Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A-1
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 2016
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Commission File Number 000-52392
Amazing Energy Oil and Gas, Co.
(Exact name of registrant as specified in its charter)
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Nevada
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82-0290112
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification Number)
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701 South Taylor Street
Suite 470, LB 113
Amarillo, TX 79101
(Address of principal executive offices)
Registrant's telephone number, including area code: (806) 322-1922
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Securities registered pursuant to Section 12(b) of the Act:
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Securities registered pursuant to section 12(g) of the Act:
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NONE
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COMMON STOCK
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: YES ☐ NO ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒ NO ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer
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Accelerated Filer
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Non-accelerated Filer (Do not check if a smaller reporting company)
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on January 31, 2016, based on the last reported trading price of the registrant's common stock on the OTC-Markets was $6,578,682.
At November 11, 2016, 64,824,830 shares of the registrant's common stock were outstanding.
REASON FOR AMENDMENT
The sole purpose of this Amendment to the Registrant's Annual Report on Form 10-K for the period ended July 31, 2016 is to furnish the audit and Interactive Data File exhibits pursuant to Rule 405 of Regulation S-T. No other changes have been made to this Form 10-K and this Amendment has not been updated to reflect events occurring subsequent to the filing of this Form 10-K.
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Page
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3
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5
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Business.
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5
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Risk Factors.
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14
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Unresolved Staff Comments.
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14
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Properties.
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14
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Legal Proceedings.
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18
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Mine Safety Disclosures.
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18
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18
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Market for the Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities.
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18
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Selected Financial Data.
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20
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Management's Discussion and Analysis of Financial Condition and Results of Operation.
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20
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Quantitative and Qualitative Disclosures About Market Risk.
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27
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Financial Statements and Supplementary Data.
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27
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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
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50
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Controls and Procedures.
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51
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Other Information.
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52
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52
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Directors, Executive Officers and Corporate Governance.
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52
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Executive Compensation.
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56
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
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57
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Certain Relationships and Related Transactions, and Director Independence.
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60
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Principal Accountant Fees and Services.
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61
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62
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Exhibits and Financial Statement Schedules.
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62
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64
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65
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The following is a description of the meanings of some of the oil and gas industry terms used in this report.
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Basin
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A large natural depression on the earth's surface in which sediments generally brought by water accumulate.
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Bbl
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One stock tank barrel, of 42 U.S. gallons liquid volume, used to reference oil, condensate or NGLs.
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Boe
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Barrel of oil equivalent, determined using the ratio of six Mcf of gas to one Boe, and one Bbl of NGLs to one Boe.
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Completion
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The installation of permanent equipment for production of oil or gas, or, in the case of a dry well, for reporting to the appropriate authority that the well has been abandoned.
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Developed oil and gas reserves
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Has the meaning given to such term in Rule 4-10(a)(6) of Regulation S-X, as follows:
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Developed oil and gas reserves are reserves of any category that can be expected to be recovered:
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(i)
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Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and
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(ii)
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Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
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Dry hole or well
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An exploratory, development or extension well that proved to be incapable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well.
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Hydraulic fracturing
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The technique designed to improve a well's production rates by pumping a mixture of water and sand (in our case, over 99% by mass) and chemical additives (in our case, less than 1% by mass) into the formation and rupturing the rock, creating an artificial channel.
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Lease operating expenses
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The expenses of lifting oil or gas from a producing formation to the surface, and the transportation and marketing thereof, constituting part of the current operating expenses of a working interest, and also including labor, superintendence, supplies, repairs, short-lived assets, maintenance, allocated overhead costs and other expenses incidental to production, but excluding lease acquisition or drilling or completion expenses.
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Mbo
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Thousand barrels of oil or other liquid hydrocarbons.
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Mboe
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Thousand barrels of oil equivalent, determined using the ratio of six Mcf of gas to one Boe, and one Bbl of NGLs to one Boe.
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Mcf
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Thousand cubic feet of natural gas.
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Mmcf
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Million cubic feet of gas.
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Play
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A set of known or postulated oil and/or gas accumulations sharing similar geologic, geographic and temporal properties, such as source rock, migration pathways, timing, trapping mechanism and hydrocarbon type.
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Productive well
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An exploratory, development or extension well that is not a dry well.
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Proved developed producing reserves
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Proved developed oil and gas reserves that are expected to be recovered:
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(i)
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Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and
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(ii)
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Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.
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Proved oil and gas reserves
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Has the meaning given to such term in Rule 4-10(a)(22) of Regulation S-X, as follows:
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Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible — from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations — prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.
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(i)
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The area of the reservoir considered as proved includes:
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(A)
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The area identified by drilling and limited by fluid contacts, if any, and
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(B)
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Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geosciences and engineering data.
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(ii)
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In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geosciences, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.
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(iii)
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Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geosciences, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.
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(iv)
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Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:
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(A)
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Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and
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(v)
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Existing economic conditions include prices and costs at which economic viability from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an un-weighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.
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PV-10
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An estimate of the present value of the future net revenues from proved oil and gas reserves after deducting estimated production and ad valorem taxes, future capital costs and operating expenses, but before deducting any estimates of federal income taxes. The estimated future net revenues are discounted at an annual rate of 10% to determine their "present value." The present value is shown to indicate the effect of time on the value of the revenue stream and should not be construed as being the fair market value of the properties. Estimates of PV-10 are made using oil and gas prices and operating costs at the date indicated and held constant for the life of the reserves.
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Reserve life
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This index is calculated by dividing year-end 2016 estimated proved reserves by 2016 production of 5 MMBoe to estimate the number of years of remaining production.
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Standardized measure
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The present value of estimated future net revenues to be generated from the production of proved reserves, determined in accordance with the rules and regulations of the SEC (using prices and costs in effect as of the period end date) without giving effect to non-property related expenses such as general and administrative expenses, debt service and future income tax expenses or to depletion, depreciation and amortization and discounted using an annual discount rate of 10%. Standardized measure does not give effect to derivative transactions.
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Working interest
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The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and receive a share of production.
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Amazing Energy Oil and Gas, Co. ("We," "Us", "the Company" or "Amazing Energy Oil and Gas Co.") is incorporated in the State of Nevada. Through its primary subsidiary, Amazing Energy, Inc., also a Nevada corporation, the main business of the Company is the exploration, development, and production of oil and gas in the Permian Basin of West Texas. On October 7, 2014, the Company entered into a change in control agreement with certain shareholders of Amazing Energy, Inc. The change in control agreement was the first step in a reverse merger process whereby the shareholders of Amazing Energy, Inc. would control about 95% of the shares of common stock of Amazing Energy Oil and Gas, Co., and Amazing Energy Oil and Gas, Co. would own 100% of the outstanding shares of common stock of Amazing Energy, Inc. This entire reverse merger process was completed in July of 2015.
Amazing Energy, Inc. (AEI) was formed in 2010 as a Texas corporation and re-domiciled to Nevada in 2011. The Company owns interests in oil and gas properties located in Texas. The Company is primarily engaged in the acquisition, exploration and development of oil and gas properties and the production and sale of oil and natural gas. Amazing Energy, LLC was formed in December 2008 as a Texas Limited Liability Company. In December of 2010, Amazing Energy, Inc. and Amazing Energy, LLC were combined as commonly controlled entities.
The Company is still marginally involved in the gold exploration business through another wholly owned subsidiary; Kisa Gold Mining, Inc. Kisa controls or has interests in two consolidated claim blocks consisting of 88 Alaska mining claims covering 13,840 acres which comprise the Company's Southwest Kuskokwim project. The claims consist of exploration properties in Southwest Alaska approximately 90 miles east of the village of Bethel. Afranex Gold Limited ("Afranex") had originally agreed through an option agreement to purchase all of the outstanding common stock of Kisa for $400,000 on or before December 31, 2015. On November 23, 2015, Amazing and Afranex agreed to extend the option to December 31, 2016, or such later date as agreed upon. The updated option agreement supersedes all previous correspondence and understandings between the parties. Afranex paid a $50,000 non-refundable option fee to Amazing on November 23, 2015, as consideration for extending this option. A new term sheet and option agreement was formalized and dated on January 31, 2016. Under the terms of this agreement, Afranex has an exclusive option to acquire either 100% of the issued share capital of Kisa or 100% of Kisa's right, title and interest in the mining permits and associated assets of Kisa. Afranex agrees to pay Amazing, on settlement of the Acquisition, a total of $169,788 settlement cash consideration.
Amazing Energy Oil and Gas, Co. has been in the process since October, 2014, of transitioning from a mineral exploration company to an oil and gas exploration, development and producing company.
The following table shows the wholly owned subsidiaries of Amazing Energy Oil and Gas, Co. engaged in the oil, gas, and mining business:
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Name of Subsidiary
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State of
Incorporation
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Ownership
Interest
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Principal Activity
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Amazing Energy, Inc.
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Nevada
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100
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%
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Oil and gas exploration, development, and products
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Amazing Energy, LLC
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Texas
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100
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%
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Ownership oil and gas leases
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Kisa Gold Mining, Inc.
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Alaska
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100
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%
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Mining exploration
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Gulf South Securities, Inc.
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Delaware
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100
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%
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SEC/FINRA registered broker/dealer
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Jilpetco, Inc.
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Texas
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100
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%
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Operator and Oilfield services
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On July 31, 2016, we completed the acquisition of Gulf South Securities, Inc., a broker-dealer registered with the Securities and Exchange Commission ("SEC") and the Financial Industry Regulatory Authority ("FINRA") and on August 31, 2016, we acquired Jilpetco, Inc., a Texas corporation engaged in the business of operating and providing oilfield services to oil and gas properties.
Any bankruptcy, receivership or similar proceedings
There have been no bankruptcy, receivership or similar proceedings.
OUR BUSINESS
We are in the business of exploration, development, and production of oil and gas in the Permian Basin of West Texas. The Company has leasehold rights within approximately 70,000 acres in Pecos County, Texas as of July 31, 2016. We believe that our concentrated acreage position provides us with an opportunity to achieve cost, operating and recovery efficiencies in the development of our drilling inventory. We are currently developing resource potential from the Queens formation. Additional drilling targets could include the Greyburg, San Andreas and Devonian zones.
At July 31, 2016, our estimated net proved reserves were 745,190 barrels of oil equivalent ("BOE"). Important characteristics of our proved reserves at July 31, 2016 include:
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58% oil and 42% gas;
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58% proved developed;
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Reserve life of approximately 14.73 years;
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Non-discounted future net cash flows of $9,787,960;
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and PV-10 of $7,324,060
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PV-10 is our estimate of the present value of future net revenues from proved oil, and gas reserves after deducting estimated production and ad valorem taxes, future capital costs and operating expenses, but before deducting any estimates for future income taxes. Estimated future net revenues are discounted at an annual rate of 10% to determine their present value. PV-10 is a financial measure that is not determined in accordance with accounting principles generally accepted in the United States ("GAAP"), and generally differs from the Standardized Measure, the most directly comparable GAAP financial measure, because it does not include the effects of income taxes on future cash flows. PV-10 should not be considered as an alternative to the Standardized Measure, as computed under GAAP.
At July 31, 2016, we owned 22 oil and gas wells in the Permian Basin. During the fiscal year ended July 31, 2016, we produced 10,978 BOE (Net). Production for the fiscal year ended July 31, 2015 was 22,976 BOE (Net).
Our Business Strategy
We intend to increase the value of the Company by increasing reserves and production in a cost-efficient manner by pursuing the following strategies:
Continue to drill and develop our shallow drilling play.
We believe that our current acreage position (leasehold rights within approximately 70,000 acres) provides us with the ability to continue to increase reserves and production by drilling shallow, low cost wells with joint venture investors. Typically, we strive to structure an offering in which participants/investors will "carry" (that is, bear the financial responsibility) for 25% of 8/8ths Working Interests in proportion to their participation in the offering. A "Carried Working Interest" is defined as a working interest which is expense-free through the stages of drilling, testing and completing a well to first sales or plugging and abandoning a well as a dry hole. Participants/investors will bear the cost and expenses attributable to the Carried Working Interest of the Company. The Company typically offers 75% of 8/8ths Working Interest in a drilling offering with a net revenue interest of 75%. The Carried Working Interest that the Company receives varies on the participation levels for each drilling offering. For example, if there is full participation, the Company will receive a 25% Carried Working Interest. The Company is constantly reviewing other potential acreage acquisitions, or other potential alliances with industry partners.
Our Competitive Strengths
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Given the current relative low price for oil, we believe that we have a competitive advantage over higher risk, high cost, and deeper shale drilling operations. Most of our current wells are drilled and completed for around $275,000 or less at depths of around 2,000 feet.
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Our management team has many years of experience in the oil and gas industry throughout Texas. Also, the Company strives to keep drilling, completion, operating expenses and general overhead to a minimum, while also providing quality services.
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Fiscal 2016 Activity
Our fiscal year 2016 activity focused on conventional drilling in the Queens formation in Pecos County, Texas. We spudded 2 conventional wells and completed 1 well in fiscal 2016, compared to spudding 3 conventional wells and completion of 1 well in fiscal 2015. We plan to continue to develop the Queens formations in Pecos County, Texas during fiscal 2017. The rate of drilling wells would depend, to some degree, on oil and gas prices. Our overall accomplishments in fiscal 2016 include:
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Completed the acquisition of Gulf South Securities, Inc.
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Production. Net production for fiscal 2016 totaled 10,978 BOE, compared to 22,976 BOE in fiscal 2015, a 52% decrease. Production for fiscal 2016 was 67% oil and 33% natural gas.
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In fiscal 2016, our estimated net proved reserves increased 29.4%, or 169,150 BOE to 745,190 BOE from 576,040 BOE. Our proved reserves at fiscal year-end 2016 were 59% oil and 41% natural gas, compared to 62% oil and 38% natural gas at year-end 2015.
Plan for Fiscal 2017
For the fiscal year ending July 31, 2017, we plan to raise funds to continue drilling shallow oil and gas wells within the 70,000 acres that we have leasehold rights to in Pecos County in order to develop additional reserves and production. We anticipate raising such funds through joint ventures working interest holder participation, whereby the company would retain a carried working interest participation because of its existing lease ownership. In order to keep the leasehold in good standing, we adhere to the Continuous Drilling Clause for each respective lease and meet the requirements found therein. Capital expenditures and thus drilling activity for fiscal 2017 depend, to a significant extent, on the future market prices for oil.
On April 15, 2016, we entered into an agreement with Jed Miesner, our Chairman, to acquire all of his interest (100% of the total outstanding shares of common stock) of Jilpetco, Inc., a Texas corporation ("Jilpetco") in consideration of $500,000. Jilpetco is engaged in the business of operating and providing oilfield services to oil and gas properties. As a result, Jilpetco will become our wholly owned subsidiary corporation.
On August 25, 2016, we announced that the foregoing agreement was amended to extend the closing date to August 31, 2016 and exclude certain property therefrom. The parties agreed to allow Jed Miesner to assign certain accounts receivable, and to exclude personal property from the transaction. In addition, the $500,000 consideration for the acquisition is in the form of a note payable at 6% interest. Jilpetco owns a drilling rig, two workover rigs and other equipment and machinery that provide drilling, completion, workover and lease operational services to the wells that Amazing owns in Pecos County, TX. Owning Jilpetco allows the Company to be fully integrated in the process of planning and implementing the steps that are essential in helping us accomplish our workover, drilling, completion and operational goals.
On May 16, 2016, the Company began a private placement offering of 20,000,000 restricted shares of common stock at $0.26 per share. As of July 31, 2016, 699,400 shares had been sold for $181,844. As of October 31, 2016, the total has been 5,763,098 shares sold for $1,498,405. The Company may, in its sole discretion, extend the offering period to March 31, 2017 or terminate the offering at any time.
GSSI during Fiscal 2017 will be a managing broker dealer to raise drilling capital through oil and gas limited partnerships private placement (PPM) offerings.
Markets and Customers
The revenues generated by our operations are highly dependent upon the prices and supplies and demand for oil and natural gas. Oil and natural gas are commodities, and therefore, we are subject to market-based pricing. Since our oil is sour, we receive somewhat less per barrel than the published WTI market prices, and since our natural gas is a sour gas, we are limited to selling through a sour gas transmission line and therefore are subject to a percent of proceeds (POP) gas contract with the purchaser. Overall, the price that we receive for our oil and gas production depends on numerous factors beyond our control, including seasonality, the status of domestic and global economies political conditions in other oil and gas producing countries, and the extent of domestic production and imports of oil.
For the fiscal year ended July 31, 2016, sales to Sunoco, Inc. and to Trans-Pecos Natural Gas Company, LLC accounted for approximately 89% and 11%, respectively, of our total sales of oil and gas.
Title to Properties
Management believes the Company has satisfactory title to all of its properties in accordance with standards generally accepted in the oil and gas industry. The properties are subject to customary royalty interests, liens for current taxes and other burdens, which management believes does not materially interfere with the use of or affect the value of such properties. Prior to acquiring undeveloped properties, the Company performs a title investigation that is thorough but less vigorous than that conducted prior to drilling, which is consistent with standard practice in the oil and gas industry. Before the Company commences drilling operations, it conducts a thorough title examination and performs curative work with respect to significant defects. The Company has performed thorough title examination with respect to the sections of land that has been drilled upon. As drilling operations are implemented in a different section of land, the Company will initiate the title examination process.
Oil and Gas Leases
The typical oil and natural gas lease agreement covering our acreage position in Pecos County provides for the payment of royalties to the mineral owners for all oil and natural gas produced form any wells drilled on the leased premises. The lessor royalties and other leasehold burdens on our properties generally range from 20% to 25%, resulting in a net revenue interest to the Working Interest owners generally ranging from 75% to 80%.
Competition
The oil and gas industry is highly competitive, and we compete with a substantial number of other companies that have greater resources and have extensive leasehold interests in the Permian Basin. We also face competition from alternative fuel sources, including coal, heating oil, imported LNG, nuclear and other nonrenewable fuel sources, and renewable fuel sources such as wind, solar, geothermal, hydropower and biomass. Competitive conditions may also be substantially affected by various forms of energy legislation and/or regulation considered from time-to-time by the United States government. It is not possible to predict whether such legislation or regulation may ultimately be adopted or its precise effects upon our future operations. Such laws and regulations may, however, substantially increase the costs of exploring for, developing or producing oil, and gas and may prevent or delay the commencement or continuation of our operations.
Regulation
The oil and gas industry in the United States is subject to extensive regulation by federal, state and local authorities. At the federal level, various federal rules, regulations and procedures apply, including those issued by the U.S. Department of Interior, the U.S. Department of Transportation (the "DOT") (Office of Pipeline Safety) and the U.S. Environmental Protection Agency (the "EPA"). At the state and local level, various agencies and commissions regulate drilling, production and midstream activities. For the state of Texas the regulatory agency is the Texas Railroad Commission. These federal, state and local authorities have various permitting, licensing and bonding requirements. Various remedies are available for enforcement of these federal, state and local rules, regulations and procedures, including fines, penalties, revocation of permits and licenses, actions affecting the value of leases, wells or other assets, suspension of production, and, in certain cases, criminal prosecution. As a result, there can be no assurance that we will not incur liability for fines, penalties or other remedies that are available to these federal, state and local authorities. However, we believe that we are currently in material compliance with federal, state and local rules, regulations and procedures, and that continued substantial compliance with existing requirements will not have a material adverse effect on our financial position, cash flows or results of operations.
Transportation and Sale of Oil
Sales of crude oil are negotiated with Sunoco, Inc. via a crude oil purchase agreement which is subject to a month to month term, and a 30-day notice termination clause. The agreement specifies the pricing terms and transportation deductions, amongst other terms. Our sales of crude oil are affected by the availability, terms and cost of transportation.
Regulation of Production
Oil and gas production is regulated under a wide range of federal and state statutes, rules, orders and regulations. State and federal statutes and regulations require permits for drilling operations, drilling bonds and reports concerning operations. The state in which we operate, Texas, has regulations governing conservation matters, including provisions for the unitization or pooling of oil and gas properties, the establishment of maximum rates of production from oil and gas wells, the regulation of spacing, and requirements for plugging and abandonment of wells. Also, Texas imposes a severance tax on production and sales of oil, and gas within its jurisdiction. The failure to comply with these rules and regulations can result in substantial penalties. Our competitors in the oil and gas industry are subject to the same regulatory requirements and restrictions that affect our operations.
Environmental Laws and Regulations
In the United States, the exploration for and development of oil and gas and the drilling and operation of wells, fields and gathering systems are subject to extensive federal, state and local laws and regulations governing environmental protection as well as discharge of materials into the environment. These laws and regulations may, among other things:
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Require the acquisition of various permits before drilling begins;
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Require the installation of expensive pollution controls or emissions monitoring equipment;
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Restrict the types, quantities and concentration of various substances that can be released into the environment in connection with oil and gas drilling, completion, production, transportation and processing activities;
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Suspend, limit or prohibit construction, drilling and other activities in certain lands lying within wilderness, wetlands, endangered species habitat and other protected areas; and
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Require remedial measures to mitigate and remediate pollution from historical and ongoing operations, such as the closure of waste pits and plugging of abandoned wells.
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These laws, rules and regulations may also restrict the rate of oil and gas production below the rate that would otherwise be possible. The regulatory burden on the oil and gas industry increases the cost of doing business in the industry and consequently affects profitability.
Governmental authorities have the power to enforce compliance with environmental laws, regulations and permits, and violations are subject to injunction, as well as administrative, civil and criminal penalties. The effects of existing and future laws and regulations could have a material adverse impact on our business, financial condition and results of operations. The clear trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment. Any changes in environmental laws and regulations or re-interpretations of enforcement policies that result in more stringent and costly waste handling, storage, transport, disposal or remediation requirements could have a material adverse effect on our business, financial condition or results of operations. Moreover, accidental releases or spills and ground water contamination may occur in the course of our operations, and we may incur significant costs and liabilities as a result of such releases, spills or contamination, including any third-party claims for damage to property, natural resources or persons. While we believe that we are in substantial compliance with existing environmental laws and regulations and that continued compliance with current requirements would not have a material adverse effect on us, there is no assurance that this will continue in the future.
The following is a summary of some of the existing environmental laws, rules and regulations that apply to our business operations.
Hazardous Substance Release
The Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), also known as the Superfund law, and comparable state statutes impose strict liability, and under certain circumstances, joint and several liability, on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. These persons include the owner or operator of the site where the release occurred, and anyone who disposed or arranged for the disposal of a hazardous substance released at the site. Under CERCLA, such persons may be subject to strict, joint and several liabilities for the costs of investigating releases of hazardous substances, cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. In addition, it is not uncommon for neighboring landowners and other third-parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. Crude oil and fractions of crude oil are excluded from regulation under CERCLA. Nevertheless, many chemicals commonly used at oil and gas production facilities fall outside of the CERCLA petroleum exclusion. While we generate materials in the course of our operations that may be regulated as hazardous substances, we have not received notification that we may be potentially responsible for cleanup costs under CERCLA.
Waste Handling
The Resource Conservation and Recovery Act ("RCRA") and comparable state statutes regulate the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. Under the auspices of the EPA, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. Drilling fluids, produced water and most of the other wastes associated with the exploration, development and production of oil or gas are currently regulated under RCRA's non-hazardous waste provisions. However, it is possible that certain oil and gas exploration and production wastes now classified as non-hazardous could be classified as hazardous wastes in the future. Any such change could increase our operating expenses, which could have a material adverse effect on our business, financial condition and results of operations.
Air Emissions
The federal Clean Air Act and comparable state laws regulate emissions of various air pollutants through air emissions permitting programs and other requirements. In addition, the EPA has developed, and continues to develop, stringent regulations governing emissions at specified sources. In particular, on April 18, 2012, the EPA issued new regulations under the New Source Performance Standards ("NSPS") and National Emission Standards for Hazardous Air Pollutants ("NESHAP"). The new regulations are designed to reduce volatile organic compound ("VOC") emissions from hydraulically fractured natural gas wells, storage tanks and other equipment. Under the regulations, since January 1, 2015, owners and operators of hydraulically fractured natural gas wells (wells drilled principally for the production of natural gas) have been required to use so-called "green completion" technology to recover natural gas that formerly would have been
-10-
flared or vented. We do not expect that the NSPS or NESHAP will have a material adverse effect on our business, financial condition or results of operations. However, any future laws and their implementing regulations may require us to obtain pre-approval for the expansion or modification of existing facilities or the construction of new facilities expected to produce air emissions, impose stringent air permit requirements or use specific equipment or technologies to control emissions. Our failure to comply with these requirements could subject us to monetary penalties, injunctions, conditions or restrictions on operations and, potentially, criminal enforcement actions. We believe that we currently are in substantial compliance with all air emissions regulations and that we hold all necessary and valid construction and operating permits for our current operations.
Greenhouse Gas Emissions
While Congress has, from time-to-time, considered legislation to reduce emissions of GHGs, there has not been significant activity in the form of adopted legislation to reduce GHG emissions at the federal level in recent years. In the absence of such federal legislation, a number of states have taken legal measures to reduce emissions of GHGs through the planned development of GHG emission inventories and/or regional GHG cap-and-trade programs or other mechanisms. Most cap-and-trade programs work by requiring major sources of emissions, such as electric power plants, or major producers of fuels such as refineries and gas processing plants, to acquire and surrender emission allowances corresponding with their annual emissions of GHGs. The number of allowances available for purchase is reduced each year until the overall GHG emission reduction goal is achieved. As the number of GHG emission allowances declines each year, the cost or value of allowances is expected to escalate significantly. Many states have enacted renewable portfolio standards, which require utilities to purchase a certain percentage of their energy from renewable fuel sources.
In response to findings that emissions of carbon dioxide, methane and other GHGs present an endangerment to human health and the environment, the EPA has adopted regulations under existing provisions of the federal Clean Air Act. The EPA has adopted two sets of rules regarding possible future regulation of GHG emissions under the Clean Air Act, one of which purports to regulate emissions of GHGs from motor vehicles and the other of which would regulate emissions of GHGs from large stationary sources of emissions, such as power plants or industrial facilities. The motor vehicle rule was finalized in April 2010 and became effective in January 2011, but it does not require immediate reductions in GHG emissions. In March 2012, the EPA proposed GHG emissions standards for fossil fuel-powered electric utility generating units that would require new plants to meet an output- based standard of 1,000 pounds of carbon dioxide equivalent per megawatt-hour. The EPA issued a new proposed rule in September 2013, which retained the 1,000 pounds of carbon dioxide equivalent per megawatt-hour standard for large gas-fired power plants. The new proposal includes a standard of 1,100 pounds of carbon dioxide equivalent per megawatt-hour for small, gas-fired turbines and coal-fired turbines. In June 2014, the EPA proposed a regulation affecting existing fossil fuel power plants, which would seek to reduce carbon emissions from the power sector to 30% less than the 2005 level of emissions by 2030. If the proposed regulations are adopted, they could have a significant impact on the electrical generation industry and may favor the use of natural gas over other fossil fuels such as coal in new plants. The EPA has also indicated that it will propose new GHG emissions standards for refineries, but we do not know when the agency will issue specific regulations.
In December 2010, the EPA enacted final rules on mandatory reporting of GHGs. In 2011, the EPA published amendments to the rule containing technical and clarifying changes to certain GHG reporting requirements and a six-month extension for reporting GHG emissions from petroleum and natural gas industry sources. Under the amended rule, certain onshore oil and natural gas production, processing, transmission, storage and distribution facilities are required to report their GHG emissions on an annual basis. Our operations in the Permian Basin are subject to the EPA's mandatory reporting rules, and we believe that we are in compliance with such rules. We do not expect that the EPA's mandatory GHG reporting requirements will have a material adverse effect on our business, financial condition or results of operations.
The adoption of additional legislation or regulatory programs to monitor or reduce GHG emissions could require us to incur increased operating costs, such as costs to purchase and operate emissions control systems, acquire emissions allowances or comply with new regulatory requirements. In addition, the EPA has stated that the data collected from GHG emissions reporting programs may be the basis for future regulatory action to establish substantive GHG emissions factors. Any GHG emissions legislation or regulatory programs applicable to power plants or refineries could increase the cost of consuming, and thereby reduce demand for, the oil and natural gas we produce. Consequently, legislation and regulatory programs to reduce GHG emissions could have an adverse effect on our future business, financial condition and results of operations.
Water Discharges
The Federal Water Pollution Control Act (the "Clean Water Act") and analogous state laws impose restrictions and strict controls on the discharge of pollutants and fill material, including spills and leaks of oil and other substances into regulated waters, including wetlands. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA, an analogous state agency, or, in the case of fill material, the United States Army Corps of Engineers. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the Clean Water Act and analogous state laws and regulations.
In October 2011, the EPA announced its intent to develop national standards for wastewater discharges produced by natural gas extraction from shale and coal bed methane formations. The EPA is expected to issue proposed regulations establishing wastewater discharge standards for coal bed methane wastewater and shale gas wastewater in 2015. For shale gas wastewater, the EPA will consider imposing pre-treatment standards for discharges to a wastewater treatment facility. Produced and other flowback water from our current operations in the Permian Basin is typically re-injected into underground formations that do not contain potable water. To the extent that re-injection is not available for our operations and discharge to wastewater treatment facilities is required, new standards from the EPA could increase the cost of disposing wastewater in connection with our operations.
The Safe Drinking Water Act, Groundwater Protection and the Underground Injection Control Program
Fluids associated with oil and gas production result from operations on the Company's properties and are disposed by injection in underground disposal wells. The federal Safe Drinking Water Act ("SDWA") and the Underground Injection Control program (the "UIC program") promulgated under the SDWA and state programs regulate the drilling and operation of salt water disposal wells. The EPA has delegated administration of the UIC program in Texas to the Railroad Commission of Texas ("RRC"). Permits must be obtained before drilling salt water disposal wells, and casing integrity monitoring must be conducted periodically to ensure the casing is not leaking saltwater to groundwater. Contamination of groundwater by oil and gas drilling, production and related operations may result in fines, penalties and remediation costs, among other sanctions and liabilities under the SDWA and state laws. In addition, third-party claims may be filed by landowners and other parties claiming damages for alternative water supplies, property damages and bodily injury.
Hydraulic Fracturing
Hydraulic fracturing is the subject of significant focus among some environmentalists, regulators and the general public. Concerns over potential hazards associated with the use of hydraulic fracturing and its impact on the environment have been raised at all levels, including federal, state and local, as well as internationally. There have been claims that hydraulic fracturing may contaminate groundwater, reduce air quality or cause earthquakes. Hydraulic fracturing requires the use and disposal of water, and public concern has been growing over the adequacy of water supply.
The Energy Policy Act of 2005, which exempts hydraulic fracturing from regulation under the SDWA, prohibits the use of diesel fuel in the fracturing process without a UIC permit. In the past, legislation has been introduced in, but not passed by, Congress that would amend the SDWA to repeal this exemption. Specifically, the FRAC Act has been introduced in each Congress since 2008 to accomplish these purposes, and we expect similar legislation to be introduced in the current Congress. If legislation repealing the exemption were enacted, it could require hydraulic fracturing operations to meet permitting and financial assurance requirements, adhere to certain construction specifications, fulfill monitoring, reporting and recordkeeping obligations and meet plugging and abandonment requirements.
In 2010, the EPA asserted federal regulatory authority over hydraulic fracturing involving diesel additives under the UIC program by posting a requirement on its website that requires facilities to obtain permits to use diesel fuel in hydraulic fracturing operations. Following a legal challenge by industry groups and a subsequent settlement, in February 2014, the EPA issued revised guidance on the use of diesel in hydraulic fracturing operations. Under the guidance, EPA broadly defined "diesel" to include fuels such as kerosene that have not traditionally been considered diesel. The EPA's continued assertion of its regulatory authority under the SDWA could result in extensive requirements that could cause additional costs and delays in the hydraulic fracturing process.
In addition to the above actions of the EPA, certain members of Congress have, in the past, called upon government agencies to investigate various aspects of hydraulic fracturing. Federal agencies that have been involved in hydraulic fracturing research include the White House Council on Environmental Quality, the Department of Energy, the Department of Interior and the Energy Information Administration. The EPA has also begun a study of the potential environmental impacts of hydraulic fracturing on water resources. The EPA issued a progress report in December 2012, and final results are expected in 2015. These ongoing or proposed investigations and studies, depending on their degree of pursuit and any meaningful results obtained, could facilitate initiatives to further regulate hydraulic fracturing.
Some states have adopted, and other states are considering adopting, regulations that could restrict hydraulic fracturing in certain circumstances or otherwise require the public disclosure of chemicals used in hydraulic fracturing. For example, pursuant to legislation adopted by the State of Texas in June 2011, the RRC enacted a rule in December 2011, requiring disclosure to the RRC and the public of certain information regarding additives, chemical ingredients, concentrations and water volumes used in hydraulic fracturing. In addition to state law, local land use restrictions, such as city ordinances, may directly or indirectly restrict or prohibit drilling and hydraulic fracturing. For example, in November 2014, the City of Denton, Texas, enacted an ordinance banning hydraulic fracturing. While the City of Denton ordinance is currently the subject of a lawsuit, other local governments may enact similar legislation in the future. If these or any other new laws or regulations that significantly restrict hydraulic fracturing are adopted, it could become more difficult or costly for the Company to drill and produce oil and gas from shale and tight sands formations and become easier for third parties opposing hydraulic fracturing to initiate legal proceedings. In addition, if hydraulic fracturing is regulated at the federal level, fracturing activities could become subject to delays, additional permitting and financial assurance requirements, more stringent construction specifications, increased monitoring, reporting and recordkeeping obligations, plugging and abandonment requirements and higher costs. These new laws or regulations could cause us to incur substantial delays or suspensions of operations and compliance costs and could have a material adverse effect on our business, financial condition and results of operations.
Compliance
We believe that we are in compliance with all existing environmental laws and regulations that apply to our current operations and that our ongoing compliance with existing requirements will not have a material adverse effect on our business, financial condition or results of operations. We did not incur any material capital expenditures for remediation or pollution control activities for the year ended July 31, 2016. In addition, as of the date of this report, we are not aware of any environmental issues or claims that will require material capital or operating expenditures during fiscal 2017. However, the passage of additional or more stringent laws or regulations in the future could have a negative effect on our business, financial condition and results of operations, including our ability to develop our undeveloped acreage.
Threatened and Endangered Species, Migratory Birds and Natural Resources
Various state and federal statutes prohibit certain actions that adversely affect endangered or threatened species and their habitat, migratory birds, wetlands and natural resources. These statutes include the Endangered Species Act, the Migratory Bird Treaty Act, the Clean Water Act and CERCLA. The United States Fish and Wildlife Service may designate critical habitat and suitable habitat areas that it believes are necessary for survival of threatened or endangered species. A critical habitat or suitable habitat designation could result in further material restrictions to federal land use and private land use and could delay or prohibit land access or development.
Where takings of, or harm to, species or damages to wetlands, habitat or natural resources occur or may occur, government entities or at times private parties may act to prevent oil and gas exploration activities or seek damages for harm to species, habitat or natural resources resulting from drilling or construction or releases of oil, wastes, hazardous substances or other regulated materials, and may seek natural resources damages and, in some cases, criminal penalties.
OSHA and Other Laws and Regulations
We are subject to the requirements of the federal Occupational Safety and Health Act ("OSHA") and comparable state statutes. The OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of CERCLA and similar state statutes require that we organize and/or disclose information about hazardous materials used or produced in our operations. These laws also require the development of risk management plans for certain facilities to prevent accidental releases of pollutants. We believe that we are in substantial compliance with these applicable requirements and with other OSHA and comparable requirements.
-13-
Employees
As of July 31, 2016, we had 9 full-time employees. We regularly use independent contractors and consultants to perform various drilling and other services. None of our employees are represented by a labor union or covered by any collective bargaining agreement.
Insurance Matters
We are not insured fully against all risks associated with our business either because such insurance is not available or because premium costs are considered prohibitive. A loss not fully covered by insurance could have a material adverse effect on our business, financial condition and results of operations.
Available Information
We maintain an Internet website under the name www.amazingenergy.com. We file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, proxy statements and other documents with the SEC under the Exchange Act. The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC. The public can obtain any document we file with the SEC at www.sec.gov.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Pecos County, Texas – The Company has leasehold rights within approximately 70,000 gross acres in Pecos County, Texas, which lies within the Permian Basin. The property is located in the Northeast region of the County. The Pecos leasehold is positioned west of the Yates Field (Approximately 1.6 Billion BO produced) and east of the Taylor Link Field (Approximately 15 million BO produced). Our leasehold also lies within the White & Baker Field (Approximately 5 million BO produced) and portions of the Walker Field (Approximately 10 million BO produced). The Pecos leasehold is comprised of multiple leases. Our acreage position in the Permian Basin is characterized by several commercial hydrocarbon formations which begin around 1,300 ft. down to around 10,000 ft. The formations in the area include the Yates, Seven Rivers, Greyburg, Queens (Upper and Lower), San Adreas, Strawn, Devonian and Ellenburger. The Company began drilling operations in October 2010 to target the Greyburg and Queens formation. Since then the Company has drilled 22 wells throughout the property of which 16 wells are producing intermittently and 6 wells are shut-in. All the wells that the Company has drilled have been to a depth of approximately 2,000 ft.
The following table summarizes our estimated proved oil and gas reserves for the fiscal years ended July 31, 2016, 2015 and 2014.
|
Proved Reserves (BOE)
July 31,
|
||||||||||||
|
2016
|
2015
|
2014
|
||||||||||
|
Proved developed
|
429,387
|
457,852
|
329,785
|
|||||||||
|
Proved undeveloped
|
315,803
|
118,188
|
125,590
|
|||||||||
|
Total
|
745,190
|
576,040
|
455,375
|
|||||||||
|
Percent of total proved resources
|
100
|
%
|
100
|
%
|
100
|
%
|
||||||
Proved oil and gas reserves
The following table sets forth information regarding our estimated proved reserves as of July 31, 2016. See Note 16 to our consolidated financial statements in this report for additional information.
Summary of oil and gas reserves as of July 31, 2016
|
Proved Reserves
|
||||||||||||||||||||
|
Oil
(Bbl)
|
Natural Gas
(Mcf)
|
Total
(BOE)
|
Percent
(%)
|
PV-10
|
||||||||||||||||
|
Proved developed
|
242,640
|
1,120,480
|
429,387
|
58
|
%
|
$
|
4,072,590
|
|||||||||||||
|
Proved undeveloped
|
194,340
|
728,780
|
315,803
|
42
|
%
|
$
|
3,251,470
|
|||||||||||||
|
Total proved reserves
|
436,980
|
1,849,260
|
745,190
|
100
|
%
|
$
|
7,324,060
|
|||||||||||||
Reconciliation of PV-10 to Standardized Measure
PV-10 is our estimate of the present value of future net revenues from proved oil and gas reserves after deducting estimated production and ad valorem taxes, future capital costs and operating expenses, but before deducting any estimates of future income taxes. PV-10 is a non-GAAP, financial measure and generally differs from the Standardized Measure, the most directly comparable GAAP financial measure, because it does not include the effects of income taxes on future cash flows. PV-10 should not be considered as an alternative to the Standardized Measure as computed under GAAP.
We believe PV-10 to be an important measure for evaluating the relative significance of our oil and gas properties and that the presentation of PV-10 provides useful information to investors because it is widely used by professional analysts and sophisticated investors in evaluating oil and gas companies. Because there are many unique factors that can impact an individual company when estimating the amount of future income taxes to be paid, we believe the use of a pre-tax measure is valuable for evaluating our company. We believe that most other companies in the oil and gas industry calculate PV-10 on the same basis.
The following table provides a reconciliation of PV-10 to the Standardized Measure of discounted future net cash flows at July 31, 2016:
|
July 31,
2016
|
||||
|
PV-10
|
$
|
7,324,060
|
||
|
Present value of future income tax discounted at 10%
|
(2,695,183
|
)
|
||
|
Standardized measure of discounted future net cash flows
|
$
|
4,628,877
|
||
Proved Undeveloped Reserves
As of July 31, 2016, we had 315,803 BOE of undeveloped ("PUD") reserves, which is an increase of 197,615 BOE, compared with 118,188 BOE of PUD reserves at July 31, 2015.
Preparation of Proved Reserves Estimates
Our policies regarding internal controls over the recording of reserve estimates require reserve estimates to be in compliance with SEC rules, regulations and guidance and prepared in accordance with "Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information (Revision as of February 19, 2007)" promulgated by the Society of Petroleum Engineers ("SPE standards"). Our proved reserves are estimated at the property level and compiled for reporting purposes by our corporate reservoir engineering staff, all of whom are independent of our operations team. We maintain our internal evaluations of our reserves in a secure reserve engineering database. The corporate reservoir engineering staff interacts with Company Management and with accounting employees to obtain the necessary data for the reserves estimation process. Our Management staff works closely with our external engineers to ensure the integrity, accuracy and timeliness of data that is furnished to them for their reserve estimation process. All of the reserve information maintained in our secure reserve engineering database is provided to the external engineers. In addition, other pertinent data is provided such as seismic information, geologic maps, well logs, production tests, material balance calculations, well performance data, operating procedures and relevant economic criteria. We make available all information requested, including our pertinent personnel, to the external engineers as part of their evaluation of our reserves. For the years ended July 31, 2016, and July 31, 2015, we engaged Mire & Associates, Inc., an independent petroleum engineer, to prepare independent estimates of the extent and value of the proved reserves associated with certain of our oil and gas properties.
Oil and Gas Production, and Prices
The following table sets forth summary information regarding net oil and gas production for the last three fiscal years. We determined the BOE using the ratio of six MCF of natural gas to one BOE.
|
Years Ended July 31,
|
||||||||||||
|
2016
|
2015
|
2014
|
||||||||||
|
Production (NET)
|
||||||||||||
|
Oil (Bbls)
|
7,396
|
12,127
|
11,631
|
|||||||||
|
Gas (MCF)
|
21,492
|
65,096
|
98,915
|
|||||||||
|
Total BOE
|
10,978
|
22,976
|
28,117
|
|||||||||
|
Total average barrels of oil per day
|
30
|
63
|
77
|
|||||||||
|
Average prices
|
||||||||||||
|
Oil (Bbls)
|
$
|
36.49
|
$
|
57.06
|
$
|
93.57
|
||||||
|
Gas (Mcf)
|
$
|
2.03
|
$
|
2.09
|
$
|
3.50
|
||||||
|
Total per BOE
|
$
|
36.83
|
$
|
57.41
|
$
|
94.15
|
||||||
Drilling Activity – Past Three Years
The following table sets forth information on our drilling activity for the last three fiscal years. The information should not be considered indicative of future performance nor should it be assumed that there is necessarily any correlation between the numbers of productive wells drilled, quantities of reserves found or economic value.
|
Years Ended July 31,
|
||||||||||||
|
2016
|
2015
|
2014
|
||||||||||
|
Development wells:
|
||||||||||||
|
Productive
|
3
|
2
|
2
|
|||||||||
|
Dry
|
-
|
-
|
0
|
|||||||||
The following table sets forth the wells, working interest percentage, and status of all the wells that the Company owned at the fiscal year end July 31, 2016:
|
Well Name
|
Working Interest
|
Status
|
|||
|
WWJD 1
|
100.00%
|
Shut in: Awaiting re-frac
|
|||
|
WWJD 4
|
100.00%
|
Producing well
|
|||
|
WWJD 5
|
100.00%
|
Producing well
|
|||
|
WWJD 6
|
100.00%
|
Shut in: Awaiting re-frac
|
|||
|
WWJD 7
|
100.00%
|
Shut in: Awaiting re-frac
|
|||
|
WWJD 8
|
100.00%
|
Producing well
|
|||
|
WWJD 9
|
100.00%
|
Producing well
|
|||
|
WWJD 10
|
100.00%
|
Shut in: Awaiting re-frac
|
|||
|
WWJD 11
|
100.00%
|
Producing well
|
|||
|
WWJD 12
|
100.00%
|
Producing well
|
|||
|
WWJD 13
|
40.00%
|
Producing well
|
|||
|
WWJD 14
|
40.00%
|
Producing well
|
|||
|
WWJD 15
|
40.00%
|
Producing well
|
|||
|
WWJD 16
|
100.00%
|
Shut in: Awaiting frac
|
|||
|
WWJD 21
|
100.00%
|
Shut in: Awaiting frac
|
|||
|
WWJD B-1
|
49.50%
|
Producing well
|
|||
|
WWJD B-2
|
49.50%
|
Producing well
|
|||
|
WWJD B-3
|
49.50%
|
Producing well
|
|||
|
WWJD C-1
|
50.00%
|
Producing well
|
|||
|
WWJD C-2
|
50.00%
|
Producing well
|
|||
|
WWJD C-3
|
50.00%
|
Producing well
|
|||
|
WWJD C-4
|
50.00%
|
Producing well
|
|||
|
Producing wells
|
16
|
||||
|
Shut-in wells
|
6
|
||||
|
Total wells
|
22
|
||||
ALASKA PROPERTIES
SOUTHWEST KUSKOKWIM PROJECT
Summary
The Company's wholly owned subsidiary Kisa, controls or has interests in two claim blocks consisting of 88 Alaska mining claims covering 13,840 acres which comprise the Company's Southwest Kuskokwim Project. The claims consist of exploration properties in southwest Alaska approximately 90 miles east of the village of Bethel in the consolidated claim groups known as Luna and Kisa within the Kuskokwim Mineral Belt. Previous workers located and prospected several significant precious metal showings in this remote, highly prospective portion of the Kuskokwim Mineral Belt nearly 20 years ago. The samples show many similarities in mineralization style, alteration and general geologic characteristics to Nova Gold Resources and Barrick's Donlin Creek project and other major Kuskokwim Mineral Belt gold deposits.
Prior to October 7, 2014, the Company had owned a total of 274 claims totaling 42,280 acres with a carrying value of $11,373. On October 1, 2014, the Company made the decision to abandon all of our Alaska claims except our Luna and Kisa claims. The Company abandoned a total of 186 claims covering 28,440 acres with a carrying value of $8,059. This write-off was recorded on October 1, 2014 prior to the change of control agreement. The net balance sheet carrying value of the mineral properties as of July 31, 2016 and 2015 is $3,314.
-17-
Afranex Option Agreement
Afranex Gold Limited ("Afranex") had originally agreed through an option agreement to purchase all of the outstanding common stock of Kisa for $400,000 on or before December 31, 2015. On November 23, 2015, Amazing and Afranex agreed to extend the option to December 31, 2016, or such later date as agreed upon. The updated option agreement supersedes all previous correspondence and understandings between the parties. Afranex paid a $50,000 non-refundable option fee to Amazing on November 23, 2015, as consideration for extending this option. A new term sheet and option agreement was formalized and dated on January 31, 2016. Under the terms of this agreement, Afranex has an exclusive option to acquire either 100% of the issued share capital of Kisa or 100% of Kisa's right, title and interest in the mining permits and associated assets of Kisa. Afranex agrees to pay Amazing, on settlement of the Acquisition, a total of $169,788 settlement cash consideration.
As of July 31, 2016, the Company was not a party to any litigation.
Not applicable.
PART II
| ITEM 5. |
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
|
The Company's stock trades under the category OTCQX on the OTC Markets system. The Company's trading symbol is "AMAZ".
The Company changed its name from Gold Crest Mines, Inc. to Amazing Energy Oil and Gas, Co. and its trading symbol from "GCMN" to "AMAZ" on January 21, 2015. The Company also underwent a 40 to 1 reverse stock split. The following stock quotations reflect the reverse stock split. The Company also changed its fiscal year end in conjunction with the reverse acquisition from December 31st to July 31st. All quarters presented below reflect the fiscal year change to July 31st.
The following table sets forth for our common stock, the high and low closing bid quotations per share, taken from the Internet, for our common stock for each quarter for the periods indicated. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
|
Price Per Share
|
||||||||
|
High Bid
|
Low Bid
|
|||||||
|
Fiscal Year Ending July 31, 2016
|
||||||||
|
First quarter
|
$
|
1.07
|
$
|
0.29
|
||||
|
Second quarter
|
0.35
|
0.30
|
||||||
|
Third quarter
|
0.51
|
0.30
|
||||||
|
Fourth quarter
|
1.06
|
0.30
|
||||||
|
Fiscal Year Ending July 31, 2015
|
||||||||
|
First quarter
|
$
|
1.40
|
$
|
0.52
|
||||
|
Second quarter
|
1.99
|
0.80
|
||||||
|
Third quarter
|
2.80
|
0.88
|
||||||
|
Fourth quarter
|
1.34
|
0.90
|
||||||
Shareholders
As of July 31, 2016, there were approximately 741 shareholders of record of the Company's common stock as furnished to the Company by its transfer agent and does not account for shares owned through clearing houses.
Dividend Policy
The Company has never paid any dividends and does not anticipate the payment of dividends in the foreseeable future.
Transfer Agent
The transfer agent for the Company's common stock is Columbia Stock Transfer Company, 1869 East Seltice Way, Suite 292, Post Falls, Idaho, 83854.
Stockholders' Equity and Equity Transactions
The Company is authorized to issue 3,000,000,000 shares of its common stock. All shares of common stock are equal to each other with respect to voting, liquidation, dividend, and other rights. Owners of shares are entitled to one vote for each share owned at any Shareholders' meeting. The common stock of the Company does not have cumulative voting rights, which means that the holders of more than fifty percent (50%) of the shares voting in an election of directors may elect all of the directors if they choose to do so.
The Company is authorized to issue 10,000,000 shares of its preferred stock with a no par value per share.
During the year ended July 31, 2016, the Company had the following equity transactions:
Preferred shares issued for debt and interest - On July 31, 2016, the Company issued 9,000 shares of Preferred Series A stock with par value of $0.01 per share. These shares were issued to Jed Miesner, the Company's controlling shareholder, in exchange for cancellation of $900,000 of related party interest payable in the amount of $612,697 and debt payable to JLM Strategic Investments, LP in the amount of $287,303. The stated issue price is at $100 per share. Each share of preferred stock has 10,000 votes and votes with the common shares on all matters submitted to the shareholders for a vote. Holders of the Series A Preferred Stock will not be entitled to receive a dividend. Upon a liquidation event, an amount in cash equal to $100 per share, for a total of $900,000 at July 31, 2016 shall be paid prior to liquidation payments to holders of Company securities junior to the Series A Preferred Stock. On the fifth anniversary of the acquisition of GSSI, any shares of the Series A Preferred Stock outstanding will be convertible, at the discretion of the holder, for a period of three years, into common stock purchase warrants of the Company with an exercise price of $1.00 per share on the basis of 110 shares of common stock for each one share of Series A Preferred Stock outstanding.
Shares Issued for services– On November 20, 2015 and January 27, 2016, 50,000 shares of common stock were issued to Delany Equity Group, LLC valued at $0.30 per share, the fair value of the Company's common stock on the date of issuance, totaling $15,000 for financial consulting services. On June 27, 2016, 250,000 shares of common stock were issued to Delany Equity Group, LLC and 25,000 shares were issued to Irwin Renneisen valued at $0.34 per share, the fair value of the Company's common stock on the date of issuance, totaling $93,500 for cost of acquisition of the GSSI.
Shares Issued for cash – On May 16, 2016, the Company began a private placement offering of 20,000,000 restricted shares of common stock at $0.26 per share. As of July 31, 2016, 699,400 shares had been sold for $181,844. As of October 31, 2016, the total has been 5,763,098 shares sold for $1,498,405. The Company may, in its sole discretion, extend the offering period to March 31, 2017 or terminate the offering at any time.
Shares Issued for acquisition of GSSI – On July 31, 2016, we issued 5,373,528 restricted shares of our common stock and 2,674,576 stock purchase warrants to Gulf South Holding, Inc. (GSHI) and others in consideration of GSHI transferring to us 100,000 shares of common stock of Gulf South Securities, Inc. (GSSI) which constitutes all of the issued and outstanding shares of common stock of GSSI.
As part of the acquisition of GSSI effective July 31, 2016, the Company issued 50,000 shares of Preferred Series B stock with par value of $0.01 per share. These preferred shares were issued to Bories Capital, LLC, owned by Robert Bories, an officer of the Company as of July 31, 2016. Robert Bories is an officer of GSHI and Bories Capital, LLC has released its security interest in the common stock of GSSI. The Series B Preferred Stock has no voting rights other than to be voted when required by Nevada law. Holders of the Series B Preferred Stock will not be entitled to receive a dividend. Upon a liquidation event, an amount in cash equal to $100 per share, for a total of $5,000,000 at July 31, 2016 shall be paid prior to liquidation payments to holders of Company securities junior to the Series B Preferred Stock. Holders of the Company's Series A Preferred Stock shall be paid in advance of holders of the Series B Preferred Stock on the occurrence of a liquidation event. On the fifth anniversary of the acquisition of GSSI, any shares of the Series B Preferred Stock outstanding will be convertible, at the discretion of the holder, for a period of three years, into common stock purchase warrants of the Company with an exercise price of $1.00 per share on the basis of 110 shares of common stock for each one share of Series B Preferred Stock outstanding.
For each new oil and gas well drilled by the Company with funds raised or delivered due to the efforts of the former GSHI officers, now Company officers, the Company will pay Miesner $10,000 in exchange for 100 shares of Series A Preferred Stock and Bories $10,000 in exchange for 100 shares of Series B Preferred Stock. In the event that the Company drills wells for its own account the Board of Directors of the Company will decide if such wells qualify for the aforementioned redemption. The Company will promptly cancel any Series A or B Preferred Stock purchased.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
The following discussion should be read in conjunction with our audited financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward-looking statements in the following discussion and elsewhere in this report and in any other statement made by us, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. We disclaim any obligation to update forward-looking statements.
The independent registered public accounting firm's report on the Company's financial statements as of July 31, 2016, and for each of the years in the two-year period then ended, includes a "going concern" explanatory paragraph that describes substantial doubt about the Company's ability to continue as a going concern.
Safe Harbor Provision
This Management's Discussion and Analysis includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: "believe," "expect," "plan," "estimate," "anticipate," "intend," "project," "will," "predicts," "seeks," "may," "would," "could," "potential," "continue," "ongoing," "should," and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this Form 10-K. These forward-looking statements are subject to certain risks or uncertainties that could cause actual results to differ materially from historical results or from our predictions. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.
Overview
Amazing Energy Oil and Gas Co. is an independent energy company focused on the exploration, development and production of oil and gas in Pecos County, Texas where we have leasehold rights within approximately 70,000 acres as of July 31, 2016. We believe that over concentrated acreage position provides us with an opportunity to achieve cost, operating and recovery efficiencies in the development of our leases.
Our near-term success depends primarily on attracting developmental capital in order to continue to drill, develop reserves and increase production within the leased acreage that we currently control. We are also open to acquiring oil and gas producing properties that would be accretive to our shareholders.
We have been operating at a net loss situation. Given the recent decline in oil prices, and the inherent expenses of running a public company in the oil and gas industry, it is uncertain if and when we may achieve profitable operations as a small company.
The Company is marginally involved in the gold exploration business through a wholly owned subsidiary; Kisa Gold Mining, Inc. Afranex Gold Limited ("Afranex") had originally agreed through an option agreement to purchase all of the outstanding common stock of Kisa for $400,000 on or before December 31, 2015. On November 23, 2015, Amazing and Afranex agreed to extend the option to December 31, 2016, or such later date as agreed upon. The updated option agreement supersedes all previous correspondence and understandings between the parties. Afranex paid a $50,000 non-refundable option fee to Amazing on November 23, 2015, as consideration for extending this option. A new term sheet and option agreement was formalized and dated on January 31, 2016. Under the terms of this agreement, Afranex has an exclusive option to acquire either 100% of the issued share capital of Kisa or 100% of Kisa's right, title and interest in the mining permits and associated assets of Kisa. Afranex agrees to pay Amazing, on settlement of the Acquisition, a total of $169,788 settlement cash consideration. If this occurs when scheduled, the Company would have completed its exit strategy from a gold exploration company to an oil and gas company.
Fiscal 2016 Activity
Our fiscal year 2016 activity focused on conventional drilling in the Queens formation in Pecos County, Texas. We spudded 2 conventional wells and completed 1 well in fiscal 2016, compared to spudding 3 conventional wells and completion of 1 well in fiscal 2015. We plan to continue to develop the Queens formations in Pecos County, Texas during fiscal 2017. The rate of drilling wells would depend, to some degree, on oil and gas prices. Our overall accomplishments in fiscal 2016 include:
|
·
|
Completed the acquisition of Gulf South Securities, Inc.
|
|
·
|
Production. Net production for fiscal 2016 totaled 10,978 BOE, compared to 22,976 BOE in fiscal 2015, a 52% decrease. Production for fiscal 2016 was 67% oil and 33% natural gas.
|
Reserve growth. In fiscal 2016, our estimated net proved reserves increased 29.4%, or 169,150 BOE to 745,190 BOE from 576,040 BOE. Our proved reserves at fiscal year-end 2016 were 59% oil and 41% natural gas, compared to 62% oil and 38% natural gas at year-end 2015.
Plan for Fiscal 2017
During the fiscal year ending July 31, 2017, the Company plans to raise funds to continue drilling shallow oil and gas wells within the 70,000 acres that it has leasehold rights to in Pecos County in order to develop additional reserves and production. We anticipate raising such funds through joint ventures working interest holder participation, whereby the company would retain a carried working interest participation because of its existing lease ownership. In order to keep the leasehold in good standing, the Company adheres to the Continuous Drilling Clause for each respective lease and meets the requirements found therein. Capital expenditures and thus drilling activity for fiscal 2017 depend, to a significant extent, on the future market prices for oil. The Company also plans to workover existing wells to boost production. The workovers will consist of fracing or re-fracing wells with new frac techniques. Some workovers will consist of performing acid jobs to existing wellbores in an effort to boost production which is being affected by down-hole blockage. The Company also plans to put electrical infrastructure in certain areas of the field where certain wells do not have electricity. The electricity will allow us to run electric motors on pumping units which will allow us to produce the wells more efficiently and to help maintain and boost production rates.
-21-
On April 15, 2016, we entered into an agreement with Jed Miesner, our Chairman, to acquire all of his interest (100% of the total outstanding shares of common stock) of Jilpetco, Inc., a Texas corporation ("Jilpetco") in consideration of $500,000. Jilpetco is engaged in the business of operating and providing oilfield services to oil and gas properties. As a result, Jilpetco will become our wholly owned subsidiary corporation.
On August 25, 2016, we announced that the foregoing agreement was amended to extend the closing date to August 31, 2016 and exclude certain property therefrom. The parties agreed to allow Jed Miesner to assign certain accounts receivable, and to exclude personal property from the transaction. In addition, the $500,000 consideration for the acquisition is in the form of a note payable at 6% interest. Jilpetco owns a drilling rig, two workover rigs and other equipment and machinery that provide drilling, completion, workover and lease operational services to the wells that Amazing owns in Pecos County, TX. Owning Jilpetco allows the Company to be fully integrated in the process of planning and implementing the steps that are essential in helping us accomplish our workover, drilling, completion and operational goals.
On May 16, 2016, the Company began a private placement offering of 20,000,000 restricted shares of common stock at $0.26 per share. As of July 31, 2016, 699,400 shares had been sold for $181,844. As of October 31, 2016, the total has been 5,763,098 shares sold for $1,498,405. The Company may, in its sole discretion, extend the offering period to March 31, 2017 or terminate the offering at any time.
GSSI during Fiscal 2017 will be a managing broker dealer to raise drilling capital through oil and gas limited partnerships private placement (PPM) offerings.
RESULTS OF OPERATIONS – FOR THE YEARS ENDED JULY 31, 2016 AND 2015
Our oil and gas revenue decreased from $781,133 for the year ended July 31, 2015 to $250,476 for the year ended July 31, 2016, which was a decrease of $530,657. Multiple factors contributed to the production decrease for the comparable yearly periods which include the natural decline of the production reservoirs and budgetary cuts made to lease operating expenditures. The most significant factor contributing to the production decrease was the lack of gas sales due to the gas gathering system that we deliver our gas into being shut-in since late January 2016. With no market for the evacuation of the natural gas, our oil production was curtailed. We received notification in February 2016 that the Trans-Pecos gathering system with downstream delivery into the Regency (Energy Transfer) Coyanosa Facilities was shut-in until further notice due to the sulphur recovery plant being down. The Trans-Pecos system is operated by Pioneer Gas Pipeline, Inc. which is the company that buys our gas. The Trans-Pecos system resumed operations on August 26, 2016. A second reason for the decrease in oil and gas revenue was a substantial drop in the price of oil, and to a somewhat lesser extent, a drop in the price of gas. Average prices for a barrel of oil that the company received in fiscal 2015 was $57.06, compared to an average price of $36.49 in fiscal 2016. The average prices that the company received for natural gas also decreased from $2.09 per MCF in fiscal 2015 to $2.03 per MCF in fiscal 2016. Sales of oil decreased from 12,127 barrels of oil in fiscal 2015 to 7,396 barrels of oil in fiscal 2016 for a decrease of 4,731 barrels. Natural gas sales decreased from 65,096 MCF in fiscal 2015 to 21,492MCF in fiscal 2016 for a decrease of 43,604 MCF. If the sales of oil and gas are combined into BOE per day, the daily BOE decreased from 63 BOE in fiscal 2015 to 30 BOE in fiscal 2016.
As of July 31, 2016, the company's oil and gas production was generated from twenty-two wells with its working interest ownership ranging from 40% to 100%. Following is a summary of the ownership percentage in these twenty-two producing wells:
|
Number of
Producing Wells
|
||||
|
Wells with 100% working interest ownership
|
12
|
|||
|
Wells with 50% working interest ownership
|
4
|
|||
|
Wells with 49.5% working interest ownership
|
3
|
|||
|
Wells with 40% working interest ownership
|
3
|
|||
|
Total producing wells
|
22
|
|||
Lease operating expenses decreased from $683,889 in fiscal 2015 to $529,502 in fiscal 2016, which is a decrease of $154,387. A major component of this decrease was a decrease in field services being performed due to budgetary cuts in lease operational services.
-22-
Selling, general and administrative costs decreased from $694,423 incurred in fiscal 2015 compared to $478,006 in fiscal 2016, which is a decrease of $216,417. Within this category, stock based compensation decreased from $182,074 in fiscal 2015 to $0 in fiscal 2016.
Depletion expense decreased from $306,145 in fiscal 2015 to $124,959 in fiscal 2016. The reasons for this decrease resulted from the following:
|
·
|
An increase in the depleted base of $7,810,958 as of July 31, 2015 to $8,482,271 as of July 31, 2016.
|
|
·
|
The percentage of depletion rate decreased from 4% as of fiscal 2015 to 1.47% as of fiscal 2016.
|
|
·
|
The average price of oil and gas that was used in the reserve report calculations decreased as follows:
|
|
Fiscal Year Ended
July 31,
|
Average Price of
Oil Per Barrel
|
Average Price of
Gas per Mcf
|
||
|
2015
|
$67.65
|
$3.25
|
||
|
2016
|
$42.46
|
$2.25
|
During fiscal 2015, there was a onetime charge of $13,921,168 under the caption of "Loss on modification of related party notes payable." This charge occurred because the board of directors approved a modification to Jed Miesner's $3,368,473 related party (Jed is the former President and CEO of the company) note payable. The modification gave Mr. Miesner the option to convert the note to common stock of Amazing Energy, Inc. (the subsidiary corporation) under the same conditions that common stock was sold to private placement shareholders ($0.60 per share in October of 2014). Mr. Miesner also has the option to convert those shares to the public parent corporation (Amazing Energy Oil and Gas, Co.) at the same rate that other shareholders converted their shares during fiscal 2015. The trading price of the stock of Amazing Energy Oil and Gas, Co. on the date to the approval of this conversion was $1.00 per share. Mr. Miesner cannot exercise this conversion feature until February 1, 2017. In connection with the modification, Mr. Miesner agreed to waive default under the terms of the notes and line of credit so long as principal and accrued interest are paid on or before December 31, 2030.
The $1,432,017 in preferred dividends paid to shareholders included both past accrued dividends and current dividends that are due to five classes of preferred shareholders of Amazing Energy, Inc. Once these dividends were paid and Amazing Energy, Inc. entered into "a change in control agreement" with Gold Crest Mines, Inc. (now known as Amazing Energy Oil and Gas, Co.), then these shares of preferred stock were converted into common stock of Amazing Energy, Inc. at the election of that company.
Due to the volatile nature of our business, we expect that revenues, as well as the related variable expenses, will continue to fluctuate fairly substantially quarter–to–quarter and year–to–year. The negative impact of lower crude oil prices on our revenues has been substantial for the year ended July 31, 2016. Our average price on a BOE basis for oil and gas decreased from $57.41 in fiscal 2015 to $36.83 in fiscal 2016, which was a decrease of $20.58. Production expenses will fluctuate according to the number and percentage ownership of producing wells, as well as the amount of revenues being contributed by such wells. Our goal is to improve cash flow in order to cover operating costs and expenses by attracting additional working interest partners to fund our drilling program.
LIQUIDITY AND CAPITAL RESOURCES
Our primary financial resource is our leasehold rights within approximately 70,000 acre position in Pecos County, TX and the related oil and gas reserves. Our ability to develop our leasehold position is dependent upon investor groups willing to deploy the requisite capital with us. Our plans are to continue to attract drilling and completion funds whereby the investor earns a 75% working interest participation and our company retains a 25% "carried working interest" participation. The ability to attract such capital is dependent upon, among other economic factors, the prices for oil and gas, and the continued favorable income tax treatment that passes through to working interest participants.
The changes in our capital resources are set forth in the table below:
|
July 31,
2016
|
July 31,
2015
|
Increase
(Decrease)
|
% Change
|
|||||||||||||
|
Cash
|
$
|
171,265
|
$
|
97,531
|
$
|
73,734
|
76
|
%
|
||||||||
|
Current assets
|
246,151
|
227,739
|
18,412
|
8
|
%
|
|||||||||||
|
Total assets
|
6,537,610
|
6,414,577
|
123,033
|
2
|
%
|
|||||||||||
|
Current liabilities
|
1,379,017
|
1,281,281
|
97,736
|
7
|
%
|
|||||||||||
|
Total liabilities
|
4,374,150
|
4,370,994
|
3,156
|
0
|
%
|
|||||||||||
|
Working capital
|
$
|
(1,132,866
|
)
|
$
|
(1,053,542
|
)
|
$
|
(79,324
|
)
|
(8
|
%)
|
|||||
Our working capital decreased by $79,324 from July 31, 2015 to July 31, 2016. The primary reasons for this decrease are as follows:
|
1)
|
Cash increased by $73,734
|
|
2)
|
Oil and gas receivables decreased by $71,820
|
|
3)
|
Related party payables increased by $777,667
|
|
4)
|
Interest payable, related party decreased by $343,219
|
|
5)
|
Current portion of convertible debt, related party decreased by $189,508
|
We intend on improving our working capital position by reworking some of our existing wells and continuing to attract investor capital in order to drill additional wells by July 31, 2017.
Our business is very capital intensive and we are dependent on raising the requisite drilling capital through various investors. In turn, these capital raises are highly dependent upon the prices of oil and gas. There is no assurance that we will be able to raise sufficient drilling funds, and therefore, there is no assurance that we will be able to achieve profitability.
CASH FLOWS
Changes in the net funds provided by or (used in) each of our operating, investing and financing activities are set forth in the table below:
|
July 31,
2016
|
July 31,
2015
|
Increase
(Decrease)
|
||||||||||
|
Net cash provided by (used in) operating activities
|
$
|
137,309
|
$
|
(154,893
|
)
|
$
|
292,202
|
|||||
|
Net cash (used in) investing activities
|
$
|
(277,669
|
)
|
$
|
(247,238
|
)
|
$
|
(30,431
|
)
|
|||
|
Net cash provided by financing activities
|
$
|
214,094
|
$
|
65,043
|
$
|
149,051
|
||||||
CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES
Cash flow from operating activities is derived from the production of out oil and gas production and sales, plus changes in the balances of non-cash accounts, receivables, payables, or other account balances. For the year ended July 31, 2016, cash provided by operating activities was $137,309 in comparison to cash used by operating activities in the amount of $154,893 for the year ended July 31, 2015. This increase in cash used by operating activities of $292,202 was primarily due to an increase in accounts payable, related party.
CASH FLOW (USED IN) INVESTING ACTIVITIES
Cash flow from investing activities is primarily derived from changes in oil and gas properties. The capitalized cost of cash invested in oil and gas properties decreased from $369,198 in fiscal 2015 to $276,769 in fiscal 2016, which was a decrease of $92,429.
CASH FLOW PROVIDED BY FINANCIAL ACTIVITIES
Cash flow from financing activities is derived from changes in long-term liability account balances or in equity account balances excluding retained earnings (accumulated deficit). Net cash flow provided by financing activities was $65,043 for fiscal 2015, compared to $214,094 for fiscal 2016. The primary financing activities were the generation of $181,844 in cash by the sale of common stock.
OIL AND GAS RESERVES
The company's total net proved developed and undeveloped oil and gas reserves and related values are summarized in the following table:
|
Net Reserves
|
Cash Flows
|
|||||||||||||||
|
Oil
(BO)
|
Gas
(Mcf)
|
Non
Discounted
|
Discounted
at 10%
|
|||||||||||||
|
As of July 31, 2015
|
357,290
|
1,312,500
|
$
|
17,568,310
|
$
|
12,635,730
|
||||||||||
|
As of July 31, 2016
|
436,980
|
1,849,260
|
$
|
9,787,960
|
$
|
7,324,060
|
||||||||||
Even though the quantities of the oil and gas reserves have increased from July 31, 2015 to July 31, 2016, the projected cash flows have decreased because the prices for the analysis as of July 31, 2015 were based upon oil at $67.65 per barrel and gas at $3.25 per MMBTU and the reserve analysis was based on oil prices at $42.46 per barrel and gas at $2.25 per MMBTU at July 31, 2016.
CHANGES IN FINANCIAL CONDITION
As of July 31, 2016, our total assets were $6,537,610 compared to total assets of $6,414,577 as of July 31, 2015, for an increase of $123,033. This increase is due from an increase in oil and gas properties of $113,771 and current assets of $18,412.
At July 31, 2016, total liabilities were $4,374,150, an increase of $3,156 in comparison to $4,370,994 at July 31, 2015. Long-term debt remained fairly stable; however most of the increase in total liabilities was attributable to the increase in current liabilities.
Our common stock increased from 53,441,528 outstanding shares as of July 31, 2015 to 59,839,456 outstanding shares at July 31, 2016. The primary reason for this increase in the number of outstanding shares of common stock was the acquisition of GSSI.
The accumulated deficit increased from $18,490,545 as of July 31, 2015 to $25,535,926 as of July 31, 2016. The main increase came from the one-time charge of impairment of goodwill on the acquisition of GSSI of $5,975,836.
MINING OPERATIONS:
We were in the business of exploration, development, and if warranted the mining of properties containing valuable mineral deposits. The focus of our exploration programs was directed at precious metals, primarily gold. We no longer continue to identify, investigate and acquire potential properties for future exploration and development when warranted. We have suspended all of our mining operations in lieu of our oil and gas operations.
MANAGEMENT'S PLANS TO CONTINUE AS A GOING CONERN
The company completed a reverse merger reorganization and recapitalization process during the fiscal year ended July 31, 2015. This process started on October 7, 2014 and was completed on July 27, 2015. During this time frame, the company drilled three new commercial wells (the WWJD #13, 14 and 15.) The WWJD15 was actually completed subsequent to the fiscal year ended July 31, 2015.
Our fiscal year 2016 activity focused on conventional drilling in the Queens formation in Pecos County, Texas. We spudded 2 conventional wells and completed 1 well in fiscal 2016, compared to spudding 3 conventional wells and completion of 1 well in fiscal 2015. We plan to continue to develop the Queens formations in Pecos County, Texas during fiscal 2017. The rate of drilling wells would depend, to some degree, on oil and gas prices. Our overall accomplishments in fiscal 2016 include:
|
·
|
Completed the acquisition of Gulf South Securities, Inc.
|
|
·
|
Production. Net production for fiscal 2016 totaled 10,978 BOE, compared to 22,976 BOE in fiscal 2015, a 52% decrease. Production for fiscal 2016 was 67% oil and 33% natural gas.
|
During the fiscal year ending July 31, 2017, the Company plans to raise funds to continue drilling shallow oil and gas wells within the 70,000 acres that it has leasehold rights to in Pecos County in order to develop additional reserves and production. We anticipate raising such funds through joint ventures working interest holder participation, whereby the company would retain a carried working interest participation because of its existing lease ownership. Capital expenditures and thus drilling activity for fiscal 2017 depend, to a significant extent, on the future market prices for oil.
On April 15, 2016, we entered into an agreement with Jed Miesner, our Chairman, to acquire all of his interest (100% of the total outstanding shares of common stock) of Jilpetco, Inc., a Texas corporation ("Jilpetco") in consideration of $500,000. Jilpetco is engaged in the business of operating and providing oilfield services to oil and gas properties. As a result, Jilpetco will become our wholly owned subsidiary corporation.
On August 25, 2016, we announced that the foregoing agreement was amended to extend the closing date to August 31, 2016 and exclude certain property therefrom. The parties agreed to allow Jed Miesner to assign certain accounts receivable, and to exclude personal property from the transaction. In addition, the $500,000 consideration for the acquisition is in the form of a note payable at 6% interest. Jilpetco owns a drilling rig, two workover rigs and other equipment and machinery that provide drilling, completion, workover and lease operational services to the wells that Amazing owns in Pecos County, TX. Owning Jilpetco allows the Company to be fully integrated in the process of planning and implementing the steps that are essential in helping us accomplish our workover, drilling, completion and operational goals.
On May 16, 2016, the Company began a private placement offering of 20,000,000 restricted shares of common stock at $0.26 per share. As of July 31, 2016, 699,400 shares had been sold for $181,844. As of October 31, 2016, the total has been 5,763,098 shares sold for $1,498,405. The Company may, in its sole discretion, extend the offering period to March 31, 2017 or terminate the offering at any time.
GSSI during Fiscal 2017 will be a managing broker dealer to raise drilling capital through oil and gas limited partnerships private placement (PPM) offerings.
We plan on continuing to raise capital by the sale of common stock for cash and to raise drilling funds for drilling of our Pecos County acreage through drilling partnerships.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are policies that are both most important to the portrayal of the company's financial condition and results, and that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, production expenses, and depreciation, accretion expenses. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making estimates and judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Estimates, by their nature, are based on judgment and available information. These judgments and uncertainties do affect the application of these critical accounting policies. There is a likelihood that materially different amounts could be reported under different conditions or using different assumptions. Therefore, actual results could differ from those estimates and could have a material impact on our financial statements, and it is possible that such changes could occur in the near term.
The company uses the full cost method of accounting for exploration and development activities as defined by the Securities and Exchange Commission ("SEC"). Under this method of accounting, the costs of unsuccessful, as well as successful, exploration and development activities are capitalized as properties and equipment. This includes any internal costs that are directly related to property acquisition, exploration and development activities but does not include any costs related to production, general corporate overhead or similar activities. Gain or loss on the sale or other disposition of oil and gas properties is not recognized, unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves.
-26-
Oil and gas properties include costs that are excluded from costs being depleted or amortized. Oil and natural gas property costs excluded represent investments in unevaluated properties and include non-producing leasehold, geological, and geophysical costs associated with leasehold or drilling interest and exploration drilling costs. The company allocates a portion of its acquisition costs to unevaluated properties based on relative value. Costs are transferred to the full cost pool as the properties are evaluated over the life of the reservoir.
The depreciable base for oil and natural gas properties includes the sum of all capitalized costs net of accumulated depreciation, depletion, amortization ("DD&A"), estimated future development costs and asset retirement costs not included in oil and natural gas properties, less costs excluded from amortization. The depreciable base of oil and natural gas properties is amortized on a unit-of-production method.
For the years ended July 31, 2016 and 2015, we engaged Mire & Associates, Inc., independent petroleum engineers, to prepare independent estimates of the extent and value of our reported proved reserves in accordance with rules and guidelines established by the Securities and Exchange Commission.
Estimates of proved oil and gas reserves directly impact financial accounting estimates including depletion, depreciation and amortization expense, evaluation of impairment of properties and the calculation of plugging and abandonment liabilities. Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations. The process of estimating quantities of proved reserves is very complex, requiring significant subjective decisions in the evaluation of all geological, engineering and economic data for each reservoir. The data for any reservoir may change substantially over time due to results from operational activity.
All of our long-lived assets are monitored for potential impairment when circumstances indicate that the carrying value of an asset may be greater than its future net cash flows. The evaluations involve a significant amount of judgment since the results are based on estimated future events, such as future sales prices for oil and gas, future costs to produce these products, estimates of future oil and gas reserves to be recovered and the timing thereof, the economic and regulatory climates and other factors. The need to test an asset for impairment may result from significant declines in commodity prices or downward revisions to estimated quantities of oil and gas reserves. Because of the uncertainty interest in these factors, we cannot predict when or if impairment changes will be recorded.
We use the sales method to account for sales of crude oil and natural gas. Under this method, revenues are recognized based on actual volumes of oil and natural gas sold to producers. These volumes may differ from the production of oil and gas during a particular period of time.
As of July 31, 2016, we did not have any relationships with the unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
|
Index
|
|
|
F-1
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
To the Board of Directors and
Stockholders of Amazing Energy Oil and Gas, Co.
We have audited the accompanying consolidated balance sheets of Amazing Energy Oil and Gas, Co. ("the Company") as of July 31, 2016 and 2015, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Amazing Energy Oil and Gas, Co. as of July 31, 2016 and 2015, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has accumulated losses since inception and has negative working capital. These factors raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ DeCoria, Maichel & Teague P.S.
DeCoria, Maichel & Teague P.S.
Spokane, Washington
November 10, 2016
F-1
AMAZING ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
July 31,
|
July 31,
|
|||||||
|
2016
|
2015
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$
|
171,265
|
$
|
97,531
|
||||
|
Prepaid expenses
|
35,028
|
18,530
|
||||||
|
Oil and gas receivables, related party
|
39,858
|
111,678
|
||||||
|
Total current assets
|
246,151
|
227,739
|
||||||
|
Property, plant, and equipment, net of accumulated depreciation of $18,236
and $12,399, respectively
|
19,314
|
25,150
|
||||||
|
Mineral property
|
-
|
3,314
|
||||||
|
OIL AND GAS PROPERTIES, Full Cost Method
|
||||||||
|
Evaluated properties, net of accumulated depletion of $997,986 and
$873,027 respectively
|
6,245,523
|
6,131,752
|
||||||
|
Other assets
|
26,622
|
26,622
|
||||||
|
Total Assets
|
$
|
6,537,610
|
$
|
6,414,577
|
||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Accounts payable
|
$
|
47,090
|
$
|
38,449
|
||||
|
Accounts payable, related party
|
981,606
|
203,939
|
||||||
|
Accrued liabilities
|
20,815
|
76,447
|
||||||
|
Interest payable, related party
|
-
|
343,219
|
||||||
|
Current portion of convertible debt, related party
|
329,506
|
519,014
|
||||||
|
Loan and deposit from Afranex
|
-
|
100,213
|
||||||
|
Total current liabilities
|
1,379,017
|
1,281,281
|
||||||
|
LONG TERM LIABILITIES:
|
||||||||
|
Asset retirement obligation
|
211,218
|
240,254
|
||||||
|
Common stock payable
|
32,250
|
-
|
||||||
|
Long-term convertible debt, related party
|
2,751,665
|
2,849,459
|
||||||
|
Total long-term liabilities
|
2,995,133
|
3,089,713
|
||||||
|
Total Liabilities
|
4,374,150
|
4,370,994
|
||||||
|
COMMITMENTS AND CONTINGENCIES (Note 7)
|
||||||||
|
STOCKHOLDERS' EQUITY:
|
||||||||
|
Preferred stock, no par value per share, 10,000,000 shares authorized,
no shares issued and outstanding
|
-
|
-
|
||||||
|
Series A Preferred Stock, $0.01 par value, 9,000 and 0 shares issued and outstanding,
$900,000 liquidation preference
|
90
|
-
|
||||||
|
Series B Preferred Stock, $0.01 par value, 50,000 and 0 shares issued and outstanding,
$5,000,000 liquidation preference
|
500
|
-
|
||||||
|
Common stock, $0.001 par value per share, 3,000,000,000 shares
authorized, 59,839,456 and 53,441,528 issued and outstanding
|
59,840
|
53,442
|
||||||
|
Additional paid-in capital
|
27,638,956
|
20,480,686
|
||||||
|
Accumulated deficit
|
(25,535,926
|
)
|
(18,490,545
|
)
|
||||
|
2,163,460
|
2,043,583
|
|||||||
|
Total Liabilities and Stockholders' Equity
|
$
|
6,537,610
|
$
|
6,414,577
|
||||
The accompanying notes are an integral part of these financial statements.
F-2
AMAZING ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
Years Ended July 31,
|
||||||||
|
2016
|
2015
|
|||||||
|
REVENUES:
|
||||||||
|
Oil and gas sales
|
$
|
250,476
|
$
|
781,133
|
||||
|
OPERATING COSTS AND EXPENSES:
|
||||||||
|
Lease operating expenses
|
529,502
|
683,889
|
||||||
|
Selling, general, and administrative costs
|
478,006
|
694,423
|
||||||
|
Depreciation expense
|
5,837
|
22,283
|
||||||
|
Depletion expense
|
124,959
|
306,145
|
||||||
|
Accretion expense
|
12,854
|
11,596
|
||||||
|
Gain on mineral property
|
(100,772
|
)
|
(5,192
|
)
|
||||
|
Total operating costs and expenses
|
1,050,386
|
1,713,144
|
||||||
|
LOSS FROM OPERATIONS
|
(799,910
|
)
|
(932,011
|
)
|
||||
|
OTHER INCOME (EXPENSE):
|
||||||||
|
Interest income
|
87
|
218
|
||||||
|
Loss on modification of related party notes payable
|
-
|
(13,921,168
|
)
|
|||||
|
Impairment of goodwill
|
(5,975,836
|
)
|
-
|
|||||
|
Interest expense, related party
|
(269,722
|
)
|
(231,031
|
)
|
||||
|
Total other income (expense)
|
(6,245,471
|
)
|
(14,151,981
|
)
|
||||
|
NET LOSS
|
(7,045,381
|
)
|
(15,083,992
|
)
|
||||
|
NET LOSS - NON-CONTROLLING INTEREST
|
-
|
(6,157,632
|
)
|
|||||
|
NET LOSS - AMAZING ENERGY OIL AND GAS, CO.
|
(7,045,381
|
)
|
(8,926,360
|
)
|
||||
|
PREFERRED DIVIDENDS ATTRIBUTABLE TO AMAZING ENERGY
OIL AND GAS, CO.
|
-
|
(834,697
|
)
|
|||||
|
DEEMED CAPITAL CONTRIBUTION ON THE EXCHANGE OF RELATED
PARTY DEBT AND INTEREST FOR PREFERRED STOCK
|
454,265
|
-
|
||||||
|
NET LOSS ATTRIBUTABLE TO AMAZING ENERGY OIL
AND GAS, CO. COMMON STOCKHOLDERS
|
$
|
(6,591,116
|
)
|
$
|
(9,761,057
|
)
|
||
|
NET LOSS PER COMMON SHARE - Basic and diluted
|
$
|
(0.12
|
)
|
$
|
(0.56
|
)
|
||
|
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - Basic and diluted
|
53,705,068
|
17,509,962
|
||||||
The accompanying notes are an integral part of these financial statements.
F-3
AMAZING ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
For the Years Ended July 31, 2015 and 2016
|
Preferred Stock
|
Common Stock
|
Treasury
|
Non-Controlling
|
Additional
Paid-In
|
Accumulated
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Stock
|
Interest
|
Capital
|
Deficit
|
Total
|
||||||||||||||||||||||||||||
|
BALANCES, July 31, 2014
|
4,987,027
|
$
|
49,870
|
10,249,088
|
$
|
10,249
|
$
|
(90,998
|
)
|
$
|
-
|
$
|
6,467,291
|
$
|
(3,406,553
|
)
|
$
|
3,029,859
|
||||||||||||||||||
|
Common shares issued for cash
|
-
|
-
|
1,874,895
|
1,875
|
-
|
-
|
1,493,860
|
-
|
1,495,735
|
|||||||||||||||||||||||||||
|
Share based compensation
|
-
|
-
|
93,745
|
94
|
-
|
-
|
74,906
|
-
|
75,000
|
|||||||||||||||||||||||||||
|
Conversion of preferred stock
|
(4,972,027
|
)
|
(49,720
|
)
|
4,288,544
|
4,289
|
-
|
-
|
45,431
|
-
|
-
|
|||||||||||||||||||||||||
|
Preferred shares repurchased
|
(15,000
|
)
|
(150
|
)
|
-
|
-
|
(21,850
|
)
|
-
|
-
|
-
|
(22,000
|
)
|
|||||||||||||||||||||||
|
Dividends paid on preferred stock
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,432,017
|
)
|
-
|
(1,432,017
|
)
|
|||||||||||||||||||||||||
|
Recapitalization
|
79,755
|
80
|
2,666,396
|
2,666
|
112,848
|
-
|
(246,369
|
)
|
-
|
(130,775
|
)
|
|||||||||||||||||||||||||
|
Non-controlling interest resulting
from recapitalization
|
-
|
-
|
(6,885,059
|
)
|
(6,885
|
)
|
1,286,531
|
(2,774,018
|
)
|
1,494,372
|
-
|
|||||||||||||||||||||||||
|
Subsidiary shares issued for cash
|
9,744
|
13,581
|
23,325
|
|||||||||||||||||||||||||||||||||
|
Conversion of preferred stock
|
(79,755
|
)
|
(80
|
)
|
19,938,750
|
19,939
|
-
|
-
|
(19,859
|
)
|
-
|
-
|
||||||||||||||||||||||||
|
Share based compensation
|
69,775
|
97,505
|
167,280
|
|||||||||||||||||||||||||||||||||
|
Conversion option on modification
of debt
|
-
|
-
|
-
|
-
|
-
|
5,806,767
|
8,114,401
|
-
|
13,921,168
|
|||||||||||||||||||||||||||
|
Subsidiary shares exchanged for
shares of common stock
|
-
|
-
|
21,215,169
|
21,215
|
-
|
(7,172,817
|
)
|
8,645,974
|
(1,494,372
|
)
|
-
|
|||||||||||||||||||||||||
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(15,083,992
|
)
|
(15,083,992
|
)
|
|||||||||||||||||||||||||
|
BALANCES, July 31, 2015
|
-
|
$
|
-
|
53,441,528
|
$
|
53,442
|
$
|
-
|
$
|
-
|
$
|
20,480,686
|
$
|
(18,490,545
|
)
|
$
|
2,043,583
|
|||||||||||||||||||
|
Common shares issued for services
|
-
|
-
|
50,000
|
50
|
-
|
-
|
14,950
|
-
|
15,000
|
|||||||||||||||||||||||||||
|
Common shares issued for acquisition
of Gulf South Securities, Inc.
("GSSI")
|
-
|
-
|
5,373,528
|
5,374
|
-
|
-
|
2,434,209
|
-
|
2,439,583
|
|||||||||||||||||||||||||||
|
Warrants issued for acquisition
of GSSI
|
-
|
-
|
-
|
-
|
-
|
-
|
1,058,528
|
-
|
1,058,528
|
|||||||||||||||||||||||||||
|
Common shares issued for cost of
acquisition of GSSI
|
-
|
-
|
275,000
|
275
|
-
|
-
|
93,225
|
-
|
93,500
|
|||||||||||||||||||||||||||
|
Preferred series B shares issued for
acquisition of GSSI
|
50,000
|
500
|
-
|
-
|
-
|
-
|
2,476,303
|
-
|
2,476,803
|
|||||||||||||||||||||||||||
|
Preferred series A shares issued for
conversion of debt and interest
|
9,000
|
90
|
-
|
-
|
-
|
-
|
445,645
|
-
|
445,735
|
|||||||||||||||||||||||||||
|
Deemed capital contribution on the
exchange of related party debt and
interest
|
-
|
-
|
-
|
-
|
-
|
-
|
454,265
|
-
|
454,265
|
|||||||||||||||||||||||||||
|
Common shares issued for cash
|
-
|
-
|
699,400
|
699
|
-
|
-
|
181,145
|
-
|
181,844
|
|||||||||||||||||||||||||||
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(7,045,381
|
)
|
(7,045,381
|
)
|
|||||||||||||||||||||||||
|
BALANCES, July 31, 2016
|
59,000
|
$
|
590
|
59,839,456
|
$
|
59,840
|
$
|
-
|
$
|
-
|
$
|
27,638,956
|
$
|
(25,535,926
|
)
|
$
|
2,163,460
|
|||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
F-4
-31-
AMAZING ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
Years Ended July 31,
|
||||||||
|
2016
|
2015
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net loss
|
$
|
(7,045,381
|
)
|
$
|
(15,083,992
|
)
|
||
|
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
|
||||||||
|
Stock based compensation expense
|
108,500
|
242,280
|
||||||
|
Gain from mineral property
|
(100,772
|
)
|
(5,192
|
)
|
||||
|
Depreciation expense
|
5,837
|
22,283
|
||||||
|
Depletion expense
|
124,959
|
306,145
|
||||||
|
Accretion expense
|
12,854
|
11,596
|
||||||
|
Loss on modification of related party notes payable
|
-
|
13,921,168
|
||||||
|
Impairment of goodwill
|
5,975,836
|
-
|
||||||
|
Changes in operating assets and liabilities, net of business acquired:
|
||||||||
|
Oil and gas receivables, related party
|
71,820
|
122,920
|
||||||
|
Prepaid expenses and other current assets
|
(16,498
|
)
|
(18,530
|
)
|
||||
|
Accounts payable
|
8,642
|
14,429
|
||||||
|
Accounts payable, related party
|
777,667
|
58,763
|
||||||
|
Accrued liabilities
|
(55,632
|
)
|
22,277
|
|||||
|
Interest payable, related party
|
269,478
|
230,960
|
||||||
|
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
137,309
|
(154,893
|
)
|
|||||
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
|
Proceeds from the sale of oil and gas properties
|
-
|
66,777
|
||||||
|
Purchase of property and equipment
|
-
|
(1,325
|
)
|
|||||
|
Proceeds from the sale of property and equipment
|
-
|
19,000
|
||||||
|
Net cash acquired (advanced) in acquisition of companies
|
(900
|
)
|
37,508
|
|||||
|
Purchase of oil and gas properties
|
(276,769
|
)
|
(369,198
|
)
|
||||
|
NET CASH (USED IN) INVESTING ACTIVITIES
|
(277,669
|
)
|
(247,238
|
)
|
||||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Common stock payable
|
32,250
|
-
|
||||||
|
Proceeds from sale of common stock, net of issuance costs
|
181,844
|
1,519,060
|
||||||
|
Purchase of treasury shares
|
-
|
(22,000
|
)
|
|||||
|
Preferred stock dividends paid
|
-
|
(1,432,017
|
)
|
|||||
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
214,094
|
65,043
|
||||||
|
NET INCREASE (DECREASE) IN CASH
|
73,734
|
(337,088
|
)
|
|||||
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
97,531
|
434,619
|
||||||
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
$
|
171,265
|
$
|
97,531
|
||||
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
||||||||
|
Mineral property acquired in reverse acquisition
|
-
|
$
|
3,314
|
|||||
|
Liabilities acquired in reverse acquisition
|
-
|
171,597
|
||||||
|
Subsidiary shares exchanged for common stock
|
-
|
21,215
|
||||||
|
Conversion of preferred stock
|
-
|
4,289
|
||||||
|
Preferred series A shares issued for conversion of debt and accrued interest (Note 10)
|
$
|
900,000
|
-
|
|||||
|
Acquisition of subsidiary through issuance of common stock, stock
purchase warrants, and preferred stock (Note 13)
|
$
|
5,974,915
|
-
|
|||||
The accompanying notes are an integral part of these financial statements.
F-5
AMAZING ENERGY OIL AND GAS, CO.
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
Note 1. Nature of Business
On October 14, 2014, Gold Crest Mines, Inc. ("Gold Crest", "the Company" or the "the Parent") incorporated a wholly owned Nevada subsidiary corporation named Amazing Energy Oil and Gas, Co. On October 15, 2014, Gold Crest merged the foregoing wholly owned subsidiary corporation into Gold Crest Mines, Inc. and, pursuant to Nevada law, changed its name to Amazing Energy Oil and Gas, Co. The Company entered into a change in control agreement as the first step in a reverse acquisition process with certain shareholders of Amazing Energy, Inc. on October 7, 2014. Through its primary subsidiary, Amazing Energy, Inc. (also a Nevada corporation) the main business of the Company is the exploration, development, and production of oil and gas in the Permian Basin of west Texas.
Amazing Energy, Inc. was formed in 2010 as a Texas corporation and then changed its domicile to Nevada in 2011. The Company owns interests in oil and gas properties located in Texas. The Company is primarily engaged in the acquisition, exploration and development of oil and gas properties and the production and sale of oil and natural gas. Amazing Energy, LLC was formed in December 2008 as a Texas Limited Liability Company. In December of 2010, Amazing Energy, Inc. and Amazing Energy, LLC were combined as commonly controlled entities.
On July 31, 2016 the Company acquired Gulf South Securities, Inc. ("GSSI") (See Note 13). GSSI was organized to be active in various aspects of the securities industry and is registered as a broker-dealer with the Financial Industry Regulatory Authority ("FINRA") and the Securities and Exchange Commission ("SEC").
GSSI is a FINRA limited broker dealer for the purpose of acting as a managing broker dealer to distribute oil and gas drilling limited partnership offerings.
Note 2. Recapitalization
On October 7, 2014, Amazing Energy, Inc. entered into a change in control agreement ("Plan of Merger") with Gold Crest Mines, Inc. Pursuant to the change in control agreement, the shareholders of Amazing Energy, Inc. would control approximately 95% of the shares of common stock of the Parent, Amazing Energy Oil and Gas, Co. Specific to the terms of the agreement, certain controlling shareholders of Amazing Energy, Inc. exchanged 12,829,000 shares of its common stock to Gold Crest Mines, Inc. for 384,848,504 (pre-reverse stock split, see below) shares of common stock and 79,755 shares of Series "A" convertible preferred stock of Gold Crest Mines. Each Series "A" convertible preferred share is convertible into 10,000 shares of Gold Crest Mines, Inc. common stock. The remaining outstanding shares of Amazing Energy, Inc. were held by non-controlling interests. On July 31, 2015, the non-controlling interest shares were converted into shares of the Parent's common stock at the same exchange ratio as the controlling shareholders.
The Plan of Merger was accounted for as a reverse acquisition with Amazing Energy, Inc. (the legal subsidiary) regarded as the accounting acquirer and Gold Crest Mines, Inc. (the legal parent) deemed the accounting acquiree. The reverse acquisition is characterized as a recapitalization and the consolidated financial statements represent the continuation of the financial statements of the Amazing Energy Inc. with the exception of the capital structure which reflects the capital structure of Gold Crest Mines, Inc.
On October 15, 2014, the Board of Directors approved a one-for-forty reverse stock split of the Company's common stock. The one-for-forty reverse stock split was effective February 15, 2015. As a result of the reverse stock split, the number of issued and outstanding shares was adjusted. Following the effective date of the reverse stock split, the par value of the common stock remained at $0.001 per share. Unless otherwise indicated, all references herein to shares outstanding and share issuances have been adjusted to give effect to the aforementioned stock split.
F-6
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
Note 3. Significant Accounting Policies
The Company maintains its accounts on the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Accounting principles followed and the methods of applying those principles, which materially affect the determination of financial position, results of operations and cash flows are summarized below:
Use of estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and certain assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Management's estimates include estimates of the carrying value of assets and liabilities, including fair value estimates debt conversion features, stock based compensation, deferred income taxes, asset retirement obligations, oil and gas property ceiling tests, and depreciation, depletion and amortization. Actual results could differ from these estimates.
Basis of presentation – The financial statements are presented on a consolidated basis and include all of the accounts of Amazing Energy Oil and Gas, Co. and its wholly owned subsidiaries, Amazing Energy, Inc., Amazing Energy LLC, Kisa Gold Mining, Inc., and Gulf South Securities, Inc. (acquired on July 31, 2016). All significant intercompany balances and transactions have been eliminated.
Risks and uncertainties – The Company's operations are subject to significant risks and uncertainties, including financial, operational, technological, and other risks associated with operating an emerging oil and gas business, including the potential risk of business failure.
Concentration of risks – The Company's cash is placed with a highly rated financial institution, and the Company periodically reviews the credit worthiness of the financial institutions with which it does business. At times, the Company's cash balances are in excess of amounts guaranteed by the Federal Deposit Insurance Corporation.
Cash and Cash Equivalents – The Company considers all highly liquid investments purchased with a remaining maturity of three months or less when acquired to be cash equivalents.
Income Taxes - The Company accounts for income taxes using the liability method. The liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of (i) temporary differences between financial statement carrying amounts of assets and liabilities and their basis for tax purposes and (ii) operating loss and tax credit carry-forwards for tax purposes. Deferred tax assets are reduced by a valuation allowance when management concludes that it is more likely than not that a portion of the deferred tax assets will not be realized in a future period.
Fair value of financial instruments – Financial instruments consist of cash and convertible notes payable to related party. The estimated fair value of convertible debt, related party approximates $5.4 million at July 31, 2016 based on its common stock equivalents and exchange trading price.
Oil and gas receivables – Oil and gas receivable consist of oil and natural gas revenues due under normal trade terms. Management reviews receivables periodically and reduces the carrying amount by a valuation allowance that reflects management's best estimate of the amount that may not be collectible. As of July 31, 2016 and July 31, 2015, no valuation allowance was considered necessary.
Property, plant, and equipment – Property, plant, and equipment are stated at cost. Improvements which significantly increase an asset's value or significantly extend its useful life are capitalized and depreciated over the asset's remaining useful life. When property, plant or equipment is sold at a price either higher or lower than its carrying amount, or un-depreciated cost at the date of disposal, the difference between the sale proceeds over the carrying amount is recognized as gain, while a loss is recognized when the carrying amount exceeds the sale proceeds. Property, plant, and equipment are depreciated on a straight-line basis over their useful lives, which are typically five to seven years for equipment.
F-7
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
Oil and gas properties – The Company uses the full cost method of accounting for exploration and development activities as defined by the SEC. Under this method of accounting, the costs of unsuccessful, as well as successful, exploration and development activities are capitalized as properties and equipment. This includes any internal costs that are directly related to property acquisition, exploration and development activities but does not include any costs related to production, general corporate overhead or similar activities. Gain or loss on the sale or other disposition of oil and gas properties is not recognized, unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves. Oil and gas properties include costs that are excluded from costs being depleted or amortized. Oil and natural gas property costs excluded represent investments in unevaluated properties and include non-producing leasehold, geological, and geophysical costs associated with leasehold or drilling interests and exploration drilling costs. The Company allocates a portion of its acquisition costs to unevaluated properties based on relative value. Costs are transferred to the full cost pool as the properties are evaluated over the life of the reservoir.
Depletion and amortization – The depletion base for oil and natural gas properties includes the sum of all capitalized costs net of accumulated depreciation, depletion, and amortization ("DD&A"), estimated future development costs and asset retirement costs not included in oil and natural gas properties, less costs excluded from amortization. The depletion base of oil and natural gas properties is amortized on a units-of-production method.
Long-Lived Assets – The Company reviews long-lived assets which include property, plant and equipment and oil and gas properties for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows and reports any impairment at the lower of the carrying amount or the fair value less costs to sell.
Ceiling test – Future production volumes from oil and gas properties are a significant factor in determining the full cost ceiling limitation of capitalized costs. Under the full cost method of accounting, the Company is required to periodically perform a "ceiling test" that determines a limit on the book value of oil and gas properties. If the net capitalized cost of proved oil and gas properties, net of related deferred income taxes, plus the cost of unproved oil and gas properties, exceeds the present value of estimated future net cash flows discounted at 10 percent, net of related tax affects, plus the cost of unproved oil and gas properties, the excess is charged to expense and reflected as additional accumulated DD&A. The ceiling test calculation uses a commodity price assumption, which is based on an un-weighted arithmetic average of the price on the first day of each month for each month within the prior 12-month period and excludes future cash outflows related to estimated abandonment costs. The Company did not recognize impairment on its oil and gas properties during the years ended July 31, 2016 and 2015. Due to the volatility of commodity prices, should oil and natural gas prices decline in the future, it is possible that a write-down could occur. Proved reserves are estimated quantities of crude oil, natural gas, and natural gas liquids, which geological and engineering data demonstrate with reasonable certainty to be recoverable from known reservoirs under existing economic and operating conditions. The independent engineering estimates include only those amounts considered to be proved reserves and do not include additional amounts which may result from new discoveries in the future, or from application of secondary and tertiary recovery processes where facilities are not in place or for which transportation and/or marketing contracts are not in place.
The determination of oil and gas reserves is a subjective process, and the accuracy of any reserve estimate depends on the quality of available data and the application of engineering and geological interpretation and judgment. Estimates of economically recoverable reserves and future net cash flows depend on a number of variable factors and assumptions that are difficult to predict and may vary considerably from actual results. In particular, reserve estimates for wells with limited or no production history are less reliable than those based on actual production. Subsequent re- evaluation of reserves and cost estimates related to future development of proved oil and gas reserves could result in significant revisions to proved reserves. There other issues, such as changes in regulatory requirements, technological advances, and other factors, which are difficult to predict, could also affect estimates of proved reserves in the future.
F-8
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
Gains and losses on the sale of oil and gas properties are not generally reflected in income. Sales of less than 100% of the Company's interest in the oil and gas property are treated as a reduction of the capital cost of the field, with no gain or loss recognized, as long as doing so does not significantly affect the unit-of-production depletion rate. Costs of retired equipment, net of salvage value, are usually charged to accumulated depreciation.
Asset retirement obligations – Accounting principles require that the fair value of a liability for an asset's retirement obligation ("ARO") be recorded in the period in which it becomes a contractual obligation if a reasonable estimate of fair value can be made, and that the corresponding cost be capitalized as part of the carrying amount of the related long-lived asset. The liability is accreted to its then-present value each subsequent period, and the capitalized cost is depleted over the useful life of the related asset.
Inherent in the fair value calculation of an ARO are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit-adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental, and political environments. To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding adjustment is made to the related long-lived asset.
Stock-based compensation – Compensation cost for equity awards is based on the fair value of the equity instrument on the date of grant and is recognized over the period during which an employee is required to provide service in exchange for the award.
Revenue recognition – The Company predominantly derives its revenue from the sale of produced crude oil and natural gas. Revenue is based on actual volumes sold to purchasers when the product is delivered to the purchaser. At the end of each month, the Company estimates the amount of production delivered to purchasers and the price received. Variances between the Company's estimated revenue and actual payment are recorded in the month the payment is received; however, differences have been insignificant.
Environmental laws and regulations – The Company is subject to extensive federal, state, and local environmental laws and regulations. Environmental expenditures are expensed or capitalized depending on their future economic benefit. The Company believes that it is in compliance with existing laws and regulations.
Major customers – The Company sells the majority of its production to only two customers. As a result, during the fiscal years ended July 31, 2016 and 2015, these customers represented 50% or more of its oil and gas revenue ("major customers").
Fair value measurements – The Company discloses the following information for each class of assets and liabilities that are measured at fair value:
| 1) |
the fair value measurement;
|
| 2) |
the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating significant other observable inputs (Level 2), and significant unobservable inputs (Level 3);
|
| 3) |
for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following:
|
| a) |
total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earnings are reported in the statement of operations;
|
| b) |
the amount of these gains or losses attributable to the change in unrealized gains or losses relating to those assets or liabilities still held at the reporting period date and a description of where those unrealized gains or losses are reported;
|
| c) |
purchases, sales, issuances, and settlements (net); and
|
| d) |
transfers into and/or out of Level 3.
|
F-9
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
| 4) |
the amount of the total gains or losses for the period included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of operations; and
|
| 5) |
in annual periods only, the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period.
|
At July 31, 2016 and 2015 the Company had no assets or liabilities subject to fair value measurements on a recurring basis.
Going Concern - These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year.
As of the release date of these financial statements, the Company has not yet achieved profitable operations, has had accumulated losses since its inception and expects to incur further losses in the development of its business. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent on 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's plan to address the Company's ability to continue as a going concern includes: (1) obtaining debt or equity funding from private placements or institutional sources; (2) obtaining loans from financial institutions, where possible, or (3) participating in joint venture transactions with third parties. Although management believes that it will be able to obtain the necessary funding to allow the Company to remain a going concern through the methods discussed above, there can be no assurances that such methods will prove successful. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Recent accounting pronouncements – In August 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-15, "Presentation of Financial Statements – Going Concern". The provisions of ASU No. 2014-15 require management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management's plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.
In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, "Revenue from Contracts with Customers" (ASU 2014-09), which supersedes the revenue recognition requirements in FASB Accounting Standards Codification (ASC) Topic 605, "Revenue Recognition". The guidance requires that an entity recognize revenue in a way that depicts the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods and services. The guidance will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. The Company is currently evaluating the new standard and its impact on the Company's consolidated financial statements.
Note 4. Earnings Per Share
Basic earnings per share include no dilution and are computed by dividing net income (loss) by the weighted-average number of shares outstanding during the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of the Company. Potentially dilutive securities outstanding are not included in the calculation when such securities would have an anti-dilutive effect on earnings per share.
F-10
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
|
July 31, 2016
|
July 31, 2015
|
|||||||
|
Conversion option on related party debt
|
11,832,724
|
13,921,168
|
||||||
|
Convertible preferred stock
|
6,490,000
|
-
|
||||||
|
Warrants
|
2,674,576
|
-
|
||||||
|
Total potential dilution
|
20,997,300
|
13,921,168
|
||||||
Note 5. Oil and Gas Properties
The Company is currently participating in oil and gas exploration activities in Texas. All of the Company's oil and gas properties are located in the United States.
The Company has leasehold rights within approximately 70,000 contiguous acres in Pecos County, Texas, which lies within the Permian Basin. The property is located in the Northeast region of the County. The Pecos leasehold is comprised of multiple leases, and the Company has a variable working interest in twenty-two wells on these leases. The Company has drilled twenty-two wells throughout this property, with sixteen producing and six shut-in. The oil and gas property balances at July 31, 2016 and 2015 are set forth in the table below:
|
Years Ended July 31,
|
||||||||
|
2016
|
2015
|
|||||||
|
Proved leasehold costs
|
$
|
2,477,079
|
$
|
2,521,916
|
||||
|
Cost of wells and development
|
4,600,327
|
4,274,870
|
||||||
|
Asset retirement obligation, asset
|
166,103
|
207,993
|
||||||
|
Total cost of oil and gas properties
|
7,243,509
|
7,004,779
|
||||||
|
Less: Accumulated depletion
|
(997,986
|
)
|
(873,027
|
)
|
||||
|
Oil and gas properties, net full cost method
|
$
|
6,245,523
|
$
|
6,131,752
|
||||
Note 6. Related Party Receivables and Payables
The Company contracts under a joint operating agreement with Jilpetco, Inc. as the oil and gas field operating entity. All of the Company's revenues are received from and well operating expenses are billed by, Jilpetco, Inc., which is wholly owned by Jed Miesner, the Company's Chairman and majority shareholder. The related party receivables are for the sales of oil and gas and are all due from Jilpetco, Inc. As the field operator, Jilpetco, Inc. collects the payments from oil and gas sales and remits the Company's share to the Company. Related party payables consist of accrued oil and gas drilling and production expenses billed to the Company by Jilpetco, Inc. related party receivables and accounts payable are as follows:
|
Years Ended July 31,
|
||||||||
|
2016
|
2015
|
|||||||
|
Related Party:
|
||||||||
|
Oil and gas receivables
|
$
|
39,858
|
$
|
111,678
|
||||
|
Accounts payable
|
$
|
981,606
|
$
|
203,939
|
||||
Note 7. Commitments and Contingencies
The Company is subject to contingencies as a result of environmental laws and regulations. Present and future environmental laws and regulations applicable to the Company's operations could require substantial capital expenditures or could adversely affect its operations in other ways that cannot be predicted at this time.
F-11
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
Lease Commitments – Our principal executive offices are in leased office space in Amarillo, Texas. The leased office space consists of approximately 3,700 square feet and is leased through February 28, 2019 at an annual cost of approximately $52,000.
Mineral Properties – In Alaska, the Company's wholly owned subsidiary Kisa controls or has interests in 38 mining claims covering 5,840 acres. The interests are held under and are subject to state mining laws and regulations. The Company is required to perform certain work commitments and pay annual assessments to the state to hold these claims in good standing. The commitments and annual assessments will be due no later than November 30, 2016. The carrying value of the claims at July 31, 2016 and 2015 is $0 and $3,314.
Note 8. Stockholders' Equity
The Company is authorized to issue 3,000,000,000 shares of its common stock. All shares of common stock are equal to each other with respect to voting, liquidation, dividend, and other rights. Owners of shares are entitled to one vote for each share owned at any Shareholders' meeting. The common stock of the Company does not have cumulative voting rights, which means that the holders of more than fifty percent (50%) of the shares voting in an election of directors may elect all of the directors if they choose to do so.
The Company is authorized to issue 10,000,000 shares of its preferred stock with a no par value per share.
During the year ended July 31, 2016, the Company had the following equity transactions:
Preferred shares issued for debt and interest - On July 31, 2016, the Company issued 9,000 shares of Preferred Series A stock with par value of $0.01 per share. These shares were issued to Jed Miesner, the Company's controlling shareholder, in exchange for cancellation of $900,000 of related party interest payable in the amount of $612,697 and convertible debt payable to JLM Strategic Investments, LP in the amount of $287,303 (See Note 10). The stated issue price is at $100 per share. Each share of preferred stock has 10,000 votes and votes with the common shares on all matters submitted to the shareholders for a vote. Holders of the Series A Preferred Stock will not be entitled to receive a dividend. Upon a liquidation event, an amount in cash equal to $100 per share, for a total of $900,000 at July 31, 2016 shall be paid prior to liquidation payments to holders of Company securities junior to the Series A Preferred Stock. On the fifth anniversary of the acquisition of GSSI (Note 13), any shares of the Series A Preferred Stock outstanding will be convertible, at the discretion of the holder, for a period of three years, into common stock purchase warrants of the Company with an exercise price of $1.00 per share on the basis of 110 shares of common stock for each one share of Series A Preferred Stock outstanding.
Shares Issued for services – On November 20, 2015 and January 27, 2016, 50,000 shares of common stock were issued to Delany Equity Group, LLC valued at $0.30 per share, the fair value of the Company's common stock on the date of issuance, totaling $15,000 for financial consulting services. On June 27, 2016, 250,000 shares of common stock were issued to Delany Equity Group, LLC and 25,000 shares were issued to Irwin Renneisen valued at $0.34 per share, the fair value of the Company's common stock on the date of issuance, totaling $93,500 for cost of acquisition of GSSI (Note 13).
Shares Issued for cash – On May 16, 2016, the Company began a private placement offering of 20,000,000 restricted shares of common stock at $0.26 per share. As of July 31, 2016, 699,400 shares had been sold for $181,844. The Company may, in its sole discretion, extend the offering period to March 31, 2017 or terminate the offering at any time.
Shares Issued for acquisition of GSSI – On July 31, 2016, we issued 5,373,528 restricted shares of our common stock and 2,674,576 stock purchase warrants to Gulf South Holding, Inc. (GSHI) and others in consideration of GSHI transferring to us 100,000 shares of common stock of GSSI which constitutes all of the issued and outstanding shares of common stock of GSSI. (See Note 13).
F-12
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
As part of the acquisition of GSSI effective July 31, 2016, the Company issued 50,000 shares of Preferred Series B stock with par value of $0.01 per share. These preferred shares were issued to Bories Capital, LLC, owned by Robert Bories, an officer of the Company as of July 31, 2016. Robert Bories is an officer of GSHI and Bories Capital, LLC has released its security interest in the common stock of GSSI. The Series B Preferred Stock has no voting rights other than to be voted when required by Nevada law. Holders of the Series B Preferred Stock will not be entitled to receive a dividend. Upon a liquidation event, an amount in cash equal to $100 per share, for a total of $5,000,000 at July 31, 2016 shall be paid prior to liquidation payments to holders of Company securities junior to the Series B Preferred Stock. Holders of the Company's Series A Preferred Stock shall be paid in advance of holders of the Series B Preferred Stock on the occurrence of a liquidation event. On the fifth anniversary of the acquisition of GSSI, any shares of the Series B Preferred Stock outstanding will be convertible, at the discretion of the holder, for a period of three years, into common stock purchase warrants of the Company with an exercise price of $1.00 per share on the basis of 110 shares of common stock for each one share of Series B Preferred Stock outstanding.
For each new oil and gas well drilled by the Company with funds raised or delivered due to the efforts of the former GSHI officers, now Company officers, the Company will pay Miesner $10,000 in exchange for 100 shares of Series A Preferred Stock and Bories $10,000 in exchange for 100 shares of Series B Preferred Stock. In the event that the Company drills wells for its own account the Board of Directors of the Company will decide if such wells qualify for the aforementioned redemption. The Company will promptly cancel any Series A or B Preferred Stock purchased.
During the year ended July 31, 2015, the Company had the following equity transactions:
Shares Issued for cash – On October 2, 2014, Amazing Energy Inc. sold 2,500,000 shares in a private placement. The net proceeds of the sale of common stock were $1,495,372. In addition, Amazing Energy Inc. sold 28,000 shares of its common stock on December 2, 2014 in a private placement. The net proceeds of the sale of stock were $23,325.
Stock Based compensation – Amazing Energy Inc. granted an aggregate of 125,000 shares of its common stock on October 3, 2014, to three officers and directors. The shares were valued at $75,000 based upon the fair value of the Company's common stock the shares are convertible into at the date of the grant. The value of the shares was based upon management's estimate of their fair value at the date of the grant. On February 11, 2015, the Company granted an aggregate of 55,000 shares of Amazing Energy Inc.'s common stock to three officers and directors. The shares were valued at $167,280 based upon the fair value of the Company's common stock the shares are convertible into at the date of the grant.
Repurchase of Preferred Shares – During the year ended July 31, 2015, the Company repurchased 15,000 of its preferred shares for $22,000.
Non-Controlling Interest – In connection with the change in control that occurred in October 2014 (See Note 2), the Company acquired 58.3% of the outstanding shares of Amazing Energy, Inc. resulting in the attribution of 41.7% of the Subsidiary's net assets and net loss attributable to a non-controlling interest ("NCI"). The NCI represents third-party equity ownership in the legal subsidiary and was presented as a component of equity on the Parent's Statement of Changes in Stockholders' Equity. In July 2015, the Company acquired the remaining 41.7% of Amazing Energy, Inc.'s shares by exchanging its common shares for the Subsidiary shares held by the NCI. At July 31, 2015, there were no net assets or liabilities attributable to the NCI. For the year ended July 31, 2015, net loss attributable to the NCI was $6,157,632.
Note 9. Income Taxes
Authoritative guidance for uncertainty in income taxes requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an examination. Management has reviewed the Company's tax positions and determined there were no uncertain tax positions requiring recognition in the consolidated financial statements. Currently tax years from fiscal 2014 through 2016 remain open for examination by tax authorities. Net operating losses prior to 2014 could be adjusted during an examination of open years.
F-13
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
Estimated interest and penalties related to potential underpayment on any unrecognized tax benefits would be classified as a component of tax expense in the statement of operation. The Company has not recorded any interest or penalties associated with unrecognized tax benefits for any periods covered by these financial statements.
The following is reconciliation between the federal income tax benefit computed at the statutory federal income tax rate of 35% and actual income tax benefit for the years ended July 31, 2016 and July 31, 2015:
|
2016
|
2015
|
|||||||
|
Statutory benefit
|
(2,395,430
|
)
|
(5,279,397
|
)
|
||||
|
Permanent differences:
|
||||||||
|
Impairment of goodwill
|
2,031,784
|
-
|
||||||
|
Debt modification
|
208,317
|
4,872,409
|
||||||
|
Other
|
4,621
|
65,401
|
||||||
|
Change in valuation allowance
|
150,708
|
341,587
|
||||||
|
Net tax benefit
|
$
|
-
|
$
|
-
|
||||
|
2016
|
2015
|
|||||||
|
Deferred Tax Assets:
|
||||||||
|
Net operating loss carryforward
|
$
|
2,711,635
|
$
|
2,416,443
|
||||
|
Depletion and depreciation
|
57,679
|
91,069
|
||||||
|
Total deferred tax assets
|
2,769,314
|
2,507,512
|
||||||
|
Deferred Tax Liabilities:
|
||||||||
|
Intangible drilling and other costs for oil and gas properties
|
(1,466,532
|
)
|
(1,355,438
|
)
|
||||
|
Other
|
(41,126
|
)
|
(41,126
|
)
|
||||
|
Total deferred tax liabilities
|
(1,507,658
|
)
|
(1,396,564
|
)
|
||||
|
Net deferred tax assets and liabilities
|
1,261,656
|
1,110,948
|
||||||
|
Less: Valuation allowance
|
(1,261,656
|
)
|
(1,110,948
|
)
|
||||
|
Total Deferred Tax Assets and Liabilities
|
$
|
-
|
$
|
-
|
||||
The Company had federal net operating loss carry forwards of approximately $7,975,397 and $7,107,186 at July 31, 2016 and July 31, 2015, respectively. The federal net operating loss carry forwards will begin to expire in fiscal years ending July 31, 2032 through July 31, 2036. Realization of the deferred tax asset is dependent, in part, on generating sufficient taxable income prior to expiration of the loss carry forwards. The Company has placed a 100% valuation allowance against the net deferred tax asset because future realization of these assets is not assured.
Note 10. Related Party Convertible Debt
On January 3, 2011, the Company formalized a loan agreement with Jed Miesner, the Company's CEO and Chairman for $1,940,000. The loan is scheduled to mature on December 31, 2030, bear interest at the rate of 8% per annum, and are collateralized with a leasehold deed of trust covering certain leasehold interests in Pecos County, Texas. At July 31, 2016 and 2015 the short term components of this loan were $191,029 and $291,559 respectively. The long term amounts at July 31, 2016 and 2015 were $1,748,971 and $1,648,441 respectively.
On December 30, 2010, Amazing Energy, LLC, (a wholly owned subsidiary of the Company) entered into a $2,000,000 line of credit facility with JLM Strategic Investments, an entity controlled by Jed Miesner. Funds advanced on the line of credit mature on December 31, 2030, bear interest at the rate of 8% per annum and are collateralized with a leasehold deed of trust covering certain leasehold interests in Pecos County, Texas. At July 31, 2016 and 2015 the short term components of this loan were $30,162 and $62,138 respectively. The long term amounts at July 31, 2016 and 2015 were $11,008 and $266,335 respectively. There was a reduction in this debt of $287,303 on July 31, 2016 by the issuance of the Series A Preferred Stock (see below).
F-14
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
On December 30, 2010, Amazing Energy, LLC, formalized loan agreements with Petro Pro Ltd., an entity also controlled by Jed Miesner for $1,100,000. The loan is scheduled to mature on December 31, 2030, bear interest at the rate of 8% per annum and are collateralized with a leasehold deed of trust covering certain leasehold interests in Pecos County, Texas. At July 31, 2016 and 2015 the short term components of this loan were $108,315 and $165,317 respectively. The long term amounts at July 31, 2016 and 2015 were $991,685 and $934,683 respectively.
As of July 31, 2016 and 2015, the accrued and unpaid interest due to related parties was $0 and $343,219, respectively. At July 31, 2016, $612,697 of accrued interest on the debt was exchanged for the issuance of the Series A Preferred Stock (see below). Related party interest expense for the years ended July 30, 2016 and 2015 was $269,722 and $231,031 respectively.
Contractual principal maturities for the two loan agreements and the credit facility outstanding at July 31, 2016, for the remaining terms are summarized by year as follows:
|
Contractual Principal Maturities
|
||||||||||||||||
|
Years Ending
|
JLM Strategic
|
|||||||||||||||
|
July 31,
|
Jed Miesner
|
Petro Pro, Ltd.
|
Investments, LP
|
Total
|
||||||||||||
|
2017
|
$
|
191,029
|
$
|
108,315
|
$
|
30,162
|
$
|
329,506
|
||||||||
|
2018
|
57,676
|
32,703
|
11,009
|
101,387
|
||||||||||||
|
2019
|
62,690
|
35,319
|
-
|
97,609
|
||||||||||||
|
2020
|
67,273
|
38,144
|
-
|
105,417
|
||||||||||||
|
2021
|
72,655
|
41,196
|
-
|
113,851
|
||||||||||||
|
Subsequent years
|
1,489,078
|
844,323
|
-
|
2,333,401
|
||||||||||||
|
$
|
1,940,000
|
$
|
1,100,000
|
$
|
41,171
|
$
|
3,081,171
|
|||||||||
No principal payments have been paid on the two loan agreements and the credit facility since their inception. At July 31, 2016, Mr. Miesner has waived any event of default on the aforementioned delinquent payments of principal and interest due on the loans and credit facility.
Effective July 31, 2016, the Company authorized the issuance of 9,000 shares of Preferred Series A stock with par value of $0.01 per share. These shares were issued to Jed Miesner, the Company's controlling shareholder, in exchange for cancellation of related party interest payable in the amount of $612,697 and debt payable to JLM Strategic Investments, LP in the amount of $287,303.
Fair value of the convertible Series A Preferred Stock was based on the conversion option of 990,000 common share equivalents at $0.45 per share by applying a Black-Scholes model. The Black-Scholes model used the following variables:
|
Preferred A
|
||||
|
Stock price on transaction date
|
$
|
0.454
|
||
|
Exercise price
|
$
|
1.00
|
||
|
Expected life in years
|
8.00
|
|||
|
Expected volatility - peer group
|
195.18
|
%
|
||
|
Risk free rate
|
1.29
|
%
|
||
|
Fair value per unit
|
$
|
0.45
|
||
|
Units
|
990,000
|
|||
|
Total Fair value
|
$
|
445,735
|
||
The Company recorded a total $900,000 reduction in accrued related party interest payable and related party debt. The difference between the fair value of the preferred stock and the debt and interest exchanged resulted in a gain of $454,265 on this transaction which has been recorded as a capital transaction as additional paid in capital rather than on the consolidated statement of operations as the debt holder is a significant shareholder and related party of the Company.
F-15
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
Modification of Debt Agreements – On February 1, 2015, the Company amended the related party loan agreements discussed above. The amendments included modifying the terms of the notes to adjust the interest rate to 8% for two years following the amendment date, a rate of 6% for the following 2 years and a rate of Prime plus 2% for the remaining years. The amended notes also included a conversion feature that allows the principal and accrued interest of the loans to be converted into common stock of Amazing Energy, Inc. at $0.60 per share at the option of related party note holders. If converted, these notes and accrued interest as of April 30, 2015, would convert into 6,041,775 shares of Amazing Energy, Inc.'s common stock which can then be converted into 13,921,168 shares of the Company. In connection with the amendments, the Company estimated the fair value of the conversion feature to be $13,921,168, which has been recognized as a loss on modification of debt in the Company's non-operating expenses during the year ended July 31, 2015. The fair value of the conversion feature was estimated by applying a Black-Scholes model and using the following conversion variables as of the modification date:
|
Fair value of the Company's stock price at the date of conversion
|
$
|
1.00
|
||
|
Conversion rate as adjusted for the Amazing Energy Inc. exchange ratio
|
$
|
0.26
|
||
|
Estimated volatility
|
248.00
|
%
|
||
|
Risk free interest rate
|
1.88
|
%
|
||
|
Conversion period
|
15 yrs.
|
|||
Note 11. Mineral Property Option Agreement
The Company owns a subsidiary corporation, Kisa Mines, Inc. ("Kisa"). Afranex Gold Limited ("Afranex") had originally agreed through an option agreement to purchase all of the outstanding common stock of Kisa for $400,000 on or before December 31, 2015. On November 23, 2015, the Company and Afranex agreed to extend the option to December 31, 2016, or such later date as agreed upon. The updated option agreement supersedes all previous correspondence and understandings between the parties. Afranex paid a $50,000 non-refundable option fee to Amazing on November 23, 2015, as consideration for extending this option. A new term sheet and option agreement was formalized and dated on January 31, 2016. Under the terms of this agreement, Afranex has an exclusive option to acquire either 100% of the issued share capital of Kisa or 100% of Kisa's right, title and interest in the mining permits and associated assets of Kisa. Afranex agrees to pay Amazing, on settlement of the Acquisition, a total of $169,788 settlement cash consideration. The January 31, 2016 agreement also eliminated an amount due from the Company to Afranex of $100,213 which has been recognized gain on sale of mineral interest during the year ended July 31, 2016.
Note 12. Asset Retirement Obligations
The Company accounts for its future asset retirement obligations by recording the fair value of the liability during the period in which it was incurred. The associated asset retirement costs are capitalized as part of the carrying amount of the long lived asset. The Company depletes the amount added to proved oil and gas property costs and gathering assets using the units-of-production method. The Company's asset retirement obligation consists of costs related to the plugging of wells, removal of facilities and equipment and site restoration on its oil and gas properties and gathering assets. The asset retirement liability is allocated to operating expense using a systematic and rational method. The information below reconciles the value of the asset retirement obligation for the periods presented.
|
Years Ended July 31,
|
||||||||
|
2016
|
2015
|
|||||||
|
Asset retirement obligations - Beginning of year
|
$
|
240,254
|
$
|
278,612
|
||||
|
Asset retirement obligations incurred
|
4,238
|
7,434
|
||||||
|
Accretion
|
12,854
|
11,596
|
||||||
|
Revisions in estimated cash flows
|
(46,128
|
)
|
(57,388
|
)
|
||||
|
Asset retirement obligations - End of year
|
$
|
211,218
|
$
|
240,254
|
||||
F-16
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
Note 13. Acquisition of Gulf South Securities, Inc.
On July 31, 2016, the Company issued 5,373,528 shares of common stock and 2,674,576 common stock purchase warrants to GSHI and others in consideration of GSHI transferring to us 100,000 shares of common stock of GSSI which constitutes all of the issued and outstanding shares of common stock of GSSI. Further, we issued 50,000 shares of our Series B Preferred Stock to Bories Capital, LLC. These preferred shares were issued to Bories Capital, LLC, owned by Robert Bories, an officer of the Company as of July 31, 2016. Robert Bories is an officer of GSHI and Bories Capital, LLC has released its security interest in the common stock of GSSI. Upon the completion of the foregoing stock exchange, GSSI became our wholly owned subsidiary corporation. GSSI is an SEC, FINRA registered securities broker-dealer.
We acquired GSSI for the purpose of acting as a managing broker dealer to raise drilling capital through oil and gas limited partnerships private placement (PPM) offerings.
The acquisition agreement contained provisions to establish employment agreements for certain GSSI employees and officers for raising corporate capital, as well as partnership drilling capital and funding, and for their committing to working with the Company to raise a minimum of $3,000,000 in capital, included but not limited to drilling or corporate capital, for the first full year on employment. Salaries, bonus awards, and other compensation will be established by the Company's Compensation Committee for the initial term of their employment agreements, on a month by month evaluation including but not limited to common stock participation based upon collective performance measurements. This is separate and apart from each of the aforementioned individual employee's ability to earn up to a maximum of 5% of the Company's outstanding shares based upon the number of outstanding common shares immediately following closing. In the event that the individuals listed above collectively raise $50 million in capital, the stock awards will be recognized at a cap of 20% for all the above officers combined. On April 1 of each year, stock awards will be given proportionate to the capital raised during the previous 12 months, not to exceed the 20% cap that they are eligible to receive. Should any of the employees be terminated without cause in the first year of employment then all the aforementioned employees will be immediately awarded a 1% stock bonus.
The acquisition was a business combination accounted for using the acquisition method. Total consideration given for the purchase of GSSI is valued by the Company at $5,984,914. The 5,373,528 restricted shares of common stock issued was valued at $0.454 per share based on the trading price on July 31, 2016 for a value of $2,439,583. The 2,674,576 stock purchase warrants were valued at $0.396 per warrant for a value of $1,058,528 by applying a Black-Scholes model. The fair value of the convertible Series B Preferred Stock was based on the convertible option of 5,500,000 common share equivalents at $0.45 per share for a value of $2,476,803 by applying a Black-Scholes model. The Black-Scholes model used the following variables:
|
Warrants
|
Preferred B
|
|||||||
|
Stock price on transaction date
|
$
|
0.454
|
$
|
0.454
|
||||
|
Exercise price
|
$
|
1.00
|
$
|
1.00
|
||||
|
Expected life in years
|
3.00
|
8.00
|
||||||
|
Expected volatility – peer group
|
196.40
|
%
|
195.18
|
%
|
||||
|
Risk free rate
|
0.76
|
%
|
1.29
|
%
|
||||
|
Fair value per unit
|
$
|
0.396
|
$
|
0.45
|
||||
|
Units
|
2,674,576
|
5,500,000
|
||||||
|
Total Fair value
|
$
|
1,058,528
|
$
|
2,476,803
|
||||
We incurred $93,500 in expenses specifically related to the acquisition. On June 27, 2016, 250,000 shares of common stock were issued to Delany Equity Group, LLC and 25,000 shares were issued to Irwin Renneisen valued at $0.34 per share, the fair value of the Company's common stock on the date of issuance, totaling $93,500 for cost of acquisition of the GSSI.
F-17
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
The purchase price allocation of the acquisition is summarized as follows:
|
Common stock issued on acquisition
|
$
|
2,439,583
|
||
|
Stock purchase warrants issued on acquisition
|
1,058,528
|
|||
|
Series B Preferred stock issued on acquisition
|
2,476,803
|
|||
|
Cash
|
10,000
|
|||
|
$
|
5,984,914
|
Net assets acquired:
|
Cash
|
$
|
9,100
|
||
|
Prepaid expenses
|
2,357
|
|||
|
Goodwill
|
5,975,836
|
|||
|
Accounts payable
|
(2,379
|
)
|
||
|
$
|
5,984,914
|
The Company has analyzed the acquired entity of GSSI and determined that it had no identified intangible assets thus the excess of consideration over fair value of net assets acquired was recognized as goodwill. However, on the date of the acquisition, management determined that the goodwill was not recoverable and recorded an adjustment of $5,975,836 to fully impair the amount on the consolidated statement of operations.
The unaudited pro forma financial information below represents the combined results of our operations as if the GSSI acquisition had occurred at the beginning of the periods presented. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have occurred if the acquisition had taken place at the beginning of the period presented, nor is it indicative of future operating results.
|
Year Ended
July 31, 2016
|
Year Ended
July 31, 2015
|
|||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||
|
Revenue
|
$
|
441,883
|
$
|
1,395,400
|
||||
|
Loss from operations
|
$
|
(803,715
|
)
|
$
|
(1,029,135
|
)
|
||
|
Net loss
|
$
|
(1,073,351
|
)
|
$
|
(9,858,181
|
)
|
||
|
Net loss per share available to common stockholders, basic and diluted
|
$
|
(0.02
|
)
|
$
|
(0.43
|
)
|
||
The unaudited pro forma financial information includes adjustments to 1) eliminate acquisition-related costs and goodwill impairment totaling $93,500 and $5,975,836, respectively, for the year ended July 31, 2016 which are non-recurring and 2) reflect the issuance of common stock as consideration in the acquisition and for payment of acquisition costs.
Note 14. Fair Value of Financial Instruments
The following table sets forth transactions the Company measured at fair value on a nonrecurring basis by level within the fair value hierarchy:
During the year ended July 31, 2016 the Company estimated the following fair values:
· Preferred Stock Series A exchanged for convertible debt and interest (Note 10)
· Warrants issued in a purchase transaction (Note 13)
· Preferred Stock Series B issued in a purchase transaction (Note 13)
· The Company recorded an impairment loss on goodwill (Note 13)
F-18
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
|
Fair Value Measurement on a Nonrecurring Basis
|
||||||||||||||||
|
Fair value for the year ended July 31, 2016
|
||||||||||||||||
|
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
Preferred stock series A
|
$
|
445,735
|
$
|
-
|
$
|
445,735
|
$
|
-
|
||||||||
|
Common stock purchase warrants
|
$
|
1,058,528
|
$
|
-
|
$
|
1,058,528
|
$
|
-
|
||||||||
|
Preferred stock series B
|
$
|
2,476,803
|
$
|
-
|
$
|
2,476,803
|
$
|
-
|
||||||||
|
Goodwill impairment
|
$
|
5,965,836
|
$
|
-
|
$
|
-
|
$
|
5,965,836
|
||||||||
Estimated fair values during the year ended July 31, 2016 for the preferred stock and warrants were determined using a Black Scholes model with inputs as indicated in the respective footnotes referenced above. The fair value estimation of goodwill was determined by the Company based on unobservable inputs, therefore the valuation is classified within Level 3 of the fair value hierarchy.
During the year ended July 31, 2015 the Company estimated the following fair values:
· Convertible debt modification (Note 10)
|
Fair Value Measurement on a Nonrecurring Basis
|
||||||||||||||||
|
|
Fair value for the year ended July 31, 2015
|
|||||||||||||||
|
|
Total
|
Level 1
|
Level 2
|
Level 3
|
||||||||||||
|
|
||||||||||||||||
|
Convertible debt modification
|
$
|
13,921,168
|
$
|
-
|
$
|
13,921,168
|
$
|
-
|
||||||||
Estimated fair value during the year ended July 31, 2015 for convertible debt modification was determined using a Black Scholes model with inputs as indicated in the respective footnote referenced above.
Management uses the Black-Scholes option valuation technique as it embodies all of the requisite assumptions (including trading volatility, remaining term to maturity, market price, strike price, and risk free rates).
Note 15. Subsequent Events
On April 15, 2016, we entered into an agreement with Jed Miesner, our Chairman, to acquire all of his interest (100% of the total outstanding shares of common stock) of Jilpetco, Inc., a Texas corporation ("Jilpetco") in consideration of $500,000. Jilpetco is engaged in the business of operating and providing oilfield services to oil and gas properties. As a result, Jilpetco will become our wholly owned subsidiary corporation.
On August 25, 2016, we announced that the foregoing agreement was amended to extend the closing date to August 31, 2016 and exclude certain property therefrom. The parties agreed to allow Jed Miesner to assign certain accounts receivable, and to exclude personal property from the transaction. In addition, the $500,000 consideration for the acquisition is in the form of a note payable at 6% interest.
On May 16, 2016, the Company began a private placement offering of 20,000,000 restricted shares of common stock at $0.26 per share. Through October 31, 2016, a total of 5,763,098 shares have sold for $1,498,405. The Company may, in its sole discretion, extend the offering period to March 31, 2017 or terminate the offering at any time.
F-19
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
Note 16. Supplemental Oil and Gas Disclosures (Unaudited)
Costs Incurred – Costs incurred in oil and gas property acquisition, exploration and development activities, whether expensed or capitalized, are reflected in the table below for the years ended July 31, 2016 and 2015.
|
2016
|
2015
|
|||||||
|
Development costs
|
$
|
283,750
|
$
|
369,198
|
||||
|
Total costs incurred
|
$
|
283,750
|
$
|
369,198
|
||||
Capitalized Costs – The aggregate amount of capitalized costs related to oil and gas producing activities and the aggregate amount of the related accumulated depreciation, depletion and amortization ("DD&A"), including any accumulated valuation allowances, are reflected in the table below for the years ended July 31, 2016 and July 31, 2015.
|
2016
|
2015
|
|||||||
|
Proved properties
|
$
|
7,243,509
|
$
|
7,004,779
|
||||
|
Total oil and gas properties
|
7,243,509
|
7,004,779
|
||||||
|
Accumulated DD&A
|
(997,986
|
)
|
(873,027
|
)
|
||||
|
Net oil and gas properties
|
$
|
6,245,523
|
$
|
6,131,752
|
||||
Proved Oil and Gas Reserve – Proved oil and gas reserves were estimated by independent petroleum engineers. The reserves were based on the following assumptions:
|
·
|
Future revenues were based on an un-weighted 12-month average of the first-day-of-the-month price held constant throughout the life of the properties.
|
|
·
|
Production and development costs were computed using year-end costs assuming no change in present economic conditions.
|
|
·
|
Future net cash flows were discounted at an annual rate of 10%.
|
Reserve estimates are inherently imprecise and these estimates are expected to change as future information becomes available.
Basis of Presentation – The proved oil and gas reserve quantities for fiscal 2016 and 2015 are based on estimates prepared by Mire & Associates, Inc., Petroleum Engineering Consultants. There are numerous uncertainties in estimating quantities of proved reserves and projecting future rates of production and the timing of development expenditures. These uncertainties are greater for properties which are undeveloped or have a limited production history, such as our properties. The following reserve data represents estimates only and actual reserves may vary substantially from these estimates. All of our proved reserves were in United States as of July 31, 2016 and 2015. Our net quantities of proved developed and undeveloped reserves of crude oil and gas and changes therein are reflected in the table below.
As of July 31, 2016, we had twenty-two wells drilled with sixteen producing and six wells shut-in awaiting workovers.
The proved reserves as of July 31, 2016 represent the reserves that were estimated to be recovered from twenty-two current wells. There are also nine wells planned for future drilling. All direct offset well locations in this report are proved undeveloped and are based on 10-acre drainage patterns unless current developed completions are estimated to drain an area larger than their volumetric assignment. In this case, the reserves of certain offset locations have been reduced. All locations have a scheduled Queens and/or Grayburg reservoir completion and each of these reservoir completions includes the cost of drilling a single wellbore. All reserves included in this report were estimated using either historical performance or volumetric methods.
Estimated Quantities of Net Proved Oil and Natural Gas Reserves – Estimated quantities of net proved oil and natural gas reserves are reflected in the table below for the years ended July 31, 2016 and 2015.
F-20
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
|
2016
|
2015
|
||||||||||||||
|
Natural
|
Natural
|
||||||||||||||
|
Oil (1)
|
Gas (1)
|
Oil (1)
|
Gas (1)
|
||||||||||||
|
Reserves:
|
|||||||||||||||
|
Beginning of year
|
357,290
|
1,312,500
|
274,750
|
1,055,550
|
|||||||||||
|
Revisions of previous estimates
|
(85,884
|
)
|
(90,208
|
)
|
15,023
|
122,743
|
|||||||||
|
Extensions, discoveries and other additions
|
172,970
|
648,460
|
79,984
|
185,834
|
|||||||||||
|
Production
|
(7,396
|
)
|
(21,492
|
)
|
(12,467
|
)
|
(51,627
|
)
|
|||||||
|
End of year
|
436,980
|
1,849,260
|
357,290
|
1,312,500
|
|||||||||||
(1) Oil reserves are stated in barrels; gas reserves are stated in thousand cubic feet.
The downward revision of previous gas reserves estimates was primarily due to reassessment of reservoir mapping based on additional log analysis from drilling.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves – The following information was developed utilizing procedures prescribed by Accounting Standards Codification ASC 932-235, "Disclosures about Oil and Gas Producing Activities." The information is based on estimates prepared by independent petroleum engineers. The "standardized measure of discounted future net cash flows" should not be viewed as representative of the current value of our proved oil and gas reserves. It and the other information contained in the following tables may be useful for certain comparative purposes, but should not be solely relied upon in evaluating us or our performance.
In reviewing the information that follows, we believe that the following factors should be taken into account:
|
·
|
future costs and sales prices will probably differ from those required to be used in these calculations;
|
|
·
|
actual production rates for future periods may vary significantly from the rates assumed in the calculations;
|
|
·
|
a 10% discount rate may not be reasonable relative to risk inherent in realizing future net oil and gas revenues; and
|
|
·
|
future net revenues may be subject to different rates of income taxation.
|
Under the standardized measure, future cash inflows were estimated by applying year-end oil and gas prices applicable to our reserves to the estimated future production of year-end proved reserves. Future cash inflows do not reflect the impact of open hedge positions. Future cash inflows were reduced by estimated future development, abandonment and production costs based on year-end costs in order to arrive at net cash flows before tax. Future income tax expense has been computed by applying year-end statutory tax rates to aggregate future pre-tax net cash flows reduced by the tax basis of the properties involved and tax carryforwards. Use of a 10% discount rate and year- end prices and costs are required by ASC 932-235. In general, management does not rely on the following information in making investment and operating decisions. Such decisions are based upon a wide range of factors, including estimates of probable as well as proved reserves and varying price and cost assumptions considered more representative of a range of possible outcomes.
Basis of Presentation – The standardized measure data includes estimates of oil and gas reserve volumes and forecasts of future production rates over the reserve lives. Estimates of future production expenditures, including taxes and future development costs, are based on management's best estimate of such costs assuming a continuation of current economic and operating conditions. No provision is included for depletion, depreciation and amortization of property acquisition costs or indirect costs. Income tax expense has been computed using expected future tax rates and giving effect to tax deductions and credits available, under current laws, and which relate to oil and gas producing activities. The sales prices used in the calculation are the year-end prices of crude oil and natural gas, which as of July 31, 2016 and 2015 were $42.46 and $67.65 per barrel and $2.25 and $3.25 per million cubic foot of gas, respectively. Changes in prices and cost levels, as well as the timing of future development costs, may cause actual results to vary significantly from the data presented. This information is not intended to represent a forecast or fair market value of the Company's oil and gas assets, but does present a standardized disclosure of discounted future net cash flows that would result under the assumptions used.
F-21
AMAZING ENERGY OIL AND GAS, CO.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2016 AND 2015
Standardized Measure of Discounted Future Net Cash Flows – The standardized measure of discounted future net cash flows relating to proved oil and gas reserves for years ended July 31, 2016 and 2015 are as follows:
|
2016
|
2015
|
|||||||
|
Future cash inflows
|
$
|
19,551,030
|
$
|
24,859,110
|
||||
|
Future production costs
|
(7,569,270
|
)
|
(5,929,190
|
)
|
||||
|
Future development costs
|
(2,193,800
|
)
|
(1,361,600
|
)
|
||||
|
Future income tax expense
|
(3,425,783
|
)
|
(6,148,912
|
)
|
||||
|
Discount at 10% for estimated timing of cash flows
|
(1,733,300
|
)
|
(3,569,707
|
)
|
||||
|
Standardized measure of discounted future net cash flows
|
$
|
4,628,877
|
$
|
7,849,701
|
||||
The following table presents a reconciliation of changes in the standardized measure of discounted future net cash flows:
|
Years Ended July 31,
|
||||||||
|
2016
|
2015
|
|||||||
|
Standardized Measure, beginning of year
|
$
|
7,849,707
|
$
|
7,760,844
|
||||
|
Sales of oil produced, net of production costs
|
279,026
|
(97,244
|
)
|
|||||
|
Net changes in prices, development and production costs
|
(7,500,569
|
)
|
(1,394,949
|
)
|
||||
|
Extensions, discoveries and improved recovery, less related costs
|
3,381,367
|
2,047,764
|
||||||
|
Development costs incurred and changes during the period
|
76,471
|
369,198
|
||||||
|
Revisions of previous quantity estimates
|
(1,166,679
|
)
|
(6,394,510
|
)
|
||||
|
Accretion of discount
|
776,341
|
7,079,423
|
||||||
|
Net changes in production rates and other
|
(1,002,119
|
)
|
161,173
|
|||||
|
Net changes in income taxes
|
1,935,332
|
(1,681,992
|
)
|
|||||
|
Standardized Measure, end of year
|
$
|
4,628,877
|
$
|
7,849,707
|
||||
F-22
We completed a reverse acquisition of Amazing Energy, Inc., a Nevada corporation ("AEI"). AEI's auditors were MaloneBailey, LLP., ("Malone Bailey") Houston, Texas. Our auditors were DeCoria, Maichel & Teague, P.S. ("DMT") of Spokane, Washington. MaloneBailey elected not to continue as auditors for AEI because they believed that they violated the SEC's and PCAOB's independence rules as they relate to the July 31, 2014 and 2013 audit of Amazing Energy, Inc.'s financial statements. The July 31, 2014 and 2013 financial statements were prepared and issued under the AICPA rules, which allow auditors to assist in the preparation of financial statements. During their internal investigation, MaloneBailey, LLP discovered that it linked an Excel file to the final numbers in their trial balance database, and this Excel file was the basis for the July 31, 2014 and 2013 financial statements. These same financial statements were then included in the comparative financial statements that were filed in the Schedule 14-C sent to our shareholders. As a result, MaloneBailey, LLP withdrew its PCAOB audit report dated January 22, 2015 in connection with the audit of Amazing Energy, Inc.'s financial statements for the years ended July 31, 2014 and 2013, which were included in the Schedule 14-C filed with the Securities & Exchange Commission on February 20, 2015. MaloneBailey subsequently reissued their audit report for the years ended July 31, 2014 and 2013 in accordance with AICPA auditing standards.
We are hereby restating that our auditors will continue to be DMT. Our fiscal year end has been changed to July 31 to conform to the year-end of AEI. The continued retention of DMT was approved by our board of directors on July 2, 2015. DMT have audited our annual financial statements for the years ending July 31, 2016, July 31, 2015 and July 31, 2014.
DMT's report on the Company's (legal acquirer) consolidated financial statements for the fiscal years ended December 31, 2013 and 2012 did not contain any adverse opinion or disclaimer of opinion, nor was such report qualified or modified as to uncertainty, audit scope or accounting principles. During the fiscal years ended December 31, 2013 and 2012, and through April 30, 2015, there were no disagreements with DMT on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedure, which, if not resolved to the satisfaction of DMT, would have caused DMT to make reference to the subject matter in connection with their audit report on the Company's consolidated financial statements for the fiscal years ended December 31, 2013 and 2012 In addition, there were no reportable events, as listed in Item 304(a)(1)(iv) of Regulation S-K.
We provided MaloneBailey with a copy of this disclosure on August 5, 2015, requesting MaloneBailey to furnish us with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the statements made by us, and, if not, stating the respects in which it does not agree. A copy of the letter furnished by MaloneBailey in response to that request, dated August 6, 2015, was filed as Exhibit 16.1 on Form 8-K.
We completed a reverse acquisition of Amazing Energy, Inc., a Nevada corporation ("AEI"). AEI's auditors were MaloneBailey, LLP., ("Malone Bailey") Houston, Texas. Our auditors were DeCoria, Maichel & Teague, P.S. ("DMT") of Spokane, Washington. MaloneBailey has elected not to continue as auditors for AEI because they believed that they violated the SEC's and PCAOB's independence rules as they relate to the 2013 audit of Amazing Energy, Inc.'s financial statements. The July 31, 2014 and 2013 audit 2013 financial statements were prepared and issued under the AICPA rules, which allow auditors to assist in the preparation of financial statements. During their internal investigation, MaloneBailey, LLP discovered that it linked an Excel file to the final numbers in their trial balance database, and this Excel file was the basis for the July 31, 2014 and 2013 financial statements. These same financial statements were then included in the comparative financial statements that were filed in the Schedule 14-C sent to our shareholders. As a result, MaloneBailey, LLP withdrew its PCAOB audit report dated January 22, 2015 for the years ended July 31, 2014 and 2013 in connection with the audit of Amazing Energy, Inc.'s financial statements for the years ended July 31, 2014 and 2013, which were included in the Schedule 14-C filed with the Securities & Exchange Commission on February 20, 2015. MaloneBailey subsequently reissued their audit report for the years ending July 31, 2014 and 2013 in accordance with AICPA auditing standards.
We did not become aware of the foregoing until we were advised by MaloneBailey on March 13, 2015. Our audit committee discussed the matter with MaloneBailey and with DMT. MaloneBailey advised us on March 13, 2015 to file a Form 8-K advising the public of the foregoing and filing the AICPA audit report to replace the PCAOB audit report.
A copy of the letter furnished by MaloneBailey in response to that request, dated July 31, 2015, was filed as Exhibit 16.1 on Form 8-K.
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of our disclosure controls and procedures as required by Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures, including controls and procedures designed to ensure that information required to be disclosed by us is accumulated and communicated to our management (including our CEO and CFO), were not effective as of July 31, 2016, in ensuring them in a timely manner that material information required to be disclosed in this report has been properly recorded, processed, summarized and reported.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of our company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
The Company's management, including the Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud that could occur. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Management assessed our internal control over financial reporting as of July 31, 2016, the end of our fiscal year. Management based its assessment on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Management identified significant deficiencies related to (i) accounting for complex transactions, (ii) the absence of an effective audit or oversight committee within the company's control environment, and (iii) a lack of segregation of duties within accounting and key financial decision making functions. Management believes that these deficiencies amount to a material weakness. Therefore, our internal controls over financial reporting were ineffective as of July 31, 2016.
Management of the company believes that these material weaknesses are due to the small size of the company's accounting staff. The small size of the company's accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Changes in internal controls over financial reporting
There have been no changes in the Company's internal control over financial reporting during the quarter ended July 31, 2016 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The following table provides the names, positions and ages of our directors and officers:
|
Name
|
Age
|
Position
|
||
|
Arthur W. Seligman
|
64
|
Principal Executive Officer
|
||
|
Timothy J. Flanagan
|
64
|
President
|
||
|
Dan N. Denton
|
61
|
Principal Financial Officer, Principal Accounting Officer
|
||
|
Reese B. Pinney
|
59
|
Chief Operating Officer
|
||
|
Robert A. Bories
|
61
|
Treasurer
|
||
|
Stephen Salgado
|
34
|
Secretary, Comptroller
|
||
|
Jed Miesner
|
56
|
Director (Chairman)
|
||
|
Bob Manning
|
66
|
Director
|
||
|
Tony Alford
|
55
|
Director
|
||
|
Darrell Carey
|
60
|
Director
|
We have no knowledge of any arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in our control. We are not, to the best of our knowledge, directly or indirectly owned or controlled by another corporation or foreign government.
Arthur W. Seligman, Principal Executive Officer – On April 20, 2016, Arthur W. Seligman was appointed our Principal Executive Officer (CEO). Mr. Seligman co-founded Gulf South Holding in June 2008 and serves as its President since April 2012 and as Chairman of the Board. He also serves as a Director of OT Mining Corporation (symbol OTMN) and NAMEX Exploration Inc. Mr. Seligman joined PDC Securities, Incorporated, a broker/dealer affiliate of Petroleum Development Corporation, in 1984 as Director of Sales and Marketing from Willard Securities where he was a managing partner. Petroleum Development Corporation has oil and gas operations in the Appalachian Basin, the Rocky Mountains and Michigan and was added to the Russell 2000 Index of companies in 2003. Mr. Seligman graduated from Montclair University with a Bachelor of Arts degree.
Timothy J. Flanagan, President - On April 20, 2016, Timothy J. Flanagan was appointed our President. Mr. Flanagan co-founded Gulf South Holding in June 2008 and serves as its Secretary, Chief Operating Officer and a Director. He is also President and a Director of Gulf South Securities since January 2009. During the years 2004 to 2006, Mr. Flanagan directed the formation and was an Operating Partner of Gemfield Capital Management LLC, an international money management firm based in New York City, New York. In 2002, in concert with a California investor group, Mr. Flanagan formed Bignose.com and served as CEO and a Board member. Bignose manufactured and marketed digital photographic products through strategic agreements with Microsoft, Fuji America and others. Bignose.com was sold in 2003. Beginning in 1990 and through 2000, Mr. Flanagan was President of Quantum Resources of New York, Inc.
-52-
Quantum identified, negotiated and presented investment opportunities to broker-dealers. In 1984, Mr. Flanagan co-founded Jonathan Allan, Inc., an SEC registered and NASD member firm. Jonathan Allan was a national general investment and investment banking firm. He held the offices of Chairman and Chief Operating Officer and was President of the company's Registered Investment Advisor. Mr. Flanagan sold his interest in the company in 1990. Mr. Flanagan received his undergraduate degree from Iona College, New York and a Juris Doctor degree from Pace Law School in White Plains, New York in 1984. Mr. Flanagan is admitted to the New York State Bar and is member of the New York Bar Association.
Dan N. Denton, Principal Financial Officer, Principal Accounting Officer - On April 20, 2016, Dan N. Denton was appointed Chief Financial Officer (CFO) and Principal Accounting Officer. He has extensive oil and gas accounting and operational experience. Prior to his appointment with Gulf South Holding and beginning in March of 2011, Mr. Denton served as Chief Operating Officer of Maverick Drilling and Exploration Limited ("Maverick"), a publicly traded exploration and contract drilling company (ASX:MAD). He played a key role in Maverick's field operations, including its flagship project in the Blue Ridge Dome field south of Houston, Texas and in the Nash and Boling Dome Fields, west of Houston. Preceding his work with Maverick, Mr. Denton served as Vice President of Mesa Energy (Dallas, Texas). Before that, he served as Executive Vice President and Chief Operating Officer of Petrosearch Energy Corporation and as President of Petrosearch's Operating Company. Mr. Denton, a CPA retired, graduated magna cum laude from Northeast Louisiana University (now University of Louisiana at Monroe) in 1975 with a major in accounting. Mr. Denton practiced as a certified public accountant with Peat Marwick & Main (now KPMG) from 1975 to 1980 in their Shreveport, Houston and Dallas offices.
Reese B. Pinney, Chief Operating Officer - On April 20, 2016, Reese B. Pinney was appointed our Chief Operations Officer (COO). Mr. Pinney co-founded Gulf South Holding in June 2008 and serves as its Senior Vice President and a Director. He has served as President of Gulf South Operators since 1992. Mr. Pinney is a graduate of the University of New Orleans with a Master of Science degree in Earth Science and a graduate of the University of Virginia with a Bachelor of Arts degree in Economics and History. Mr. Pinney also serves as a Director of Rampart Energy, LLC and Lexington Resources Inc. Mr. Pinney is responsible for all of Gulf South Holding's geological and geophysical evaluations. Throughout his career, Mr. Pinney has developed extensive experience identifying and developing lower risk development drilling opportunities. Mr. Pinney is an active member of the Society of Independent Earth Scientists, the New Orleans Geological Society and the American Association of Petroleum Geologists.
Robert A. Bories, Treasurer - On April 20, 2016, Robert A. Bories was appointed our treasurer. Mr. Bories co-founded Gulf South Holding in June 2008 and serves as its Treasurer and a Director. Mr. Bories has served as Vice President and Treasurer of Gulf South Operators since 1998. Since graduating from Vanderbilt University in 1977 with a Bachelor of Science degree in Business Administration and Accounting, Mr. Bories has held numerous positions in financial accounting and business administration. In 1998, Mr. Bories joined Gulf South Operators as a co-owner. Mr. Bories also serves as a Director for Rampart Energy, LLC, Standard Coffee Service, New Orleans Board of Trade, WYES Public Television, Isidore Newman School and Touro Infirmary Foundation and other companies, and is the former President Pro Tem of New Orleans Public Belt Railroad.
Stephen Salgado, Secretary and Comptroller - On April 20, 2016, Stephen Salgado was appointed our Secretary and Comptroller. Mr. Salgado currently serves as an officer for Amazing Energy, Inc., Amazing Energy, LLC and Jilpetco Inc. Since its formation in 2010, Mr. Salgado has served as President, Secretary and Treasurer for Amazing Energy, Inc. Since 2013, Mr. Salgado has served as Vice President of the Land & Legal Department of Amazing Energy, LLC. Mr. Salgado's longest term as an officer has been through his duties as Secretary and Treasurer of Jilpetco Inc. since 2005. Mr. Salgado has 12 years of experience in the oil & gas industry which has provided him the opportunity to serve as Manager of the Accounting Department, the Owner Relations Department, the Land & Legal Department and the Human Resources Department for each of the Exploration & Production (Amazing Energy) and Operating (Jilpetco) companies, all of which he still serves. Mr. Salgado's proficiencies also include being the Project Manager for numerous oil & gas property acquisitions and divestments, numerous Drilling Program Offerings, Recompletion Projects, Common and Preferred Stock Offerings, and a reverse-merger. Mr. Salgado's experience also includes regulatory compliance with the Texas Railroad Commission, the Oklahoma Corporation Commission, the University Lands System of Texas, and the General Land Office of Texas, as well as corporate recordkeeping. Mr. Salgado is a 2005 graduate of West Texas A&M University with a BBA in Management.
Jed Miesner, Director (Chairman) - Jed Miesner has been the Chairman of the Board of Directors since May 14, 2015. Mr. Miesner was our principal executive officer and president from May 14, 2015 to April 29, 2016. Mr. Miesner began his career in the oil and gas industry on a drilling rig in the Texas Panhandle in 1978. In 1982, he became involved with production where he helped install CO2 flood operations. Mr. Miesner later joined Exxon USA and remained with the company for 13 years. Drawing on his experience at Exxon, Mr. Miesner formed his own oil and gas company, L&R
Energy Corporation, in 1994, and was involved in drilling projects throughout Texas and Oklahoma. In 2002, Mr. Miesner founded Jilpetco, Inc., an oil and gas operating company, as well as Petro Pro, Ltd., which is currently involved in multiple purchase and sale transactions throughout Texas, Oklahoma, Wyoming and Louisiana. Building upon his successes at Jilpetco, Inc., Mr. Miesner founded Amazing Energy, LLC in 2008 and formed Amazing Energy, Inc. in 2010 to potentially serve as the vehicle to take the company public.
Tony Alford, Director - Tony Alford has been a Director of the Company since May 14, 2015. Mr. Alford has over thirty years of executive leadership and is the Founder and President of PBA Consultants, Inc., since April 1996, a consulting firm specializing in tax savings and cost reduction services, for many of the fortune 500 companies across the USA. Mr. Alford is also the Founder and CEO of Alford Investments, since 1993, a company which makes investments in real estate investment properties and natural resource companies. Mr. Alford attended Elon College in North Carolina and Liberty University, in Virginia where he studied business management and marketing. In 2009-2010 Mr. Alford was appointed as a director of Revett Minerals Company and was part of the Revett team that rang the bell on the NYSE Amex listing on Wall Street. He currently serves as a local board member for Wells Fargo Bank of NC, and several other nonprofit organizational boards. He and his wife Chris founded their own foundation to support orphan care and mission work across the world.
Darrell Carey, Director - Darrell R. Carey has been a Director of the Company since May 14, 2015. Mr. Carey was raised in Pampa, Texas. He graduated from West Texas State University in 1977 at the top of his class with a bachelor's degree in Finance. Mr. Carey attended University of Texas Law School and graduated from law school in 1979. He began his career with the Randall County District Attorney's office. Mr. Carey began working with Pioneer, a Fortune 500 oil and gas company in 1981. Mr. Carey was the senior staff attorney over the litigation department for Pioneer Energy until 1986. In 1986, Mr. Carey was appointed to serve as the Judge for Randall County Court at Law. At the time that he took the bench, Mr. Carey was 30 years old and one of the youngest judges to be seated on the bench. Mr. Carey served as the Randall County Court at Law Judge from 1986 until 1999. While on the bench, Mr. Carey was instrumental in establishing the High Plains Youth Center for juvenile offenders in the Texas Panhandle. Mr. Carey then went into private practice in 1999. His practice concentrates in oil and gas law, litigation, business law, family law and appellate law. He has served on several boards for different corporations over the years.
Bob Manning, Director - Bob Manning has been a Director of the Company since May 14, 2015. Mr. Manning is co-owner of Royal Glass of Amarillo, Ltd. located in Amarillo, Texas. Royal Glass of Amarillo, Ltd has designed, furnished and installed many premier projects. The company employs 50 people. He continues to own and manage this 62 year old company over the last 30 years. Mr. Manning was born in Fairview, Oklahoma and attended Barton County Community Junior College, Fort Hays State University and University of Oklahoma. Mr. Manning was the contract sales manager for two commercial building supply companies prior to purchasing Royal Glass of Amarillo, Inc. in 1985. Mr. Manning achieved the accredited credentials of AHC - Architectural Hardware Consultant - where he is called upon to design and write specifications for architectural firms. Business planning and business developments are key assets for Mr. Manning. He has helped form several companies in the Texas Panhandle area which have become very successful ventures.
Audit Committee
As of July 31, 2016, the entire board of directors comprised the audit committee with Tony Alford serving as the Audit Committee Chairman. The Audit Committee approves the selection of the Company's independent certified public accountants to audit the annual financial statements and review the quarterly financial statements, discusses with the auditors and approves in advance the scope of the audit and reviews, reviews management's administration of the system of internal controls, and reviews the Company's procedures relating to business ethics. During the last fiscal year, our audit committee met once. Tony Alford, Darrell Carey and Bob Manning are independent members on our audit committee.
Audit Committee Financial Expert
We do not have an Audit Committee Financial Expert. We believe that at the present time the need for an Audit Committee Financial Expert and the costs associated with such retention is not warranted.
Nominating and Corporate Governance Committee
The entire board of directors comprises the Company's Nominating and Corporate Governance Committee with Darrell Carey serving as Chairman of the Corporate Governance Committee. The Corporate Governance and Nominating Committee are responsible for developing the Company's approach to corporate governance issues and compliance with governance rules. The Corporate Governance and Nominating Committee is also mandated to plan for the succession of the Company, including recommending director candidates, review of board procedures, size and organization, and monitoring of senior management with respect to governance issues. The committee is responsible for the development and implementation of corporate communications to ensure the integrity of the Company's internal control and management information systems. The purview of the Corporate Governance and Nominating Committee also includes the administration of the board's relationship with the management of the Company, monitoring the quality and effectiveness of the Company's corporate governance system and ensuring the effectiveness and integrity of the Company's communication and reporting to shareholders and the public generally.
Compensation Committee
The entire board of directors comprises the Company's compensation committee with Bob Manning serving as Chairman of the Compensation Committee. The Compensation Committee is responsible for setting the compensation for the officers and the other agents and employees of the corporation. The Committee may delegate the authority to set the compensation of the officers, agents, and employees to the President. No officer may be prevented from receiving compensation as an officer solely because the officer is also a director of the corporation. The Committee shall fix the amount or salary to be paid to each director for service as a director or for attendance at each meeting of the Board. Salary or payment for service as a director shall not preclude a director from serving the corporation in any other capacity or from receiving compensation for service in that other capacity.
Legal Proceedings
No Director, or person nominated to become a Director or Executive Officer, has been involved in any legal action involving the Company during the past five years.
Family Relationships
The only family relationship between any director, executive officer, or person nominated or chosen by the Company to become a director or executive officer is between Jed Miesner who serves as Chairman of the Board of Directors and Stephen Salgado who serves as Secretary and Comptroller. Jed Miesner's oldest daughter is Mr. Salgado's wife. Mr. Miesner and Mr. Salgado have worked with each other for 12 years.
Section 16(a) Beneficial Ownership Reporting Compliance
Under section 16(a) of the Securities Exchange Act of 1934, as amended, and pursuant to regulations there under, the Company's Directors, Executive Officers and beneficial owners of greater than 10% of our equity securities are required to file reports of their own ownership and changes in ownership with the Securities and Exchange Commission.
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the fiscal year ended July 31, 2016, that certain Directors and Officers failed to timely file a Form 3 by July 31, 2016 and that certain Directors and Officers also failed to timely file Form 5 by September 14, 2016.
Code of Ethics
We have adopted a Code of Conduct and Ethics for our Directors, Officers and employees. A copy of our Code of Conduct and Ethics can be obtained at no cost, by telephone at 806-322-1922, or by mail at: 701 S. Taylor St, Suite 470 LB 113, Amarillo, TX 79101. We believe our Code of Conduct and Ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.
Summary Compensation Table
The following table sets forth, for the fiscal years ended July 31, 2016 and July 31, 2015, compensation paid to our executive officers.
Summary Compensation Table
For the Fiscal Years Ended July 31, 2016 and 2015
|
Name and Principal Position
|
Fiscal Year
Ending
|
Salary
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Total
($)
|
||||||
|
Arthur W. Seligman
|
07/31/2016
|
-
|
-
|
-
|
-
|
||||||
|
Principal Executive Officer
|
07/31/2015
|
-
|
-
|
-
|
-
|
||||||
|
Timothy J. Flanagan
|
07/31/2016
|
-
|
-
|
-
|
-
|
||||||
|
President
|
07/31/2015
|
-
|
-
|
-
|
-
|
||||||
|
Reese B. Pinney
|
07/31/2016
|
-
|
-
|
-
|
-
|
||||||
|
Chief Operating Officer
|
07/31/2015
|
-
|
-
|
-
|
-
|
||||||
|
Dan N. Denton
|
07/31/2016
|
-
|
-
|
-
|
-
|
||||||
|
Principal Financial Officer, Principal Accounting Officer
|
07/31/2015
|
-
|
-
|
-
|
-
|
||||||
|
Robert A. Bories
|
07/31/2016
|
-
|
-
|
-
|
-
|
||||||
|
Treasurer
|
07/31/2015
|
-
|
-
|
-
|
-
|
||||||
|
Stephen Salgado
|
07/31/2016
|
24,586
|
-
|
-
|
24,586
|
||||||
|
Secretary and Comptroller
|
07/31/2015
|
-
|
-
|
-
|
-
|
||||||
|
Jed Miesner
|
07/31/2016
|
-
|
-
|
-
|
-
|
||||||
|
Principal Executive Officer and President
(resigned 4/29/2016)
|
(1)
|
07/31/2015
|
-
|
15,000
|
-
|
15,000
|
|||||
|
Matthew J. Colbert
|
07/31/2016
|
26,750
|
-
|
-
|
26,750
|
||||||
|
Principal Financial Officer, Secretary,
Treasurer (resigned 4/20/2016)
|
(2)
|
07/31/2015
|
32,250
|
59,325
|
-
|
91,575
|
|||||
__________________
|
(1)
|
In October 2014, Jed Miesner was awarded 25,000 shares of common stock in Amazing Energy, Inc.; The Amazing Energy, Inc. common stock was subsequently converted into 57,604 common shares of Amazing Energy Oil & Gas, Co. stock
|
|
(2)
|
On February 11, 2015, Mr. Colbert was issued 5,000 shares of common stock of AEI, which was later converted into 11,521 shares of the AEOG common stock.
|
Outstanding Equity Awards at Fiscal Year-End
There are no unexercised stock options or stock compensation awards or equity incentive plans for any of the named executive officers at July 31, 2016, and therefore a table has not been presented.
Employment Agreements
There are no employment agreements that were in effect between the Company and the executive officers during the past fiscal year.
Director Compensation
The following table reflects compensation paid to directors during the fiscal year ended July 31, 2016.
|
Name
|
Fees Earned or
Paid in Cash
($)
|
Stock
Awards
($)
|
All Other
Compensation
($)
|
Total
($)
|
||||
|
Tony Alford
|
-
|
-
|
-
|
-
|
||||
|
Robert Manning
|
-
|
-
|
-
|
-
|
||||
|
Darrell Carey
|
-
|
-
|
-
|
-
|
||||
|
Jed Miesner
|
-
|
-
|
-
|
-
|
| ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of July 31, 2016, regarding the ownership of our Common Stock by:
|
·
|
Each person who is known by us to own more than 5% of our shares of common stock;
|
|
·
|
Each of our named executive officers and directors; and
|
|
·
|
All of our executive officers and directors as a group.
|
The number of shares beneficially owned and the percentage of shares beneficially owned are based on 59,140,056 shares of common stock outstanding as of July 31, 2016.
For the purposes of the information provided below, beneficial ownership is determined in accordance with the rules of the SEC, and for each person includes shares that person has the right to acquire within 60 days following July 31, 2016, subject to options, warrants or similar instruments.
|
BENEFICIAL OWNERS OF OUR COMMON STOCK at July 31, 2016
|
||||
|
Beneficial Owner
|
Amount & Nature
of Ownership
|
Percentage
of Class
|
Total Voting
Power
|
Percentage of Voting
Power When Voting
with Class A Preferred
and Class B Preferred
|
|
|
||||
|
Arthur W. Seligman
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Timothy J. Flanagan
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Jed Miesner (1)
|
23,559,964
|
39.84%
|
23,559,964
|
15.79%
|
|
|
||||
|
Bob Manning (2)
|
381,568
|
0.65%
|
381,568
|
0.26%
|
|
|
||||
|
Tony Alford (3)
|
864,057
|
1.46%
|
864,057
|
0.58%
|
|
|
||||
|
Darrell Carey
|
57,604
|
0.10%
|
57,604
|
0.04%
|
|
|
||||
|
Robert Bories
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Reese Pinney
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Stephen Salgado
|
299,540
|
0.51%
|
299,540
|
0.20%
|
|
Dan Denton
|
0
|
0.00%
|
0
|
0.00%
|
|
Matthew J. Colbert
|
66,521
|
0.11%
|
66,521
|
0.04%
|
|
|
||||
|
TOTAL All officers and directors as a group (11 individuals)
|
25,229,254
|
42.66%
|
25,229,254
|
16.91%
|
|
|
||||
|
Other Entities That Control Over 5% of the Common Stock
|
||||
|
|
||||
|
The National Christian Charitable
Foundation (4)
|
6,000,000
|
10.15%
|
6,000,000
|
4.02%
|
|
TOTAL of OTHER 5% Entities
|
6,000,000
|
10.15%
|
6,000,000
|
4.02%
|
|
(1)
|
Jointly owned with JLM Strategic Investments, LP and Cornerstone Fidelity Capital, LLC
|
|
(2)
|
Jointly owned with Happy State Bank Custodian of IRA fbo Bob Manning
|
|
(3)
|
Jointly owned with his wife, Christine Alford
|
|
(4)
|
The National Christian Charitable Foundation is managed by Jed and Lesa Miesner.
|
The Common Stock Votes with the Series A Preferred Stock and Series B Preferred Stock on all matters submitted to shareholders.
|
BENEFICIAL OWNERS OF OUR SERIES A PREFERRED STOCK at July 31, 2016
|
||||
|
Beneficial Owner
|
Amount & Nature
of Ownership
|
Percentage
of Class
|
Total Voting
Power
|
Percentage of
Total Voting Power
|
|
|
|
|
|
|
|
Arthur W. Seligman
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Timothy J. Flanagan
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Jed Miesner
|
9,000[1]
|
100.00%[1]
|
90,000,000
|
60.33%[1]
|
|
|
||||
|
Bob Manning
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Tony Alford
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Darrell Carey
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Robert Bories
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Reese Pinney
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Stephen Salgado
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Dan Denton
|
0
|
0.00%
|
0
|
0.00%
|
|
Matthew J. Colbert
|
0
|
0.00%
|
0
|
0.00%
|
|
All officers and directors as a group
(11 individuals)
|
9,000
|
100.00%
|
90,000,000
|
60.33%
|
|
[1]
|
Each share of Series A Preferred Stock has 10,000 votes per share and votes with the common stock and Series B Preferred Stock on all matters submitted to shareholders.
|
|
BENEFICIAL OWNERS OF OUR SERIES B PREFERRED STOCK at July 31, 2016
|
||||
|
Beneficial Owner
|
Amount & Nature
of Ownership
|
Percentage
of Class
|
Total Voting
Power
|
Percentage of
Voting Power
|
|
|
|
|
|
|
|
Arthur W. Seligman
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Timothy J. Flanagan
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Jed Miesner
|
0
|
0.00%
|
0
|
0.00%
|
|
Bob Manning
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Tony Alford
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Darrell Carey
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Robert Bories (1)
|
50,000
|
100.00%
|
50,000
|
0.03%
|
|
|
||||
|
Reese Pinney
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Stephen Salgado
|
0
|
0.00%
|
0
|
0.00%
|
|
|
||||
|
Dan Denton
|
0
|
0.00%
|
0
|
0.00%
|
|
Matthew J. Colbert
|
0
|
0.00%
|
0
|
0.00%
|
|
All officers and directors as a group
(11 individuals)
|
50,000
|
100.00%
|
50,000
|
0.03%
|
|
(1)
|
50,000 Series B preferred shares registered in the name of Bories Capital LLC which is controlled by Robert Bories.
|
There are no arrangements known to the Company, the operation of which may at a subsequent time result in the change of control of the Company.
Securities Authorized for Issuance under Equity Compensation Plans
We have one equity compensation plan. It is the 2007 Stock Option Plan (the "Plan") that was adopted by our board of directors on June 19, 2007 and approved by our shareholders in December 2007. The Plan relates to 12,000,000 shares of our common stock, par value $0.001 per share, to be offered and sold to accounts of eligible persons.
Equity Compensation Plan
|
Plan category
|
Number of securities
issued upon exercise of
outstanding options,
warrants and rights
|
Weighted-average exercise
price of outstanding options,
warrants and rights
|
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
|
|
(a)
|
(b)
|
(c)
|
|
|
Equity compensation plans approved by security holders (1)
|
0
|
0
|
11,350,000
|
|
Equity compensation plans not approved by security holders
|
0
|
0
|
0
|
|
Total
|
0
|
0
|
11,350,000
|
| (1) |
The 2007 Stock Option plan adopted by our board of directors in June 2007 and approved by our shareholders in December 2007.
|
During the fiscal years ended July 31, 2016 and 2015, and through the date of this report, the following related party transactions occurred:
The Company has a continuous field operating agreement with Jilpetco, Inc. which is owned by Jed Miesner, the CEO, President, and Chairman of the Board of Directors of Amazing Energy Oil and Gas, Co. During the course of a year, there are amounts collected from the sale of oil and gas by Jilpetco, Inc. These amounts are then remitted to various working interest holders, of which the Company is the primary recipient of these funds. Related party payables consist exclusively of accrued oil and gas drilling expenses billed to the Company by Jilpetco, Inc.
On January 3, 2011, the Company formalized a loan agreement with Jed Miesner, the Company's CEO, President and Chairman of the Board of Directors for $1,940,000. These notes are scheduled to mature on December 31, 2030, bear interest at the rate of 8% per annum, and are collateralized with a leasehold deed of trust covering certain leasehold interests in Pecos County, Texas. At July 31, 2016 and 2015 the short term components of this loan were $191,029 and $291,559 respectively. The long term amounts at July 31, 2016 and 2015 were $1,748,971 and $1,648,441 respectively.
Amazing Energy, LLC. (a wholly owned subsidiary of the Company) entered into a $2,000,000 line of credit facility on December 30, 2010, with JLM Strategic Investments an entity controlled by Jed Miesner. Funds advanced on the line of credit mature on December 31, 2030, bear interest at the rate of 8% per annum and are collateralized with a leasehold deed of trust covering certain leasehold interests in Pecos County, Texas. At July 31, 2016 and 2015 the short term components of this loan were $30,162 and $62,138 respectively. The long term amounts at July 31, 2016 and 2015 were $11,008 and $266,335 respectively. There was a reduction in this debt of $287,303 on July 31, 2016 by the issuance of the Series A Preferred Stock.
On December 30, 2010, Amazing Energy, LLC, formalized loan agreements with Petro Pro Ltd., an entity also controlled by Jed Miesner for $1,100,000. These notes are scheduled to mature on December 31, 2030, bear interest at the rate of 8% per annum and are collateralized with a leasehold deed of trust covering certain leasehold interests in Pecos County, Texas. At July 31, 2016 and 2015 the short term components of this loan were $108,315 and $165,317 respectively. The long term amounts at July 31, 2016 and 2015 were $991,685 and $934,683 respectively.
As of July 31, 2016 and 2015, the accrued and unpaid interest due to related parties was $0 and $343,219, respectively. At July 31, 2016, $612,697 of accrued interest due to related parties was paid by the issuance of the Series A Preferred Stock. Related party interest expense for the years ended July 30, 2016 and 2015 was $269,722 and $231,031 respectively.
Effective July 31, 2016, the Company authorized the issuance of 9,000 shares of Preferred Series A stock with par value of $0.01 per share. The issue price is at $100 per share. These shares were issued to Jed Miesner, the company controlling shareholder, in exchange for cancellation of related party interest payable in the amount of $612,697 and debt payable to JLM Strategic Investments, LP in the amount of $287,303.
Directors Tony Alford, Bob Manning and Darrell Carey are independent members of the board of directors as defined by NASDAQ Marketplace Rule 4200 (a)(15). In determining the matter of independence, these directors had no transactions, relationships, or arrangements with the Company that would prohibit them from being independent directors. During fiscal July 31, 2015, Tony Alford purchased shares of common stock in the Company's subsidiary, Amazing Energy, Inc., on terms and conditions that were identical purchasers. Tony Alford, Darrell Carey and Bob Manning received shares of common stock of Amazing Energy, Inc. as compensation for director's fees. These shares of common stock were subsequently converted to shares of common stock of Amazing Energy Oil and Gas, Co. under the same terms and conditions that were available to all other shareholders. "Independent director" means a person other than an executive officer or employee of the Company or any other individual having a relationship which, in the opinion of the issuer's board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
In determining the matter of director independence, the following independence criteria were utilized:
| 1) |
A director who is, or at any time during the past three years was, employed by the company or by any parent or subsidiary of the company;
|
| 2) |
A director who accepted or who has a Family Member who accepted any compensation from the company in excess of $60,000 during any period of twelve consecutive months within the three years preceding the determination of independence, other than the following:
|
| a) |
compensation for board or board committee service;
|
| b) |
compensation paid to a Family Member who is an employee (other than an executive officer) of the company; or
|
| c) |
benefits under a tax-qualified retirement plan, or non-discretionary compensation
|
| d) |
Other relationships include:
|
| e) |
a director who is a Family Member of an individual who is, or at any time during the past three years was, employed by the Company as an executive officer, or a director who is, or has a family member who is, a partner in, or a controlling shareholder or an executive officer of, any organization to which the Company made, or from which the Company received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient's consolidated gross revenues for that year, or $200,000, whichever is more, other than (a) payments arising solely from investments in the company's securities; or (b) payments under non-discretionary charitable contribution matching programs.
|
| f) |
a director of the Company who is, or has a Family Member who is, employed as an executive officer of another entity where at any time during the past three years any of the executive officers of the Company serve on the compensation committee of such other entity; or
|
| g) |
a director who is, or has a Family Member who is, a current partner of the Company's outside auditor, or was a partner or employee of the Company's outside auditor who worked on the company's audit at any time during any of the past three years.
|
The Company retained DeCoria, Maichel & Teague, P.S. as the independent public accounting firm for the fiscal year ended July 31, 2016 and July 31, 2015. During the fiscal year ended July 31, 2016 and July 31, 2015, DeCoria, Maichel & Teague, P.S. were paid $55,133 and $15,896, respectively for audit and review services.
Audit-Related Fees
There were no fees billed in the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of the Company's financial statements except as set forth in the preceding paragraph.
Tax Fees
There were no fees billed in the last two fiscal years for professional services for tax compliance, tax advice or tax planning rendered by the Company's principal accountants.
All Other Fees
The Company incurred no fees from the principal accountants during the last two fiscal years for products and services other than as set forth above.
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Auditors
The Audit Committee (which constitutes the board of directors) meets prior to the filing of any Form 10-Q or 10-K to approve those filings. In addition, the Company's audit committee pre-approves all services provided to the Company by DeCoria, Maichel & Teague P.S. or any other professional services firm that is related to the preparation of the Company's financial statements.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
|
Incorporated by Reference
|
|||||
|
Exhibit
Number
|
Description of Document
|
Form
|
Date
|
Number
|
Filed
herewith
|
|
2.1
|
Articles of Merger dated October 15, 2014
|
8-K
|
10/17/14
|
2.1
|
|
|
3.1
|
Articles of Incorporation for Silver Crest Mines, Inc. dated September 11, 1968
|
10-SB12G
|
01/08/07
|
3.1
|
|
|
3.2
|
Articles of Merger of Domestic Corporations into Silver Crest Mines, Inc. dated December 20, 1982
|
10-SB12G
|
01/08/07
|
3.2
|
|
|
3.3
|
Articles of Incorporation of Silver Crest Resources, Inc. dated January 28, 2003
|
10-SB12G
|
01/08/07
|
3.3
|
|
|
3.4
|
Articles of Merger between Silver Crest Mines, Inc. into Silver Crest Resources, Inc. as filed in Nevada dated June 11, 2003
|
10-SB12G
|
01/08/07
|
3.4
|
|
|
3.5
|
Articles of Merger between Silver Crest Mines, Inc. into Silver Crest Resources, Inc. as filed in Idaho dated June 11, 2003
|
10-SB12G
|
01/08/07
|
3.5
|
|
|
3.6
|
Articles of Exchange of Niagara Mining and Development Company, Inc., and Silver Crest Resources, Inc. as filed in Nevada dated August 4, 2006
|
10-SB12G
|
01/08/07
|
3.6
|
|
|
3.7
|
Articles of Exchange of Niagara Mining and Development Company, Inc., and Silver Crest Resources, Inc. as filed in Idaho dated August 4, 2006
|
10-SB12G
|
01/08/07
|
3.7
|
|
|
3.8
|
Certificate of Amendment to Articles of Incorporation for a Nevada Corporation dated August 14, 2006
|
10-SB12G
|
01/08/07
|
3.8
|
|
|
3.9
|
Articles of Incorporation for Kisa Gold Mining, Inc. dated July 28, 2006
|
10-SB12G
|
01/08/07
|
3.9
|
|
|
3.10
|
Articles of Incorporation for Niagara Mining and Development Company, Inc. dated January 11, 2005
|
10-SB12G
|
01/08/07
|
3.10
|
|
|
3.11
|
Amended Bylaws adopted September 12, 2007
|
10-KSB
|
03/26/08
|
3.11
|
|
|
3.12
|
Articles of Incorporation – Amazing Energy, Inc.
|
10-K
|
11/13/15
|
3.12
|
|
|
3.13
|
Bylaws – Amazing Energy, Inc.
|
10-K
|
11/13/15
|
3.13
|
|
|
3.14
|
Articles of Organization – Amazing Energy LLC
|
10-K
|
11/13/15
|
3.14
|
|
|
3.15
|
Operating Agreement – Amazing Energy LLC
|
10-K
|
11/13/15
|
3.15
|
|
|
Articles of Incorporation – Gulf South Securities, Inc.
|
X
|
||||
|
Bylaws of Gulf South Securities, Inc.
|
X
|
||||
|
Articles of Incorporation – Jilpetco, Inc.
|
X
|
||||
|
Bylaws of Jilpetco, Inc.
|
X
|
||||
|
10.1
|
Employment Contract of Thomas H. Parker
|
10-SB12G/A
|
08/06/07
|
3.11
|
|
|
10.2
|
Employment Contract of Chris Dail
|
10-SB12G
|
07/08/07
|
10
|
|
|
10.3
|
Option and Royalty Sales Agreement between Gold Crest Mines, Inc. and the heirs of the Estate of J.J. Oberbillig
|
10-KSB
|
03/26/08
|
10.3
|
|
|
10.4
|
Option and Real Property Sales Agreement between Gold Crest Mines, Inc. and JJO, LLC, an Idaho limited liability company and personal representative of the Estate of J.J. Oberbillig
|
10-KSB
|
03/26/08
|
10.4
|
|
|
10.5
|
Mining Lease and Option to Purchase Agreement dated March 31, 2008, between Gold Crest Mines, Inc. and Bradley Mining Company, a California Corporation
|
10-Q
|
08/11/08
|
10.5
|
|
|
10.6
|
Golden Lynx, LLC, Limited Liability Company Agreement dated April 18, 2008, between Kisa Gold Mining, Inc. and Cougar Gold LLC
|
10-Q
|
08/11/08
|
10.6
|
|
|
10.7
|
AKO Venture Agreement dated May 5, 2008, between Kisa Gold Mining, Inc. and Newmont North America Exploration Limited, a Delaware Corporation
|
10-Q
|
08/11/08
|
10.7
|
|
|
10.8
|
Luna Venture Agreement dated May 5, 2008, between Kisa Gold Mining, Inc. and Newmont North America Exploration Limited, a Delaware Corporation
|
10-Q
|
08/11/08
|
10.8
|
|
|
10.9
|
Chilly Venture Agreement dated May 5, 2008, between Kisa Gold Mining, Inc. and Newmont North America Exploration Limited, a Delaware Corporation
|
10-Q
|
08/11/08
|
10.9
|
|
|
10.10
|
Purchase Agreement dated March 13, 2009, between Gold Crest Mines, Inc. and Frank Duval
|
10-K
|
03/25/09
|
10.9
|
|
|
10.11
|
Master Earn-In Agreement dated March 28, 2011, between Kisa Gold Mining, Inc. and North Fork LLC
|
10-Q
|
05/18/11
|
10.1
|
|
|
10.12
|
Terms Sheet and Loan Agreement and amendments thereto between Kisa Gold Mining, Inc. and Afranex Gold Limited
|
10-KSB
|
04/17/13
|
10.12
|
|
|
10.13
|
Amendment to Terms Sheet and Loan Agreement between Kisa Gold Mining, Inc. and Afranex Gold Limited
|
10-Q
|
08/14/13
|
10.1
|
|
|
10.14
|
Change in Control Agreement with certain shareholders of Amazing Energy, Inc.
|
8-K
|
10/08/14
|
10.1
|
|
|
10.15
|
Stock Exchange Agreement with Jilpetco, Inc. dated 8-10-2015
|
8-K
|
08/12/15
|
10.1
|
|
|
10.16
|
Termination of Stock Exchange Agreement
|
10-Q
|
12/15/15
|
10.1
|
|
|
10.17
|
Agreement with Delaney Equity Group, LLC
|
10-Q
|
03/16/16
|
10.17
|
|
|
10.18
|
Agreement with Gulf South Holdings, Inc.
|
8-K
|
04/20/16
|
10.1
|
|
|
10.19
|
Agreement with Jed Miesner
|
8-K
|
04/20/16
|
10.2
|
|
|
10.20
|
Amendment No. 1 to Agreement with Gulf South Holdings, Inc.
|
8-K/A
|
04/29/16
|
10.1
|
|
|
10.21
|
Amendment No. 2 to Agreement with Gulf South Holdings, Inc.
|
8-K/A-2
|
07/22/16
|
10.1
|
|
|
10.22
|
Amended Agreement with Jilpetco, Inc.
|
8-K/A-5
|
08/29/16
|
10.2
|
|
|
14.1
|
Code of Conduct and Ethics of Gold Crest Mines, Inc. adopted March 3, 2008
|
8-K
|
03/03/08
|
14.1
|
|
|
Subsidiaries of the Issuer
|
X
|
||||
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
99.1
|
Gold Crest Mines, Inc., 2007 Stock Plan
|
10-SB12G/A
|
08/06/07
|
99
|
|
|
99.2
|
Audited Financial Statements of Amazing Energy, Inc. for the period ended July 31, 2014 and 2013
|
8-K
|
03/18/15
|
99.1
|
|
|
99.3
|
Unaudited Financial Statements of Amazing Energy, Inc. for the period ended January 31, 2015
|
8-K
|
03/18/15
|
99.2
|
|
|
99.4
|
Unaudited Pro Forma Consolidated Financial Statements
|
8-K
|
03/18/15
|
99.3
|
|
|
101.INS
|
XBRL Instance Document
|
X
|
|||
|
101.SCH
|
XBRL Taxonomy Extension – Schema
|
X
|
|||
|
101.CAL
|
XBRL Taxonomy Extension – Calculation
|
X
|
|||
|
101.DEF
|
XBRL Taxonomy Extension – Definition
|
X
|
|||
|
101.LAB
|
XBRL Taxonomy Extension – Label
|
X
|
|||
|
101.PRE
|
XBRL Taxonomy Extension – Presentation
|
X
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
AMAZING ENERGY OIL AND GAS, CO.
|
||
|
November 14, 2016
|
By:
|
ARTHUR W. SELIGMAN
|
|
Arthur W. Seligman
|
||
|
Principal Executive Officer
|
||
|
November 14, 2016
|
By:
|
DAN N. DENTON
|
|
Dan N. Denton
|
||
|
Principal Financial Officer and Principal Accounting Officer
|
||
Pursuant to the requirements of the Securities Exchange Act of 1934, this amended report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|
JED MIESNER
|
Director
|
November 14, 2016
|
|
Jed Miesner
|
||
|
BOB MANNING
|
Director
|
November 14, 2016
|
|
Bob Manning
|
||
|
TONY ALFORD
|
Director
|
November 14, 2016
|
|
Tony Alford
|
||
|
DARRELL CAREY
|
Director
|
November 14, 2016
|
|
Darrell Carey
|
|
Incorporated by Reference
|
|||||
|
Exhibit
Number
|
Description of Document
|
Form
|
Date
|
Number
|
Filed
herewith
|
|
2.1
|
Articles of Merger dated October 15, 2014
|
8-K
|
10/17/14
|
2.1
|
|
|
3.1
|
Articles of Incorporation for Silver Crest Mines, Inc. dated September 11, 1968
|
10-SB12G
|
01/08/07
|
3.1
|
|
|
3.2
|
Articles of Merger of Domestic Corporations into Silver Crest Mines, Inc. dated December 20, 1982
|
10-SB12G
|
01/08/07
|
3.2
|
|
|
3.3
|
Articles of Incorporation of Silver Crest Resources, Inc. dated January 28, 2003
|
10-SB12G
|
01/08/07
|
3.3
|
|
|
3.4
|
Articles of Merger between Silver Crest Mines, Inc. into Silver Crest Resources, Inc. as filed in Nevada dated June 11, 2003
|
10-SB12G
|
01/08/07
|
3.4
|
|
|
3.5
|
Articles of Merger between Silver Crest Mines, Inc. into Silver Crest Resources, Inc. as filed in Idaho dated June 11, 2003
|
10-SB12G
|
01/08/07
|
3.5
|
|
|
3.6
|
Articles of Exchange of Niagara Mining and Development Company, Inc., and Silver Crest Resources, Inc. as filed in Nevada dated August 4, 2006
|
10-SB12G
|
01/08/07
|
3.6
|
|
|
3.7
|
Articles of Exchange of Niagara Mining and Development Company, Inc., and Silver Crest Resources, Inc. as filed in Idaho dated August 4, 2006
|
10-SB12G
|
01/08/07
|
3.7
|
|
|
3.8
|
Certificate of Amendment to Articles of Incorporation for a Nevada Corporation dated August 14, 2006
|
10-SB12G
|
01/08/07
|
3.8
|
|
|
3.9
|
Articles of Incorporation for Kisa Gold Mining, Inc. dated July 28, 2006
|
10-SB12G
|
01/08/07
|
3.9
|
|
|
3.10
|
Articles of Incorporation for Niagara Mining and Development Company, Inc. dated January 11, 2005
|
10-SB12G
|
01/08/07
|
3.10
|
|
|
3.11
|
Amended Bylaws adopted September 12, 2007
|
10-KSB
|
03/26/08
|
3.11
|
|
|
3.12
|
Articles of Incorporation – Amazing Energy, Inc.
|
10-K
|
11/13/15
|
3.12
|
|
|
3.13
|
Bylaws – Amazing Energy, Inc.
|
10-K
|
11/13/15
|
3.13
|
|
|
3.14
|
Articles of Organization – Amazing Energy LLC
|
10-K
|
11/13/15
|
3.14
|
|
|
3.15
|
Operating Agreement – Amazing Energy LLC
|
10-K
|
11/13/15
|
3.15
|
|
|
Articles of Incorporation – Gulf South Securities, Inc.
|
X
|
||||
|
Bylaws of Gulf South Securities, Inc.
|
X
|
||||
|
Articles of Incorporation – Jilpetco, Inc.
|
X
|
||||
|
Bylaws of Jilpetco, Inc.
|
X
|
||||
|
10.1
|
Employment Contract of Thomas H. Parker
|
10-SB12G/A
|
08/06/07
|
3.11
|
|
|
10.2
|
Employment Contract of Chris Dail
|
10-SB12G
|
07/08/07
|
10
|
|
|
10.3
|
Option and Royalty Sales Agreement between Gold Crest Mines, Inc. and the heirs of the Estate of J.J. Oberbillig
|
10-KSB
|
03/26/08
|
10.3
|
|
|
10.4
|
Option and Real Property Sales Agreement between Gold Crest Mines, Inc. and JJO, LLC, an Idaho limited liability company and personal representative of the Estate of J.J. Oberbillig
|
10-KSB
|
03/26/08
|
10.4
|
|
|
10.5
|
Mining Lease and Option to Purchase Agreement dated March 31, 2008, between Gold Crest Mines, Inc. and Bradley Mining Company, a California Corporation
|
10-Q
|
08/11/08
|
10.5
|
|
|
10.6
|
Golden Lynx, LLC, Limited Liability Company Agreement dated April 18, 2008, between Kisa Gold Mining, Inc. and Cougar Gold LLC
|
10-Q
|
08/11/08
|
10.6
|
|
|
10.7
|
AKO Venture Agreement dated May 5, 2008, between Kisa Gold Mining, Inc. and Newmont North America Exploration Limited, a Delaware Corporation
|
10-Q
|
08/11/08
|
10.7
|
|
|
10.8
|
Luna Venture Agreement dated May 5, 2008, between Kisa Gold Mining, Inc. and Newmont North America Exploration Limited, a Delaware Corporation
|
10-Q
|
08/11/08
|
10.8
|
|
|
10.9
|
Chilly Venture Agreement dated May 5, 2008, between Kisa Gold Mining, Inc. and Newmont North America Exploration Limited, a Delaware Corporation
|
10-Q
|
08/11/08
|
10.9
|
|
|
10.10
|
Purchase Agreement dated March 13, 2009, between Gold Crest Mines, Inc. and Frank Duval
|
10-K
|
03/25/09
|
10.9
|
|
|
10.11
|
Master Earn-In Agreement dated March 28, 2011, between Kisa Gold Mining, Inc. and North Fork LLC
|
10-Q
|
05/18/11
|
10.1
|
|
|
10.12
|
Terms Sheet and Loan Agreement and amendments thereto between Kisa Gold Mining, Inc. and Afranex Gold Limited
|
10-KSB
|
04/17/13
|
10.12
|
|
|
10.13
|
Amendment to Terms Sheet and Loan Agreement between Kisa Gold Mining, Inc. and Afranex Gold Limited
|
10-Q
|
08/14/13
|
10.1
|
|
|
10.14
|
Change in Control Agreement with certain shareholders of Amazing Energy, Inc.
|
8-K
|
10/08/14
|
10.1
|
|
|
10.15
|
Stock Exchange Agreement with Jilpetco, Inc. dated 8-10-2015
|
8-K
|
08/12/15
|
10.1
|
|
|
10.16
|
Termination of Stock Exchange Agreement
|
10-Q
|
12/15/15
|
10.1
|
|
|
10.17
|
Agreement with Delaney Equity Group, LLC
|
10-Q
|
03/16/16
|
10.17
|
|
|
10.18
|
Agreement with Gulf South Holdings, Inc.
|
8-K
|
04/20/16
|
10.1
|
|
|
10.19
|
Agreement with Jed Miesner
|
8-K
|
04/20/16
|
10.2
|
|
|
10.20
|
Amendment No. 1 to Agreement with Gulf South Holdings, Inc.
|
8-K/A
|
04/29/16
|
10.1
|
|
|
10.21
|
Amendment No. 2 to Agreement with Gulf South Holdings, Inc.
|
8-K/A-2
|
07/22/16
|
10.1
|
|
|
10.22
|
Amended Agreement with Jilpetco, Inc.
|
8-K/A-5
|
08/29/16
|
10.2
|
|
|
14.1
|
Code of Conduct and Ethics of Gold Crest Mines, Inc. adopted March 3, 2008
|
8-K
|
03/03/08
|
14.1
|
|
|
Subsidiaries of the Issuer
|
X
|
||||
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
X
|
||||
|
99.1
|
Gold Crest Mines, Inc., 2007 Stock Plan
|
10-SB12G/A
|
08/06/07
|
99
|
|
|
99.2
|
Audited Financial Statements of Amazing Energy, Inc. for the period ended July 31, 2014 and 2013
|
8-K
|
03/18/15
|
99.1
|
|
|
99.3
|
Unaudited Financial Statements of Amazing Energy, Inc. for the period ended January 31, 2015
|
8-K
|
03/18/15
|
99.2
|
|
|
99.4
|
Unaudited Pro Forma Consolidated Financial Statements
|
8-K
|
03/18/15
|
99.3
|
|
|
101.INS
|
XBRL Instance Document
|
X
|
|||
|
101.SCH
|
XBRL Taxonomy Extension – Schema
|
X
|
|||
|
101.CAL
|
XBRL Taxonomy Extension – Calculation
|
X
|
|||
|
101.DEF
|
XBRL Taxonomy Extension – Definition
|
X
|
|||
|
101.LAB
|
XBRL Taxonomy Extension – Label
|
X
|
|||
|
101.PRE
|
XBRL Taxonomy Extension – Presentation
|
X
|
-66-