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 JUNE 30, ~~2018~~2019

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

For the transition period from _______ to _______.

Commission file number: 000-29219

VIKING ENERGY GROUP, INC.
(Formerly Viking Investments Group, Inc.)
(Exact name of registrant as specified in its charter)

Nevada

98-0199508
(State or other jurisdiction
of incorporation or organization)

(IRS Employer
Identification No.)

15915 Katy Freeway, Suite 450
Houston, TX 77094
(Address of principal executive offices)
~~(Address of principal executive offices)~~

(281) 404 4387
(Registrant’s telephone number, including area code)

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

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

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Not applicable.
Note applicable.
Not applicable.

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x No ¨

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

Large Accelerated Filer
¨
~~FilerAccelerated~~Accelerated Filer
¨
Non-Accelerated Filer
¨
x
Smaller Reporting Company
x
Emerging Growth Company
¨

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

As of ~~August 14, 2018,~~July 31, 2019, the registrant had ~~83,847,729~~91,199,954 shares of common stock outstanding.

VIKING ENERGY GROUP, INC.

	Part I – Financial Information

Item 1	Financial Statements	3
	Consolidated Balance Sheets as of June 30, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018	3
	Consolidated Statements of Operations ~~and Comprehensive Loss~~ for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 (unaudited)	4
	Consolidated Statements of Cash Flows for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2019 and 2018 (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2	Management’s Discussion and Analysis ~~or Plan~~ of ~~Operation~~Financial Condition and Results of Operations	2322
Item 3	Quantitative and Qualitative Disclosures about Market Risk	2729
Item 4	Controls and Procedures	2729

	Part II – Other Information

Item 1	Legal Proceedings	2830
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2830
Item 3	Defaults Upon Senior Securities	2830
Item 4	Mine Safety Disclosures	2830
Item 5	Other Information	2830
Item 6	Exhibits	2931

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VIKING ENERGY GROUP, INC.
Consolidated Balance Sheets
(Amounts expressed in US dollars)

June 30,

December 31,

2018

2017

(unaudited)

ASSETS

Current assets:

Cash

$ 5,806,479

$ 536,156

Restricted cash

-

5,199,103

Accounts receivable – oil and gas

559,682

573,296

Other receivable – related party

-

548,714

Prepaid expenses

65,761

-

Total current assets

6,431,922

6,857,269

Oil and gas properties, full cost method

Proved developed producing oil and gas properties, net

11,577,814

12,301,141

Undeveloped and non-producing oil and gas properties, net

28,001,852

26,859,634

Total oil and gas properties, net

39,579,666

39,160,775

Fixed assets, net

267,576

166,741

Other assets

32,083

9,396

TOTAL ASSETS

$ 46,311,247

$ 46,194,181

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:

Accrued expenses and other current liabilities

$ 819,287

$ 397,070

Accounts payable

622,808

2,555,869

Undistributed revenues and royalties

1,253,934

1,175,200

Derivative liability

1,232,810

1,052,788

Amount due to directors

509,007

1,192,970

Current portion of long term debt – net of debt discount

4,732,565

3,562,051

Total current liabilities

9,170,411

9,935,948

Long term debt - net of current portion and debt discount

13,149,005

9,742,830

Deferred tax liability

33,548

910,827

Asset retirement obligation

3,367,052

3,096,263

TOTAL LIABILITIES

25,720,016

23,685,868

Commitments and contingencies (Note 8)

STOCKHOLDERS’ EQUITY

Capital Stock

Preferred stock, $0.001 par value, 5,000,000 shares authorized, 28,092 shares issued and outstanding as of June 30, 2018 and December 31, 2017

28

28

Common stock, $0.001 par value, 100,000,000 shares authorized,with 83,464,906 and 72,347,991 shares issued and outstanding as of June 30, 2018 and December 31, 2017 respectively.

83,465

72,348

Additional Paid-In Capital

21,790,203

19,029,892

Prepaid equity-based compensation

-

(11,827 )
Retained earnings (accumulated deficit)

(1,282,465 )

3,417,872

TOTAL STOCKHOLDERS’ EQUITY

20,591,231

22,508,313

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$ 46,311,247

$ 46,194,181

VIKING ENERGY GROUP, INC.
Consolidated Balance Sheets

June 30,

December 31,

2019

2018

(unaudited)

ASSETS

Current assets:

Cash

$ 361,392

$ 4,009,892

Restricted cash

4,683,129

-

Accounts receivable – oil and gas - net

2,709,059

258,300

Prepaid expenses

90,569

124,443

Total current assets

7,844,149

4,392,635

Oil and gas properties, full cost method

Proved developed producing oil and gas properties, net

76,502,105

81,331,986

Proved undeveloped and non-producing oil and gas properties, net

49,190,612

50,492,906

Total oil and gas properties, net

125,692,717

131,824,892

Fixed assets, net

562,923

200,243

Derivative asset

-

681,776

Other assets

110,194

110,194

TOTAL ASSETS

$ 134,209,983

$ 137,209,740

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:

Accounts payable

$ 1,630,603

$ 2,549,280

Accrued expenses and other current liabilities

2,741,986

1,014,661

Undistributed revenues and royalties

1,308,021

1,207,605

Derivative liability

7,121,509

2,531,718

Amount due to director

590,555

395,555

Current portion of long-term debt – net of debt discount

40,231,789

11,805,582

Total current liabilities

53,624,463

19,504,401

Long term debt - net of current portion and debt discount

65,760,237

92,076,857

Operating lease liability

338,627

-

Asset retirement obligation

3,868,692

4,413,465

TOTAL LIABILITIES

123,592,019

115,994,723

Commitments and contingencies (Note 8)

STOCKHOLDERS’ EQUITY

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

28,092 shares issued and outstanding as of June 30, 2019 and December 31, 2018

28

28

Common stock, $0.001 par value, 500,000,000 shares authorized,

91,199,954 and 90,989,025 shares issued and outstanding as of June 30, 2019 and December 31, 2018 respectively.

91,200

90,989

Additional paid-in capital

32,057,784

32,015,913

Accumulated deficit

(21,531,048 )

(10,891,913 )
TOTAL STOCKHOLDERS’ EQUITY

10,617,964

21,215,017

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$ 134,209,983

$ 137,209,740

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

3

Table of Contents

VIKING ENERGY GROUP, INC.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(Amounts expressed in US dollars)

Three months ended

Six months ended

June 30,

June 30,

2018

2017

2018

2017

Revenue

Oil and gas sales

$
2,318,622

$ 160,430

$ 4,480,569

$ 367,293

Operating expenses

Lease operating costs

1,035,474

104,066

2,043,742

264,584

General and administrative

1,125,936

215,582

2,026,461

485,923

Stock based compensation

1,044,612

803,616

1,218,099

1,151,020

Accretion - ARO

49,346

9,804

97,777

18,641

Depreciation, depletion and amortization

459,951

35,609

949,637

86,891

Total operating expenses

3,715,319

1,168,677

6,335,716

2,007,059

Loss from operations

(1,396,697 )

(1,008,247 )

(1,855,147 )

(1,639,766 )

Other income (expense)

Interest expense

(2,531,178 )

(433,551 )

(3,600,488 )

(690,261 )
Change in fair value of derivatives

(632,831 )

119,085

(987,784 )

455,098

Loss on sale of investments

-

-

-

(7,185 )
Gain on ARO settlement

-

-

58,041

--

Total other income (expense)

(3,164,009 )

(314,466 )

(4,530,231 )

(242,348 )

Net loss before income taxes

(4,560,706 )

(1,322,713 )

(6,385,378 )

(1,882,114 )
Income tax benefit (expense)

605,490

877,279

-

Net loss

$
(3,955,216 )

$ (1,322,713 )

$ (5,508,099 )

$ (1,882,114 )

Other comprehensive income (loss)

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

-

-

-

1,446

Net Comprehensive income loss

$
(3,955,216 )

$ (1,322,713 )

$ (5,508,099 )

$ (1,880,668 )
Earnings (loss) per common share

Basic

$ (0.05 )

$ (0.02 )

$ (0.07 )

$ (0.03 )
Weighted average number of common shares outstanding

Basic

80,957,111

61,272,870

77,650,012

59,032,220

VIKING ENERGY GROUP, INC.
Consolidated Statements of Operations (Unaudited)

Three months ended

Six months ended

June 30,

June 30,

2019

2018

2019

2018

Revenue

Oil and gas sales

8,734,323

$ 2,318,622

$ 18,080,915

$ 4,480,569

Operating expenses

Lease operating costs

2,857,278

1,035,474

5,456,672

2,043,742

General and administrative

1,257,959

1,125,936

2,291,304

2,026,461

Stock based compensation

2,500

1,044,612

42,082

1,218,099

Depreciation, depletion and amortization

2,228,191

459,951

4,598,879

949,637

Accretion - ARO

75,681

49,346

158,227

97,777

Total operating expenses

6,421,609

3,715319

12,547,164

6,335,716

Income (loss) from operations

2,312,714

(1,396,697 )

5,533,751

(1,855,147 )

Other income (expense)

Interest expense

(3,192,574 )

(600,181 )

(6,323,967 )

(961,384 )
Amortization of debt discount

(2,304,291 )

(1,930,997 )

(4,583,250 )

(2,639,104 )
Change in fair value of derivatives

4,474,016

(632,831 )

(5,271,567 )

(987,784 )
Gain on ARO settlement

-

-

58,041

Interest and other income

2,481

-

5,898

-

Total other income (expense)

(1,020,368 )

(3,164,009 )

(16,172,886 )

(4,530,231 )

Net loss before income taxes

1,292,346

(4,560,706 )

(10,639,135 )

(6,385,378 )
Income tax benefit (expense)

-

605,490

-

877,279

Net Income (loss)

$ 1,292,346

$ (3,955,216 )

$ (10,639,135 )

$ (5,508,099 )
Earnings (loss) per common share

Basic

$ 0.01

$ (0.05 )

$ (0.12 )

$ (0.07 )
Weighted average number of common shares outstanding

Basic

91,192,033

80,957,111

91,147,958

77,650,012

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

4

Table of Contents

VIKING ENERGY GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts expressed in US dollars)

Six Months Ended

June 30,

2018

2017

Cash flows from operating activities:

Net loss

$ (5,508,099 )

$ (1,882,114 )
Adjustments to reconcile net loss to cash used in operating activities:

Derivative gain (loss)

987,784

(455,098 )
Amortization of prepaid expenses

-

162,914

Stock based compensation

1,218,099

1,151,020

Loss on sale of investments

-

7,185

Depreciation, depletion and amortization

949,637

86,891

Gain on ARO settlement

(58,041 )

-

Accretion – Asset retirement obligation

97,777

18,641

Amortization of debt discount

2,639,104

514,540

Changes in operating assets and liabilities

Accounts receivable

13,614

(4,328 )
Prepaid expenses and other assets

(88,448 )

-

Other receivable

548,714

-

Accounts payable

(1,933,061 )

(48,898 )
Accrued expenses and other current liabilities

446,928

88,429

Deferred tax liability

(877,279 )

-

Undistributed revenues and royalties

78,734

-

Amounts due to directors

39,993

94,871

Net cash used in operating activities

(1,444,544 )

(265,947 )

Cash flows from investing activities:

Investment in, and acquisition of oil and gas properties

(2,088,262 )

-

Acquisition of fixed assets

(130,000 )

-

Proceeds from sale of oil and gas interests

1,144,953

-

Proceeds from sale of investments

-

101,191

Net cash (used in) provided by investing activities

(1,073,309 )

101,191

Cash flows from financing activities:

Proceeds from amount due to directors

583,000

5,350

Repayment of amount due to directors

(1,306,956 )

(300,024 )
Proceeds from sale of common stock

-

331,667

Proceeds from long term debt

10,078,018

331,667

Repayment of long term debt

(6,764,989 )

(222,500 )
Net cash provided by financing activities

2,589,073

146,160

Net increase (decrease) in cash

71,220

(18,596 )
Cash, beginning of period

5,735,259

18,605

Cash, end of period

$ 5,806,479

$ 9

Supplemental Cash Flow Information:

Cash paid for:

Interest

$ 866,380

$ 99,909

Income taxes

$ -

$ -

Supplemental disclosure of Non-Cash Investing and Financing Activities:

Recognition of asset retirement obligation

$ 231,053

$ -

Issuance of shares as discount on debt

$ 1,237,416

$ -

Issuance of warrants as discount on debt

$ 327,740

$ -

1^st Global debt discount and loan fees

$
324,000

$
-

  Payment in kind interest added to debt

$
140,757

$
-

Prepayment of contract through amounts due directors

$ -

$ 100,000

Debt refinanced through new credit facility

$ 7,633,389

$ -

Private placement debt exchanged for new private placement

$ 2,085,000

$ -

Purchase of working interest through new debt

$ 165,000

$ -

Long term debt paid through amounts due directors

$ -

$ 104,904

Issuance of shares for contract services

$ 55,000

$ 700,920

Cashless exercise of warrants

$ 60

$ -

Sale of shares through satisfaction of unrelated notes payable

$ -

$ 127,215

Accrued expenses exchanged for long term debt

$ 24,712

$ 9,500

VIKING ENERGY GROUP, INC.
Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended

June 30,

2019

2018

Cash flows from operating activities:

Net loss

$ (10,639,135 )

$ (5,508,099 )
Adjustments to reconcile net loss to cash provided by (used in) operating activities:

Change in fair value of derivative liability

5,271,567

987,784

Stock based compensation

42,082

1,218,099

Depreciation, depletion and amortization

4,598,879

949,637

Amortization of operational right-of-use assets

2,228

-

Gain on ARO settlement

-

(58,041 )
Accretion – Asset retirement obligation

158,227

97,777

Amortization of debt discount

4,583,250

2,639,104

Changes in operating assets and liabilities

Accounts receivable

(2,362,672 )

13,614

Prepaid expenses and other assets

33,874

(88,448 )
Other receivable

-

548,714

Accounts payable

(1,607,849 )

(1,933,061 )
Accrued expenses and other current liabilities

1,727,325

446,928

Deferred tax liability

-

(877,279 )
Undistributed revenues and royalties

100,416

78,734

Amounts due to directors

-

39,993

Net cash provided by (used) in operating activities

1,908,192

(1,444,544 )

Cash flows from investing activities:

Investment in and acquisition of oil and gas properties

(3,319,812 )

(2,088,262 )
Acquisition of fixed assets

-

(130,000 )
Proceeds from sale of oil and gas interests

287,966

1,144,953

Net cash used in investing activities

(3,031,846 )

(1,073,309 )

Cash flows from financing activities:

Proceeds from amount due to director

195,000

583,000

Repayment of amount due to director

-

(1,306,956 )
Proceeds from long term debt

2,734,143

10,078,018

Short term advance

693,706

-

Repayment of long-term debt

(1,464,566 )

(6,764,989 )
Net cash provided by financing activities

2,158,283

2,589,073

Net increase (decrease) in cash

1,034,629

71,720

Cash and Restricted Cash, beginning of period

4,009,892

5,735,259

Cash and Restricted Cash, end of period

$ 5,044,521

$ 5,806,479

Supplemental Cash Flow Information:

Cash paid for:

Interest

$ 4,383,027

$ 866,380

Income taxes

$ -

$ -

Supplemental disclosure of Non-Cash Investing and Financing Activities:

Recognition of asset retirement obligation

$ 94,796

$ 231,053

Recognition of right-of-use asset and lease liability

$ 367,365

$ -

Amortization of right-of-use asset and lease liability

$ 28,738

$ -

Purchase of transportation equipment through direct financing

$ 56,760

$ -

Proceeds from sale of oil and gas properties paid directly to reduce debt

$ 3,800,000

$ -

Elimination of asset retirement obligation associated with sale of assets

$ 797,796

$ -

Issuance of shares as discount on debt

$ -

$ 1,237,416

Issuance of warrants as discount on debt

$ -

$ 327,740

1^st Global debt discount and loan fees

$ -

$ 324,000

Payment in kind interest added to debt

$ -

$ 140,757

Debt refinanced through new credit facility

$ -

$ 7,633,389

Private placement debt exchanged for new private placement

$ -

$ 2,085,000

Purchase of working interest through new debt

$ -

$ 165,000

Issuance of shares for contract services

$ -

$ 55,000

Cashless exercise of warrants

$ -

$ 60

Accrued expenses exchanged for long term debt

$ -

$ 24,712

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

5

Table of Contents

VIKING ENERGY GROUP, INC.
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
(Amounts expressed in US dollars)

Prepaid

Retained

Additional

Equity-

Earnings

Total

Common Stock

Preferred Stock

Paid-in

Based

(Accumulated

Stockholders'

Number

Amount

Number

Amount

Capital

Compensation

Deficit)

Equity

Balances at December 31, 2017

72,347,990

$ 72,348

28,092

$ 28

$ 19,029,892

$ (11,827 )

$ 3,417,872

$ 22,508,313

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

807,762

807,762

Shares issued as debt discount

7,774,856

7,775

1,229,641

1,237,416

Shares issued as prepaid equity-based compensation

250,000

250

54,750

(55,000 )

-

Amortization of prepaid equity-based compensation

66,827

66,827

Shares issued for services

3,031,748

3,032

548,887

551,919

Warrants issued for services

599,353

599,353

Shares issued in cashless exercise of warrants

60,312

60

(60 )

-

Warrants issued as debt discount

327,740

327,740

Net loss for the six months ended June 30, 2018

(5,508,099 )

(5,508,099 )

Balances at June 30, 2018

83,464,906

$ 83,465

28,092

$ 28

$ 21,790,203

$ -

$ (1,282,465 )

$ 20,591,231

VIKING ENERGY GROUP, INC.
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
For the six months ended June 30, 2019

Prepaid

Retained

Preferred Stock

Common Stock

Additional
Paid-in

Equity-
Based

Earnings (Accumulated

Total
Stockholders'

Number

Amount

Number

Amount

Capital

Compensation

Deficit)

Equity

Balances at December 31, 2018

28,092

$ 28

90,989,025

$ 90,989

$ 32,015,913

$ -

$ (10,891,913 )

$ 21,215,017

Shares issued for services

210,929

211

41,871

42,082

Net loss for the six months ended June 30, 2019

(10,639,135 )

(10,639,135 )

Balances at June 30, 2019

28,092

$ 28

91,199,954

$ 91,200

$ 32,057,784

$ -

$ (21,531,048 )

$ 10,617,964

For the six months ended June 30, 2018

Prepaid

Retained

Preferred Stock

Common Stock

Additional
Paid-in

Equity
Based

Earnings (Accumulated

Total
Stockholders'

Number

Amount

Number

Amount

Capital

Compensation

Deficit)

Equity

Balances at December 31, 2017

28,092

$ 28

72,347,990

$ 72,348

$ 19,029,892

$ (11,827 )

$ 3,417,872

$ 22,508,313.0

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

807,762

807,762

Shares issued for consulting services

3,031,748

3,032

548,887

551,919

Shares issued as prepaid equity-based compensation

250,000

250

54,750

(55,000 )

-

Shares issued as debt discount

7,774,856

7,775

1,229,641

1,237,416

Warrants issued for services

599,353

599,353

Shares issued in cashless exercise of warrants

60,312

60

(60 )

-

Warrants issued as debt discount

327,740

327,740

Amortization of prepaid equity-based compensation

66,827

66,827

Net loss for the six months ended June 30, 2018

(5,508,099 )

(5,508,099 )

Balances at June 30, 2018

28,092

$ 28

83,464,906

$ 83,465

$ 21,790,203

$ -

$ (1,282,465 )

$ 20,591,231

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

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Table of Contents

VIKING ENERGY GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
~~(Amounts expressed in US dollars)~~
Note 1Nature of Business and Going Concern

Viking Energy Group, Inc. (“Viking” or the “Company”) was incorporated under the laws of the State of Florida on May 3, 1989, as Sparta Ventures Corp. and remained inactive until June 27, 1998. After several name changes, the Company merged with and into a wholly-owned subsidiary, SinoCubate, Inc., which remained the surviving entity of the merger. SinoCubate, Inc. was formed in the State of Nevada on September 11, 2008. The merger resulted in a change of name of the Company from Synthenol Inc. to SinoCubate, Inc., and a change in the state of incorporation of the Company from Florida to Nevada. On June 13, 2012, the Company changed its name to Viking Investments Group, Inc., and the Company’s ticker symbol was changed to “VKIN.” On March 17, 2017, the Company changed its name to Viking Energy Group, Inc. (“Viking” or the “Company”) is engaged in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. Since 2014 the Company has had the following related activities:

The Company's business plan is to engage in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. In November of 2014, the Company entered into its first contract relative to oil and gas activities involving jointly controlled assets and related liabilities by purchasing an undivided 50% interest in the Joffre project located in Alberta, Canada. On March 8, 2016, the Company incorporated a wholly owned subsidiary, Viking Oil & Gas (Canada) ULC, in Alberta, Canada, to hold its Canadian oil and gas interests. On February 23, 2016, the Company closed on the acquisition of working interests in four leases with access to the mineral rights (oil and gas) concerning approximately 281 acres of property in Miami and Franklin Counties in eastern Kansas. On August 30, 2016, the Company incorporated an additional wholly owned subsidiary, Mid-Con Petroleum, LLC, in the State of Kansas to hold certain of its acquisitions in the central United States. On October 4, 2016, the Company, through Mid-Con Petroleum, completed an acquisition whereby the Company (i) increased its working interest in three existing oil and gas leases in Miami and Franklin Counties in Eastern Kansas, and (ii) acquired a working interest in four new oil and gas leases in the same region, comprising approximately 660 acres of property. On August 25, 2017, the Company created an additional wholly owned subsidiary, Mid-Con Drilling, LLC. (“Mid-Con Drilling”), in the State of Kansas to hold additional acquisitions in the central United States. On September 11, 2017, the Company through Mid-Con Drilling, completed an acquisition of a 90% working interest in four new oil and gas leases in Anderson County in Eastern Kansas, comprising approximately 980 acres of property. On October 2, 2017, the Company, through Mid-Con Drilling, closed on an acquisition, effective October 1, 2017, of a 100% working interest in six new oil and gas leases in Miami and Franklin Counties in Eastern Kansas. Existing production from the acquired interests is approximately twenty-two barrels of oil per day. The purchase includes an undivided interest in all oil and gas wells, equipment, fixtures and other personal property located upon the leased properties and used in connection with oil and gas operations upon the leases attributable to the working interests purchased by Viking, through Mid-Con Drilling. On October 4, 2017, the Company, through Mid-Con Drilling, closed on an acquisition of an 80% working interest in six new oil and gas leases in Riley, Geary and Wabaunsee Counties in Kansas. Existing production from the acquired interests is approximately thirteen barrels of oil per day. The purchase includes an undivided interest in all oil and gas wells, equipment, fixtures and other personal property located upon the leased properties. On December 22, 2017, the Company completed an acquisition of 100% of the issued and outstanding membership interests of Petrodome Energy LLC, a privately-owned company, with working interests in multiple oil and gas fields across Texas, Louisiana and Mississippi, comprising approximately 11,700 acres. On December 27, 2017, the Company created an additional wholly owned subsidiary, Mid-Con Development, LLC (“Mid-Con Development”) in the State of Kansas to hold additional acquisition in the central United States. On December 29, 2017, the Company through Mid-Con Development completed an acquisition of working interests in approximately 41 oil leases in Ellis and Rooks Counties in Kansas, comprising several thousand acres. On January 12, 2018, the Company, through Mid-Con Drilling, completed an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Eastern Kansas.
· In November 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. Effective September 30, 2018, the Company negotiated a sale and settlement of this Canadian joint venture interest and a resolution of all intercompany balances associated with it, for proceeds to the Company of $232,545. An asset retirement obligation of $466,031 offset by the net asset retirement cost of $293,296 associated with this investment generated a gain from disposal of these assets of $405,280.
· In February 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.
· In October 2016, the Company, through its subsidiary Mid-Con Petroleum, LLC (“Mid-Con Petroleum”), completed an acquisition whereby the Company (i) increased its working interest in three existing oil and gas leases in Miami and Franklin Counties in Eastern Kansas, and (ii) acquired a working interest in four new oil and gas leases in the same region, comprising approximately 660 acres of property.
· On September 11, 2017, the Company through its subsidiary Mid-Con Drilling, LLC (“Mid-Con Drilling”), completed an acquisition of a 90% working interest in four new oil and gas leases in Anderson County in Eastern Kansas, comprising approximately 980 acres of property.
· On October 2, 2017, the Company, through Mid-Con Drilling, closed on an acquisition, effective October 1, 2017, of a 100% working interest in six new oil and gas leases in Miami and Franklin Counties in Eastern Kansas.
· On October 4, 2017, the Company, through Mid-Con Drilling, closed on an acquisition of an 80% working interest in six new oil and gas leases in Riley, Geary and Wabaunsee Counties in Kansas.
· On December 22, 2017, the Company completed an acquisition of 100% of the membership interests of Petrodome Energy, LLC, a privately-owned company, with working interests in multiple oil and gas fields across Texas, Louisiana and Mississippi, comprising approximately 11,700 acres.
· On December 29, 2017, the Company through its subsidiary Mid-Con Development, LLC (“Mid-Con Development”), completed an acquisition of working interests in approximately 41 oil leases in Ellis and Rooks Counties in Kansas, comprising several thousand acres.
· On January 12, 2018, the Company, through Mid-Con Drilling, completed an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Eastern Kansas.
· Effective February 1, 2018, the Company, through Mid-Con Drilling, closed on the acquisition of a working interest in a lease with access to the mineral rights (oil and gas) concerning approximately 80 acres of property in Douglas County in eastern Kansas. ~~The acquisition price was $50,000.~~
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~~Table of Contents~~

These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had a net comprehensive loss of $5,508,099 and $1,880,668 for the six months ended June 30, 2018 and 2017, respectively. The Company has accumulated a stockholders’ equity of $20,591,231 as of June 30, 2018. The Company has generated losses from operations and has a significant working capital deficit. These conditions raise substantial doubt regarding the Company's ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances;
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Table of Contents
· On December 28, 2018, the Company, through its subsidiary Ichor Energy, LLC (“Ichor Energy”) completed an acquisition (the “Ichor Energy Acquisition”) of working interests in certain oil and gas leases in Texas (primarily in Orange and Jefferson Counties) and Louisiana (primarily in Calcasiue Parish), which include 58 producing wells and 31 salt water disposal wells. The properties produce hydrocarbons from known reservoirs/sands in the on-shore Gulf Coast region, with an average well depth in excess of 10,600 feet.
· On May 1, 2019, the Company’s subsidiary, Mid-Con Development, LLC sold all of its interests in the oil and gas assets Mid-Con Development, LLC owned in Ellis and Rooks Counties, Kansas, consisting of working interests in approximately 41 oil leases comprising several thousand acres.
· On May 10, 2019, Petrodome Louisiana Pipeline LLC (“Petrodome LA”), a subsidiary of Petrodome Energy, LLC, acquired a majority working interest in 6 gas wells (including 2 producing gas wells), 1 producing oil well and 1 salt water disposal well located in the East Mud Lake Field in Cameron Parish, Louisiana, with leases to mineral rights (oil and gas) concerning approximately 765 acres.
These accompanying 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. Although the Company had a net income of $1,292,346 for the three months ended June 30, 2019, the Company had a net loss of $10,639,135 for the six months ended June 30, 2019. Furthermore, as of June 30, 2019, the Company has a working capital deficiency in excess of $45,000,000. The largest components of current liabilities creating this deficiency are (a) notes payable with a face value aggregating approximately $15,000,000 due in August of 2019 and (b) a promissory note payable to the seller of the certain oil and gas interests purchased on December 28, 2018 in the amount of $23,777,948 with all principal and accrued interest due on the earlier of (i) the date the Company or one of its affiliates completes an acquisition with one or more of the Sellers for a purchase price equal to or greater than $50,000,000 or (ii) January 31, 2020.
Management has evaluated these conditions and has developed a plan which, in part, address these obligations as follows:
·
The terms of the $15 million notes due in August 2019 allow for 50% of the principal to be converted into shares of the Company’s common stock at $0.20 per share, and contain a provision whereby the Company has the right to extend the Maturity Date for one additional year to August of 2020. Consideration for the one-year extension is payment of the accrued interest, an increase in the interest rate to 12% for the extension period and the issuance of a warrant to purchase an additional 115,000 common shares per $100,000 of outstanding principal of each note on a pro rata basis. The net effect allows the Company to pay $1,500,000 in accrued interest and delay the payment of $15,000,000 in principal for one year.
·
The acquisition of oil and gas assets in Texas and Louisiana (the Ichor Energy Acquisition) at the end of 2018 is believed to provide cash flow sufficient to not only satisfy the Company’s debt service associated with this acquisition, but to also fund a $12,000,000 development program to increase this purchased production beyond its current average daily production of 2,300 BOE and provide a quicker principal reduction, resulting in an increased equity position relative to these assets. The acquisition of Petrodome in 2017 and the high level of oil and gas expertise retained by Petrodome at the end of 2017 provided an internal lease operating company to efficiently evaluate development opportunities.
·
The Company has a revolving credit facility with CrossFirst Bank, which was approved for $30,000,000. The balance outstanding at June 30, 2019 is approximately $10,100,000. On May 10, 2019, the Company entered into an amendment to this revolving credit facility to extend the final maturity date from June 30, 2020 to May 10, 2021, which provides the Company with an additional year to meet the cash demands associated with maturity. Additional funds could be made available to the Company for projects reviewed and approved by the lender.
These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to utilize the resources in place to generate future profitable operations, to develop additional acquisition opportunities, and to obtain the necessary financing to meet its obligations and repay its liabilities arising from business operations when they come due. Management believes the Company will be able to continue to develop new opportunities, and will be able to obtain additional funds through debt and / or equity financings to facilitate its development strategy; however, there is no assurance of additional funding being available. These consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.

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Note 2Summary of Significant Accounting Policies

a) Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the interim reporting rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto contained in Viking’s latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments (unless otherwise indicated), necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. ~~Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.~~
~~b) Basis of Consolidation~~
The financial statements presented herein reflect the consolidated financial results of the Company and its wholly owned subsidiaries, Viking Oil & Gas (Canada) ULC, a Canadian corporation formed on March 8, 2016, to provide a base of operations for properties in Canada, Mid-Con Petroleum, LLC, formed on August 30, 2016, Mid-Con Drilling, LLC, formed on August 25, 2017, and Mid-Con Development, LLC, formed on December 27, 2017, all to provide a base of operations for properties in the Central United States, and Petrodome Energy, LLC, based in Houston, Texas to provide a base of operations to facilitate property acquisitions in Texas, Louisiana and Mississippi, as well as Petrodome Energy, LLC’s subsidiaries in Texas, Louisiana and Mississippi. All significant intercompany transactions and balances have been eliminated upon consolidation.
~~c) Use of Estimates in the Preparation of Financial Statements~~
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts and timing of revenues and expenses, the reported amounts and classification of assets and liabilities, and disclosure of contingent assets and liabilities. The Company's actual results could vary materially from management's estimates and assumptions. Significant areas requiring the use of management estimates relate to the determination of expected tax rates for future income tax recoveries, stock-based compensation, asset retirement obligations and impairment of long-lived assets.

8
~~Table~~b) Basis of ~~Contents~~
The estimates of proved, probable and possible oil and gas reserves are used as significant inputs in determining the depletion of oil and gas properties and the impairment of proved and unproved oil and gas properties. There are numerous uncertainties inherent in the estimation of quantities of proved, probable and possible reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks.Consolidation

The financial statements presented herein reflect the consolidated financial results of the Company and its wholly owned subsidiaries: Viking Oil & Gas (Canada) ULC, a Canadian corporation formed to provide a base of operations for properties in Canada; Mid-Con Petroleum, LLC, Mid-Con Drilling, LLC, and Mid-Con Development, LLC, which were all formed to provide a base of operations for properties in the Central United States; and Petrodome Energy, LLC (and its subsidiaries) and Ichor Energy Holdings, LLC, its subsidiary Ichor Energy, LLC (Ichor Energy”), and Ichor Energy’s subsidiaries, Ichor Energy (TX), LLC, and Ichor Energy (LA), LLC, which provide a base of operations to facilitate property acquisitions in Texas, Louisiana and Mississippi. All significant intercompany transactions and balances have been eliminated.
c) Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts and timing of revenues and expenses, the reported amounts and classification of assets and liabilities, and disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates relate to impairment of long-lived assets, stock-based compensation, asset retirement obligations, and the determination of expected tax rates for future income tax recoveries.
The estimates of proved oil and gas reserves are used as significant inputs in determining the depletion of oil and gas properties and the impairment of proved oil and gas properties. There are numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved oil and gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks. Actual results could differ from the estimates and assumptions utilized.

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Table of Contents
d) Financial Instruments
ASC Topic 820-10, “Fair Value Measurement” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 820-10 defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for other receivable – related party, accrued expenses and other current liabilities, accounts payable, derivative liabilities, amount due to directors, and convertible notes
Accounting Standards Codification, “ASC” Topic 820-10, “Fair Value Measurement” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 820-10, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measurement. The carrying amounts reported in the consolidated balance sheets for accrued expenses and other current liabilities, accounts payable, derivative liabilities, amount 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.

Assets and liabilities measured at fair value as of June 30, 2019 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

Commodity Derivative

$
-

$
-

$
-

$
-

$ -

$ -

$ -

$ -

Financial liabilities

Commodity Derivative

$

$
7,121,509

$
-

$
(5,271,567 )

$ -

$ 7,121,509

$ -

$ (5,271,567 )
·
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Table of Contents
~~Level 2: inputs~~
Assets and liabilities measured at fair value as of December 31, 2018, are classified below based on the three-level 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

Commodity Derivative

$ -

$ 681,776

$ -

$ 926,802

$ -

$ 681,776

$ -

$ 926,802

Financial liabilities

Commodity Derivative

$
-

$
2,531,718

$
-

$
(2,531,718 )

$ -

$ 2,531,718

$ -

$ (2,531,718 )
The Company has entered into certain commodity derivative instruments containing swaps and collars, which management believes are effective in mitigating commodity price risk associated with a portion of its future monthly natural gas and crude oil production and related cash flows. The Company does not designate its commodities derivative instruments as hedges and therefore does not apply hedge accounting. Changes in fair value of derivative instruments subsequent to the ~~valuation methodology include quoted~~initial measurement are recorded as change in fair value on derivative liability, in other income (expense). The estimated fair value amounts of the Company’s commodity derivative instruments have been determined at discrete points in time based on relevant market information which resulted in the Company classifying such derivatives as Level 2. Although the Company’s commodity derivative instruments are valued using public indices, as well as the Black-Sholes model, the instruments themselves are traded with unrelated counterparties and are not openly traded on an exchange.
In a commodities swap agreement, the Company trades the fluctuating market prices of oil or natural gas at specific delivery points over a specified period, for ~~similar~~fixed prices. As a producer of oil and natural gas, the Company holds these commodity derivatives to protect the operating revenues and cash flows related to a portion of its future natural gas and crude oil sales from the risk of significant declines in commodity prices, which helps reduce exposure to price risk and improves the likelihood of funding its capital budget. If the price of a commodity rises above what the Company has agreed to receive in the swap agreement, the amount that it agreed to pay the counterparty is expected to be offset by the increased amount it received for its production.
The Company has also entered into collar agreements related to oil and gas production with established floors and ceilings. Upon settlement, if the current market price of the commodity is below the floor, the Company receives the difference. Conversely, if the current market price of the commodity is above the ceiling at settlement, the Company pays the excess over the ceiling price.
Although the Company is exposed to credit risk to the extent of nonperformance by the counterparties to these derivative contracts, the Company does not anticipate such nonperformance and monitors the credit worthiness of its counterparties on an ongoing basis.
The derivative assets were $0 and $681,776 as of June 30, 2019 and December 31, 2018, and the derivative liabilities were $7,121,509 and $2,531,718 as of June 30, 2019 and December 31, 2018 respectively. The change in the fair value of the derivative assets and liabilities ~~in active markets, and inputs that are observable~~ for the ~~asset or liability, either directly or indirectly, for substantially~~six months ended June 30, 2019 consisted of a decrease of $681,776 associated with existing commodity derivatives and a decrease of $4,589,791 associated with the ~~full term~~new commodity derivative related to the acquisition accomplished on December 28, 2018, and a loss recognized in the consolidated statement of operations in the amount of $5,271,567.
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Table of Contents
The table below is a summary of the ~~financial instrument.~~Company’s commodity derivatives as of June 30, 2019:

·
~~Level 3: inputs to the valuation methodology are unobservable and significant to the fair value measurement.~~
~~Liabilities measured at fair value as of June 30, 2018, are classified below based on the three-level fair value hierarchy described above:~~
Natural Gas
Period
Average MMBTU per Month
Fixed Price per MMBTU
Swap
Dec-18 to Dec-22
118,936
$2.715
Crude Oil
Period
Average BBL per Month
Price per BBL
Swap
Dec-18 to Dec-22
24,600
$50.85
Swap
Dec-17 to Dec-19
1,400
$54.77
Swap
Jan-20 to Jun-20
1,400
$52.71
Collar
Dec-17 to Jun-20
4,000
$55.00 / $72.00
Collar
Sep-17 to Sep-19
1,100
$47.00 / $54.10

Description

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Total Gains
(Losses)

Financial Assets

Long term investment

$ -

$ -

$ -

$ -

Commodity Derivative

-

-

-

-

$ -

$ -

$ -

$ -

Financial liabilities

Derivative liabilities

$ -

$ -

$ -

$ -

Commodity Derivative

-

1,232,810

-

(987,784 )

$ -

$ 1,232,810

$ -

$ (987,784 )
9
~~Table of Contents~~
~~Assets and liabilities measured at fair value as of December 31, 2017, are classified below based on the three-level fair value hierarchy described above:~~
Description

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Total Gains
(Losses)

Financial Assets

Long term investment

$ -

$ -

$ -

$ 1,446

$ -

$ -

$ -

$ 1,446

Financial liabilities

Derivative liabilities

$ -

$ -

$ 807,762

$ 232,840

Commodity Derivative

-

245,026

-

(183,965 )

$ -

$ 245,026

$ 807,762

$ 48,875

The Company’s long-term investment consisted of 1,437,500 common shares of Tanager Energy Inc., as of December 31, 2016, which is traded on the TSX Venture Exchange (Toronto Stock Exchange). During the three months ended March 31, 2017, the Company sold these shares. The change in the fair value of this investment that has been recognized as an unrealized gain in other comprehensive income on the statement of operations and comprehensive loss was $1,446 for the three months ended March 31, 2017.
The Company had commodity financial derivatives in place at June 30, 2018. The Company does not designate its commodities derivative instruments as hedges and therefore does not apply hedge accounting. Changes in fair value of derivative instruments subsequent to the initial measurement are recorded as change in fair value on derivative liability, in other income (expense). The estimated fair value amounts of the Company’s commodity derivative instruments have been determined at discrete points in time based on relevant market information which resulted in the Company classifying such derivatives as Level 2. Although the Company’s commodity derivative instruments are valued using public indices, the instruments themselves are traded with unrelated counterparties and are not openly traded on an exchange.
The Company uses the Black-Scholes model to value its derivative liabilities. This model takes into account inputs such as contract terms, including maturity and market parameters, including assumptions associated with interest rates, volatility and credit worthiness. The derivative assets and liabilities of the Company were $0 and $1,232,810 respectively as of June 30, 2018, and $0 and $1,052,788 respectively as of December 31, 2017, respectively. The change in the fair value of the derivative liabilities for the six months ended June 30, 2018, consisted of an increase of $987,784 associated with commodity derivatives. The decrease in the derivative liabilities associated with warrants and the conversion features of convertible debt in the amount of $807,762 are the result of the Company adopting ASU 2017-11, ~~Derivatives and~~ ~~Hedging~~ ~~(Topic 815) I.~~~~Accounting for Certain Instruments with Down Round Features.~~ ~~The effect is a reduction in the derivative liability and a restatement of beginning retained earnings in the amount of $807,762.~~
e) Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and highly liquid investment securities that have original maturities of three months or less. At June 30, 2018 and December 31, 2017, the Company has cash deposits in excess of FDIC insured limits in the amounts of $4,559,541 and $5,372,818, respectively.
Restricted cash in the amount of $0 and $5,199,103 as of June 30, 2018 and December 31, 2017, respectively, represents cash provided through funding for the Petrodome acquisition, restricted for drilling and exploration.
Cash and cash equivalents include cash in banks and highly liquid investment securities that have original maturities of three months or less. At June 30, 2019, the Company has cash deposits in excess of FDIC insured limits in the amounts of $3,867,375.

10
~~Table~~Restricted cash in the amount of ~~Contents~~
~~f) Accounts Receivable~~
Accounts receivable consist of oil and gas receivables. The Company has classified these as short-term assets in the balance sheet because the Company expects repayment or recovery within the next 12 months. The Company evaluates these accounts receivable for collectability and, when necessary, records allowances for expected unrecoverable amounts. The Company has recorded an allowance for doubtful accounts of $87,957 at June 30, 2018. $4,683,129 as of June 30, 2019 represents the balance of cash held by Ichor Energy, LLC (the “Borrower”) and/or its subsidiaries, generated through the operations of those subsidiaries. Pursuant to the Term Loan Credit Agreement to which the Borrower and its subsidiaries are parties, following March 31, 2019 the Borrower is required at all times to maintain a minimum cash balance of $2,000,000 (the “MLR”). Within 30 days of the end of each quarter, commencing with the quarter ended June 30, 2019, the Borrower is required to pay the lenders, as an additional principal payment on the debt, any cash in excess of (i) the MLR and (ii) any funds necessary for the capital expenditures contemplated to be expended in the next six month period by an approved plan of development (“APOD Capex Amount”). At June 30, 2019, the cash in excess of the MLR does not exceed the APOD Capex Amount..
f) Accounts receivable
Accounts receivable consist of oil and gas receivables. The Company evaluates these accounts receivable for collectability and, when necessary, records allowances for expected unrecoverable amounts. The Company has recorded an allowance for doubtful accounts of $217,057 at June 30, 2019 and December 31, 2018 respectively.

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 and comprehensive loss over the life of the contract using the straight-line method. At June 30, 2018 and December 31, 2017, the balances of the prepaid equity-based compensation were comprised of the following:

June 30,
2018

December 31,
2017

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

$ -

$ 6,412

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

-

5,415

$ -

$ 11,827

h) Oil and Gas Properties

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

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

11
~~Table~~Depreciation, depletion and amortization expense utilizing the unit-of-production method for the Company’s oil and gas properties for the three and six months ended June 30, 2019 and 2018 were as follows:

Three months ended

Six months ended

June 30,

June 30,

Cost Center

2019

2018

2019

2018

Canada

$ -

$ 10,649

$ -

$ 21,387

United States

2,228,191

449,302

4,598,879

928,250

$ 2,228,191

$ 459,951

$ 4,598,879

$ 949,637

h) Limitation on Capitalized Costs
Under the full-cost method of ~~Contents~~
Depreciation, depletion and amortization expense utilizing the unit-of-production method for the Company’s oil and gas properties for the three and six months ended June 30, 2018 and 2017, were as follows:
Oil and Gas Properties by Geographical Cost Center

Three months ended
June 30,

Six months ended,
June 30,

Cost Center

2018

2017

2018

2017

Canada

$ 10,649

$ 221

$ 21,387

$ 17,228

United States

449,302

35,388

928,250

69,663

$ 459,951

$ 35,609

$ 949,637

$ 86,891

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

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

(b) the cost of properties not ~~being amortized; plus~~
~~(c) the lower of cost or estimated fair value of unproven properties included in the costs~~ being amortized; plus
(c) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, net of

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

~~j) Oil and Gas Reserves~~
Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using recent prices of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.
~~k) Loss Per Share~~
Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and, adjusted by any effects of warrants and options outstanding, if dilutive, that may add to the number of common shares during the period. At June 30, 2018 and 2017,
13
Table of Contents
i) Oil and Gas Reserves
Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using recent prices of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.
j) Income (loss) per Share
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding and adjusted by any effects of warrants and options outstanding during the period, if dilutive. For the three months ended June 30, 2019 there were approximately 1,411 common stock equivalents that were dilutive; these dilutive shares were immaterial and omitted from the calculation of income per share for such period. For the six months ended June 30, 2019 and 2018 there were approximately 92,274,782 and 34,912,910 ~~and 6,582,259~~ common stock equivalents respectively, that were anti-dilutive.

12
~~Table~~k) Revenue Recognition
Sales of ~~Contents~~
~~l) Revenue Recognition~~
On January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (ASC 606),” using the modified retrospective method. Adoption of the new revenue standard had no impact on the Company’s consolidated balance sheet, results of operations, equity or cash flows as of the adoption date, and the Company does not expect any further material impact to its consolidated financial statements on an ongoing basis as a result of adopting the new revenue standard.
~~Sales of~~ crude oil, natural gas, and natural gas liquids (NGLs) are included in revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts. Performance obligations primarily comprise delivery of oil, gas, or NGLs at a delivery point, as negotiated within each contract. Each barrel of oil, million BTU (MMBtu) of natural gas, or other unit of measure is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated. Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title. In each case, the time once control of the product has been transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title. In each case, the term between delivery and when payments are due is not significant.

~~The following table disaggregates the Company’s revenue by source for the three and six-month periods ended June 30, 2018 and 2017:~~

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Oil

$ 2,248,725

151,386

$ 4,272,909

$ 358,249

Natural gas and Natural gas liquids

69,897

9,044

207,660

9,044

$ 2,318,622

$ 160,430

$ 4,480,569

$ 367,293

14
Table of Contents

~~m) Comprehensive Loss~~The following table disaggregates the Company’s revenue by source for the six months ended June 30, 2019 and 2018:
ASC Topic 220, “Comprehensive Income,” establishes standards for the reporting and presentation of comprehensive income and its components in the consolidated financial statements. For the six months ended June 30, 2018 and 2017, comprehensive income (loss) was $0 and $1,446 respectively and consisted primarily of unrealized gains and (losses) on available for sale securities.
n)

Three months ended

Six months ended

June 30,

June 30,

2019

2018

2019

2018

Oil

$ 7,194,400

$ 2,248,725

$ 14,926,562

$ 4,272,909

Natural gas and natural gas liquids

1,539,923

69,897

3,154,353

207,660

$ 8,734,323

$ 2,318,622

$ 18,080,915

$ 4,480,569

l) Income Taxes

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

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

13
~~Table~~In assessing the realizability of ~~Contents~~
In assessing the realizability of its deferred tax assets and liabilities, management evaluated whether it is more likely than not that some portion, or all of its deferred tax assets and liabilities, will be realized. As of December 31, 2017, based on all the available evidence, management determined that it is more likely than not its deferred tax assets will be fully realized. Accordingly, the Company recorded a deferred tax liability of $910,827. During the six months ended June 30, 2018, the Company incurred a net loss, which created a decrease in its deferred tax liability with a corresponding income tax benefit in the amount of $877,279.its deferred tax assets, management evaluated whether it is more likely than not that some portion, or all of its deferred tax assets, will be realized. The realization of its deferred tax assets relates directly to the Company’s ability to generate taxable income. The valuation allowance is then adjusted accordingly.

o)The Company has estimated net operating losses in excess of $12,000,000 at June 30, 2019. The potential benefit of these net operating losses has not been recognized in these financial statements because the Company cannot be assured it is more likely than not that it will utilize the net operating losses carried forward in future years. In December 2017, tax legislation was enacted limiting the deduction for net operating losses from taxable years beginning after December 31, 2017 to 80% of current year taxable income and eliminating net operating loss carrybacks for losses arising in taxable years ending after December 31, 2017 (though any such tax losses may be carried forward indefinitely). Net operating losses originating in taxable years beginning prior to January 1, 2018 are still subject to former carryover rules. The net operating loss carryforwards generated prior to this date, approximating $11,000,000, will expire between 2019 through 2038.
m) 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 may issue stock options to employees and stock options or warrants to non-employees in non-capital raising transactions for services and for financing costs. In accordance with guidance in ASC Topic 718, the cost of stock options and warrants issued to employees and non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.

The fair value of stock warrants was determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate, and dividend yield. The expected term represents the period of time that stock-based compensation awards granted are expected to be outstanding and is estimated based on considerations including the vesting period, contractual term and anticipated employee exercise patterns. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of stock-based compensation instrument. The dividend yield assumption is based on historical patterns and future expectations for the Company dividends.
During the quarter ended June 30, 2018, the Company granted 7,472,284 warrants with the option to purchase common stock, of which 4,972,284,000 options vested immediately. The Company used the following Black-Scholes assumptions in arriving at the fair value of 3,000,000 warrants recorded as stock-based compensation expense of $599,353 and 1,972,284 warrants recorded as debt discount of $327,740 for the three months ended June 30, 2018.
~~Expected Life in Years~~
~~5.0~~
~~Risk-free Interest Rates~~
~~2.55% to 2.73%~~
~~Volatility~~
~~295.90%~~
~~Dividend Yield~~
0%
~~At June 30, 2018, there was approximately $499,500 of unrecognized compensation cost related to share-based payments which is expected to be recognized in the future.~~
~~The following table represents stock warrant activity as of and for the six months ended June 30, 2018:~~

Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual Life

Aggregate
Intrinsic
Value

Warrants Outstanding – December 31, 2017

27,440,626

0.27

8.2 years

-

Granted

7,472,284

0.20

5.2 years

-

Exercised

(402,084 )

-

-

-

Forfeited/expired/cancelled

-

-

-

Warrants Outstanding – June 30, 2018

34,510,826

$ 0.27

7.1 years

$ -

Outstanding Exercisable – December 31, 2017

27,440,626

$ 0.27

8.2 years

$ -

Outstanding Exercisable – June 30, 2018

32,010,826

$ 0.27

7.1 years

$ -

14
15

Table of Contents

p)The fair value of stock options and warrants is 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 six months ended June 30, 2019:

Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual Life

Aggregate
Intrinsic
Value

Warrants Outstanding – December 31, 2018

54,821,690

$
0.26

6.0 years

$
-

Granted

-

-

-

Exercised

-

-

-

-

Forfeited/expired/cancelled

-

-

-

Warrants Outstanding – June 30, 2019

54,821,690

$ 0.26

4.7 years

$ -

Outstanding Exercisable – June 30, 2019

54,821,690

$ 0.26

4.7 years

$ -

n) 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 six months ended June 30, 2018 and 2017.
~~q) Foreign Currency Exchange~~
An entity's functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management's judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements. The functional currency of the parent company is the U.S. Dollar. The reporting currency of the Company is the U.S. Dollar. The Company has oil and gas operations in Alberta, Canada in which the Canadian Dollar (“CAD” or “CS” herein) is the primary economic environment. The reporting currency of these consolidated financial statements is the U.S. Dollar.
For financial reporting purposes, the operational results of the Company's oil and gas operations in Canada are prepared using the CAD, and are translated into the Company's reporting currency, the U.S. Dollar. Revenue and expenses applicable to the oil and gas operations in Alberta, Canada are translated using average rates prevailing during each reporting period. Gains or losses resulting from the settlement of foreign currency transactions are recorded as a separate component of accumulated other comprehensive loss in stockholders' deficit when realized. There have been no settlement transactions that resulted in the recognition of a foreign currency exchange gain or loss during the six months ended June 30, 2018 and 2017.
~~r) Convertible Notes Payable~~
The Company accounts for conversion options embedded in convertible notes in accordance with ASC 815. ASC 815 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free standing derivative financial instruments.
The Company has evaluated the terms and conditions of its convertible notes under the guidance of ASC 815. The conversion feature did not meet the definition of “indexed to a company’s own stock” provided for in ASC 815 due to the down round protection feature. Therefore, the conversion feature requires bifurcation and liability classification. Additionally, the default put requires bifurcation because it is indexed to risks that are not associated with credit or interest risk. As a result, the compound embedded derivative comprises of (i) the embedded conversion feature and (i) the default put. Rather than bifurcating and recording the compound embedded derivative as a derivative liability, the Company elected to initially and subsequently measure the convertible note in its entirety at fair value, with changes in fair value recognized in earnings in accordance with ASC 815-15-25-4. On January 1, 2018, the Company adopted ASU 2017-11, Derivatives and Hedging (Topic 815), and increased beginning retained earnings in the amount of $807,762.
~~s) Derivative Liability~~
We review the terms of convertible debt issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument
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.

15
~~Table~~The Company is required to review its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of ~~Contents~~
~~t) Accounting for Asset Retirement Obligations~~
Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount the Company will incur to plug, abandon and remediate its producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. The Company determined its ARO by calculating the present value of estimated cash flows related to the obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation’s inception, with an offsetting increase to proved properties.
~~The following table describes the changes in the Company’s asset retirement obligations for the six months ended June 30, 2018, and the year ended December 31, 2017:~~

Six months
ended
June 30,
2018

Year ended December 31,
2017

Asset retirement obligation – beginning

$ 3,096,263

$ 833,017

Oil and gas purchases

231,053

2,205,171

Gain on ARO Settlement

(58,041 )

-

Accretion expense

97,777

58,075

Asset retirement obligation – ending

$ 3,367,052

$ 3,096,263

~~u) Undistributed Revenues and Royalties~~
~~The Company records a liability for cash collected from oil and gas sales that have not been distributed. The amounts get distributed in accordance with the working interests of the respective owners.~~
~~v) Recent Accounting Pronouncements~~
As of June 30, 2018, and through the date of this filing, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements. The Company will monitor these emerging issues to assess any potential future impact on its financial statements.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.

16
~~Table~~Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of ~~Contents~~
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 six months ended June 30, 2019 and 2018.

ASU Update 2014-09, “Revenue from Contracts with Customers (Topic 606),” issued May 28, 2014, by FASB and IASB converged guidance on recognizing revenue in contracts with customers on an effective date after December 31, 2017. The ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers which supersedes current revenue recognition guidance, including most industry-specific guidance. The guidance provides that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. We adopted Topic 606 as of January 1, 2018, using the modified retrospective transition method. Under the modified retrospective method, the Company would recognize the cumulative effect of initially applying the standard as an adjustment to opening retained earnings at the date of initial application; however, we did not have any material adjustments as of the date of the adoption. The comparative periods have not been restated.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard will be effective for our interim and annual periods beginning January 1, 2019, and must be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We are currently evaluating the timing of adoption and the potential impact of this standard on our financial position, but we do not expect it to have a material impact on our results of operations.
In July 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part 1) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Non-public Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception” (“ASU 2017-11”). Part I relates to the accounting for certain financial instruments with down round features in Subtopic 815-40, which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced based on the pricing of future equity offerings. An entity still is required to determine whether instruments would be classified as equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities. ASU 2017-11 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted, including in an interim period. We adopted Topic 815 as of January 1, 2018. The effect was to no longer recognize certain freestanding instruments with down round features as a liability, through an increase in beginning retained earnings of $807,762.
~~w) Subsequent events~~
~~The Company has evaluated all subsequent events from June 30, 2018, through the date of filing this report, and determined there are no additional items to disclose other than those listed~~
16
Table of Contents
o) Accounting for Asset Retirement Obligations
Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount the Company will incur to plug, abandon and remediate its producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. The Company determined its ARO by calculating the present value of estimated cash flows related to the obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation’s inception, with an offsetting increase to proved properties.
The following table describes the changes in the Company’s asset retirement obligations for the six months ended June 30, 2019:

Six months ended June 30, 2019

Asset retirement obligation – beginning

$ 4,413,465

Oil and gas purchases

94,796

Adjustments through disposals and settlements

(797,796 )
Accretion expense

158,227

Asset retirement obligation – ending

$ 3,868,692

p) Undistributed Revenues and Royalties
The Company records a liability for cash collected from oil and gas sales that have not been distributed. The amounts get distributed in accordance with the working interests of the respective owners.
q) Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02 “Leases” (ASU 2016-02) and subsequently issued supplemental adoption guidance and clarification (collectively, Topic 842). Topic 842 amends a number of aspects of lease accounting, including requiring lessees to recognize right-of-use assets and lease liabilities for operating leases with a lease term greater than one year. Topic 842 supersedes Topic 840 “Leases.” On January 1, 2019, the Company adopted Topic 842 using the modified retrospective approach. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under Topic 840. We elected the package of practical expedients permitted under the transition guidance within Topic 842, which allowed us to carry forward the historical lease classification, retain the initial direct costs for any leases that existed prior to the adoption of the standard and not reassess whether any contracts entered into prior to the adoption are leases. We also elected to account for lease and non-lease components in our lease agreements as a single lease component in determining lease assets and liabilities. In addition, we elected not to recognize the right-of-use assets and liabilities for leases with lease terms of one year or less. Upon adoption of Topic 842, we recorded $367,365 of right-of-use assets and operating lease liabilities as of January 1, 2019. The adoption did not have a material impact on our Consolidated Statements of Operations or Consolidated Statements of Cash Flows
r) Subsequent events
The Company has evaluated all subsequent events from June 30, 2019, through the date of filing this report, and determined there are no additional items to disclose other than those described in Note 9.

17

Table of Contents

Note 3. Business Acquisition
~~Petrodome Energy LLC~~
As discussed in Note 1, on December 22, 2017, the Company closed on the acquisition of all of the issued and outstanding membership interests of Petrodome Energy, LLC, a Texas limited liability company, with an effective date of November 1, 2017, in a transaction accounted for under the acquisition method of accounting, whereby the assets acquired and the liabilities, if any assumed are to be valued at fair value, and compared to the fair value of the consideration given to identify if there are any identifiable intangible assets to be recognized as a result of the transaction.
The recorded cost of this acquisition was based upon the fair market value of the assets acquired based on an independent valuation. The fair value of the Business Enterprise and its assets exceed the value of the consideration given, creating a bargain purchase gain, which is to be recognized immediately by the purchaser. The fair value of the bargain purchase gain has been recorded in the amount of $27,021,418 during the year ended December 31, 2017.

Proforma unaudited condensed selected financial data for the ~~three and~~ six months ended June 30, ~~2017,~~2018 as though ~~this acquisition~~the Ichor Energy Acquisition had taken place at January 1, ~~2017,~~2018 are as follows:

Three Months
Ended
June 30,
2017

Six Months
Ended
June 30,
2017



Revenues

$ 2,717,496

$ 5,694,444

Net Loss (excludes unrealized gains / losses)

$ (1,425,275 )

$ (3,012,499 )

Loss per share

$ (0.02 )

$ (0.05 )
~~Note 4.~~ ~~Related Party Transactions~~

Six Months Ended June 30, 2018

Revenues

$ 23,624,555

Net Income (excludes unrealized gains / losses)

$ 885,074

Income per share

$ 0.01

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 June 30, 2018, the balance owed by Tanager to the Company is $153,877. The Company has determined to reserve 100% of the balanceNote 4.Oil and ~~has reduced the amount shown as Other receivable – related party to $0 on the consolidated balance sheet.~~Gas Properties

~~During~~The following table summarizes the Company’s oil and gas activities by classification and geographical cost center for the six months ended June 30, 2018, the Company’s CEO and Director, James Doris, incurred expenses on behalf of, and made advances to the Company in the amount of $608,191 in order to provide the Company with funds to carry on its operations, and the Company made repayments of $938,771. These advances do not bear interest, are unsecured and have no specific terms of repayment. As of June 30, 2018, the amount due to Mr. Doris for advances and expenses paid on behalf of the Company is $0. The Company has not imputed interest as the amount is deemed immaterial. Additionally, Mr. Doris made several loans to the Company totaling $862,390, of which $353,383 was paid back during the quarter ended June 30, 2018. These loans all accrue interest at 12%, and are payable on demand. As of June 30, 2018, the total amount due to Mr. Doris for these loans is $509,007. Accrued interest of $74,056 is included in accrued expenses and other current liabilities at June 30, 2018.2019:

18
~~Table of Contents~~

December 31, 2018

Adjustments

Impairments

June 30, 2019

Proved developed producing oil and gas properties

United States cost center

$ 81,936,721

$ (1,476,634 )

$ -

$ 80,460,087

Accumulated depreciation, depletion and amortization

(604,735 )

(3,353,247 )

-

(3,957,982 )
Proved developed producing oil and gas properties, net

$ 81,331,986

$ (4,829,881 )

$ -

$ 76,502,105

Undeveloped and non-producing oil and gas properties

United States cost center

$ 51,973,719

$ (87,140 )

$ -

$ 51,886,579

Accumulated depreciation, depletion and amortization

(1,480,813 )

(1,215,154 )

-

(2,695,967 )
Undeveloped and non-producing oil and gas properties, net

$ 50,492,906

$ (1,302,294 )

$ -

$ 49,190,612

Total Oil and Gas Properties, Net

$ 131,824,892

$ (6,132,175 )

$ -

$ 125,692,717

Note 5. Related Party Transactions~~Oil and Gas Properties~~

The ~~following table summarizes~~Company’s CEO and Director, James Doris has incurred expenses on behalf of, and made advances to, the ~~Company’s oil and gas activities by classification and geographical cost center for~~Company in order to provide the ~~six months ended~~Company with funds to carry on its operations. As of June 30, ~~2018:~~

December 31,
2017

Adjustments

Impairments

June 30,
2018

Proved developed producing oil and gas properties

Canada cost center

$ 23,279

$ -

$ -

$ 23,279

United States cost center

12,513,088

(413,332 )

-

12,099,756

Accumulated depreciation, depletion and amortization

(235,226 )

(309,995 )

-

(545,221 )
Proved developed producing oil and gas properties, net

$ 12,301,141

$ (723,327 )

$ -

$ 11577,814

Undeveloped and non-producing oil and gas properties

Canada cost center

$ 382,935

$ -

$ -

$ 382,935

United States cost center

26,851,244

1,752,694

-

28,603,938

Accumulated depreciation, depletion and amortization

(374,545 )

(610,476 )

-

(985,021 )
Undeveloped and non-producing oil and gas properties, net

$ 26,859,634

$ 1,142,218

$ -

$ 28,001,852

Total Oil and Gas Properties, Net

$ 39,160,775

$ 418,891

$ -

$ 39,579,666

~~The following table summarizes~~2019, the ~~Company’s oil~~total amount due to Mr. Doris for unreimbursed expenses is $6,183, and ~~gas activities by classification for the year ended December 31, 2017:~~

December 31,

December 31,

2016

Adjustments

Impairments

2017

Proved developed producing oil and gas properties

Canada cost center

$ 34,733

$ (11,454 )

$ -

$ 23,279

United States cost center

1,787,840

10,725,248

-

12,513,088

Accumulated depreciation, depletion and amortization

(57,200 )

(178,026 )

-

(235,226 )
Proved developed producing oil and gas properties, net

$ 1,765,373

$ 10,535,768

$ -

$ 12,301,141

Undeveloped and non-producing oil and gas properties

Canada cost center

$ 371,481

$ 11,454

$ -

$ 382,935

United States cost center

917,184

25,934,060

-

26,851,244

Accumulated depreciation, depletion and amortization

(51,176 )

(323,369 )

-

(374,545 )
Undeveloped and non-producing oil and gas properties, net

$ 1,237,489

$ 25,622,145

$ -

$ 26,859,634

Total Oil and Gas Properties, Net

$ 3,002,862

$ 36,157,913

$ -

$ 39,160,775

~~On December 27, 2017,~~is included in accounts payable. Additionally, Mr. Doris has made several loans through promissory notes to the Company, created an additional wholly owned subsidiary, Mid-Con Development, LLC (“Mid-Con Development”) in the State of Kansas to hold additional acquisition in the central United States. On December 29, 2017, the Company through Mid-Con Development completed an acquisition of working interests in approximately 41 oil leases in Ellis and Rooks Counties in Kansas, comprising several thousand acres. The working interests in the leases range from 84% to 100%, with an average of approximately 96%all accruing interest at 12%, and payable on demand. As of June 30, 2019, the ~~net revenue interests range from 72%~~total amount due to ~~85%, with an average~~Mr. Doris for these loans is $590,555 Accrued interest of ~~approximately 81%.~~$86,780 is included in accrued expenses and other current liabilities at June 30, 2019.

The ~~acquisition purchase price was $2,200,000. The~~Company’s CFO, Frank W. Barker, Jr., renders professional services to the Company ~~paid $200,000 at closing on December 29, 2017. Between~~through FWB Consulting, Inc., an affiliate of Mr. Barker’s. As of June 30, 2019, the ~~closing date~~total amount due to FWB Consulting, Inc. is $137,432 and January 18, 2018, Mid-Con Development assigned 7.5% of the purchased assets to Global Equity Funding, LLC (“Global Equity”), and 5% of the purchased assets to Coal Creek Energy, LLC (“Coal Creak”), leaving Mid-Con Development with an 87.5% interestis included in the purchased oil and gas leases. The portion of the Acquisition price attributable to Mid-Con Development, Global Equity and Coal Creek was $1,925,000, $165,000 and $110,000, respectively, which was paid in full by the close of business on January 18, 2018.accounts payable.

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On January 12, 2018, the Company, through Mid-Con Drilling, closed on an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Kansas. The purchase includes an undivided interest in all oil and gas wells, equipment, fixtures and other personal property located upon the leased properties. To facilitate this transaction, the Company, through Mid-Con Drilling, executed a Promissory Note, dated January 12, 2018, in favor of Cornerstone Bank in the amount of $366,000. The acquisition price for this acquisition was $480,000.
Effective February 1, 2018, the Company, through Mid-Con Drilling, closed on the acquisition of a working interest in a lease with access to the mineral rights (oil and gas) concerning approximately 80 acres of property in Douglas County in eastern Kansas. The acquisition price was $50,000.
~~Note 6.~~ ~~Capital Stock and Additional Paid-in Capital~~

Note 6.Capital Stock and Additional Paid-in Capital
(a) Preferred Stock

The Company is authorized to issue 5,000,000 shares of Preferred Stock, par value $0.001 per share (the “Preferred Stock”), of which 50,000 have been designated as Series C Preferred Stock (the “Series C Preferred Stock”).
~~On December 4, 2017, Viking Energy Group, Inc. (the “Company” or “Viking”) filed with the State of Nevada an amendment~~ Pursuant to the ~~Certificate~~amended Certification of Designation ~~for~~of the ~~Company’s~~ Series C Preferred Stock ~~pursuant to which~~filed on July 16, 2019, each share of Series C Preferred Stock ~~would entitle~~entitles the holder thereof to ~~10,000~~20,000 votes on all matters submitted to the vote of the stockholders of the Company.
Each share of Series C Preferred Stock ~~shall be~~is convertible, at the option of the holder, at any time after the date of issuance ~~into one~~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.~~stock (the “Conversion Rate”).

(b) Common Stock

On ~~June 11,~~November 5, 2018, the Company ~~filed a Schedule 14C Information Statement with the SEC regarding a prospective amendment to our~~amended its Articles of Incorporation to increase the number of ~~authorized shares of our common stock from one hundred million (100,000,000) shares to five hundred million (500,000,000)~~ shares of common stock ~~par value $0.001 per share. Such amendment has not yet been filed but will be filed during the three months ended September 30, 2018.~~
~~During January 2018,~~ the Company ~~issued 250,000 common shares for services pursuant~~is authorized to ~~a one-year consulting agreement.~~
~~During February and March 2018, the Company issued 668,500 common shares for services.~~issue from 100,000,000 to 500,000,000.

During the ~~quarter~~six months ended ~~March 31, 2018, pursuant to a private placement for debt and equity,~~June 30, 2019, the Company issued ~~4,110,000~~the shares of its common ~~shares.~~stock as follows:

~~During April 2018, the Company issued 60,312 common shares in a cashless exercise of 402,084 warrants to purchase the common stock of the Company.~~
· 210,929 shares of common stock issued for services valued at fair market value on the date of the transaction, totaling $42,082.

During the ~~quarter~~six months ended June 30, 2018, the Company issued ~~2,363,248~~the shares of its common ~~shares for services.~~
~~During the quarter ended June 30, 2018, pursuant to a private placement for debt and equity, the Company issued 3,664,856 common shares.~~stock as follows:

· 668,500 shares of common stock issued for services valued at fair market value on the date of the transaction, totaling $117,660.
20
· 250,000 shares of common stock issued as prepaid equity-based compensation valued at fair market value at the date of the transaction, totaling $55,000.
· 4,110,000 shares of common stock issued as debt discount valued at fair market value on the date of each transaction, totaling $615,185.
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Note 7. Long Term Debt

Long term debt consisted of the following at June 30, ~~2018~~2019 and December 31, ~~2017:~~ 2018:

June 30,
2018

December 31,
2017

As of December 31, 2016, the Company issued a total of $630,000 of 10% Secured promissory notes with a term expiring April 3, 2017 (the “Maturity Date”), and an original issue discount of thirty-seven and one-half percent (37.5%). The discount was modified to fifty percent (50%) retroactively with an extension of the maturity to June 2017. During the quarter ended March 31, 2017, the Company issued an additional $917,833 of 10% Secured promissory notes with terms expiring in June, August and September of 2017, and an original issue discount of fifty percent (50%). Interest is payable on the outstanding principal of these notes at 10% per annum on the various maturity dates. The balance shown is net of unamortized discount of $0 and $0 at June 30, 2018 and December 31, 2017 respectively.

-

75,000

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

-

1,594,659

During July and August of 2017, the Company borrowed $1,475,000 from private lenders pursuant to a 10% Secured Convertible Promissory Note with a twelve-month maturity. The balance shown is net of unamortized discount of $17,009 and $271,403 at June 30, 2018 and December 31, 2017 respectively.

1,457,991

1,203,597

During August through December of 2017, the Company borrowed $2,989,000, and from January through June 2018, the Company borrowed $3,230,000, all from private lenders pursuant to a 10% Secured Promissory Note with all principal and accrued interest payable on the maturity date of October 31, 2018. During the quarter ended June 30, 2018, $1,050,000 of these notes were paid in full and $2,085,000 of these notes have been exchanged for new partially convertible promissory notes. The promissory notes are secured by the membership interests of Mid-Con Drilling, LLC. The balance shown is net of unamortized discount of $838,714 and $867,399 at June 30, 2018 and December 31, 2017 respectively.

2,245,286

2,121,601

June 30, 2019

December 31,
2018

During June through December of 2018, the Company borrowed $9,459,750 from private lenders, and exchanged $5,514,000 of amounts due lenders from prior borrowings as well as $191,250 in accrued interest, pursuant to a 10% Secured Promissory Note with 50% of the principal convertible into the Company’s common stock at $0.20 per share, all principal and accrued interest payable on the maturity date of August 31, 2019. The balance shown is net of unamortized discount of $1,867,398 at June 30, 2019 and $5,981,012 at December 31, 2018.

13,282,602

9,168,988

On June 13, 2018, the Company borrowed $12,400,000 pursuant to a revolving line of credit facility with a maximum principal amount of $30,000,000 from Crossfirst Bank, bearing interest 1.5% above a base rate equal to the prime rate of interest published by the Wall Street Journal, interest only for June and July of 2018, at which time Principal will be payable at $100,000 monthly through the maturity date of May 10, 2021, at which time all remaining unpaid principal and accrued interest shall be due. The balance shown is net of unamortized discount of $69,200 at June 30, 2019 and $103,421 at December 31, 2018

10,030,800

11,728,911

On December 28, 2018, to facilitate the acquisition of certain oil and gas assets, the Company, through one of its subsidiaries, Ichor Energy LLC, entered into a Term Loan Credit Agreement with various lenders represented by ABC Funding, LLC as administrative agent. The agreement provides for a total loan amount of $63,592,000, bearing interest at a rate per annum equal to the greater of (i) a floating rate of interest equal to 10% plus LIBOR, and (ii) a fixed rate of interest equal to 12%, payable monthly on the last day of each calendar month, commencing January 31, 2019. Principal payments shall be made quarterly at 1.25% of the initial loan amount, commencing on the last business day of the fiscal quarter ending June 30, 2019. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the Term Loan, approximately $12,000,000 of oil and gas development projects approved by the lender, and distributions to the Company of $65,000 per month for general and administrative expenses, and a quarterly tax distribution at the current statutory rates. Within 30 days of the end of each quarter, commencing with the quarter ended June 30, 2019, Ichor Energy, LLC is required to pay, as an additional principal payment on the debt, any cash in excess of the MLR and the APOD Capex Amount. To the extent not previously paid, all loans under the Loan Agreement shall be due and payable on the December 28, 2023 (the Maturity Date). The balance shown is net of unamortized discount of $3,949,993 at June 30, 2019 and $4,385,408 at December 31, 2018.

58,847,108

59,206,592

On December 28, 2018, the Company issued a 10% secured promissory note in the amount of $23,777,948, payable to RPM Investments, secured by 100% of the membership interests of Ichor Energy Holdings, LLC. All accrued interest and unpaid principal are due on January 31, 2020.

23,777,948

23,777,948

On February 14, 2019, the Company executed a promissory note payable to CrossFirst Bank in the amount of $56,760 for the purchase of transportation equipment, bearing interest at 7.15%, payable in 60 installments of $1,130, with a maturity date of February 14, 2024

53,568

-

105,992,026

103,882,439

Less current portion

(40,231,789 )

(11,805,582 )

$ 65,760,237

$ 92,076,857

On September 8, 2017, the Company closed on a Promissory Note with Cornerstone Bank in the amount of $256,983, payable interest only for the first twelve months commencing October 8, 2017, variable interest rate, currently at 5.5%, followed by 83 monthly payments of $3,765, interest at 6%, final payment due on September 8, 2025. The balance shown is net of unamortized discount of $3,113 and $0 at June 30, 2018 and December 31, 2017 respectively.

-

253,870

On September 29, 2017, the Company closed on a Promissory Note with Cornerstone Bank in the amount of $290,000, payable interest only for the first twelve months commencing October 29, 2017, variable interest rate, currently at 5.5%, followed by 83 monthly payments of $3,765, interest at 6%, final payment due on September 29, 2025. The balance shown is net of unamortized discount of $3,800 and $3,925 at June 30, 2018 and December 31, 2017 respectively.

-

286,075

On October 3, 2017, the Company closed on a Promissory Note with Cornerstone Bank in the amount of $204,000, payable interest only for the first twelve months commencing November 3, 2017, variable interest rate, currently at 5.5%, followed by 83 monthly payments of $3,765, interest at 6%, final payment due on October 3, 2025. The balance shown is net of unamortized discount of $3,341 and $3,451 at June 30, 2018 and December 31, 2017 respectively.

-

200,549

On December 22, 2017, the Company borrowed $8,510,638, through 405 Petrodome, LLC, as agent for Lenders, with an OID of 6%., bearing interest initially at 9.875% through June 2018, then 11.375% through December 2018, then 12.875% through June 2019, then 14.375% through December 2019. Interest only through June 2018, at which time Principal will be payable at $75,000 monthly for six months and then $125,000 monthly to the maturity date of December 22, 2019. The balance shown is net of unamortized discounts of $823,633 and $941,108 at June 30, 2018 and December 31, 2017 respectively.

-

7,569,530

During June of 2018, the Company borrowed $379,712 from private lenders, and issued an additional $2,250,000 in exchange for amounts owed to the Company, pursuant to a 10% Secured Promissory Note with 50% of the principal convertible into the Company’s common stock at $0.20 per share, all principal and accrued interest payable on the maturity date of August 31, 2019. The balance shown is net of unamortized discount of $713,208 and $0 respectively.

1.916.504

-

On June 13, 2018, the Company borrowed $12,400,000 pursuant to a revolving line of credit facility with a maximum principal amount of $30,000,000 from Crossfirst Bank, bearing interest 1.5% above a base rate equal to the prime rate of interest published by the Wall Street Journal, interest only for June and July of 2018, at which time Principal will be payable at $100,000 monthly through the maturity date of June 30, 2020, at which time all remaining unpaid principal and accrued interest shall be due. The balance shown is net of unamortized discount of $138,211 and $0 at June 30, 2018 and December 31, 2017 respectively.

12,261,789

-

17,881,570

13,304,881

Less current portion

(4,732,565 )

(3,562,051 )

$ 13,149,005

$ 9,742,830

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Note 8.Commitments and contingencies
In April 2018, the Company’s subsidiary, Petrodome Energy, LLC entered into a 66-month lease for 4,147 square feet of office space for the Company’s corporate office in Houston, Texas. The annual base rent commenced at $22.00 per square foot, and escalates at $0.50 per foot each year through expiration of the lease term. A right-of-use asset and operating lease liability has been recorded with the adoption of Topic 842, pertaining to this office lease. As this lease does not provide an implicit interest rate, we used a portfolio approach to determine a collateralized incremental borrowing rate of 10% based on the information available at the date of adoption of Topic 842 to determine the lease liability. Operating lease expense is recognized on a straight-line basis over the lease term. Operating lease expense was $24,096 and $48,192 for the three and six months ended June 30, 2019.

From time to time the Company may be a party to litigation ~~matters~~ involving commercial claims against the Company. Management believes that ~~there are no current~~the ultimate resolution of these matters ~~that would~~will not have a material effect on the Company’s ~~consolidated~~ financial position or results of operations.

~~On April 16, 2018,~~The staff (the “Staff”) of the SEC’s Division of Enforcement has notified the Company, ~~entered into~~that the Staff has made a preliminary determination to recommend that the SEC file an ~~employment agreement, restricted stock agreement,~~enforcement action against the Company, as well as against its CEO and ~~warrant with Timothy Swift, appointing Mr. Swift as Executive Vice President and Chief Operating Officer~~it CFO, for alleged violations of Section 17(a) of the ~~Company. Pursuant to Mr. Swift’s employment agreement~~Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder during the period from early 2014 through late 2016. The Staff’s notice is not a formal allegation or a finding of wrongdoing by the Company, and the Company is in dialogue with the Staff regarding its preliminary determination. The Company ~~Mr. Swift is~~believes it has adequate defenses, and intends to ~~receive an annual base salary of $275,000 and is eligible to receive, at~~vigorously defend any enforcement action that may be initiated by the discretion of the Company’s Board of Directors, an annual bonus of up to 110% of his base salary and incentive equity compensation equal to approximately 130% of his base salary. Pursuant to the restricted stock agreement, Mr. Swift is to receive 1,000,000 shares of the Company’s common stock, with 50% of the shares vesting immediately and the remaining shares vesting on October 1, 2018, unless Mr. Swift has resigned from employment or has been terminated for cause on or prior to that time. Pursuant to the warrant, Mr. Swift received the right to purchase 3,500,000 shares of the Company’s common stock at $0.30 per share exercisable through April 1, 2023, with (i) 1,000,000 of the warrant shares vesting immediately; (ii) 2,000,000 of the warrant shares vesting on July 1, 2018, or another date as agreed in writing by both parties so long as the Company has closed a financing transaction consolidating the Company’s debt, has raised an additional $5,000,000 in financing at such time, and Mr. Swift has not resigned from employment or been terminated for cause at that time; and (iii) 500,000 of the warrant shares vesting on December 31, 2018, so long as Mr. Swift has not resigned from employment or been terminated for cause at that time.SEC.
Note 9.Subsequent Events
~~The Company has evaluated subsequent events from June 30, 2018, through the date of filing this Form 10-Q, and determined there are no additional items to disclose other than the following:~~

~~During~~On July ~~2018, the Company issued 382,823 common shares for services.~~
~~During July 2018, and through the date of this filing,~~30, 2019, the Company through ~~a private placement raised new funds~~Mid-Con Petroleum, LLC and Mid-Con Drilling, LLC (collectively the “Subsidiaries”), both wholly owned subsidiaries, borrowed in the ~~amount~~aggregate $3,351,099.00 from Cornerstone Bank of ~~$1,297,000,~~Overland Park, Kansas (the “Cornerstone Loans”), on the following terms: 6% interest; July 24, 2025 maturity date; interest only payments for 12 months beginning August 24, 2019; and ~~issued new notes pursuant to~~blended payments of principal and interest commencing August 24, 2020. These loans are secured by a first mortgage against the ~~terms~~Subsidiaries’ Kansas assets, and the Company guaranteed repayment of the ~~private placement relative~~Cornerstone Loans. The net proceeds were applied to reduce the ~~exchange of previous promissory notes~~amount owing under the Company’s reserve-based revolving loan facility with CrossFirst Bank to $6,650,000, and CrossFirst Bank released its security interests in the ~~amount of $3,852,000, requiring the issuance of 3,861,750 warrants to purchase common stock of the Company.~~Subsidiaries’ Kansas assets.

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

You should read the following discussion and analysis in conjunction with the financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. In preparing the management’s discussion and analysis, the registrant presumes that you have read or have access to the discussion and analysis for the preceding fiscal year.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

PLAN OF OPERATIONS

Overview

The ~~Company's~~Company’s business plan is to engage in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. ~~In November of 2014,~~Viking has relationships with industry experts and formulated an acquisition strategy, with emphasis on acquiring under-valued, producing properties from distressed vendors or those deemed as non-core assets by larger sector participants. The Company does not focus on speculative exploration programs, but rather targets properties with current production and untapped reserves. The Company’s growth strategy includes the ~~Company entered its first contract of this kind.~~following key initiatives:

~~On March 8, 2016,~~
· Acquisition of under-valued producing oil and gas assets
· Employ enhanced recovery techniques to maximize production
· Implement responsible, lower-risk drilling programs on existing assets
· Aggressively pursue cost-efficiencies
· Opportunistically explore strategic mergers and/or acquisitions
· Actively hedge mitigating commodity risk
The following overview provides a background for the ~~Company incorporated a wholly owned subsidiary, Viking Oil & Gas (Canada) ULC, in Alberta,~~current strategy being implemented by management.
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Table of Contents
Acquisitions – Canada
· In November 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. The working interests of this joint venture, were acquired from a Canadian Company that ended up in receivership, and the administration of these assets proved to be inefficient and unprofitable. The investment in these properties, as well as all uncollected receivables associated with it have been either fully impaired or fully reserved. Effective September 30, 2018, the Company negotiated a sale and settlement of this Canadian joint venture interest and a resolution of all intercompany balances associated with it, for proceeds to the Company of $232,545. An asset retirement obligation of $466,031 offset by the net asset retirement cost of $293,296 associated with this investment generated a gain from disposal of these assets of $405,280.
Acquisitions – Kansas
· In February 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.
· In October 2016, the Company, through its subsidiary Mid-Con Petroleum, LLC, completed an acquisition whereby the Company (i) increased its working interest in three existing oil and gas leases in Miami and Franklin Counties in Eastern Kansas, and (ii) acquired a working interest in four new oil and gas leases in the same region, comprising approximately 660 acres of property.
· On September 11, 2017, the Company through its subsidiary Mid-Con Drilling, LLC (“Mid-Con Drilling”), completed an acquisition of a 90% working interest in four new oil and gas leases in Anderson County in Eastern Kansas, comprising approximately 980 acres of property.
· On October 2, 2017, the Company, through Mid-Con Drilling, closed on an acquisition, effective October 1, 2017, of a 100% working interest in six new oil and gas leases in Miami and Franklin Counties in Eastern Kansas.
· On October 4, 2017, the Company, through Mid-Con Drilling, closed on an acquisition of an 80% working interest in six new oil and gas leases in Riley, Geary and Wabaunsee Counties in Kansas.
· On December 29, 2017, the Company through its subsidiary Mid-Con Development, LLC, completed an acquisition of working interests in approximately 41 oil leases in Ellis and Rooks Counties in Kansas, comprising several thousand acres.
· On January 12, 2018, the Company, through Mid-Con Drilling, completed an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Eastern Kansas.
· Effective February 1, 2018, the Company, through Mid-Con Drilling, closed on the acquisition of a working interest in a lease with access to the mineral rights (oil and gas) concerning approximately 80 acres of property in Douglas County in eastern Kansas. On May 1, 2019, the Company’s subsidiary, Mid-Con Development, LLC, sold its oil and gas assets in Ellis and Rooks Counties, Kansas.
· On May 1, 2019, the Company’s subsidiary, Mid-Con Development, LLC sold to an independent third party all of its interests in the oil and gas assets Mid-Con Development, LLC owned in Ellis and Rooks Counties, Kansas, consisting of working interests in approximately 41 oil leases comprising several thousand acres.
These Kansas properties are operated by third party contractors. The Company’s plans relative to ~~hold Canadian oil~~these properties includes the development of the production potential of existing wells and ~~gas interests which were registered in its name. On August 30, 2016,~~capitalizing on the ~~Company organized a wholly owned subsidiary, Mid-Con Petroleum, LLC (“Mid-Con Petroleum”), a Kansas limited liability company, to hold oil and gas interests in~~drilling opportunities that exist within the central United States. On August 25, 2017, the Company organized another wholly owned subsidiary, Mid-Con Drilling, LLC (“Mid-Con Drilling”), a Kansas limited liability company, to hold additional oil and gas interests in the central United States. On December 27, 2017, the Company organized a third wholly owned subsidiary, Mid-Con Development, LLC (“Mid-Con Development”), a Kansas limited liability company, to hold further oil and gas interests in the central United States.acreage covered by these working interests. In ~~2016, 2017 and~~ 2018, the Company ~~acquired numerous oil and gas interests~~began drilling new wells in various Kansas and in December of 2017, the Company acquired Petrodome Energy, LLC, a Texas limited liability company based in Houston, Texas, with interests in oil and gas leases in Texas, Louisiana and Mississippi.locations.

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Acquisitions – Texas, Louisiana and Mississippi
· On December 22, 2017, the Company completed an acquisition of 100% of the membership interests of Petrodome Energy, LLC, a privately-owned company, with working interests in multiple oil and gas fields across Texas, Louisiana and Mississippi, comprising approximately 11,700 acres.
As a part of this acquisition, the Company retained an operational office in Houston, Texas that includes several senior level professionals with over 100 years of combined oil and gas experience which provides the Company the capability of operating many of its own wells internally. This expertise has since been utilized to evaluate additional oil and gas acquisitions, evaluate the profitable management of all of the Company’s oil and gas assets, and evaluate and develop new drilling prospects.
Acquisitions – Texas and Louisiana
· On December 28, 2018, the Company, through its newly formed Ichor Energy subsidiaries completed an acquisition (the “Ichor Energy Acquisition”) of working interests in certain oil and gas leases in Texas (primarily in Orange and Jefferson Counties) and Louisiana (primarily in Calcasiue Parish), which include 58 producing wells and 31 salt water disposal wells. The properties produce hydrocarbons from known reservoirs/sands in the on-shore Gulf Coast region, with an average well depth in excess of 10,600 feet, and daily production volumes averaging in excess of 2,300 BOE.
This acquisition of these assets is consistent with the location of our Petrodome assets and are effectively managed from our Houston office.
Acquisitions – Louisiana
· On May 10, 2019, Petrodome Louisiana Pipeline LLC (“Petrodome LA”), a subsidiary of Petrodome Energy, LLC, acquired a majority working interest in 6 gas wells (including 2 producing gas wells), 1 producing oil well and 1 salt water disposal well located in the East Mud Lake Field in Cameron Parish, Louisiana, with leases to mineral rights (oil and gas) concerning approximately 765 acres.
Going Concern Qualification

These accompanying 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. Although the Company had a net income of $1,292,346 for the three months ended June 30, 2019, the Company had a net loss of $10,639,135 for the six months ended June 30, 2019. Furthermore, as of June 30, 2019, the Company has a working capital deficiency in excess of $45,000,000. The largest components of current liabilities creating this deficiency are (a) notes payable with a face value aggregating approximately $15,000,000 due in August of 2019 and (b) a promissory note payable to the seller of the certain oil and gas interests purchased on December 28, 2018 in the amount of $23,777,948 with all principal and accrued interest due on the earlier of (i) the date the Company or one of its affiliates completes an acquisition with one or more of the Sellers for a purchase price equal to or greater than $50,000,000 or (ii) January 31, 2020.
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Management has evaluated these conditions and has developed a plan which, in part, address these obligations as follows:
·
The terms of the $15 million notes due in August 2019 allow for 50% of the principal to be converted into shares of the Company’s common stock at $0.20 per share, and contain a provision whereby the Company has the right to extend the Maturity Date for one additional year to August of 2020. Consideration for the one-year extension is payment of the accrued interest, an increase in the interest rate to 12% for the extension period and the issuance of a warrant to purchase an additional 115,000 common shares per $100,000 of outstanding principal of each note on a pro rata basis. The net effect allows the Company to pay $1,500,000 in accrued interest and delay the payment of $15,000,000 in principal for one year.
·
The acquisition of oil and gas assets in Texas and Louisiana (the Ichor Energy Acquisition) at the end of 2018 is believed to provide cash flow sufficient to not only satisfy the Company’s debt service associated with this acquisition, but to also fund a $12,000,000 development program to increase this purchased production beyond its current average daily production of 2,300 BOE and provide a quicker principal reduction, resulting in an increased equity position relative to these assets. The acquisition of Petrodome in 2017 and the high level of oil and gas expertise retained by Petrodome at the end of 2017 provided an internal lease operating company to efficiently evaluate development opportunities.
·
The Company has a revolving credit facility with CrossFirst Bank, which was approved for $30,000,000. The balance outstanding at June 30, 2019 is approximately $10,100,000. On May 10, 2019, the Company entered into an amendment to this revolving credit facility to extend the final maturity date from June 30, 2020 to May 10, 2021, which provides the Company with an additional year to meet the cash demands associated with maturity. Additional funds could be made available to the Company for projects reviewed and approved by the lender.
These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to utilize the resources in place to generate future profitable operations, ~~and/or~~to develop additional acquisition opportunities, and 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~~believes the Company will be able to ~~address this concern but considers that the Company~~continue to develop new opportunities, and will be able to obtain additional funds bythrough debt and / or equity ~~financing and/or related party advances;~~financings to facilitate its development strategy; however, there is no assurance of additional funding being available. These consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.

RESULTS OF CONTINUING OPERATIONS

The following discussion of the financial condition and results of operation of the Company for the three and six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form ~~10-K/A~~10-K for the year ended December 31, ~~2017,~~2018, filed with the SEC on April ~~25, 2018.~~1, 2019.

Liquidity and Capital Resources

As of June 30, ~~2018,~~2019, and December 31, ~~2017,~~2018, the Company had ~~5,806,479~~$5,044,521 (of which $4,683,129 is restricted) and ~~$5,75,259~~$4,009,892 in cash holdings, respectively. Restricted cash in the amount of $4,683,129 as of June 30, 2019 represents the balance of cash held by Ichor Energy, LLC (the “Borrower”) and/or its subsidiaries, generated through the operations of those subsidiaries. Pursuant to the Term Loan Credit Agreement to which the Borrower and its subsidiaries are parties, following March 31, 2019 the Borrower is required at all times to maintain a minimum cash balance of $2,000,000 (the “MLR”). Within 30 days of the end of each quarter, commencing with the quarter ended June 30, 2019, the Borrower is required to pay the lenders, as an additional principal payment on the debt, any cash in excess of (i) the MLR and (ii) any funds necessary for the capital expenditures contemplated to be expended in the next six month period by an approved plan of development (“APOD Capex Amount”). At June 30, 2019, the cash in excess of the MLR does not exceed the APOD Capex Amount.
As of June 30, 2019, the Company has total long term debt of $105,992,026, with a current portion of $40,231,789. This current portion consists primarily of notes payable with a face value approximating $15,000,000 and a promissory note payable to the seller of the certain oil and gas interests acquired in December 2018, in the amount of $23,777,948 (see Going Concern Qualification).
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Three months ended June 30, ~~2018,~~2019, compared to the three months ended June 30, ~~2017~~2018

Revenue

The Company had gross revenues of $8,734,323 for the three months ended June 30, 2019, as compared to $2,318,622 for the three months ended June 30, 2018, ~~as compared to $160,430 for~~reflecting an increase in excess of 276% or $6,415,701. This substantial increase in revenue is primarily a result of the ~~three months ended June 30, 2017, resulting~~increased production from ~~its~~the certain oil and gas ~~interests in Canada, Kansas, Texas, Louisiana~~assets acquired at the end of 2018, but also is reflective of new drilling and ~~Mississippi.~~enhancements to existing wells.

Expenses

The Company’s operating expenses increased by ~~$2,546,642~~approximately 73%, or $2,706,290 to ~~$3,715,319~~$6,421,609 for the three-month period ended June 30, ~~2018,~~2019, from ~~$1,168,677~~$3,715,319 in the corresponding prior period. Lease operating costs increased by approximately 176%, or $1,821,804, to 2,857,278 from $1,035,474 as compared to the three months ended June 30, 2018. DD&A expense, a non-cash expense, increased by $1,768,240, to $2,228,191 from $459,951 for the corresponding period in ~~2017. The increase is mainly attributable to increased lease operating costs commensurate with the new oil and gas wells purchased in 2017 and the first quarter of~~ 2018. ~~Additionally, there were increases in general~~General and administrative ~~associated with~~expenses only reflected an increase of approximately 15%, to $1,257,959 or $132,023, when compared to $1,125,936 in the ~~office~~corresponding prior period.
Income (loss) from Operations
The Company, through the increased production coming from its latest acquisition, and controlling the cost of operations and administration, has generated an income from operations for the three months ended June 30, 2019 of $2,312,714, when compared to a loss from operations of ~~Petrodome, and increases in accretion expense and depreciation, depletion and amortization expense.~~$1,396,697 for the three months ended June 30, 2018.

Other ~~income (expense)~~Income (Expense)

The Company had other income (expense) of $(1,020,368) for the three months ended June 30, 2019, as compared to $(3,164,009) for the three months ended June 30, ~~2018, as compared to $(314,466) for the three months ended June 30, 2017.~~2018. This significant difference is primarily a result of increased interest expense and amortization of debt discount due to increased debt associated with acquisitions, offset by a gain on commodity derivatives.
Net Income (Loss)
The Company incurred a net income of $1,292,346 during the three-month period ended June 30, 2019, compared with a net loss of $(3,955,216) for the three-month period ended June 30, 2018. The primary reason for the Company generating a net income for the three months ended June 30, 2019 has to do with the gain associated with the change in the fair value of the commodity derivatives offsetting interest expense.
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Six months ended June 30, 2019, compared to the six months ended June 30, 2018
Revenue
The Company had gross revenues of $18,080,915 for the six months ended June 30, 2019, as compared to $4,480,569 for the six months ended June 30, 2018, reflecting an increase in excess of 303% or $13,600,346. This substantial increase in revenue is primarily a result of the increased production from the certain oil and gas assets acquired at the end of 2018, but also is reflective of new drilling and enhancements to existing wells.
Expenses
The Company’s operating expenses increased by approximately 98%, or $6,211,448 to $12,547,164 for the six-month period ended June 30, 2019, from $6,335,716 in the corresponding prior period. Lease operating costs increased by approximately 167%, or $3,412,930, to 5,456,672 from $2,043,742 as compared to the six months ended June 30, 2018. DD&A expense, a non-cash expense, increased by $3,649,242, to $4,598,879 from $949,637 for the corresponding period in 2018. General and administrative expenses only reflected an increase of approximately 15%, to $2,291,304 or $264,843, when compared to $2,026,461 in the corresponding prior period.
Income (loss) from Operations
The Company, through the increased production coming from its latest acquisition, and controlling the cost of operations and administration, has generated an income from operations for the six months ended June 30, 2019 of $5,533,751, when compared to a loss from operations of $1,855,147 for the six months ended June 30, 2018.
Other Income (Expense)
The Company had other income (expense) of $(16,172,886) for the six months ended June 30, 2019, as compared to $(4,530,231) for the six months ended June 30, 2018. This significant difference is primarily a result of increased interest expense and amortization of debt discount due to increased debt associated with acquisitions, and loss on commodity ~~derivatives~~derivatives.

Net Income (Loss)

The Company incurred a net (loss) of ~~$(3,955,216)~~$(10,639,135) during the ~~three-month~~six-month period ended June 30, ~~2018,~~2019, compared with a net loss of ~~$(1,322,713) for the three-month period ended June 30, 2017. The increase in net loss was mainly due to the items referred to in the analysis of operating expenses and other income (expense).~~
~~Six months ended June 30, 2018, compared to the six months ended June 30, 2017~~
~~Revenue~~
The Company had gross revenues of $4,480,569 for the six months ended June 30, 2018, as compared to $367,293 for the six months ended June 30, 2017, resulting from its oil and gas interests in Canada, Kansas, Texas, Louisiana and Mississippi.
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~~Expenses~~
~~The Company’s operating expenses increased by $4,328,657 to $6,335,716~~$(5,508,099) for the six-month period ended June 30, 2018, from $2,007,059 in the corresponding period in 2017. The increase is mainly attributable to increased lease operating costs commensurate with the new oil and gas wells purchased in 2017 and the first quarter of 2018. Additionally, there were increases in general and administrative associated with the office operations of Petrodome, and increases in accretion expense and depreciation, depletion and amortization expense.
~~Other income (expense)~~
The Company had other income (expense) of $(4,530,231) for the six months ended June 30, 2018, as compared to $(242,348) for the six months ended June 30, 2017. This significant difference is primarily a result of increased interest expense due to increased debt associated with acquisitions, and loss on commodity derivatives
~~Net Income (Loss)~~
~~The Company incurred a net (loss) of $(5,508,099) during the six-month period ended June 30, 2018, compared with a net loss of $(1,882,114) for the six-month period ended June 30, 2017.~~ The increase in net loss was mainly due to the items referred to in the analysis of operating expenses and other income (expense).

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared and actual results could differ from our estimates and such differences could be material. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical accounting policies and how they are applied in the preparation of our financial statements, as well as the sufficiency of the disclosures pertaining to our accounting policies in the footnotes accompanying our financial statements. Described below are the most significant policies we apply in preparing our consolidated financial statements, some of which are subject to alternative treatments under GAAP. We also describe the most significant estimates and assumptions we make in applying these policies. See “Note 32 - Summary of Significant Accounting Policies” to our consolidated financial statements.

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Oil and Gas Property Accounting

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

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

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

i.
the quality and quantity of available data;

ii.
the interpretation of that data;

iii.
the accuracy of various mandated economic assumptions; and

iv.
the judgment of the persons preparing the estimate.

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

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

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

Asset Retirement Obligation

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

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

Revenues from oil and gas properties are recognized under the entitlements method of accounting, whereby revenue is recognized on the amount the Company is entitled to, based on its interest in the property after all costs associated with exploration, gathering, marketing and sales relative to the volumes of product sold.
Although these estimates are based on management’s knowledge of current events and actions the Company may undertake in the future, the final results may ultimately differ from actual results. Certain accounting policies involve significant judgments and assumptions, which have a material impact on the Company’s financial condition and results. Management believes its critical accounting policies reflect its most significant estimates and assumptions used in the presentation of the Company’s financial statements. The Company does not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities.”

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

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 would 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 June 30, ~~2018,~~2019, 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~~Company’s internal controls and procedures and the ~~Company's~~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 June 30, ~~2018.~~2019.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company may be involved in litigation relating to claims arising out of commercial operations in the normal course of business. As of June 30, ~~2018,~~2019, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of operations.
In April of 2019, the staff (the “Staff”) of the SEC’s Division of Enforcement notified the Company that the Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company, as well as against its CEO and its CFO, for alleged violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder during the period from early 2014 through late 2016. The Staff’s notice is not a formal allegation or a finding of wrongdoing by the Company, and the Company is in dialogue with the Staff regarding its preliminary determination. The Company believes it has adequate defenses and intends to vigorously defend any enforcement action that may be initiated by the SEC.

ITEM 1A. RISK FACTORS

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

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

During ~~January 2018, the Company issued 250,000 common shares for services pursuant to a one-year consulting agreement.~~
~~During February and March 2018, the Company issued 668,500 common shares for services.~~
~~During the quarter ended March 31, 2018, pursuant to a private placement for debt and equity, the Company issued 4,110,000 common shares to third party investors.~~
~~During April 2018, the Company issued 60,312 common shares in a cashless exercise of 402,084 warrants to purchase the common stock of the Company.~~
~~During~~ the quarter ended June 30, ~~2018,~~2019, the Company issued ~~2,363,248~~12,873 common shares ~~for services.~~
~~During the quarter ended June 30, 2018, pursuant~~ to a ~~private placement for debt and equity, the Company issued 3,664,856 common shares.~~
~~During July 2018, the Company issued 382,823 common shares~~business consultant for services.

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

~~None.~~On July 16, 2019, the Company filed an amended Certificate of Designation with the State of Nevada, amending the preferences, rights and limitations of the Company’s Series C Preferred Stock, increasing the number of votes associated with each share of Series C Preferred Stock from 10,000 votes to 20,000 votes.

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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~~Current Report on ~~Schedule 14C~~Form 8-K filed on ~~May 23, 2012)~~November 6, 2018)
3.4*
Amendment to Certificate of Designation After Issuance of Class or Series
10.1
Membership Interest Purchase Agreement, dated November 10, 2017, by Viking Energy Group, Inc. and Black Rhino, LP (incorporated by reference to our Current Report on Form 8-K filed on December 29, 2017)
10.2
First Amendment to Membership Interest Purchase Agreement, dated November 30, 2017, by Viking Energy Group, Inc. and Black Rhino, LP (incorporated by reference to our Current Report on Form 8-K filed on December 29, 2017)
10.3
Second Amendment to Membership Interest Purchase Agreement, dated December 22, 2017, by Viking Energy Group, Inc., Black Rhino, LP, and Petrodome Energy, LLC (incorporated by reference to our Current Report on Form 8-K filed on December 29, 2017)
10.4
Term Loan Agreement, dated December 22, 2017, by the Borrowers listed therein, 405 Petrodome LLC, as Administrative Agent, and 405 Petrodome LLC and Cargill, Incorporated, as Lenders (incorporated by reference to our Current Report on Form 8-K filed on December 29, 2017)
10.5
Purchase and Sale Agreement, ~~dated December 22, 2017,~~executed as of September 1, 2018, by and among Viking Energy Group, Inc. and ~~Woodway Oil & Gas – KS–I, LLC~~Bodel Holdings, L.L.C., Cleveland Holdings, L.L.C., Delbo Holdings, L.L.C., DeQuincy Holdings, L.L.C., Gulf Coast Working Partners, L.L.C., Oakley Holdings, L.L.C., SamJam Energy, L.L.C., and Perry Point Holdings, L.L.C. (incorporated by reference to our Current Report on Form 8-K filed on ~~January 8,~~September 5, 2018)
10.6
~~Assignment~~First Amendment to Purchase and ~~Bill~~Sale Agreement, executed as of ~~Sale, dated December 22, 2017,~~November 1, 2018, by ~~Mid-Con Development, LLC~~ and ~~Woodway Oil & Gas – KS–I, LLC~~among Viking Energy Group, Inc. and Bodel Holdings, L.L.C., Cleveland Holdings, L.L.C., Delbo Holdings, L.L.C., DeQuincy Holdings, L.L.C., Gulf Coast Working Partners, L.L.C., Oakley Holdings, L.L.C., SamJam Energy, L.L.C., and Perry Point Holdings, L.L.C. (incorporated by reference to our Current Report on Form 8-K filed on ~~January 8,~~November 5, 2018)

10.7
Second Amendment to Purchase and Sale Agreement, executed as of November 1, 2018, by and among Viking Energy Group, Inc. and Bodel Holdings, L.L.C., Cleveland Holdings, L.L.C., Delbo Holdings, L.L.C., DeQuincy Holdings, L.L.C., Gulf Coast Working Partners, L.L.C., Oakley Holdings, L.L.C., SamJam Energy, L.L.C., and Perry Point Holdings, L.L.C. (incorporated by reference to our Current Report on Form 8-K filed on December 31, 2018)
10.8
Collateral Agreement to Purchase and Sale Agreement, executed as of December 26, 2018, by and among Viking Energy Group, Inc. and Bodel Holdings, L.L.C., Cleveland Holdings, L.L.C., Delbo Holdings, L.L.C., DeQuincy Holdings, L.L.C., Gulf Coast Working Partners, L.L.C., Oakley Holdings, L.L.C., SamJam Energy, L.L.C., and Perry Point Holdings, L.L.C. (incorporated by reference to our Current Report on Form 8-K filed on December 31, 2018)
10.9
Term Loan Credit Agreement, dated as of December 28, 2018, by and among Ichor Energy Holdings, LLC, Ichor Energy, LLC, ABC Funding, LLC, as Administrative Agent, and the Lender Parties (incorporated by reference to our Current Report on Form 8-K filed on December 31, 2018)
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10.10
10% Secured Promissory Note, dated December 27, 2018, issued by Viking Energy Group, Inc. to RPM Investments, a Division of Opus Bank, in favor of Sellers (incorporated by reference to our Current Report on Form 8-K filed on December 31, 2018)
10.11
Security and Pledge Agreement, executed as of December 27, 2018, by and among Viking Energy Group, Inc. and Bodel Holdings, L.L.C., Cleveland Holdings, L.L.C., Delbo Holdings, L.L.C., DeQuincy Holdings, L.L.C., Gulf Coast Working Partners, L.L.C., Oakley Holdings, L.L.C., SamJam Energy, L.L.C., and Perry Point Holdings, L.L.C. (incorporated by reference to our Current Report on Form 8-K filed on December 31, 2018)
10.12
Employment Agreement with Timothy Swift dated as of March 19, 2018 (incorporated by reference to our Quarterly Report on Form 10-Q filed on May 21, 2018)
~~10.8~~10.13
Restricted Stock Agreement with Timothy Swift dated as of April 1, 2018 (incorporated by reference to our Quarterly Report on Form 10-Q filed on May 21, 2018)
21.1

Subsidiaries of Viking Energy Group, Inc. (incorporated by reference to our ~~Current~~Quarterly Report on Form ~~10-K/A~~10-Q filed on ~~April 25, 2018)~~May 14, 2019)
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 and Accounting 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~~Principal 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~~Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63
99.1
Purchase and Sale, Petroleum and Natural Gas Conveyance Agreement with Tanager Energy Inc. dated November 3, 2014 (incorporated by reference to our Current Report on Form 8-K filed on November 10, 2014)
~~99.2~~
Purchase, Sale and Capital Contribution Agreement effective February 1, 2016 (incorporated by reference to our Annual Report on Form 10-K/A filed on May 16, 2016)
~~99.3~~99.2
Purchase and Sale Agreement (incorporated by reference to our Current Report on Form 8-K filed on September 12, 2017)
~~99.4~~99.3
Purchase and Sale Agreement (incorporated by reference to our Current Report on Form 8-K filed on October 3, 2017)
~~99.5~~99.4
Purchase and Sale Agreement (incorporated by reference to our Current Report on Form 8-K filed on October 4, 2017)
~~99.6~~99.5
Purchase and Sale Agreement (incorporated by reference to our Current Report on Form 8-K filed on December 8, 2017)
101.INS**
XBRL Instance Document
101.SCH**
XBRL Taxonomy Extension Schema Document
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**
XBRL Taxonomy Extension Label Linkbase Document
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase Document
~~___________~~______________
* Filed ~~herewith.~~herewith
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

ITEM 7. OFF BALANCE-SHEET ARRANGEMENTS

None.

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SIGNATURES

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

VIKING ENERGY GROUP, INC.
(Registrant)
/s/ James Doris
Date: August ~~14, 2018~~12, 2019
James Doris

Principal Executive Officer

/s/ Frank W. Barker, Jr.
Date: August ~~14, 2018~~12, 2019
Frank W. Barker, Jr.

Principal Financial and Accounting Officer

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Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Not applicable.	Note applicable.	Not applicable.

Large Accelerated Filer	¨	~~FilerAccelerated~~Accelerated Filer	¨
Non-Accelerated Filer	¨ x	Smaller Reporting Company	x
		Emerging Growth Company	¨

VIKING ENERGY GROUP, INC. Consolidated Balance Sheets (Amounts expressed in US dollars)

	June 30,			December 31,
	2018			2017
	(unaudited)
ASSETS
Current assets:
Cash	$	5,806,479		$	536,156
Restricted cash		-			5,199,103
Accounts receivable – oil and gas		559,682			573,296
Other receivable – related party		-			548,714
Prepaid expenses		65,761			-
Total current assets		6,431,922			6,857,269

Oil and gas properties, full cost method
Proved developed producing oil and gas properties, net		11,577,814			12,301,141
Undeveloped and non-producing oil and gas properties, net		28,001,852			26,859,634
Total oil and gas properties, net		39,579,666			39,160,775

Fixed assets, net		267,576			166,741
Other assets		32,083			9,396
TOTAL ASSETS	$	46,311,247		$	46,194,181

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accrued expenses and other current liabilities	$	819,287		$	397,070
Accounts payable		622,808			2,555,869
Undistributed revenues and royalties		1,253,934			1,175,200
Derivative liability		1,232,810			1,052,788
Amount due to directors		509,007			1,192,970
Current portion of long term debt – net of debt discount		4,732,565			3,562,051
Total current liabilities		9,170,411			9,935,948
Long term debt - net of current portion and debt discount		13,149,005			9,742,830
Deferred tax liability		33,548			910,827
Asset retirement obligation		3,367,052			3,096,263
TOTAL LIABILITIES		25,720,016			23,685,868

Commitments and contingencies (Note 8)

STOCKHOLDERS’ EQUITY
Capital Stock
Preferred stock, $0.001 par value, 5,000,000 shares authorized, 28,092 shares issued and outstanding as of June 30, 2018 and December 31, 2017		28			28
Common stock, $0.001 par value, 100,000,000 shares authorized,with 83,464,906 and 72,347,991 shares issued and outstanding as of June 30, 2018 and December 31, 2017 respectively.		83,465			72,348
Additional Paid-In Capital		21,790,203			19,029,892
Prepaid equity-based compensation		-			(11,827	)
Retained earnings (accumulated deficit)		(1,282,465	)		3,417,872
TOTAL STOCKHOLDERS’ EQUITY		20,591,231			22,508,313
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	46,311,247		$	46,194,181

	June 30,			December 31,
	2019			2018
	(unaudited)
ASSETS
Current assets:
Cash	$	361,392		$	4,009,892
Restricted cash		4,683,129			-
Accounts receivable – oil and gas - net		2,709,059			258,300
Prepaid expenses		90,569			124,443
Total current assets		7,844,149			4,392,635

Oil and gas properties, full cost method
Proved developed producing oil and gas properties, net		76,502,105			81,331,986
Proved undeveloped and non-producing oil and gas properties, net		49,190,612			50,492,906
Total oil and gas properties, net		125,692,717			131,824,892

Fixed assets, net		562,923			200,243
Derivative asset		-			681,776
Other assets		110,194			110,194
TOTAL ASSETS	$	134,209,983		$	137,209,740

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	1,630,603		$	2,549,280
Accrued expenses and other current liabilities		2,741,986			1,014,661
Undistributed revenues and royalties		1,308,021			1,207,605
Derivative liability		7,121,509			2,531,718
Amount due to director		590,555			395,555
Current portion of long-term debt – net of debt discount		40,231,789			11,805,582
Total current liabilities		53,624,463			19,504,401
Long term debt - net of current portion and debt discount		65,760,237			92,076,857
Operating lease liability		338,627			-
Asset retirement obligation		3,868,692			4,413,465
TOTAL LIABILITIES		123,592,019			115,994,723

Commitments and contingencies (Note 8)

STOCKHOLDERS’ EQUITY
Preferred stock, $0.001 par value, 5,000,000 shares authorized,
28,092 shares issued and outstanding as of June 30, 2019 and December 31, 2018		28			28
Common stock, $0.001 par value, 500,000,000 shares authorized,
91,199,954 and 90,989,025 shares issued and outstanding as of June 30, 2019 and December 31, 2018 respectively.		91,200			90,989
Additional paid-in capital		32,057,784			32,015,913
Accumulated deficit		(21,531,048	)		(10,891,913	)
TOTAL STOCKHOLDERS’ EQUITY		10,617,964			21,215,017
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	134,209,983		$	137,209,740

VIKING ENERGY GROUP, INC. Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (Amounts expressed in US dollars)

	Three months ended						Six months ended
	June 30,						June 30,
	2018			2017			2018			2017

Revenue
Oil and gas sales	$	2,318,622		$	160,430		$	4,480,569		$	367,293

Operating expenses
Lease operating costs		1,035,474			104,066			2,043,742			264,584
General and administrative		1,125,936			215,582			2,026,461			485,923
Stock based compensation		1,044,612			803,616			1,218,099			1,151,020
Accretion - ARO		49,346			9,804			97,777			18,641
Depreciation, depletion and amortization		459,951			35,609			949,637			86,891
Total operating expenses		3,715,319			1,168,677			6,335,716			2,007,059

Loss from operations		(1,396,697	)		(1,008,247	)		(1,855,147	)		(1,639,766	)

Other income (expense)
Interest expense		(2,531,178	)		(433,551	)		(3,600,488	)		(690,261	)
Change in fair value of derivatives		(632,831	)		119,085			(987,784	)		455,098
Loss on sale of investments		-			-			-			(7,185	)
Gain on ARO settlement		-			-			58,041			--
Total other income (expense)		(3,164,009	)		(314,466	)		(4,530,231	)		(242,348	)

Net loss before income taxes		(4,560,706	)		(1,322,713	)		(6,385,378	)		(1,882,114	)
Income tax benefit (expense)		605,490						877,279			-

Net loss	$	(3,955,216	)	$	(1,322,713	)	$	(5,508,099	)	$	(1,882,114	)

Other comprehensive income (loss)
Unrealized gain (loss) on securities available-for-sale		-			-			-			1,446

Net Comprehensive income loss	$	(3,955,216	)	$	(1,322,713	)	$	(5,508,099	)	$	(1,880,668	)
Earnings (loss) per common share
Basic	$	(0.05	)	$	(0.02	)	$	(0.07	)	$	(0.03	)
Weighted average number of common shares outstanding
Basic		80,957,111			61,272,870			77,650,012			59,032,220

VIKING ENERGY GROUP, INC. Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) (Amounts expressed in US dollars)

												Prepaid			Retained
									Additional			Equity-			Earnings			Total
	Common Stock				Preferred Stock				Paid-in			Based			(Accumulated			Stockholders'
	Number		Amount		Number		Amount		Capital			Compensation			Deficit)			Equity

Balances at December 31, 2017		72,347,990	$	72,348		28,092	$	28	$	19,029,892		$	(11,827	)	$	3,417,872		$	22,508,313

Accounting principle change relative to certain derivative liabilities - Note 2.																807,762			807,762
Shares issued as debt discount		7,774,856		7,775						1,229,641									1,237,416
Shares issued as prepaid equity-based compensation		250,000		250						54,750			(55,000	)					-
Amortization of prepaid equity-based compensation													66,827						66,827
Shares issued for services		3,031,748		3,032						548,887									551,919
Warrants issued for services										599,353									599,353
Shares issued in cashless exercise of warrants		60,312		60						(60	)								-
Warrants issued as debt discount										327,740									327,740
Net loss for the six months ended June 30, 2018																(5,508,099	)		(5,508,099	)

Balances at June 30, 2018		83,464,906	$	83,465		28,092	$	28	$	21,790,203		$	-		$	(1,282,465	)	$	20,591,231

	·	In November 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. Effective September 30, 2018, the Company negotiated a sale and settlement of this Canadian joint venture interest and a resolution of all intercompany balances associated with it, for proceeds to the Company of $232,545. An asset retirement obligation of $466,031 offset by the net asset retirement cost of $293,296 associated with this investment generated a gain from disposal of these assets of $405,280.

	·	In February 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.

	·	In October 2016, the Company, through its subsidiary Mid-Con Petroleum, LLC (“Mid-Con Petroleum”), completed an acquisition whereby the Company (i) increased its working interest in three existing oil and gas leases in Miami and Franklin Counties in Eastern Kansas, and (ii) acquired a working interest in four new oil and gas leases in the same region, comprising approximately 660 acres of property.

	·	On September 11, 2017, the Company through its subsidiary Mid-Con Drilling, LLC (“Mid-Con Drilling”), completed an acquisition of a 90% working interest in four new oil and gas leases in Anderson County in Eastern Kansas, comprising approximately 980 acres of property.

	·	On October 2, 2017, the Company, through Mid-Con Drilling, closed on an acquisition, effective October 1, 2017, of a 100% working interest in six new oil and gas leases in Miami and Franklin Counties in Eastern Kansas.

	·	On October 4, 2017, the Company, through Mid-Con Drilling, closed on an acquisition of an 80% working interest in six new oil and gas leases in Riley, Geary and Wabaunsee Counties in Kansas.

	·	On December 22, 2017, the Company completed an acquisition of 100% of the membership interests of Petrodome Energy, LLC, a privately-owned company, with working interests in multiple oil and gas fields across Texas, Louisiana and Mississippi, comprising approximately 11,700 acres.

	·	On December 29, 2017, the Company through its subsidiary Mid-Con Development, LLC (“Mid-Con Development”), completed an acquisition of working interests in approximately 41 oil leases in Ellis and Rooks Counties in Kansas, comprising several thousand acres.

Natural Gas	Period	Average MMBTU per Month	Fixed Price per MMBTU

Swap	Dec-18 to Dec-22	118,936	$2.715

Crude Oil	Period	Average BBL per Month	Price per BBL

Swap	Dec-18 to Dec-22	24,600	$50.85
Swap	Dec-17 to Dec-19	1,400	$54.77
Swap	Jan-20 to Jun-20	1,400	$52.71
Collar	Dec-17 to Jun-20	4,000	$55.00 / $72.00
Collar	Sep-17 to Sep-19	1,100	$47.00 / $54.10

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)

Financial Assets
Long term investment	$	-	$	-	$	-	$	-
Commodity Derivative		-		-		-		-
	$	-	$	-	$	-	$	-

Financial liabilities
Derivative liabilities	$	-	$	-	$	-	$	-
Commodity Derivative		-		1,232,810		-		(987,784	)
	$	-	$	1,232,810	$	-	$	(987,784	)

	June 30, 2018		December 31, 2017


In February 2017, a one-year consulting agreement for services related to investor relations, market exposure and content development for a total amount of $44,160.	$	-	$	6,412

In April 2017, a one-year consulting agreement comprised of four quarterly incremental installments for services related to analysis of potential oil and gas acquisitions, for an initial quarterly amount of $40,250, a second installment of $28,000 in July 2017, and a third installment of $55,000 in January 2018.		-		5,415

	$	-	$	11,827

Oil and Gas Properties by Geographical Cost Center

	Three months ended June 30,				Six months ended, June 30,
Cost Center	2018		2017		2018		2017

Canada	$	10,649	$	221	$	21,387	$	17,228
United States		449,302		35,388		928,250		69,663

	$	459,951	$	35,609	$	949,637	$	86,891

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017

Oil	$	2,248,725		151,386	$	4,272,909	$	358,249
Natural gas and Natural gas liquids		69,897		9,044		207,660		9,044

	$	2,318,622	$	160,430	$	4,480,569	$	367,293