|3 Months Ended|
Mar. 31, 2023
|Long-Term Debt and Other Short-Term Borrowings|
Note 12. Derivative Liability
On March 10, 2023, the terms of the promissory notes held by Mid-Con Petroleum, LLC and Mid-Con Drilling, LLC described in Note 12 were amended to include a conversion feature granting the holder of the note the option to convert the principal balance of the debt, in whole or in part, into common stock of Viking. The conversion price is equal to the lesser of : (i) the average of the 5 lowest individual daily volume weighted average prices (“VWAP”) of Viking common stock during the 30-day period prior to the date of the notice of conversion; or (ii) one dollar ($1.00) per share. All other terms of the promissory notes remained unchanged.
The modification to the terms of the promissory notes has been treated as a debt extinguishment and the Company recorded a loss on the extinguishment of debt of $154,763 during the three-month period ended March 31, 2023, determined as follows:
The fair value of the debt was determined as the total number of shares, equal to the face value of the debt on March 10, 2023 divided by the VWAP, multiplied by the closing share price on that day.
The value of the conversion option is based upon the fair value of Viking’s common stock. As the option is convertible into a variable number of shares, it is considered to be a derivative to be continuously recognized at fair value, with changes to fair value recorded in the statement of operations. The fair value of the conversion feature at the date of modification was determined to be $2,276,217 using a binomial option pricing model with the following inputs: stock price $0.31, VWAP $0.29, volatility 185.77%, days to maturity 867, risk-free interest rate 5.0%. The derivative liability is classified as a Level 3 liability in the Fair Value Hierarchy.
A summary of key balances immediately before and after the modification is as follows:
At March 31, 2023, the fair value of the conversion feature was remeasured and determined to be $2,810,824 using a binomial option pricing model with the following inputs: stock price $0.35, VWAP $0.27, volatility 188.50%, days to maturity 846, risk-free interest rate 5.0%. Consequently, the Company recorded a loss of $534,607 on the change in fair value of the derivative liability in the statement of operations for the three months ended March 31, 2023. Additionally, the Company recorded amortization of debt discount of $53,732 in the accompanying consolidated statement of operations for the three months ended March 31, 2023.
The entire disclosure for derivatives and fair value of assets and liabilities.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef