**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

x

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

 

FOR THE QUARTERLY PERIOD ENDED: **September 30, 2016**

 

OR

 

 ̈

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

 

**For the transition period from _______ to _______.**

 

**Commission file number: 000-29219**

 

**VIKING 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)
 
Issuer’s telephone number **(212) 653 0946**
    
______________________________________________________________   
(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, 2016, the registrant had 47,647,419 shares of common stock outstanding, including 1,996,590 issuable.

 

 

   

**EXPLANATORY NOTE**

 

As disclosed in the Current Report on Form 8-K of Viking Investments Group, Inc. (the “Company”) filed on November 14, 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 audit the Company’s financial statements for the year ended December 31, 2015, and review the Company’s financial statements for the periods ending March 31, 2016, June 30, 2016, and September 30, 2016, but they have not completed the audit or reviews. 

 

As a result, this report is deficient because the unaudited financial statements contained in this report for the period ended September 30, 2016, have not been reviewed by an independent registered public accountant as required by rule 10-01(d) regulation S-X. Completion 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.

 

 2 

 

**VIKING INVESTMENTS GROUP, INC.**

 

**Part I – Financial Information**

Item 1

Financial Statements

4

 

Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015 (unaudited)

 

4

 

Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2016 and 2015 (unaudited)

 

5

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)

 

6

 

Consolidated Statements of Stockholders’ Deficit (unaudited)

 

7

 

Notes to the Unaudited Consolidated Financial Statements (unaudited)

 

8

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

37

 

Item 3

Quantitative and Qualitative Disclosures about Market Risk

 

40

 

Item 4

Controls and Procedures

 

40

**Part II – Other Information**

 

Item 1

Legal Proceedings

 

41

 

Item 2

Unregistered Sales Of Equity Securities And Use Of Proceeds

 

41

 

Item 3

Defaults Upon Senior Securities

 

42

 

Item 4

Mine Safety Disclosures

 

42

 

Item 5

Other Information

 

42

 

Item 6

Exhibits

 

43

 

 3 

 

**PART I—FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS**

**VIKING INVESTMENTS GROUP, INC.**

**Consolidated Balance Sheets**

**(Unaudited)**

**(Amounts expressed in US dollars)**

 

 

 

 

**September 30,**

 

 

**December 31,**

 

 

 

**2016**

 

 

**2015**

 

 

 

**(Unaudited)**

 

 

**(Unaudited)**

 

**ASSETS**

 

 

 

 

 

 

**Current assets:**

 

 

 

 

 

 

Cash

 
$88,625
 

 
$30,585
 

Accounts receivable – oil and gas

 

 
11,948
 

 

 
-
 

Other receivable – related party

 

 
76,719
 

 

 
76,719
 

Total current assets

 

 
177,292
 

 

 
107,304
 

 

 

 

 

 

 

 

 

 

**Oil and gas properties, full cost method**

 

 

 

 

 

 

 

 

Proved developed producing oil and gas properties, net

 

 
1,305,414
 

 

 
48,221
 

Undeveloped and non-producing oil and gas properties, net

 

 
1,557,632
 

 

 
755,439
 

Total oil and gas properties, net

 

 
2,863,046
 

 

 
803,660
 

 

 

 

 

 

 

 

 

 

Long term investment – related party

 

 
235,819
 

 

 
87,156
 

Deposit

 

 
288,000
 

 

 
-
 

**TOTAL ASSETS**

 
$3,564,157
 

 
$998,120
 

 

 

 

 

 

 

 

 

 

**LIABILITIES AND STOCKHOLDERS’ DEFICIT**

 

 

 

 

 

 

 

 

**Current liabilities:**

 

 

 

 

 

 

 

 

Accrued expenses and other current liabilities

 
$244,103
 

 
$95,575
 

Accounts payable

 

 
15,492
 

 

 
104,774
 

Derivative liability

 

 
547,894
 

 

 
810,647
 

Amount due to directors

 

 
756,215
 

 

 
614,991
 

Secured notes payable, net of debt discount

 

 
632,904
 

 

 
-
 

Convertible notes – current, net of debt discount

 

 
1,225,000
 

 

 
16,770
 

Total current liabilities

 

 
3,421,608
 

 

 
1,642.757
 

Convertible notes – net of current portion and debt discount

 

 
-
 

 

 
6,778
 

Asset retirement obligation

 

 
431,760
 

 

 
416,246
 

**TOTAL LIABILITIES**

 

 
3,853,367
 

 

 
2,065,781
 

 

 

 

 

 

 

 

 

 

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

 

 
28
 

 

 
28
 

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).

 

 
47,648
 

 

 
30,334
 

Additional Paid-In Capital

 

 
10,640,079
 

 

 
7,960,372
 

Prepaid equity-based compensation

 

 
(97,095)
 

 
(145,561)
Accumulated other comprehensive income

 

 
(9,761)
 

 
(158,424)
Deficit

 

 
(10,870,110)
 

 
(8,754,410)
**TOTAL STOCKHOLDERS’ DEFICIT**

 

 
(289,211)
 

 
(1,067,661)
**TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT**

 
$3,564,157
 

 
$998,120
 

 

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

 

 4Table of Contents

 

**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

 

 
105,426
 

 

 
32,425
 

 

 
232,013
 

 

 
64,448
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Operating expenses**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating costs

 

 
66,456
 

 

 
24,961
 

 

 
165,773
 

 

 
46,736
 

General and administrative

 

 
166,507
 

 

 
181,010
 

 

 
419,603
 

 

 
403,927
 

Stock based compensation

 

 
172,219
 

 

 
-
 

 

 
578,363
 

 

 
108,000
 

Accretion – ARO

 

 
5,234
 

 

 
4,985
 

 

 
15,514
 

 

 
4,985
 

Depreciation, depletion and amortization

 

 
40,677
 

 

 
10,155
 

 

 
110,863
 

 

 
10,155
 

**Total operating expenses**

 

 
451,093
 

 

 
221,111
 

 

 
1,290,116
 

 

 
573,804
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Loss from operations**

 

 
(345,667)
 

 
(188,686)
 

 
(1,058,103)
 

 
(509,356)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Other income (expense)**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 
(542,107)
 

 
(137,801)
 

 
(1,966,015)
 

 
(195,702)
Debt settlement income

 

 
-
 

 

 
-
 

 

 
75,000
 

 

 
-
 

Derivative expense

 

 

 

 

 

 
-
 

 

 
-
 

 

 
(403,193)
Change in the fair value of derivative liability

 

 
2,765,013
 

 

 
(36,424)
 

 
833,418
 

 

 
77,682
 

**Total other income (expense)**

 

 
2,222,906
 

 

 
(174,225)
 

 
(1,057,597)
 

 
(521,213)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Net Income (loss)**

 

 
1,877,239
 

 

 
(362,911)
 

 
(2,115,700)
 

 
(1,030,569)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Other comprehensive income (loss)**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 
(3,394)
 

 
(4,420)
 

 
148,663
 

 

 
(16,642)
Total comprehensive income (loss)

 

 
(3,394)
 

 
(4,420)
 

 
148,663
 

 

 
(16,642)
**Net Comprehensive Income (loss)**

 

 
1,873,845
 

 

 
(367,331)
 

 
(1,967,037)
 

 
(1,047,211)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per common share - Basic and diluted

 

 
0.041
 

 

 
(0.013)
 

 
(0.049)
 

 
(0.040)
Weighted average number of common shares outstanding – basic and diluted

 

 
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.

 

 5Table of Contents

 

**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

 

 
(2,115,700)
 

 
(1,030,569)
Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Chang in the fair value of derivative liability

 

 
(833,418)
 

 
(77,682)
Derivative expense

 

 
-
 

 

 
403,193
 

Stock based compensation

 

 
578,363
 

 

 
108,000
 

Stock based interest payment

 

 
52,500
 

 

 

 

 

Depreciation, depletion and amortization

 

 
110,863
 

 

 
10,155
 

Accretion – Asset retirement obligation

 

 
15,514
 

 

 
4,985
 

Amortization of debt discount

 

 
1,626,062
 

 

 
119,211
 

Gain on settlement of debt

 

 
(75,000)
 

 
-
 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Increase(decrease) in accounts payable

 

 
(14,282)
 

 
82,904
 

Increase in accrued expenses and other liabilities

 

 
151,862
 

 

 
29,826
 

Decrease (increase) in other receivables

 

 
-
 

 

 
(76,719)
Decrease (increase) in accounts receivables

 

 
(11,948)
 

 
-
 

**Net cash used in operating activities**

 

 
(515,184)
 

 
(426,696)
 

 

 

 

 

 

 

 

 

**Cash flows from investing activities:**

 

 

 

 

 

 

 

 

Acquisition of oil and gas properties

 

 
(1,350,000)
 

 
(77,158)
**Net cash used in investing activities**

 

 
(1,350,000)
 

 
(77,158)
 

 

 

 

 

 

 

 

 

**Cash flows from financing activities:**

 

 

 

 

 

 

 

 

Advances from Directors

 

 
197,280
 

 

 
479,400
 

Repayments to Directors 

 

 
(56,056)
 

 
(15,000)
Sale of common stock

 

 
388,125
 

 

 
-
 

Proceeds from notes payable

 

 
619,875
 

 

 
-
 

Repayments of notes payable

 

 
(98,000)
 

 
-
 

Payment of issuance costs

 

 
(37,500)
 

 
-
 

Proceeds from convertible notes

 

 
1,480,000
 

 

 
211,000
 

Repayment of convertible notes

 

 
(570,500)
 

 
(164,000)
**Net cash provided by financing activities**

 

 
1,923,224
 

 

 
511,400
 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 
58,040
 

 

 
7,546
 

Cash, beginning of period

 

 
30,585
 

 

 
1,345
 

 

 

 

 

 

 

 

 

 

Cash, end of period

 

 
88,625
 

 

 
8,891
 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 
$125,431
 

 
$63,741
 

Income taxes

 
$-
 

 
$-
 

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Conversion of convertible note and accrued interest into shares

 
$10,111
 

 
$-
 

Issuance of shares as part of oil and gas property acquisition

 
$820,250
 

 
$-
 

Notes payable for oil and gas property acquisition

 
$1,350,000
 

 
$-
 

Issuance of warrants for 4,062,500 common shares as debt discount 

 
$415,569
 

 
$-
 

Derivative liability at inception

 
$1,216,303
 

 
$1,374,808
 

Extinguished derivative liability 

 
$645,638
 

 
$143,403
 

Issuance of shares for prepaid equity-based compensation

 
$800,000
 

 
$-
 

Stock issued for debt

 
$-
 

 
$227,807
 

 

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

 

 6Table of Contents

 

**VIKING INVESTMENTS GROUP, INC.**

**Consolidated Statements of Stockholders’ Deficit**

**(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

 

 
24,094,551
 
$24,095
 

 
675,000
 
$675
 

 
28,092
 
$28
 
$7,162,660
 
$-
 
$(177,452)$(7,067,267)$(57,261)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued to investors

 

 
675,000
 

 
675
 

 
(675,000)
 
(675)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
-
 

Shares issued for consulting services

 

 
720,000
 

 
720
 

 

 

 

 

 

 

 

 

 

 

 

 

 
107,280
 

 

 

 

 

 

 

 

 

 

 
108,000
 

Shares issued in satisfaction of debt

 

 
421,571
 

 
421
 

 

 

 

 

 

 

 

 

 

 

 

 

 
29,579
 

 

 

 

 

 

 

 

 

 

 
30,000
 

Shares issued in satisfaction of debt

 

 
2,872,871
 

 
2,873
 

 

 

 

 

 

 

 

 

 

 

 

 

 
198,228
 

 

 

 

 

 

 

 

 

 

 
201,101
 

Shares issued for convertible debt

 

 
550,000
 

 
550
 

 

 

 

 

 

 

 

 

 

 

 

 

 
20,450
 

 

 

 

 

 

 

 

 

 

 
21,000
 

Shares issued as prepaid equity-based compensation

 

 
1,000,000
 

 
1,000
 

 

 

 

 

 

 

 

 

 

 

 

 

 
164,000
 

 
(165,000)
 

 

 

 

 

 

 
-
 

Derivative liability adjustment - satisfaction of convertible debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
278,175
 

 

 

 

 

 

 

 

 

 

 
278,175
 

Unrealized gain (loss) on securities held for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
19,028
 

 

 

 

 
19,028
 

Amortization of prepaid equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
19,439
 

 

 

 

 

 

 

 
19,439
 

Net loss for the year ended December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
(1,687,143)
 
(1,687,143)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2015

 

 
30,333,993
 
$30,334
 

 
-
 
$-
 

 
28,092
 
$28
 
$7,960,372
 
$(145,561)$(158,424)$(8,754,410)$(1,067,661)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for convertible debt

 

 
300,926
 

 
301
 

 

 

 

 

 

 

 

 

 

 

 

 

 
9,810
 

 

 

 

 

 

 

 

 

 

 
10,111
 

Shares issued for consulting services

 

 
1,000,000
 

 
1,000
 

 

 

 

 

 

 

 

 

 

 

 

 

 
101,500
 

 

 

 

 

 

 

 

 

 

 
102,500
 

Shares issued in acquisition of oil and gas properties

 

 
9,650,000
 

 
9,650
 

 

 

 

 

 

 

 

 

 

 

 

 

 
810,600
 

 

 

 

 

 

 

 

 

 

 
820,250
 

Shares issued as prepaid equity-based compensation

 

 
4,000,000
 

 
4,000
 

 

 

 

 

 

 

 

 

 

 

 

 

 
636,000
 

 
(640,000)
 

 

 

 

 

 

 
-
 

Shares committed for prepaid equity-based compensation

 

 

 

 

 

 

 

 
1,000,000
 

 
1,000
 

 

 

 

 

 

 

 
159,000
 

 
(160,000)
 

 

 

 

 

 

 
-
 

Derivative liability adjustment - satisfaction of convertible debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
17,745
 

 

 

 

 

 

 

 

 

 

 
17,745
 

Shares issued from sale of stock

 

 
1,250,000
 

 
1,250
 

 

 

 

 

 

 

 

 

 

 

 

 

 
186,250
 

 

 

 

 

 

 

 

 

 

 
187,500
 

Debt issuance costs 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
(37,500)
 

 

 

 

 

 

 

 

 

 
(37,500)
Derivative liability adjustment - satisfaction of convertible debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
602,580
 

 

 

 

 

 

 

 

 

 

 
602,580
 

Cancelation of shares issued as prepaid equity-based compensation

 

 
(4,000,000)
 
(4,000)
 

 

 

 

 

 

 

 

 

 

 

 

 
(368,603)
 
372,603
 

 

 

 

 

 

 

 
-
 

Shares issued to secure an oil and gas property acquisition

 

 
2,400,000
 

 
2,400
 

 

 

 

 

 

 

 

 

 

 

 

 

 
285,600
 

 

 

 

 

 

 

 

 

 

 
288,000
 

Shares commited as costs associated with settlement of debt

 

 

 

 

 

 

 

 
375,000
 

 
375
 

 

 

 

 

 

 

 
52,125
 

 

 

 

 

 

 

 

 

 

 
52,500
 

Shares committed from sale of stock

 

 

 

 

 

 

 

 
1,337,500
 

 
1,338
 

 

 

 

 

 

 

 
199,287
 

 

 

 

 

 

 

 

 

 

 
200,625
 

Issuable shares issued

 

 
715,910
 

 
716
 

 
(715,910)
 
(716)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
-
 

Derivative liability adjustment - satisfaction of convertible debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
25,313
 

 

 

 

 

 

 

 

 

 

 
25,313
 

Unrealized gain (loss) on securities held for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
148,663
 

 

 

 

 
148,663
 

Amortization of prepaid equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
475,863
 

 

 

 

 

 

 

 
475,863
 

Net loss for the nine months ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
(2,115,700)
 
(2,115,700)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at September 30, 2016

 

 
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)

 

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

 

 7Table of Contents

 

**VIKING INVESTMENTS GROUP, INC.**

**Notes to Consolidated Financial Statements**

**(Unaudited)**

**(Amounts expressed in US dollars)**

 

 

**Note 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.”

 

Prior to the first quarter of 2016, the Company’s business plan consisted of two strategies: (a) identifying target companies that were undergoing or anticipating periods of rapid growth to provide advisory and consulting services, and (b) identifying investments in oil and gas properties for future exploration and development. 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, 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 loss of $2,120,840 and $1,030,569 for the nine months ended September 30, 2016 and 2015, respectively. The Company has accumulated a stockholders’ deficit of ($294,351) as of September 30, 2016. 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.****Summary 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. In the opinion of management, all adjustments, consisting of normal recurring adjustments, 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.

     8Table of Contents

 

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

 

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, revenues and expenses, as well as certain financial statement disclosures. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates. Significant estimates generally include those with respect to the amount of recoverable oil and gas reserves, the fair value of financial instruments, oil and gas depletion, asset retirement obligations, stock-based compensation, derivative liabilities and impairment of long-term investment.

 

d) Financial Instruments

 

ASC Topic 820-10, “Fair Value Measurements and Disclosures,” 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 balance sheets for other receivables, other payable, accrued liabilities, short term loan and due to director 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.

     9Table of Contents

 

Assets and liabilities measured at fair value as of September 30, 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)**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

Long term investment

 
$235,819
 

 
$-
 

 
$-
 

 
$148,663
 

Oil and Gas properties - net

 

 
-
 

 

 
-
 

 

 
2,863,046
 

 

 
-
 

 

 
$239,213
 

 
$-
 

 
$2,863,046
 

 
$152,057
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 
$-
 

 
$547,894
 

 
$-
 

 
$833,418
 

 

 
$-
 

 
$547,894
 

 
$-
 

 
$833,418
 

 

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)**

** **

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

Long term investment

 
$87,156
 

 
$-
 

 
$-
 

 
$19,028
 

Oil and Gas properties - net

 

 
-
 

 

 
-
 

 

 
803,660
 

 

 
-
 

 

 
$87,156
 

 
$-
 

 
$803,660
 

 
$19,028
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 
$-
 

 
$810,647
 

 
$-
 

 
$266,378
 

 

 
$-
 

 
$810,647
 

 
$-
 

 
$266,378
 

 

 10Table of Contents

 

e) Cash

   

Cash includes bank deposits and cash on hand.

 

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-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” and then amortized to the statements of operations over the life of the contract using the straight-line method. At September 30, 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.

 
$21,698
 

 

 
145,561
 

 

 

 

 

 

 

 

 

 

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 

 

 
75,397
 

 

 
-
 

 

 
$97,095
 

 
$145,561
 

 

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 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 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. 

 

 11Table of Contents

 

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, 2016 and 2015 were as follows:

 

**Oil and Gas Properties by Geographical Cost Center**

 

 

**Three months ended,**

 

 

**Nine months ended,**

 

 

 

**September 30,**

 

 

**September 30,**

 

**Cost Center**

 

**2016**

 

 

**2015**

 

 

**2016**

 

 

**2015**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada

 
$8,374
 

 
$-
 

 
$15,046
 

 
$14,570
 

United States

 

 
22,148
 

 

 
-
 

 

 
65,351
 

 

 
-
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
$30,522
 

 
$-
 

 
$80,397
 

 
$14,570
 

 

i) Limitation on Capitalized Costs

 

Under the full-cost method of accounting, we are required, at the end of each fiscal quarter, 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. 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); 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.

 

 12Table 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) 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) Comprehensive Income

 

FASB ASC 220 “Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial statements. The comprehensive income for the three months ended September 30, 2016 was $1,868,704 and the comprehensive loss for the nine months ended September 30, 2016 was ($1,972,177) respectively, and the comprehensive losses 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.

 

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 2006 through 2014. In addition, the Company is subject to state and local income tax examinations for the tax years 2006 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.

 

 13Table of Contents

 

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 nine months ended September 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Numberof Shares**

 

 

**WeightedAverageExercisePrice**

 

 

**WeightedAverageRemainingContractual Life**

 

 

**AggregateIntrinsicValue**

 

Warrants Outstanding – December 31, 2015

 

 
-
 

 

 
-.
 

 

 
-
 

 

 
-
 

Granted

 

 
4,062,500
 

 
$0.20
 

 

5.0 years

 

 

 
-
 

Exercised

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

Forfeited/expired/cancelled

 

 
-
 

 

 

 

 

 

 
-
 

 

 
-
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants Outstanding – September 30, 2016

 

 
4,062,500
 

 
$0.20
 

 

4.25 years

 

 
$-
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding Exercisable – December 31, 2015

 

 
-
 

 
$-
 

 

 
-
 

 
$-
 

Outstanding Exercisable – September 30, 2016

 

 
4,062,500
 

 
$0.20
 

 

4.25 years

 

 
$-
 

 

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, 2016 and December 31, 2015, the Company had no trading and held-to-maturity securities.

 

 14Table of Contents

 

On September 9, 2014, the Company subscribed for 1,250,000 units of Tanager Energy Inc. (“Tanager”), a Canadian mining company listed on the Canadian TSXVenture Exchange as a Tier 2 company 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, and an unrealized gain of $148,663 was recorded in other comprehensive income for the nine months ended September 30, 2016.

 

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 nine months ended September 30, 2016 and 2015.

 

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. 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$” 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 in the Company’s reporting currency, the U.S. Dollar. Revenue and expenses applicable to the oil and gas operations in Alberta, Canada are translated using average rates prevailing during each reporting period. Gains or losses resulting from the settlement of foreign currency transactions are recorded as a separate component of accumulated other comprehensive income in 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, 2016 and 2015.

 

 15Table of Contents

 

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. 

 

u) Accounting for Asset Retirement Obligations

 

On July 1, 2015, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 143, *Accounting for Asset Retirement Obligations,*which addresses the financial accounting and reporting obligations and retirement costs related to the retirement of tangible long-lived assets. Among other things, SFAS No. 143 requires oil and gas companies to reflect decommissioning liabilities on the face of the balance sheet at fair value on a discounted basis. This statement requires that the fair value of a liability for 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 gas 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 obligations as a result of this acquisition.

 

 16Table of Contents

 

The following table describes the changes in the Company’s asset retirement obligations for the nine months ended September 30, 2016: 

 

Asset retirement obligation at December 31, 2015

 
$416,246
 

Accretion expense 

 

 
15,514
 

 

 

 

 

 

Asset retirement obligation at September 30, 2016

 
$431,760
 

 

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) Subsequent events

 

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

 

**Note 3. 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, 2016, the balance owed by Tanager to the Company is $76,719, which is shown as “Other receivable – related party” on the balance sheet.

 

During the nine months ended September 30, 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 against prior advances by Mr. Simeo. Any accruals and advances do not bear interest, are unsecured and have no specific terms of repayment. As of September 30, 2016, the net amount due for prior accruals and expenses paid on behalf of the Company is $36,103. The Company has not imputed interest as the amount is deemed immaterial.

 

During the nine months ended September 30, 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 in order to provide the Company with funds to carry on its operations, and the Company made repayments of $55,000 against prior advances. These advances by Mr. Doris do not bear interest, are unsecured and have no specific terms of repayment. As of September 30, 2016, the amount due for expenses paid on behalf of the Company is $253,276. The Company has not imputed interest as the amount is deemed immaterial. Additionally, Mr. Doris made several loans to the Company totaling $466,836, all accruing interest at 12%, and payable on demand. As of September 30, 2016, the total amount due to Mr. Doris for advances and expenses paid on behalf of the Company and loans is $720,112. Accrued interest of $53,931 is included in accrued expenses and other current liabilities at September 30, 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.

 

 17Table of Contents

 

**Note 4.****Oil and Gas Properties**

 

The following table summarizes the Company’s oil and gas activities by classification and geographical cost center for the nine months ended September 30, 2016: 

 

 

 

**December 31,**

 

 

** **

 

 

 

 

**September 30,**

 

 

 

**2015**

 

 

**Additions**

 

 

**Disposals**

 

 

**2016**

 

Proved developed producing oil and gas properties

 

 

 

 

 

 

 

 

 

 

 

 

Canada cost center

 
$50,313
 

 
$-
 

 
$-
 

 
$50,313
 

United States cost center

 

 
-
 

 

 
1,308,938
 

 

 
-
 

 

 
1,308,938
 

Accumulated depletion and impairment

 

 
(874)
 

 
(49,918)
 

 
-
 

 

 
(50,792)
Accumulated depreciation, asset retirement costs

 

 
(1,218)
 

 
(1,827)
 

 
-
 

 

 
(3,045)
Proved developed producing oil and gas properties, net

 
$48,221
 

 
$1,257,193
 

 
$-
 

 
$1,305,414
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undeveloped and non-producing oil and gas properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada cost center

 
$788,227
 

 
$-
 

 
$-
 

 
$788,227
 

United States cost center

 

 
-
 

 

 
861,312
 

 

 
-
 

 

 
861,312
 

Accumulated depletion and impairment

 

 
(13,696)
 

 
(30,481)
 

 
-
 

 

 
(44,177)
Accumulated depreciation, asset retirement costs

 

 
(19,092)
 

 
(28,638)
 

 
-
 

 

 
(47,730)
Undeveloped and non-producing oil and gas properties, net

 
$755,439
 

 
$802,193
 

 
$-
 

 
$1,557,632
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Oil and Gas Properties, Net

 
$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).

 

 18Table of Contents

 

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. 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%

 

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 per share, or $465,000. 

 

The Company also purchased a 100% working interest (a net revenue interest of 83%) in certain non-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 per share, or $500,000. 

 

The total purchase of these oil and gas interests is calculated as follows, and is included as an investment in Petroleum and Gas properties on the balance sheet at September 30, 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

 
$105,426
 

 
$68,985
 

 
$246,449
 

 
$243,708
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 
$(688,024)
 
$(619,621)
 
$(2,114,117)
 
$(966,696)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share

 
$(0.016)
 
$(0.003)
 
$(0.034)
 
$(0.039)

 

 19Table of Contents

   

For the three and nine months ended September 30, 2016, the Company has included $49,232 and $135,334 of revenue providing $11,947 and $46,138 of net earnings in its consolidated income statement from the date of acquisition. 

 

To facilitate these acquisitions, the Company borrowed $1,450,000 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.

 

**Note 5.****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. 

 

 20Table of Contents

  

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 of 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 of February 1, 2016, the Company issued 9,650,000 common shares as part of the consideration for the acquisition of the oil and gas investment made at that time. 

 

On March 21, 2016, the Company executed two one-year consulting agreements requiring the issuance of 2,000,000 common shares for each contract. Both of these contracts were terminated, the shares were returned to the Company, and were cancelled in August 2016.

 

On March 21, 2016, the Company executed a one-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. 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 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. 

 

 21Table of Contents

  

**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

 
$-
 

 
$6,778
 

(f) - LG Capital

 

 
-
 

 

 
63,000
 

(g) - GW Holdings

 

 
-
 

 

 
30,000
 

(h) - EMA Financial

 

 
-
 

 

 
50,000
 

(i) - JDF Capital

 

 
-
 

 

 
27,500
 

(j) - (p) Senior Secured 15% Convertible Promissory Notes (7) 

 

 
1,225,000
 

 

 
-
 

 

 

 
1,225,000
 

 

 
177,278
 

Net of unamortized debt discount

 

 
-
 

 

 
(153,730)
 

 
$1,225,000
 

 
$23,548
 

Less current portion

 

 
(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.

 

 22Table of Contents

  

(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.

 

 23Table of Contents

 

(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.

 

 24Table of Contents

 

(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 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. 

 

 25Table of Contents

 

**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: 

 

 
(1)The Company has a 50% undivided interest in an oil property located approximately ten miles northeast of Red Deer, Alberta in Canada. The property consists of one oil well producing from the Leduc Formation, three suspended oil wells, one abandoned oil well, and a suspended water injector.
 

 

 

 

 

The Lake Devonian Leduc formation is represented by large barrier reef and smaller pinnacle reef bioherms which grew on the Cooking Lake platform carbonates. Trending northeast to southwest, the limestones and dolostones of the Leduc/Cooking Lake Formations were deposited on the bathymetric highs of the Lake Devonian seas. Hydrocarbons are trapped by lateral stratigraphic pinch out of these dolomitic carbonates into deeper water shale sediments. 

 

Proved developed producing reserves have been assigned to the first producing oil well. The well was re-activated and came on production in January 2015. The well has produced sporadically since January averaging seven to ten days of production per month. Production forecasts have taken into account this workover and reflect the increase of reserves in the total proved and proved plus probable cases. 

 

The Company plans on installing a pumpjack to the well in early 2016 to enhance performance. The three suspended wells are scheduled to be re-activated in 2016. Proved reserves are assigned to these wells as the wells have demonstrated production over a number of years. 

  

 
(2)The Company has various 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 Company also purchased a 100% working interest (a net revenue interest of 83%) in certain non-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.

 

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

 
$47,656
 

 
$49,232
 

 
$96,888
 

Gas

 

 
4,844
 

 

 
-
 

 

 
4,844
 

Liquids

 

 
3,296
 

 

 
-
 

 

 
3,296
 

Sulphur

 

 
398
 

 

 
-
 

 

 
398
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 
56,194
 

 

 
49,232
 

 

 
105,426
 

Production costs

 

 
29,172
 

 

 
37,285
 

 

 
66,457
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
$27,022
 

 
$11,947
 

 
$38,969
 

 

 26Table of Contents

 

**Oil and Gas Production and Sales by Geographic Area**

 

**Canada**

** **

** **

**United States**

** **

** **

**Totals**

 

 

 

 

 

 

 

 

 

 

 

Production

 

 

 

 

 

 

 

 

 

Oil - (barrels)

 

 
1,319
 

 

 
1,307
 

 

 
2,626
 

Natural Gas - (mcf)

 

 
2,813
 

 

 
-
 

 

 
2,813
 

Natural Gas Liquids - (barrels)

 

 
415
 

 

 
-
 

 

 
415
 

Sulphur - (tonnes)

 

 
16
 

 

 
-
 

 

 
16
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

 

 

 

 

 

 

 

 

 

 

Oil - (barrels)

 

 
1,319
 

 

 
1,307
 

 

 
2,626
 

Natural Gas - (mcf)

 

 
2,813
 

 

 
-
 

 

 
2,813
 

Natural Gas Liquids - (barrels)

 

 
415
 

 

 
-
 

 

 
415
 

Sulphur - (tonnes)

 

 
16
 

 

 
-
 

 

 
16
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Sales Prices

 

 

 

 

 

 

 

 

 

 

 

 

Oil - (barrels)

 
$36.13
 

 
$37.67
 

 
$36.90
 

Natural Gas - (mcf)

 
$1.72
 

 
$-
 

 
$1.72
 

Natural Gas Liquids - (barrels)

 
$7.94
 

 
$-
 

 
$7.94
 

Sulphur - (tonnes)

 
$24.88
 

 
$-
 

 
$24.88
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mcf = thousands of cubic feet

 

 

 

 

 

 

 

 

 

 

 

 

Tonnes = Metric tons

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**Nine Months Ended September 30, 2016**

 

**Results of Operations by Geographic Area**

 

**Canada**

** **

** **

**United States**

** **

** **

**Total**

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

Oil

 
$79,653
 

 
$135,334
 

 
$214,987
 

Gas

 

 
9,328
 

 

 
-
 

 

 
9,328
 

Liquids

 

 
7,207
 

 

 
-
 

 

 
7,207
 

Sulphur

 

 
491
 

 

 
-
 

 

 
491
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 
96,679
 

 

 
135,334
 

 

 
232,013
 

Production costs

 

 
76,577
 

 

 
89,196
 

 

 
165,773
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
$20,102
 

 
$46,138
 

 
$66,240
 

 

 27Table of Contents

  

**Oil and Gas Production and Sales by Geographic Area**

 

**Canada**

** **

** **

**United States**

** **

** **

**Totals**

 

 

 

 

 

 

 

 

 

 

 

Production

 

 

 

 

 

 

 

 

 

Oil - (barrels)

 

 
2,276
 

 

 
3,857
 

 

 
6,133
 

Natural Gas - (mcf)

 

 
8,666
 

 

 
-
 

 

 
8,666
 

Natural Gas Liquids - (barrels)

 

 
887
 

 

 
-
 

 

 
887
 

Sulphur - (tonnes)

 

 
25
 

 

 
-
 

 

 
25
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

 

 

 

 

 

 

 

 

 

 

Oil - (barrels)

 

 
2,229
 

 

 
3,857
 

 

 
6,086
 

Natural Gas - (mcf)

 

 
6,597
 

 

 
-
 

 

 
6,597
 

Natural Gas Liquids - (barrels)

 

 
941
 

 

 
-
 

 

 
941
 

Sulphur - (tonnes)

 

 
25
 

 

 
-
 

 

 
25
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Sales Prices

 

 

 

 

 

 

 

 

 

 

 

 

Oil - (barrels)

 
$35.73
 

 
$35.09
 

 
$35.32
 

Natural Gas - (mcf)

 
$1.41
 

 
$-
 

 
$1.41
 

Natural Gas Liquids - (barrels)

 
$7.66
 

 
$-
 

 
$7.66
 

Sulphur - (tonnes)

 
$19.64
 

 
$-
 

 
$19.64
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mcf = thousands of cubic feet

 

 

 

 

 

 

 

 

 

 

 

 

Tonnes = Metric tons

 

 

 

 

 

 

 

 

 

 

 

 

  

**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:

 

 28Table of Contents

 

**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

 

 
5,092
 

 

 
64,908
 

 

 
70,000
 

 

 
86.500%
 

 
56,145
 

 

 
32.299%
 

 
18,134
 

JOHNSTON

 

 
40,738
 

 

 
81,762
 

 

 
122,500
 

 

 
83.000%
 

 
67,862
 

 

 
84.041%
 

 
57,032
 

WILSON, EAST

 

 
16,346
 

 

 
153,654
 

 

 
170,000
 

 

 
83.000%
 

 
127,533
 

 

 
15.000%
 

 
19,130
 

WILSON, WEST

 

 
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

 

 

 
0.184
 

 

 
39.68
 

 

 
7.318
 

 

 
0.073
 

 

 
2.035
 

 

 
-
 

 

 
5.210
 

 

 
5.168
 

2016

 

 

14

 

 

 
1.450
 

 

 
44.55
 

 

 
64.579
 

 

 
0.646
 

 

 
12.209
 

 

 
-
 

 

 
51.724
 

 

 
53.708
 

2017

 

 

14

 

 

 
1.475
 

 

 
48.43
 

 

 
71.439
 

 

 
0.714
 

 

 
12.209
 

 

 
-
 

 

 
58.515
 

 

 
103.629
 

2018

 

 

14

 

 

 
1.367
 

 

 
51.03
 

 

 
69.753
 

 

 
0.698
 

 

 
12.209
 

 

 
-
 

 

 
56.846
 

 

 
147.717
 

2019

 

 

14

 

 

 
1.261
 

 

 
52.87
 

 

 
66.684
 

 

 
0.667
 

 

 
12.209
 

 

 
-
 

 

 
53.808
 

 

 
185.655
 

2020

 

 

14

 

 

 
1.164
 

 

 
54.08
 

 

 
62.952
 

 

 
0.630
 

 

 
12.209
 

 

 
-
 

 

 
50.114
 

 

 
217.776
 

2021

 

 

14

 

 

 
1.074
 

 

 
56.25
 

 

 
60.409
 

 

 
0.604
 

 

 
12.209
 

 

 
-
 

 

 
47.596
 

 

 
245.510
 

2022

 

 

14

 

 

 
0.991
 

 

 
58.00
 

 

 
57.474
 

 

 
0.575
 

 

 
12.209
 

 

 
-
 

 

 
44.691
 

 

 
269.183
 

2023

 

 

14

 

 

 
0.915
 

 

 
58.00
 

 

 
53.053
 

 

 
0.531
 

 

 
12.209
 

 

 
-
 

 

 
40.313
 

 

 
288.597
 

2024

 

 

14

 

 

 
0.844
 

 

 
58.00
 

 

 
48.932
 

 

 
0.489
 

 

 
12.209
 

 

 
-
 

 

 
36.233
 

 

 
304.459
 

2025

 

 

14

 

 

 
0.779
 

 

 
58.00
 

 

 
45.166
 

 

 
0.452
 

 

 
12.209
 

 

 
-
 

 

 
32.506
 

 

 
317.396
 

2026

 

 

14

 

 

 
0.719
 

 

 
58.00
 

 

 
41.682
 

 

 
0.417
 

 

 
12.209
 

 

 
-
 

 

 
29.056
 

 

 
327.909
 

2027

 

 

14

 

 

 
0.663
 

 

 
58.00
 

 

 
38.460
 

 

 
0.385
 

 

 
12.209
 

 

 
-
 

 

 
25.866
 

 

 
336.417
 

2028

 

 

14

 

 

 
0.611
 

 

 
58.00
 

 

 
35.462
 

 

 
0.355
 

 

 
12.209
 

 

 
-
 

 

 
22.899
 

 

 
343.264
 

2029

 

 

14

 

 

 
0.565
 

 

 
58.00
 

 

 
32.746
 

 

 
0.328
 

 

 
12.209
 

 

 
-
 

 

 
20.209
 

 

 
348.758
 

2030

 

 

14

 

 

 
0.521
 

 

 
58.00
 

 

 
30.198
 

 

 
0.302
 

 

 
12.209
 

 

 
-
 

 

 
17.687
 

 

 
353.129
 

2031

 

 

14

 

 

 
0.481
 

 

 
58.00
 

 

 
27.875
 

 

 
0.279
 

 

 
12.209
 

 

 
-
 

 

 
15.388
 

 

 
356.586
 

2032

 

 

14

 

 

 
0.444
 

 

 
58.00
 

 

 
25.740
 

 

 
0.257
 

 

 
12.209
 

 

 
-
 

 

 
13.273
 

 

 
359.297
 

2033

 

 

14

 

 

 
0.409
 

 

 
58.00
 

 

 
23.717
 

 

 
0.237
 

 

 
12.209
 

 

 
-
 

 

 
11.270
 

 

 
361.389
 

2034

 

 

14

 

 

 
0.378
 

 

 
58.00
 

 

 
21.899
 

 

 
0.219
 

 

 
12.209
 

 

 
-
 

 

 
9.471
 

 

 
362.988
 

Sub-Total

 

 

 

 

 

 
16.293
 

 

 
54.35
 

 

 
885.538
 

 

 
8.856
 

 

 
234.006
 

 

 
-
 

 

 
642.676
 

 

 
362.988
 

Remaining

 

 

 

 

 

 
1.841
 

 

 
58.00
 

 

 
106.799
 

 

 
1.068
 

 

 
79.672
 

 

 
-
 

 

 
26.059
 

 

 
366.444
 

Total

 

 

 

 

 

 
18.134
 

 

 
54.72
 

 

 
992.337
 

 

 
9.924
 

 

 
313.678
 

 

 
-
 

 

 
668.735
 

 

 
366.444
 

 

 29Table of Contents

  

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

 

 

 
0.490
 

 

 
39.68
 

 

 
19.442
 

 

 
0.194
 

 

 
10.967
 

 

 
-
 

 

 
8.280
 

 

 
8.214
 

2016

 

 

29

 

 

 
5.085
 

 

 
44.55
 

 

 
226.551
 

 

 
2.266
 

 

 
65.804
 

 

 
-
 

 

 
158.481
 

 

 
156.939
 

2017

 

 

29

 

 

 
6.721
 

 

 
48.43
 

 

 
325.486
 

 

 
3.255
 

 

 
65.804
 

 

 
-
 

 

 
256.427
 

 

 
375.704
 

2018

 

 

29

 

 

 
5.390
 

 

 
51.03
 

 

 
275.072
 

 

 
2.751
 

 

 
65.804
 

 

 
-
 

 

 
206.517
 

 

 
535.871
 

2019

 

 

29

 

 

 
4.200
 

 

 
52.87
 

 

 
222.029
 

 

 
2.220
 

 

 
65.804
 

 

 
-
 

 

 
154.005
 

 

 
644.453
 

2020

 

 

29

 

 

 
3.506
 

 

 
54.08
 

 

 
189.615
 

 

 
1.896
 

 

 
65.804
 

 

 
-
 

 

 
121.915
 

 

 
722.596
 

2021

 

 

29

 

 

 
3.043
 

 

 
56.25
 

 

 
171.176
 

 

 
1.712
 

 

 
65.804
 

 

 
-
 

 

 
103.660
 

 

 
782.998
 

2022

 

 

29

 

 

 
2.709
 

 

 
58.00
 

 

 
157.101
 

 

 
1.571
 

 

 
65.804
 

 

 
-
 

 

 
89.726
 

 

 
830.528
 

2023

 

 

29

 

 

 
2.453
 

 

 
58.00
 

 

 
142.283
 

 

 
1.423
 

 

 
65.804
 

 

 
-
 

 

 
75.056
 

 

 
866.673
 

2024

 

 

29

 

 

 
2.250
 

 

 
58.00
 

 

 
130.487
 

 

 
1.305
 

 

 
65.804
 

 

 
-
 

 

 
63.378
 

 

 
894.419
 

2025

 

 

29

 

 

 
2.085
 

 

 
58.00
 

 

 
120.933
 

 

 
1.209
 

 

 
65.804
 

 

 
-
 

 

 
53.920
 

 

 
915.879
 

2026

 

 

29

 

 

 
1.946
 

 

 
58.00
 

 

 
112.891
 

 

 
1.129
 

 

 
65.804
 

 

 
-
 

 

 
45.958
 

 

 
932.506
 

2027

 

 

29

 

 

 
1.830
 

 

 
58.00
 

 

 
106.115
 

 

 
1.061
 

 

 
65.804
 

 

 
-
 

 

 
39.250
 

 

 
945.416
 

2028

 

 

29

 

 

 
1.728
 

 

 
58.00
 

 

 
100.217
 

 

 
1.002
 

 

 
65.804
 

 

 
-
 

 

 
33.411
 

 

 
955.407
 

2029

 

 

29

 

 

 
1.640
 

 

 
58.00
 

 

 
95.148
 

 

 
0.951
 

 

 
65.804
 

 

 
-
 

 

 
28.392
 

 

 
963.125
 

2030

 

 

29

 

 

 
1.562
 

 

 
58.00
 

 

 
90.615
 

 

 
0.906
 

 

 
65.804
 

 

 
-
 

 

 
23.905
 

 

 
969.032
 

2031

 

 

29

 

 

 
1.493
 

 

 
58.00
 

 

 
86.618
 

 

 
0.866
 

 

 
65.804
 

 

 
-
 

 

 
19.947
 

 

 
973.513
 

2032

 

 

29

 

 

 
1.431
 

 

 
58.00
 

 

 
83.011
 

 

 
0.830
 

 

 
65.804
 

 

 
-
 

 

 
16.376
 

 

 
976.858
 

2033

 

 

29

 

 

 
1.376
 

 

 
58.00
 

 

 
79.794
 

 

 
0.798
 

 

 
65.804
 

 

 
-
 

 

 
13.192
 

 

 
979.307
 

2034

 

 

29

 

 

 
1.324
 

 

 
58.00
 

 

 
76.820
 

 

 
0.768
 

 

 
65.804
 

 

 
-
 

 

 
10.248
 

 

 
981.037
 

Sub-Total

 

 

 

 

 

 
52.263
 

 

 
53.79
 

 

 
2,811.403
 

 

 
28.113
 

 

 
1,261.245
 

 

 
-
 

 

 
1,522.044
 

 

 
981.037
 

Remaining

 

 

 

 

 

 
4.768
 

 

 
58.00
 

 

 
276.523
 

 

 
2.765
 

 

 
257.225
 

 

 
-
 

 

 
16.533
 

 

 
983.392
 

Total

 

 

 

 

 

 
57.031
 

 

 
54.14
 

 

 
3,087.926
 

 

 
30.878
 

 

 
1,518.470
 

 

 
-
 

 

 
1,538.577
 

 

 
983.392
 

 

 30Table of Contents

   

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$)**

** **

** **

**NetOperating Expenses (m$)**

** **

** **

**Capital Outlay (m$)**

** **

** **

**Annual Cash Flow (m$)**

** **

** **

**Cumulative Discounted Cash Flow at 10% (m$)**

** **

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

43

 

 

 
0.115
 

 

 
39.68
 

 

 
4.553
 

 

 
0.046
 

 

 
2.903
 

 

 
-
 

 

 
1.605
 

 

 
1.592
 

2016

 

 

43

 

 

 
1.075
 

 

 
44.55
 

 

 
47.893
 

 

 
0.479
 

 

 
17.415
 

 

 
-
 

 

 
30.000
 

 

 
29.745
 

2017

 

 

43

 

 

 
1.530
 

 

 
48.43
 

 

 
74.083
 

 

 
0.741
 

 

 
17.415
 

 

 
-
 

 

 
55.928
 

 

 
77.458
 

2018

 

 

43

 

 

 
1.455
 

 

 
51.03
 

 

 
74.241
 

 

 
0.742
 

 

 
17.415
 

 

 
-
 

 

 
56.084
 

 

 
120.955
 

2019

 

 

43

 

 

 
1.347
 

 

 
52.87
 

 

 
71.224
 

 

 
0.712
 

 

 
17.415
 

 

 
-
 

 

 
53.097
 

 

 
158.391
 

2020

 

 

43

 

 

 
1.247
 

 

 
54.08
 

 

 
67.435
 

 

 
0.674
 

 

 
17.415
 

 

 
-
 

 

 
49.346
 

 

 
190.020
 

2021

 

 

43

 

 

 
1.155
 

 

 
56.25
 

 

 
64.943
 

 

 
0.650
 

 

 
17.415
 

 

 
-
 

 

 
46.879
 

 

 
217.336
 

2022

 

 

43

 

 

 
1.069
 

 

 
58.00
 

 

 
61.996
 

 

 
0.620
 

 

 
17.415
 

 

 
-
 

 

 
43.961
 

 

 
240.623
 

2023

 

 

43

 

 

 
0.990
 

 

 
58.00
 

 

 
57.394
 

 

 
0.574
 

 

 
17.415
 

 

 
-
 

 

 
39.405
 

 

 
259.599
 

2024

 

 

43

 

 

 
0.916
 

 

 
58.00
 

 

 
53.131
 

 

 
0.531
 

 

 
17.415
 

 

 
-
 

 

 
35.185
 

 

 
275.003
 

2025

 

 

43

 

 

 
0.848
 

 

 
58.00
 

 

 
49.190
 

 

 
0.492
 

 

 
17.415
 

 

 
-
 

 

 
31.283
 

 

 
287.453
 

2026

 

 

43

 

 

 
0.785
 

 

 
58.00
 

 

 
45.545
 

 

 
0.455
 

 

 
17.415
 

 

 
-
 

 

 
27.674
 

 

 
297.466
 

2027

 

 

43

 

 

 
0.727
 

 

 
58.00
 

 

 
42.160
 

 

 
0.422
 

 

 
17.415
 

 

 
-
 

 

 
24.324
 

 

 
305.466
 

2028

 

 

43

 

 

 
0.673
 

 

 
58.00
 

 

 
39.028
 

 

 
0.390
 

 

 
17.415
 

 

 
-
 

 

 
21.223
 

 

 
311.812
 

2029

 

 

43

 

 

 
0.623
 

 

 
58.00
 

 

 
36.140
 

 

 
0.361
 

 

 
17.415
 

 

 
-
 

 

 
18.363
 

 

 
316.804
 

2030

 

 

43

 

 

 
0.577
 

 

 
58.00
 

 

 
33.452
 

 

 
0.335
 

 

 
14.175
 

 

 
-
 

 

 
18.942
 

 

 
321.485
 

2031

 

 

43

 

 

 
0.534
 

 

 
58.00
 

 

 
30.972
 

 

 
0.310
 

 

 
14.175
 

 

 
-
 

 

 
16.487
 

 

 
325.188
 

2032

 

 

43

 

 

 
0.494
 

 

 
58.00
 

 

 
28.675
 

 

 
0.287
 

 

 
14.175
 

 

 
-
 

 

 
14.213
 

 

 
328.091
 

2033

 

 

43

 

 

 
0.458
 

 

 
58.00
 

 

 
26.544
 

 

 
0.266
 

 

 
14.175
 

 

 
-
 

 

 
12.103
 

 

 
330.338
 

2034

 

 

43

 

 

 
0.424
 

 

 
58.00
 

 

 
24.578
 

 

 
0.246
 

 

 
14.175
 

 

 
-
 

 

 
10.157
 

 

 
332.053
 

Sub-Total

 

 

 

 

 

 
17.040
 

 

 
54.76
 

 

 
933.177
 

 

 
9.332
 

 

 
317.588
 

 

 
-
 

 

 
606.257
 

 

 
332.053
 

Remaining

 

 

 

 

 

 
2.089
 

 

 
58.00
 

 

 
121.182
 

 

 
1.212
 

 

 
92.457
 

 

 
-
 

 

 
27.514
 

 

 
335.712
 

Total

 

 

 

 

 

 
19.130
 

 

 
55.12
 

 

 
1,054.359
 

 

 
10.544
 

 

 
410.044
 

 

 
-
 

 

 
633.771
 

 

 
335.712
 

 

 31Table of Contents

 

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$)**

** **

** **

**NetOperating Expenses (m$)**

** **

** **

**Capital Outlay (m$)**

** **

** **

**Annual Cash Flow (m$)**

** **

** **

**Cumulative Discounted Cash Flow at 10% (m$)**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

53

 

 

 
0.372
 

 

 
39.68
 

 

 
14.754
 

 

 
0.147
 

 

 
13.118
 

 

 
-
 

 

 
1.488
 

 

 
1.477
 

2016

 

 

53

 

 

 
4.056
 

 

 
44.55
 

 

 
180.716
 

 

 
1.807
 

 

 
78.709
 

 

 
-
 

 

 
100.199
 

 

 
95.507
 

2017

 

 

53

 

 

 
6.812
 

 

 
48.43
 

 

 
329.884
 

 

 
3.299
 

 

 
78.709
 

 

 
-
 

 

 
247.876
 

 

 
306.976
 

2018

 

 

53

 

 

 
6.494
 

 

 
51.03
 

 

 
331.399
 

 

 
3.314
 

 

 
78.709
 

 

 
-
 

 

 
249.376
 

 

 
500.384
 

2019

 

 

53

 

 

 
5.787
 

 

 
52.87
 

 

 
305.981
 

 

 
3.060
 

 

 
78.709
 

 

 
-
 

 

 
224.212
 

 

 
658.467
 

2020

 

 

53

 

 

 
5.155
 

 

 
54.08
 

 

 
278.776
 

 

 
2.788
 

 

 
78.709
 

 

 
-
 

 

 
197.279
 

 

 
784.916
 

2021

 

 

53

 

 

 
4.592
 

 

 
56.25
 

 

 
258.311
 

 

 
2.583
 

 

 
78.709
 

 

 
-
 

 

 
177.019
 

 

 
888.064
 

2022

 

 

53

 

 

 
4.091
 

 

 
58.00
 

 

 
237.253
 

 

 
2.372
 

 

 
78.709
 

 

 
-
 

 

 
156.172
 

 

 
970.792
 

2023

 

 

53

 

 

 
3.644
 

 

 
58.00
 

 

 
211.349
 

 

 
2.114
 

 

 
78.709
 

 

 
-
 

 

 
130.526
 

 

 
1033.649
 

2024

 

 

53

 

 

 
3.246
 

 

 
58.00
 

 

 
188.252
 

 

 
1.883
 

 

 
78.709
 

 

 
-
 

 

 
107.660
 

 

 
1080.781
 

2025

 

 

53

 

 

 
2.892
 

 

 
58.00
 

 

 
167.707
 

 

 
1.677
 

 

 
78.709
 

 

 
-
 

 

 
87.321
 

 

 
1115.533
 

2026

 

 

53

 

 

 
2.576
 

 

 
58.00
 

 

 
149.396
 

 

 
1.494
 

 

 
78.709
 

 

 
-
 

 

 
69.193
 

 

 
1140.568
 

2027

 

 

53

 

 

 
2.294
 

 

 
58.00
 

 

 
133.062
 

 

 
1.331
 

 

 
78.709
 

 

 
-
 

 

 
53.022
 

 

 
1158.008
 

2028

 

 

53

 

 

 
2.044
 

 

 
58.00
 

 

 
118.547
 

 

 
1.185
 

 

 
78.709
 

 

 
-
 

 

 
38.652
 

 

 
1169.566
 

2029

 

 

53

 

 

 
1.821
 

 

 
58.00
 

 

 
105.595
 

 

 
1.056
 

 

 
78.709
 

 

 
-
 

 

 
25.829
 

 

 
1176.587
 

2030

 

 

53

 

 

 
1.622
 

 

 
58.00
 

 

 
94.078
 

 

 
0.941
 

 

 
62.373
 

 

 
-
 

 

 
30.764
 

 

 
1184.189
 

2031

 

 

53

 

 

 
1.444
 

 

 
58.00
 

 

 
83.774
 

 

 
0.838
 

 

 
62.373
 

 

 
-
 

 

 
20.563
 

 

 
1188.809
 

2032

 

 

53

 

 

 
1.287
 

 

 
58.00
 

 

 
74.650
 

 

 
0.746
 

 

 
62.373
 

 

 
-
 

 

 
11.530
 

 

 
1191.164
 

2033

 

 

53

 

 

 
1.146
 

 

 
58.00
 

 

 
66.483
 

 

 
0.665
 

 

 
62.373
 

 

 
-
 

 

 
3.445
 

 

 
1191.803
 

2034

 

 

53

 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
1191.803
 

Sub-Total

 

 

 

 

 

 
61.375
 

 

 
54.26
 

 

 
3,329.968
 

 

 
33.299
 

 

 
1,364.542
 

 

 
-
 

 

 
1,932.127
 

 

 
1191.803
 

Remaining

 

 

 

 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
1191.803
 

Total

 

 

 

 

 

 
61.375
 

 

 
54.26
 

 

 
3,329.968
 

 

 
33.299
 

 

 
1,364.542
 

 

 
-
 

 

 
1,932.127
 

 

 
1191.803
 

 

 32Table of Contents

 

**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

 

 
-
 

 

 
25,000
 

 

 
25,000
 

 

 
86.500%
 

 
21,625
 

 

 
32.299%
 

 
6,985
 

JOHNSTON

 

 
-
 

 

 
30,000
 

 

 
30,000
 

 

 
83.000%
 

 
24,900
 

 

 
84.041%
 

 
20,926
 

WILSON, EAST

 

 
-
 

 

 
30,000
 

 

 
30,000
 

 

 
83.000%
 

 
24,900
 

 

 
15.000%
 

 
3,735
 

WILSON, WEST

 

 
-
 

 

 
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$)**

** **

** **

**NetOperating Expenses (m$)**

** **

** **

**Capital Outlay (m$)**

** **

** **

**Annual Cash Flow (m$)**

** **

** **

**Cumulative Discounted Cash Flow at 10% (m$)**

** **

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

5

 

 

 
-
 

 

 
39.68
 

 

 
-
 

 

 
-
 

 

 
0.000
 

 

 
22.609
 

 

 
(22.609)
 

 
(22.573)
2016

 

 

5

 

 

 
0.509
 

 

 
44.55
 

 

 
22.663
 

 

 
0.227
 

 

 
4.360
 

 

 
22.609
 

 

 
(4.533)
 

 
(27.278)
2017

 

 

5

 

 

 
0.511
 

 

 
48.43
 

 

 
24.746
 

 

 
0.247
 

 

 
4.360
 

 

 
-
 

 

 
20.139
 

 

 
(10.159)
2018

 

 

5

 

 

 
0.479
 

 

 
51.03
 

 

 
24.427
 

 

 
0.244
 

 

 
4.360
 

 

 
-
 

 

 
19.822
 

 

 
5.214
 

2019

 

 

5

 

 

 
0.445
 

 

 
52.87
 

 

 
23.514
 

 

 
0.235
 

 

 
4.360
 

 

 
-
 

 

 
18.919
 

 

 
18.553
 

2020

 

 

5

 

 

 
0.413
 

 

 
54.08
 

 

 
22.341
 

 

 
0.224
 

 

 
4.360
 

 

 
-
 

 

 
17.757
 

 

 
29.935
 

2021

 

 

5

 

 

 
0.384
 

 

 
56.25
 

 

 
21.584
 

 

 
0.216
 

 

 
4.360
 

 

 
-
 

 

 
17.008
 

 

 
39.845
 

2022

 

 

5

 

 

 
0.357
 

 

 
58.00
 

 

 
20.682
 

 

 
0.207
 

 

 
4.360
 

 

 
-
 

 

 
16.115
 

 

 
48.381
 

2023

 

 

5

 

 

 
0.331
 

 

 
58.00
 

 

 
19.183
 

 

 
0.192
 

 

 
4.360
 

 

 
-
 

 

 
14.631
 

 

 
55.427
 

2024

 

 

5

 

 

 
0.307
 

 

 
58.00
 

 

 
17.834
 

 

 
0.178
 

 

 
4.360
 

 

 
-
 

 

 
13.296
 

 

 
61.248
 

2025

 

 

5

 

 

 
0.286
 

 

 
58.00
 

 

 
16.560
 

 

 
0.166
 

 

 
4.360
 

 

 
-
 

 

 
12.034
 

 

 
66.037
 

2026

 

 

5

 

 

 
0.265
 

 

 
58.00
 

 

 
15.399
 

 

 
0.154
 

 

 
4.360
 

 

 
-
 

 

 
10.884
 

 

 
69.975
 

2027

 

 

5

 

 

 
0.246
 

 

 
58.00
 

 

 
14.294
 

 

 
0.143
 

 

 
4.360
 

 

 
-
 

 

 
9.790
 

 

 
73.196
 

2028

 

 

5

 

 

 
0.229
 

 

 
58.00
 

 

 
13.282
 

 

 
0.133
 

 

 
4.360
 

 

 
-
 

 

 
8.789
 

 

 
75.824
 

2029

 

 

5

 

 

 
0.213
 

 

 
58.00
 

 

 
12.327
 

 

 
0.123
 

 

 
4.360
 

 

 
-
 

 

 
7.843
 

 

 
77.956
 

2030

 

 

5

 

 

 
0.197
 

 

 
58.00
 

 

 
11.446
 

 

 
0.114
 

 

 
4.360
 

 

 
-
 

 

 
6.971
 

 

 
79.678
 

2031

 

 

5

 

 

 
0.183
 

 

 
58.00
 

 

 
10.641
 

 

 
0.106
 

 

 
4.360
 

 

 
-
 

 

 
6.174
 

 

 
81.065
 

2032

 

 

5

 

 

 
0.171
 

 

 
58.00
 

 

 
9.891
 

 

 
0.099
 

 

 
4.360
 

 

 
-
 

 

 
5.432
 

 

 
82.175
 

2033

 

 

5

 

 

 
0.158
 

 

 
58.00
 

 

 
9.179
 

 

 
0.092
 

 

 
4.360
 

 

 
-
 

 

 
4.727
 

 

 
83.052
 

2034

 

 

5

 

 

 
0.147
 

 

 
58.00
 

 

 
8.524
 

 

 
0.085
 

 

 
4.360
 

 

 
-
 

 

 
4.078
 

 

 
83.741
 

Sub-Total

 

 

 

 

 

 
5.830
 

 

 
54.63
 

 

 
318.516
 

 

 
3.185
 

 

 
82.847
 

 

 
45.218
 

 

 
187.266
 

 

 
83.741
 

Remaining

 

 

 

 

 

 
0.872
 

 

 
58.00
 

 

 
50.580
 

 

 
0.506
 

 

 
79.672
 

 

 
-
 

 

 
(29.597)
 

 
85.546
 

Total

 

 

 

 

 

 
6.702
 

 

 
55.07
 

 

 
369.096
 

 

 
3.691
 

 

 
162.519
 

 

 
45.218
 

 

 
157.669
 

 

 
85.546
 

 

 33Table of Contents

   

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

 

 

 
-
 

 

 
39.68
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

2016

 

 

5

 

 

 
0.459
 

 

 
44.55
 

 

 
20.442
 

 

 
0.204
 

 

 
9.455
 

 

 
117.657
 

 

 
(106.873)
 

 
(103.037)
2017

 

 

5

 

 

 
1.931
 

 

 
48.43
 

 

 
93.531
 

 

 
0.935
 

 

 
11.346
 

 

 
-
 

 

 
81.250
 

 

 
(33.721)
2018

 

 

5

 

 

 
1.954
 

 

 
51.03
 

 

 
99.710
 

 

 
0.997
 

 

 
11.346
 

 

 
-
 

 

 
87.368
 

 

 
34.039
 

2019

 

 

5

 

 

 
1.811
 

 

 
52.87
 

 

 
95.752
 

 

 
0.957
 

 

 
11.346
 

 

 
-
 

 

 
83.449
 

 

 
92.876
 

2020

 

 

5

 

 

 
1.676
 

 

 
54.08
 

 

 
90.626
 

 

 
0.906
 

 

 
11.346
 

 

 
-
 

 

 
78.375
 

 

 
143.112
 

2021

 

 

5

 

 

 
1.550
 

 

 
56.25
 

 

 
87.172
 

 

 
0.872
 

 

 
11.346
 

 

 
-
 

 

 
74.954
 

 

 
186.787
 

2022

 

 

5

 

 

 
1.433
 

 

 
58.00
 

 

 
83.108
 

 

 
0.831
 

 

 
11.346
 

 

 
-
 

 

 
70.931
 

 

 
224.361
 

2023

 

 

5

 

 

 
1.326
 

 

 
58.00
 

 

 
76.918
 

 

 
0.769
 

 

 
11.346
 

 

 
-
 

 

 
64.803
 

 

 
255.568
 

2024

 

 

5

 

 

 
1.226
 

 

 
58.00
 

 

 
71.117
 

 

 
0.711
 

 

 
11.346
 

 

 
-
 

 

 
59.061
 

 

 
281.424
 

2025

 

 

5

 

 

 
1.135
 

 

 
58.00
 

 

 
65.804
 

 

 
0.658
 

 

 
11.346
 

 

 
-
 

 

 
53.801
 

 

 
302.836
 

2026

 

 

5

 

 

 
1.049
 

 

 
58.00
 

 

 
60.832
 

 

 
0.608
 

 

 
11.346
 

 

 
-
 

 

 
48.878
 

 

 
320.521
 

2027

 

 

5

 

 

 
0.971
 

 

 
58.00
 

 

 
56.299
 

 

 
0.563
 

 

 
11.346
 

 

 
-
 

 

 
44.390
 

 

 
335.121
 

2028

 

 

5

 

 

 
0.898
 

 

 
58.00
 

 

 
52.058
 

 

 
0.520
 

 

 
11.346
 

 

 
-
 

 

 
40.193
 

 

 
347.139
 

2029

 

 

5

 

 

 
0.830
 

 

 
58.00
 

 

 
48.159
 

 

 
0.482
 

 

 
11.346
 

 

 
-
 

 

 
36.332
 

 

 
357.015
 

2030

 

 

5

 

 

 
0.769
 

 

 
58.00
 

 

 
44.601
 

 

 
0.446
 

 

 
11.346
 

 

 
-
 

 

 
32.809
 

 

 
365.123
 

2031

 

 

5

 

 

 
0.710
 

 

 
58.00
 

 

 
41.188
 

 

 
0.412
 

 

 
11.346
 

 

 
-
 

 

 
29.431
 

 

 
371.734
 

2032

 

 

5

 

 

 
0.658
 

 

 
58.00
 

 

 
38.166
 

 

 
0.382
 

 

 
11.346
 

 

 
-
 

 

 
26.439
 

 

 
377.134
 

2033

 

 

5

 

 

 
0.541
 

 

 
58.00
 

 

 
31.391
 

 

 
0.314
 

 

 
10.060
 

 

 
-
 

 

 
21.017
 

 

 
381.057
 

2034

 

 

5

 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

Sub-Total

 

 

 

 

 

 
20.926
 

 

 
55.28
 

 

 
1,156.875
 

 

 
11.567
 

 

 
201.043
 

 

 
117.657
 

 

 
826.608
 

 

 
381.057
 

Remaining

 

 

 

 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
381.057
 

Total

 

 

 

 

 

 
20.926
 

 

 
55.28
 

 

 
1,156.875
 

 

 
11.567
 

 

 
201.043
 

 

 
117.657
 

 

 
826.608
 

 

 
381.057
 

 

 34Table of Contents

   

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

 

 

 
-
 

 

 
39.68
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
25.200
 

 

 
(25.200)
 

 
(25.160)
2016

 

 

5

 

 

 
0.102
 

 

 
44.55
 

 

 
4.551
 

 

 
0.045
 

 

 
1.856
 

 

 
25.200
 

 

 
(22.551)
 

 
(46.903)
2017

 

 

5

 

 

 
0.354
 

 

 
48.43
 

 

 
17.151
 

 

 
0.171
 

 

 
2.025
 

 

 
-
 

 

 
14.955
 

 

 
(34.144)
2018

 

 

5

 

 

 
0.347
 

 

 
51.03
 

 

 
17.697
 

 

 
0.177
 

 

 
2.025
 

 

 
-
 

 

 
15.495
 

 

 
(22.127)
2019

 

 

5

 

 

 
0.321
 

 

 
52.87
 

 

 
16.979
 

 

 
0.170
 

 

 
2.025
 

 

 
-
 

 

 
14.784
 

 

 
(11.703)
2020

 

 

5

 

 

 
0.297
 

 

 
54.08
 

 

 
16.062
 

 

 
0.161
 

 

 
2.025
 

 

 
-
 

 

 
13.876
 

 

 
(2.809)
2021

 

 

5

 

 

 
0.275
 

 

 
56.25
 

 

 
15.458
 

 

 
0.155
 

 

 
2.025
 

 

 
-
 

 

 
13.278
 

 

 
4.928
 

2022

 

 

5

 

 

 
0.254
 

 

 
58.00
 

 

 
14.747
 

 

 
0.147
 

 

 
2.025
 

 

 
-
 

 

 
12.574
 

 

 
11.589
 

2023

 

 

5

 

 

 
0.235
 

 

 
58.00
 

 

 
13.633
 

 

 
0.136
 

 

 
2.025
 

 

 
-
 

 

 
11.472
 

 

 
17.114
 

2024

 

 

5

 

 

 
0.218
 

 

 
58.00
 

 

 
12.615
 

 

 
0.126
 

 

 
2.025
 

 

 
-
 

 

 
10.464
 

 

 
21.695
 

2025

 

 

5

 

 

 
0.201
 

 

 
58.00
 

 

 
11.667
 

 

 
0.117
 

 

 
2.025
 

 

 
-
 

 

 
9.525
 

 

 
25.485
 

2026

 

 

5

 

 

 
0.186
 

 

 
58.00
 

 

 
10.788
 

 

 
0.108
 

 

 
2.025
 

 

 
-
 

 

 
8.655
 

 

 
28.617
 

2027

 

 

5

 

 

 
0.172
 

 

 
58.00
 

 

 
9.988
 

 

 
0.100
 

 

 
2.025
 

 

 
-
 

 

 
7.863
 

 

 
31.203
 

2028

 

 

5

 

 

 
0.159
 

 

 
58.00
 

 

 
9.239
 

 

 
0.092
 

 

 
2.025
 

 

 
-
 

 

 
7.122
 

 

 
33.333
 

2029

 

 

5

 

 

 
0.147
 

 

 
58.00
 

 

 
8.535
 

 

 
0.085
 

 

 
2.025
 

 

 
-
 

 

 
6.424
 

 

 
35.079
 

2030

 

 

5

 

 

 
0.136
 

 

 
58.00
 

 

 
7.908
 

 

 
0.079
 

 

 
2.025
 

 

 
-
 

 

 
5.804
 

 

 
36.513
 

2031

 

 

5

 

 

 
0.126
 

 

 
58.00
 

 

 
7.308
 

 

 
0.073
 

 

 
2.025
 

 

 
-
 

 

 
5.210
 

 

 
37.684
 

2032

 

 

5

 

 

 
0.117
 

 

 
58.00
 

 

 
6.760
 

 

 
0.068
 

 

 
2.025
 

 

 
-
 

 

 
4.667
 

 

 
38.637
 

2033

 

 

5

 

 

 
0.087
 

 

 
58.00
 

 

 
5.063
 

 

 
0.051
 

 

 
1.627
 

 

 
-
 

 

 
3.386
 

 

 
39.271
 

2034

 

 

5

 

 

 
-
 

 

 
58.00
 

 

 
-
 

 

 
-
 

 

 
0.000
 

 

 
-
 

 

 
-
 

 

 
-
 

Sub-Total

 

 

 

 

 

 
3.735
 

 

 
55.20
 

 

 
206.148
 

 

 
2.062
 

 

 
35.883
 

 

 
50.400
 

 

 
117.804
 

 

 
39.271
 

Remaining

 

 

 

 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
-
 

 

 
39.271
 

Total

 

 

 

 

 

 
3.735
 

 

 
55.20
 

 

 
206.148
 

 

 
2.062
 

 

 
35.883
 

 

 
50.400
 

 

 
117.804
 

 

 
39.271
 

 

 35Table of Contents

  

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

 

 

 
-
 

 

 
39.68
 

 

 
-
 

 

 
-
 

 

 
0.000
 

 

 
-
 

 

 
-
 

 

 
-
 

2016

 

 

14

 

 

 
0.661
 

 

 
44.55
 

 

 
29.429
 

 

 
0.294
 

 

 
17.326
 

 

 
213.412
 

 

 
(201.603)
 

 
(199.054)
2017

 

 

14

 

 

 
2.218
 

 

 
48.43
 

 

 
107.431
 

 

 
1.074
 

 

 
20.791
 

 

 
-
 

 

 
85.566
 

 

 
(126.056)
2018

 

 

14

 

 

 
2.183
 

 

 
51.03
 

 

 
111.402
 

 

 
1.114
 

 

 
20.791
 

 

 
-
 

 

 
89.497
 

 

 
(56.645)
2019

 

 

14

 

 

 
1.957
 

 

 
52.87
 

 

 
103.467
 

 

 
1.035
 

 

 
20.791
 

 

 
-
 

 

 
81.641
 

 

 
0.917
 

2020

 

 

14

 

 

 
1.752
 

 

 
54.08
 

 

 
94.770
 

 

 
0.948
 

 

 
20.791
 

 

 
-
 

 

 
73.031
 

 

 
47.727
 

2021

 

 

14

 

 

 
1.569
 

 

 
56.25
 

 

 
88.239
 

 

 
0.882
 

 

 
20.791
 

 

 
-
 

 

 
66.565
 

 

 
86.514
 

2022

 

 

14

 

 

 
1.404
 

 

 
58.00
 

 

 
81.413
 

 

 
0.814
 

 

 
20.791
 

 

 
-
 

 

 
59.808
 

 

 
118.196
 

2023

 

 

14

 

 

 
1.257
 

 

 
58.00
 

 

 
72.927
 

 

 
0.729
 

 

 
20.791
 

 

 
-
 

 

 
51.407
 

 

 
142.952
 

2024

 

 

14

 

 

 
1.125
 

 

 
58.00
 

 

 
65.239
 

 

 
0.652
 

 

 
20.791
 

 

 
-
 

 

 
43.796
 

 

 
162.125
 

2025

 

 

14

 

 

 
1.007
 

 

 
58.00
 

 

 
58.412
 

 

 
0.584
 

 

 
20.791
 

 

 
-
 

 

 
37.037
 

 

 
176.865
 

2026

 

 

14

 

 

 
0.901
 

 

 
58.00
 

 

 
52.287
 

 

 
0.523
 

 

 
20.791
 

 

 
-
 

 

 
30.973
 

 

 
188.071
 

2027

 

 

14

 

 

 
0.807
 

 

 
58.00
 

 

 
46.800
 

 

 
0.468
 

 

 
20.791
 

 

 
-
 

 

 
25.541
 

 

 
196.472
 

2028

 

 

14

 

 

 
0.723
 

 

 
58.00
 

 

 
41.919
 

 

 
0.419
 

 

 
20.791
 

 

 
-
 

 

 
20.709
 

 

 
202.664
 

2029

 

 

14

 

 

 
0.647
 

 

 
58.00
 

 

 
37.516
 

 

 
0.375
 

 

 
20.791
 

 

 
-
 

 

 
16.350
 

 

 
207.108
 

2030

 

 

14

 

 

 
0.579
 

 

 
58.00
 

 

 
33.561
 

 

 
0.336
 

 

 
14.851
 

 

 
-
 

 

 
18.374
 

 

 
211.649
 

2031

 

 

14

 

 

 
0.518
 

 

 
58.00
 

 

 
30.051
 

 

 
0.300
 

 

 
14.851
 

 

 
-
 

 

 
14.900
 

 

 
214.996
 

2032

 

 

14

 

 

 
0.464
 

 

 
58.00
 

 

 
26.893
 

 

 
0.269
 

 

 
14.851
 

 

 
-
 

 

 
11.773
 

 

 
217.401
 

2033

 

 

14

 

 

 
0.415
 

 

 
58.00
 

 

 
24.086
 

 

 
0.241
 

 

 
14.851
 

 

 
-
 

 

 
8.994
 

 

 
219.071
 

2034

 

 

14

 

 

 
0.372
 

 

 
58.00
 

 

 
21.566
 

 

 
0.216
 

 

 
14.851
 

 

 
-
 

 

 
6.499
 

 

 
220.168
 

Sub-Total

 

 

 

 

 

 
20.558
 

 

 
54.84
 

 

 
1,127.408
 

 

 
11.273
 

 

 
361.865
 

 

 
213.412
 

 

 
540.857
 

 

 
220.168
 

Remaining

 

 

 

 

 

 
0.898
 

 

 
58.00
 

 

 
52.064
 

 

 
0.520
 

 

 
44.55
 

 

 
-
 

 

 
6.991
 

 

 
221.196
 

Total

 

 

 

 

 

 
21.456
 

 

 
54.97
 

 

 
1,179.471
 

 

 
11.794
 

 

 
406.417
 

 

 
213.412
 

 

 
547.848
 

 

 
221.198
 

 

 
36
Table of Contents

 

**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 STATEMENT**S

 

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**

 

Prior to the first quarter of 2016, the Company’s business plan consisted of two strategies: (a) identifying target companies that were undergoing or anticipating periods of rapid growth to provide advisory and consulting services, and (b) identifying investments in oil and gas properties for future exploration and development. 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, 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.

 

 37Table of Contents

 

**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, 2016 and 2015, should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s Form 10-K for the year ended December 31, 2015.

 

*Liquidity and Capital Resources*

 

As of September 30, 2016 and December 31, 2015, the Company had $88,625 and $30,585 in cash holdings, respectively. 

 

**Three months ended September 30, 2016, compared to the three months ended September 30, 2015**

 

*Revenue*

 

The Company had gross revenues of $105,426 for the three 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 $32,425 for the three months ended September 30, 2015, which only represented revenue from the Joffre Property. 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 to $451,093 for the three-month period ended September 30, 2016, from $221,111 in the corresponding period in 2015. The increase was mainly due to stock based compensation of $172,219 as well as depreciation, depletion and amortization costs associated with ownership of oil and gas properties, as compared to the three months ended September 30, 2015.

 

*Other Income and Expense*

 

The Company’s interest expense increased by $404,306 to $542,107 for the three months ended September 30, 2016, as compared to $137,801 for the three 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. This expense item is expected to go down as the Company anticipates replacing debt with unfavorable terms. The Company also had a gain on derivatives of $2,765,013 as compared to a derivative loss of $36,424 for the three months ended September 30, 2015. 

 

*Net Loss*

 

The Company incurred a net comprehensive income of $1,873,845 during the three-month period ended September 30, 2016, compared with a net comprehensive loss of $367,331 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.

 

 38Table of Contents

  

**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, 2015. The increase in net loss was mainly due to the items referred to in the analysis of operating expenses and other income.

 

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

 

The Company has adopted various accounting policies that govern the application of accounting principles generally accepted in the United States of America in the preparation of the Company’s financial statements which requires it to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

 

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.”

 

 39Table of Contents

 

**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, 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 control over financial reporting during the quarter ended September 30, 2016.

 

 40Table of Contents

 

**PART II—OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

The disclosure in Items 4.01 and 4.02 of the Company’s Current Report on Form 8-K/A filed on November 18, 2016, is incorporated by reference herein regarding the resignation of the Company’s former independent registered public accounting firm.

 

**ITEM 1A. RISK FACTORS**

 

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

 

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

 

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 of 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. 

 

On March 21, 2016, the Company executed two one-year consulting agreements requiring the issuance of 2,000,000 common shares for each contract. Both of these contracts were terminated, the shares were returned to the Company, and were cancelled in August 2016.

 

 41Table of Contents

  

On March 21, 2016, the Company executed a one-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. 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 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.

 

The 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.

 

**ITEM 5. OTHER INFORMATION**

 

None.

 

 42Table of Contents

**** 

**ITEM 6.** **EXHIBITS**

**** 

**Number**

 

**Description**

 

3.1

 

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

 

 

 

3.2

 

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

 

 

 

3.3

 

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

    

10.1

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)

 

 

 

31.1*

 

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

 

 

 

31.2*

 

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

 

 

 

32.1*

 

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

 

 

 

32.2*

 

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

 

 

 

99.1

 

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)

 

 

 

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.

 

**ITEM 7. OFF BALANCE-SHEET ARRANGEMENTS**

 

None.

 

 43 

  

**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: November 21, 2016By:*/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: November 21, 2016By:*/s/ Tom Simeo* Tom Simeo Principal Financial and Accounting Officer 

 

 

44