UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q10-Q/A
(AMENDMENT NO. 2)
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FOR THE QUARTERLY PERIOD ENDED: ENDED September 30,March 31, 2016
OR
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For the transition period from _______ to _______.
Commission file number: 000-29219
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.) | |
1330 Avenue of the Americas, Suite 23 A, New York, New York |
10019 | |
(Address of principal executive offices) | (Zip Code) | |
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Issuer’s telephone number: (212) 653-0946
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(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 ¨ No x
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 ¨ No x
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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | ¨ | Accelerated Filer | ¨ |
Non Accelerated Filer | ¨ | Smaller Reporting Company | x |
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 November 11,December 14, 2016, the registrant had 47,647,41951,986,940 shares of common stock outstanding, including 1,996,590284,090 shares issuable.
EXPLANATORY NOTE
As disclosedThis Amendment No. 2 of Form 10-Q/A for the three months ended March 31, 2016, amends in its entirety the CurrentQuarterly Report on Form 8-K of Viking Investments Group, Inc. (the “Company”)10-Q/A that was originally filed on November 14,August 22, 2016 on November 9, 2016, the Company engaged Turner, Stone & Company, L.L.P. (the “New Auditors”) as the Company’s new independent registered public accounting firm. The New Auditors have been engaged to auditreflect a restatement of the Company’s financial statements for the three months ended March 31, 2016, to correct various account balances as summarized below.
The restatements are being made in accordance with ASC 250, “Accounting Changes and Error Corrections.” The disclosure provision of ASC 250 requires a company that corrects an error to disclose that its previously issued financial statements have been restated, a description of the nature of the error, the effect of the correction on each financial statement line item and any per share amount affected for each prior period presented, and the cumulative effect on retained earnings (deficit) in the statement of financial position as of the beginning of each period presented.
The effects of the adjustments on the Company’s previously issued unaudited financial statements are summarized as follows:
Selected Unaudited Consolidated Balance Sheets Information as of March 31, 2016
Previously Net Reported Change Restated Petroleum and natural gas rights / oil and gas properties 2,957,441 (291,087 ) 2,666,354 Derivative liability 1,286,918 2,377,823 3,664,741 Additional paid in capital 9,391,246 303,781 9,695,027 Accumulated deficit (9,044,242 ) (2,318,928 ) (11,363,170 )
Selected Unaudited Consolidated Statements of Operations and Comprehensive Loss information for the three months ended March 31, 2016 and 2015
Three months ended March 31, 2016 Previously Net Reported Change Restated Three months ended March 31, 2015 Previously Net Reported Change Restated Derivative gain (loss) / change in fair value (527,303 ) (1,128,233 ) (1,655,536 ) Interest expense (181,257 ) (250,450 ) (431,707 ) Loss from operations (356,425 ) 44,939 (311,486 ) Net loss (1,064,985 ) (1,333,744 ) (2,398,729 ) Net comprehensive loss (1,072,250 ) (1,333,744 ) (2,405,994 ) Basic and diluted loss per common share (0.03 ) (0.03 ) (0.06 ) Derivative gain (loss) / change in fair value - 57,442 57,442 Derivative expense - (248,922 ) (248,922 ) Loss from operations (149,730 ) 4,542 (145,188 ) Net loss (168,932 ) (186,772 ) (355,704 ) Net comprehensive loss (114,164 ) (186,772 ) (300,936 ) Basic and diluted loss per common share (0.01 ) - (0.01 )
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Selected Unaudited Consolidated Statements of Cash Flows information for the three months ended March 31, 2016 and 2015
Three months ended March 31, 2016 Previously Net Reported Change Restated Three months ended March 31, 2015 Previously Net Reported Change Restated Net Loss (1,064,985 ) (1,333,744 ) (2,398,729 ) Derivative (gain) loss / change in fair value 527,303 1,128,233 1,655,536 Stock based compensation 102,500 63,055 165,555 Depreciation, depletion and amortization 70,413 (50,047 ) 20,366 Amortization of debt discount 132,164 255,559 387,723 Net cash used in operating activities 116,654 (35,194 ) 81,460 Net Loss (168,932 ) (186,772 ) (355,704 ) Derivative (gain) loss / change in fair value - (57,442 ) (57,442 ) Derivative expense - 248,922 248,922 Depreciation, depletion and amortization 4,542 (4,542 ) - Amortization of debt discount 8,333 (4,166 ) 4,167 Net cash used in operating activities 120,878 (24,437 ) 96,441
The Company uses the full cost method of accounting for its oil and gas properties, which requires a capitalized cost limitation test (“ceiling test”) at each report date. This analysis utilizes information included in an annual reserve report. The report originally used did not contemplate the pricing requirements for proved reserves promulgated by the Securities and Exchange Commission (“SEC”). The Company obtained a revised reserve report in October 2016, which met the SEC pricing requirements for proved reserves. Based on this report, the Company determined that an impairment of $210,032 should be recorded for the year ended December 31, 2015, consequently reducing the balances carried forward to 2016 and reviewimpacting the Company’s financial statementscalculations for depletion. The Company also reevaluated the periods endingmethodology originally used to estimate the derivative liabilities associated with the conversion features of certain debt instruments, and the impact on additional paid in capital associated with these transactions. The Company determined that the accounting for these transactions understated the derivative liability at March 31, 2016 June 30, 2016, and September 30, 2016, but they have not completedby $2,377,823. The change in the audit or reviews.
Asestimated fair value of these derivatives resulted in a result, this report is deficient because the unaudited financial statements contained in this reportloss of $1,655,536 for the periodthree months ended September 30,March 31, 2016 have not been reviewed by an independent registered public accountant as required by rule 10-01(d) regulation S-X. Completioncompared to previously recording a loss of the New Auditors’ independent review of the Company’s financial statements for the period ended September 30, 2016, and the subsequent filing of an amendment to this report after the completion of that review, will make this report current. When the review is complete, the Company intends to file an amendment to this report which will include the required certifications of the Company's Principal Executive Officer and Principal Financial and Accounting Officer as required by sections 302 and 906 of the Sarbanes-Oxley Act.$527,303.
VIKING INVESTMENTS GROUP, INC.
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VIKING INVESTMENTS GROUP, INC.
(Unaudited)
(Amounts expressed in US dollars)
March 31, 2016 December 31, 2015 (unaudited) (audited) (restated) ASSETS Current assets: Cash Accounts receivable – oil and gas Other receivable – related party Total current assets Oil and gas properties, full cost method Proved developed producing oil and gas properties, net Undeveloped and non-producing oil and gas properties, net Total oil and gas properties, net Long term investment TOTAL ASSETS LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accrued expenses and other current liabilities Accounts payable Derivative liability Amount due to directors Current portion of long term debt – net of debt discount Total current liabilities Long term debt - net of current portion and debt discount Asset retirement obligation TOTAL LIABILITIES Commitments and contingencies (Note 8) STOCKHOLDERS’ DEFICIT Capital Stock Preferred stock, $0.001 par value, 5,000,000 shares authorized, 28,092 shares issued and outstanding as of March 31, 2016 and December 31, 2015 Common stock, $0.001 par value, 100,000,000 shares Authorized, 46,284,919 and 30,333,993 shares issued, issuable and outstanding as of March 31, 2016 and December 31, 2015 respectively. (14,650,000 and 0 shares issuable, respectively). Additional Paid-In Capital Prepaid equity-based compensation Accumulated other comprehensive loss Accumulated deficit TOTAL STOCKHOLDERS’ DEFICIT TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $ 43,350 $ 30,585 7,604 - 153,877 153,877 204,831 184,462 1,326,076 30,989 1,340,278 485,481 2,666,354 516,470 79,891 87,156 $ 2,951,076 $ 788,088 $ 154,033 $ 95,575 98,374 104,774 3,664,741 810,647 614,410 614,991 668,190 16,770 5,199,748 1,642,757 - 6,778 421,354 416,246 5,621,102 2,065,781 28 28 46,285 30,334 9,695,027 7,960,372 (882,507 ) (145,562 ) (165,689 ) (158,424 ) (11,363,170 ) (8,964,441 ) (2,670,026 ) (1,277,693 ) $ 2,951,076 $ 788,088
September 30, December 31, 2016 2015 (Unaudited) (Unaudited) ASSETS Current assets: Cash Accounts receivable – oil and gas Other receivable – related party Total current assets Oil and gas properties, full cost method Proved developed producing oil and gas properties, net Undeveloped and non-producing oil and gas properties, net Total oil and gas properties, net Long term investment – related party Deposit TOTAL ASSETS LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accrued expenses and other current liabilities Accounts payable Derivative liability Amount due to directors Secured notes payable, net of debt discount Convertible notes – current, net of debt discount Total current liabilities Convertible notes – net of current portion and debt discount Asset retirement obligation TOTAL LIABILITIES Commitments and contingencies STOCKHOLDERS’ DEFICIT Capital Stock Preferred stock, $0.001 par value, 5,000,000 shares authorized, 28,092 shares issued and outstanding as of September 30, 2016 and December 31, 2015 Common stock, $0.001 par value, 100,000,000 shares Authorized, 47,534,919 and 30,333,993 shares issued, issuable and outstanding as of September 30, 2016 and December 31, 2015 respectively. (1,996,590 and 0 shares issuable, respectively). Additional Paid-In Capital Prepaid equity-based compensation Accumulated other comprehensive income Deficit TOTAL STOCKHOLDERS’ DEFICIT TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $ 88,625 $ 30,585 11,948 - 76,719 76,719 177,292 107,304 1,305,414 48,221 1,557,632 755,439 2,863,046 803,660 235,819 87,156 288,000 - $ 3,564,157 $ 998,120 $ 244,103 $ 95,575 15,492 104,774 547,894 810,647 756,215 614,991 632,904 - 1,225,000 16,770 3,421,608 1,642.757 - 6,778 431,760 416,246 3,853,367 2,065,781 - - 28 28 47,648 30,334 10,640,079 7,960,372 (97,095 ) (145,561 ) (9,761 ) (158,424 ) (10,870,110 ) (8,754,410 ) (289,211 ) (1,067,661 ) $ 3,564,157 $ 998,120
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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VIKING INVESTMENTS GROUP, INC.
Consolidated Statements Of Operations And Comprehensive Loss
(Unaudited)
(Amounts expressed in US dollars)
Three months ended, Nine months ended, September 30, September 30, 2016 2015 2016 2015 $ $ $ $ Revenue Oil and gas sales Operating expenses Lease operating costs General and administrative Stock based compensation Accretion – ARO Depreciation, depletion and amortization Total operating expenses Loss from operations Other income (expense) Interest expense Debt settlement income Derivative expense Change in the fair value of derivative liability Total other income (expense) Net Income (loss) Other comprehensive income (loss) Unrealized gain (loss) on securities available-for-sale Total comprehensive income (loss) Net Comprehensive Income (loss) Income (loss) per common share - Basic and diluted Weighted average number of common shares outstanding – basic and diluted 105,426 32,425 232,013 64,448 66,456 24,961 165,773 46,736 166,507 181,010 419,603 403,927 172,219 - 578,363 108,000 5,234 4,985 15,514 4,985 40,677 10,155 110,863 10,155 451,093 221,111 1,290,116 573,804 (345,667 ) (188,686 ) (1,058,103 ) (509,356 ) (542,107 ) (137,801 ) (1,966,015 ) (195,702 ) - - 75,000 - - - (403,193 ) 2,765,013 (36,424 ) 833,418 77,682 2,222,906 (174,225 ) (1,057,597 ) (521,213 ) 1,877,239 (362,911 ) (2,115,700 ) (1,030,569 ) (3,394 ) (4,420 ) 148,663 (16,642 ) (3,394 ) (4,420 ) 148,663 (16,642 ) 1,873,845 (367,331 ) (1,967,037 ) (1,047,211 ) 0.041 (0.013 ) (0.049 ) (0.040 ) 45,837,636 27,602,291 43,584,699 25,882,581
The accompanying notes are an integral part of these unaudited consolidated financial statements.
VIKING INVESTMENTS GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts expressed in US dollars)
Nine Months Ended September 30, 2016 2015 $ $ Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Chang in the fair value of derivative liability Derivative expense Stock based compensation Stock based interest payment Depreciation, depletion and amortization Accretion – Asset retirement obligation Amortization of debt discount Gain on settlement of debt Changes in operating assets and liabilities: Increase(decrease) in accounts payable Increase in accrued expenses and other liabilities Decrease (increase) in other receivables Decrease (increase) in accounts receivables Net cash used in operating activities Cash flows from investing activities: Acquisition of oil and gas properties Net cash used in investing activities Cash flows from financing activities: Advances from Directors Repayments to Directors Sale of common stock Proceeds from notes payable Repayments of notes payable Payment of issuance costs Proceeds from convertible notes Repayment of convertible notes Net cash provided by financing activities Net increase (decrease) in cash Cash, beginning of period Cash, end of period Supplemental Cash Flow Information: Cash paid for: Interest Income taxes Supplemental Disclosure of Non-Cash Investing and Financing Activities: Conversion of convertible note and accrued interest into shares Issuance of shares as part of oil and gas property acquisition Notes payable for oil and gas property acquisition Issuance of warrants for 4,062,500 common shares as debt discount Derivative liability at inception Extinguished derivative liability Issuance of shares for prepaid equity-based compensation Stock issued for debt Three months ended, March 31, 2016 2015 (restated) (restated) Revenue Oil and gas sales Operating expenses Lease operating costs General and administrative Stock based compensation Accretion - ARO Depreciation, depletion and amortization Total operating expenses Loss from operations Other income (expense) Interest expense Change in fair value of derivative liability Derivative expense Gain on settlement of debt Total other income (expense) Net loss before income taxes Income tax expense - - Net loss $ (2,398,729 ) $ (355,704 ) Other comprehensive income (loss) Unrealized gain (loss) on securities available-for-sale Net Comprehensive Loss Loss per common share - Basic and diluted Weighted average number of common shares outstanding – basic (2,115,700 ) (1,030,569 ) (833,418 ) (77,682 ) - 403,193 578,363 108,000 52,500 110,863 10,155 15,514 4,985 1,626,062 119,211 (75,000 ) - (14,282 ) 82,904 151,862 29,826 - (76,719 ) (11,948 ) - (515,184 ) (426,696 ) (1,350,000 ) (77,158 ) (1,350,000 ) (77,158 ) 197,280 479,400 (56,056 ) (15,000 ) 388,125 - 619,875 - (98,000 ) - (37,500 ) - 1,480,000 211,000 (570,500 ) (164,000 ) 1,923,224 511,400 58,040 7,546 30,585 1,345 88,625 8,891 $ 125,431 $ 63,741 $ - $ - $ 10,111 $ - $ 820,250 $ - $ 1,350,000 $ - $ 415,569 $ - $ 1,216,303 $ 1,374,808 $ 645,638 $ 143,403 $ 800,000 $ - $ - $ 227,807 $ 40,722 $ - 40,984 - 120,195 145,188 165,555 - 5,108 - 20,366 - 352,208 145,188 (311,486 ) (145,188 ) (431,707 ) (19,036 ) (1,655,536 ) 57,442 - (248,922 ) - - (2,087,243 ) (210,516 ) (2,398,729 ) (355,704 ) (7,265 ) 54,768 $ (2,405,994 ) $ (300,936 ) $ (0.06 ) $ (0.01 ) 37,741,400 24,769,551
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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VIKING INVESTMENTS GROUP, INC.
Consolidated Statements of Stockholders’ DeficitCash Flows
(Unaudited)
(Amounts expressed in US dollars)
Accumulated Total Additional Prepaid Other Stockholders' Common Stock Shares to be Issued Preferred Stock Paid-in Equity-Based Comprehensive Equity Number Amount Number Amount Number Amount Capital Compensation Income Deficit (Deficiency) Balance at December 31, 2014 Shares issued to investors Shares issued for consulting services Shares issued in satisfaction of debt Shares issued in satisfaction of debt Shares issued for convertible debt Shares issued as prepaid equity-based compensation Derivative liability adjustment - satisfaction of convertible debt Unrealized gain (loss) on securities held for sale Amortization of prepaid equity-based compensation Net loss for the year ended December 31, 2015 Balances at December 31, 2015 Shares issued for convertible debt Shares issued for consulting services Shares issued in acquisition of oil and gas properties Shares issued as prepaid equity-based compensation Shares committed for prepaid equity-based compensation Derivative liability adjustment - satisfaction of convertible debt Shares issued from sale of stock Debt issuance costs Derivative liability adjustment - satisfaction of convertible debt Cancelation of shares issued as prepaid equity-based compensation Shares issued to secure an oil and gas property acquisition Shares commited as costs associated with settlement of debt Shares committed from sale of stock Issuable shares issued Derivative liability adjustment - satisfaction of convertible debt Unrealized gain (loss) on securities held for sale Amortization of prepaid equity-based compensation Net loss for the nine months ended September 30, 2016 Balances at September 30, 2016 Three Months Ended March 31, 2016 2015 (restated) (restated) Cash flows from operating activities: Net loss Adjustments to reconcile net loss to cash used in operating activities: Derivative (gain) loss ) Derivative expense Stock based compensation Depreciation, depletion and amortization Accretion – Asset retirement obligation Amortization of debt discount Changes in operating assets and liabilities Accounts receivable Accounts payable Accrued expenses and other current liabilities Amounts due to directors Net cash used in operating activities Cash flows from investing activities: Purchase of oil and gas properties Net cash used in investing activities Cash flows from financing activities: Proceeds from amount due to directors Repayments of amount due to directors Proceeds from convertible notes Repayment of convertible notes Net cash provided by financing activities Net increase in cash Cash, beginning of period Cash, end of period Supplemental Cash Flow Information: Cash paid for: Interest Income taxes Supplemental disclosure of Non-Cash Investing and Financing Activities: Conversion of convertible note payable Issuance of shares for oil and gas property acquisition Issuance of warrants for 4,062,500 common shares as debt discount 24,094,551 $ 24,095 675,000 $ 675 28,092 $ 28 $ 7,162,660 $ - $ (177,452 ) $ (7,067,267 ) $ (57,261 ) 675,000 675 (675,000 ) (675 ) - 720,000 720 107,280 108,000 421,571 421 29,579 30,000 2,872,871 2,873 198,228 201,101 550,000 550 20,450 21,000 1,000,000 1,000 164,000 (165,000 ) - 278,175 278,175 19,028 19,028 19,439 19,439 (1,687,143 ) (1,687,143 ) 30,333,993 $ 30,334 - $ - 28,092 $ 28 $ 7,960,372 $ (145,561 ) $ (158,424 ) $ (8,754,410 ) $ (1,067,661 ) 300,926 301 9,810 10,111 1,000,000 1,000 101,500 102,500 9,650,000 9,650 810,600 820,250 4,000,000 4,000 636,000 (640,000 ) - 1,000,000 1,000 159,000 (160,000 ) - 17,745 17,745 1,250,000 1,250 186,250 187,500 (37,500 ) (37,500 ) 602,580 602,580 (4,000,000 ) (4,000 ) (368,603 ) 372,603 - 2,400,000 2,400 285,600 288,000 375,000 375 52,125 52,500 1,337,500 1,338 199,287 200,625 715,910 716 (715,910 ) (716 ) - 25,313 25,313 148,663 148,663 475,863 475,863 (2,115,700 ) (2,115,700 ) 45,650,829 $ 45,651 1,996,590 $ 1,997 28,092 $ 28 $ 10,640,079 $ (97,095 ) $ (9,761 ) $ (10,870,110 ) $ (289,211 ) $ (2,398,729 ) $ 355,704 1,655,536 (57,442 - 248,922 165,555 - 20,366 - 5,108 - 387,723 4,167 (7,604 ) - (6,400 ) 19,752 61,791 (37,375 ) 35,194 81,239 (81,460 ) (96,441 ) (1,350,000 ) - (1,350,000 ) - - 10,000 (35,775 ) (612 ) 1,480,000 157,500 (64,000 ) 1,444,225 102,888 12,765 6,447 30,585 1,345 $ 43,350 $ 7,792 $ - $ 14,442 $ - $ - $ 6,778 $ - $ 820,250 $ - $ 416,315 $ -
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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VIKING INVESTMENTS GROUP, INC.
Notes to Consolidated Financial Statements of Stockholders’ Deficit
(Unaudited)
(Amounts expressed in US dollars)
Common Stock Shares to be Issued Preferred Stock Additional Paid-in Prepaid Equity-Based Accumulated Other Comprehensive Accumulated Total Stockholders' Equity Number Amount Number Amount Number Amount Capital Compensation Loss Deficit (Deficiency) Balance at December 31, 2014 Shares issued to investors Shares issued for consulting services Shares issued in satisfaction of debt Shares issued in satisfaction of debt Shares issued for convertible debt Shares issued as prepaid equity-based compensation Derivative liability adjustment - satisfaction of convertible debt Unrealized gain (loss) on securities held for sale Amortization of prepaid equity-based compensation Net loss for the year ended December 31, 2015 Balances at December 31, 2015 Shares issued in satisfaction of debt Derivative liability adjustment - satisfaction of convertible debt Shares issued for consulting services Shares issued in acquisition of oil and gas properties Shares issued as prepaid equity-based compensation Unrealized gain (loss) on securities held for sale Amortization of prepaid equity-based compensation Net loss for the three months ended March 31, 2016 Balances at March 31, 2016 24,094,551 $ 24,095 675,000 $ 675 28,092 $ 28 $ 7,162,660 $ - $ (177,452 ) $ (7,067,267 ) $ (57,261 ) 675,000 675 (675,000 ) (675 ) - 720,000 720 107,280 108,000 421,571 421 29,579 30,000 2,872,871 2,873 198,228 201,101 550,000 550 20,450 21,000 1,000,000 1,000 164,000 (165,000 ) - 278,175 278,175 19,028 19,028 19,438 19,438 (1,897,174 ) (1,897,174 ) 30,333,993 $ 30,334 - $ - 28,092 $ 28 $ 7,960,372 $ (145,562 ) $ (158,424 ) $ (8,964,441 ) $ (1,277,693 ) 300,926 301 9,810 10,111 17,745 17,745 1,000,000 1,000 101,500 102,500 9,650,000 9,650 810,600 820,250 5,000,000 5,000 795,000 (800,000 ) - (7,265 ) (7,265 ) 63,055 63,055 (2,398,729 ) (2,398,729 ) 31,634,919 $ 31,635 14,650,000 $ 14,650 28,092 $ 28 $ 9,695,027 $ (882,507 ) $ (165,689 ) $ (11,363,170 ) $ (2,670,026 )
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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VIKING INVESTMENTS GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Amounts expressed in US dollars)
Note 1.1 Nature of Business and Going Concern
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.”
PriorThe Company's business plan is to engage in the first quarteracquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. On March 8, 2016, the Company’s business plan consisted of two strategies: (a) identifying target companies that were undergoing or anticipating periods of rapid growthCompany incorporated a wholly owned subsidiary, Viking Oil & Gas (Canada) ULC, in Alberta, Canada, to provide advisory and consulting services, and (b) identifying investments inhold its Canadian oil and gas properties for future exploration and development.interests. 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, as explained in note 4.
Commencing with the first quarter of 2016, the Company determined that its singular business plan is to engage in the acquisition, exploration, development and production of oil and natural gas properties. Consistent with its refocused efforts, onCanada. 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.
These unaudited 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 $2,120,840$2,405,994 and $1,030,569$300,936 for the ninethree months ended September 30,March 31, 2016 and 2015, respectively. The Company has accumulated a stockholders’ deficit of ($294,351)$2,670,026 as of September 30,March 31, 2016. These conditions raise substantial doubt about 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 unaudited 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 2.2 Restatement
Restatement of Financial Statements for the three months ended March 31, 2016 and 2015
The Company is restating its financial statements for the three months ended March 31, 2016 and 2015 to correct various account balances as summarized below.
The restatements are being made in accordance with ASC 250, “Accounting Changes and Error Corrections.” The disclosure provision of ASC 250 requires a company that corrects an error to disclose that its previously issued financial statements have been restated, a description of the nature of the error, the effect of the correction on each financial statement line item and any per share amount affected for each prior period presented, and the cumulative effect on retained earnings (deficit) in the statement of financial position as of the beginning of each period presented.
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The effects of the adjustments on the Company’s previously issued unaudited financial statements are summarized as follows:
Selected Unaudited Consolidated Balance Sheets Information as of March 31, 2016
Previously Net Reported Change Restated Petroleum and natural gas rights / oil and gas properties 2,957,441 (291,087 ) 2,666,354 Derivative liability 1,286,918 2,377,823 3,664,741 Additional paid in capital 9,391,246 303,781 9,695,027 Accumulated deficit (9,044,242 ) (2,318,928 ) (11,363,170 )
Selected Unaudited Consolidated Statements of Operations and Comprehensive Loss information for the three months ended March 31, 2016 and 2015
Three months ended March 31, 2016 Previously Net Reported Change Restated Three months ended March 31, 2015 Previously Net Reported Change Restated Derivative gain (loss) / change in fair value (527,303 ) (1,128,233 ) (1,655,536 ) Interest expense (181,257 ) (250,450 ) (431,707 ) Loss from operations (356,425 ) 44,939 (311,486 ) Net loss (1,064,985 ) (1,333,744 ) (2,398,729 ) Net comprehensive loss (1,072,250 ) (1,333,744 ) (2,405,994 ) Basic and diluted loss per common share (0.03 ) (0.03 ) (0.06 ) Derivative gain (loss) / change in fair value - 57,442 57,442 Derivative expense - (248,922 ) (248,922 ) Loss from operations (149,730 ) 4,542 (145,188 ) Net loss (168,932 ) (186,772 ) (355,704 ) Net comprehensive loss (114,164 ) (186,772 ) (300,936 ) Basic and diluted loss per common share (0.01 ) - (0.01 )
10 |
Table of Contents |
Selected Unaudited Consolidated Statements of Cash Flows information for the three months ended March 31, 2016 and 2015
Three months ended March 31, 2016 Previously Net Reported Change Restated Three months ended March 31, 2015 Previously Net Reported Change Restated Net Loss (1,064,985 ) (1,333,744 ) (2,398,729 ) Derivative (gain) loss / change in fair value 527,303 1,128,233 1,655,536 Stock based compensation 102,500 63,055 165,555 Depreciation, depletion and amortization 70,413 (50,047 ) 20,366 Amortization of debt discount 132,164 255,559 387,723 Net cash used in operations 116,654 (35,194 ) 81,460 Net Loss (168,932 ) (186,772 ) (355,704 ) Derivative (gain) loss / change in fair value - (57,442 ) (57,442 ) Derivative expense - 248,922 248,922 Depreciation, depletion and amortization 4,542 (4,542 ) - Amortization of debt discount 8,333 (4,166 ) 4,167 Net cash used in operations 120,878 (24,437 ) 96,441
The Company uses the full cost method of accounting for its oil and gas properties, which requires a capitalized cost limitation test (“ceiling test”) at each report date. This analysis utilizes information included in an annual reserve report. The report originally used did not contemplate the pricing requirements for proved reserves promulgated by the Securities and Exchange Commission (“SEC”). The Company obtained a revised reserve report in October 2016, which met the SEC pricing requirements for proved reserves. Based on this report, the Company determined that an impairment of $210,032 should be recorded for the year ended December 31, 2015, consequently reducing the balances carried forward to 2016 and impacting the calculations for depletion. The Company also reevaluated the methodology originally used to estimate the derivative liabilities associated with the conversion features of certain debt instruments, and the impact on additional paid in capital associated with these transactions. The Company determined that the accounting for these transactions understated the derivative liability at March 31, 2016 by $2,377,823. The change in the estimated fair value of these derivatives resulted in a loss of $1,655,536 for the three months ended March 31, 2016 as compared to previously recording a loss of $527,303.
11 |
Table of Contents |
Note 3Summary of Significant Accounting Policies
a) Basis of Presentation
The accompanying unaudited consolidated financial statements of Viking Investments Group, Inc. (“Viking” or 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.10-K/A. 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.
In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates.
b) Basis of Consolidation
The financial statements presented herein reflect the consolidated financial results of the Company and its wholly owned subsidiary, Viking Oil & Gas (Canada) ULC, a Canadian corporation formed on March 8, 2016. This subsidiary is intended to provide a base of operations in Canada, although at the time of this filing there has been no activity. 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 U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts assets, liabilities,and timing of revenues and expenses, as well as certain financial statement disclosures. While management believes that the estimatesreported amounts and assumptions used in the preparationclassification of the financial statements are appropriate,assets and liabilities, and disclosure of contingent assets and liabilities. The Company's actual results could differvary materially from these estimates.management's estimates and assumptions. Significant areas requiring the use of management estimates generally include those with respectrelate to the amountdetermination of recoverable oilexpected tax rates for future income tax recoveries, stock-based compensation, embedded derivative assets and gas reserves, the fair value of financial instruments, oil and gas depletion,liabilities, asset retirement obligations stock-based compensation, derivative liabilities and impairment of long-term investment.
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 Measurements and Disclosures,”Measurement” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 820-10, “Financial Instruments,” 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 receivables,receivable – related party, accrued expenses and other current liabilities, accounts payable, accruedderivative liabilities, short term loan andamount due to directordirectors, 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. |
The changes in the Level 3 investments during the nine months ended September 30, 2016 consisted of an investment in the oil and gas properties acquired in February of 2016 in the amount of $2,170,250 minus depreciation of the recorded Asset Retirement Cost in the amount of $30,466 and depletion of $80,397.
Table of Contents |
Assets and liabilities measured at fair value as of September 30,March 31, 2016 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) |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Total Gains |
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Financial Assets |
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| ||||||||||||||
Long term investment |
| $ | 235,819 |
| $ | - |
| $ | - |
| $ | 148,663 |
|
| $ | 79,891 |
|
| $ | - |
|
| $ | - |
|
| $ | (7,265 | ) | |||
Oil and Gas properties - net |
|
| - |
|
|
| - |
|
|
| 2,863,046 |
|
|
| - |
| ||||||||||||||||
|
| $ | 239,213 |
|
| $ | - |
|
| $ | 2,863,046 |
|
| $ | 152,057 |
|
| $ | 79,891 |
|
| $ | - |
|
| $ | - |
|
| $ | (7,265 | ) |
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| ||||||||||||||||||||||
Financial liabilities |
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|
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Derivative liabilities |
| $ | - |
|
| $ | 547,894 |
|
| $ | - |
|
| $ | 833,418 |
|
| $ | - |
|
| $ | - |
|
| $ | 3,664,741 |
|
| $ | (1,655,536 | ) |
|
| $ | - |
|
| $ | 547,894 |
|
| $ | - |
|
| $ | 833,418 |
|
| $ | - |
|
| $ | - |
|
| $ | 3,664,741 |
|
| $ | (1,655,536 | ) |
Assets and liabilities measured at fair value as of December 31, 2015 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) |
|
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
| Significant Other Observable Inputs (Level 2) |
|
| Significant Unobservable Inputs (Level 3) |
|
| Total Gains |
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Financial Assets |
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Long term investment |
| $ | 87,156 |
| $ | - |
| $ | - |
| $ | 19,028 |
|
| $ | 87,156 |
|
| $ | - |
|
| $ | - |
|
| $ | 19,028 |
| |||
Oil and Gas properties - net |
|
| - |
|
|
| - |
|
|
| 803,660 |
|
|
| - |
| ||||||||||||||||
|
| $ | 87,156 |
|
| $ | - |
|
| $ | 803,660 |
|
| $ | 19,028 |
|
| $ | 87,156 |
|
| $ | - |
|
| $ | - |
|
| $ | 19,028 |
|
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Financial liabilities |
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Derivative liabilities |
| $ | - |
|
| $ | 810,647 |
|
| $ | - |
|
| $ | 266,378 |
|
| $ | - |
|
| $ | - |
|
| $ | 810,647 |
|
| $ | 266,378 |
|
|
| $ | - |
|
| $ | 810,647 |
|
| $ | - |
|
| $ | 266,378 |
|
| $ | - |
|
| $ | - |
|
| $ | 810,647 |
|
| $ | 266,378 |
|
The Company’s long term investment consists of 3,437,500 common shares of Tanager Energy, Inc., which is traded on the TSX Venture Exchange (Toronto Stock Exchange). The change in the fair value of this investment recognized as an unrealized gain (loss) in other comprehensive income on the statement of operations and comprehensive loss was ($7,265) for the three months ended March 31, 2016 and $19,028 for the year ended December 31, 2015.
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 liabilities of the Company were $3,664,741 and $810,647 as of March 31, 2016 and December 31, 2015 respectively. The change in the fair value of the derivative liabilities for the three months ended March 31, 2016 consisted of an increase of $1,216,303 associated with warrants and the conversion features of new convertible debt, a reduction of $17,745 associated with the satisfaction of certain convertible debt and loss recognized in the statement of operations and comprehensive loss in the amount of $1,655,536.
Table of Contents |
e) Cash and Cash Equivalents
Cash includes bank deposits and cash on hand.equivalents include cash in banks and highly liquid investment securities that have original maturities of three months or less. At March 31, 2016 and December 31, 2015, the Company does not have any cash deposits in excess of FDIC insured limits.
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 deems all accounts receivable to be collectable, and has not recorded any allowance for doubtful accounts.
g) Prepaid equity-basedequity 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’ Equity”Deficit” and then amortized to the statements of operations and comprehensive loss over the life of the contract using the straight-line method. At September 30,March 31, 2016 and December 31, 2015, the balances of the prepaid equity-based compensation were comprised of the following:
September 30, 2016 December 31, 2015 In November, 2015, a one-year consulting agreement with an unrelated party for services related to the petroleum industry in the amount of $165,000. In March, 2016, 3 one-year consulting agreements with 3 unrelated parties for services related to the petroleum industry for a combined total amount of $800,000. Two of the agreements have been cancelled. The balance remaining pertains to only of the original agreements March 31, December 31, In November, 2015, a 1 year consulting agreement with an unrelated party for services related to the petroleum industry in the amount of $165,000. In March, 2016, 3 one year consulting agreements with 3 unrelated parties for services related to the petroleum industry for a combined total amount of $800,000. $ 21,698 145,561 75,397 - $ 97,095 $ 145,561
2016
2015$ 104,425 145,562 778,082 - $ 882,507 $ 145,562
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 to income. Investment in unprovedoperations. 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.
Table of Contents |
AmortizationDepreciation, depletion and amortization expense utilizing the unit-of-production method for the Company’s oil and gas properties in both Canada and the United States for the three and nine months ended September 30,March 31, 2016 and 2015 were as follows:
Oil and Gas Properties by Geographical Cost Center | Oil and Gas Properties by Geographical Cost Center | Oil and Gas Properties by Geographical Cost Center | ||||||||||||||||||||||
|
| Three months ended, |
| Nine months ended, |
|
| Three months ended, |
| ||||||||||||||||
|
| September 30, |
| September 30, |
|
| March 31, |
| ||||||||||||||||
Cost Center |
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
|
| 2016 |
|
| 2015 |
| ||||||
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|
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|
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|
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Canada |
| $ | 8,374 |
| $ | - |
| $ | 15,046 |
| $ | 14,570 |
|
| $ | 2,064 |
| $ | - |
| ||||
United States |
|
| 22,148 |
|
|
| - |
|
|
| 65,351 |
|
|
| - |
|
|
| 18,302 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| $ | 30,522 |
|
| $ | - |
|
| $ | 80,397 |
|
| $ | 14,570 |
|
| $ | 20,366 |
|
| $ | - |
|
i) Limitation on Capitalized Costs
Under the full-cost method of accounting, we are required, at the end of each fiscal quarter,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 our 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 and reflected as additional accumulated depreciation, depletion and amortization or as credit to oil and natural gas properties.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 (pursuant to Reg. S-X Rule 4-10 (c)(3)(ii);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
Our proved oil and gas reserves are estimated by independent petroleum engineers. 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, 2016 and 2015 there were approximately 20,361,550 and 0 common stock equivalents respectively, that were anti-dilutive and were not included in the calculation.
Table of Contents |
The standardized measure of discounted future net cash flows and changes in such cash flows are prepared using assumptions required by the Financial Accounting Standards Board and the Securities and Exchange Commission. Such assumptions include using a 10% rate. Changes in any of these assumptions could have a significant impact on the standardized measure. Accordingly, the standardized measure does not represent management’s estimated current market value of proved reserves. At September 30, 2016, the Company’s net book value of oil and natural gas properties did not exceed the ceiling amount calculated for the quarter.
k)l) Revenue Recognition
All revenue is recognized when persuasive evidence of an arrangement exists, the service or sale is complete, the price is fixed or determinable and collectability is reasonably assured. Revenue is derived from the sale of crude oil and natural gas. Revenue from crude oil and natural gas sales is recognized when the product is delivered to the purchaser and collectability is reasonably assured. The Company follows the “sales method” of accounting for oil and natural gas revenue, so it recognizes revenue on all natural gas or crude oil sold to purchasers.
l)m) Comprehensive IncomeLoss
FASB ASC 220 “Comprehensive Income,” establishes standards for the reporting and displaypresentation of comprehensive income and its components in the consolidated financial statements. The comprehensive income forFor the three months ended September 30,March 31, 2016 was $1,868,704 and the2015, comprehensive loss for the nine months ended September 30, 2016income (loss) was ($1,972,177)7,265) and $54,768 respectively, and the comprehensive lossesconsisted primarily of unrealized gains and (losses) on available for the three and nine months ended September 30, 2015 was ($367,331) and ($1,047,211) respectively.
m) 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. Dilution is computed by applying the treasury stock method for options and warrants. Under this method, “in-the money” options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. At September 30, 2016, there were 4,062,500 common stock equivalents that were anti-dilutive and not included in the calculation.sale securities.
n) Income Taxes
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets likely. The Company did not incur any material impact to its financial condition or results of operations due to the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company is subject to U.S federal jurisdiction income tax examinations for the tax years 20062007 through 2014.2015. In addition, the Company is subject to state and local income tax examinations for the tax years 20062007 through 2015.
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. The Company has adopted ASC Topic 718 (formerly SFAS 123R), “Accounting for Stock-Based Compensation,” which establishes a fair value method of accounting for stock-based compensation plans. In accordance with guidance now incorporated 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 ninethree months ended September 30,March 31, 2016:
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| Number |
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| Weighted |
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| Weighted |
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| Aggregate |
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| Number |
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| Weighted |
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| Weighted |
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| Aggregate |
| ||||||||
Warrants Outstanding – December 31, 2015 |
| - |
| -. |
| - |
| - |
|
| - |
| -. |
| - |
| - |
| ||||||||||||||
Granted |
| 4,062,500 |
| $ | 0.20 |
| 5.0 years |
| - |
|
| 4,062,500 |
| 0.20 |
| 5.0 years |
| - |
| |||||||||||||
Exercised |
| - |
| - |
| - |
| - |
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| - |
| - |
| - |
| - |
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Forfeited/expired/cancelled |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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Warrants Outstanding – September 30, 2016 |
|
| 4,062,500 |
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| $ | 0.20 |
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| 4.25 years |
| $ | - |
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Warrants Outstanding – March 31, 2016 |
|
| 4,062,500 |
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| $ | 0.20 |
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| 5.0 years |
| $ | - |
| ||||||||||||||||||
Outstanding Exercisable – December 31, 2015 |
|
| - |
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| $ | - |
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|
| - |
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| $ | - |
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|
| - |
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| $ | - |
|
|
| - |
|
| $ | - |
|
Outstanding Exercisable – September 30, 2016 |
|
| 4,062,500 |
|
| $ | 0.20 |
|
| 4.25 years |
| $ | - |
| ||||||||||||||||||
Outstanding Exercisable – March 31, 2016 |
|
| 4,062,500 |
|
| $ | 0.20 |
|
| 5.0 years |
| $ | - |
|
16 |
Table of Contents |
The Company used the Black-Scholes model to value these warrants at $416,315, and included this amount as a debt discount and a corresponding component of derivative liabilities.
p) Long-term Investment
Management determines the appropriate classification of investment securities at the time of purchase. Securities are classified held-to-maturity when the Company has both the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Securities that are bought and held principally for the purpose of selling in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. Securities not classified as held-to-maturity or trading are classified as available-for-sale. Available-for-sale securities are stated at fair value, the changes in the market value of available-for-sale securities, excluding other-than-temporary impairments, are reflected in Other Comprehensive Income, with the impairment losses, net of income taxes, charged to net income in the period in which it occurs.
The fair value of securities is based on quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. A decline in the market value of any available-for-sale or held-for-maturity security below cost that is deemed to be other-then-temporary results in a reduction in carrying amount to fair value.
Impairments that are considered other-than-temporary are recognized as a loss in the consolidated statements of operations. The Company considers various factors in reviewing impairments, including the length of time and extent to which fair value has been less than the Company’s cost basis, the financial condition and near-term prospects of the issuer, and the Company’s intent and ability to hold the investments for a period of time sufficient to allow for any anticipated recovery in market value.
As of September 30,March 31, 2016 and December 31, 2015, the Company had no trading and held-to-maturity securities.
On September 9, 2014, the Company subscribed for 1,250,000 unitsThe Company’s long term investment consists of 3,437,500 common shares of Tanager Energy, Inc. (“Tanager”), a Canadian mining company listedwhich is traded on the Canadian TSXVentureTSX Venture Exchange as a Tier 2 company(Toronto Stock Exchange), and trading under the stock symbol “TAN,” at a price of C$0.08 per unit. Each unit consists of one share of Tanager’s common stock and one warrant to purchase one additional common share at a price of C$0.15 at any time until October 5, 2016. The warrants expire on October 5, 2016. The total price for the units subscribed for was C$101,247.47. The Company paid $92,000, which was equivalent to C$101,247.47 on September 11, 2014.
On October 6, 2014, the Company subscribed for an additional 2,187,500 units of Tanager at a price of C$0.08 per unit. Each unit consists of one share of Tanager’s common stock to purchase one additional common share at a price of C$0.15 at any time until October 5, 2016. The warrants expire on October 5, 2016. The total price for the units subscribed for was C$175,000. The Company paid $155,444, which was equivalent to C$175,000 on October 17, 2014.
The Company’s investment in Tanager is considered as “available-for-sale” securities, andsecurities. The change in the fair value of this investment recognized as an unrealized gain of $148,663 was recorded(loss) in other comprehensive income on the statement of operations and comprehensive loss was ($7,265) for the ninethree months ended September 30, 2016.March 31, 2016 and $19,028 for the year ended December 31, 2015.
q) 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 ninethree months ended September 30,March 31, 2016 and 2015.
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r) 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. FunctionalThe 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 “C$”“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 ininto the Company’sCompany'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 income in stockholders;stockholders' equity when realized. There have been no settlement transactions that resulted in the recognition of a foreign currency exchange gain or loss during the three or nine months ended September 30,March 31, 2016 and 2015.
s) 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 the convertible note 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.
t) 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.
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.
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u) Accounting for Asset Retirement Obligations
On July 1, 2015,Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount the Company adopted Statementwill incur to plug, abandon and remediate its producing properties at the projected end of Financial Accounting Standards (“SFAS”) No. 143, Accounting for Asset Retirement Obligations, which addressestheir productive lives, in accordance with applicable federal, state and local laws. The Company determined its ARO by calculating the financial accounting and reporting obligations and retirement costspresent value of estimated cash flows related to the obligation. The retirement of tangible long-lived assets. Among other things, SFAS No. 143 requires oil and gas companies to reflect decommissioning liabilities on the faceobligation is recorded as a liability at its estimated present value as of the balance sheet at fair value on a discounted basis. This statement requires that the fair value of a liability forobligation’s inception, with an asset retirement obligation be recognized in the period in which it is incurred. The associated asset retirement costs are capitalized as part of the carrying cost of the asset. Our asset retirement obligations consist of estimated costs for dismantlement, removal, site reclamation and similar activities associated with our oil and gasoffsetting increase to proved properties.
With the adoption of SFAS No. 143, an asset retirement obligation and the related asset retirement cost in the amount of $406,214 have been recorded. This asset retirement cost was determined and discounted to present value using a credit-adjusted risk-free rate. After the initial recording, the liability is increased for the passage of time, with the increase being reflected as accretion expense in the statement of operations. Subsequent adjustments in the cost estimate are reflected in the liability and the amounts continue to be amortized over the useful life of the related long-lived asset.
Pursuant to the terms of the operating agreement associated with the oil and gas property acquisitions in the United States made during the quarter ended March 31, 2016, the Company has not incurred any additional asset retirement obligationsAsset Retirement Obligations as a result of this acquisition.
The following table describes the changes in the Company’s asset retirement obligations for the ninethree months ended September 30,March 31, 2016:
Asset retirement obligation at December 31, 2015 |
| $ | 416,246 |
|
| $ | 416,246 |
|
Accretion expense |
|
| 15,514 |
|
|
| 5,108 |
|
|
|
|
|
|
|
| ||
Asset retirement obligation at September 30, 2016 |
| $ | 431,760 |
| ||||
Asset retirement obligation at March 31, 2016 |
| $ | 421,354 |
|
v) Reclassification of Prior Year Presentation
Certain reclassifications have been made to conform the prior period data to the current presentations.
w) Recent Accounting Pronouncements
The Financial Accounting Standards Board and other entities issued new or modifications to, or interpretations of, existing accounting guidance during 2016. Management has carefully considered the new pronouncements that altered generally accepted accounting principles and does not believe that any other new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term.
x)w) Subsequent events
The Company has evaluated all transactions through the date the consolidated financial statements were available to be issued for subsequent event disclosure consideration.consideration (Note 9).
Note 3. 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 September 30,March 31, 2016, the balance owed by Tanager to the Company is $76,719,$153,877, which is shown as “Otherother receivable – related party”party on the balance sheet.sheet..
During the ninethree months ended September 30,March 31, 2016, the Company’s Executive Chairman and Director, Tom Simeo did not accrue payroll and made no advances to the Company. The Company paid a total of $1,056$775 against prior advances by Mr. Simeo.advances. Any accruals and advances do not bear interest, are unsecured and have no specific terms of repayment. As of September 30,March 31, 2016, the net amount due for prior accruals and expenses paid on behalf of the Company is $36,103.$36,385. The Company has not imputed interest as the amount is deemed immaterial.
During the ninethree months ended September 30,March 31, 2016, the Company’s CEO and Director, James Doris incurred expenses on behalf of, and made advances to the Company in the amount of $197,281$35,194 in order to provide the Company with funds to carry on its operations, and the Company made repayments of $55,000 against prior advances.$35,000. These advances by Mr. Doris do not bear interest, are unsecured and have no specific terms of repayment. As of September 30,March 31, 2016, the amount due for expenses paid on behalf of the Company is $253,276.$218,690. The Company has not imputed interest as the amount is deemed immaterial. Additionally, Mr. Doris made several loans to the Company totaling $466,836,$359,336, all accruing interest at 12%, and payable on demand. As of September 30,March 31, 2016, the total amount due to Mr. Doris for advances and expenses paid on behalf of the Company and loans is $720,112.$578,025. Accrued interest of $53,931$30,792 is included in accrued expenses and other current liabilitiespayables at September 30,March 31, 2016.
On June 5, 2015, the Company authorized and approved the issuance of 2,000,000 and 872,871 restricted shares of common stock in settlement and cancellation of a total of $201,101 of amounts owed to directors at a cost basis of $0.07 per share.
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Note 4. 5.Oil and Gas Properties
The following table summarizes the Company’s oil and gas activities by classification and geographical cost center for the ninethree months ended September 30,March 31, 2016:
December 31, September 30, 2015 Additions Disposals 2016 Proved developed producing oil and gas properties Canada cost center United States cost center Accumulated depletion and impairment Accumulated depreciation, asset retirement costs Proved developed producing oil and gas properties, net Undeveloped and non-producing oil and gas properties Canada cost center United States cost center Accumulated depletion and impairment Accumulated depreciation, asset retirement costs Undeveloped and non-producing oil and gas properties, net Total Oil and Gas Properties, Net $ 50,313 $ - $ - $ 50,313 - 1,308,938 - 1,308,938 (874 ) (49,918 ) - (50,792 ) (1,218 ) (1,827 ) - (3,045 ) $ 48,221 $ 1,257,193 $ - $ 1,305,414 $ 788,227 $ - $ - $ 788,227 - 861,312 - 861,312 (13,696 ) (30,481 ) - (44,177 ) (19,092 ) (28,638 ) - (47,730 ) $ 755,439 $ 802,193 $ - $ 1,557,632 $ 803,660 $ 2,059,386 $ - $ 2,863,046
On November 3, 2014, the Company entered into a Purchase and Sale, Petroleum and Natural Gas Conveyance Agreement (the “Agreement”), with Tanager Energy Inc., a Canadian corporation listed on the TSX Venture Exchange as a Tier 2 company and trading under the stock symbol “TAN” (“Tanager Energy”). Pursuant to the Agreement, the Company was to receive a 50% working interest in the Joffre oil and gas property located in Alberta, Canada (the “Joffre Property”), and the Company was obligated to pay Tanager C$400,000 for the interest in the Joffre Property, with C$340,000 payable at closing.
On November 4, 2014, the Company closed the transaction by paying Tanager $302,367, with the balance of $52,801 (C$60,000) paid in January of 2015. Tanager owns the remaining 50% working interest in the property and operates and manages the property in accordance with an operating agreement pursuant to the Canadian Association of Petroleum Landman Operating Procedure. The proceeds were to be used by Tanager to complete and place on production the first of four suspended Devonian oil wells in the Joffre D-3 B oil pool (the “Joffre Project”). The Company’s (and Tanager’s) working interest in the Joffre Property will generally terminate when future production, if any, ceases (or in the case of the water disposal well on the Joffre Property, on the date that production ceases after 5 years has elapsed).
In April 2015, the Company advanced to Tanager Energy Inc., an additional $153,877 (C$190,000) as an investment in the second well in the Joffre D-3 oil pool. As the Company and Tanager each own 50% of each phase of this project, the Company has accounted for this transaction as an investment by the Company of $77,158 (C$95,270), with a loan receivable from Tanager of $76,719 (C$94,730).
|
| December 31, |
|
| Additions |
|
| Impairments |
|
| March 31, |
| ||||
Proved developed producing oil and gas properties |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Canada cost center |
| $ | 33,082 |
|
| $ | - |
|
| $ | - |
|
| $ | 33,082 |
|
United States cost center |
|
| - |
|
|
| 1,308,938 |
|
|
| - |
|
|
| 1,308,938 |
|
Accumulated depreciation, depletion and amortization |
|
| (2,093 | ) |
|
| (13,851 | ) |
|
| - |
|
|
| (15,944 | ) |
Proved developed producing oil and gas properties, net |
| $ | 30,989 |
|
| $ | 1,295,087 |
|
| $ | - |
|
| $ | 1,326,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped and non-producing oil and gas properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada cost center |
| $ | 518,269 |
|
| $ | - |
|
| $ | - |
|
| $ | 518,269 |
|
United States cost center |
|
| - |
|
|
| 861,312 |
|
|
| - |
|
|
| 861,312 |
|
Accumulated depreciation, depletion and amortization |
|
| (32,788 | ) |
|
| (6,515 | ) |
|
| - |
|
|
| (39,303 | ) |
Undeveloped and non-producing oil and gas properties, net |
| $ | 485,481 |
|
| $ | 854,797 |
|
| $ | - |
|
| $ | 1,340,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oil and Gas Properties, Net |
| $ | 516,470 |
|
| $ | 2,149,884 |
|
| $ | - |
|
| $ | 2,666,354 |
|
On February 23, 2016, with an effective date of February 1, 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. This project produces oil from the Cherokee formation at a depth of approximately 600 feet. These leases offer the potential for several future drilling locations. 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 the Company. The names of the four leases and Viking’s percentage ownership of the working interest of each lease is as follows:
Lease Name | Viking's Working Interest Percentage |
| ||
|
|
|
| |
HAHN |
|
| 32.299 | % |
JOHNSTON |
|
| 84.041 | % |
WILSON, EAST |
|
| 15.000 | % |
WILSON, WEST |
|
| 55.003 | % |
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The effective date of the acquisitions is February 1, 2016, so the Company was entitled to net revenues from its share of production as of such date. As consideration for this transaction, the Company paid $1,350,000 plus 4,650,000 shares of common stock valued at $0.10$.085 per share, or $465,000.$395,250.
The Company also purchased a 100% working interest (a net revenue interest(Net Revenue Interest of 83%) in certain non-producing leasesNon-Producing Leases as follows: (i) three leases with access to the mineral rights (oil and gas) concerning approximately 270 acres of property in Miami and Franklin Counties in eastern Kansas; and (ii) 31 leases with access to the mineral rights (oil and gas) concerning approximately 5,500 acres of property in Cass and Bates Counties in Missouri. 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. As consideration for this transaction, Viking agreed to issue the vendors 5,000,000 shares of common stock valued at $0.10$.085 per share, or $500,000.$425,000.
The total purchase of these oil and gas interests is calculatedsummarized as follows,follows:, and is included as an investment in Petroleumoil and Gasgas properties on the balance sheet at September 30,March 31, 2016:
Cash consideration |
| $ | 1,350,000 |
|
Stock for producing interests |
|
| 395,250 |
|
Stock for non-producing interests |
|
| 425,000 |
|
|
|
|
|
|
Total purchase price |
| $ | 2,170,250 |
|
Proforma condensed selected financial data for the three and nine months ended September 30, 2016 and 2015, as though this acquisition had taken place at January 1, 2015, are as follows:
Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Revenues Net Loss Loss per share $ 105,426 $ 68,985 $ 246,449 $ 243,708 $ (688,024 ) $ (619,621 ) $ (2,114,117 ) $ (966,696 ) $ (0.016 ) $ (0.003 ) $ (0.034 ) $ (0.039 )
For the three and nine months ended September 30,March 31, 2016, the Company has included $49,232 and $135,334$29,557 of revenue providing $11,947 and $46,138$7,604 of net earnings in its consolidated income statement of operations and comprehensive loss from the date of acquisition.
To facilitate these acquisitions, the Company borrowed $1,450,000$1,625,000 from private lenders pursuant to a 15% Senior Secured Convertible Promissory Note (the "Note"), arranged through a licensed broker/dealer, with the primary terms of the loan being as follows: (i) Term – 6 months; (ii) Rate – 15% per annum; (iii) Security – 1st ranking charge against company assets pursuant to a Security and Pledge Agreement (the "Security Agreement"); (iv) Conversion – the lenders have a right to convert all or part of the note into common stock of Viking at a price of $0.15 per share, subject to certain ownership restrictions; and (v) Warrants – the lenders were given an option to purchase, within the next 5 years, 4,062,500 shares of common stock of Viking at an initial exercise price of $0.20 per share pursuant to a Common Stock Purchase Warrant. Viking's CEO and director, James Doris, also personally guaranteed repayment of the loan and granted the lenders a security interest in his assets.
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Note 5. 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 October 3, 2012, the Company issued 28,092 shares of Series C Preferred Stock to Tom Simeo in exchange for the return of the equal amount of shares of common stock, owned by Tom Simeo, deposited in a brokerage account, to the Company for cancellation. On or about September 1, 2015, Tom Simeo instructed the Company’s Stock Transfer Agent, VStock Transfer LLC, to cancel stock certificate number 3032, representing 28,092 shares of common stock, in consideration for the missing 28,092 shares of common stock. Neither the common stock, nor the preferred stock, were assessed any value.
Each share of Series C Preferred Stock shall entitle the holder thereof to two thousand (2,000) votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time on or after the date that Preferred Stock has been issued (“Distribution Date) declare or pay any dividend on common stock payable in shares of common stock, or effect a subdivision or combination or consolidation of the outstanding shares of common stock (by reclassification or otherwise than by payment of a dividend in shares of common stock) into a greater or lesser number of shares of common stock, then in each such case the number of votes per share to which holders of shares of Series C Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction of the numerator of which is the number of shares of common stock outstanding immediately after such event and the denominator of which is the number of shares of common stock that were outstanding immediately prior to such event.
Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such 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”).
On July 16, 2015, Tom Simeo, Executive Chairman, and a director of the Company, who owned 28,092 shares of the Company’s Series C Preferred Stock (the “Shares”), transferred 50% (14,046) of the Shares to James A. Doris, President, CEO and a director of the Company in consideration of the purchase price of $10,000, paid from the personal funds of Mr. Doris. Mr. Simeo retained 14,046 shares of the Company’s Series C Preferred Stock, and no other shares of Series C Preferred Stock are issued or outstanding. Since each of the preferred shares entitles the voter of 2,000 votes per share, or 70,230,000 each, Mr. Simeo and Mr. Doris effectively control the Company jointly, neither of them solely controls the Company, and the transfer of the preferred shares constituted a change of control of the Company.
(b) Common Stock
The Company is authorized to issue 100,000,000 shares of common stock, par value $0.001 per share.
In May 2015, the Company authorized and approved the issuance of 720,000 shares of its common stock in conjunction with a six month consulting agreement, at a cost basis of $0.15 per share, the current fair market value at the time of the agreement.
On August 3, 2015, the Company issued 421,571 restricted shares of common stock in settlement and cancellation of $30,000 of accrued payroll, and 2,000,000 and 872,871 restricted shares of common stock in settlement and cancellation of a total of $201,101 of amounts owed to directors, at a cost basis of $0.07 per share.
On November 18, 2015, the Company issued 1,000,000 restricted shares of its common stock in conjunction with a one-year consulting agreement, at a cost of $0.165 per share, the current fair market value at the time of agreement.
On November 23, 2015, a convertible note holder elected to convert $4,200 of the principal amount of the convertible note dated May 22, 2015, into 100,000 shares of the Company's common stock in accordance with the convertible note agreement.
On December 1, 2015, a convertible note holder elected to convert $8,400 of the principal amount of the convertible note dated May 22, 2015, into 200,000 shares of the Company's common stock in accordance with the convertible note agreement.
On December 24, 2015, a convertible note holder elected to convert $8,400 of the principal amount of the convertible note dated May 22, 2015, into 250,000 shares of the Company's common stock in accordance with the convertible note agreement.
On January 12, 2016, the Company issued 300,926 common shares upon the conversion offor convertible debt in the amount of $10,111.
On March 16, 2016, the Company issued 1,000,000 common shares for services, valued at $102,500.
As ofOn February 1, 2016, the Company issuedauthorized the issuance of 9,650,000 common shares as part of the consideration for the acquisition of the oilOil and gasGas investment made at that time.
On March 21, 2016, the Company executed two one-yearone year consulting agreements requiring the issuance of 2,000,000 common shares for each contract. Both of these contracts were terminated, theThe shares were returned to the Company, and were cancelled in Augustissued during April 2016, but have been accounted for as issuable as of March 31, 2016.
On March 21, 2016, the Company executed a one-yearone year advisory services agreement requiring the issuance of 1,000,000 common shares for the contract. The shares are to be issued as 375,002 upon execution of the contract, with 56,818 shares being issued at the beginning of each month for the remaining eleven months.
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Note 7. Long Term Debt
Long term debt consisted of the following at March 31, 2016 and December 31, 2015:
March 31, December 31, 2015 On May 22, 2015, the Company issued a convertible promissory note with a cap of $50,000 with a 0% interest rate for the first three months. The terms of the note include a $5,000 Original Issue Discount, providing for a maximum funding of $45,000. The amount of the note funded as of March 31, 2016 was $25,000. The Company may repay this Note at any time on or before 90 days from the effective date. If the Company does not make a payment on or before 90 days from the notes effective date, a one-time interest charge of 12%shall be applied to the principal sum. The maturity date of the note is two years from the effective date of the note. The investor has the right, at any time after the Effective Date, at its election, to convert all of part of the outstanding and unpaid Principal Sum and accrued interest. The conversion price is the lesser of $0.10 or 60% of the lowest trade price in the 25 trading days previous to the conversion. Balance net of unamortized discount of $4,772 as of December 31, 2015. As of March 31, 2016 the full amount of the note has been converted to common shares. On November 3, 2015, the Company issued a $63,000 8% convertible note with a term expiring on November 3, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 58% of the lowest trading price of the common stock for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the Company. Balance net of unamortized discount of $36,750 and $52,500 at March 31, 2016 and December 31, 2015 respectively. On November 20, 2015, the Company issued a $30,000 12% convertible note with a term expiring on November 20, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 52% of the lowest trading price of the common stock for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company. Balance net of unamortized discount of $20,000 and $27,500 at March 31, 2016 and December 31, 2015 respectively. On November 19, 2015, the Company issued a $50,000 12% convertible note with a term expiring on November 19, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 52% of the lowest trading price of the common stock for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company. Balance net of unamortized discount of $31,250 and $43,750 at March 31, 2016 and December 31, 2015 respectively. On November 25, 2015, the Company issued a $27,500 8% convertible note with a term expiring on November 25, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 42% of the lowest trading price of the common stock for the twenty-five prior trading days including the day upon which a Notice of Conversion is received by the Company. Balance net of unamortized discount of $18,333 and $25,208 at March 31, 2016 and December 31, 2015 respectively. On February 19, 2016, the Company issued a total of $1,625,000 15% convertible notes with a term expiring August 18, 2016 (the “Maturity Date”). The principal amounts of each note and interest is payable on the maturity date. The notes are convertible into common stock at any time, at the holder’s option, The conversion price shall be the lowest of (i) $0.15, (ii) 58% of the price of the Company’s securities that are sold in any offering of the Company’s securities in excess of $100,000, of (iii) the conversion price of any Equity converted on or prior to the Conversion Date. Balance net of unamortized discount of $1,020,977 at March 31, 2016. Less current portion pertaining to continuing operations
2016$ - $ 2,006 26,250 10,500 10,000 2,500 18,750 6,250 9,167 2,292 604,023 - 668,190 23,548 (668,190 ) (6,778 ) $ - $ 16,770
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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 financial position or results of operations.
Note 9.Subsequent Events
The Company has evaluated subsequent events from March 31, 2016 through the date of filing this Form 10-Q/A, and determined there are no other items to account for all 1,000,000 common shares valued at $0.16 per share upon execution of the agreement as prepaid equity-based compensation to be amortized over the term of the contract. disclose other than those disclosed below:
As of September 30,April 29, 2016, 284,090 shares remain unissued,the Company issued a total of $375,000 of 10% Secured Subordinated promissory notes with a term expiring January 12, 2017 (the “Maturity Date”), and are accounted for as issuable.an original issue discount of fifty percent (50%). Interest is payable on the outstanding principal of these notes at 10% per annum on the Maturity Date.
As of April 29, 2016, the Company, pursuant to a securities purchase agreement, sold 1,250,000 shares of its common stock at $0.15 per share.
On September 28, 2016, the Company issued 2,400,000 common shares, at the current market value of $288,000 as a portion of the purchase price of additional oil and gas properties acquired on October 4, 2016. This amount is included as a deposit in other assets as of September 30, 2016.
During September 2016, the Company negotiated the payment of certain convertible notes, and committed to the issuance of 375,000 common shares at the current market value of $52,500 as additional interest. These shares have not been issued as of the date of this report, and are accounted for as issuable at September 30, 2016.
As of September 30, 2016, the Company, pursuant to a securities purchase agreement, sold $1,337,500 shares of its common stock at $0.15 per share.
(c) Prepaid Equity-Based Compensation
From time to time, the Company has issued shares of restricted common stock to various unrelated parties as prepayment for certain services to be rendered over a term of one year from the date of the agreement. The Company has recorded the fair value of the shares at the date of the agreement as prepaid equity-based compensation, and then amortizes this amount to stock based compensation ratably over the life of the agreements. As of September 30, 2016, the prepaid equity-based compensation balance is $97,095.
Note 6. Convertible Notes
Convertible notes payable at September 30, 2016, and December 31, 2015, as detailed below, are summarized as follows:
September 30, December 31, 2016 2015 (e) - JMJ Financial (f) - LG Capital (g) - GW Holdings (h) - EMA Financial (i) - JDF Capital (j) - (p) Senior Secured 15% Convertible Promissory Notes (7) Net of unamortized debt discount Less current portion $ - $ 6,778 - 63,000 - 30,000 - 50,000 - 27,500 1,225,000 - 1,225,000 177,278 - (153,730 ) $ 1,225,000 $ 23,548 (1,225,000 ) (16,770 ) $ - $ 6,778
(a) March 11, 2015 Convertible Note
On March11, 2015, the Company issued a $50,000 8% convertible note with a term expiring on March 11, 2016 (the “Maturity Date”). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder’s option, at a price equal to 58% of the lowest trading price of the common stock for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the Company. In the event the Company prepays the note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 115% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 121% if prepaid 31 days following the closing through 60 days following the closing, (iii) 127% if prepaid 61 days following the closing through 90 days following the closing, (iv) 133% if prepaid 91 days following the closing through 120 days following the closing, (v) 139% if prepaid 121 days following the closing through the 150 days following the closing, (vi) 145% if prepaid 151 days following the closing through the 180 days following the closing, and (vii) the Company shall have no right of prepayment after the expiration of 180 days following the closing. This note was paid in full on September 8, 2015.
(b) March 12, 2015 Convertible Note
On March12, 2015, the Company issued a $25,000 8% convertible note with a term expiring on March 12, 2016 (the “Maturity Date”). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder’s option, at a price equal to 58% of the lowest trading price of the common stock for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the Company. In the event the Company prepays the note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 115% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 121% if prepaid 31 days following the closing through 60 days following the closing, (iii) 127% if prepaid 61 days following the closing through 90 days following the closing, (iv) 133% if prepaid 91 days following the closing through 120 days following the closing, (v) 139% if prepaid 121 days following the closing through the 150 days following the closing, (vi) 145% if prepaid 151 days following the closing through the 180 days following the closing, and (vii) the Company shall have no right of prepayment after the expiration of 180 days following the closing. This note was paid in full on September 8, 2015.
(c) March 12, 2015 Convertible Note
On March12, 2015, the Company issued a $25,000 8% convertible note with a term expiring on March 12, 2016 (the “Maturity Date”). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder’s option, at a price equal to 58% of the lowest trading price of the common stock for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the Company. In the event the Company prepays the note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 115% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 121% if prepaid 31 days following the closing through 60 days following the closing, (iii) 127% if prepaid 61 days following the closing through 90 days following the closing, (iv) 133% if prepaid 91 days following the closing through 120 days following the closing, (v) 139% if prepaid 121 days following the closing through the 150 days following the closing, (vi) 145% if prepaid 151 days following the closing through the 180 days following the closing, and (vii) the Company shall have no right of prepayment after the expiration of 180 days following the closing. This note was paid in full on September 8, 2015.
(d) March 25, 2015 Convertible Note
On March 25, 2015, the Company issued a $35,000 12% convertible note with a term expiring on March 24, 2016 (the “Maturity Date”), and which was funded on April 23 2015. The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder’s option, at a price equal to 58% of the lowest trading price of the common stock for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the Company. This note was paid in full on October 22, 2015.
(e) May 22, 2015 Convertible Note
On May 22, 2015, the Company issued a convertible promissory note with a cap of $50,000 with a 0% interest rate for the first three months. The terms of the note include a $5,000 Original Issue Discount, providing for a maximum funding of $45,000. The amount of the note funded as of September 30, 2016 was $25,000. The Company may repay this Note at any time on or before 90 days from the effective date. If the Company does not make a payment on or before 90 days from the notes effective date, a one-time interest charge of 12%shall be applied to the principal sum. The maturity date of the note is two years from the effective date of the note. The investor has the right, at any time after the Effective Date, at its election, to convert all of part of the outstanding and unpaid Principal Sum and accrued interest. The conversion price is the lesser of $0.10 or 60% of the lowest trade price in the 25 trading days previous to the conversion. As of September 30, 2016 the full amount of the note has been converted to common shares.
(f) November 3, 2015 Convertible Note
On November 3, 2015, the Company issued a $63,000 8% convertible note with a term expiring on November 3, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 58% of the lowest trading price of the common stock for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the Company. The note was paid in full on April 29, 2016.
(g) November 20, 2015 Convertible Note
On November 20, 2015, the Company issued a $30,000 12% convertible note with a term expiring on November 20, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 52% of the lowest trading price of the common stock for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company. The note was paid in full on May 9, 2016.
(h) November 19, 2015 Convertible Note
On November 19, 2015, the Company issued a $50,000 12% convertible note with a term expiring on November 19, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 52% of the lowest trading price of the common stock for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company. The note was paid in full on May 12, 2016.
(i) November 25, 2015 Convertible Note
On November 25, 2015, the Company issued a $27,500 8% convertible note with a term expiring on November 25, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 42% of the lowest trading price of the common stock for the twenty-five prior trading days including the day upon which a Notice of Conversion is received by the Company. The note was paid in full on May 2, 2016.
(j) February 19, 2016 Senior Secured Convertible Promissory Note
On February 19, 2016, the Company issued a $75,000 15% convertible note with a term expiring August 18, 2016 (the “Maturity Date”). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder’s option, The conversion price shall be the lowest of (i) $0.15, (ii) 58% of the price of the Company’s securities that are sold in any offering of the Company’s securities in excess of $100,000, of (iii) the conversion price of any Equity converted on or prior to the Conversion Date. The maturity date of this note has been extended.
(k) February 19, 2016 Senior Secured Convertible Promissory Note
On February 19, 2016, the Company issued a $50,000 15% convertible note with a term expiring August 18, 2016 (the “Maturity Date”). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder’s option, The conversion price shall be the lowest of (i) $0.15, (ii) 58% of the price of the Company’s securities that are sold in any offering of the Company’s securities in excess of $100,000, of (iii) the conversion price of any Equity converted on or prior to the Conversion Date. The maturity date of this note has been extended.
(l) February 19, 2016 Senior Secured Convertible Promissory Note
On February 19, 2016, the Company issued a $50,000 15% convertible note with a term expiring August 18, 2016 (the “Maturity Date”). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder’s option, The conversion price shall be the lowest of (i) $0.15, (ii) 58% of the price of the Company’s securities that are sold in any offering of the Company’s securities in excess of $100,000, of (iii) the conversion price of any Equity converted on or prior to the Conversion Date. The note was paid in full on September 30, 2016.
(m) February 19, 2016 Senior Secured Convertible Promissory Note
On February 19, 2016, the Company issued a $1,100,000 15% convertible note with a term expiring August 18, 2016 (the “Maturity Date”). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder’s option, The conversion price shall be the lowest of (i) $0.15, (ii) 58% of the price of the Company’s securities that are sold in any offering of the Company’s securities in excess of $100,000, of (iii) the conversion price of any Equity converted on or prior to the Conversion Date. The note was paid in full on October 4, 2016.
(n) February 19, 2016 Senior Secured Convertible Promissory Note
On February 19, 2016, the Company issued a $200,000 15% convertible note with a term expiring August 18, 2016 (the “Maturity Date”). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder’s option, The conversion price shall be the lowest of (i) $0.15, (ii) 58% of the price of the Company’s securities that are sold in any offering of the Company’s securities in excess of $100,000, of (iii) the conversion price of any Equity converted on or prior to the Conversion Date. The note was paid in full on September 30, 2016.
(o) February 19, 2016 Senior Secured Convertible Promissory Note
On February 19, 2016, the Company issued a $100,000 15% convertible note with a term expiring August 18, 2016 (the “Maturity Date”). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder’s option, The conversion price shall be the lowest of (i) $0.15, (ii) 58% of the price of the Company’s securities that are sold in any offering of the Company’s securities in excess of $100,000, of (iii) the conversion price of any Equity converted on or prior to the Conversion Date. The note was paid in full on August 18, 2016.
(p) February 19, 2016 Senior Secured Convertible Promissory Note
On February 19, 2016, the Company issued a $50,000 15% convertible note with a term expiring August 18, 2016 (the “Maturity Date”). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder’s option, The conversion price shall be the lowest of (i) $0.15, (ii) 58% of the price of the Company’s securities that are sold in any offering of the Company’s securities in excess of $100,000, of (iii) the conversion price of any Equity converted on or prior to the Conversion Date. The note was paid in full on September 30, 2016.
Note 7. Secured Notes
As of April 29, 2016, the Company issued a total of $375,000 of 10% Secured Subordinated promissory notes with a term expiring January 12, 2017 (the “Maturity Date”), 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 Maturity Date. The balance of these notes as of September 30, 2016, is $298,529, net of an unamortized discount of $76,471.
As of September 2016, the Company issued a total of $535,000$610,000 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%). Interest is payable on the outstanding principal of these notes at 10% per annum on the Maturity Date. The balance of these notes as of September 30, 2016 is $334,375, net of an unamortized discount of $200,625.
Note 8. Revolver Loan
On September 30, 2016, the Company entered into a Revolver Loan agreement with Crossfirst Bank, a Kansas banking corporation for a revolving line of credit facility in the amount of $3,000,000, with an initial funding commitment of $1,800,000, interest at Prime plus 1.5%, and a final maturity date of September 30, 2018. As of September 30, 2016, the Company had not borrowed any money under this agreement.
Note 9. Subsequent Events
The Company has evaluated subsequent events from September 30, 2016, through the date of filing this report, and determined there are no other items to disclose other than those disclosed below:
On October 4, 2016, the Company closed on the purchase of working interests in various oil and gas leases in Eastern Kansas. Simultaneously, to facilitate the purchase, the Company closed on its initial funding from Crossfirst Bank under the September 30, 2016 Revolver Agreement in the amount of $1,800,000. Additionally, on October 4, 2016, the Company committed to the issuance of 2,752,021 common shares as a part of the consideration for the acquisition of this oil and gas investment. The shares were issued in December 2016.
During November 2016, the Company issued 1,400,000 common shares as part of a negotiated settlement on convertible notes.
During November 2016, the Company issued 187,500 common shares pursuant to a securities purchase agreement.
SUPPLEMENTAL INFORMATION – OIL AND NATURAL GAS PRODUCTION – (unaudited)
As of September 30, 2016, the Company has two separate oil and gas production projects as follows:
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Results of Operations
The results of operations for petroleum and natural gas production for the three and nine months ended September 30, 2016, consist of both the 50% undivided interest in the Joffre oil and gas property located in Alberta, Canada as well as the various working interests in the four leases in eastern Kansas, as follows:
Three Months Ended September 30, 2016 Results of Operations by Geographic Area Canada United States Total Revenue Oil Gas Liquids Sulphur Total revenues Production costs $ 47,656 $ 49,232 $ 96,888 4,844 - 4,844 3,296 - 3,296 398 - 398 56,194 49,232 105,426 29,172 37,285 66,457 $ 27,022 $ 11,947 $ 38,969
Oil and Gas Production and Sales by Geographic Area Canada United States Totals Production Oil - (barrels) Natural Gas - (mcf) Natural Gas Liquids - (barrels) Sulphur - (tonnes) Sales Oil - (barrels) Natural Gas - (mcf) Natural Gas Liquids - (barrels) Sulphur - (tonnes) Average Sales Prices Oil - (barrels) Natural Gas - (mcf) Natural Gas Liquids - (barrels) Sulphur - (tonnes) Mcf = thousands of cubic feet Tonnes = Metric tons 1,319 1,307 2,626 2,813 - 2,813 415 - 415 16 - 16 1,319 1,307 2,626 2,813 - 2,813 415 - 415 16 - 16 $ 36.13 $ 37.67 $ 36.90 $ 1.72 $ - $ 1.72 $ 7.94 $ - $ 7.94 $ 24.88 $ - $ 24.88
Nine Months Ended September 30, 2016 Results of Operations by Geographic Area Canada United States Total Revenue Oil Gas Liquids Sulphur Total revenues Production costs $ 79,653 $ 135,334 $ 214,987 9,328 - 9,328 7,207 - 7,207 491 - 491 96,679 135,334 232,013 76,577 89,196 165,773 $ 20,102 $ 46,138 $ 66,240
Oil and Gas Production and Sales by Geographic Area Canada United States Totals Production Oil - (barrels) Natural Gas - (mcf) Natural Gas Liquids - (barrels) Sulphur - (tonnes) Sales Oil - (barrels) Natural Gas - (mcf) Natural Gas Liquids - (barrels) Sulphur - (tonnes) Average Sales Prices Oil - (barrels) Natural Gas - (mcf) Natural Gas Liquids - (barrels) Sulphur - (tonnes) Mcf = thousands of cubic feet Tonnes = Metric tons 2,276 3,857 6,133 8,666 - 8,666 887 - 887 25 - 25 2,229 3,857 6,086 6,597 - 6,597 941 - 941 25 - 25 $ 35.73 $ 35.09 $ 35.32 $ 1.41 $ - $ 1.41 $ 7.66 $ - $ 7.66 $ 19.64 $ - $ 19.64
Petroleum and Natural Gas Exploration and Production Costs
The amounts shown as net capitalized costs for petroleum and natural gas rights of $2,863,046 and $803,660 consist of the initial investment to acquire the undivided interest in the Joffre Project, as well as additional licensing costs at that location, as well as the investment made during the first quarter of this year, to acquire the oil and gas properties in Kansas. The Company does not incur any production or exploratory costs as the entire project is operated through a subcontract relationship.
Petroleum and Natural Gas Reserves
Reserves are estimated remaining quantities of oil and natural gas and related substances, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations – prior to the time at which contracts providing the right to operate expire. The detailed reserve information and production forecasts for the Joffre project in Alberta, Canada were presented in the Company’s annual report on Form 10-K for the year ended December 31, 2015, and is incorporated herein.
The following information is an estimate of the proved oil reserve, and the associated economic values of those certain properties in Franklin, Linn and Miami counties, Kansas, acquired by the Company in February 2016
The following tables summarize projected revenues, expenses and discounted cash flows:
Proved, Developed Producing Reserves
The Proved, Developed Producing (PDP) reserves were determined by extrapolation of the lease production decline curves. Waterflood reserves are classified as PDP on these leases by virtue of the successful past operations in these, and regional analogous, reservoirs. Developed reserves are those expected to be recovered from existing wells (including reserves behind pipe). Improved recovery reserves are considered developed only after the necessary equipment has been installed, or when the costs to do so are relatively minor. The gross PDP reserves (November 1, 2015) of the subject leases are:
Gross PDP Reserves Working Interest PDP Reserves Viking PDP Reserves Lease Name Cumulative Production to Date Remaining Reserve Ultimate Production Net Revenue Interest % (Working Interest) NRI Remaining Reserve Viking % of Working Interest Viking Reserve Balances HAHN JOHNSTON WILSON, EAST WILSON, WEST 5,092 64,908 70,000 86.500 % 56,145 32.299 % 18,134 40,738 81,762 122,500 83.000 % 67,862 84.041 % 57,032 16,346 153,654 170,000 83.000 % 127,533 15.000 % 19,130 7,962 134,438 142,400 83.000 % 111,584 55.003 % 61,375 70,138 434,762 504,900 363,124 155,671
The following table summarizes PDP projected revenues, expenses and discounted cash flows for the HAHN lease as of November 1, 2015:
Projected Revenues and Discounted Cash Flows - Hahn Lease Proved, Developed, Producing Reserves - (PDP) Year Number of Wells Volume (mbbl) Price ($/bbl) Revenue (m$) Sev + Adv Taxes (m$) Net Operating Expenses (m$) Capital Outlay (m$) Annual Cash Flow (m$) Cumulative Discounted Cash Flow at 10% (m$) 2015 14 2016 14 2017 14 2018 14 2019 14 2020 14 2021 14 2022 14 2023 14 2024 14 2025 14 2026 14 2027 14 2028 14 2029 14 2030 14 2031 14 2032 14 2033 14 2034 14 Sub-Total Remaining Total 0.184 39.68 7.318 0.073 2.035 - 5.210 5.168 1.450 44.55 64.579 0.646 12.209 - 51.724 53.708 1.475 48.43 71.439 0.714 12.209 - 58.515 103.629 1.367 51.03 69.753 0.698 12.209 - 56.846 147.717 1.261 52.87 66.684 0.667 12.209 - 53.808 185.655 1.164 54.08 62.952 0.630 12.209 - 50.114 217.776 1.074 56.25 60.409 0.604 12.209 - 47.596 245.510 0.991 58.00 57.474 0.575 12.209 - 44.691 269.183 0.915 58.00 53.053 0.531 12.209 - 40.313 288.597 0.844 58.00 48.932 0.489 12.209 - 36.233 304.459 0.779 58.00 45.166 0.452 12.209 - 32.506 317.396 0.719 58.00 41.682 0.417 12.209 - 29.056 327.909 0.663 58.00 38.460 0.385 12.209 - 25.866 336.417 0.611 58.00 35.462 0.355 12.209 - 22.899 343.264 0.565 58.00 32.746 0.328 12.209 - 20.209 348.758 0.521 58.00 30.198 0.302 12.209 - 17.687 353.129 0.481 58.00 27.875 0.279 12.209 - 15.388 356.586 0.444 58.00 25.740 0.257 12.209 - 13.273 359.297 0.409 58.00 23.717 0.237 12.209 - 11.270 361.389 0.378 58.00 21.899 0.219 12.209 - 9.471 362.988 16.293 54.35 885.538 8.856 234.006 - 642.676 362.988 1.841 58.00 106.799 1.068 79.672 - 26.059 366.444 18.134 54.72 992.337 9.924 313.678 - 668.735 366.444
The following table summarizes PDP projected revenues, expenses and discounted cash flows for the JOHNSTON lease as of November 1, 2015:
Projected Revenues and Discounted Cash Flows - Johnston Lease Proved, Developed, Producing Reserves - (PDP) Year Number of Wells Volume (mbbl) Price ($/bbl) Revenue (m$) Sev + Adv Taxes (m$) Net Operating Expenses (m$) Capital Outlay (m$) Annual Cash Flow (m$) Cumulative Discounted Cash Flow at 10% (m$) 2015 29 2016 29 2017 29 2018 29 2019 29 2020 29 2021 29 2022 29 2023 29 2024 29 2025 29 2026 29 2027 29 2028 29 2029 29 2030 29 2031 29 2032 29 2033 29 2034 29 Sub-Total Remaining Total 0.490 39.68 19.442 0.194 10.967 - 8.280 8.214 5.085 44.55 226.551 2.266 65.804 - 158.481 156.939 6.721 48.43 325.486 3.255 65.804 - 256.427 375.704 5.390 51.03 275.072 2.751 65.804 - 206.517 535.871 4.200 52.87 222.029 2.220 65.804 - 154.005 644.453 3.506 54.08 189.615 1.896 65.804 - 121.915 722.596 3.043 56.25 171.176 1.712 65.804 - 103.660 782.998 2.709 58.00 157.101 1.571 65.804 - 89.726 830.528 2.453 58.00 142.283 1.423 65.804 - 75.056 866.673 2.250 58.00 130.487 1.305 65.804 - 63.378 894.419 2.085 58.00 120.933 1.209 65.804 - 53.920 915.879 1.946 58.00 112.891 1.129 65.804 - 45.958 932.506 1.830 58.00 106.115 1.061 65.804 - 39.250 945.416 1.728 58.00 100.217 1.002 65.804 - 33.411 955.407 1.640 58.00 95.148 0.951 65.804 - 28.392 963.125 1.562 58.00 90.615 0.906 65.804 - 23.905 969.032 1.493 58.00 86.618 0.866 65.804 - 19.947 973.513 1.431 58.00 83.011 0.830 65.804 - 16.376 976.858 1.376 58.00 79.794 0.798 65.804 - 13.192 979.307 1.324 58.00 76.820 0.768 65.804 - 10.248 981.037 52.263 53.79 2,811.403 28.113 1,261.245 - 1,522.044 981.037 4.768 58.00 276.523 2.765 257.225 - 16.533 983.392 57.031 54.14 3,087.926 30.878 1,518.470 - 1,538.577 983.392
The following table summarizes PDP projected revenues, expenses and discounted cash flows for the WILSON, EAST lease as of November 1, 2015:
Projected Revenues and Discounted Cash Flows - Wilson, East Lease Proved, Developed, Producing Reserves - (PDP) Year Number of Wells Volume (mbbl) Price ($/bbl) Revenue (m$) Sev + Adv Taxes (m$) Net Capital Outlay (m$) Annual Cash Flow (m$) Cumulative Discounted Cash Flow at 10% (m$) 2015 43 2016 43 2017 43 2018 43 2019 43 2020 43 2021 43 2022 43 2023 43 2024 43 2025 43 2026 43 2027 43 2028 43 2029 43 2030 43 2031 43 2032 43 2033 43 2034 43 Sub-Total Remaining Total
Operating Expenses (m$)0.115 39.68 4.553 0.046 2.903 - 1.605 1.592 1.075 44.55 47.893 0.479 17.415 - 30.000 29.745 1.530 48.43 74.083 0.741 17.415 - 55.928 77.458 1.455 51.03 74.241 0.742 17.415 - 56.084 120.955 1.347 52.87 71.224 0.712 17.415 - 53.097 158.391 1.247 54.08 67.435 0.674 17.415 - 49.346 190.020 1.155 56.25 64.943 0.650 17.415 - 46.879 217.336 1.069 58.00 61.996 0.620 17.415 - 43.961 240.623 0.990 58.00 57.394 0.574 17.415 - 39.405 259.599 0.916 58.00 53.131 0.531 17.415 - 35.185 275.003 0.848 58.00 49.190 0.492 17.415 - 31.283 287.453 0.785 58.00 45.545 0.455 17.415 - 27.674 297.466 0.727 58.00 42.160 0.422 17.415 - 24.324 305.466 0.673 58.00 39.028 0.390 17.415 - 21.223 311.812 0.623 58.00 36.140 0.361 17.415 - 18.363 316.804 0.577 58.00 33.452 0.335 14.175 - 18.942 321.485 0.534 58.00 30.972 0.310 14.175 - 16.487 325.188 0.494 58.00 28.675 0.287 14.175 - 14.213 328.091 0.458 58.00 26.544 0.266 14.175 - 12.103 330.338 0.424 58.00 24.578 0.246 14.175 - 10.157 332.053 17.040 54.76 933.177 9.332 317.588 - 606.257 332.053 2.089 58.00 121.182 1.212 92.457 - 27.514 335.712 19.130 55.12 1,054.359 10.544 410.044 - 633.771 335.712
The following table summarizes PDP projected revenues, expenses and discounted cash flows for the WILSON, WEST lease as of November 1, 2015:
Projected Revenues and Discounted Cash Flows - Wilson, West Lease Proved, Developed, Producing Reserves - (PDP) Year Number of Wells Volume (mbbl) Price ($/bbl) Revenue (m$) Sev + Adv Taxes (m$) Net Capital Outlay (m$) Annual Cash Flow (m$) Cumulative Discounted Cash Flow at 10% (m$) 2015 53 2016 53 2017 53 2018 53 2019 53 2020 53 2021 53 2022 53 2023 53 2024 53 2025 53 2026 53 2027 53 2028 53 2029 53 2030 53 2031 53 2032 53 2033 53 2034 53 Sub-Total Remaining Total
Operating Expenses (m$)0.372 39.68 14.754 0.147 13.118 - 1.488 1.477 4.056 44.55 180.716 1.807 78.709 - 100.199 95.507 6.812 48.43 329.884 3.299 78.709 - 247.876 306.976 6.494 51.03 331.399 3.314 78.709 - 249.376 500.384 5.787 52.87 305.981 3.060 78.709 - 224.212 658.467 5.155 54.08 278.776 2.788 78.709 - 197.279 784.916 4.592 56.25 258.311 2.583 78.709 - 177.019 888.064 4.091 58.00 237.253 2.372 78.709 - 156.172 970.792 3.644 58.00 211.349 2.114 78.709 - 130.526 1033.649 3.246 58.00 188.252 1.883 78.709 - 107.660 1080.781 2.892 58.00 167.707 1.677 78.709 - 87.321 1115.533 2.576 58.00 149.396 1.494 78.709 - 69.193 1140.568 2.294 58.00 133.062 1.331 78.709 - 53.022 1158.008 2.044 58.00 118.547 1.185 78.709 - 38.652 1169.566 1.821 58.00 105.595 1.056 78.709 - 25.829 1176.587 1.622 58.00 94.078 0.941 62.373 - 30.764 1184.189 1.444 58.00 83.774 0.838 62.373 - 20.563 1188.809 1.287 58.00 74.650 0.746 62.373 - 11.530 1191.164 1.146 58.00 66.483 0.665 62.373 - 3.445 1191.803 - - - - - - - 1191.803 61.375 54.26 3,329.968 33.299 1,364.542 - 1,932.127 1191.803 - - - - - - - 1191.803 61.375 54.26 3,329.968 33.299 1,364.542 - 1,932.127 1191.803
Proved Undeveloped Reserves
The Proved Undeveloped (PUD) reserves were determined by analogy to existing wells on the evaluated leases, or to similar production in the area. Waterflood reserves are included. Undeveloped reserves are those expected to be recovered: (1) from new wells on undrilled acreage, (2) from deepening existing wells to a different reservoir, or (3) where a relatively large expenditure is required to (a) recomplete an existing well or (b) install production or transportation facilities for primary or improved recovery projects. The gross PUD reserves (November 1, 2015) of the subject leases are:
Gross PUD Reserves Working Interest PUD Reserves Viking PUD Reserves Lease Name Cumulative Production to Date Remaining Reserve Ultimate Production Net Revenue Interest % (Working Interest) NRI Remaining Reserve Viking % of Working Interest Viking Reserve Balances HAHN JOHNSTON WILSON, EAST WILSON, WEST - 25,000 25,000 86.500 % 21,625 32.299 % 6,985 - 30,000 30,000 83.000 % 24,900 84.041 % 20,926 - 30,000 30,000 83.000 % 24,900 15.000 % 3,735 - 47,000 47,000 83.000 % 39,010 55.003 % 21,457 - 132,000 132,000 110,435 53,103
The following table summarizes PUD projected revenues, expenses and discounted cash flows for the HAHN lease as of November 1, 2015:
Projected Revenues and Discounted Cash Flows - Hahn Lease Proved Undeveloped Reserves - (PUD) Year Number of Wells Volume (mbbl) Price ($/bbl) Revenue (m$) Sev + Adv Taxes (m$) Net Capital Outlay (m$) Annual Cash Flow (m$) Cumulative Discounted Cash Flow at 10% (m$) 2015 5 2016 5 2017 5 2018 5 2019 5 2020 5 2021 5 2022 5 2023 5 2024 5 2025 5 2026 5 2027 5 2028 5 2029 5 2030 5 2031 5 2032 5 2033 5 2034 5 Sub-Total Remaining Total
Operating Expenses (m$)- 39.68 - - 0.000 22.609 (22.609 ) (22.573 ) 0.509 44.55 22.663 0.227 4.360 22.609 (4.533 ) (27.278 ) 0.511 48.43 24.746 0.247 4.360 - 20.139 (10.159 ) 0.479 51.03 24.427 0.244 4.360 - 19.822 5.214 0.445 52.87 23.514 0.235 4.360 - 18.919 18.553 0.413 54.08 22.341 0.224 4.360 - 17.757 29.935 0.384 56.25 21.584 0.216 4.360 - 17.008 39.845 0.357 58.00 20.682 0.207 4.360 - 16.115 48.381 0.331 58.00 19.183 0.192 4.360 - 14.631 55.427 0.307 58.00 17.834 0.178 4.360 - 13.296 61.248 0.286 58.00 16.560 0.166 4.360 - 12.034 66.037 0.265 58.00 15.399 0.154 4.360 - 10.884 69.975 0.246 58.00 14.294 0.143 4.360 - 9.790 73.196 0.229 58.00 13.282 0.133 4.360 - 8.789 75.824 0.213 58.00 12.327 0.123 4.360 - 7.843 77.956 0.197 58.00 11.446 0.114 4.360 - 6.971 79.678 0.183 58.00 10.641 0.106 4.360 - 6.174 81.065 0.171 58.00 9.891 0.099 4.360 - 5.432 82.175 0.158 58.00 9.179 0.092 4.360 - 4.727 83.052 0.147 58.00 8.524 0.085 4.360 - 4.078 83.741 5.830 54.63 318.516 3.185 82.847 45.218 187.266 83.741 0.872 58.00 50.580 0.506 79.672 - (29.597 ) 85.546 6.702 55.07 369.096 3.691 162.519 45.218 157.669 85.546
The following table summarizes PUD projected revenues, expenses and discounted cash flows for the JOHNSTON lease as of November 1, 2015:
Projected Revenues and Discounted Cash Flows - Johnston Lease Proved, Undeveloped Reserves - (PUD) Year Number of Wells Volume (mbbl) Price ($/bbl) Revenue (m$) Sev + Adv Taxes (m$) Net Operating Expenses (m$) Capital Outlay (m$) Annual Cash Flow (m$) Cumulative Discounted Cash Flow at 10% (m$) 2015 5 2016 5 2017 5 2018 5 2019 5 2020 5 2021 5 2022 5 2023 5 2024 5 2025 5 2026 5 2027 5 2028 5 2029 5 2030 5 2031 5 2032 5 2033 5 2034 5 Sub-Total Remaining Total - 39.68 - - - - - - 0.459 44.55 20.442 0.204 9.455 117.657 (106.873 ) (103.037 ) 1.931 48.43 93.531 0.935 11.346 - 81.250 (33.721 ) 1.954 51.03 99.710 0.997 11.346 - 87.368 34.039 1.811 52.87 95.752 0.957 11.346 - 83.449 92.876 1.676 54.08 90.626 0.906 11.346 - 78.375 143.112 1.550 56.25 87.172 0.872 11.346 - 74.954 186.787 1.433 58.00 83.108 0.831 11.346 - 70.931 224.361 1.326 58.00 76.918 0.769 11.346 - 64.803 255.568 1.226 58.00 71.117 0.711 11.346 - 59.061 281.424 1.135 58.00 65.804 0.658 11.346 - 53.801 302.836 1.049 58.00 60.832 0.608 11.346 - 48.878 320.521 0.971 58.00 56.299 0.563 11.346 - 44.390 335.121 0.898 58.00 52.058 0.520 11.346 - 40.193 347.139 0.830 58.00 48.159 0.482 11.346 - 36.332 357.015 0.769 58.00 44.601 0.446 11.346 - 32.809 365.123 0.710 58.00 41.188 0.412 11.346 - 29.431 371.734 0.658 58.00 38.166 0.382 11.346 - 26.439 377.134 0.541 58.00 31.391 0.314 10.060 - 21.017 381.057 - - - - - - - - 20.926 55.28 1,156.875 11.567 201.043 117.657 826.608 381.057 - - - - - - - 381.057 20.926 55.28 1,156.875 11.567 201.043 117.657 826.608 381.057
The following table summarizes PUD projected revenues, expenses and discounted cash flows for the WILSON, EAST lease as of November 1, 2015:
Projected Revenues and Discounted Cash Flows - Wilson, East Lease Proved, Undeveloped Reserves - (PUD) Year Number of Wells Volume (mbbl) Price ($/bbl) Revenue (m$) Sev + Adv Taxes (m$) Net Operating Expenses (m$) Capital Outlay (m$) Annual Cash Flow (m$) Cumulative Discounted Cash Flow at 10% (m$) 2015 5 2016 5 2017 5 2018 5 2019 5 2020 5 2021 5 2022 5 2023 5 2024 5 2025 5 2026 5 2027 5 2028 5 2029 5 2030 5 2031 5 2032 5 2033 5 2034 5 Sub-Total Remaining Total - 39.68 - - - 25.200 (25.200 ) (25.160 ) 0.102 44.55 4.551 0.045 1.856 25.200 (22.551 ) (46.903 ) 0.354 48.43 17.151 0.171 2.025 - 14.955 (34.144 ) 0.347 51.03 17.697 0.177 2.025 - 15.495 (22.127 ) 0.321 52.87 16.979 0.170 2.025 - 14.784 (11.703 ) 0.297 54.08 16.062 0.161 2.025 - 13.876 (2.809 ) 0.275 56.25 15.458 0.155 2.025 - 13.278 4.928 0.254 58.00 14.747 0.147 2.025 - 12.574 11.589 0.235 58.00 13.633 0.136 2.025 - 11.472 17.114 0.218 58.00 12.615 0.126 2.025 - 10.464 21.695 0.201 58.00 11.667 0.117 2.025 - 9.525 25.485 0.186 58.00 10.788 0.108 2.025 - 8.655 28.617 0.172 58.00 9.988 0.100 2.025 - 7.863 31.203 0.159 58.00 9.239 0.092 2.025 - 7.122 33.333 0.147 58.00 8.535 0.085 2.025 - 6.424 35.079 0.136 58.00 7.908 0.079 2.025 - 5.804 36.513 0.126 58.00 7.308 0.073 2.025 - 5.210 37.684 0.117 58.00 6.760 0.068 2.025 - 4.667 38.637 0.087 58.00 5.063 0.051 1.627 - 3.386 39.271 - 58.00 - - 0.000 - - - 3.735 55.20 206.148 2.062 35.883 50.400 117.804 39.271 - - - - - - - 39.271 3.735 55.20 206.148 2.062 35.883 50.400 117.804 39.271
The following table summarizes PUD projected revenues, expenses and discounted cash flows for the WILSON, WEST lease as of November 1, 2015:
Projected Revenues and Discounted Cash Flows - Wilson, West Lease Proved, Undeveloped Reserves - (PUD) Year Number of Wells Volume (mbbl) Price ($/bbl) Revenue (m$) Sev + Adv Taxes (m$) Net Operating Expenses (m$) Capital Outlay (m$) Annual Cash Flow (m$) Cumulative Discounted Cash Flow at 10% (m$) 2015 14 2016 14 2017 14 2018 14 2019 14 2020 14 2021 14 2022 14 2023 14 2024 14 2025 14 2026 14 2027 14 2028 14 2029 14 2030 14 2031 14 2032 14 2033 14 2034 14 Sub-Total Remaining Total - 39.68 - - 0.000 - - - 0.661 44.55 29.429 0.294 17.326 213.412 (201.603 ) (199.054 ) 2.218 48.43 107.431 1.074 20.791 - 85.566 (126.056 ) 2.183 51.03 111.402 1.114 20.791 - 89.497 (56.645 ) 1.957 52.87 103.467 1.035 20.791 - 81.641 0.917 1.752 54.08 94.770 0.948 20.791 - 73.031 47.727 1.569 56.25 88.239 0.882 20.791 - 66.565 86.514 1.404 58.00 81.413 0.814 20.791 - 59.808 118.196 1.257 58.00 72.927 0.729 20.791 - 51.407 142.952 1.125 58.00 65.239 0.652 20.791 - 43.796 162.125 1.007 58.00 58.412 0.584 20.791 - 37.037 176.865 0.901 58.00 52.287 0.523 20.791 - 30.973 188.071 0.807 58.00 46.800 0.468 20.791 - 25.541 196.472 0.723 58.00 41.919 0.419 20.791 - 20.709 202.664 0.647 58.00 37.516 0.375 20.791 - 16.350 207.108 0.579 58.00 33.561 0.336 14.851 - 18.374 211.649 0.518 58.00 30.051 0.300 14.851 - 14.900 214.996 0.464 58.00 26.893 0.269 14.851 - 11.773 217.401 0.415 58.00 24.086 0.241 14.851 - 8.994 219.071 0.372 58.00 21.566 0.216 14.851 - 6.499 220.168 20.558 54.84 1,127.408 11.273 361.865 213.412 540.857 220.168 0.898 58.00 52.064 0.520 44.55 - 6.991 221.196 21.456 54.97 1,179.471 11.794 406.417 213.412 547.848 221.198
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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 annual 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
PriorThe Company's business plan is to engage in the first quarteracquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. On March 8, 2016, the Company’s business plan consisted of two strategies: (a) identifying target companies that were undergoing or anticipating periods of rapid growthCompany incorporated a wholly owned subsidiary, Viking Oil & Gas (Canada) ULC, in Alberta, Canada, to provide advisory and consulting services, and (b) identifying investments inhold its Canadian oil and gas properties for future exploration and development.interests. 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, as explained in note 4.
Commencing with the first quarter of 2016, the Company has determined that its singular business plan is to engage in the acquisition, exploration, development and production of oil and natural gas properties. Consistent with its refocused efforts, onCanada. 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.
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.
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RESULTS OF CONTINUING OPERATIONS
The following discussion of the financial condition and results of operation of the Company for the three and nine months ended September 30,March 31, 2016 and 2015,should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s Form 10-K10-K/A for the year ended December 31, 2015.2015 filed on December 14, 2016.
Liquidity and Capital Resources
As of September 30,March 31, 2016 and December 31, 2015, the Company had $88,625$43,350 and $30,58530,585 in cash holdings, respectively.
Three months ended September 30,March 31, 2016, compared to the three months ended September 30,March 31, 2015
Revenue
The Company had gross revenues of $105,426$40,722 for the three months ended September 30,March 31, 2016, representing its share of revenue from its 50% undivided interest in the Joffre Property as well as the new revenues from the investment inpurchase of the oil properties in Kansas, as compared to $32,425 for the three months ended September 30, 2015, which only represented revenue from the Joffre Property.Kansas. This revenue from the Joffre Property comes from the first two oil wells in the project which began producing during April of 2015, and the revenue from the Kansas property comes from four leases.
Expenses
The Company’s operating expenses increased by $229,982$207,020 to $451,093$352,208 for the three-month period ended September 30,March 31, 2016, from $221,111$145,188 in the corresponding period in 2015. The increase was mainly due to lease operating costs being incurred for the first time as well as the increase of general and administrative expenses, stock based compensation of $172,219 as well as depreciation, depletion and amortization costs associated with ownership of oil and gas properties,professional fees during the three-month period ended March 31, 2016, as compared to the three monthsthree-month period ended September 30,March 31, 2015.
Other Income and Expenseincome (expense)
The Company’s interest expense increased by $404,306 to $542,107Company had other income (expense) of ($2,087,243) for the three months ended September 30,March 31, 2016, as compared to $137,801($210,516) for the three months ended September 30,March 31, 2015. This large increase in other expense is a result of interest cost is reflectiveexpense of $431,707 for the increase in debt associated withthree months ended March 31, 2016, as compared to $19,036 for the Company’s growth strategy relative to oilthree months ended March 31, 2015, and gas property acquisitions. This expense item is expected to go down asa derivative loss of $1,655,536 for the Company anticipates replacing debt with unfavorable terms. The Company also had a gain on derivatives of $2,765,013three months ended March 31, 2016, as compared to a derivative lossgain of $36,424$57,442 for the three months ended September 30,March 31, 2015.
Net Loss
The Company incurred a net comprehensive incomeloss of $1,873,845$2,398,729 during the three-month period ended September 30,March 31, 2016, compared with a net comprehensive loss of $367,331$355,704 for the three-month period ended September 30, 2015. The increase in Net comprehensive income was mainly due to the items referred to in the analysis of operating expenses and other income.
Nine months ended September 30, 2016, compared to the nine months ended September 30, 2015
Revenue
The Company had gross revenues of $232,013 for the nine months ended September 30, 2016, representing its share of revenue from its 50% undivided interest in the Joffre Property as well as the new revenues from the investment in the oil properties in Kansas, as compared to $64,448 for the nine months ended September 30, 2015, which only represented revenue from the Joffre project.
Expenses
The Company’s operating expenses increased by $716,312 to $1,290,116 for the nine month period ended September 30, 2016, from $573,804 in the corresponding period in 2015. The increase was mainly due to stock based compensation of $578,363 for the nine months ended September 30, 2016 as compared to 108,000 for the prior year. Additionally is the increase in both lease operating costs and depletion expense as production from the wells increases.
Other Income and Expense
The Company’s interest expense increased by $1,770,313 to $1,966,015 for the nine months ended September 30, 2016, as compared to $195,702 for the nine months ended September 30, 2015. This large increase in interest cost is reflective of the increase in debt associated with the Company’s growth strategy relative to oil and gas property acquisitions, which also created a large amortization of debt discount. This expense item is expected to go down as the Company anticipates replacing debt with unfavorable terms. The Company also had a gain on the settlement of debt associated with professional services in the amount of $75,000 during the nine months ended September 30, 2016, and a gain on derivatives of $833,418 as compared to a derivative gain of $77,682 for the nine months ended September 30, 2015.
Net Loss
The Company incurred a net comprehensive loss of $1,967,037 during the nine month period ended September 30, 2016, compared with a net comprehensive loss of $1,047,211 for the nine month period ended September 30,March 31, 2015. The increase in net loss was mainly due to the items referred to in the analysis of operating expenses and other income.income (expense).
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company has adopted variousWe 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 that govern the application of accounting principles generally accepted in the United States of Americaand how they are applied in the preparation of the Company’sour 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 requires itare subject to makealternative 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 affectcan 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, reportedsuch 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 financialaccompanying consolidated statements of operations and accompanying notes.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’s critical accounting policies include debt management and accounting for stock-based compensation. 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.”
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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 September 30,March 31, 2016 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 controlInternal Control over financial reportingFinancial Reporting during the quarter ended September 30,March 31, 2016.
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The disclosureFrom time to time, the Company may be involved in Items 4.01 and 4.02litigation relating to claims arising out of operations in the Company’s Current Reportnormal course of business. As of March 31, 2016, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on Form 8-K/A filed on November 18, 2016, is incorporated by reference herein regarding the resignationresults of the Company’s former independent registered public accounting firm.operations.
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.
On August 3, 2015, the Company issued 421,571 restricted shares of common stock in settlement and cancellation of $30,000 of accrued payroll, and 2,000,000 and 872,871 restricted shares of common stock in settlement and cancellation of a total of $201,101 of amounts owed to directors.
On November 18, 2015, the Company issued 1,000,000 restricted shares of its common stock in conjunction with a one-year consulting agreement, at a cost of $0.165 per share, the current fair market value at the time of agreement.
On November 23, 2015, a convertible note holder elected to convert $4,200 of the principal amount of the convertible note dated May 22, 2015, into 100,000 shares of the Company's common stock in accordance with the convertible note agreement.
On December 1, 2015, a convertible note holder elected to convert $8,400 of the principal amount of the convertible note dated May 22, 2015, into 200,000 shares of the Company's common stock in accordance with the convertible note agreement.
On December 24, 2015, a convertible note holder elected to convert $8,400 of the principal amount of the convertible note dated May 22, 2015, into 250,000 shares of the Company's common stock in accordance with the convertible note agreement.
On January 12, 2016, the Company issued 300,926 common shares for convertible debt in the amount of $10,111.
On March 16, 2016, the Company issued 1,000,000 common shares for services, valued at $40,000.
As ofOn February 1, 2016, the Company authorized the issuance of 9,650,000 common shares as part of the consideration for the acquisition of the Oil and Gas investment made at that time. The shares were not issued as of March 31, 2016, but have been accounted for as issuable as the transaction closed in February 2016.
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On March 21, 2016, the Company executed two one-year consulting agreements with third parties requiring the issuance of 2,000,000 common shares for each contract. Both of these contracts were terminated, theThe shares were returned to the Company, and were cancelled in Augustissued during April 2016, but have been accounted for as issuable as of March 31, 2016.
On March 21, 2016, the Company executed a one-yearone year advisory services agreement requiring the issuance of 1,000,000 common shares for the contract. The shares are to be issued as 375,002 upon execution of the contract, with 56,818 shares being issued at the beginning of each month for the remaining eleven months. TheAlthough none of the shares stipulated pursuant to this agreement have been issued as of the date of this report, the Company has determined to account for all 1,000,000 common shares valued at $0.16 per share, upon execution of the agreement as prepaid equity-based compensation to be amortized over the term of the contract. As of September 30, 2016, 284,090 shares remain unissued, and are accounted for as issuable.
As of April 29, 2016, the Company, pursuant to a securities purchase agreement, sold 1,250,000 shares of its common stock at $0.15 per share.
On September 28, 2016, the Company issued 2,400,000 common shares, at the current market value of $288,000 as a portion of the purchase price of additional oil and gas properties acquired on October 4, 2016. This amount is included as a deposit in other assetsissuable as of September 30,March 31, 2016.
During SeptemberThe issuance described above for conversion of debt on January 12, 2016, was made in reliance on the exemptions from registration provided by Section 3(a)(9) and 4(a)(2) of the Securities Act as the common stock was issued in exchange for debt securities of the Company negotiatedheld by the payment of certain convertible notes, and committed toshareholder, there was no additional consideration for the issuance of 375,000 common shares atexchange, there was no remuneration for the current market value of $52,500 as additional interest. These shares have not been issued assolicitation of the date of this report,exchange, there was no general solicitation, and are accounted for as issuable at September 30, 2016.
As of September 30, 2016, the Company, pursuant totransactions did not involve a securities purchase agreement, sold $1,337,500 shares of its common stock at $0.15 per share.
public offering. The other securities identified in this Item were originally or will be issued pursuant to exemptions from registration requirements relying on Section 4(a)(2) of the Securities Act of 1933 and upon Rule 506 of Regulation D of the Securities Act of 1933 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.
None.
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Number |
| Description | ||
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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 | 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) | |||
10.2 |
| 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) | ||
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99.1 |
| Guaranty and Repurchase Agreement dated April 11, 2012 (incorporated by reference to our Annual Report on Form 10-K filed on April 18, 2013) | ||
99.2 |
| Repurchase Agreement dated April 15, 2013 (incorporated by reference to our Annual Report on Form 10-K filed on April 18, 2013) | ||
99.3 |
| Form of Note (incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K filed on March 1, 2016) | ||
99.4 | Form of Security Agreement (incorporated by reference to Exhibit 99.2 to our Current Report on Form 8-K filed on March 1, 2016) | |||
99.5 | Form of Warrant (incorporated by reference to Exhibit 99.3 to our Current Report on Form 8-K filed on March 1, 2016) | |||
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 |
_____
* to be filed or furnished by amendment.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 INVESTMENTS GROUP, INC. (Registrant) | |||
Date: | By: | /s/ James Doris | |
James Doris | |||
Principal Executive Officer |
In accordance with the Securities Exchange Act this report has been signed below by the following person(s) on behalf of the registrant and in the capacities and on the dates indicated.
Date: | By: | /s/ Tom Simeo | |
Tom Simeo | |||
Principal Financial and Accounting Officer |
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