ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
INDEX
TO FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
To
the shareholders and the board of directors of Amazing Energy Oil and Gas, Co. and Subsidiaries
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Amazing Energy Oil and Gas, Co. and Subsidiaries (the Company)
as of July 31, 2019 and 2018, the related statements of operations, stockholders equity and cash flow for each
of the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion,
the financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2019 and
2018, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
The
Companys Ability to Continue as a Going Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 2 to the financial statements, the Company has limited financial resources, negative working capital, recurring losses and an accumulated
deficit at July 31, 2019. These factors raise substantial doubt about its ability to continue as a going concern. Managements
plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not
for expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express
no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/
DeCoria, Maichel & Teague, P.S.
DeCoria,
Maichel & Teague, P.S.
We have served as the Companys independent auditor since 2014
Spokane, Washington
November 13, 2019
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2019
|
|
|
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
177,227
|
|
|
$
|
523,695
|
|
Receivable from working interest owners
|
|
|
93,708
|
|
|
|
33,954
|
|
Production revenue receivable
|
|
|
38,575
|
|
|
|
48,188
|
|
Other current assets
|
|
|
70,221
|
|
|
|
40,000
|
|
Total current assets
|
|
|
379,731
|
|
|
|
645,837
|
|
|
|
|
|
|
|
|
|
|
Oil and gas properties - proved, net
|
|
|
6,243,003
|
|
|
|
5,422,989
|
|
Oil and gas properties - unproved
|
|
|
3,765,501
|
|
|
|
3,079,492
|
|
Property and equipment, net
|
|
|
297,112
|
|
|
|
434,528
|
|
Other assets
|
|
|
126,362
|
|
|
|
78,600
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
10,811,709
|
|
|
$
|
9,661,446
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,987,826
|
|
|
$
|
295,015
|
|
Payable to related parties
|
|
|
85,038
|
|
|
|
25,038
|
|
Notes payable, related parties
|
|
|
528,502
|
|
|
|
311,730
|
|
Note payable, acquisition
|
|
|
1,900,000
|
|
|
|
-
|
|
Equipment note payable
|
|
|
11,928
|
|
|
|
10,247
|
|
Due to working interest owners
|
|
|
414,122
|
|
|
|
389,562
|
|
Accrued interest payable, related parties
|
|
|
152,858
|
|
|
|
400,805
|
|
Total current liabilities
|
|
|
5,080,274
|
|
|
|
1,432,397
|
|
|
|
|
|
|
|
|
|
|
Long term liabilities:
|
|
|
|
|
|
|
|
|
Promissory note payable, net of debt discount
|
|
|
200,560
|
|
|
|
-
|
|
Notes payable, related party
|
|
|
3,452,668
|
|
|
|
2,769,440
|
|
Equipment note payable
|
|
|
9,090
|
|
|
|
22,847
|
|
Stock subscriptions
|
|
|
330,000
|
|
|
|
-
|
|
Asset retirement obligation
|
|
|
636,205
|
|
|
|
258,575
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
9,708,797
|
|
|
|
4,483,259
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 5 and 11)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, no par value, 10,000,000 shares authorized; Series A, par value $0.01
|
|
|
-
|
|
|
|
90
|
|
-0- shares issued and outstanding at July 31, 2019
|
|
|
|
|
|
|
|
|
9,000 shares issued and outstanding at July 31, 2018
|
|
|
|
|
|
|
|
|
Series B, par value $0.01, 50,000 shares issued and outstanding
|
|
|
500
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001 per share; 3,000,000,000 shares authorized;
|
|
|
94,430
|
|
|
|
83,977
|
|
94,426,232 issued and outstanding at July 31, 2019
|
|
|
|
|
|
|
|
|
83,975,232 issued and outstanding at July 31, 2018
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
41,602,711
|
|
|
|
37,637,323
|
|
Accumulated deficit
|
|
|
(40,594,729
|
)
|
|
|
(32,543,703
|
)
|
Total stockholders equity
|
|
|
1,102,912
|
|
|
|
5,178,187
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
10,811,709
|
|
|
$
|
9,661,446
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial statements
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
Years Ended July 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Oil and gas sales
|
|
$
|
594,891
|
|
|
$
|
362,245
|
|
Oilfield service revenue
|
|
|
1,658
|
|
|
|
84,389
|
|
Total revenue
|
|
|
596,549
|
|
|
|
446,634
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Production costs
|
|
|
619,805
|
|
|
|
130,056
|
|
Depreciation, depletion and amortization
|
|
|
365,369
|
|
|
|
342,426
|
|
General and administrative expense
|
|
|
4,200,529
|
|
|
|
6,286,876
|
|
Accretion
|
|
|
31,773
|
|
|
|
9,449
|
|
Potential litigation settlement
|
|
|
340,972
|
|
|
|
-
|
|
Impairment of oil and gas properties
|
|
|
2,164,192
|
|
|
|
-
|
|
Total operating expenses
|
|
|
7,722,640
|
|
|
|
6,768,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(7,126,091
|
)
|
|
|
(6,322,173
|
)
|
|
|
|
|
|
|
|
|
|
Other (income) expense
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
(3,416
|
)
|
|
|
(13,946
|
)
|
Interest expense
|
|
|
332,996
|
|
|
|
-
|
|
Financing costs, related parties
|
|
|
77,000
|
|
|
|
-
|
|
Interest expense, related parties
|
|
|
518,355
|
|
|
|
207,229
|
|
Total other (income) expense
|
|
|
924,935
|
|
|
|
193,283
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes
|
|
|
(8,051,026
|
)
|
|
|
(6,515,456
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,051,026
|
)
|
|
$
|
(6,515,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock, basic and diluted
|
|
$
|
(0.093
|
)
|
|
$
|
(0.092
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding, basic and diluted
|
|
|
86,500,127
|
|
|
|
70,733,286
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial statements
AMAZING ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2017
|
|
|
59,000
|
|
|
|
590
|
|
|
|
66,581,040
|
|
|
|
66,581
|
|
|
|
28,814,857
|
|
|
|
(26,028,247
|
)
|
|
|
2,853,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash
|
|
|
|
|
|
|
|
|
|
|
12,920,008
|
|
|
|
12,920
|
|
|
|
3,217,080
|
|
|
|
|
|
|
|
3,230,000
|
|
Issuance of common stock for services
|
|
|
|
|
|
|
|
|
|
|
856,628
|
|
|
|
857
|
|
|
|
534,343
|
|
|
|
|
|
|
|
535,200
|
|
Issuance of common stock for oil and gas properties
|
|
|
|
|
|
|
|
|
|
|
3,617,556
|
|
|
|
3,619
|
|
|
|
1,732,810
|
|
|
|
|
|
|
|
1,736,429
|
|
Stock purchase warrants issued for oil and gas properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,961
|
|
|
|
|
|
|
|
77,961
|
|
Stock purchase warrants issued for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,038,587
|
|
|
|
|
|
|
|
1,038,587
|
|
Stock options issued for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,221,685
|
|
|
|
|
|
|
|
2,221,685
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,515,456
|
)
|
|
|
(6,515,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2018
|
|
|
59,000
|
|
|
$
|
590
|
|
|
|
83,975,232
|
|
|
$
|
83,977
|
|
|
$
|
37,637,323
|
|
|
$
|
(32,543,703
|
)
|
|
$
|
5,178,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for cash
|
|
|
|
|
|
|
|
|
|
|
1,800,000
|
|
|
|
1,800
|
|
|
|
418,200
|
|
|
|
|
|
|
|
420,000
|
|
Issuance of common stock for services
|
|
|
|
|
|
|
|
|
|
|
1,395,000
|
|
|
|
1,397
|
|
|
|
345,374
|
|
|
|
|
|
|
|
346,771
|
|
Warrants issued for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236,577
|
|
|
|
|
|
|
|
236,577
|
|
Stock options issued for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,370,800
|
|
|
|
|
|
|
|
1,370,800
|
|
Accounts payable settled with shares of common stock
|
|
|
|
|
|
|
|
|
|
|
66,000
|
|
|
|
66
|
|
|
|
16,416
|
|
|
|
|
|
|
|
16,482
|
|
Warrants issued with notes payable, related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288,000
|
|
|
|
|
|
|
|
288,000
|
|
Warrant modification with issuance of note payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480,771
|
|
|
|
|
|
|
|
480,771
|
|
Issuance of common stock in offering with working interest, net
|
|
|
|
|
|
|
|
|
|
|
7,190,000
|
|
|
|
7,190
|
|
|
|
1,709,160
|
|
|
|
|
|
|
|
1,716,350
|
|
Redemption of Preferred Stock - Series A
|
|
|
(9,000
|
)
|
|
|
(90
|
)
|
|
|
|
|
|
|
|
|
|
|
(899,910
|
)
|
|
|
|
|
|
|
(900,000
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,051,026
|
)
|
|
|
(8,051,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 31, 2019
|
|
|
50,000
|
|
|
$
|
500
|
|
|
|
94,426,232
|
|
|
$
|
94,430
|
|
|
$
|
41,602,711
|
|
|
$
|
(40,594,729
|
)
|
|
$
|
1,102,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial statements
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF CASH FLOW
|
|
|
Years Ended July 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,051,026
|
)
|
|
$
|
(6,515,456
|
)
|
Adjustments to reconcile net loss to net cash from operations:
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
1,954,148
|
|
|
|
3,795,472
|
|
Financing costs, related parties
|
|
|
60,000
|
|
|
|
-
|
|
Accretion expense
|
|
|
31,773
|
|
|
|
9,449
|
|
Depreciation, depletion and amortization
|
|
|
377,368
|
|
|
|
342,426
|
|
Impairment of oil and gas properties
|
|
|
2,164,192
|
|
|
|
-
|
|
Amortization of note discount
|
|
|
469,331
|
|
|
|
-
|
|
Loss on abandonment of equipment
|
|
|
4,805
|
|
|
|
-
|
|
Change in:
|
|
|
|
|
|
|
|
|
Receivable from working interest owners
|
|
|
(59,754
|
)
|
|
|
30,438
|
|
Production revenue receivable
|
|
|
9,613
|
|
|
|
(8,287
|
)
|
Other current assets
|
|
|
(30,221
|
)
|
|
|
27,843
|
|
Other assets
|
|
|
22,238
|
|
|
|
(1,978
|
)
|
Accounts payable and accrued liabilities
|
|
|
1,759,293
|
|
|
|
155,194
|
|
Payable to related parties
|
|
|
60,000
|
|
|
|
-
|
|
Due to working interest owners
|
|
|
24,560
|
|
|
|
(6,823
|
)
|
Accrued interest payable
|
|
|
(180,947
|
)
|
|
|
156,796
|
|
Net cash from operating activities
|
|
|
(1,384,627
|
)
|
|
|
(2,014,926
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Investment in oil and gas properties
|
|
|
(2,802,715
|
)
|
|
|
(1,122,422
|
)
|
Acquisition of property and equipment
|
|
|
-
|
|
|
|
(12,000
|
)
|
Proceeds from sale of oil and gas working interests
|
|
|
924,751
|
|
|
|
200,000
|
|
Net cash from investing activities
|
|
|
(1,877,964
|
)
|
|
|
(934,422
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock and warrants
|
|
|
750,000
|
|
|
|
3,230,000
|
|
Proceeds from sale of common stock with working interest (Note 5)
|
|
|
1,548,199
|
|
|
|
-
|
|
Proceeds from notes payable, related parties
|
|
|
600,000
|
|
|
|
25,000
|
|
Proceeds from notes payable
|
|
|
500,000
|
|
|
|
-
|
|
Payments on notes payable
|
|
|
-
|
|
|
|
(50,000
|
)
|
Payments on equipment note payable
|
|
|
(12,076
|
)
|
|
|
(11,893
|
)
|
Payments on note payable, related parties
|
|
|
(400,000
|
)
|
|
|
(372,500
|
)
|
Payments on note payable on acquisition, related parties
|
|
|
-
|
|
|
|
(104,167
|
)
|
Net cash from financing activities
|
|
|
2,986,123
|
|
|
|
2,716,440
|
|
|
|
|
|
|
|
|
|
|
Net change in cash, cash equivalents, and restricted cash
|
|
|
(276,468
|
)
|
|
|
(232,908
|
)
|
Cash and cash equivalents and restricted cash - beginning of year
|
|
|
573,695
|
|
|
|
806,603
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash - end of year
|
|
$
|
297,227
|
|
|
$
|
573,695
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Warrant modification with issuance of note payable
|
|
$
|
480,771
|
|
|
$
|
-
|
|
Note payable, related party settled with participation in oil and gas working interest
|
|
$
|
100,000
|
|
|
$
|
-
|
|
Accounts payable settled with shares of common stock
|
|
$
|
16,482
|
|
|
$
|
-
|
|
Warrants issued with notes payable, related parties
|
|
$
|
288,000
|
|
|
$
|
-
|
|
Redemption of preferred stock in exchange for note payable, related parties
|
|
$
|
900,000
|
|
|
$
|
-
|
|
Accounts payable settled with common stock and participation in oil and gas working interest
|
|
$
|
50,000
|
|
|
$
|
-
|
|
Related party note payable settled with common stock and participation in oil and gas working interest
|
|
$
|
260,000
|
|
|
$
|
-
|
|
Related party accrued interest payable settled with common stock and participation in oil and gas working interest
|
|
$
|
67,000
|
|
|
$
|
-
|
|
Warrants issued as commission on sales of working interests
|
|
$
|
50,050
|
|
|
$
|
-
|
|
Oil and gas properties acquired with note payable, acquisition
|
|
$
|
1,900,000
|
|
|
$
|
-
|
|
Acquisition of oil and gas properties for shares of common stock
|
|
$
|
-
|
|
|
$
|
1,736,429
|
|
Acquisition of oil and gas properties for warrants to purchase shares of common stock
|
|
$
|
-
|
|
|
$
|
77,961
|
|
Due to working interest owners transferred to related party
|
|
$
|
-
|
|
|
$
|
25,038
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash disclosure
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
428,298
|
|
|
$
|
34,993
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial statements
AMAZING ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2019
|
NOTE
1 – NATURE OF OPERATIONS
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 Company operates its main business of 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.
During
the year ended July 31, 2019 an additional subsidiary was formed, Amazing Energy Holdings, LLC, a Texas limited liability company,
for the acquisition of the Lea County, New Mexico properties and the Pecos County, Texas assets that the Company acquired in the
transaction with Wyatt Energy, LLC.
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation
This
summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements
and notes are representations of the Companys management, which is responsible for their integrity and objectivity. These
consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted
in the United States. (U.S. GAAP)
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, Jilpetco, Inc., and Amazing Energy Holdings, LLC.
All significant intercompany balances and transactions have been eliminated.
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2019
|
Going
Concern
These
consolidated financial statements have been prepared in accordance with U.S. GAAP as a going concern, which assumes that the Company
will be able to meet its obligations and continue its operations for the next twelve months.
As
shown in the accompanying financial statements, the Company has incurred operating losses since inception. As of July 31, 2019,
the Company has limited financial resources with which to achieve its objectives to obtain profitability and positive cash flows.
At July 31, 2019, the Company has an accumulated deficit of $40,594,729 and a working capital deficit of $4,700,543. Achievement
of the Companys objectives will be dependent upon the Companys ability to obtain additional financing, to locate profitable
oil and gas properties and to generate revenue from current and planned business operations, and control costs. The Company plans
to fund its future operations by joint venturing, obtaining additional financing from investors, and/or lenders, and attaining
additional commercial production. However, there is no assurance that the Company will be able to achieve these objectives, therefore
substantial doubt as to its ability to continue as a going concern exists. 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 financial statements do not include adjustments relating to the recoverability
of recorded assets nor the implications of associated bankruptcy costs should the Company be unable to continue as a going concern.
Revenue Recognition
The
Company recognizes revenues from the sales of oil and natural gas to its customers and presents them disaggregated on the Companys
Consolidated Statements of Operations. The Company enters into contracts with customers to sell its oil and natural gas production.
Revenue on these contracts is recognized in accordance with the five-step revenue recognition model prescribed in Accounting Standard
Codification (ASC) 606. Specifically, revenue is recognized when the Companys performance obligations under
these contracts are satisfied, which generally occurs with the transfer of control of the oil and natural gas to the purchaser.
Control is generally considered transferred when the following criteria are met: (i) transfer of physical custody, (ii) transfer
of title, (iii) transfer of risk of loss and (iv) relinquishment of any repurchase rights or other similar rights. Given the nature
of the products sold, revenue is recognized at a point in time based on the amount of consideration the Company expects to receive
in accordance with the price specified in the contract. Consideration under the oil and natural gas marketing contracts is typically
received from the purchaser one to two months after production.
The
Company also provided oilfield services to both related party entities and outside oil and gas well working interest owners. Revenue
from administration fees to unrelated working interest owners are recognized on an accrual basis in the period services are provided.
Receivables
Production
revenue receivable consist of oil and natural gas revenues due under normal trade terms. Receivables are carried at original amounts
on joint interest billings less an estimate for doubtful accounts. Management determines the allowance by regularly evaluating
individual working interest owner receivables and considering their financial condition, credit history and current economic conditions.
Due
to Working Interest Owners
The
Company provides oilfield services which includes interest owner accounting and subsequent disbursement of the interest owners
pro-rata share of oil proceeds from a given lease. Generally, the pro-rata share of oil proceeds less any applicable pro-rata
share of operating expenses is distributed to the interest owner within two months of sale of oil and natural gas. The due to
working interest owners balances comprises those proceeds which have yet to be distributed to interest owners as a result
of the time required to process administrative functions and process payment and any revenue suspense.
Asset
Retirement Obligations
The
fair value of a liability for an assets retirement obligation (ARO) is recognized in the period in which
a contractual obligation is created and if a reasonable estimate of fair value can be made. A corresponding charge 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. Abandonment costs incurred are recorded
as a reduction of the ARO liability.
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 oil and gas property balance. Settlements greater than or less than amounts accrued as ARO are recorded
as a gain or loss upon settlement.
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2019
|
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and certain assumptions
that affect the amounts reported in these consolidated financial statements and accompanying notes. Managements estimates
include estimates of impairment in carrying value of assets and liabilities, and collectability of recorded oilfield services
receivables, 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.
Risks
and Uncertainties
The
Companys 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
Companys 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 Companys cash balances are in excess of amounts
guaranteed by the Federal Deposit Insurance Corporation.
The
Companys oil and gas revenue originates from production from its properties in Texas and New Mexico. Each revenue stream
in both Texas and New Mexico is sold to a single purchaser of minerals through month to month contracts. While this creates a
purchaser concentration, there are alternate buyers of the production in event the sole customer in each state is unable or unwilling
to purchase.
The
Company sells all of its production to only four purchasers; two in Texas and two in New Mexico. As a result, during the fiscal
years ended July 31, 2019 and 2018, these purchasers represented 50% or more of its oil and gas revenue.
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.
Restricted
Cash
As
of July 31, 2019 and 2018, the Company has a letter of credit in the amount of $50,000 in favor of the Texas Railroad Commission
as a bond for reclamation on its oil and gas properties at July 31, 2019 and a $70,000 bond in favor of the State of New Mexico
which are included in Other assets on the Consolidated Balance Sheet.
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. The Company recognizes a tax benefit from an uncertain position
when it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position
and will record the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing
authority. The Company classifies any interest and penalties associated with income taxes as income tax expense.
Fair
value of financial instruments
Financial
instruments consist of cash and various notes payable. The fair value of these financial instruments approximates the carrying
values at July 31, 2019 and July 31, 2018.
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2019
|
Property
and equipment
Property
and equipment are stated at cost. Improvements which significantly increase an assets value or significantly extend its
useful life are capitalized and depreciated over the assets 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 and equipment are depreciated on a straight-line basis over their useful lives, which are
typically five to seven years for equipment. Realization of the carrying value of other property and equipment is reviewed for
possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets
are determined to be impaired if a forecast of undiscounted estimated future net operating cash flows directly related to the
asset, including disposal value, if any, is less than the carrying amount of the asset. If any asset is determined to be impaired,
the loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. Repairs and maintenance costs
are expensed in the period incurred.
Oil
and gas properties
The
Company uses the full cost method of accounting for oil and gas properties. Under this method of accounting, all costs incurred
in the acquisition, exploration and development of oil and natural gas properties, including unproductive wells, are capitalized.
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 natural gas properties is not recognized, unless the gain or loss would significantly alter the relationship
between capitalized costs and proved reserves.
Oil
and natural gas properties include costs that are excluded from costs being depleted or amortized. Excluded costs represent investments
in unproved and unevaluated properties and include non-producing leasehold, geological and geophysical costs associated with leasehold
or drilling interests and exploration drilling costs. These costs are excluded until the project is evaluated and proved reserves
are established or impairment is determined. Excluded costs are reviewed periodically to determine if impairment has occurred.
The amount of any evaluated or impaired oil and gas properties is transferred to capitalized costs being amortized.
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.
Limitation
on Capitalized Costs
Under
the full-cost method of accounting, the Company is required, at the end of each fiscal quarter, to perform a test to determine
the limit on the book value of our oil and natural gas properties (the Ceiling Test). If the capitalized costs of
our oil and gas properties, net of accumulated amortization and related deferred income taxes, exceed the Ceiling,
this excess or impairment is charged to expense and reflected as additional accumulated depreciation, depletion and amortization
or as a credit to oil and natural gas properties. The expense may not be reversed in future periods, even though higher oil and
natural gas prices may subsequently increase the Ceiling. (See Note 5) The Ceiling is defined as the sum of: (a) the present value,
discounted at 10 percent, and assuming continuation of existing economic conditions, of 1) estimated future gross revenues from
proved reserves, which is computed using oil and natural gas prices determined as the unweighted arithmetic average of the first-day-of-the-month
price for each month within the 12-month period prior to the end of the reporting period (with consideration of price changes
only to the extent provided by contractual arrangements including hedging arrangements), less 2) estimated future expenditures
(based on current costs) to be incurred in developing and producing the proved reserves; plus (b) the cost of properties not being
amortized; plus (c) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; and
net of (d) the related tax effects related to the difference between the book and tax basis of our oil and natural gas properties..
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2019
|
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 several 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. 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.
Stock-based
compensation
Compensation
cost for equity awards is based on the fair value of the equity instrument on the date of grant. The Company estimates the fair
value of options and warrants to purchase common stock using the Black-Scholes model, which requires the input of some subjective
assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising
them (expected life), the estimated volatility of the Companys common stock price over the expected term (volatility),
employee forfeiture rate, the risk-free interest rate and the dividend yield. Changes in the subjective assumptions can materially
affect the estimate of fair value of stock-based compensation. Options granted have a ten-year maximum term and varying vesting
periods as determined by the Board of Directors.
For
options issued with service vesting conditions, compensation cost is recognized over the vesting period. For options issued with
performance conditions, compensation cost is recognized if and when the Company concludes that the performance condition will
be achieved, net of an estimate of pre-vesting forfeitures. For options issued with market conditions, compensation cost is recognized
over the requisite service period and discounted by the probability of the condition thereof being met.
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.
Fair
value measurements
When
required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent,
objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the
fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level
of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets
or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount
of the total gains or losses for the period are 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. At July 31, 2019 and July 31, 2018, the Company
had no assets or liabilities measured at fair value on a recurring basis. See Notes 5 and 10 and related
accounting policy disclosure regarding fair value estimates for ceiling tests and asset retirement obligations.
Recent
accounting pronouncements
Accounting
Standards Updates Adopted
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2014-09 Revenue Recognition, replacing guidance currently codified in Subtopic 605-10 Revenue Recognition-Overall with various
SEC Staff Accounting Bulletins providing interpretive guidance. The guidance establishes a new five step principle-based framework
in an effort to significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions,
and capital markets. The Company adopted the new standard on August 1, 2018 using the modified retrospective method. The adoption
resulted in no changes in the timing of revenue recognition compared to the prior methodology. See Note 7 for further information.
In
August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments. The update provides guidance on classification for cash receipts and payments related to eight specific issues.
The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with
early adoption permitted. The adoption of this update on August 1, 2018 had no impact to the consolidated financial statements.
In
November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash. The update requires that
a Consolidated Statement of Cash Flows explain the change during the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash equivalents. The Company adopted this update as of August 1, 2018. Cash
and cash equivalents and restricted cash on the Consolidated Statement of Cash Flows includes restricted cash of $120,000 and
$50,000 as of July 31, 2019 and July 31, 2018, respectively.
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2019
|
Accounting
Standards Updates to Become Effective in Future Periods
In
February, 2016 the FASB issued ASU, No. 2016-02, Leases. The ASU requires companies to recognize on the Consolidated Balance Sheet,
the assets and liabilities for the rights and obligations created by leased assets. ASU No. 2016-02 will be effective for the
Company on August 1, 2019, with early adoption permitted. The Company is currently evaluating the impact that the adoption of
ASU No. 2016-02 will have on the Companys consolidated financial statements and related disclosures.
In
June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation, Improvements to Nonemployee Share-Based Payment Accounting.
ASU No. 2018-07 expands the scope of the standard for stock-based compensation to include share-based payment transactions for
acquiring goods and services from nonemployees. ASU No. 2018-07 will become effective for the Company on August 1, 2019 and early
adoption is permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements
and related disclosures.
In
August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement. The update removes, modifies and makes additions to certain disclosure requirements with
respect to fair value measurements. The update is effective for fiscal years beginning after December 15, 2019, with early adoption
permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements and related
disclosures.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected
to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements
that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or
disclosures.
NOTE
3 – EARNINGS PER SHARE
Basic
Earnings Per Share (EPS) is computed by dividing net income (loss) by the weighted-average number of shares outstanding
during the period and includes no dilution. Diluted EPS reflects the potential dilution of securities that could occur from common
shares issuable through convertible debt, convertible preferred stock and warrants.
The
outstanding securities at July 31, 2019 and 2018, that could have a dilutive effect are as follows:
|
|
July 31, 2019
|
|
|
July 31, 2018
|
|
Convertible preferred stock
|
|
|
5,500,000
|
|
|
|
6,490,000
|
|
Warrants
|
|
|
10,651,308
|
|
|
|
6,280,633
|
|
Stock options
|
|
|
32,085,000
|
|
|
|
28,085,000
|
|
|
|
|
|
|
|
|
|
|
Total potential dilution
|
|
|
48,236,308
|
|
|
|
40,855,633
|
|
For
the years ended July 31, 2019 and 2018, the effect of this potential dilution has not been recognized since it would have been
anti-dilutive due to net losses in those periods.
NOTE
4 – PROPERTY AND EQUIPMENT
As
of July 31, 2019 and July 31, 2018, property and equipment were composed of the following:
|
|
July 31, 2019
|
|
|
July 31, 2018
|
|
|
|
|
|
|
|
|
Drilling equipment
|
|
$
|
751,936
|
|
|
$
|
811,340
|
|
Other equipment
|
|
|
22,235
|
|
|
|
52,864
|
|
|
|
|
774,171
|
|
|
|
864,204
|
|
Less: Accumulated depreciation
|
|
|
(477,059
|
)
|
|
|
(429,676
|
)
|
Total property and equipment, net
|
|
$
|
297,112
|
|
|
$
|
434,528
|
|
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2019
|
NOTE
5 – OIL AND GAS PROPERTIES
The
Company is currently participating in oil and gas exploration activities in Texas and New Mexico. The Companys oil and
gas properties are located entirely in the United States.
The Companys mineral lease interests are comprised of leased acreage within the Pecos County, Texas
of an approximate 70,000 acre AMI and 5,385 acres under lease in New Mexico as of July 31, 2019. Through a series of agreements
with representatives of mineral owners, the Company has the right to acquire additional acreage for future development encompassing
a large percentage of the approximately 70,000 acre AMI in Pecos County, Texas not already under lease as of July 31, 2019. Under
those agreements the Company is required to make annual payments into trust accounts to hold the acquisition opportunity. As actual
leases are acquired, those trust funds are available to pay the lease cost per acre at predetermined amounts ranging from $200 to $300 per acre.
The
Company is obligated to pay certain bonus lease payments related to certain of its lease properties in Pecos County, Texas. The
Company is required to pay $27,000 each year on the JT Walker lease on August 7th. The Company is also required to pay $200,000
every five years on August 7th to continue the JPMorgan lease. The most recent payment on this lease was made in July, 2017. The
next JPMorgan lease payment is due by August 7, 2022. The Company is current in its lease payments under these leases. The Companys
5,385 gross acre interest (4,682 net acres) in Lea County, New Mexico is currently being held by production. Moreover, as long
as the wells on each lease continues to produce oil and gas in commercial quantities, no additional lease payments will have to
be made to the mineral owners.
At
July 31, 2019, the Company has a working interest in twenty-six (26) wells located on the leasehold premises in Pecos County,
Texas. The Company has drilled twenty-six (26) wells throughout the property, with sixteen wells (16) currently producing, eight
(8) wells being temporarily shut-in and awaiting further evaluation and with two (2) wells having been permanently shut-in and
awaiting either plugging or conversion to injector wells for a possible future water flood program.
At
July 31, 2019, the Company has a working interest in ten (10) wells located on the leasehold premises in Lea County, New Mexico.
Seven (7) wells are currently producing oil and/or gas and three (3) wells are being used to dispose of produced water from its
seven (7) wells.
The
Oil and gas property balances at July 31, 2019 and July 31, 2018, are set forth in the table below:
|
|
July 31, 2019
|
|
|
July 31,2018
|
|
|
|
|
|
|
|
|
Unproved properties not subject to amortization
|
|
$
|
3,765,501
|
|
|
$
|
3,079,492
|
|
Property costs subject to amortization
|
|
|
9,510,574
|
|
|
|
6,627,470
|
|
Asset retirement obligation, asset
|
|
|
540,472
|
|
|
|
194,615
|
|
Total cost of oil and gas properties
|
|
|
13,816,547
|
|
|
|
9,901,577
|
|
Less: Accumulated depletion and impairment
|
|
|
(3,808,043
|
)
|
|
|
(1,399,096
|
)
|
Oil and gas properties, net full cost method
|
|
$
|
10,008,504
|
|
|
$
|
8,502,481
|
|
Year
ended July 31, 2018 activity:
Effective
March 9, 2018, the Company transferred a 16.125% working interest in four wells and issued common stock purchase warrants to acquire
the Companys common stock valued at $77,961, see Note 12, in exchange for $200,000 in cash. Gain or loss was not recognized
on this sale since the sale did not significantly alter the relationship between capitalized costs and proved reserves.
During
the year ended July 31, 2018, the Company issued 3,617,556 shares of common stock for lease interests with total fair value of
$1,736,429. The working interests below were acquired effective June 1, 2018 and resulted in the Company holding 100% of the working
interest in the developed wells in Pecos County as of July 31, 2018.
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Number
of
|
|
|
Fair
|
|
|
Working
|
|
|
Revenue
|
|
Owner
Name
|
|
Shares
|
|
|
Value
|
|
|
Interest
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
Parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TONY
ALFORD
|
|
|
246,668
|
|
|
$
|
118,401
|
|
|
|
10.83
|
%
|
|
|
8.13
|
%
|
PETRO-PRO,
LTD.
|
|
|
246,668
|
|
|
|
118,401
|
|
|
|
10.83
|
%
|
|
|
8.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrelated
Parties
|
|
|
3,124,220
|
|
|
|
1,499,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
3,617,556
|
|
|
$
|
1,736,429
|
|
|
|
|
|
|
|
|
|
Year
ended July 31, 2019 activity:
On
October 17, 2018, the Company acquired the deep rights in 26,000 mostly contiguous acres in the Permian Basin in Pecos County,
Texas. The purchased acreage is subject to basically the same option terms that are applicable to the other Pecos County, Texas
acreage controlled by the Company. The cost of the acquisition was $500,000.
During
the fiscal year ended July 31, 2019, the Company offered an opportunity to several investors for participation in development
of the WWJD #31- H well. The investment was offered to joint venture working interest partners (the WWJD #31-H Partners)
who paid 100% of all recompletion costs on a turnkey basis for the development of the horizontal well. In exchange, the WWJD #31-H
Partners received a 63% working interest in the wellbore, but will receive a preferred payout of 75% of the net monthly revenue
to the working interest until such time that they have received a cumulative payout equal to 110% of their initial investment.
In
addition, the WWJD #31-H Partners received shares of the Companys common stock proportionately to their cash investment
(at the rate of one half share of common stock for each $1.00 invested in the well). Consideration from the offering received
totaled $1,260,000, which was first allocated to the shares of common stock based on the fair value of the shares on the date
of each of the WWJD #31-H Partners investment and the remainder of the proceeds were allocated to the percentage participation
interest acquired by the participants. Consideration received was as follows:
|
|
|
|
|
Allocated
to
|
|
|
Working
interest
|
|
|
|
|
|
|
Common
stock
|
|
|
in
WWJD Well #31
|
|
|
|
Consideration
|
|
|
No.
of
Shares
|
|
|
Value
|
|
|
Participation
%
Interest
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,025,000
|
|
|
|
512,500
|
|
|
$
|
100,249
|
|
|
|
51.25
|
%
|
|
$
|
924,751
|
|
Settlement
of accounts payable and accrued liabilities
|
|
|
25,000
|
|
|
|
12,500
|
|
|
|
2,251
|
|
|
|
1.25
|
%
|
|
|
22,749
|
|
Settlement
of accrued interest payable, related party
|
|
|
50,000
|
|
|
|
25,000
|
|
|
|
5,000
|
|
|
|
2.50
|
%
|
|
|
45,000
|
|
Settlement
of notes payable, related parties
|
|
|
160,000
|
|
|
|
80,000
|
|
|
|
18,900
|
|
|
|
8.00
|
%
|
|
|
141,100
|
|
Totals
|
|
$
|
1,260,000
|
|
|
|
630,000
|
|
|
$
|
126,400
|
|
|
|
63.00
|
%
|
|
$
|
1,133,600
|
|
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2019
|
Mr.
Will McAndrew, the Companys CEO, participated in the above transaction in exchange for settlement of accounts payable and
accrued liabilities representing accrued compensation of $25,000 due to him.
On
October 12, 2018, the Company entered into an Option Agreement for the acquisition of several oil and gas producing leaseholds
in New Mexico. At the date that the Option Agreement was executed, the Company paid the seller a non-refundable deposit of $100,000,
with the understanding that the cash deposit would be applied against the negotiated purchase price if a purchase was consummated.
The Company exercised its option to purchase the New Mexico properties and the transaction was closed effective January 1, 2019.
The negotiated purchase price was $2,000,000, and in addition to applying the $100,000 deposit against the purchase price, the
Seller agreed to take a $1,900,000 promissory note, which will become due and payable, including accrued interest at a rate of
7% per annum, on December 31, 2019.
During
the fiscal year ended July 31, 2019, the Company offered an opportunity to several investors to participate in a recompletion
attempt on the Moe 35 1-04H which is located in Lea County, New Mexico. The investment was offered to joint venture working interest
partners (the Moe Partners) who paid 100% of all completion costs on a turnkey basis for the development and reworking
of the horizontal well. In exchange, the Moe Partners received working interests in the well-bore, and they will receive a preferred
payout of 75% of the net monthly revenue to the working interest until such time that they have received a cumulative payout equal
to 110% of their investment. Consideration from the offering received totaled $1,640,000, which was first allocated to the shares
of common stock based on the fair value of the shares on the date of each of the Moe 35 1-04H Partners investment and the remainder
of the proceeds were allocated to the percentage participation interest acquired by the participants. Consideration received from
the sale of the working interests in the well and common stock issued to participating Moe Partners during the fiscal year ended
July 31, 2019 are summarized as follows:
|
|
|
|
|
|
|
|
Allocated to
|
|
|
|
|
|
|
Allocated to
|
|
|
Working interest
|
|
|
|
|
|
|
Common stock
|
|
|
in Moe 35 1-04H
|
|
|
|
|
|
|
No. of
|
|
|
|
|
|
Participation
|
|
|
|
|
|
|
Consideration
|
|
|
Shares
|
|
|
Value
|
|
|
% Interest
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,498,000
|
|
|
|
5,992,000
|
|
|
$
|
1,498,000
|
|
|
|
40.95
|
%
|
|
$
|
-
|
|
Settlement of accounts payable and accrued liabilities
|
|
|
25,000
|
|
|
|
100,000
|
|
|
|
25,000
|
|
|
|
0.75
|
%
|
|
|
-
|
|
Settlement of accrued interest payable, related party
|
|
|
17,000
|
|
|
|
68,000
|
|
|
|
17,000
|
|
|
|
1.28
|
%
|
|
|
-
|
|
Settlement of notes payable, related parties
|
|
|
100,000
|
|
|
|
400,000
|
|
|
|
100,000
|
|
|
|
6.23
|
%
|
|
|
-
|
|
Warrants issued for commission on sales
|
|
|
-
|
|
|
|
-
|
|
|
|
(50,050
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
1,640,000
|
|
|
|
6,560,000
|
|
|
$
|
1,589,950
|
|
|
|
49.20
|
%
|
|
$
|
-
|
|
Mr.
Will McAndrew, the Companys CEO, participated in the above transaction in exchange for settlement of accounts payable and
accrued liabilities representing accrued compensation of $25,000 due to him.
Ceiling
Test
During
the fiscal year ended July 31, 2019, the Company recorded a full cost ceiling impairment of $2,164,192. The ceiling is defined
as the sum of: (a) the present value, discounted at 10 percent, and assuming continuation of existing economic conditions, of
1) estimated future gross revenues from proved reserves, which is computed using oil and natural gas prices determined as the
unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of
the reporting period (average prices of $58.99/Bbl. and $2.92/mcf yielded estimated undiscounted revenue of $21,021,540 at July
31, 2019), less 2) estimated future expenditures (based on current costs) to be incurred in developing and producing the proved
reserves (estimated undiscounted expenditures of $12,018,720 at July 31, 2019); plus (b) the cost of properties not being amortized;
plus (c) the lower of cost or estimated fair value of unproven properties included in the costs being amortized; and net of (d)
the related tax effects related to the difference between the book and tax basis of our oil and natural gas properties ($Nil at
July 31, 2019). The net present value was estimated to be $6,243,003 based on these factors.
No
impairment was recorded during the fiscal year ended July 31, 2018.
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2019
|
NOTE
6 – PAYABLE TO RELATED PARTIES
Effective
June 1, 2018 the Company ceased to be the operator of record of properties in which it owns no working interest. The properties
principal working interest owner is Petro Pro, Ltd. (Petro Pro), an entity controlled by Jed Miesner, former Chairman
of the Board of Directors and current Director at July 31, 2019. In connection with the transfer of operations to US Petro, LLC
(an entity is controlled by related parties, Mr. Miesner and Mr. Alford, Chairman of the Board) the Company agreed to transfer
$25,038 to US Petro which was the amount of suspended revenue attributable to owners in the properties.
As of July 31, 2019, the Company has a payable to the Thornhill Law Firm, A PLC for $60,000 for legal
services. The Company recognized $60,000 in legal expense during the fiscal year ended July 31, 2019. No legal expenses were incurred
in the fiscal year ended July 31, 2018. The principal of the firm is Tommie Thornhill who is also a director of the Company.
NOTE
7 – REVENUE
On
August 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, and the series of related
ASUs that followed under ASC Topic 606 (collectively, Topic 606). Under Topic 606, revenue is generally
recognized upon delivery of produced oil and natural gas volumes to customers. The Companys customer sales contracts include
oil and natural gas sales. Under Topic 606, each unit (thousand cubic feet or barrel) of commodity product represents a separate
performance obligation which is sold at variable prices, determinable on a monthly basis. The pricing provisions of the Companys
contracts are primarily tied to a market index with certain adjustments based on factors such as delivery, product quality and
prevailing supply and demand conditions in the geographic areas in which the Company operates. The transaction price is allocated
to each performance obligation and recognize revenue upon delivery of the commodity product when the customer obtains control.
Control of produced oil volumes passes to customers when the oil is measured either by a trucking oil ticket or by a meter when
entering an oil pipeline. Similarly, control of produced natural gas volumes passes to customers at specific metered points indicated
in our natural gas contracts. The Company has no control over the commodities after those points and the measurement at those
points dictates the amount on which the customers payment is based. The Companys oil and natural gas revenue streams include
volumes burdened by royalty and other joint owner working interests. Revenues are recorded and presented on the consolidated financial
statements net of the royalty and other joint owner working interests.
Revenue
is recorded in the month production is delivered to the purchaser. However, settlement statements and payments for oil and natural
gas sales may not be received for up to 60 days after the date production is delivered, and as a result, management
is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of
the product. The Company records any differences, which historically have not been significant, between the actual amounts ultimately
received and the original estimates in the period they become finalized. As of July 31, 2019 and 2018, receivables from
contracts with customers were $38,575 and $48,188, respectively.
Topic
606 did not change our pattern of timing of revenue recognition. The Company adopted the new standard on August 1, 2018 using
the modified retrospective method. The adoption resulted in no changes in the timing of revenue recognition compared to the prior
methodology.
Detailed
oil and gas revenue for the years ended July 31, 2019 and 2018 is as follows:
|
|
Year
ended July 31,
|
|
|
|
2019
|
|
|
2018
|
|
Oil
|
|
$
|
593,875
|
|
|
$
|
302,996
|
|
Gas
|
|
|
1,016
|
|
|
|
59,249
|
|
Total
|
|
$
|
594,891
|
|
|
$
|
362,245
|
|
The
following tables present oil and natural gas revenues disaggregated by revenue source and by purchaser:
|
|
Year
Ended July 31, 2019
|
|
|
|
|
|
|
|
|
|
Total
Oil and
|
|
|
|
Oil
Revenue
|
|
|
Gas
Revenue
|
|
|
Natural
Gas Revenues
|
|
Rio
Energy International, Inc.
|
|
$
|
403,355
|
|
|
$
|
1,016
|
|
|
$
|
404,371
|
|
Plains
Marketing, L.P.
|
|
|
190,520
|
|
|
|
-
|
|
|
|
190,520
|
|
Total
oil and natural gas revenues
|
|
$
|
593,875
|
|
|
$
|
1,016
|
|
|
$
|
594,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended July 31, 2018
|
|
|
|
|
|
|
|
|
|
Total
Oil and
|
|
|
|
Oil
Revenue
|
|
|
Gas
Revenue
|
|
|
Natural
Gas Revenues
|
|
Rio
Energy International, Inc.
|
|
$
|
302,996
|
|
|
$
|
59,249
|
|
|
$
|
362,245
|
|
Plains
Marketing, L.P.
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
oil and natural gas revenues
|
|
$
|
302,996
|
|
|
$
|
59,249
|
|
|
$
|
362,245
|
|
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2019
|
NOTE
8 – NOTES PAYABLE
Notes
payable, related parties
On
January 3, 2011, the Company formalized a loan agreement for $1,940,000 with Jed Miesner, the Companys CEO and Chairman
at the time of the agreement and currently a director. The loan is scheduled to mature on December 31, 2030, bear interest at
the rate of 8% per annum, and collateralized with a leasehold deed of trust covering certain leasehold interests in Pecos County,
Texas. Effective April 1, 2019 the Company redeemed all of the issued and outstanding shares of its Series A Preferred Stock.
The holder of 100% of the Series A was Jed Miesner. The Company redeemed all 9,000 shares of the Series A, which had the voting
power equivalent to 90,000,000 shares of the Companys common stock, for the consideration of $100.00 per share, or a total
payment of $900,000. The redemption price was effectuated through an increase in the principal balance of a promissory note issued
to Mr. Miesner by the Companys wholly owned subsidiary Amazing Energy, LLC. The principal balance of the Note was increased
from $1,940,000 to $2,840,000.
On
December 30, 2010, Amazing Energy, LLC, formalized loan agreements with Petro Pro Ltd., an entity 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 is collateralized
with a leasehold deed of trust covering certain leasehold interests in Pecos County, Texas.
Terms
of the notes were modified effective February 1, 2017, pursuant to an agreement between Jed Miesner, Petro Pro, Ltd., JLM
and the Company. Beginning February 1, 2017, and continuing through February 1, 2019, the interest rate on the
aforementioned notes was reduced from 8% to 6% per annum. Starting February 1, 2019 and continuing through the maturity date
of the two notes (December 31, 2030), the annual interest rate on the notes was set at a rate equal to the Happy State
Bank prime rate of 5.25% plus 2% at July 31, 2019.
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 LP, an entity controlled by Jed Miesner. Funds advanced on the line of 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.
Principal
maturities for the two loan agreements and the credit facility outstanding at July 31, 2019 for the remaining terms are summarized
by year as follows:
|
|
|
Principal
Maturities
|
|
Year
ending July 31,
|
|
|
Jed
Miesner
|
|
|
Petro
Pro, Ltd.
|
|
|
JLM
Strategic
Investments, LP
|
|
|
Total
|
|
2020
|
|
|
$
|
310,995
|
|
|
$
|
176,337
|
|
|
$
|
41,170
|
|
|
$
|
528,502
|
|
2021
|
|
|
|
67,272
|
|
|
|
38,144
|
|
|
|
-
|
|
|
|
105,416
|
|
2022
|
|
|
|
72,655
|
|
|
|
41,196
|
|
|
|
-
|
|
|
|
113,851
|
|
2023
|
|
|
|
78,467
|
|
|
|
44,492
|
|
|
|
-
|
|
|
|
122,959
|
|
2024
|
|
|
|
84,744
|
|
|
|
48,051
|
|
|
|
-
|
|
|
|
132,795
|
|
Subsequent
years
|
|
|
|
2,225,867
|
|
|
|
751,780
|
|
|
|
-
|
|
|
|
2,977,647
|
|
|
|
|
$
|
2,840,000
|
|
|
$
|
1,100,000
|
|
|
$
|
41,170
|
|
|
$
|
3,981,170
|
|
As
of July 31, 2019 and 2018, the accrued and unpaid interest on this related party convertible debt was $152,858 and $400,805, respectively.
Related party interest expense on these notes for the fiscal years ended July 31, 2019 and 2018 was $230,351 and $198,698, respectively.
During the fiscal years ended July 31, 2019 and July 31, 2018, the Company paid interest on these notes in the amounts of $428,298
and $34,993, respectively, in cash and $50,000 in a working interest participation in well WWJD #31-H during the fiscal year ended
July 31, 2019 (see Note 5).
At
July 31, 2019, the balance of the convertible debt and accrued interest was convertible into membership units of Amazing Energy,
LLC, a wholly owned subsidiary of the Company, at $.60 per unit.
See
Note 13 Subsequent events.
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2019
|
On
October 16, 2018, the Company entered into promissory notes with its Chairman of the Board and one of its Directors to fund the
acquisition of the Wyatt properties in Pecos County, Texas and to allow the Company to enter into an Option Agreement for acquisition
of several oil and gas producing properties in Lea County, New Mexico. The aggregate principal amount of the two new notes was
$600,000. The notes required a placement fee of $60,000 (equal to 10% of the principal amounts of the loans), which was expensed
as financing cost during year ended July 31, 2019. As additional consideration for the financing, the Company issued 2,400,000
warrants for the right to acquire its common stock at an exercise price of $0.25 per share for a term of six years. As a result,
the Company recorded a debt discount of $288,000 to account for the relative fair value of the warrants (see Note 13). The debt
discount was amortized as interest expense over the term of the note.
On
October 26, 2018, the Company paid $400,000 on the promissory notes. During the fiscal year ended July 31, 2019, an additional
$160,000 of the promissory notes were satisfied through the noteholders participation in the offering of working interest
in the WWJD #31-H and Moe 35 1-04H. The note holders received a 6.225 % working interest in the WWJD #31-H well and 400,000 shares
of the Companys common stock (see Note 5). The remaining related party note balance of $100,000 was satisfied on April
10 by granting a 3% working interest in the Moe 35 1-04H well via the remaining note holders election to participate in
the Companys offering to raise capital for the recompletion of the well.
At
July 31, 2019, the notes have been paid in full and the related debt discount has been fully amortized. Related party financing
costs on these notes for the year ended July 31, 2019 was $77,000.
Promissory
note payable – October 2018
On
October 22, 2018, the Company entered into a promissory note with Bories Capital, LLC (Bories) for $500,000, the owner of which
is a holder of all of the outstanding shares of the Companys Preferred B stock. The note bears interest at the Hancock
Whitney Bank prime rate plus two percent (7.50% at July 31, 2019) and is due in full at maturity on October 24, 2020. Interest
is payable monthly beginning on November 30, 2018. As additional consideration for the note, the Company agreed to modify the
terms of 2,674,576 warrants to acquire common stock held by the owner of Bories. The warrants were amended to change the exercise
price from $0.60 to $0.40 per share and extend the expiration date from July 31, 2019 to April 1, 2024. These modifications resulted
in financing fee of $480,771 which represents the difference in the fair value of the warrants before and after the change in
terms. The amount was recognized as a discount on the note and is being amortized as interest expense over the term of the note.
Amortization of $181,331 was recognized as interest expense during the year ended July 31, 2019. At July 31, 2019, the discount
balance is $299,440.
In
addition, terms of the Series B Preferred Stock held by the owner of Bories were modified. The Company agreed to suspend its right
to call the preferred stock until from the original call date of April 1, 2019 to April 1, 2024. In exchange for this suspension,
the Series B Preferred stockholders right to convert the preferred shares into warrants to acquire the Companys
common stock was amended to extend the conversion period to April 1, 2024.
Note
payable, acquisition – October 2018
On
October 12, 2018 the Company entered into an agreement for the acquisition of oil and gas producing interest in New Mexico for
$2,000,000. As part of the agreement, the Company entered into a seller financed note payable of $1,900,000. The note bears interest
of 7% and the entire balance of principal and interest is due at maturity on December 31, 2019.
Note
payable on acquisition, related party – August 2016
In
August 2016, the Company executed a note with Jed Miesner for $500,000 in consideration for the acquisition of Jilpetco. The note
bore interest at 6% and had payments of principal and interest payments through maturity on December 25, 2017. On December 19,
2017, the Company made the final principal payment on the note.
Jilpetco
notes payable, related parties – May 2016
On
May 27, 2016, Jilpetco entered into several loan agreements totaling $180,000 with Tony Alford, Robert Bories, Robert Manning,
Petro Pro Ltd., and Reese Pinney. Messrs. Alford and Manning were (and remain) directors of the Company at the time of the agreements.
Messrs. Bories and Pinney were officers of the Company. During the years ended July 31, 2018 and 2017, additional borrowings and
participation fees of $25,000 and $225,000, respectively, were added to these notes payable. The notes and related interest payable
were paid in full in December 15, 2017 and January 2, 2018.
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2019
|
Note
payable - July 2017
On
July 21, 2017, the Company entered into a note payable agreement with an unrelated party. The principal amount of the note was
$50,000. The note matured on January 21, 2018 and bore interest at a rate of 8% per annum and included a participation fee of
$5,000 equal to 10% of the principal amounts of the loan. The loan was paid in full including interest and fees on January 21,
2018.
Equipment
note payable
On
September 13, 2016, the Company entered into a retail installment sale contract and security agreement (the equipment note)
for the purchase of equipment. The equipment note is collateralized by a tractor loader backhoe. The equipment note requires 60
monthly installment payments of $994 through September 13, 2021. At July 31, 2019 and 2018, the balance of the note was $21,018
and $33,094, respectively. Principal payments for future years ending July 31, 2020 and 2021 are $11,928, and $9,090, respectively.
NOTE
9 – ASSET RETIREMENT OBLIGATIONS
The
information below reconciles the value of the asset retirement obligation for years ended July 31, 2019 and 2018 respectively:
|
|
For
the years ended July 31,
|
|
|
|
2019
|
|
|
2018
|
|
Beginning balance
|
|
$
|
258,575
|
|
|
$
|
183,397
|
|
Asset retirement obligation incurred
|
|
|
345,857
|
|
|
|
65,729
|
|
Accretion
|
|
|
31,773
|
|
|
|
9,449
|
|
Ending balance
|
|
$
|
636,205
|
|
|
$
|
258,575
|
|
During
the fiscal year ended July 31, 2019, the Company increased its working interest ownership in oil and gas leases for which it already
had an interest and acquired additional properties (see Note 5). The Company estimated future costs to retire these properties
and recorded asset retirement obligations. The estimated future costs were discounted using a credit adjusted, risk-free interest
rate of 6.0% and adjusted for inflation rate of 2.6%. As a result, the Company increased its asset retirement obligation by $345,857
to reflect the increased ownership in additional wells that were added during the fiscal year ended July 31, 2019.
During
the fiscal year ended July 31, 2018, the Company increased its working interest ownership in oil and gas leases for which it already
had an interest (See Note 5). As a result, the Company increased its asset retirement obligation by $65,729 to reflect the increased
ownership in those working interests.
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2019
|
NOTE
10 - INCOME TAXES
The
Company did not recognize a tax provision for the fiscal years ended July 31, 2019 and 2018 due to ongoing net losses incurred
by the Company.
The
following is reconciliation between the federal income tax benefit computed at the statutory federal income tax rate and actual
income tax benefit for the fiscal years ended July 31, 2019 and July 31, 2018 and deferred taxes as of July 31, 2019 and 2018
(all amounts rounded to nearest thousand):
|
|
For the year ended July 31,
|
|
|
|
2019
|
|
|
2018
|
|
Applicable statutory benefit at 21% in 2019 and 26.5% in 2018
|
|
$
|
(1,691,000
|
)
|
|
$
|
(1,767,000
|
)
|
Prior year change in estimate
|
|
|
-
|
|
|
|
112,000
|
|
Impact on the change in federal tax rate
|
|
|
-
|
|
|
|
1,471,000
|
|
Meals and entertainment and other
|
|
|
16,000
|
|
|
|
4,000
|
|
Change in valuation allowance
|
|
|
1,675,000
|
|
|
|
180,000
|
|
Net tax benefit
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
At July 31
|
|
|
|
2,019
|
|
|
2,018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
3,174,000
|
|
|
$
|
2,539,000
|
|
Stock based compensation
|
|
|
1,278,000
|
|
|
|
868,000
|
|
Depletion and depreciation
|
|
|
421,000
|
|
|
|
-
|
|
Total deferred tax assets
|
|
|
4,873,000
|
|
|
|
3,407,000
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible drilling and other costs for oil and gas properties
|
|
$
|
(807,000
|
)
|
|
$
|
(906,000
|
)
|
Depletion and depreciation
|
|
|
-
|
|
|
|
(34,000
|
)
|
Other
|
|
|
(15,000
|
)
|
|
|
(91,000
|
)
|
Total deferred tax liabilities
|
|
|
(822,000
|
)
|
|
|
(1,031,000
|
)
|
Net deferred tax assets
|
|
|
4,051,000
|
|
|
|
2,376,000
|
|
Less valuation allowance
|
|
|
4,051,000
|
|
|
|
2,376,000
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company had federal net operating loss carry forwards of approximately $15,118,000 and $12,100,000 at July 31, 2019 and 2018,
respectively. The federal net operating loss carry forwards will begin to expire in fiscal years ending July 31, 2033 through
July 31, 2039. Realization of the net deferred tax asset is dependent, in part, on generating sufficient taxable income prior
to expiration of the loss carryforwards. The Company has placed a 100% valuation allowance against the net deferred tax asset
because future realization of these assets is not assured.
On
December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the Act) resulting in significant modifications
to existing law. The Company did not incur any income tax benefit or provision for the fiscal year ended July 31, 2018 as a result
of the changes to tax laws and tax rates under the Act. The Companys net deferred tax asset was reduced by approximately
$1.5 million during the fiscal year ended July 31, 2018, which consisted primarily of the remeasurement of federal deferred tax
assets and liabilities from 34% to 21%.
Management
has reviewed the Companys tax positions and determined there were no uncertain tax positions requiring recognition in the
consolidated financial statements. Currently tax years from fiscal 2015 through 2019 remain open for examination by tax authorities.
Net operating losses prior to 2015 could be adjusted during an examination of open years.
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2019
|
NOTE
11 – COMMITMENTS AND CONTINGENCIES
The
Company is subject to contingencies because of environmental laws and regulations. Present and future environmental laws and regulations
applicable to the Companys operations could require substantial capital expenditures or could adversely affect its operations
in other ways that cannot be predicted at this time.
Legal
contingency
On
September 7, 2017, Amazing Energy LLC and Jilpetco Inc. were served with a summons and complaint in Cause No. P-7600-83-CV in
the 83rd District Court in Pecos County, Texas. The nature of the litigation is that Amazing Energy & Jilpetco were joined
as defendants in a case in Pecos County, Texas, between Fredrick Bartlett Wulff, Sr. et al plaintiffs and Benedum & Trees,
LLC et al defendants. The suit alleges breach of lease, breach of implied duty to explore and develop, and requests a declaratory
judgment that the leases are terminated, and the suit requests an accounting of lease production. The plaintiffs seek a release
of the oil and gas leases except as to Section 91. The Companys counsel handling this case failed to comply with discovery
and the court awarded sanctions and legal costs against the Company in July 2019. At July 31, 2019, the Company has accrued $65,492
due to working interest owners related to the Wulff claims which was released subsequent to July 31, 2019. In addition, the Company
has accrued $98,291 in accounts payable for the sanctions and legal costs which was paid subsequent to July 31, 2019. The plaintiffs
still contend that breach of contract remains as to Section 91 leases. In the opinion of the Companys management, the pending
litigation claims against it, if decided adversely, will not have a material adverse effect on the Companys financial condition,
cash flows or results of operations.
On
December 11, 2017, Amazing Energy LLC and Jilpetco Inc. were each served with a summons and complaint in Cause No. P-7813-83-CV
in the 83rd District Court in Pecos County, Texas. Amazing Energy and Jilpetco were named as defendants in a case by Rumson Royalty
Company as the plaintiff. The suit alleges Amazing Energy and Jilpetco have suspended certain royalty and/or overriding interest
payments owed to the plaintiff, and requests a declaratory judgment seeking the plaintiffs share of production proceeds
and reasonable attorneys fees. Management will vigorously defend the case. It is too early in the litigation to evaluate
the likely outcome or to evaluate the financial impact of the lawsuit, if any. In the opinion of the Companys Management,
none of the pending litigation, disputes or claims against it, if decided adversely, will have a material adverse effect on the
Companys financial condition, cash flows or results of operations.
On
October 24, 2018 AAPIM, LLC (AAPIM) filed a lawsuit in the District Court of Pecos County, Texas, 112th Judicial
District (Cause No. P-12363-112-CV) against Amazing Energy, LLC, a wholly-owned subsidiary of the Company. The Petition alleged
Amazing Energy, LLC failed to pay plaintiff its proportionate share of the proceeds from oil and gas production from minerals
in Pecos County, Texas. The Company retained counsel to represent Amazing Energy, LLC in the lawsuit. However, counsel for Amazing
Energy, LLC failed to answer AAPIMs Petition in a timely manner. AAPIM, on January 7, 2019 filed a Motion for Default Judgment
against Amazing Energy, LLC. Amazing Energy, LLC was not notified, by its counsel or its registered agent, of the Motion for Default
Judgment and as a result the Motion for Default Judgment was unopposed and on January 9, 2019, AAPIM obtained a Default Judgment
against Amazing Energy, LLC. The Company has been in negotiations with AAPIM to settle the amount owed by Amazing Energy, LLC
pursuant to the Default Judgment and management believes a settlement of the outstanding amount will occur. For the fiscal year
ending July 31, 2019, the Company has recognized an expense for the potential litigation settlement of $340,972 representing the
amount of the judgment and interest expense of $50,303 incurred through July 31, 2019 as accounts payable.
On
May 30, 2019 the Company received a request from a Company investor requesting arbitration for allegations of misrepresentation
by the Company, and/or its wholly-owned subsidiary Jilpetco, Inc., dating from the period of approximately 2011-2014. The arbitration
request stated that unless the matter was resolved by July 5, 2019 the investor would turn to the Texas Attorney Generals
office for relief. The Company entered into settlement negotiations with the investor but those negotiations were not concluded
by the stated deadline. The investor thereafter sent the Company a copy of a letter from the Texas Attorney Generals office,
dated July 24, 2019, acknowledging the investors correspondence with the Texas Attorney Generals office and alleged
violations of Texas consumer protection laws and deceptive business practices. The Company has not directly received any
communications from the Texas Attorney Generals office, and the investor has informed the Company he has withdrawn his
complaint with the Attorney Generals office.
Lease
commitments
The Companys principal offices are
located at 5700 West Plano Parkway, Suite 3600 in Plano, Texas. Prior to May 1, 2019, the Company subleased office space from a
tenant under an approved sublease agreement. On May 1, 2019, the Company agreed to assume the remaining lease obligations (through
November 30, 2019) of the former tenant and to become the new lessee under a new agreement that extended the lease term to February
28, 2023. Future minimum annual lease payments under the terms of the lease are as follows:
For
the Fiscal Year Ended July 31,
|
|
Minimum
Annual Lease Payments
|
|
|
|
|
|
2020
|
|
$
|
81,646
|
|
2021
|
|
|
84,296
|
|
2022
|
|
|
84,959
|
|
August
1, 2022 to February 28, 2023
|
|
|
50,366
|
|
Total
Minimum Future Office Lease Rental Payments
|
|
$
|
301,267
|
|
The
Company has entered into month-to-month sublease agreements with several tenants. Under the terms of said agreements, the sublessees
will pay approximately one-half (50%) of the total amount of rent that the Company pays each month that they continue to sublease
space.
Oil
and gas lease commitments
Royalties:
The Company is obligated to pay royalties to holders of oil and natural gas interests in its operations
Working
Interest Holders: The Company is obligated to pay working interest holders a pro-rata portion of revenue in oil operations net
of shared operating expenses. The amounts are based on monthly oil and gas sales and are charged monthly net of oil and gas revenue
and recognized as Due to working interest owners on the Companys Consolidated Balance Sheet.
The
typical oil and natural gas lease agreement covering our acreage positions in Pecos County, Texas and Lea County, New Mexico.
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 Company working interest generally ranging from 75% to 80%.
NOTE
12 – STOCKHOLDERS EQUITY
Common
stock
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.
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2019
|
Preferred
stock
The
Company is authorized to issue 10,000,000 shares of its preferred stock with a no-par value per share.
Series
A convertible preferred stock:
The
Company has -0- and 9,000 shares of Series A preferred stock outstanding at July 31, 2019 and July 31, 2018, respectively. These
shares were originally issued from the designated 10,000,000 shares of preferred stock, no par value.
Effective
April 1, 2019, the Company redeemed all of the issued and outstanding shares of its Series A preferred stock. The holder of 100%
of the Series A was Jed Miesner, a member of the Companys Board of Directors. The Company redeemed 9,000 shares of the
Series A, which had the voting power equivalent to 90,000,000 shares of the Companys common stock, for the consideration
of $100.00 per share, or a total payment of $900,000. The redemption price was effectuated through an increase in the principal
balance of a promissory note issued to Mr. Miesner by the Companys wholly owned subsidiary Amazing Energy, LLC. The principal
balance of the Note was increased from $1,940,000 to $2,840,000.
Series B convertible preferred stock:
The
Company has 50,000 shares of Series B preferred stock outstanding at July 31, 2019. These Series B shares were issued from the
designated 10,000,000 shares of preferred stock, no par value, with the following rights and preferences:
|
●
|
Liquidation
preference: Upon a liquidation event, an amount in cash equal to $100 per share, for a total of $5,000,000 computed as of
July 31, 2019, shall be paid prior to liquidation payments to holders of Company securities junior to the Series B preferred
stock.
|
|
|
|
|
●
|
Dividends:
Holders of the Series B preferred stock are not entitled to receive a dividend.
|
|
|
|
|
●
|
Voting:
The Series B preferred stock has no voting rights other than to be voted when required by the laws of the State of Nevada.
|
|
|
|
|
●
|
Non-transferrable:
The shares of Series B preferred stock are not transferrable except under a plan for wealth transfer and estate planning or
upon conversion or redemption as set forth below.
|
|
|
|
|
●
|
Conversion:
Beginning July 31, 2024 (as amended), any shares of the Series B preferred stock outstanding will be convertible, at the discretion
of the shareholder, for a period of three years, into common stock purchase warrants of the Company with an conversion 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.
|
|
|
|
As
additional consideration for a new promissory note dated October 22, 2018 (see Note 8), the terms of the right to convert
preferred shares into warrants to acquire common stock attached to the Companys Series B Preferred Stock,
were amended to extend the conversion period to April 1, 2024 and to reduce the underlying warrant exercise price from $0.60
per share to $0.40 per share. The Company further agreed to suspend its right to call the Series B Preferred
Stock until April 1, 2024.
|
Common
Stock:
During
the fiscal years ended July 31, 2019 and 2018, the Company issued the following:
|
●
|
1,800,000
and 12,920,008 shares of common stock, respectively, for cash of $420,000 and $3,230,000.
Prior to July 31, 2019, the Company received additional cash of $330,000 for shares of
common stock that were issued subsequent to year end. As such, the balance is shown as
a subscription payable on the consolidated balance sheet.
|
|
●
|
1,395,000
and 856,628 shares of common stock with total fair values of $346,771 and $535,200, respectively,
as compensation for services.
|
|
●
|
7,190,000
and 3,617,556 shares of common stock in offerings with working interests with total fair
values of $1,716,350 and $1,736,429, respectively.
|
|
●
|
66,000
and -0- shares of common stock with total fair values of $16,482 and $-0-, respectively,
in settlement of accounts payable.
|
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2019
|
Warrants:
During
the fiscal year ended July 31, 2019, the Company issued 275,000 warrants with common stock sold for cash. These warrants have
an exercise price of $0.50 and expire in 2022. In addition, the Company issued 200,200 warrants to a consultant for commission
associated with the sale of working interests in the Moe 35 1-04H (See Note 5). These warrants have an exercise price of $0.25
and expire in 2022.
During
the fiscal years ended July 31, 2019 and 2018, the Company issued 1,495,475 and 3,469,391 warrants with total fair values of $358,434
and $1,038,587, respectively, as compensation for services. The warrants have a weighted average exercise price and term of $0.33
and 4.9 years, respectively. During the fiscal years ended July 31, 2019 and 2018, compensation expense of $236,577 and $1,038,587,
respectively, was recognized. Unrecognized compensation of $121,857 at July 31, 2019 will be recognized over the next two years.
During
the fiscal year ended July 31, 2019, the Company issued 2,400,000 warrants in connection with note payable agreements with related
parties (see Note 8). The warrants have a term of three years and an exercise price of $0.25. The fair value of the warrants was
$553,822 and the relative fair value was $288,000 which was recorded as a discount on the note payable.
During
the fiscal year ended July 31, 2019, the Company amended terms of warrants to purchase 2,674,576 shares of common stock in connection
with the note payable to Bories (see Note 8). The Company agreed to modify the terms of warrants to change the exercise price
from $0.60 to $0.40 per share and extend the expiration date from July 31, 2019 to April 1, 2024. The fair value of these changes
was $480,771 and recorded as a discount on the note payable.
During
the fiscal year ended July 31, 2018, the Company issued 136,666 warrants for oil and gas property interests with total fair value
of $77,961.
The
weighted average fair value of warrants and the key assumptions used in the Black-Scholes valuation model to calculate the fair
value for the fiscal years ended July 31, 2019 and 2018, are as follows:
|
|
Fiscal Years Ended July 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Stock price
|
|
$0.18 - $0.32
|
|
$0.30 - $0.69
|
Exercise price
|
|
$0.23 to $0.50
|
|
$0.37 - $1.00
|
Expected term (in years)
|
|
3 to 5
|
|
3 to 5
|
Risk-free rate
|
|
2.23% - 3.01%
|
|
1.57% - 2.85%
|
Volatility
|
|
156% - 166%
|
|
166% - 178%
|
Warrant
transactions for the years ended July 31, 2019 and 2018 are summarized as follows:
|
|
Fiscal Years Ended July 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Outstanding warrants - beginning of year
|
|
|
6,280,633
|
|
|
|
2,674,576
|
|
Issued
|
|
|
4,370,675
|
|
|
|
3,606,057
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Outstanding warrants - end of year
|
|
|
10,651,308
|
|
|
|
6,280,633
|
|
The
Companys outstanding warrants at July 31, 2019 are as follows:
|
|
Number
|
|
|
|
Expiration Year
|
|
of Warrants
|
|
|
Exercise Price
|
|
|
|
|
|
|
2020
|
|
|
1,200,000
|
|
|
$0.50
|
2021
|
|
|
1,858,332
|
|
|
$0.40 to $1.00
|
2022
|
|
|
785,200
|
|
|
$0.25 to $0.60
|
2023
|
|
|
721,625
|
|
|
$0.23 to $0.74
|
2024
|
|
|
6,086,151
|
|
|
$0.31 to $0.40
|
|
|
|
|
|
|
|
|
|
|
10,651,308
|
|
|
|
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2019
|
Stock
Options:
On August 11, 2017, the Board of Directors authorized the grant of 5,835,000 options to purchase shares of common stock of the
Company to certain officers related to their employment agreements (the Listing Options). The Listing Options will
vest and be immediately exercisable on the date the Companys stock is traded on the American Stock Exchange, the New York Stock
Exchange, or any of the NASDAQ trading tiers. The Listing Options shall have an exercise price equal to the closing price on the
date such trading commences. As of July 31, 2019, management has determined the probability of such an event is doubtful and,
therefore, has not recognized any compensation expense to date regarding the Listing Options.
On
August 11, 2017, the Board of Directors authorized the grant of 11,750,000 options to purchase shares of common stock of the Company
to certain officers. The options have an exercise price of $0.40 and expire five years from the date of grant. 2,937,500 of the
options vested immediately on the grant date and the remainder vest 25% annually upon each anniversary of the grant date.
On
August 11, 2017, the Board of Directors authorized the grant of 10,000,000 options to purchase shares of common stock of the Company
to its Chief Executive Officer. The options have an exercise price of $0.40 per share and expire five years from the date of grant.
2,000,000 options vested on the date of grant. The remaining 8,000,000 options contained market and performance conditions, of
which 4,000,000 options are to vest based on market conditions being met and 4,000,000 options will vest upon achievement of certain
performance objectives.
On
November 1, 2018, the Companys board of directors agreed to reduce the exercise price from $0.40 to $0.25 on the August
11, 2017 options that were granted to the CEO. As result of this modification, the Company recognized additional compensation
expense based on the incremental fair value of the modified options. Additional compensation of $33,039 was immediately recognized
on options that had already fully vested. An amount of $36,710 was added to the unrecognized compensation on options that had
not yet vested and is being amortized over the remaining vesting term of the options.
For
the fiscal years ended July 31, 2019 and 2018, total compensation of $831,345 and $2,084,561 was recognized on the August 11,
2017 grants. At July 31, 2019, unrecognized compensation of approximately $1,139,722 associated with the 2017 grants will be recognized
over the next 3.03 years.
During
the fiscal years ended July 31, 2019 and 2018, the Board of Directors authorized the grant of 1,000,000 and 500,000 options, respectively,
to purchase shares of common stock of the Company to certain directors. The options vested immediately at the date of grant. The
fair values of the grants were $214,752 and $137,056 which the Company recognized as stock-based compensation for the year ended
July 31, 2019 and 2018, respectively.
During
the fiscal year ended July 31, 2019, the Company issued 3,000,000 stock options to employees in connection with employment agreements.
Stock-based compensation of $324,703 was recognized for initial and periodic vesting of options granted under employment agreements.
Unrecognized compensation at July 31, 2019 of $361,992 will be recognized over the next 2.5 years.
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2019
|
Options
granted were valued using the Black-Scholes Option Pricing Model. The assumptions used in calculating the fair value of the options
were as follows:
|
|
Fiscal Years ended July 31,
|
|
|
2019
|
|
2018
|
Fair value of options granted
|
|
$0.17 - $0.33
|
|
$0.25 – $0.29
|
Stock price
|
|
$0.21 - $0.34
|
|
$0.26 - $0.30
|
Exercise price
|
|
$0.30
|
|
$0.40
|
Expected term (in years)
|
|
3 to 5
|
|
4 to 5
|
Risk-free rate
|
|
2.49% - 2.96%
|
|
1.57% - 1.74%
|
Volatility
|
|
157% - 166%
|
|
175% - 201%
|
The
following is a summary of the Companys option activity for the years ended July 31, 2019 and 2018:
|
|
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Term in
Years
|
|
Outstanding at July 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issued
|
|
|
28,085,000
|
|
|
$
|
0.31
|
|
|
|
5.00
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at July 31, 2018
|
|
|
28,085,000
|
|
|
|
0.31
|
|
|
|
4.01
|
|
Issued
|
|
|
4,000,000
|
|
|
|
0.30
|
|
|
|
3.88
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at July 31, 2019
|
|
|
32,085,000
|
|
|
$
|
0.31
|
|
|
|
4.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 31, 2019, exercisable
|
|
|
8,841,667
|
|
|
$
|
0.32
|
|
|
|
3.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
July 31, 2019, the vested options had no intrinsic value.
NOTE
13 – SUBSEQUENT EVENTS
In
November 2019, the Company came to terms on a proposed agreement with Jed and Lesa Miesner (the Miesners), and their
affiliated companies JLM Strategic Investments, LP (JLM), Petro Pro, Ltd. (PPL), US Petro, LLC (US
Petro). Pursuant to the agreement, the Company will pay the total sum of $1,750,000 to the Miesners and/or their affiliated
entities.
The
proposed agreement provides that the Company will acquire all right, title and interest in and to three notes and mortgages/deeds
of trust, with a value of approximately $4,200,000 held by the Miesners, JLM, and PPL, respectively. Furthermore, the parties
have agreed that the Miesners, and their related affiliates, will surrender all of the shares of the Companys common stock
held by them, forgo any claims to all options to acquire shares of the Companys common stock, all warrants to purchase
the Companys common stock, and any claims for compensation and wrongful termination pursuant to Jed Miesners former
employment agreement with the Company, as well as a release of any and all other claims the Miesners, and/or any of their affiliated
companies, may have against the Company and/or any of its subsidiaries. In exchange, the Company will forgo any claims it may
have against Jed Miesner pursuant to his former employment agreement with the Company and any other additional claims the Company,
and/or any of its subsidiaries, may have against the Miesners and/or any of their affiliated companies. As a part of the proposed
agreement, Jed Miesner will also resign from the Companys board of directors.
On
August 28, 2019, TCI Business Capital, Inc. (TCI) filed a petition, in the 416th District Court of Colin County,
Texas (Case No. 416-04883-2019), against the Company and its wholly-owned subsidiary Jilpetco, Inc. TCI is a commercial factoring
company that purchased certain accounts receivable from Diligent Well Site Services, LLC (Diligent). Diligent had
previously performed services to Jilpetco. On October 10, 2019, the Company and Jilpetco entered into a settlement agreement with
TCI whereby the Company/Jilpetco agreed to pay TCI the total amount of $66,085 in two installments. The first installment of $33,085
was paid on October 16, 2019. The second installment, in the amount of $33,000 was due on or before October 30, 2019. The Company
failed to make the second installment and on November 11, 2019 the Company was served, by TCI, with an amended petition. Management
expects to retire the remaining amounts owed under the settlement agreement in short order. The total amount of $66,085 is accrued
as an accounts payable at July 31, 2019.
NOTE
14 – 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 fiscal years ended July 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
Development costs
|
|
$
|
4,691,215
|
|
|
$
|
2,936,812
|
|
Total costs incurred
|
|
$
|
4,691,215
|
|
|
$
|
2,936,812
|
|
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 fiscal years ended July 31, 2019 and July 31, 2018:
|
|
July 31, 2019
|
|
|
July 31,2018
|
|
|
|
|
|
|
|
|
Unproved properties not subject to amortization
|
|
$
|
3,765,501
|
|
|
$
|
3,079,492
|
|
Property costs subject to amortization
|
|
|
9,510,574
|
|
|
|
6,627,470
|
|
Asset retirement obligation, asset
|
|
|
540,472
|
|
|
|
194,615
|
|
Total cost of oil and gas properties
|
|
|
13,816,547
|
|
|
|
9,901,577
|
|
Less: Accumulated depletion and impairment
|
|
|
(3,808,043
|
)
|
|
|
(1,399,096
|
)
|
Oil and gas properties, net full cost method
|
|
$
|
10,008,504
|
|
|
$
|
8,502,481
|
|
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2019
|
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 years ended July 31, 2019 and July 31, 2018
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 the United States as of July 31, 2019 and July 31, 2018. 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, 2019, in Pecos County, Texas, the Company had twenty-six (26) wells drilled with sixteen (16) currently producing,
eight (8) wells currently shut-in and awaiting further evaluation and two (2) wells permanently shut-in awaiting either plugging
or conversion to injector wells to be used in a future planned water flood program. Seven (7) additional producing wells and three(3)
saltwater disposal wells in Lea County, New Mexico were acquired during the year ended July 31, 2019.
The
proved reserves as of July 31, 2019 represent the reserves that were estimated to be recovered from Pecos County, Texas and Lea
County, New Mexico wells. There are also several wells planned for future drilling. All direct offset well locations in this report
for Pecos County, Texas, 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. As such, the reserves of certain offset locations have
been reduced. All Pecos County, Texas locations have a scheduled Queen and/or Greyburg reservoir completion and each of these
reservoir completions includes the cost of drilling a single vertical wellbore. For Lea County, New Mexico, all locations have
a scheduled San Andres reservoir completion and each of these reservoir completions includes the cost of drilling a single one-mile
horizontal wellbore based on minimum spacing requires as determined by the Oil Conservation Division of New Mexico Energy, Minerals
and Natural Resources Department. 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 fiscal years ended July 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
|
|
Oil (1)
|
|
|
Natural Gas(1)
|
|
|
Oil (1)
|
|
|
Natural Gas(1)
|
|
RESERVES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
289,260
|
|
|
|
654,250
|
|
|
|
305,440
|
|
|
|
1,143,170
|
|
Revisions of previous estimates
|
|
|
(1,966
|
)
|
|
|
100,956
|
|
|
|
(12,821
|
)
|
|
|
(461,404
|
)
|
Sales of reserves
|
|
|
(39,768
|
)
|
|
|
(16,166
|
)
|
|
|
-
|
|
|
|
-
|
|
Acquisition of reserves
|
|
|
128,349
|
|
|
|
76,490
|
|
|
|
2,402
|
|
|
|
4,982
|
|
Extensions, discoveries and other additions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Production
|
|
|
(11,635
|
)
|
|
|
(630
|
)
|
|
|
(5,761
|
)
|
|
|
(32,498
|
)
|
End of year
|
|
|
364,240
|
|
|
|
814,900
|
|
|
|
289,260
|
|
|
|
654,250
|
|
|
(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.
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2019
|
Standardized
Measure of Discounted Future Net Cash Flows Relating to Proven 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 considered:
|
●
|
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 managements 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 of crude oil and
natural gas, which as of July 31, 2019 and 2018 were $58.99 and $61.55 per barrel and$2.92 and $2.91 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 Companys oil and gas assets, but does present a standardized disclosure of discounted future net cash flows that would
result under the assumptions used.
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 the fiscal years ended July 31, 2019 and 2018 are as follows:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Future cash inflows
|
|
$
|
21,021,540
|
|
|
$
|
17,011,660
|
|
Future production costs
|
|
|
(9,807,950
|
)
|
|
|
(5,837,010
|
)
|
Future development costs
|
|
|
(2,211,000
|
)
|
|
|
(2,397,960
|
)
|
Future income tax expense (recovery)
|
|
|
769,851
|
|
|
|
(28,295
|
)
|
Future net cash flows
|
|
|
9,772,441
|
|
|
|
8,748,395
|
|
10% annual discount for estimated timing of cash flows
|
|
|
(2,251,317
|
)
|
|
|
(2,115,426
|
)
|
Standardized measure of discounted future net cash flows related to proved reserves
|
|
$
|
7,521,124
|
|
|
$
|
6,632,969
|
|
AMAZING
ENERGY OIL AND GAS, CO. AND SUBSIDIARIES
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
JULY
31, 2019
|
The
following table presents a reconciliation of changes in the standardized measure of discounted future net cash flows:
|
|
2019
|
|
|
2018
|
|
Standardized Measure, beginning of year
|
|
$
|
6,632,969
|
|
|
$
|
4,465,998
|
|
Sales of oil produced, net of production costs
|
|
|
24,914
|
|
|
|
(41,648
|
)
|
Net changes in prices, development and production costs
|
|
|
(1,741,103
|
)
|
|
|
1,906,668
|
|
Change in estimated future development costs
|
|
|
(961,924
|
)
|
|
|
(960,920
|
)
|
Development costs incurred and changes during the period
|
|
|
1,426,105
|
|
|
|
552,135
|
|
Revisions of previous quantity estimates
|
|
|
258,680
|
|
|
|
(1,917,137
|
)
|
Accretion of discount
|
|
|
564,048
|
|
|
|
491,923
|
|
Net changes in production rates and other
|
|
|
(822,319
|
)
|
|
|
1,192,528
|
|
Purchase of reserves
|
|
|
2,456,189
|
|
|
|
69,060
|
|
Sales of reserves
|
|
|
(739,170
|
)
|
|
|
-
|
|
Net changes in income taxes
|
|
|
422,735
|
|
|
|
874,362
|
|
Standardized Measure, end of year
|
|
$
|
7,521,124
|
|
|
$
|
6,632,969
|
|