properties, net

 

$ 12,301,141

 

 

$ (1,035,670 )

 

$ -

 

 

$ 11,265,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undeveloped and non-producing oil and gas properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada cost center

 

$ 382,935

 

 

$ -

 

 

$ -

 

 

$ 382,935

 

United States cost center

 

 

26,851,244

 

 

 

948,891

 

 

 

-

 

 

 

27,800,135

 

Accumulated depreciation, depletion and amortization

 

 

(374,545 )

 

 

(339,057 )

 

 

-

 

 

 

(713,602 )

Undeveloped and non-producing oil and gas properties, net

 

$ 26,859,634

 

 

$ 609,834

 

 

$ -

 

 

$ 27,469,468

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Oil and Gas Properties, Net

 

$ 39,160,775

 

 

$ (425,836 )

 

$ -

 

 

$ 38,734,939

 

 
 
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The following table summarizes the Company’s oil and gas activities by classification for the year ended December 31, 2017:

 

 

 

December 31,

 

 

 

 

 

 

 

 

December 31,

 

 

 

2016

 

 

Adjustments

 

 

Impairments

 

 

 2017

 

Proved developed producing oil and gas properties

 

 

 

 

 

 

 

 

 

 

 

 

Canada cost center

 

$ 34,733

 

 

$ (11,454 )

 

$ -

 

 

$ 23,279

 

United States cost center

 

 

1,787,840

 

 

 

10,725,248

 

 

 

-

 

 

 

12,513,088

 

Accumulated depreciation, depletion and amortization

 

 

(57,200 )

 

 

(178,026 )

 

 

-

 

 

 

(235,226 )

Proved developed producing oil and gas properties, net

 

$ 1,765,373

 

 

$ 10,535,768

 

 

$ -

 

 

$ 12,301,141

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undeveloped and non-producing oil and gas properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada cost center

 

$ 371,481

 

 

$ 11,454

 

 

$ -

 

 

$ 382,935

 

United States cost center

 

 

917,184

 

 

 

25,934,060

 

 

 

-

 

 

 

26,851,244

 

Accumulated depreciation, depletion and amortization

 

 

(51,176 )

 

 

(323,369 )

 

 

-

 

 

 

(374,545 )

Undeveloped and non-producing oil and gas properties, net

 

$ 1,237,489

 

 

$ 25,622,145

 

 

$ -

 

 

$ 26,859,634

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Oil and Gas Properties, Net

 

$ 3,002,862

 

 

$ 36,157,913

 

 

$ -

 

 

$ 39,160,775

 

 

On December 27, 2017, the Company created an additional wholly owned subsidiary, Mid-Con Development, LLC (“Mid-Con Development”) in the State of Kansas to hold additional acquisition in the central United States. On December 29, 2017, the Company through Mid-Con Drilling completed an acquisition of working interests in approximately 41 oil leases in Ellis and Rooks Counties in Kansas, comprising several thousand acres. The working interests in the leases range from 84% to 100%, with an average of approximately 96%, and the net revenue interests range from 72% to 85%, with an average of approximately 81%.

 

The Acquisition purchase price was $2,200,000. The Company paid $200,000 at closing on December 29, 2017. Between the closing date and January 18, 2018, Mid-Con assigned 7.5% of the purchased assets to Global Equity Funding, LLC (“Global Equity”), and 5% of the purchased assets to Coal Creek Energy, LLC (“Coal Creak”), leaving Mid-Con with an 87.5% interest in the purchased oil and gas leases. The portion of the Acquisition price attributable to Mid-Con, Global Equity and Coal Creek was $1,925,000, $165,000 and $110,000, respectively, which was paid in full by the close of business on January 18, 2018.

 

On January 12, 2018, the Company, through Mid-Con Drilling, closed on an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Kansas. The purchase includes an undivided interest in all oil and gas wells, equipment, fixtures and other personal property located upon the leased properties. To facilitate this transaction, the Company, through Mid-Con Drilling, executed a Promissory Note, dated January 12, 2018 in favor of Cornerstone Bank in the amount of $366,000. The acquisition price for this acquisition was $480,000. 

 
 
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Note 6. Capital Stock and Additional Paid-in Capital 

 

(a) Preferred Stock  

 

The Company is authorized to issue 5,000,000 shares of Preferred Stock, par value $0.001 per share (the “Preferred Stock”), of which 50,000 have been designated as Series C Preferred Stock (the “Series C Preferred Stock”).

 

On December 4, 2017, Viking Energy Group, Inc. (the “Company” or “Viking”) filed with the State of Nevada an amendment to the Certificate of Designation for the Company’s Series C Preferred Stock, pursuant to which each share of Series C Preferred Stock would entitle the holder thereof to 10,000 votes on all matters submitted to the vote of the stockholders of the Company.

 

Each share of Series C Preferred Stock shall be convertible, at the option of the holder, at any time after the date of issuance into one share, at the office of the Corporation or any transfer agent for such stock, into one share of fully paid and non-assessable common stock. (the “Conversion Rate”).

 

(b) Common Stock  

 

The Company is authorized to issue 100,000,000 shares of common stock, par value $0.001 per share.

 

During January 2018, the Company issued 250,000 common shares for services pursuant to a one-year consulting agreement.

 

During February and March 2018, the Company issued 668,500 common shares for services.

 

During the quarter ended March 31, 2018, pursuant to a private placement for debt and equity, the Company issued 4,110,000 common shares.

 

Note 7. Long Term Debt

 

Long term debt consisted of the following at March 31, 2018 and December 31, 2017: 

 

 

 

March 31,

2018

 

 

December 31,

2017

 

 

 

 

 

 

 

 

As of December 31, 2016, the Company issued a total of $630,000 of 10% Secured promissory notes with a term expiring April 3, 2017 (the “Maturity Date”), and an original issue discount of thirty-seven and one-half percent (37.5%). The discount was modified to fifty percent (50%) retroactively with an extension of the maturity to June 2017. During the quarter ended March 31, 2017, the Company issued an additional $917,833 of 10% Secured promissory notes with terms expiring in June, August and September of 2017, and an original issue discount of fifty percent (50%). Interest is payable on the outstanding principal of these notes at 10% per annum on the various maturity dates. The balance shown is net of unamortized discount of $0 and $0 at March 31, 2018 and December 31, 2017 respectively.

 

 

-

 

 

 

75,000

 

 

 

 

 

 

 

 

 

 

On October 4, 2016, the Company closed on a revolver loan with Crossfirst Bank in the amount of $1,800,000, payable at $15,000 per month, interest at 10%, with all unpaid principal and accrued interest payable on September 30, 2018. The balance shown is net of unamortized discount of $6,932 and $10,341 at March 31, 2018 and December 31, 2017 respectively.

 

 

1,598,068

 

 

 

1,594,659

 

 

 

 

 

 

 

 

 

 

During July and August of 2017, the Company borrowed $1,475,000 from private lenders pursuant to a 10% Secured Convertible Promissory Note with a twelve-month maturity. The balance shown is net of unamortized discount of $144,906 and $271,403 at March 31, 2018 and December 31, 2017 respectively.

 

 

1,330,094

 

 

 

1,203,597

 

 

 

 

 

 

 

 

 

 

During August through December of 2017, the Company borrowed $2,989,000, and from January through March 2018, the Company borrowed 2,055,000, all from private lenders pursuant to a 10% Secured Promissory Note with all principal and accrued interest payable on the maturity date of October 31, 2018. The promissory notes are secured by the membership interests of Mid-Con Drilling, LLC. The balance shown is net of unamortized discount of $1,294,722 and $867,399 at March 31, 2018 and December 31, 2017 respectively.

 

 

3,749,278

 

 

 

2,121,601

 

 
 
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On September 8, 2017, the Company closed on a Promissory Note with Cornerstone Bank in the amount of $256,983, payable interest only for the first twelve months commencing October 8, 2017, variable interest rate, currently at 5.5%, followed by 83 monthly payments of $3,765, interest at 6%, final payment due on September 8, 2025. The balance shown is net of unamortized discount of $3,113 and $0 at March 31, 2018 and December 31, 2017 respectively.

 

 

253,969

 

 

 

253,870

 

 

 

 

 

 

 

 

 

 

On September 29, 2017, the Company closed on a Promissory Note with Cornerstone Bank in the amount of $290,000, payable interest only for the first twelve months commencing October 29, 2017, variable interest rate, currently at 5.5%, followed by 83 monthly payments of $3,765, interest at 6%, final payment due on September 29, 2025. The balance shown is net of unamortized discount of $3,800 and $3,925 at March 31, 2018 and December 31, 2017 respectively.

 

 

286,200

 

 

 

286,075

 

 

 

 

 

 

 

 

 

 

On October 3, 2017, the Company closed on a Promissory Note with Cornerstone Bank in the amount of $204,000, payable interest only for the first twelve months commencing November 3, 2017, variable interest rate, currently at 5.5%, followed by 83 monthly payments of $3,765, interest at 6%, final payment due on October 3, 2025. The balance shown is net of unamortized discount of $3,341 and $3,451 at March 31, 2018 and December 31, 2017 respectively.

 

 

200,659

 

 

 

200,549

 

 

 

 

 

 

 

 

 

 

On December 22, 2017, the Company borrowed $8,510,638, through 405 Petrodome, LLC, as agent for Lenders, with an OID of 6%., bearing interest initially at 9.875% through June 2018, then 11.375% through December 2018, then 12.875% through June 2019, then 14.375% through December 2019. Interest only through June 2018, at which time Principal will be payable at $75,000 monthly for six months and then $125,000 monthly to the maturity date of December 22, 2019. The balance shown is net of unamortized discounts of $823,633 and $941,108 at March 31, 2018 and December 31, 2017 respectively.

 

 

2,779,781

 

 

 

7,569,530

 

 

 

 

 

 

 

 

 

 

On January 12, 2018, the Company closed on a Promissory Note with Cornerstone Bank in the amount of $366,000, payable interest only for the first twelve months commencing February 12, 2018, variable interest rate, currently at 5.5%, followed by 83 monthly payments of $5,362, interest at 6%, final payment due on January 12, 2026. The balance shown is net of unamortized discount of $4,727 at March 31, 2018.

 

 

361,273

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Promissory note payable to an individual, dated January 17, 2018, in the initial amount of $300,000, payable on demand, no stipulated interest rate.

 

 

200,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Merchant cash advance in the amount of $1,200,000, dated January 23, 2018, with no stipulated interest rate, payable at $48,000 per month commencing in February 2018 for 6 months, with a balance of $1,212,000 payable July 23, 2018. The balance shown is net of unamortized discount of $216,000 at March 31, 2018.

 

 

1,284,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

12,043,322

 

 

 

13,304,881

 

Less current portion

 

 

(7,139,004 )

 

 

(3,562,051 )

 

 

$ 4,904,318

 

 

$ 9,742,830

 

 
 
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Note 8. Commitments and contingencies 

 

From time to time the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company’s consolidated financial position or results of operations.

 

As reported on Form 8-K, filed on April 19, 2018, the Company entered into an employment agreement, restricted stock agreement, and warrant with Timothy Swift, appointing Mr. Swift as Executive Vice President and Chief Operating Officer of the Company. Pursuant to Mr. Swift’s employment agreement with the Company, Mr. Swift is to receive an annual base salary of $275,000 and is eligible to receive, at the discretion of the Company’s Board of Directors, an annual bonus of up to 110% of his base salary and incentive equity compensation equal to approximately 130% of his base salary. Pursuant to the restricted stock agreement, Mr. Swift is to receive 1,000,000 shares of the Company’s common stock, with 50% of the shares vesting immediately and the remaining shares vesting on October 1, 2018, unless Mr. Swift has resigned from employment or has been terminated for cause on or prior to that time. Pursuant to the warrant, Mr. Swift received the right to purchase 3,500,000 shares of the Company’s common stock at $0.30 per share exercisable through April 1, 2023, with (i) 1,000,000 of the warrant shares vesting immediately; (ii) 2,000,000 of the warrant shares vesting on July 1, 2018, or another date as agreed in writing by both parties so long as the Company has closed a financing transaction consolidating the Company’s debt, has raised an additional $5,000,000 in financing at such time, and Mr. Swift has not resigned from employment or been terminated for cause at that time; and (iii) 500,000 of the warrant shares vesting on December 31, 2018, so long as Mr. Swift has not resigned from employment or been terminated for cause at that time.

 

Note 9. Subsequent Events 

 

The Company has evaluated subsequent events from March 31, 2018, through the date of filing this Form 10-Q, and determined there are no additional items to disclose other than the following:

 

During April 2018, the Company issued 60,312 common shares in a cashless exercise of common stock warrants

 

During April 2018, the Company issued 1,388,246 common shares for services

 

During April and May 2018, the Company issued 1,687,500 common shares pursuant to a private placement for debt and equity.

 

On April 26, 2018, the Company authorized and issued 2,000,000 common stock warrants to various parties for services. The warrants have a term of 5 years with an exercise price of $0.30 per share.

 

 
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ITEM 2. 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. 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.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This document includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 or the Reform Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earning, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions of performance; and statements of belief; and any statements of assumptions underlying any of the foregoing. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: our ability to raise capital and the terms thereof; ability to gain an adequate player base to generate the expected revenue; competition with established gaming websites; adverse changes in government regulations or polices; and other factors referenced in this Form 10-Q.

 

The use in this Form 10-Q of such words as “believes”, “plans”, “anticipates”, “expects”, “intends”, and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These forward-looking statements present the Company’s estimates and assumptions only as of the date of this Report. Except for the Company’s ongoing obligation to disclose material information as required by the federal securities laws, the Company does not intend, and undertakes no obligation, to update any forward-looking statements.

 

Although the Company believes that the expectations reflected in any of the forward-looking statements are reasonable, actual results could differ materially from those projected or assumed or any of the Company’s forward-looking statements. The Company’s future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.

 

PLAN OF OPERATIONS

 

Overview  

 

The Company's business plan is to engage in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. In November of 2014, the Company entered its first contract of this kind.

 

On March 8, 2016, the Company incorporated a wholly owned subsidiary, Viking Oil & Gas (Canada) ULC, in Alberta, Canada, to hold Canadian oil and gas interests which were registered in its name. On August 30, 2016, the Company organized a wholly owned subsidiary, Mid-Con Petroleum, LLC (“Mid-Con Petroleum”), a Kansas limited liability company, to hold oil and gas interests in the central United States. On August 25, 2017, the Company organized another wholly owned subsidiary, Mid-Con Drilling, LLC (“Mid-Con Drilling”), a Kansas limited liability company, to hold additional oil and gas interests in the central United States. On December 27, 2017, the Company organized a third wholly owned subsidiary, Mid-Con Development, LLC (“Mid-Con Development”), a Kansas limited liability company, to hold further oil and gas interests in the central United States. In 2016, 2017 and 2018, the Company acquired numerous oil and gas interests in Kansas, and in December of 2017, the Company acquired Petrodome Energy, LLC, a Texas limited liability company based in Houston, Texas, with interests in oil and gas leases in Texas, Louisiana and Mississippi.

 
 
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Going Concern Qualification

 

The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances; however, there is no assurance of additional funding being available.

 

RESULTS OF CONTINUING OPERATIONS

 

The following discussion of the financial condition and results of operation of the Company for the three months ended March 31, 2018 and 2017, 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/A for the year ended December 31, 2017, filed with the SEC on April 25, 2018.

 

Liquidity and Capital Resources

 

As of March 31, 2018, and December 31, 2017, the Company had $1,947,143 and $5,75,259 in cash holdings, respectively. 

 

Three months ended March 31, 2018, compared to the three months ended March 31, 2017

 

Revenue

 

The Company had gross revenues of $2,161,947 for the three months ended March 31, 2018, as compared to $206,863 for the three months ended March 31, 2017, representing its share of revenue from its 50% working interest in the Joffre Property, and the revenue being generated through the oil and gas acquisitions in the central United States.

 

Expenses

 

The Company’s operating expenses increased by $1,782,015 to $2,620,397 for the three-month period ended March 31, 2018, from $838,382 in the corresponding period in 2017. The increase is mainly attributable to increased lease operating costs commensurate with the new oil and gas wells purchased in 2017 and the first quarter of 2018. Additionally, there were increases in general and administrative associated with the office operations of Petrodome, and increases in accretion expense and depreciation, depletion and amortization expense.

 

Other income (expense)

 

The Company had other income (expense) of $(1,366,222) for the three months ended March 31, 2018, as compared to $72,118 for the three months ended March 31, 2017. This significant difference is primarily a result of increased interest expense due to increased debt associated with acquisitions, and loss on commodity derivatives

 

Net Income (Loss)

 

The Company incurred a net (loss) of $(1,552,883) during the three-month period ended March 31, 2018 compared with a net loss of (559,401) for the three-month period ended March 31, 2017. The decrease in net loss was mainly due to the items referred to in the analysis of operating expenses and other income (expense).

 
 
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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. 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. 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. We also describe the most significant estimates and assumptions we make in applying these policies. See “Note 3 - Summary of Significant Accounting Policies” to our consolidated financial statements.

 

Oil and Gas Property Accounting

 

The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas properties (including such costs as leasehold acquisition costs, geological expenditures, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred.

 

The full cost method requires the Company to calculate quarterly, by cost center, a "ceiling," or limitation on the amount of properties that can be capitalized on the balance sheet. To the extent capitalized costs of oil and natural gas properties, less accumulated depletion and related deferred taxes exceed the sum of the discounted future net revenues of proved oil and natural gas reserves, the lower of cost or estimated fair value of unproved properties subject to amortization, the cost of properties not being amortized, and the related tax amounts, such excess capitalized costs are charged to expense.

 

Proved Reserves

 

Estimates of our proved reserves included in this report are prepared in accordance with U.S. SEC guidelines for reporting corporate reserves and future net revenue. The accuracy of a reserve estimate is a function of: 

 

i.

the quality and quantity of available data; 

 

ii.

the interpretation of that data; 

 

iii.

the accuracy of various mandated economic assumptions; and 

 

iv.

the judgment of the persons preparing the estimate.

 

Our proved reserve information included in this report was predominately based on estimates. Because these estimates depend on many assumptions, all of which may substantially differ from future actual results, reserve estimates will be different from the quantities of oil and gas that are ultimately recovered. In addition, results of drilling, testing and production after the date of an estimate may justify material revisions to the estimate. 

 
 
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In accordance with SEC requirements, we based the estimated discounted future net cash flows from proved reserves on the unweighted arithmetic average of the prior 12-month commodity prices as of the first day of each of the months constituting the period and costs on the date of the estimate.

 

The estimates of proved reserves materially impact depreciation, depletion, amortization and accretion (“DD&A”) expense. If the estimates of proved reserves decline, the rate at which we record DD&A expense will increase, reducing future net income. Such a decline may result from lower market prices, which may make it uneconomic to drill for and produce from higher-cost fields. 

 

Asset Retirement Obligation

 

Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount we will incur to plug, abandon and remediate our producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. We determined our ARO by calculating the present value of estimated cash flows related to the obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation’s inception, with an offsetting increase to proved properties. Periodic accretion of discount of the estimated liability is recorded as accretion expense in the accompanying consolidated statements of operations and comprehensive income.

 

ARO liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated ARO.

 

Revenues from oil and gas properties are recognized under the entitlements method of accounting, whereby revenue is recognized on the amount the Company is entitled to, based on its interest in the property after all costs associated with exploration, gathering, marketing and sales relative to the volumes of product sold.

 

Although these estimates are based on management’s knowledge of current events and actions the Company may undertake in the future, the final results may ultimately differ from actual results. Certain accounting policies involve significant judgments and assumptions, which have a material impact on the Company’s financial condition and results. Management believes its critical accounting policies reflect its most significant estimates and assumptions used in the presentation of the Company’s financial statements. The Company does not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities.”

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information under this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

The Company does not currently maintain controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified by the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

  

Under the supervision and with the participation of management, including the Company’s Chief Executive Officer, the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2018, have been evaluated, and, based upon this evaluation, the Company’s Chief Executive Officer has concluded that these controls and procedures are not effective in providing reasonable assurance of compliance.

 

Changes in Internal Control over Financial Reporting

 

Management and directors will continue to monitor and evaluate the effectiveness of the Company's internal controls and procedures and the Company's internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. There were no changes in Internal Control over Financial Reporting during the quarter ended March 31, 2018.

 
 
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PART II—OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of March 31, 2018, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of operations.

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide the information under this item.

 

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

 

During January 2018, the Company issued 250,000 common shares for services pursuant to a one-year consulting agreement.

 

During February and March 2018, the Company issued 668,500 common shares for services.

 

During the quarter ended March 31, 2018, pursuant to a private placement for debt and equity, the Company issued 4,110,000 common shares

 

The share issuances described above were issued pursuant to exemptions from registration requirements relying on Section 4(a)(2) of the Securities Act of 1933 and/or Rule 506 of Regulation D promulgated thereunder as there was no general solicitation, and the transactions did not involve a public offering.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

 
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ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

Number

Description

3.1

Articles of Incorporation (incorporated by reference to our Definitive Information Statement on Schedule 14C filed on October 14, 2008)

3.2

Bylaws (incorporated by reference to our Definitive Information Statement on Schedule 14C filed on October 14, 2008)

3.3

Certificate of Amendment to Articles of Incorporation (incorporated by reference to our Definitive Information Statement on Schedule 14C filed on May 23, 2012)

10.1

Membership Interest Purchase Agreement, dated November 10, 2017, by Viking Energy Group, Inc. and Black Rhino, LP (incorporated by reference to our Current Report on Form 8-K filed on December 29, 2017)

10.2

First Amendment to Membership Interest Purchase Agreement, dated November 30, 2017, by Viking Energy Group, Inc. and Black Rhino, LP (incorporated by reference to our Current Report on Form 8-K filed on December 29, 2017)

10.3

Second Amendment to Membership Interest Purchase Agreement, dated December 22, 2017, by Viking Energy Group, Inc., Black Rhino, LP, and Petrodome Energy, LLC (incorporated by reference to our Current Report on Form 8-K filed on December 29, 2017)

10.4

Term Loan Agreement, dated December 22, 2017, by the Borrowers listed therein, 405 Petrodome LLC, as Administrative Agent, and 405 Petrodome LLC and Cargill, Incorporated, as Lenders (incorporated by reference to our Current Report on Form 8-K filed on December 29, 2017)

10.5

Purchase and Sale Agreement, dated December 22, 2017, by Viking Energy Group, Inc. and Woodway Oil & Gas – KS–I, LLC (incorporated by reference to our Current Report on Form 8-K filed on January 8, 2018)

10.6

Assignment and Bill of Sale, dated December 22, 2017, by Mid-Con Development, LLC and Woodway Oil & Gas – KS–I, LLC (incorporated by reference to our Current Report on Form 8-K filed on January 8, 2018)

 

10.7*

Employment Agreement with Timothy Swift dated as of March 19, 2018

10.8*

Restricted Stock Agreement with Timothy Swift dated as of April 1, 2018

21.1

 

Subsidiaries of Viking Energy Group, Inc. (incorporated by reference to our Current Report on Form 10-K/A filed on April 25, 2018)

31.1*

Certification of Principal Executive Officer required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of Principal Financial Officer required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63

32.2*

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63

99.1

Purchase and Sale, Petroleum and Natural Gas Conveyance Agreement with Tanager Energy Inc. dated November 3, 2014 (incorporated by reference to our Current Report on Form 8-K filed on November 10, 2014)

99.2

Purchase, Sale and Capital Contribution Agreement effective February 1, 2016 (incorporated by reference to our Annual Report on Form 10-K/A filed on May 16, 2016)

99.3

Purchase and Sale Agreement (incorporated by reference to our Current Report on Form 8-K filed on September 12, 2017)

99.4

Purchase and Sale Agreement (incorporated by reference to our Current Report on Form 8-K filed on October 3, 2017)

99.5

Purchase and Sale Agreement (incorporated by reference to our Current Report on Form 8-K filed on October 4, 2017)

99.6

Purchase and Sale Agreement (incorporated by reference to our Current Report on Form 8-K filed on December 8, 2017)

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

___________

* Filed herewith.

 

ITEM 7. OFF BALANCE-SHEET ARRANGEMENTS

 

None.

 

 
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SIGNATURES

 

In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

VIKING ENERGY GROUP, INC.

(Registrant)

 

 

 

Date: May 21, 2018

 

/s/ James Doris

 

 

 

James Doris

 

 

 

Principal Executive Officer

 

 

Date: May 21, 2018

 

/s/ Frank W. Barker, Jr.

 

 

 

Frank W. Barker, Jr.

 

 

 

Principal Financial and Accounting Officer

 

 

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